<PAGE> 1
UNITED STATES
SECURITIES AND EXCHANGE COMMISSION
WASHINGTON, D.C. 20549
- -------------------------------------------------------------------------------
FORM 10-Q
[X] QUARTERLY REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES
EXCHANGE ACT OF 1934
FOR THE QUARTERLY PERIOD ENDED JUNE 30, 1999
OR
[ ] TRANSITION REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES
EXCHANGE ACT OF 1934
COMMISSION FILE NUMBER: 333-56989
-----------------------
LONG DISTANCE INTERNATIONAL INC.
(EXACT NAME OF REGISTRANT AS SPECIFIED IN ITS CHARTER)
-----------------------
FLORIDA 65-0423006
(State or other jurisdiction of (I.R.S. Employer
incorporation or organization) identification No.)
4150 SW 28TH WAY, FT. LAUDERDALE, FL 33312
(Address of principal executive office) (Zip Code)
-----------------------------
(954) 327-7500
(Registrant's telephone number, including area code)
-----------------------------
SECURITIES REGISTERED PURSUANT TO SECTION 12(g) OF THE ACT: NONE
Indicate by check mark whether the registrant (1) filed all reports required to
be filed by Section 13 or 15(d) of the Securities Exchange Act of 1934 during
the preceding 12 months (or for such shorter period that the registrant was
required to file such reports), and (2) has been subject to such filing
requirements for the past 90 days.
Yes [X] No [ ]
Indicate the number of shares outstanding of each of the issuer's classes of
common stock, as of the latest practical date.
Number of shares of common stock outstanding at August 10, 1999: 57,703,371
<PAGE> 2
LONG DISTANCE INTERNATIONAL INC.
INDEX TO FORM 10-Q
<TABLE>
<CAPTION>
PAGE NUMBER
-----------
<S> <C> <C> <C>
Part I. FINANCIAL INFORMATION
Item 1. Financial Statements
Consolidated Balance Sheets
June 30, 1999 (unaudited) and December 31, 1998 3
Consolidated Statements of Operations (unaudited)
For the three and six months ended June 30, 1999 and
June 30, 1998 4
Consolidated Statements of Cash Flows (unaudited)
For the six months ended June 30, 1999 and
June 30, 1998 5
Notes to Consolidated Financial Statements 6
Item 2. Management's Discussion and Analysis of Financial
Condition and Results of Operations 11
Item 3. Quantitative and Qualitative Disclosures about Market Risk 15
Part II. OTHER INFORMATION
Item 6. Exhibits and Reports on Form 8-K 18
SIGNATURES 19
</TABLE>
2
<PAGE> 3
LONG DISTANCE INTERNATIONAL INC. AND SUBSIDIARIES
CONSOLIDATED BALANCE SHEETS
PART I. FINANCIAL INFORMATION
Item 1. Financial Statements
<TABLE>
<CAPTION>
December 31, June 30,
---------------- -----------------
1998 1999
---------------- -----------------
(Unaudited)
<S> <C> <C>
ASSETS
Current assets:
Cash and cash equivalents $ 52,064,072 $ 7,180,528
Certificates of deposit 2,907,895 1,549,781
Restricted cash and investments 30,410,363 27,293,860
Accounts receivable, net of allowance for doubtful accounts of
$4,210,000 at December 31, 1998 and $4,649,000 at June 30, 1999 16,749,980 19,632,174
Other current assets 5,435,820 4,508,718
-------------- --------------
Total current assets 107,568,130 60,165,061
Net assets of discontinued operations 27,625,441 4,230,852
Restricted cash and investments 36,600,856 26,603,053
Property and equipment, net 38,258,615 36,227,597
Goodwill, net of accumulated amortization of $3,223,000 at
December 31, 1998 and $7,212,000 at June 30, 1999 129,705,821 126,956,974
Other assets 2,855,565 3,436,694
-------------- --------------
Total assets $ 342,614,428 $ 257,620,231
============== ==============
LIABILITIES AND COMMON SHAREHOLDERS' EQUITY (CAPITAL DEFICIENCY):
Current liabilities:
Accounts payable $ 20,865,078 $ 28,783,027
Accrued telecommunication costs 18,243,307 10,634,293
Accrued restructuring costs 3,014,752 1,101,468
Other accrued liabilities 11,580,401 10,750,045
Accrued acquisition contingency 7,508,029 7,508,029
Senior Note interest payable 5,976,563 5,735,937
Notes payable 4,950,000 4,048,000
Current portion of capital lease obligations 10,760,795 6,157,456
Current portion of installment loans 2,840,776 3,051,147
-------------- --------------
Total current liabilities 85,739,701 77,769,402
Installment loans 3,907,910 2,530,046
Capital lease obligations 12,337,528 12,776,281
Senior Notes payable 205,863,147 206,478,617
Commitments and Contingencies
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
$1,228,278 at December 31, 1998 and
June 30, 1999 1,199,278 1,236,126
Redeemable preferred stock, Series B, cumulative
$.001 par value - 5,000,000 shares authorized and 2,500,000
shares issued and outstanding - liquidation value of $25,000,000 14,275,864 15,236,879
Redeemable warrants, 3,394,665 authorized, issued and
outstanding at December 31, 1998 and June 30, 1999 11,566,939 11,567,763
Common shareholders' equity (capital deficiency):
Common stock, $.001 par value - 100,000,000 shares authorized,
57,703,371 shares issued and outstanding at
December 31, 1998 and June 30, 1999 57,703 57,703
Additional paid-in capital 110,540,448 109,514,849
Other comprehensive loss (815,465) (543,587)
Accumulated deficit (102,058,625) (179,003,848)
-------------- --------------
Total common shareholders' equity (capital deficiency) 7,724,061 (69,974,883)
-------------- --------------
Total liabilities and common shareholders' equity
(capital deficiency) $ 342,614,428 $ 257,620,231
============== =-============
</TABLE>
See accompanying notes.
3
<PAGE> 4
LONG DISTANCE INTERNATIONAL INC. AND SUBSIDIARIES
CONSOLIDATED STATEMENTS OF OPERATIONS
(Unaudited)
<TABLE>
<CAPTION>
Three months ended June 30, Six months ended June 30,
---------------- ----------------- ----------------- -----------------
1998 1999 1998 1999
---------------- ----------------- ----------------- -----------------
<S> <C> <C> <C> <C>
Revenues:
Retail, net $ 4,057,852 $ 20,596,000 $ 7,186,056 $ 40,166,000
Wholesale, net -- 11,971,000 -- 24,659,000
---------------- ----------------- ----------------- -----------------
Total revenues 4,057,852 32,567,000 7,186,056 64,825,000
Costs of telecommunications services 3,705,985 27,475,000 6,443,595 55,719,010
---------------- ----------------- ----------------- -----------------
Gross margin 351,867 5,092,000 742,461 9,105,990
Selling, general and administrative expenses 4,390,893 14,044,270 8,750,239 28,730,507
Depreciation and amortization 678,555 5,210,224 1,000,436 10,330,557
---------------- ----------------- ----------------- -----------------
Operating loss (4,717,581) (14,162,494) (9,008,214) (29,955,074)
Other expense (income):
Interest expense 6,567,710 7,870,549 6,801,844 16,269,986
Interest income (1,626,474) (868,603) (1,734,418) (1,881,181)
---------------- ----------------- ----------------- -----------------
4,941,236 7,001,946 5,067,426 14,388,805
Loss from continuing operations (9,658,817) (21,164,440) (14,075,640) (44,343,879)
Discontinued operations:
Loss from discontinued operations (6,238,047) (11,808,537) (9,341,079) (18,299,583)
Loss on disposal of discontinued operations -- (14,301,761) -- (14,301,761)
---------------- ----------------- ----------------- -----------------
Net loss (15,896,864) (47,274,738) (23,416,719) (76,945,223)
Preferred stock dividends and preferred stock
and warrant redemption accretion (516,061) (511,777) (4,604,207) (1,025,552)
---------------- ----------------- ----------------- -----------------
Net loss applicable to common shareholders $ (16,412,925) $ (47,786,515) $ (28,020,926) $ (77,970,775)
================ ================= ================= =================
EARNINGS PER SHARE APPLICABLE TO COMMON
SHAREHOLDERS - BASIC AND DILUTIVE:
Loss from continuing operations: $ (0.40) $ (0.38) $ (0.74) $ (0.79)
Loss from discontinued operations $ (0.24) $ (0.45) $ (0.36) $ (0.56)
---------------- ----------------- ----------------- -----------------
Net loss per share $ (0.64) $ (0.83) $ (1.10) $ (1.35)
================ ================= ================= =================
Weighted average shares outstanding 25,809,999 57,703,371 25,379,167 57,703,731
================ ================= ================= =================
</TABLE>
See accompanying notes.
4
<PAGE> 5
LONG DISTANCE INTERNATIONAL INC. AND SUBSIDIARIES
CONSOLIDATED STATEMENTS OF CASH FLOWS
(Unaudited)
<TABLE>
<CAPTION>
Six Months Ended June 30,
-----------------------------------
1998 1999
---------------- -----------------
<S> <C> <C>
OPERATING ACTIVITIES:
Net loss $ (23,416,719) $ (76,945,223)
Adjustments to reconcile net loss to net cash used in operating
activities:
Depreciation and amortization 999,200 10,324,557
Provision for bad debts 267,158 594,000
Amortization of discount on Senior Notes -- 600,854
Amortization of bond offering costs 246,947 490,761
Loss on phase-out of discontinued operations -- 4,756,983
Provision for writedown of assets -- 13,843,778
Changes in operating assets and liabilities:
Accounts receivable (4,715) (3,476,194)
Other current assets (850,491) 927,102
Other assets (610,416) (581,129)
Accounts payable 5,853,238 7,917,949
Accrued telecommunication costs (532,798) (7,609,013)
Accrued restructuring costs -- (1,913,284)
Senior Note interest payable 5,895,313 (240,626)
Other accrued liabilities 530,914 (1,078,357)
Discontinued operations - changes in assets and liabilites (2,815,065) 4,794,931
---------------- -----------------
Net cash used in operating activities $ (14,437,434) $ (47,592,911)
INVESTING ACTIVITIES:
(Increase) decrease in restricted cash and investments (77,542,133) 13,114,306
Increase in certificates of deposit -- 1,358,114
Purchases of property and equipment (4,359,426) (2,418,044)
Disposal of property and equipment -- 57,000
Purchase of minority interest in subsidiaries (387,714) --
Acquisition costs associated with purchase of Newgate (1,397,684) --
Acquisition costs associated with purchase of NETnet -- (1,108,105)
---------------- -----------------
Net cash provided by (used in) investing activities $ (83,686,957) $ 11,003,271
FINANCING ACTIVITIES:
Proceeds from issuance of Senior Notes and redeemable warrants,
net of offering costs 216,391,149 (503,057)
Proceeds from issuance of common stock and exercise of warrants,
net of offering costs 1,440,385 --
Principal payments on capital lease obligations (996,771) (6,240,130)
Principal payments on installment loans (1,483,205) (920,596)
Payments on notes payable -- (902,000)
---------------- -----------------
Net cash provided by (used in) financing activities $ 215,351,558 $ (8,565,783)
---------------- -----------------
Effect of exchange rate changes 35,076 271,879
---------------- -----------------
Increase (decrease) in cash and cash equivalents $ 117,262,243 $ (44,883,544)
Cash and cash equivalents at beginning of period 12,172,779 52,064,072
================ =================
Cash and cash equivalents at end of period $ 129,435,022 $ 7,180,528
================ =================
SUPPLEMENTAL SCHEDULE OF NONCASH INVESTING AND FINANCING ACTIVITIES:
Property and equipment acquired under capital leases $ 2,683,890 $ 2,075,544
================ =================
Property and equipment purchased under installment loans $ 8,000,000 $ --
================ =================
Accrued dividends on Series A preferred stock $ 36,849 $ 36,849
================ =================
Accretion on Series B preferred stock and redeemable warrants $ 981,500 $ 988,705
================ =================
</TABLE>
See accompanying notes.
5
<PAGE> 6
LONG DISTANCE INTERNATIONAL INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
1. BASIS OF PRESENTATION
The accompanying consolidated financial statements for the interim periods are
unaudited and do not include all information and footnotes necessary for the
presentation of financial position, results of operations and cash flows in
conformity with generally accepted accounting principles.
In the opinion of the management of Long Distance International Inc., (the
"Company") all adjustments necessary for a fair presentation of the results of
the interim periods have been included. All adjustments were of a normal and
recurring nature. The December 31, 1998 balance sheet was derived from the
audited financial statements, but does not include all the disclosures required
by generally accepted accounting principles. The results of operations for the
three and six month periods ended June 30, 1999 are not necessarily indicative
of the results to be expected for the full year ending December 31, 1999.
The information included in these unaudited condensed consolidated financial
statements should be read in conjunction with Management's Discussion and
Analysis of Financial Condition and Results of Operations and the consolidated
financial statements and accompanying notes included in the Company's Annual
Report on Form 10-K for the fiscal year ended December 31, 1998.
2. LOSS PER SHARE
The Company computes loss per share pursuant to Statement of Financial
Accounting Standards (SFAS) No. 128, Earnings Per Share. Weighted average
shares outstanding does not include any contingently issuable 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.
3. COMPREHENSIVE INCOME
SFAS No. 130, Reporting Comprehensive Income, establishes standards for
reporting and display of comprehensive income and its components in a full set
of general-purpose financial statements. Comprehensive income is defined as the
change in equity arising from non-owner sources. It includes net loss as well
as foreign currency items, minimum pension liability adjustments, and
unrealized gains and losses on certain investments in debt and equity
securities. Other than net loss, the only such item applicable to the Company
is foreign currency translations adjustment which did not have a material
effect on the Company's consolidated financial statements.
Comprehensive loss for the three months ended June 30, 1999 was $47,216,585 as
compared to $15,881,797 in the same period in the prior year. Comprehensive
loss for the six months ended June 30, 1999 was $76,731,498 as compared to
$23,381,644 in the same period in the prior year.
6
<PAGE> 7
4. SEGMENT ANALYSIS
The Company operates in one industry segment, the telecommunications services
industry, which includes international and domestic telephony as well as
fixed-line to mobile services. The Company has reportable operating segments
based on the geographical areas in which the Company provides services as well
as the type of customer it sells to. Operating loss represents net revenues
less operating costs and expenses, and does not include interest expense/income
and other expense/income. All inter-company transactions have been eliminated.
Other, as shown below, includes the Company's operations in Spain, Italy,
France and the U.S. headquarters. The Company also supports headquarters
operations in Sweden and the United Kingdom. The costs associated with those
headquarters are included in the amounts below related to those respective
countries.
<TABLE>
<CAPTION>
Three Months Ended June 30, Six Months Ended June 30,
----------------------------- ----------------------------
1998 1999 1998 1999
----------- ------------- ----------- ------------
<S> <C> <C> <C> <C>
REVENUE:
United Kingdom $ 3,471,022 $ 7,240,000 $ 5,472,109 $ 12,346,000
Germany -- 4,370,000 -- 9,770,000
Sweden -- 2,963,000 -- 6,070,000
Norway -- 1,055,000 -- 2,165,000
Switzerland -- 1,607,000 -- 3,345,000
Austria -- 1,872,000 -- 3,772,000
Other 586,830 1,489,000 1,713,947 2,698,000
European - Wholesale -- 11,971,000 -- 24,659,000
----------- ------------ ----------- ------------
CONSOLIDATED REVENUE: $ 4,057,852 $ 32,567,000 $ 7,186,056 $ 64,825,000
=========== ============ =========== ============
OPERATING INCOME (LOSS):
United Kingdom $(2,303,077) $ (1,193,000) $(4,089,218) $ (3,295,000)
Germany -- 102,000 -- (1,000)
Sweden -- (2,529,000) -- (6,133,000)
Norway -- (463,000) -- (866,000)
Switzerland -- (249,000) -- (570,000)
Austria -- (306,000) -- (468,000)
Other (2,514,504) (9,269,494) (4,918,996) (18,248,074)
European - Wholesale -- (255,000) -- (374,000)
----------- ------------- ----------- ------------
TOTAL OPERATING LOSS $(4,717,581) $(14,162,494) $(9,008,214) $(29,955,074)
=========== ============ =========== ============
</TABLE>
5. ASSET IMPAIRMENT AND RESTRUCTURING COSTS
In December 1998, the Company implemented a worldwide plan to reduce selling,
general and administrative costs and increase efficiencies. In connection with
this program, the Company recorded charges of approximately $4.0 million in the
fourth quarter of 1998. The cash outlay related to these charges in the first
six months of 1999 was approximately $1.6 million. Details of the change in the
restructuring accrual between December 31, 1998 and June 30, 1999 are outlined
below.
7
<PAGE> 8
<TABLE>
<CAPTION>
December 31, 1998 Payments Reduction June 30, 1999
----------------- -------- ---------- -------------
<S> <C> <C> <C> <C>
Involuntary employee terminations $ 2,411,170 $ (1,099,113) $ (355,005) $ 957,052
Closure of facilities and related costs 239,582 (195,169) -- 44,413
Other costs 364,000 (263,997) -- 100,003
----------- ------------ ---------- -----------
$ 3,014,752 $ (1,558,279) $ (355,005) $ 1,101,468
=========== ============= =========== ===========
</TABLE>
Pursuant to the restructuring, the Company recorded $1.1 million in employment
contract obligations to executives. The Company has settled certain of these
obligations for lesser amounts and has recorded a reduction of $355,005 in the
reserve related to these settlements. The employment contract obligations are
expected to be paid over the next twelve months.
6. CONTINGENCIES
Viatel, Inc. ("Viatel"), a Trans-Atlantic cable provider, has claimed that the
Company is obligated to pay $14,875,000 under certain letter agreements which
Viatel claims obligated the Company to purchase certain cable capacity as part
of an IRU agreement that was never consummated. The Company believes that it
has no obligation to pay Viatel under those purported agreements and that its
liability, in any event, would be limited to the $1,625,000 which the Company
placed in escrow during 1998. This amount is included in other assets in the
Company's Balance Sheet as of June 30, 1999. The Company intends to vigorously
defend against Viatel's claim but is unable to predict the ultimate outcome of
this matter and the amount of loss, if any.
In connection with the October 1998 acquisition of NETnet International A.B.,
2,519,473 shares of the purchase price are contingently returnable to the
Company in connection with the accuracy of the seller's representations and
have been classified as an accrued liability of $7,508,029 at December 31, 1998
and June 30, 1999. These shares have not been included in the number of shares
used in the loss-per-share calculation for the six months ended June 30, 1999.
7. DISCONTINUED OPERATIONS
Following continued weakness in the United States operations, on May 18, 1999
the Company's Board of Directors agreed to a plan to discontinue the Company's
U.S. retail operations. Accordingly, the operating results of the discontinued
retail operations, including provisions for estimated losses during the
phase-out period, have been segregated from continuing operations and reported
as a separate line item on the statement of operations. Due to the subjective
nature of estimating future operating losses and incremental costs of disposal,
it is reasonably possible that these estimates may change in the future. Future
changes in estimates will be included in the statement of operations in the
period determined. The Company recorded an expense in the second quarter of
1999 in the amount of approximately $14,300,000 to provide for the estimated
loss on disposition of the related assets and liabilities of the U.S. retail
operations and other expenses related to the closing of these operations.
Amounts recorded include approximately $4,300,000 for estimated operating
losses during the phase-out period subsequent to June 30, 1999 and
approximately $450,000 for rent under operating leases until the Company
estimates it can sublease certain of its facilities. Included in the net assets
of the discontinued operations at June 30, 1999 is $6,200,000 for property and
equipment relating to the Company's U.S. network which is net of a write-down
of $13.8 million to reserve for the expected loss on the sale of the property
and equipment. The company is seeking potential buyers for this property and
equipment. The Company is liable for capital lease obligations and installment
loans on this equipment, and if a sale is consummated, will be required to
repay the entire balance of these leases. Accordingly, the lease obligations of
$8.3 million and installment loans of $4.1 million have not been included in
the net assets of the discontinued operation.
The consolidated financial statements and related footnotes of the Company have
been restated to report separately the net assets and operating results of the
U.S. retail operations as discontinued operations for all periods presented.
8
<PAGE> 9
Net assets of the U.S. retail operations, which are presented as net amounts in
the Company's consolidated balance sheets at June 30, 1999 and December 31,
1998, are as follows:
<TABLE>
<CAPTION>
December 31, 1998 June 30, 1999
----------------- -------------
<S> <C> <C>
Accounts receivable $ 8,170,303 $ 3,073,072
Property and equipment 20,560,597 6,169,266
Other assets 361,651 469,180
----------- ------------
Total assets 29,092,551 9,711,518
Reserve for loss on disposition -- (4,756,983)
Other liabilities (1,467,110) (723,683)
----------- ------------
Total liabilities (1,467,110) (5,480,666)
Net assets of discontinued operations $27,625,441 $ 4,230,852
=========== ============
</TABLE>
The results of discontinued operations for the six months ended June 30, 1999
and 1998 were as follows:
<TABLE>
<CAPTION>
June 30, 1998 June 30, 1999
------------- -------------
<S> <C> <C>
Net revenues $23,471,091 $ 9,311,981
Cost of telecommunications services 15,237,015 12,121,263
----------- ------------
Gross profit (loss) 8,234,076 (2,809,282)
Selling, general and administrative 17,575,155 11,191,300
Estimated operating losses during the
phase-out period of discontinued operations -- 4,299,001
----------- ------------
Loss from discontinued operations $(9,341,079) $(18,299,583)
=========== ============
Loss on disposal of discontinued operations $ -- $(14,301,761)
=========== ============
</TABLE>
8. LIQUIDITY
The Company's cash and cash equivalents at June 30, 1999 are not sufficient to
fund the operations of the Company through the end of 1999. During the second
quarter of 1999, when it became apparent that the Company would not be
successful in obtaining all of the debt or equity financing it was seeking, the
company began to consider all alternatives available to it to raise additional
liquidity and or realize value on its assets and operations. These options
include the potential sale of the company or a substantial amount of its assets
or debt or equity financing. The Company has only been successful in raising an
additional $10 million of financing (see Note 9).
The Company has received preliminary indications from a party that they may be
interested in acquiring the Company. The indication of interest would also
provide for bridge financing on a fully secured basis to fund the working
capital requirements of the Company between the time a definitive agreement is
signed and the closing of the transaction. There can be no assurance as to
whether or when the Company will agree to the terms of a proposed sale or will
be in a position to implement such a sale.
If the company is unable to obtain additional debt or equity financing, to
successfully implement a strategic alliance or arrange a sale of the Company or
substantially all of the Company's assets in the near future, together with the
financing necessary to consummate such a sale, it will have to file a petition
under Chapter 11 of the Federal Bankruptcy Code.
The consolidated Financial Statements do not include any adjustments to reflect
the possible future effects of the aforementioned on the recoverability and
classification of assets or the amounts and classification of liabilities that
may result from this uncertainty.
9. SUBSEQUENT EVENTS
On July 20, 1999, a subsidiary of the Company, LDI Acquisition Sub., Inc., a
Delaware corporation ("LDI Acquisition"), borrowed $10,000,000 (the "Loan"),
from Frederick A. DeLuca ("DeLuca"), an existing stockholder of the Company,
pursuant to a term loan agreement (the "Loan Agreement"), among the Company,
LDI Acquisition, DeLuca, the lenders from time to time signatory thereto (the
"Other Lenders") and DeLuca, as collateral agent (in such capacity, the
"Collateral Agent"). The Loan has a one year term, expiring on July 20, 2000
(the "Initial Term"), and is extendable for up to an additional four months at
the option of the Company (the "Extended Term"). The principal amount of the
loan is payable at maturity. Interest is payable monthly and the loan bears
interest of 12-1/4% per annum during the Initial Term and 24-1/2% per annum
during the Extended Term. The loan is subject to a prepayment penalty if
prepaid prior to January 2000 and to substantial late charges if monthly
interest payments are not paid on a timely basis. The Loan Agreement has been
structured to allow for additional term loans (up to an aggregate principal
amount (together with the Loan) of $40,000,000) from the Other Lenders in
minimum term loan advances of $100,000. All such future loans shall be made
subject to the terms of the Loan Agreement. The Company and LDI Acquisition
have agreed that the proceeds of any term loan advances which, together with
the Loan, exceed $32,500,000 would be used to repay the indebtedness of NETnet
International A.B. ("NETnet") to certain Scandinavian banks who currently have
a lien on the stock of NETnet.
9
<PAGE> 10
The loan is secured by all the common stock of LDI Acquisition, pursuant to a
pledge agreement by the Company in favor of the Collateral Agent for the
ratable benefit of himself and the Other Lenders, and by all the capital stock
of the subsidiaries of LDI Acquisition to the extent possible, pursuant to a
pledge agreement by LDI Acquisition in favor of the Collateral Agent, for the
ratable benefit of himself and the Other Lenders. The subsidiaries of LDI
Acquisition represent all the non-U.S. based operations of the Company.
As additional consideration for, and as an inducement to DeLuca and the Other
Lender to make loans under the agreement, the Company has agreed to issue to
the lenders a (i) Class A Common Stock Warrants (the "A Warrants") to purchase
up to 30% of the Company's common stock on a fully diluted basis as of the date
immediately preceding the closing of the Loan (the "Fully Diluted Shares") and
(ii) Class B Warrants (the "B Warrants"; together with the A Warrants, the
"Warrants") to purchase up to 20% of the Fully Diluted Shares (in each case,
assuming a full funding under the Loan Agreement of $40,000,000). The B
Warrants will become void in the event the term loan to which such Warrant
relates is paid on or prior to four months after such loan is made. As of July
20, 1999, Warrants have only been issued to DeLuca to purchase up to an
aggregate of 12.5% of the Fully Diluted Shares (or 7.5% of the Fully Diluted
Shares if the B Warrants become void). Each Warrant is exercisable for a term
of five years from its exercise date (as hereinafter defined) and the exercise
price for each share of the Company's Common Stock exercisable under a Warrant
is $.001 per share. No Warrant is exercisable (assuming the B Warrant has not
been voided) until the earliest of:
(a) the sixteenth month anniversary date of the issuance of a Warrant;
(b) the date the Company consummates an initial public offering of shares
of Common Stock pursuant to an effective registration statement under
the Securities Act of 1933;
(c) the date the Company consummates a sale of all or a substantial
portion of the business of the Company and its consolidated
subsidiaries taken as a whole, whether by way of merger, acquisition,
sale of assets or sale of capital stock;
(d) the date a bankruptcy petition is filed by or against the Company,
LDI Acquisition or a material operating subsidiary of LDI
Acquisition;
(e) the effective date of a waiver under the Indenture, dated as of April
13, 1998 (the "Indenture"), pursuant to which the Company's 12 1/4%
Senior Notes due 2008 (the "Notes") were issued, the effect of which
waiver would be to waive the requirement that the Company repurchase
the Notes pursuant to Section 4.12 of the Indenture because of a
Change of Control (as defined in the Indenture);
(f) the date on which the exercise of all A Warrants and all B Warrants
would not result in a Change of Control; and
(g) the date on which a Change of Control under the Indenture occurs for
a reason other than an exercise of any of the A Warrants or B
Warrants and a waiver with respect thereto described in clause (e)
above is not obtained; and
(h) the date on which Cliff Friedland and David Glassman cease to be
directors of the Company (other than by reason of their death or
disability) or beneficially own in the aggregate less than 5,000,000
shares of Common Stock of the Company.
Additionally, as further consideration for the Loan, DeLuca (or his designee)
was given the right to a seat on the Company's Board of Directors.
10
<PAGE> 11
ITEM 2 - MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND
RESULTS OF OPERATIONS
Overview
As a consequence of the weakness in the U.S. operations, on May 18, 1999, the
Company's Board of Directors agreed to a plan to discontinue the Company's U.S.
retail operations. The results of operations and an estimate of the loss on
disposal are included in the consolidated financial statements as discontinued
operations. All periods presented have been restated to present the U.S. retail
operations as discontinued operations.
THREE MONTHS ENDED JUNE 30, 1999 COMPARED TO THE THREE MONTHS ENDED JUNE 30,
1998
Revenues, net. Revenues increased to $32.6 million for the three months ended
June 30, 1999, as compared with $4.1 million for the three months ended June
30, 1998. Billable minutes increased from 10.8 million for the three months
ended June 30, 1998 to 124.2 million for the three months ended June 30, 1999.
The increase was due primarily to the inclusion of the results of Newgate
Communications Ltd. ("Newgate") and NETnet International AB ("NETnet") and
increased activity of the Company's European wholesale division. NETnet was
acquired in October 1998 while Newgate was acquired in April 1998. Due to the
acquisition of NETnet, for the three months ended June 30, 1999, the Company
had revenues of $4.4 million in Germany, $3.0 million in Sweden, $1.1 million
in Norway, $1.9 million in Austria and $1.6 million in Switzerland, while for
the three months ended June 30, 1998, the Company had no revenues in those
countries. Due to the acquisition of Newgate, the Company's revenues in the
U.K. increased from $3.5 million for the three months ended June 30, 1998 to
$7.2 million in 1999. The Company's European wholesale division, which
commenced operations in the third quarter of 1998, contributed revenues of
$12.0 million for the three months ended June 30, 1999. Average revenue per
minute decreased to $0.26 in the three months ended June 30, 1999 from $0.38 in
the three months ended June 30, 1998 primarily due to competition.
Cost of Telecommunications Services. Cost of telecommunications services
increased by 643.2% to $27.5 million for the three months ended June 30, 1999,
as compared with $3.7 million for the three months ended June 30, 1998. This
increase is due to the increase in billable minutes partially offset by the
decline in cost per minute. Average cost per minute was $0.22 for the three
months ended June 30, 1999 as compared to $0.34 for the three months ended June
30, 1998. This decrease primarily reflects cost reductions available to the
Company due to the increased volume in the three months ended June 30, 1999 as
compared to the three months ended June 30, 1998. The Company's gross margin
was 15.6% for the three months ended June 30, 1999 as compared to 8.7% for the
three months ended June 30, 1998. The improvement in the gross margin
percentage is primarily due to the Company being able to obtain better pricing
due to increased volume despite pricing pressure from customers. The Company's
wholesale division generally has a substantially lower gross margin than the
Company's retail division due to competitive pressures.
Selling, General and Administrative Expenses. Selling, general and
administrative expenses ("SG&A") increased by 218.2% to $14.0 million for the
three months ended June 30, 1999, as compared to $4.4 million for the three
months ended June 30, 1998. The increase resulted primarily from additional
expenses in Europe as a result of the acquisitions of NETnet and Newgate in
1998. Due to the acquisitions, the Company is now supporting offices in 9
countries in Europe and has increased its employee base in Europe from 121
employees at June 30, 1998 to 342 employees at June 30, 1999. SG&A decreased as
a percent of revenue to 43.1% for the three months ended June 30, 1999 from
108.2% for the same period in the prior year. The change is primarily due to
the significant growth of the Company's European revenue along with a concerted
effort to minimize expenses in Europe subsequent to the acquisition of NETnet.
Depreciation and Amortization. Depreciation and amortization increased to $5.2
million for the three months ended June 30, 1999, from $678,555 for the three
months ended June 30, 1998. The increase was due to significantly more fixed
assets, primarily office equipment and network equipment acquired by the
Company to complete the build-out of its European network, and the increase in
fixed assets in Europe due to the acquisitions. In addition, goodwill
amortization increased significantly due to the acquisitions.
11
<PAGE> 12
Loss from Continuing Operations. Loss from continuing operations increased to
$21.2 million for the three months ended June 30, 1999, from $9.7 million for
the three months ended June 30, 1998. The aforementioned factors caused this
increase.
Discontinued Operations. As a consequence of the continued weakness in the U.S.
operations, on May 18, 1999 the Board of Directors of the Company agreed to a
plan to discontinue the U.S. retail operations. Accordingly, the Company's
consolidated financial statements for June 30, 1999 and 1998 have been restated
to include the U.S. retail operations as discontinued operations. In the three
months ended June 30, 1999, the Company recorded an estimated loss of $26.1
million in connection with the operations and anticipated disposition of the
related assets and liabilities. This amount includes $4.3 million for the
estimated operating losses during the phase-out period. This includes sale of
the Company's U.S. network, U.S. customer base and cessation of all marketing
to U.S. retail customers. The Company also laid off two thirds of its U.S.
based employees in accordance with the Workers Adjustment and Retraining
Notification Act.
Net Loss. Net loss increased to $47.3 million for the three months ended June
30, 1999 from $15.9 million for the three months ended June 30, 1998. This
increase was due to increased losses from operations together with increased
interest expense resulting from the issuance of the 12 1/4% Senior Notes Due
2008 and related Warrants completed in April 1998 and from additional interest
on financing of equipment.
SIX MONTHS ENDED JUNE 30, 1999 COMPARED TO THE SIX MONTHS ENDED JUNE 30, 1998
Revenues, net. Revenues increased to $64.8 million for the six months ended
June 30, 1999, as compared with $7.2 million for the six months ended June 30,
1998. Billable minutes were 230.1 million for the six months ended June 30,
1999 as compared to 20.8 million for the six months ended June 30, 1998. The
increase was due primarily to the inclusion of the results of Newgate and
NETnet and increased activity of the Company's European wholesale division. Due
to the acquisition of NETnet, the Company had revenues of $6.1 million in
Sweden, $9.8 million in Germany, $3.3 million in Switzerland, $3.8 million in
Austria and $2.2 million in Norway, while during the six months ended June 30,
1998 there were no revenues in these countries. The increase in U.K. revenues
from $5.5 million for the six months ended June 30, 1998 to $12.3 million for
the six months ended June 30, 1999 was primarily due to the acquisition of
Newgate in April 1998. The Company's European wholesale division, which
commenced operations in the third quarter of 1998, contributed revenues of
$24.7 million during the six months ended June 30, 1999. Average revenue per
minute decreased from $0.35 for the six months ended June 30, 1998, to $0.28
for the six months ended June 30, 1999, primarily due to competition.
Cost of Telecommunications Services. Cost of telecommunications services
increased by 770% to $55.7 million for the six months ended June 30, 1999, as
compared with $6.4 million for the six months ended June 30, 1998. The increase
in cost of telecommunications services is due to the increase in billable
minutes in the six months ended June 30, 1999 as compared to the same period in
1998. Average costs per minute decreased to $0.24 for the six months ended June
30, 1999 from $0.31 for the six months ended June 30, 1998. This decrease
primarily reflects cost reductions due to increased volume in the six months of
1999 as compared to the six months of 1998. The Company's gross margin was
14.0% for the six months ended June 30, 1999 as compared to 10.3% for the six
months ended June 30, 1998. The increase in the gross margin percentage is
primarily due to the Company obtaining better pricing from vendors at a faster
rate than pricing pressure from customers. The Company's wholesale division
generally has a substantially lower gross margin than the Company's retail
division due to competitive pressures.
Selling, General and Administrative Expenses. Selling, general and
administrative expenses ("SG&A") increased by 226% to $28.7 million for the six
months ended June 30, 1999, as compared with $8.8 million for the six months
ended June 30, 1998. The increases resulted primarily from additional expenses
in Europe as a result of the acquisitions of NETnet and Newgate in 1998. As a
result of these acquisitions, the Company is now supporting offices in 9
countries in Europe and increased its European employee base from 121 employees
at June 30, 1998, to 342 at June 30, 1999. SG&A as a percent of revenue
decreased to 44.3% for the six months ended June 30, 1999 from 121.8% for the
same period in the prior year. The decrease is primarily due to the significant
growth of our European revenue along with a concerted effort to minimize
expenses in Europe subsequent to the acquisition of NETnet.
12
<PAGE> 13
Depreciation and Amortization. Depreciation and amortization increased to $10.3
million for the six months ended June 30, 1999, from $1.0 million for the six
months ended June 30, 1998. Goodwill amortization increased to $3.9 million due
to the acquisitions of Newgate and NETnet. Depreciation increased to $6.4
million due to significantly more fixed assets, primarily office equipment and
network equipment as the Company completed the build-out of its network, and
the increase in fixed assets in Europe in connection with the acquisitions of
Newgate and NETnet.
Loss from Continuing Operations. Loss from continuing operations increased to
$44.3 million for the six months ended June 30, 1999, from $14.1 million for
the six months ended June 30, 1998. The aforementioned factors caused this
increase.
Discontinued Operations. As a consequence of the continued weakness of the U.S.
operations, on May 18, 1999 the Board of Directors of the Company agreed to a
plan to discontinue the U.S. retail operations and the Company's consolidated
financial statements for June 30, 1999 and 1998 have been presented to include
the U.S. retail operations as discontinued operations. During the first six
months of 1999, the Company recorded an estimated loss on the operations and
disposition of the related assets and liabilities of $32.6 million. This amount
included $4.3 million for the estimated operating losses during the phase-out
period. This includes sale of the Company's U.S. network, U.S. customer base
and cessation of all marketing to U.S. retail customers. The Company also laid
off two thirds of its U.S. based employees in accordance with the Workers
Adjustment and Retraining Notification Act.
Net Loss. Net loss increased to $76.9 million for the six months ended June 30,
1999 as compared to $23.4 million for the six months ended June 30, 1998. This
increase was due to increased losses from operations together with increased
interest expense resulting from the issuance of the 12 1/4% Senior Notes Due
2008 and Warrants completed in April 1998.
LIQUIDITY AND CAPITAL RESOURCES
As of June 30, 1999, the Company had cash and cash equivalents of $7.2 million
as compared with cash and cash equivalents of $52.1 million on December 31,
1998. In addition, the Company had $53.9 million of restricted cash (which will
primarily be used to pay interest on the Company's 12 1/4% Senior Notes Due
2008) as compared with $67.0 million of restricted cash on December 31, 1998.
LDI's cash and cash equivalents at June 30, 1999, together with the $10 million
proceeds of the secured debt raised during July 1999, are not sufficient to
fund the operations of the Company through the end of 1999. Unless the Company
is able to raise additional capital or bridge financing in the near-term, it
expects that it will have exhausted significantly all of its unrestricted cash
and cash equivalents in September 1999. The Company expects that it will require
approximately $30 million in additional cash to fund operations, including
approximately $5.6 million for capital expenditures, for the last six months of
1999. Actual cash requirements, including capital expenditures, may vary
significantly from the Company's estimates depending upon numerous factors
including sales levels, competitive pressures and regulatory actions. The
Company has taken steps to reduce its operating losses and reduce the scope of
its operations by closing its retail business in the United States.
In January, the Board of Directors authorized the Company to pursue additional
financing of approximately $40 million and subsequently retained Morgan Stanley
& Co. Incorporated ("Morgan Stanley") as its financial advisor. The Company
sought to obtain this financing in the second quarter of 1999 in the form of
debt or equity or a combination thereof, from public or private sources, to fund
the Company's operations and expenditures through 1999. The Company was not
successful in obtaining such financing during the second quarter. During July
1999, the Company raised $10 million through a secured loan. There can be no
assurance that LDI will be able to raise the additional 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 may restrict the
Company's ability to raise additional debt and equity due to limitations on
indebtedness as defined in the Indenture and a provision which stipulates a
repurchase of the 12 1/4% Senior Notes Due 2008 upon a Change of Control as
defined in the Indenture.
13
<PAGE> 14
Without prior notice, at the end of June, 1999, Morgan Stanley advised the
Company that it was abandoning its efforts to raise capital on behalf of the
Company and unilaterally terminating its engagement as financial advisor to the
Company. In connection with Morgan Stanley's termination of its engagement,
Morgan Stanley has advised the Company it is a holder of a significant portion
of the Company's 12 1/4% Senior Notes due 2008. The Company has expressly
reserved all rights, remedies, claims and causes of action that it has or may
have against Morgan Stanley in connection with Morgan Stanley's engagement as
financial advisor to the Company and the terms and conditions of the
termination of such engagement. In addition, representatives of Morgan Stanley
advised the Company that Morgan Stanley, together with other holders of the
Company's 12 1/4% Senior Notes due 2008, have organized an unofficial committee
that claims to represent the holders of 95% of the Company's 12 1/4% Senior
Notes due 2008 (the "Unofficial Noteholder Committee"). The Unofficial
Noteholder Committee has engaged Wachtell, Lipton, Rosen & Katz as counsel.
During the last week of July 1999, the Company engaged (i) Fried, Frank,
Harris, Shriver & Jacobson as restructuring counsel and (ii) Jefferies &
Company, Inc. to replace Morgan Stanley as its investment advisor.
During the second quarter, the Company began to consider all alternatives
available to it to raise additional liquidity and/or realize value on its assets
and operations. At least one party, (the "Potential Purchaser") has tendered a
preliminary indication of interest in acquiring the Company. The indication of
interest provides for bridge financing on a fully secured basis to fund the
working capital requirements of the Company between the time a definitive
agreement is signed and the closing of the transaction. The Unofficial
Noteholder Committee has informed the Company that it supports the preliminary
indication of interest and a sale of the Company to the Potential Purchaser. In
this regard, the Unofficial Noteholder Committee has proposed an allocation
between the holders of the 12 1/4% Senior Notes due 2008 (the "Noteholders") and
the holders of the equity in the Company of any proceeds received from the sale
of the Company to the Potential Purchaser. Based on the current indication of
interest by the Potential Purchaser, the proposed allocation would not provide
the Noteholders with payment in full of the outstanding principal amount of the
12 1/4% Senior Notes due 2008 and the accrued and unpaid interest thereon. The
Company and its advisors are currently pursuing the indication of interest by
the Potential Purchaser and are exploring all other potential sale and
alternative financing opportunities. In order to consummate a sale transaction,
however, the Company would have to obtain additional liquidity or bridge
financing from the Potential Purchaser or other party through the consummation
of such sale transaction. There can be no assurance that the Company will be
successful in its sale efforts or in obtaining the financing necessary to
consummate such a sale. In addition, there can be no assurances as to the amount
of proceeds that will be received from any sale of the Company. There can also
be no assurance that the Company will be successful in implementing any other
alternative. If the Company is unable to obtain additional debt or equity
financing, to successfully implement a strategic alliance, or arrange a sale of
the Company or substantially all the Company's assets in the near future,
together with the financing necessary to consummate such sale, it will have to
file a petition under Chapter 11 of the Federal Bankruptcy Code. The Company
believes that, absent obtaining liquidity by means of bridge financing in
connection with an acquisition of the Company, there may not be sufficient time
to obtain alternative funding necessary for the Company to avoid filing a
petition under Chapter 11 of the Federal Bankruptcy Code.
The Company expects to continue to incur significant operating and net losses
and to make substantial capital expenditures for the foreseeable future. The
operating and net losses are due to the start-up and development of the
Company's operations including the operations of NETnet. The Company has
incurred significant capital expenditures in connection with the development of
its telecommunications network. To date, the Company has utilized cash provided
from financing activities to fund losses and capital expenditures. The sources
of this cash include the Company's 12 1/4% Senior Notes issued in 1998, and to a
lesser extent, vendor financing of equipment and IRU's.
Net cash used in operating activities was $47.6 million for the six months
ended June 30, 1999 as compared to $14.4 million for the six months ended June
30, 1998. The Company's net cash used in operating activities in the six months
ended June 30, 1999 was primarily composed of a net loss of $76.9 million
offset by $30.6 million of non-cash charges and $1.3 million changes in working
capital. Included in these non-cash charges are $10.3 million for depreciation
and amortization, $13.8 million to write down assets to fair value and $4.8
million for future operating losses of the Company's discontinued operations.
Net cash used in operating activities in the six months ended June 30, 1998
consisted of a net loss of $23.4 million offset by $1.5 million of non-cash
charges and changes in working capital.
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<PAGE> 15
Net cash provided by investing activities was $11.0 million for the six months
ended June 30, 1999 as compared with net cash used in investing activities of
$83.7 million for the six months ended June 30, 1998. Cash used in investing
activities in the six months ended June 30, 1999 was comprised primarily of
$2.4 million for capital expenditures and a $13.1 million decrease in
restricted cash and investments. Cash used in the six months ended June 30,
1998 consisted primarily of a $77.5 million increase in restricted cash and
investments and $4.4 million for capital expenditures.
Net cash used in financing activities was $8.6 million for the six months ended
June 30, 1999 as compared to net cash provided by financing activities of $215.4
million for the six months ended June 30, 1998. Cash used in financing
activities in the six months ended June 30, 1999 consisted primarily of payments
on capital lease obligations, installment loans and notes payable of
approximately $8.1 million. Cash provided by financing activities in the six
months ended June 30, 1998 was comprised primarily of proceeds from the issuance
of the Senior Notes and Redeemable Warrants and common stock and warrants. This
was partially offset by $2.5 million in payments on capital lease obligations
and installment loans.
Viatel, Inc. ("Viatel"), a Trans-Atlantic cable provider, has claimed that the
Company is obligated to pay $14,875,000 under certain letter agreements which
Viatel claims obligated the Company to purchase certain cable capacity as part
of an IRU agreement that was never consummated. The Company believes that it
has no obligation to pay Viatel under those purported agreements and that its
liability, in any event would be limited to the $1,625,000 which the Company
placed in escrow during 1998. The Company intends to vigorously defend against
Viatel's claim but is unable to predict the ultimate outcome of this matter and
the amount of loss, if any.
ITEM 3 - QUANTITATIVE AND QUALITATIVE DISCLOSURE ABOUT MARKET RISK
FOREIGN CURRENCY EXPOSURE AND EUROPEAN MONETARY UNION
The Company is exposed to fluctuations in foreign currencies relative to the
United States dollar because the Company generally bills in local currency,
while transmission and other costs are paid in a mix of United States Dollars
and local currency. Interest expense on the 12 1/4% Senior Notes Due 2008 will
be paid in United States dollars. For the six months ended June 30, 1999 and
June 30, 1998, approximately 100% and 80%, respectively, of the Company's
revenues from continuing operations were billed in currencies other than the
United States dollar. The Company periodically evaluates the use of foreign
exchange contracts to hedge foreign currency exposure and to control risks
relating to foreign currency fluctuations. The Company does not use derivative
financial instruments for speculative purposes. As of June 30, 1999, the
Company had no open foreign currency positions.
On January 1, 1999 eleven of the existing members of the European Union ("EU")
joined the European Monetary Union. This will lead, among many other things, to
fundamental changes in the way participating EU states implement their monetary
policies and manage local currency exchange rates. Ultimately, there will be a
single currency within certain countries of the EU, known as the Euro and one
organization, the European Central Bank, responsible for setting European
monetary policy. While some believe that the change will bring a higher level
of competition within Europe and a greater sense of economic stability within
the region, there is no certainty that the Company's activity in this region
will necessarily realize any benefits as a result of such changes. The Company
has reviewed the impact the Euro will have on its business and whether this
will give rise to a need for significant changes in its commercial operations
or treasury management functions. While it is uncertain whether or not there
will be any immediate direct benefits from the planned conversion, the Company
believes it is properly prepared to accommodate any changes deemed necessary
to implement use of the Euro after January 1, 1999 without any significant
changes to its current commercial operations, treasury management and management
information systems.
15
<PAGE> 16
IMPACT OF YEAR 2000
"Year 2000 Readiness" 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. The Company has initiated a company-wide program to identify and
address issues associated with the ability of its date sensitive information,
telephony and business systems, as well as certain other pertinent equipment,
to properly recognize Year 2000 Readiness issues in order to avoid interruption
of the operation of these systems or equipment as a result of the century
change on January 1, 2000 (the "Readiness Initiative Project"). The Readiness
Initiative Project is also designed to assess the impact on the Company of the
readiness of third party business entities with which the Company is engaged in
business or for which the Company provides services.
Inability to reach substantial Year 2000 Readiness in the Company's systems and
integral third party systems could result in interruption or failure of the
Company's ability to provide telecommunications services, interruption or
failure of the Company's customer billing processes, operating and other
information technology systems and/or failure of certain date sensitive
equipment. Such interruptions or failures could result in claims by customers
and/or loss of revenue due to service interruption and/or delays in the
Company's ability to bill its customers in an accurate and timely manner.
Additionally, increased expenses associated with litigation and/or
stabilization of operations following such interruptions or failures or
execution of Year 2000 contingency plans could, and most probably would result
in significant revenue and cost issues.
The Readiness Initiative Project is being conducted by a management team that
is coordinating all efforts. The management team is utilizing resources
consisting of internal staff, external resources, third party network
providers, and external business vendors. The Company intends to identify and
make any necessary changes. Ongoing systems and applications upgrades are being
tested and made Year 2000 ready as they are implemented. As part of the
Readiness Initiative Project, the Company has been communicating directly with,
or reviewing disclosures made by, incumbent LECs, carriers, switch providers,
information systems vendors and other third parties that may impact the
Company's readiness for the Year 2000. Such persons have represented, in these
communications or disclosures, that the information systems of such persons, to
the extent they would have an impact on the Company, are or by January 1, 2000,
will be Year 2000 ready. The Company's software providers have certified to the
Company that such software is Year 2000 ready.
The Company has completed all Year 2000 Readiness conversion and testing issues
for its most critical business systems used in domestic operations. Year 2000
conversion, testing, and deployment for international systems is expected to be
completed by late 1999.
The Company has developed several contingency plans for conducting its business
operations in the event of crisis, including system outages or natural
disasters. As a part of the Readiness Initiative Project, the Company is
reviewing its other business contingency plans to ensure they adequately
address Year 2000 Readiness issues that may also arise. The Company's
operational systems, such as billing and accounting, are also being addressed
in this endeavor.
The Company's Year 2000 contingency efforts cover all aspects of the Company's
business objectives. The two most important criteria are the Company's ability
to carry telecommunications traffic and to bill for such traffic.
The Company's telecommunications switches are configured to operate in
stand-alone mode, parallel mode, and/or re-route mode. In the instance of
outages, the Company's network traffic is re-routed using switch software. The
Company's network switches employ self-healing architecture capable of
automatic re-routing should the need arise. In the case of natural disasters,
the Company's switches operate in a fully redundant, full parallel mode. This
mode allows the Company's traffic to be either re-routed or run in a parallel
state. The Company believes the necessary geographic disparity between switches
also provides another level of contingent security.
16
<PAGE> 17
The Company's information technology, though different in objective, employs
similar architectural standards. The Company's data network is also a
self-healing, fully redundant network capable of re-routing data information to
and from various Company locations. The existence of parallel servers in
disparate locations enables The Company to maintain full operational status of
it's information technology infrastructure.
Some of the costs associated with the Company's Readiness Initiative Project
were incurred in the six months ended June 30, 1999 and the remainder will be
incurred during 1999. The Company estimates the costs will be approximately
$2.0 million over the life of, and adherence to, the project. The Company
intends to continually reassess the estimated costs and status of its Year 2000
remediation efforts.
The Company currently anticipates the mission critical systems it controls in
its domestic and international operations to be fully Year 2000 ready by
January 1, 2000. However, no assurance can be given that unforeseen
circumstances will not arise during the performance of the testing and
deployment phases of the Company's Readiness Initiative Project that would
adversely affect the Year 2000 Readiness of the Company. Furthermore, the Year
2000 Readiness of the Company's integral third party networks is not yet fully
known. As a result, the Company is unable to determine the impact that any
third party systems interruptions or failures would have on the Company's
business, results of operations or financial condition.
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.
FORWARD LOOKING STATEMENTS
Certain statements contained in this Form 10-Q constitute "forward looking
statements" made in reliance on the safe harbor provisions of the Private
Securities Litigation Reform Act of 1995. As such, they involve risks and
uncertainties that could cause actual results to differ materially from those
set forth in such forward looking statements. The Company's forward looking
statements are based on assumptions about, or include statements concerning,
many important factors, including without limitation changes in customer usage
and customer preferences, the Company's ability to effectively implement its
strategies, including its expansion, network development and advanced
information system strategies; competitive trends and consolidation within the
telecommunications industry; the effect of economic changes in other countries
in which the Company does business; and other factors described herein. While
the Company believes that its assumptions are reasonable, it cautions that it
is impossible to predict the impact of certain factors which could cause actual
results to differ materially from expected results.
17
<PAGE> 18
Part II. OTHER INFORMATION
Item 6. Exhibits and Reports on Form 8-K
(a) Exhibits:
Exhibit 10.18 - Term Loan Agreement, among Long Distance
International Inc., a Florida corporation ("LDI"), LDI Acquisition
Sub. Inc., a Delaware Corporation ("LDI Sub"), the lenders listed
on Schedule I attached thereto (the "Lenders") and Frederick A.
DeLuca as Collateral Agent ("the Collateral Agent")
Exhibit 10.19 - Promissory Note in the Principal Amount of
$10,000000
Exhibit 10.20 - Stock Pledge Agreement between LDI Sub and the
Collateral Agent
Exhibit 10.21 - Parent Stock Pledge Agreement between LDI and the
Collateral Agent
Exhibit 10.22 - Class A Bridge Loan Warrant to purchase common
stock made by LDI to Frederick A. DeLuca
Exhibit 10.23 - Class B Bridge Loan Warrant to purchase common
stock made by LDI to Frederick A. DeLuca
Exhibit 10.24 - Undertaking of Certain Actions
Exhibit 27 - Financial Data Schedule
(b) Reports on Form 8-K:
None
18
<PAGE> 19
LONG DISTANCE INTERNATIONAL INC.
SIGNATURES
Pursuant to the requirements of the Securities Exchange Act of 1934, the
registrant has duly caused this report to be signed on behalf of the
undersigned, thereunto duly authorized.
LONG DISTANCE INTERNATIONAL INC.
By: /s/ Elizabeth A. Tuttle
--------------------------------------------
Elizabeth A. Tuttle
Chief Financial Officer
(Principal Financial and Accounting Officer)
Date: August 13, 1999
19
<PAGE> 1
Exhibit 10.18
- -------------------------------------------------------------------------------
TERM LOAN AGREEMENT
FREDERICK A. DELUCA
THE LENDERS LISTED ON THE INITIAL AND SUPPLEMENTAL
SIGNATURE PAGES OF THIS AGREEMENT
(AS LENDERS),
LDI ACQUISITION SUB INC.
(AS COMPANY)
LONG DISTANCE INTERNATIONAL INC.
(AS PARENT)
AND
FREDERICK A. DELUCA, AS
COLLATERAL AGENT
DATED: AS OF JULY 20, 1999
- -------------------------------------------------------------------------------
<PAGE> 2
TABLE OF CONTENTS
PAGE
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SECTION 1. Definitions............................................1
SECTION 2. The Lenders............................................3
SECTION 3. The Loans..............................................4
SECTION 4. Interest and Charges...................................4
SECTION 5. Payments...............................................5
SECTION 6. Conditions Precedent...................................6
SECTION 7. Collateral.............................................7
SECTION 8. Representations, Warranties and Covenants..............7
SECTION 9. Events of Default and Remedies........................10
SECTION 10. Amendment and Waivers.................................11
SECTION 11. Notices...............................................12
SECTION 12. The Collateral Agent..................................12
SECTION 13. Miscellaneous.........................................16
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TERM LOAN AGREEMENT
THIS TERM LOAN AGREEMENT (this "AGREEMENT"), dated as of July
20, 1999, is made among LONG DISTANCE INTERNATIONAL INC., a Florida corporation
(the "PARENT"), LDI ACQUISITION SUB INC., a Delaware corporation (the
"COMPANY"), Frederick A. DeLuca and the other lenders listed on the initial and
supplemental signature pages of this Agreement under the heading "LENDERS"
(each a "LENDER" and, collectively, the "LENDERS") and Fredrick A. DeLuca, as
collateral agent for the ratable benefit of himself and the other Lenders (the
"COLLATERAL AGENT").
The Company has requested the Lenders to make term loans to
the Company in an aggregate principal amount of $40,000,000. The Lenders are
severally willing to make such loans to the Company upon the terms and subject
to the conditions set forth in this Agreement.
Accordingly, the parties hereto agree as follows:
SECTION 1. DEFINITIONS.
(a) CERTAIN DEFINITIONS. As used in this Agreement, the following
terms shall have the respective meanings set forth below:
BUSINESS DAY shall mean any day that banks are open for business in New York,
New York, which is not (i) a Saturday, Sunday or legal holiday in the State of
New York or (ii) a day on which banking institutions chartered by the State of
New York or the United States are legally required to close.
CLOSING DATE shall mean a date on or after date hereof upon which the Lender
makes the Term Loan.
COMMITMENT means, when used with reference to any Lender at the time any
determination thereof is to be made, the amount set forth opposite the name of
such Lender on the signature page of this Agreement or, where the context so
requires, the obligation of such Lender to make a Term Loan up to such amount
on the terms and conditions set forth in this Agreement.
COMPANY PLEDGE AGREEMENT shall mean the Pledge Agreement dated as of the date
hereof executed and delivered by the Company to the Lenders.
CUSTOMARILY PERMITTED LIENS shall mean:
(a) liens arising as a matter of law to secure payment of taxes,
assessments or charges owing to any governmental authority but which are not
yet due or which are being contested in good faith by appropriate proceedings
or other appropriate actions and with respect to which adequate reserves or
other appropriate provisions are being maintained in accordance with GAAP;
(b) statutory liens of landlords and liens of carriers, warehousemen,
mechanics, materialmen and or like liens imposed by law, created in the
ordinary course of business and for amounts not yet due (or which are being
<PAGE> 4
contested in good faith by appropriate proceedings or appropriate actions which
are sufficient to prevent imminent foreclosure of such liens) and with respect
to which adequate reserves or appropriate provisions are being maintained in
accordance with GAAP; and
(c) deposits made (and liens thereon) in the ordinary course of
business (including, without limitation, security deposits for leases, surety
bonds and appeal bonds) in connection with workers' compensation, unemployment
insurance and other types of social security benefits or to secure performance
of tenders, bids, contracts (other than for repayment or guarantee of borrowed
money or purchase money Obligations), statutory Obligations and other similar
Obligations arising as a result of progress payments under government
contracts.
GAAP shall mean generally accepted accounting principles in the United States
of America as in effect from time to time and for the period as to which such
accounting principles are to apply.
GOVERNMENTAL AUTHORITY shall mean any entity exercising executive, legislative,
judicial, regulatory or administrative functions of or pertaining to
government.
LOAN DOCUMENTS shall mean this Term Loan Agreement, the Term Notes, the Parent
Pledge Agreement and the Pledge Agreement and all other agreements, documents
and instruments entered into by the Company in connection therewith.
MAJORITY LENDERS means at any time Lenders holding at least 51% of the then
aggregate unpaid principal amount of the Loans, or, if no such principal amount
is then outstanding, Lenders having at least 51% of the aggregate Commitments.
OBLIGATIONS shall mean all of the Obligations of the Company to the Lenders
hereunder and under the Term Notes whether now owing or hereafter arising.
PARENT PLEDGE AGREEMENT shall mean the Pledge Agreement, dated as of the date
hereof executed and delivered by the Company to the Lenders.
PERMITTED ENCUMBRANCES shall mean: (a) liens expressly permitted, or consented
to, by the Lender; (b) Customarily Permitted Liens; (c) liens granted to the
Lender by the Company; (d) liens granted to Skandinaviska Enskilda Banken AB
and Finans Skandic AB (the "Swedish Bank") on the stock and certain properties
of Netnet International AB and its subsidiaries to secure loans made by such
banks to the Parent; and (e) liens on the Company's or the Parent's cash to
secure letters of credit and deposits issued by banks for the account of the
Company or the Parent for the benefit of vendors who provide telecommunications
services..
PLEDGED COLLATERAL shall have the meaning ascribed thereto in the Pledge
Agreements.
PLEDGE AGREEMENTS shall mean the Parent Pledge Agreement and the Company Pledge
Agreement.
TERM NOTE shall mean the note, in the form of Exhibit A attached hereto,
delivered by the Company to Lender to evidence its Term Loan.
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U.C.C. shall mean the Uniform Commercial Code as in effect from time to time in
the State of New York.
WARRANTS shall mean the Class A Warrants and the Class B Warrants to purchase
shares of the common stock of the Parent, in the forms of Exhibit B-1 and
Exhibit B-2 attached hereto.
(b) OTHER DEFINITIONS. The following additional terms listed below
shall have the meanings ascribed thereto in the Section (or other provision
hereof) indicated next to such term:
DEFINED TERM SECTION DEFINED IN
- ------------ ------------------
Agreement Preamble
Closing Date 3(a)
Collateral Agent Preamble
Company Preamble
Event of Default 9(a)
Lender Preamble
Lender's Pro Rata Portion 12(e)
Netnet Loan 8(d)(2)
Parent Preamble
Securities Act 8(e)
Security Documents 12(a)
Subsidiaries 8(a)(3)
Term Loan 3(a)
SECTION 2. THE LENDERS.
The initial Lender listed on the initial signature pages hereof have agreed to
lend to the Company $10,000,000, subject to the terms and conditions set forth
in this Agreement. Such Lenders acknowledge and agree that after the date
hereof additional Persons may become parties to this Agreement as "LENDERS" and
make Term Loans to the Company on the same terms and conditions. Such Persons
may become Lenders without any approval by or consent from any of the then
existing Lenders by executing and delivering a counterpart supplemental
signature page to this Agreement, including the amount of their respective
Commitment, and making their respective Term Loan to the Company in accordance
with the terms and conditions of this Agreement, provided that the aggregate
amount of Term Loans extended by all Lenders shall not exceed $40 million.
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<PAGE> 6
SECTION 3. THE LOANS.
(a) Term Loans. Each Lender severally agrees, on the terms and
conditions hereinafter set forth, to make a term loan (each a "TERM LOAN" and,
collectively, the "TERM LOANS") to the Company on the date when all the
conditions precedent set forth in Section 6 with respect to it have been
satisfied or waived (each, a "CLOSING DATE") in a principal amount equal to
such Lender's Commitment.
(b) Term Notes. As additional evidence of the indebtedness of the
Company to each Lender resulting from the Term Loan made by such Lender, the
Company shall execute and deliver for the account of each Lender pursuant to
Section 6(a) a Term Note, dated the respective Closing Date, in the principal
amount of the Term Loan made by such Lender on such Closing Date.
(c) Minimum Term Loan Amount. Each Term Loan shall be for an amount
not less than $100,000.
SECTION 4. INTEREST AND CHARGES.
(a) Interest Rate. The Company shall pay interest on the unpaid
principal amount of each Term Loan from the date of such Term Loan until the
maturity thereof at the per annum rate of 12 1/4%; provided that in the event
the Company has exercised its option pursuant to Section 5(a) of this Agreement
to extend due maturity of any Term Loan for a four month period beyond such
maturity date, interest on the unpaid principal amount of such extended Term
Loan shall accrue interest at the per annum rate of 24 1/2% from the maturity
date thereof.
(b) Interest Payment Dates. Interest on the Term Loans in U.S. Dollars
and in immediately available funds shall be payable in arrears monthly on the
last Business Day in each month, on the date of any prepayment, and at
maturity.
(c) Interest on Overdue Payments. In the event that any amount of
principal of or interest on any Term Loan, or any other amount payable
hereunder or under the Term Notes, is not paid in full when due (whether at
stated maturity, by acceleration or otherwise), the Company agrees to pay
interest on such unpaid principal or other amount, from the date such amount
becomes due until the date such amount is paid in full, payable on demand, at
the per annum rate of 24 1/2%.
(d) Late Fees on Past Due Interest Charges. The Company agrees to pay
to each Lender a late fee on account of late payments with respect to such
Lender's Term Loan, as follows:
(i) for each payment of interest payable prior to the initial
maturity of the Term Loan, which is more than five (5) Business Days past due,
a late payment fee equal to 0.25% of the amount of the original principal
amount of such Lender's Term Loan;
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<PAGE> 7
(ii) for each payment of interest payable after the initial
maturity of the Term Loan and prior to the final maturity of the Term Loan (due
to an extension of the maturity date of such Term Loan in accordance with
Section 5(a) of this Agreement), a late payment fee equal to 0.50% of the
amount of the original principal amount of such Lender's Term Loan; and
(iii) if the maturity date of a Term Loan is extended in
accordance with Section 5(a) of this Agreement from the initial maturity date
to the final maturity date and payments of principal of or interest on any such
Term Loan are not paid on such final maturity date of such Term Loan, a late
payment fee equal to 25% of the amount of the original principal amount of such
Lender's Term Loan.
(e) Computations. All computations of interest in respect of Term
Loans shall be made on the basis of a year of 365 or 366 days, as the case may
be, for the actual number of days (including the first day but excluding the
last day) occurring in the period for which such interest is payable.
(f) Highest Lawful Rate. In no event shall the Company, upon demand by
the Lenders for payment of any indebtedness relating hereto, by acceleration of
the maturity thereof, or otherwise, be obligated to pay interest and fees in
excess of the amount permitted by law. Regardless of any provision herein or in
any agreement made in connection herewith, the Lenders shall never be entitled
to receive, charge or apply, as interest on any indebtedness relating hereto,
any amount in excess of the maximum amount of interest permissible under
applicable law. If the Lender ever receives, collects or applies any such
excess, it shall be deemed a partial repayment of principal and treated as
such; and if principal is paid in full, any remaining excess shall be refunded
to the Company. This paragraph shall control every other provision thereof and
of any other agreement made in connection herewith.
SECTION 5. PAYMENTS.
(a) Repayment of the Term Loans. The Company shall repay to each
Lender the outstanding principal amount of the Term Loan made by such Lender in
one installment on the first anniversary date of such Term Loan (the "initial
maturity date"); provided that the Company may, in its sole discretion, by
written notice to a Lender, extend the initial maturity date of a Term Loan for
a period of four months after such initial maturity date (such extended date
being the "final maturity date").
(b) Optional Prepayments. Subject to Section 5(c), the Company may,
upon at least five Business Days' written notice to a Lender, prepay the
outstanding amount of the Term Loan owed to such Lender in whole or ratably in
part. If such Term Loan is prepaid in whole or in part and the aggregate amount
of interest paid thereon is less than 6.0% of the initial principal amount of
such Term Loan, the Company will pay to such Lender on the date such Term Loan
is paid in full a premium equal to the difference of 6.0% of the initial
principal amount of such Term Loan less the aggregate amount of interest paid
thereon on the date of such prepayment; provided, however, that if any such
Lender was not an initial Lender, the percentage of 6.0% as used above shall be
reduced by multiplying 6.0% by a fraction the numerator of which shall be the
number of days from and after the Closing Date in which such Lender made a Term
Loan hereunder to but excluding the initial maturity date of such Term Loan,
and the denominator of which shall be 365.
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<PAGE> 8
(c) Application. Each payment by or on behalf of the Company hereunder
shall, unless a specific determination is made by the Lenders with respect
thereto, be applied in the following order:
(i) first, to any fees, costs, expenses and other amounts
(other than principal and interest) due the Lenders;
(ii) second, to accrued and unpaid interest due the Lenders;
and
(iii) third, to principal due the Lenders.
(d) Extension. Whenever any payment hereunder shall be stated to be
due on a day other than a Business Day, then, except as otherwise provided
herein, such payment shall be made on the next succeeding Business Day, and
such extension of time shall in such case be included in the computation of
payment of interest hereunder.
(e) Sharing of Payments. If any Lender shall obtain any payment
(whether voluntary, involuntary, through the exercise of any right of set-off,
or otherwise) on account of the Loans made by it in excess of its ratable share
of payments on account of the Loans obtained by all the Lenders, such Lender
shall forthwith advise the Company and the other Lenders of the receipt of such
payment, and within five Business Days of such receipt purchase from the other
Lenders such participations in the Loans made by them as shall be necessary to
cause such purchasing Lender to share the excess payment ratably with each of
them; provided, however, that if all or any portion of such excess payment is
thereafter recovered by or on behalf of the Company from such purchasing
Lender, the purchase shall be rescinded and the purchase price restored to the
extent of such recovery, but without interest. The Company agrees that any
Lender so purchasing a participation from another Lender pursuant to this
Section 5(e) may exercise all its rights of payment (including the right of
set-off) with respect to such participation as fully as if such Lender were the
direct creditor of the Company in the amount of such participation. No
documentation other than notices and the like referred to in this Section 5(e)
shall be required to implement the terms of this Section 5(e). The Company
shall keep records (which shall be conclusive and binding in the absence of
manifest error) of participations purchased pursuant to this Section 5(e) and
shall in each case notify the Lenders following any such purchases.
SECTION 6. CONDITIONS PRECEDENT.
(a) The obligation of each Lender to extend its respective Term Loan
hereunder is subject to the satisfaction of, or waiver of, immediately prior to
or concurrently with making of such Term Loan, the following conditions
precedent:
(i) TERM NOTES - The Company shall execute and deliver to
such Lender its respective Term Note.
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<PAGE> 9
(ii) COMPANY PLEDGE AGREEMENT - The Company shall execute and
deliver to the Collateral Agent the Company Pledge Agreement, pledging the
Pledged Collateral to the Collateral Agent.
(iii) PARENT PLEDGE AGREEMENT - The Parent shall execute and
deliver to the Collateral Agent the Parent Pledge Agreement pledging to the
Collateral Agent, as additional Collateral for the Obligations of the Company,
all of the issued and outstanding capital stock of the Company.
(iv) BOARD RESOLUTIONS - The Lenders shall have received a
copy of resolutions of the Board of Directors of the Company and Parent (as the
case may be) authorizing the execution, delivery and performance of (i) this
Term Loan Agreement, and (ii) any other Loan Documents to which the Company or
the Parent is a party.
(v) WARRANT - The Parent shall execute and deliver to each
Lender its respective Warrant as additional consideration for, and as an
inducement to make, the Term Loan.
(vi) ADDITIONAL DOCUMENTS - the Company and Parent shall have
executed and delivered to such Lender all other Loan Documents necessary to
consummate the lending arrangement contemplated between the Company and such
Lender.
Upon execution of this Term Loan Agreement and the disbursement of the initial
Term Loans hereunder, all of the above Conditions Precedent shall have been
deemed satisfied except as the Company and the Lenders shall otherwise agree
herein or in a separate writing.
(b) The Conditions Precedent set forth in subsections 6(a)(ii) and
(iii) shall not be applicable to Lenders other than the initial Lenders.
SECTION 7. COLLATERAL.
As security for the prompt payment in full of all loans and advances made and
to be made to the Company from time to time by the Lender pursuant hereto, as
well as to secure payment in full of all other Obligations, the Company and the
Parent have, simultaneously herewith, executed and delivered the Pledge
Agreements to the Collateral Agent and such other documentation as shall be
necessary to perfect Collateral Agent's lien in the Pledged Collateral.
SECTION 8. REPRESENTATIONS, WARRANTIES AND COVENANTS.
(a) Representatives and Warranties. The Parent and the Company hereby
represent and warrant to each Lender and the Collateral Agent that as of the
date hereof:
(i) Public Filings. The information contained in the (i) Form
10-K of the Parent for the fiscal year of the Parent ended December 31, 1998;
and (ii) Form 10-Q of the Parent for the three months ended March 31, 1999 is
true, complete and correct in all material respects.
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<PAGE> 10
(ii) Due Incorporation; Authorization; No Conflicts. Each of
the Parent, the Company and the Subsidiaries (as hereinafter defined) is a
corporation duly organized, validly existing and in good standing in its
jurisdiction of incorporation and is authorized to do business and is in good
standing in each jurisdiction where the nature of its business or assets
requires such authorization. This Term Loan Agreement and the Loan Documents to
which the Parent or the Company is a party have been duly authorized by all
necessary corporate and stockholder action of the Parent or the Company and
constitute the valid and legally binding Obligations of the Parent or the
Company, enforceable in accordance with their respective terms, except as
enforceability may be limited by general principles of equity and by
bankruptcy, insolvency, reorganization, moratorium, and other similar laws
affecting creditors' and debtors' rights generally. This Term Loan Agreement
and such Loan Documents do not conflict with, violate, cause a default under,
breach, or give rise to any lien, encumbrance, mortgage, change or security
interest under (whether with the giving of notice or lapse of time or both) (a)
the charter, by-laws or any other governing documents of the Parent or the
Company, (b) any agreement, indenture, contract, commitment, instrument or
other binding obligation of the Parent or the Company (including the loan
agreements with the Swedish Banks) or (c) any law applicable to the Parent or
the Company.
(iii) Subsidiaries. The subsidiaries set forth on Schedule 1
to the Pledge Agreements (the "SUBSIDIARIES") are all the subsidiaries owned by
the Company. The Company is the only subsidiary owned by the Parent. An entity
shall be deemed a subsidiary of the Company or the Parent, as the case may be,
if more than 50% of the voting equity of such entity is owned by the Company or
the Parent, as applicable.
(iv) No Material Litigation. No litigation, investigation or
proceeding of or before any arbitrator or Governmental Authority is pending or,
to the knowledge of the Company or Parent, threatened by or against the Company
or Parent or against any of its or their respective properties or revenues (a)
with respect to this Agreement or the Loan Documents which could have, if
adversely determined, a material adverse effect on the financial condition and
business of the Company or the Parent.
(v) Taxes. Each of the Company and the Parent has filed or
caused to be filed all tax returns which, to the knowledge of the Company and
the Parent, are required to be filed and has paid all taxes shown to be due and
payable on said returns or on any assessments made against it or any of its
property and all other taxes, fees or other charges imposed on it or any of its
property.
(vi) Security Interests. At all times after execution and
delivery of the Pledge Agreement(s) by the Company and the Parent and the
filing of financing statements describing the Pledged Collateral as collateral
and naming the Company and the Parent as Debtors and the Collateral Agent, as
Secured Party, the security interests created for the benefit of the Collateral
Agent under the Pledge Agreement(s) will constitute valid, perfected security
interests in the Pledged Collateral, subject to no other liens other than
Permitted Encumbrances.
(b) Affirmative Covenants. Until the payment in full of the
Obligations, the Parent and the Company agree:
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<PAGE> 11
(i) Financing Statements. To comply with the requirements of
all state and federal laws in order to grant to the Lender valid and perfected
first security interests in the Pledged Collateral, subject only to the
Permitted Encumbrances.
(ii) Compliance with Laws. To comply with all acts, rules,
regulations and orders of any legislative, administrative or judicial body or
official, which failure to comply with would have a material and adverse impact
on the Pledged Collateral, or any material part thereof, or on the operation of
the Company's business; provided that the Company may contest any acts, rules,
regulations, orders and directions of such bodies or officials in any
reasonable manner which will not, in the Lender's reasonable opinion,
materially and adversely effect the Lender's rights or priority in the Pledged
Collateral; and provided further that the Company shall not be deemed to have
breached any provision of this Section 8(b)(2) the failure to comply with the
requirements of this Section 8(b)(2) resulted from good faith error or innocent
omission, (ii) the Company promptly commences and diligently pursues a cure of
such breach and (iii) such failure is cured within thirty (30) days following
the Company's receipt of notice of such failure.
(iii) Financial Statements and Related Information. That the
Parent will furnish to the Lender, (i) within one hundred-twenty (120) days
after the end of each fiscal year of the Parent, audited consolidated financial
statements of the Parent prepared in accordance with GAAP as of the close of
such year (audited by a nationally recognized firm of independent auditors, and
(ii) within forty-five (45) days after the end of each fiscal quarter of the
Parent, a consolidated balance sheet as at the end of such period and
statements of profit and loss, cash flow and surplus of the Parent for such
period.
(iv) Further Assurances. The Company and the Parent agree to
do whatever the Collateral Agent may reasonably request, from time to time, by
way of: filing notices of liens, financing statements, amendments, renewals and
continuations thereof; keeping stock records; and performing such further acts
as the Collateral Agent may reasonably require in order to effect the purposes
of the Loan Documents.
(c) Negative Covenants. Until the payment and satisfaction of all
Obligations due hereunder, each of the Parent and the Company agrees that,
without the prior written consent of the Majority Lenders, except as otherwise
herein provided, neither the Parent nor the Company will:
(i) Mortgage, assign, pledge, transfer or otherwise permit
any lien, charge, security interest, encumbrance or judgment (whether as a
result of a purchase money or title retention transaction, or security
interest, or otherwise) to exist on any of the Collateral except for the
Permitted Encumbrances;
(ii) Sell, lease, assign, transfer or otherwise dispose of
the Collateral, except as otherwise specifically permitted by this Agreement or
the Pledge Agreements;
(iii) Engage in any operation or activity materially
different from that presently being conducted by the Company; or
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<PAGE> 12
(iv) Declare or pay any dividend of any kind on, or purchase,
acquire, redeem or retire, any of the capital stock or equity interest, of any
class whatsoever, whether now or hereafter outstanding; provided, that, the
Company may declare and pay dividends to Parent or declare and pay dividends
solely in the form of capital stock of the Company;
(d) Special Covenants.
If the aggregate principal amount of the Term Loans exceeds
$32,500,000, the Parent and the Company shall cause the outstanding
indebtedness of Netnet International AB to Skandinoviska Enskilda Banken AB and
Finans Skandic AB (the "Netnet Loan") to be repaid with any Term Loan proceeds
in excess of $32,500,000. If the amount of such proceeds is sufficient to repay
the Netnet Loan if full, the Parent and the Company shall obtain for the
Collateral Agent for the ratable benefit of the Lenders a first lien on the
stock of Netnet International AB and its subsidiaries. Notwithstanding the
foregoing, until the payment in full of the Obligations, Fred Deluca may extend
a further Term Loan to the Company in an amount sufficient to repay, and for
the purposes of repaying, the Netnet Loan. Such Term Loan will be on the same
terms and conditions as all other Term Loans.
(e) Lenders Representations and Warranties.
(i) With respect to the Warrant to be issued to each Lender,
Lender is an "accredited investor", in each case within the meaning of Rule 501
of Regulation D under the Securities Act of 1933, as amended (the "Securities
Act").
(ii) Each Lender is acquiring the Warrant for such Lender's
own account as principal, and not as nominee or agent, for investment purposes
and not with a view to or for sale in connection with any distribution thereof
except for any distribution in compliance with the registration provisions of
the Securities Act.
(iii) Each Lender understands that the Warrants have not been
registered for sale under the Securities Act or qualified under any other
applicable federal or state securities laws and that the Warrants are being
offered and sold pursuant to one or more exemptions from the registration or
qualification requirements of such securities laws and that the representations
and warranties contained in this Section 8(e) are given with the intention that
the Parent may rely thereon for purposes of claiming such exemptions.
SECTION 9. EVENTS OF DEFAULT AND REMEDIES.
(a) Event of Default. The occurrence of any of the following shall
constitute an "Event of Default":
(i) the commencement by or against the Company of any
bankruptcy, insolvency, arrangement, reorganization, receivership or similar
proceedings under any federal or state law, provided that in the event of any
involuntary proceeding commenced against the Company such proceeding is not
dismissed or discharged within sixty (60) days after commencement thereof;
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(ii) breach by the Company in any material respect of any
material warranty, representation or covenant contained herein or in any other
Loan Document between the Company or the Lender, provided that such breach by
the Company of any of the warranties, representations or covenants referred in
this clause (a)(ii) shall not be deemed to be an Event of Default unless and
until such breach, if capable of remedy, shall remain unremedied to the
Lender's satisfaction for a period of thirty (30) days from the date of such
breach; or
(iii) the Company shall fail to make any payment of principal
of, interest on, or fees or charges with respect to, any of the Term Loans
five(5) days after notice thereof to the Company and the Parent, if such
payment default is capable of remedy; provided that, after the first payment
default, an Event of Default shall be deemed in effect upon receipt of notice
of such default.
(b) Effect of Event of Default. If any Event of Default shall occur,
the Majority Lenders may (i) declare the entire unpaid principal amount of the
Term Loans and the Term Notes, all interest accrued and unpaid thereon and all
other amounts payable under or in connection with this Agreement and the other
Loan Documents to be forthwith due and payable, whereupon the Term Loans and
the Term Notes, all such accrued interest and all such other amounts shall
become and be forthwith due and payable, without presentment, demand, protest
or further notice of any kind, all of which are hereby expressly waived by the
Company, provided that if an event described in Section 9(a)(i) shall occur,
the result which would otherwise occur only upon giving of notice by the
Majority Lenders to the Company, as specified in this clause (i), shall occur
automatically, without the giving of any such notice; and (ii) whether or not
the actions referred to in clause (i) have been taken, (A) exercise any or all
of the Lender's rights and remedies under the Pledge Agreements, and (B)
proceed to enforce all other rights and remedies available to the Lenders under
applicable law.
SECTION 10. AMENDMENT AND WAIVERS.
With the written consent of the Majority Lenders (a) the
Company may from time to time enter into a written amendment to any provision
of this Agreement and the other Loan Documents and (b) the Majority Lenders
may, on behalf of the Lenders, from time to time execute and deliver to the
Company a written instrument waiving any provision of this Agreement or any
other Loan Document, or consenting to any departure by the Company or other
party therefrom. Any such amendment, waiver or consent shall be effective only
in the specific instance and for the specific purpose for which given;
provided, however, that, without the written consent of all the Lenders, no
amendment, waiver or consent shall do any of the following:
(i) increase the amount, or extend the stated expiration or
termination date, of the Commitments of the Lenders or subject the Lenders to
any additional Obligations;
(ii) reduce the principal of, or interest on, the Term Loans
or any fee or other amount payable to the Lenders hereunder;
(iii) postpone any date fixed for any payment in respect of
principal of, or interest on, the Term Loans or any fee or other amount payable
to the Lenders hereunder;
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(iv) change the definition of "MAJORITY LENDERS" or any
definition or provision of this Agreement requiring the approval of Majority
Lenders or some other specified amount of Lenders;
(v) release any of the Collateral except as contemplated
herein and in the Loan Documents relating thereto; or
(vi) amend the provisions of this Section 10.
SECTION 11. NOTICES.
All notices and other communications provided for hereunder
shall, unless otherwise stated herein, be in writing (including by telex or
telecopier) and mailed, sent or delivered to the respective parties hereto at
or to their respective addresses or telex or telecopier numbers set forth below
their names on the signature pages hereof, or at or to such other address or
telex or telecopier number as shall be designated by any party in a written
notice to the other parties hereto. All such notices and communications shall
be effective (a) if delivered by hand, upon delivery; (b) if sent by mail, upon
the date of receipt; (c) if sent by telex, upon receipt by the sender of an
appropriate answerback; and (d) if sent by telecopy, upon receipt; provided,
however, that notices and communications to the Agent shall not be effective
until received.
SECTION 12. THE COLLATERAL AGENT.
(a) Appointment. Each Lender hereby designates and appoints Frederick
A. DeLuca as the Collateral Agent under (i) the Pledge Agreements, (ii) any and
all other documents purporting to grant a pledge or security interest in the
Collateral to the Lenders and (iii) all Uniform Commercial Code financing
statements required by this Agreement or any Pledge Agreement to be filed with
respect to the security interests in personal property created pursuant to this
Agreement or any Pledge Agreement (collectively, the "SECURITY DOCUMENTS"),
and, subject to clause (i) of this Section 12, each Lender hereby irrevocably
authorizes the Collateral Agent to take such action on its behalf under the
provisions of this Agreement and the Security Documents and to exercise such
powers as are set forth herein or therein, together with such other powers as
are reasonably incidental thereto. The Collateral Agent agrees to act as such
on the express conditions contained in this Section 12. The provisions of this
Section 12 are solely for the benefit of the Collateral Agent and the Lenders.
In performing its functions and duties under the Security Documents, the
Collateral Agent shall act solely as agent of the Lenders and does not assume
and shall not be deemed to have assumed any obligation toward or relationship
of agency or trust with or for the Company or the Parent. The Collateral Agent
may perform any of its duties under the Security Documents, by or through its
agents or employees.
(b) Nature of Duties. The Collateral Agent shall have no duties or
responsibilities except those expressly set forth in this Agreement or in the
other Security Documents. Except as expressly provided herein, the duties of the
Collateral Agent shall be mechanical and administrative in nature. The
Collateral Agent shall have and may use its sole discretion with respect to
exercising or refraining from exercising any discretionary rights or taking or
refraining from taking any actions which the Collateral Agent is expressly
entitled to take or assert under the Security Documents, including, without
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<PAGE> 15
limitation, the right to elect remedies under the Security Documents, and any
action so taken or not taken shall be deemed consented to by the Lenders. The
Collateral Agent shall not have by reason of this Agreement or the Security
Documents a fiduciary relationship in respect of any Lender. Nothing in this
Agreement or any of the other Security Documents, express or implied, is
intended to or shall be construed to impose upon the Collateral Agent any
obligations in respect of the Security Documents except as expressly set forth
herein or therein. Each Lender shall make its own independent investigation of
the financial condition and affairs of the Company and the Parent in connection
with the making and the continuance of the Term Loans, and shall make its own
appraisal of the creditworthiness of the Company and the Parent, and the
Collateral Agent shall have no responsibility, either initially or on a
continuing basis, to provide any Lender with any credit or other information
with respect thereto, whether coming into its possession before the date of
this Agreement or any time or times thereafter. The Collateral Agent may employ
agents, co-agents and attorneys-in-fact and shall not be responsible to any
Lender, the Company or the Parent, except as to money or securities received by
it or its authorized agents, for the negligence or misconduct of any such
agents or attorneys-in-fact selected by it with reasonable care.
(c) Rights, Exculpation, Etc. The Collateral Agent shall not be liable
to any Lender for any action taken or omitted by it or any of them under the
Security Documents, or in connection herewith or therewith, except for actions
or omissions resulting from the Collateral Agent's gross negligence or willful
misconduct and except that the Collateral Agent shall be obligated on the terms
set forth herein for performance of its express obligations under this
Agreement and the Security Documents. The Collateral Agent shall not be liable
for any apportionment or distribution of payments made by it in good faith
pursuant to this Agreement or any Security Document, and if any such
apportionment or distribution is subsequently determined to have been made in
error, the sole recourse of any Lender to whom payment was due but not made
shall be to recover from the other Lender any payment in excess of the amount
to which they are determined to have been entitled. The Collateral Agent shall
not be responsible to any Lender for any recitals, statements, representations
or warranties contained in this Agreement or for the execution, effectiveness,
genuineness, validity, enforceability, collectibility, or sufficiency of this
Agreement or any of the other Security Documents or any of the transactions
contemplated hereby or thereby, or for the financial condition of the Company
or the Parent. The Collateral Agent shall not be required to take or to grant,
and if such instructions are promptly requested, the Collateral Agent shall be
absolutely entitled to refrain from taking any action or to withhold any
approval and shall not be under any liability whatsoever to any person for
refraining from any action or withholding any approval under any of the
Security Documents until it shall have received such instructions from the
Lenders. Without limiting the foregoing, no Lender shall have any right of
action whatsoever against the Collateral Agent as a result of the Collateral
Agent acting or refraining from acting under this Agreement or any of the other
Security Documents in accordance with the instructions of the Lenders.
(d) Reliance. The Collateral Agent shall be entitled to rely upon any
written notices, statements, certificates, orders or other documents or any
telephone message believed by it in good faith to be genuine and correct and to
have been signed, sent or made by the proper person, and with respect to all
matters pertaining to this Agreement or any of the other Security Documents and
its duties hereunder or thereunder, upon advice of counsel selected by it.
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<PAGE> 16
(e) Indemnification. To the extent that the Collateral Agent is not
reimbursed and indemnified by the Company or the Parent, the Lenders will,
ratably, in proportion to the amount lent by such Lender under its Term Note to
the aggregate amount of all Term Loans lent by the Lenders (hereinafter, the
"LENDER'S PRO RATA PORTION") reimburse and indemnify the Collateral Agent for
an against any and all liabilities, obligations, losses, damages, penalties,
actions, judgments, suits, costs, expenses, advances or disbursements of any
kind or nature whatsoever which may be imposed on, incurred by or asserted
against the Collateral Agent in any way relating to or arising out of this
Agreement or any of the other Security Documents or any action taken or omitted
by the Collateral Agent under this Agreement or any of the other Security
Documents, except such that may arise as a result of the Collateral Agent's
gross negligence or willful misconduct. The obligations of the Lenders under
this Section 12 shall survive the payment in full of the Term Loans and the
termination of the Term Notes and the Security Documents.
(f) Collateral Agent Individually. The Collateral Agent, in its
capacity as a Lender, shall have and may exercise the same rights and powers
hereunder and is subject to the same obligations and liabilities as and to the
extent set forth herein for any other Lender. The Collateral Agent may lend
money to the Company or the Parent as if it were not acting as Collateral Agent
pursuant hereto.
(g) Successor Collateral Agent.
(i) The Collateral Agent may resign from the performance of
all of its functions and duties under this Agreement at any time by giving at
least thirty (30) Business Days' prior written notice to the parties hereto.
Such resignation shall take effect upon the acceptance by a successor
Collateral Agent of appointment pursuant to clause (ii) below. (ii) Upon any
such notice of resignation, the Majority Lenders shall appoint a successor
Collateral Agent.
(h) Collateral Matters. (i) The Lenders hereby irrevocably authorize
the Collateral Agent, at its option and in its discretion, to release any lien
granted to or held by the Collateral Agent, for the benefit of the Lenders, upon
any Collateral (i) upon the payment and satisfaction of all Term Loans (whether
or not due) and all other Obligations which have matured and which the
Collateral Agent has been notified in writing are then due and payable; (ii)
constituting property being sold or disposed of if such sale has been approved
by the Lenders; (iii) constituting property leased to the Company or the Parent
under a lease which has expired or been terminated in a transaction permitted
under this Agreement or which will expire imminently and which has not been, and
is not intended by the Company or the Parent to be, renewed or extended; or (iv)
if approved, authorized or ratified in writing by the Lenders. Upon request by
the Collateral Agent or the Company or the Parent at any time, the Lenders will
confirm in writing the Collateral Agent's authority to release any lien granted
to or held by the Collateral Agent, for the benefit of the Majority Lenders,
upon particular types or items of Collateral.
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<PAGE> 17
(ii) So long as no Event of Default as described in this
Agreement or any Security Agreement has occurred and is then continuing, upon
receipt by the Collateral Agent of confirmation from the Lenders, of its
authority to release any lien granted to or held by the Collateral Agent, for
the benefit of the Lenders, upon particular types or items of Collateral, and
upon at least five (5) Business Days, prior written request by the Company or
the Parent, the Collateral Agent shall (and is hereby irrevocably authorized by
the Lenders to) execute such documents as may be necessary to evidence the
release of the liens granted to the Collateral Agent, for the ratable benefit
of itself and the Lenders, herein or pursuant hereto upon such Collateral
Agent, for the ratable benefit of itself and the Lenders, herein or pursuant
hereto upon such Collateral; provided, however, that (i) the Collateral Agent
shall not be required to execute any such document on terms which, in the
Collateral Agent's opinion, would expose the Collateral Agent to liability or
create any obligation or entail any consequence other than the release of such
liens without recourse or warranty, and (ii) such release shall not in any
manner discharge, affect or impair the Obligations or any liens (other than
those expressly being released) upon (or obligations of either Grantor in
respect of) all interests retained by the Company or the Parent, including
(without limitation) the proceeds of any sale, all of which shall continue to
constitute part of the Collateral.
(iii) The Collateral Agent shall have no obligation
whatsoever to any Lender to assure that the Collateral exists or is owned by
the Company or the Parent or is cared for, protected or insured or has been
encumbered or that the Liens granted to the Collateral Agent, for the ratable
benefit of itself and the Lenders, herein or pursuant hereto have been properly
or sufficiently or lawfully created, perfected, protected or enforced or are
entitled to any particular priority, or to exercise at all or in any particular
manner or under any duty of care, disclosure or fidelity, or to continue
exercising, any of the rights, authorities and powers granted or available to
the Collateral Agent pursuant to this Section 12 or pursuant to any of the
Security Documents, it being understood and agreed that in respect of the
Collateral, or any act, omission or event related thereto, the Collateral Agent
may act in any manner it may deem appropriate, in its sole discretion, given
the Collateral Agent's own interest in the Collateral in its capacity as one of
the Lenders and that the Collateral Agent shall have no duty or liability
whatsoever to any Lender as to any of the foregoing.
(iv) The Collateral Agent shall hold the Collateral and any
proceeds thereof (whether through foreclosure or otherwise) for the ratable
benefit of itself and the Lenders in accordance with each Lender's Pro Rata
Portion. Proceeds of Collateral shall be distributed to each Lender based on
such Lender's Pro Rata Portion.
(i) Action by Collateral Agent. The Lenders and the Collateral Agent
agree that, until the Term Loans shall have been paid in full, the Collateral
Agent shall not take any action towards the collection of any or all of the
Term Loans, the foreclosure of any security interest securing the Term Loan, or
enforcement of any rights, powers or remedies under the Term Loans
(collectively "Collection Actions") other than in accordance with the terms of
this Agreement. Prior to taking any Collection Action the Collateral Agent
shall give notice, via overnight mail by a nationally recognized overnight
carrier, or via certified mail return receipt requested, to each of the other
Lenders. Each such notice shall be marked with the following legend on the
outside of the envelope and at the top of such notice:
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<PAGE> 18
"Important Document - Please Open Immediately. This Document Requires
an Immediate Response."
Each of the other Lenders shall vote to give its consent to, or lack of consent
to, such Collection Action by written notice addressed to the Collateral Agent.
Each Lender's vote shall be calculated in accordance with such Lender's Pro
Rata Portion. The Collateral Agent shall compute the votes concerning such
consent. In the event that the Collateral Agent shall not have received
notification from any Lender within five (5) business days after such Lender's
receipt of such notice, such Lender shall have been deemed to have consented to
such Collection Action. The vote of the Majority Lenders shall be dispositive
in determining whether the Collateral Agent may take any Collection Action. The
Collateral Agent shall inform the Lenders of any such vote within three (3)
business days after his computation of such vote. The Collateral Agent may take
a Collection Action upon the consent to such action by the Majority Lenders.
SECTION 13. MISCELLANEOUS.
(a) Entire Agreement, Successors. This Term Loan Agreement and the
Loan Documents constitute the entire agreement between the Company and the
Lender; supersede any prior agreements; can be changed only by a writing signed
by both the Company and the Majority Lenders and/or Lenders in accordance with
Section 10; and shall bind and benefit the Company and the Lenders and their
respective successors and assigns.
(b) Severability. If any provision thereof or of any or agreement made
in connection herewith is held to be illegal or unenforceable, such provision
shall be fully severable, and the remaining provisions of the applicable
agreement shall remain in full force and effect and shall not be affected by
such provision's severance. Furthermore, in lieu of any such provision, there
shall be added automatically as a part of the applicable agreement a legal and
enforceable provision as similar in terms to the severed provision as may be
possible.
(c) WAIVER OF JURY TRIAL; JURISDICTION; DEFENSES. THE COMPANY AND EACH
LENDER EACH HEREBY WAIVE ANY RIGHT TO A TRIAL BY JURY IN ANY ACTION OR
PROCEEDING ARISING OUT OF THIS TERM LOAN AGREEMENT. THE COMPANY HEREBY
IRREVOCABLY WAIVES PERSONAL SERVICE OF PROCESS AND CONSENTS TO SERVICE OF
PROCESS BY CERTIFIED OR REGISTERED MAIL, RETURN RECEIPT REQUESTED, POSTAGE
PREPAID.
ALL DISPUTES ARISING HEREUNDER OR UNDER ANY LOAN DOCUMENT OR WITH
RESPECT TO ANY COLLATERAL OR ARISING OUT OF, CONNECTED WITH, RELATED TO, OR
INCIDENTAL TO THE RELATIONSHIP ESTABLISHED BETWEEN THE COMPANY AND THE LENDERS
IN CONNECTION WITH THIS TERM LOAN AGREEMENT OR ANY LOAN DOCUMENT SHALL BE
RESOLVED ONLY BY THE STATE OR FEDERAL COURTS LOCATED IN THE STATE OF NEW YORK,
CITY OF NEW YORK (UNLESS A LENDER IS REQUIRED (BY VIRTUE OF THE LOCATION OF THE
COLLATERAL) TO RESOLVE A DISPUTE IN THE COURT OF A DIFFERENT JURISDICTION, IN
WHICH CASE, THE COMPANY AGREES TO RESOLVE SUCH DISPUTE IN SUCH COURT). THE
COMPANY HEREBY WAIVES IN ALL DISPUTES ANY OBJECTION THAT IT MAY HAVE TO THE
LOCATION OF THE COURT CONSIDERING THE DISPUTE.
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<PAGE> 19
(d) GOVERNING LAW. VALIDITY, INTERPRETATION AND ENFORCEMENT OF THIS
TERM LOAN AGREEMENT SHALL BE GOVERNED BY THE LAWS OF THE STATE OF NEW YORK,
WITHOUT GIVING EFFECT TO PRINCIPLES OF CONFLICTS OF LAWS.
(e) Payment of Expenses. The Company and the Parent agree to pay or
reimburse each Lender and the Collateral Agent for all its costs and expenses
incurred in connection with the enforcement or preservation of any rights under
this Agreement, and the other Loan Documents including, without limitation,
fees and disbursements of counsel to the Collateral Agent and to the Lenders.
(f) Counterparts. This Term Loan Agreement may be executed in
counterparts, each of which shall be deemed an original, but all of which taken
together shall be deemed one instrument.
(g) Headings The headings and subheadings of this Term Loan Agreement
have been inserted for convenience of reference only and form no part of this
Term Loan Agreement.
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<PAGE> 20
IN WITNESS WHEREOF, parties hereto have caused this Term Loan
Agreement to be executed and delivered by their proper and duly authorized
officers as of the date set forth above.
LDI Acquisition Sub Inc..
By: /s/ David R. Hess
---------------------------------
David R. Hess
Chief Executive Officer
Address:
4150 SW 28th Way
Ft. Lauderdale, Florida 33312
Attn: Elizabeth Tuttle, CFO
Fax No.: (954) 327-7676
Long Distance International Inc.
By: /s/ David R. Hess
---------------------------------
David R. Hess
Chief Executive Officer
Address:
4150 SW 28th Way
Ft. Lauderdale, Florida 33312
Attn: Elizabeth Tuttle, CFO
Fax No.: (954) 327-7676
/s/ Frederick A. DeLuca
-------------------------------------
Frederick A. DeLuca
Address:
512 NE 23rd Avenue
Ft. Lauderdale, Florida 33301
Fax No.:
Commitment: $10,000,000
SIGNATURE PAGE TO TERM LOAN AGREEMENT
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<PAGE> 21
Supplemental Counterpart
Signature page to Term
Loan Agreement
By executing this Supplement Signature page, the undersigned agrees to
be bound by the terms and conditions of that certain Term Loan Agreement dated
as of July 20, 1999, among LDI Acquisition Sub Inc., a Delaware corporation,
Long Distance International Inc., a Florida corporation, the Lenders listed on
the initial and supplemental signature pages thereof (the "Lenders") and
Frederick A. DeLuca, as collateral agent for the Lenders.
[Name of Lender]
By:
---------------------------------
Name:
Title:
Address:
Attn:
Telephone No.:
Fax No.:
Commitment: $__________
<PAGE> 22
SCHEDULE 1
SUBSIDIARIES
(i) Dynamic Telecom International Inc. - Florida
(ii) LDI Telecommunikations - GmBH
(iii) LDI Communications LTD. - United Kingdom
(iv) LDI Denmark ApS - Denmark
(v) NETnet International AB
(vi) LDI Telecom SA - France
(vii) LDI LTD. - United Kingdom
(viii) Newgate Communications - United Kingdom
<PAGE> 1
Exhibit 10.19
PROMISSORY NOTE
(Term Note)
July 20, 1999
$10,000,000
FOR VALUE RECEIVED, LDI Acquisition Sub Inc., a Delaware corporation (the
"Company"), promises to pay to the order of Frederick A. DeLuca (herein the
"Lender"), at 512 NE 23rd Avenue, Ft. Lauderdale, Florida 33301, in lawful money
of the United States of America and in immediately available funds, the
principal amount of Ten Million and 00/100 Dollars ($10,000,000), on July 20,
2000 subject to extension pursuant to the terms of the Loan Agreement (the
"Maturity Date").
The Company further agrees to pay interest at said office, in like money, on
the unpaid principal amount owing hereunder on the Maturity Date at a rate of
twelve and one-quarter percent (12 1/4%) per annum. Such interest shall be
payable monthly in accordance with Section 4(b) of the Loan Agreement (as
hereinafter defined). Default Interest at the annual rate of 24 1/2% shall be
payable on any overdue payments of principal and/or interest in accordance with
Section 4(c) of the Loan Agreement. Capitalized terms used herein and not
otherwise defined herein shall have the meanings ascribed thereto in the Term
Loan Agreement dated as of the date hereof (the "Loan Agreement"), among the
Company, the Lender, Long Distance International Inc., the other lenders party
thereto (the "Lenders") and Frederick A. DeLuca, as Collateral Agent for the
Lenders.
If any payment on this Note becomes due and payable on a day other than a
Business Day, maturity thereof shall be extended to the next succeeding
Business Day, and with respect to payments of principal, interest thereon shall
be payable at the then applicable rate during such extension.
This Note is the Term Note referred to in the Loan Agreement, evidences the
Term Loan thereunder, and is subject to, and entitled to, all the provisions
and benefits thereof (including, without limitation, the security of the
Pledged Collateral) and is subject to the prepayment provisions provided
therein.
Upon the occurrence of any one or more of the Events of Default specified in
the Loan Agreement or upon termination of the Loan Agreement, all amounts then
remaining unpaid on this Note may become, or be declared to be, immediately due
and payable as provided in the Loan Agreement. The Company shall be responsible
for all costs of enforcement of this Note in accordance with Section 13(e) of
the Loan Agreement.
<PAGE> 2
IN WITNESS WHEREOF, the undersigned has caused this Note to
be executed and delivered by its proper and duly authorized officer on the date
set forth above.
LDI ACQUISITION SUB INC.
By: /s/ David R. Hess
---------------------------------
David R. Hess
Chief Executive Officer
SIGNATURE PAGE TO PROMISSORY NOTE
<PAGE> 1
Exhibit 10.20
STOCK PLEDGE AGREEMENT
LDI Acquisition Sub Inc.
c/o Long Distance International Inc.
4150 SW 28th Way
Ft. Lauderdale, Florida 33312
To: Frederick A. DeLuca
512 NE 23rd Avenue
Ft. Lauderdale, Florida 33301
July 20, 1999
Gentlemen:
Reference is made to a certain Term Loan Agreement dated of even date herewith
(herein called "Term Loan Agreement") among Long Distance International Inc., a
Florida corporation (herein called "the Company"), the undersigned, the lenders
from time to time parties thereto (the "Lenders") and you, in your capacity as
Collateral Agent for the ratable benefit of yourself and the other Lenders (the
"Collateral Agent"). Capitalized terms used herein and defined in the Term Loan
Agreement shall have the same meanings as set forth therein unless otherwise
specifically defined herein. As security for: the full payment and performance
when due of all now existing and future Obligations of the Company and the
Pledgor arising pursuant to the Term Loan Agreement (all of which are herein
called "Secured Obligations"), the undersigned (hereinafter "Pledgor") hereby
pledges, assigns, transfers, delivers and sets over to the Collateral Agent,
for the ratable benefit of itself and the other Lenders, all of its right,
title and interest in and to the securities listed on the attached Schedule 1,
issued as indicated on said schedule ("Securities").
This pledge includes all right, title and interest in and to and a continuing
lien upon and security interest in, all of said Securities together with any
investment property and security entitlements with respect thereto, including,
without limitation, all dividends, liquidating dividends, splits, dividends
paid in stock, dividends paid in Securities, new or reclassified Securities, or
any other property which the Pledgor is or may hereafter become entitled to
receive on account of such Securities, any and all increments, substitutions,
additions or replacements thereof, and any and all proceeds thereof (all
collectively hereinafter referred to as "Pledged Collateral").
This Stock Pledge Agreement is executed as an inducement to the Lenders to make
the Term Loan to the Company pursuant to the Term Loan Agreement, or otherwise
to extend credit or financial accommodations to the Company or to enter into or
continue financing arrangements with the Company, and is executed in
consideration of the Lenders doing or having done any of the foregoing.
Pledgor shall be in default under this Pledge Agreement upon the occurrence of
any of the following (herein any such default shall be referred to as an "Event
of Default"):
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<PAGE> 2
1. occurrence of any Event of Default under the Term Loan
Agreement;
2. if any warranty, representation or statement contained in
this Stock Pledge Agreement is materially or substantially
breached, or is, or becomes materially or substantially
untrue;
3. commencement by or against the Pledgor of any bankruptcy,
insolvency, arrangement, reorganization, receivership or
similar proceedings under any federal or state law; provided
that any such involuntary proceeding which is commenced
against the Pledgor is not dismissed within sixty (60) days;
or
In the event of the happening of any such Event of Default (which is not cured
by Pledgor to the Collateral Agent's satisfaction or waived by the Collateral
Agent in writing), on ten (10) days prior notice to the Pledgor, without the
curing of such default within such time, the Collateral Agent may, without
demand of performance, advertisement or notice of intention to sell, or of the
time or place of sale, and without notice to redeem, or other notice or demand
whatsoever to or upon the Pledgor (all and each of which demands,
advertisements and/or notices are hereby expressly waived), forthwith or at any
time or times thereafter, transfer to and/or register in the Collateral Agent's
name, or the name of the Collateral Agent's nominee, any or all of the Pledged
Collateral and/or collect, receive, appropriate and realize upon said Pledged
Collateral. In addition, and also without any of the aforesaid demands,
advertisements, and/or notices, upon the occurrence of any Event of Default as
defined herein (which is not cured by Pledgor to the Collateral Agent's
satisfaction or waived by the Collateral Agent in writing), the Collateral
Agent may sell, assign, transfer and deliver the whole or any part of the
Pledged Collateral held by the Collateral Agent under this Stock Pledge
Agreement or subject to this Stock Pledge Agreement in one or more parcels, at
public or private sale or sales, at any Exchange Broker's Board, at the
Collateral Agent's office or elsewhere, on such terms and conditions, and at
such prices as the Collateral Agent may deem advisable, for cash, upon credit,
or for future delivery, with the right on the Collateral Agent's part to become
the purchaser thereof at any such sale or sales, free and clear of any right to
equity of redemption (which right or equity is hereby expressly waived and
released). Any notice of sale, disposition, or other intended action by the
Collateral Agent required by applicable law and sent to the Pledgor at least
ten (10) days prior to such action shall constitute reasonable notice to the
Pledgor.
Net proceeds of any such disposition as aforesaid, after deduction of all
costs, including reasonable attorneys' fees and expenses of every kind incurred
therein, shall be applied to the payment in whole or in part, in such order as
the Collateral Agent may elect, of any of the Secured Obligations. The
Collateral Agent agrees to pay over and return any remaining balance to the
Pledgor or to any person entitled thereto, upon proper demand being made
therefor, and if there be any deficiency, Pledgor and the Company shall
continue to be fully liable for same.
Further, the Collateral Agent is hereby expressly granted the right and
irrevocable proxy, in the event of the happening of any Event of Default (as
defined herein) (which is not cured by Pledgor to the Collateral Agent's
satisfaction or waived by the Collateral Agent in writing), and on ten (10)
days prior notice to the Pledgor, without the curing by the Pledgor or the
waiving by the Collateral Agent of such Event of Default within such time, to
transfer to the Collateral Agent or to the Collateral Agent's nominee any or
all of the Pledged Collateral or to register same in the Collateral Agent's
name on the books of the company or entity issuing same; to receive cash
2
<PAGE> 3
dividends, coupons and income thereon and to hold the same as additional
collateral security hereunder, or to apply it against the Secured Obligations
and to exercise any voting rights with respect to said Collateral for any
purposes as the Collateral Agent in its discretion deems advisable, and to
otherwise exercise as to such Pledged Collateral all rights, powers and
remedies as the owner thereof.
Pledgor hereby represents and warrants that the Pledged Collateral is owned by
the Pledgor absolutely, and is free and clear of all liens and encumbrances
except for the pledge in favor of the Collateral Agent and except for Permitted
Encumbrances (as defined in the Financing Agreement); that there are no
restrictions (other than pursuant to applicable securities laws, if any) upon
the pledge or transfer of any of the Pledged Collateral; that the Pledgor has
full right to pledge and transfer the same in accordance with the terms and
conditions of this Stock Pledge Agreement, free of all encumbrances (except
said Permitted Encumbrances) and without the consent of any or person, firm,
entity or corporation and without the need to notify the issuing company and/or
obtain their consent to the pledge; and that said Pledged Collateral is not
subject to any assessment. Pledgor further represents and warrants that the
issuers of the Securities do not have outstanding any options, warrants or
other rights to purchase capital stock of such issuers and that the Securities
pledged hereunder represent all the issued and outstanding shares of capital
stock of such issuers (the "Issuers"). Pledgor covenants that it will cause the
Issuers not to issue any securities other than the Securities pledged
hereunder; provided that additional securities of the Issuers may be issued so
long as such new securities are pledged to the Collateral Agent and become a
part of the Pledged Collateral.
Pledgor hereby agrees (a) to do all acts that may be necessary to maintain,
preserve, and protect the Pledged Collateral; (b) to appear in and defend any
action or proceeding that may affect its title to or the Collateral Agent's
interest in the Pledged Collateral; and (c) not to surrender or lose possession
of (other than to the Collateral Agent), sell, encumber, lease, rent, or
otherwise dispose of or transfer any Pledged Collateral or right or interest
therein except as hereinafter provided, and to keep the Pledged Collateral free
of all security interests or other liens or charges except those approved in
writing by the Collateral Agent.
Pledgor agrees that the Collateral Agent will have no obligation to defend or
protect the Pledged Collateral
Pledgor recognizes that the Collateral Agent may be unable to effect a public
sale of any or all of the Collateral, by reason of certain prohibitions
contained in the Securities Act of 1933 and applicable state securities law or
otherwise, and may be compelled to resort to one or more private sales thereof
to a restricted group of purchasers which will be obligated to agree, among or
things, to acquire such securities for their own account for investment and not
with a view to the distribution or resale thereof. Pledgor acknowledges and
agrees that any such private sale may result in prices and or terms less
favorable to the Collateral Agent than if such sale were a public sale and
agrees that such circumstances shall not, in and of themselves, result in a
determination that such sale was not made in a commercially reasonable manner.
The Collateral Agent shall be under no obligation to delay a sale of any of the
Pledged Collateral for the period of time necessary to permit the issuer to
register such securities for public sale under the Securities Act of 1933, or
3
<PAGE> 4
under applicable state securities laws, even if the issuer agrees to do so.
Additionally, if not prohibited by law, the Collateral Agent shall have the
right to bid for the Pledged Collateral at any such sale.
The Collateral Agent agrees that until the occurrence and continuance of an
Event of Default, the Pledgor shall retain all voting rights with respect to
the Pledged Collateral and shall be entitled to all dividends, distributions
and other rights with respect thereto.
It is understood and agreed that the rights and remedies herein enumerated are
not intended to be exhaustive but are in addition to any other rights or
remedies at law or in equity. The Collateral Agent shall have the absolute
right in its sole discretion to determine the order in which its rights and
remedies are to be exercised, and the Collateral Agent's exercise of any right
or remedy shall not preclude the exercise of any other rights or remedies or be
deemed to be a waiver thereof. No act of forbearance, or agreement to forebear
the enforcement of, or extension of the date of maturity of, any Secured
Obligation, shall in any way constitute a release of, or a waiver or
relinquishment of any of the Collateral Agent's rights or remedies.
All notices and other communications provided for hereunder shall, unless
otherwise stated herein, be in writing (including by telex or telecopier) and
mailed, sent or delivered to the respective parties hereto at or to their
respective addresses or telex or telecopier numbers set forth below their names
on the signature pages of the Term Loan Agreement, or at or to such other
address or telex or telecopier number as shall be designated by either party in
a written notice to the other party hereto. All such notices and communications
shall be effective (a) if delivered by hand, upon delivery; (b) if sent by
mail, upon the date of receipt; (c) if sent by telex, upon receipt by the
sender of an appropriate answerback; and (d) if sent by telecopy, upon receipt.
This Stock Pledge Agreement may be executed in one or more Counterparts, each
of which shall be deemed to be an original as against the party executing the
same and all of which together shall be deemed to constitute one and the same
agreement.
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<PAGE> 5
This Stock Pledge Agreement is to be governed by the laws of the State of New
York and shall be binding on the successors and assigns of the Pledgor, and
shall inure to the Collateral Agent's benefit and the benefit of its successors
and assigns.
Very truly yours,
LDI ACQUISITION SUB INC.
By: /s/ David R. Hess
---------------------------------------
David R. Hess
Chief Executive Officer
AGREED:
/s/ Frederick A. DeLuca
- ----------------------------------------
Frederick A. DeLuca, as Collateral Agent
SIGNATURE PAGE TO STOCK PLEDGE AGREEMENT
5
<PAGE> 6
Schedule 1
SUBSIDIARIES
1. 1,200 shares of common stock, $1.00 par value of Dynamic Telecom
International Inc. - Florida
2. All of the issued and outstanding capital stock of LDI
Telecommunications - GmBH
3. One (1) ordinary share of LDI Communications Limited - United
Kingdom
4. All of the issued and outstanding capital stock of LDI Denmark ApS
- - Denmark
5. All of the issued and outstanding capital stock of NETnet
International AB, subject to the prior liens in favor of Skandinaviska Enskilda
Banken AB and Finans Skandic AB
6. All of the issued and outstanding capital stock of LDI Telecom SA -
France
7. 156,250 ordinary shares of Long Distance International Limited -
United Kingdom
8. 788,287,456 ordinary shares of Newgate Communications - United
Kingdom
<PAGE> 1
Exhibit 10.21
PARENT STOCK PLEDGE AGREEMENT
Long Distance International Inc.
4150 SW 28th Way
Ft. Lauderdale, Florida 33312
To: Frederick A. DeLuca
512 NE 23rd Avenue
Ft. Lauderdale, Florida 33301
July 20, 1999
Gentlemen:
Reference is made to a certain Term Loan Agreement dated of even date herewith
(herein called "Term Loan Agreement") among LDI Acquisition Sub Inc., a
Delaware corporation (herein called "the Company"), the undersigned, the
lenders from time to time parties thereto (the "Lenders") and you, in your
capacity as Collateral Agent for the ratable benefit of yourself and the other
Lenders (the "Collateral Agent"). Capitalized terms used herein and defined in
the Term Loan Agreement shall have the same meanings as set forth therein
unless otherwise specifically defined herein. The Pledgor (as hereinafter
defined) is the parent of the Company and will derive substantial benefit from
the term loans to be advanced by the Lenders to the Company. As security for:
the full payment and performance when due of all now existing and future
Obligations of the Company and the Pledgor arising pursuant to the Term Loan
Agreement (all of which are herein called "Secured Obligations"), the
undersigned (hereinafter "Pledgor") hereby pledges, assigns, transfers,
delivers and sets over to the Collateral Agent, for the ratable benefit of
itself and the other Lenders, all of its right, title and interest in and to
the securities listed on the attached Schedule 1, issued as indicated on said
schedule ("Securities").
This pledge includes all right, title and interest in and to and a continuing
lien upon and security interest in, all of said Securities together with any
investment property and security entitlements with respect thereto, including,
without limitation, all dividends, liquidating dividends, splits, dividends
paid in stock, dividends paid in Securities, new or reclassified Securities, or
any other property which the Pledgor is or may hereafter become entitled to
receive on account of such Securities, any and all increments, substitutions,
additions or replacements thereof, and any and all proceeds thereof (all
collectively hereinafter referred to as "Pledged Collateral").
This Stock Pledge Agreement is executed as an inducement to the Lenders to make
the Term Loan to the Company pursuant to the Term Loan Agreement, or otherwise
to extend credit or financial accommodations to the Company or to enter into or
continue financing arrangements with the Company, and is executed in
consideration of the Lenders doing or having done any of the foregoing.
Pledgor shall be in default under this Pledge Agreement upon the occurrence of
any of the following (herein any such default shall be referred to as an "Event
of Default"):
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<PAGE> 2
1. occurrence of any Event of Default under the Term Loan
Agreement;
2. if any warranty, representation or statement contained in
this Stock Pledge Agreement is materially or substantially
breached, or is, or becomes materially or substantially
untrue;
3. commencement by or against the Pledgor of any bankruptcy,
insolvency, arrangement, reorganization, receivership or
similar proceedings under any federal or state law; provided
that any such involuntary proceeding which is commenced
against the Pledgor is not dismissed within sixty (60) days;
or
In the event of the happening of any such Event of Default (which is not cured
by Pledgor to the Collateral Agent's satisfaction or waived by the Collateral
Agent in writing), on ten (10) days prior notice to the Pledgor, without the
curing of such default within such time, the Collateral Agent may, without
demand of performance, advertisement or notice of intention to sell, or of the
time or place of sale, and without notice to redeem, or other notice or demand
whatsoever to or upon the Pledgor (all and each of which demands,
advertisements and/or notices are hereby expressly waived), forthwith or at any
time or times thereafter, transfer to and/or register in the Collateral Agent's
name, or the name of the Collateral Agent's nominee, any or all of the Pledged
Collateral and/or collect, receive, appropriate and realize upon said Pledged
Collateral. In addition, and also without any of the aforesaid demands,
advertisements, and/or notices, upon the occurrence of any Event of Default as
defined herein (which is not cured by Pledgor to the Collateral Agent's
satisfaction or waived by the Collateral Agent in writing), the Collateral
Agent may sell, assign, transfer and deliver the whole or any part of the
Pledged Collateral held by the Collateral Agent under this Stock Pledge
Agreement or subject to this Stock Pledge Agreement in one or more parcels, at
public or private sale or sales, at any Exchange Broker's Board, at the
Collateral Agent's office or elsewhere, on such terms and conditions, and at
such prices as the Collateral Agent may deem advisable, for cash, upon credit,
or for future delivery, with the right on the Collateral Agent's part to become
the purchaser thereof at any such sale or sales, free and clear of any right to
equity of redemption (which right or equity is hereby expressly waived and
released). Any notice of sale, disposition, or other intended action by the
Collateral Agent required by applicable law and sent to the Pledgor at least
ten (10) days prior to such action shall constitute reasonable notice to the
Pledgor.
Net proceeds of any such disposition as aforesaid, after deduction of all
costs, including reasonable attorneys' fees and expenses of every kind incurred
therein, shall be applied to the payment in whole or in part, in such order as
the Collateral Agent may elect, of any of the Secured Obligations. The
Collateral Agent agrees to pay over and return any remaining balance to the
Pledgor or to any person entitled thereto, upon proper demand being made
therefor, and if there be any deficiency, Pledgor and the Company shall
continue to be fully liable for same.
Further, the Collateral Agent is hereby expressly granted the right and
irrevocable proxy, in the event of the happening of any Event of Default (as
defined herein) (which is not cured by Pledgor to the Collateral Agent's
satisfaction or waived by the Collateral Agent in writing), and on ten (10)
days prior notice to the Pledgor, without the curing by the Pledgor or the
waiving by the Collateral Agent of such Event of Default within such time, to
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<PAGE> 3
transfer to the Collateral Agent or to the Collateral Agent's nominee any or
all of the Pledged Collateral or to register same in the Collateral Agent's
name on the books of the company or entity issuing same; to receive cash
dividends, coupons and income thereon and to hold the same as additional
collateral security hereunder, or to apply it against the Secured Obligations
and to exercise any voting rights with respect to said Collateral for any
purposes as the Collateral Agent in its discretion deems advisable, and to
otherwise exercise as to such Pledged Collateral all rights, powers and
remedies as the owner thereof.
Pledgor hereby represents and warrants that the Pledged Collateral is owned by
the Pledgor absolutely, and is free and clear of all liens and encumbrances
except for the pledge in favor of the Collateral Agent and except for Permitted
Encumbrances (as defined in the Financing Agreement); that there are no
restrictions (other than pursuant to applicable securities laws, if any) upon
the pledge or transfer of any of the Pledged Collateral; that the Pledgor has
full right to pledge and transfer the same in accordance with the terms and
conditions of this Stock Pledge Agreement, free of all encumbrances (except
said Permitted Encumbrances) and without the consent of any or person, firm,
entity or corporation and without the need to notify the issuing company and/or
obtain their consent to the pledge; and that said Pledged Collateral is not
subject to any assessment. Pledgor further represents and warrants that the
issuers of the Securities do not have outstanding any options, warrants or
other rights to purchase capital stock of such issuers and that the Securities
pledged hereunder represent all the issued and outstanding shares of capital
stock of such issuers (the "Issuers"). Pledgor covenants that it will cause the
Issuers not to issue any securities other than the Securities pledged
hereunder; provided that additional securities of the Issuers may be issued so
long as such new securities are pledged to the Collateral Agent and become a
part of the Pledged Collateral.
Pledgor hereby agrees (a) to do all acts that may be necessary to maintain,
preserve, and protect the Pledged Collateral; (b) to appear in and defend any
action or proceeding that may affect its title to or the Collateral Agent's
interest in the Pledged Collateral; and (c) not to surrender or lose possession
of (other than to the Collateral Agent), sell, encumber, lease, rent, or
otherwise dispose of or transfer any Pledged Collateral or right or interest
therein except as hereinafter provided, and to keep the Pledged Collateral free
of all security interests or other liens or charges except those approved in
writing by the Collateral Agent.
Pledgor agrees that the Collateral Agent will have no obligation to defend or
protect the Pledged Collateral
Pledgor recognizes that the Collateral Agent may be unable to effect a public
sale of any or all of the Collateral, by reason of certain prohibitions
contained in the Securities Act of 1933 and applicable state securities law or
otherwise, and may be compelled to resort to one or more private sales thereof
to a restricted group of purchasers which will be obligated to agree, among or
things, to acquire such securities for their own account for investment and not
with a view to the distribution or resale thereof. Pledgor acknowledges and
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<PAGE> 4
agrees that any such private sale may result in prices and or terms less
favorable to the Collateral Agent than if such sale were a public sale and
agrees that such circumstances shall not, in and of themselves, result in a
determination that such sale was not made in a commercially reasonable manner.
The Collateral Agent shall be under no obligation to delay a sale of any of the
Pledged Collateral for the period of time necessary to permit the issuer to
register such securities for public sale under the Securities Act of 1933, or
under applicable state securities laws, even if the issuer agrees to do so.
Additionally, if not prohibited by law, the Collateral Agent shall have the
right to bid for the Pledged Collateral at any such sale.
The Collateral Agent agrees that until the occurrence and continuance of an
Event of Default, the Pledgor shall retain all voting rights with respect to
the Pledged Collateral and shall be entitled to all dividends, distributions
and other rights with respect thereto.
It is understood and agreed that the rights and remedies herein enumerated are
not intended to be exhaustive but are in addition to any other rights or
remedies at law or in equity. The Collateral Agent shall have the absolute
right in its sole discretion to determine the order in which its rights and
remedies are to be exercised, and the Collateral Agent's exercise of any right
or remedy shall not preclude the exercise of any other rights or remedies or be
deemed to be a waiver thereof. No act of forbearance, or agreement to forebear
the enforcement of, or extension of the date of maturity of, any Secured
Obligation, shall in any way constitute a release of, or a waiver or
relinquishment of any of the Collateral Agent's rights or remedies.
All notices and other communications provided for hereunder shall, unless
otherwise stated herein, be in writing (including by telex or telecopier) and
mailed, sent or delivered to the respective parties hereto at or to their
respective addresses or telex or telecopier numbers set forth below their names
on the signature pages of the Term Loan Agreement, or at or to such other
address or telex or telecopier number as shall be designated by either party in
a written notice to the other party hereto. All such notices and communications
shall be effective (a) if delivered by hand, upon delivery; (b) if sent by
mail, upon the date of receipt; (c) if sent by telex, upon receipt by the
sender of an appropriate answerback; and (d) if sent by telecopy, upon receipt.
This Stock Pledge Agreement may be executed in one or more counterparts, each
of which shall be deemed to be an original as against the party executing the
same and all of which together shall be deemed to constitute one and the same
agreement.
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<PAGE> 5
This Stock Pledge Agreement is to be governed by the laws of the State of New
York and shall be binding on the successors and assigns of the Pledgor, and
shall inure to the Collateral Agent's benefit and the benefit of its successors
and assigns.
Very truly yours,
LONG DISTANCE INTERNATIONAL INC.
By: /s/ David R. Hess
--------------------------------------
David R. Hess
Chief Executive Officer
AGREED:
/s/ Frederick A. DeLuca
- ----------------------------------------
Frederick A. DeLuca, as Collateral Agent
SIGNATURE PAGE TO PARENT STOCK PLEDGE AGREEMENT
5
<PAGE> 6
SCHEDULE 1
SUBSIDIARY
1,000 Shares of Common Stock, par value $.001 per share, of LDI Acquisition Sub
Inc., a Delaware Corporation.
<PAGE> 1
Exhibit 10.22
THE SECURITIES EVIDENCED HEREBY HAVE BEEN ACQUIRED FOR INVESTMENT PURPOSES ONLY
AND HAVE NOT BEEN REGISTERED UNDER THE SECURITIES ACT OF 1933, AS AMENDED. SUCH
SECURITIES MAY NOT BE SOLD, ASSIGNED, TRANSFERRED, PLEDGED OR HYPOTHECATED
UNLESS REGISTERED UNDER THE SECURITIES ACT OF 1933, AS AMENDED, OR UNLESS THE
COMPANY HAS RECEIVED AN OPINION OF ITS COUNSEL OR COUNSEL REASONABLY
SATISFACTORY TO THE COMPANY THAT SUCH REGISTRATION IS NOT REQUIRED.
LONG DISTANCE INTERNATIONAL INC.,
A FLORIDA CORPORATION
WARRANT CERTIFICATE
Class A Bridge Loan Warrant to Purchase Common Stock
Long Distance International Inc., a Florida Corporation (the
"Company"), hereby certifies that, for value received, Frederick A. DeLuca, an
individual residing at 512 NE 23rd Avenue, Ft. Lauderdale, Florida 33301 (the
"Holder"), is entitled to purchase from the Company [number]1 of fully paid,
validly issued and non-assessable shares of common stock, par value $0.001 per
share, of the Company ("Common Stock") at an exercise price of $0.001 per share
(the "Exercise Price") at any time or from time to time from and after the
Initial Exercise Date up to and including July 20, 2004. This Warrant is one of
a series of warrants designated the Class A Bridge Loan Warrants to Purchase
Common Stock ("Class A Warrants") and has been issued with a companion warrant
in a series designated the Class B Bridge Loan Warrants to Purchase Common
Stock ("Class B Warrants"). The Class A Warrants and the Class B Warrants are
being issued to the initial holders thereof pursuant to that certain Term Loan
Agreement, dated as of July 20, 1999 ("Term Loan Agreement"), as additional
consideration for, and as an inducement to make, the Term Loans (as defined
therein). Pursuant to the terms of the Class B Warrants, the Class B Warrants
shall become void and of no further force and effect in the event that the
loans outstanding under the Term Loan Agreement are repaid on or prior to
November 20, 1999. The number of shares of Common Stock to be received upon the
exercise of this Warrant may be adjusted from time to time as provided herein.
Section 1. Exercise of Warrant. This Warrant may be exercised in whole
or in part at any time or from time to time on or after the Initial Exercise
Date of this Warrant; provided, however, that if the day of exercise is a day
on which banking institutions in the State of Florida are authorized by law to
close,
- ------------------
1 This number ("ws") will be determined in accordance with the
following formula:
( P )
WS = ( ------) (OS)
( 1-P )
p = the product of (a) 0.30, multiplied by (b) the quotient
of the amount of the Term Loan made by the Holder divided by $40
million,
os = 87,805,899, the number of outstanding shares of the
Company on a fully diluted basis immediately prior to the initial
closing under the Term Loan Agreement.
<PAGE> 2
then the exercise by the Holder shall be deemed to take place on the next
succeeding day that is not such a bank closing day. The Initial Exercise Date
shall mean the date on which the first to occur of the following events has
occurred: (a) the sixteenth month anniversary date of the issuance of this
Warrant; (b) the date the Company consummates an initial public offering of
shares of Common Stock pursuant to an effective registration statement under
the Securities Act of 1933; (c) the date the Company consummates a sale of all
or a substantial portion of the business of the Company and its consolidated
subsidiaries taken as a whole, whether by way of merger, consolidation, sale of
assets or sale of capital stock; (d) the date a bankruptcy petition is filed by
or against the Company, LDI Acquisition Sub Inc. or a material operating
subsidiary of LDI Acquisition Sub Inc.; (e) the effective date of a waiver
under the Indenture, dated as of April 13, 1998 (the "Indenture"), pursuant to
which the Company's 12 1/4% Senior Notes Due 2008 were issued, the effect of
which waiver would be to waive the requirement that the Company repurchase the
Notes pursuant to Section 4.12 of the Indenture because of a Change of Control
(as defined in the Indenture); and (f) the date on which the exercise of all
Class A Warrants and all Class B Warrants would not result in a Change of
Control; (g) the date on which a Change of Control under the Indenture occurs
for a reason other than an exercise of any of the Class A Warrants or Class B
Warrants issued under the Term Loan Agreement and a waiver with respect thereto
described in clause (e) above is not obtained; and (h) the date on which
Clifford Friedland and David Glassman cease to be directors of the Company
(other than by reason of their death or disability) or beneficially own in the
aggregate less than 5,000,000 shares of Common Stock. This Warrant shall be
exercised by presentation and surrender of this Warrant to the Company at its
principal office, with the Exercise Form annexed hereto as Exhibit A duly
executed by the Holder, accompanied by payment in full of an amount equal to
the product of the number of shares of Common Stock being purchased by the
Holder hereunder and one-tenth of one cent ($0.001). Payment for such shares
shall be made to the Company in U.S. dollars in cash, by wire transfer or by
certified or official bank check payable to the order of the Company. Promptly
after each such exercise of this Warrant, the Company shall issue and deliver
to the Holder a certificate or certificates for the Common Stock issuable upon
such exercise, registered in the name of the Holder. If this Warrant should be
exercised in part only, the Company shall, upon surrender of this Warrant for
cancellation, promptly execute and deliver a new Warrant, in substantially the
form of this Warrant, evidencing the rights of the Holder thereof to purchase
the balance of the Common Stock purchasable hereunder. Upon the last to occur
of receipt by the Company of this Warrant at its office in proper form for
exercise, together with a duly executed Exercise Form, and receipt by the
Company of full payment of the exercise price for the shares of Common Stock
then being purchased hereunder, in accordance with the terms hereof, (i) the
Holder shall be deemed to be the holder of record of the shares of Common Stock
issuable upon such exercise, notwithstanding that the stock transfer books of
the Company shall then be closed or that certificates representing such shares
of Common Stock shall not then be physically delivered to the Holder, and (ii)
such shares of Common Stock shall be fully paid and non-assessable and free
from all preemptive rights of any shareholder and all taxes, liens and charges,
with respect to the issue thereof. The Company shall pay any stamp or issue
taxes payable in connection with issuance of Common Stock under this Warrant.
Section 2. Fractional Shares. No fractional shares or scrip
representing fractional shares shall be issued upon the exercise of this
Warrant. With respect to any fraction of a share called for upon any exercise
hereof, the Company shall pay to the Holder an amount in cash (rounded to the
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<PAGE> 3
nearest cent) equal to such fraction multiplied by one-tenth of one cent
($0.001) provided such amount is no less than one cent.
Section 3. Loss of Warrant. Upon receipt by the Company of evidence
satisfactory to it of the loss, theft, destruction or mutilation of this
Warrant (including any reasonable written certification that the Company may
require), and (in the case of loss, theft or destruction) of an agreement
indemnifying the Company in a form reasonably satisfactory to it, and (in the
case of mutilation) upon surrender and cancellation of this Warrant, the
Company shall execute and deliver to the Holder a new Warrant of like terms and
date.
Section 4. Rights of the Holder. This Warrant shall not entitle the
Holder hereof to any voting or other rights of a shareholder of the Company,
either at law or in equity, or to any notice of meetings of shareholders or of
any other proceedings of the Company, except as provided in this Warrant, and
except in connection with Common Stock that the Holder purchases as provided
herein. No provision of this Warrant, in the absence of the purchase by the
Holder of Common Stock hereunder, shall give rise to any liability of such
Holder for the exercise price or as a shareholder of the Company, whether to
the Company or creditors of the Company. The shares of Common Stock issued upon
exercise of this Warrant shall be subject to a stop transfer order and the
certificate or certificates evidencing such shares shall bear the following
legend:
"THE SHARES REPRESENTED BY THIS CERTIFICATE HAVE BEEN REGISTERED UNDER
THE SECURITIES ACT OF 1933, AS AMENDED (THE "ACT"), PURSUANT TO A
REGISTRATION STATEMENT FILED WITH THE SECURITIES AND EXCHANGE
COMMISSION. HOWEVER, SUCH SHARES MAY NOT BE OFFERED OR SOLD EXCEPT
PURSUANT TO (i) A POST-EFFECTIVE AMENDMENT TO SUCH REGISTRATION
STATEMENT, (ii) A SEPARATE REGISTRATION STATEMENT UNDER SUCH ACT, OR
(iii) AN EXEMPTION FROM REGISTRATION UNDER SUCH ACT."
and shall bear all legends as required pursuant to the other agreements to
which such Holder and the Company are a party. Any holder of any such
certificate or instrument bearing the foregoing legend shall be entitled to
promptly receive from the Company, 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 effectively registered under the Act and are sold or otherwise
disposed of in accordance with the intended method of disposition by the seller
thereof set forth in the registration statement, or such securities may be
freely transferred by such holder by reason of an exemption from registration
under the Act, or such legend otherwise is not required in order to ensure
compliance with the Act. The opinion of Loeb & Loeb LLP or other legal counsel
selected by such holder and reasonably satisfactory to the Company with respect
to any of the foregoing or with respect to any question concerning whether any
proposed transfer of any shares of common stock would violate the Act, shall be
sufficient to determine the issue.
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<PAGE> 4
Section 5. Adjustments.
(a) Adjustment of Price and Number of Common Stock. The
initial Exercise Calculation Price per share shall be one-tenth of one cent
($0.001). The Exercise Calculation Price shall be subject to adjustment from
time to time as provided in Section 5(b), (c) and (h). Upon each adjustment,
the Holder shall thereafter be entitled to purchase, at one-tenth of one cent
($0.001), the number of shares of Common Stock obtained by multiplying the
Exercise Calculation Price in effect immediately prior to such adjustment by
the number of shares of Common Stock issuable upon exercise of this Warrant
immediately prior to such adjustment, and dividing the product thereof by the
Exercise Calculation Price resulting from such adjustment.
(b) Adjustment for Stock Splits and Combinations. If the
Company at any time or from time to time after the date of this Warrant (the
"Commitment Date") effects a subdivision of the outstanding Common Stock of the
Company, the Exercise Calculation 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
Exercise Calculation Price then in effect immediately before the combination
shall be proportionately increased. Any adjustment under this subsection (b)
shall become effective at the close of business on the date the subdivision or
combination becomes effective.
(c) Adjustments for Certain Dividends and Distributions. If
the Company at any 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 Exercise Calculation 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
Exercise Calculation 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.
(d) Adjustments for other Dividends and Distributions. In the
event the Company at any 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 (including
options or warrants for Common Stock) of the Company other than shares of
Common Stock, then and in each such event provision shall be made by the
Company so that the Holder of this Warrant shall receive upon exercise thereof,
in addition to the number of shares of Common Stock receivable thereupon, the
amount of securities of the Company which the Holder would have received had
this Warrant been exercised to purchase Common Stock immediately before the
time of such issuance or the close of business on such record date and had the
Holder thereafter, during the period from the date of such event to and
including the exercise date, retained such securities receivable by the Holder
as aforesaid during such period, subject to all other adjustments called for
during such period under this Section 5 with respect to the rights of the
Holder, and subject to further adjustment as provided herein.
4
<PAGE> 5
(e) Adjustments for the 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 exercise of this Warrant 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 5), then and in any such event the Holder of this Warrant shall
have the right thereafter to exercise this Warrant and receive the kind and
amount of stock and other securities and property receivable, upon such
recapitalization, reclassification or other change, which the Holder would have
received had this Warrant been exercised to purchase Common Stock immediately
before the time of such recapitalization, reclassification or change, and had
the Holder thereafter, during the period from the date of such event to and
including the exercise date, retained such securities receivable by the Holder
as aforesaid during such period, subject to all other adjustments called for
during such period under this Section 5 with respect to the rights of the
Holder, and subject to further adjustment as provided herein. In any such case,
appropriate adjustment shall be made in the application of the provisions of
this Section 5 with respect to the rights of the Holder hereof after the
reorganization, merger, consolidation or sale to the end that the provision of
this Section 5 (including adjustment of the Exercise Calculation Price then in
effect and the number of shares purchasable upon exercise hereof) shall be
applicable after that event and be as nearly equivalent as may be practicable.
(f) 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 5) or a merger or consolidation of the Company with
or into another entity, or the sale of all or substantially all of the
Company's properties and assets to any other person or entity, then as part of
such reorganization, merger, consolidation or sale, provision shall be made so
that the Holder of this Warrant shall thereafter be entitled to receive upon
exercise of the Warrant the number of shares of stock or other securities or
property which the Holder would have received had this Warrant been exercised
to purchase Common Stock immediately before the time of such capital
reorganization, merger, consolidation or sale, and had the Holder thereafter,
during the period from the date of such event to and including the exercise
date, retained such securities receivable by the Holder as aforesaid during
such period, subject to all other adjustments called for during such period
under this Section 5 with respect to the rights of the Holder, and subject to
further adjustment as provided herein. In any such case, appropriate adjustment
shall be made in the application of the provisions of this Section 5 with
respect to the rights of the Holder hereof after the reorganization, merger,
consolidation or sale to the end that the provision of this Section 5
(including adjustment of the Exercise Calculation Price then in effect and the
number of shares purchasable upon exercise hereof) shall be applicable after
that event and be as nearly equivalent as may be practicable.
(g) Other Adjustments of Exercise Price and Number of Warrant
Shares.
(i) In case the Company shall, at any time after the
date hereof and in connection with an equity investment in or a loan to the
Company and/or LDI Acquisition Sub Inc., (a "Subsequent Financing") issue or
sell any shares of Common Stock and/or any options, rights or warrants to
5
<PAGE> 6
subscribe for shares of Common Stock ("New Shares"), then the number of shares
of Common Stock issuable upon exercise of this Warrant shall be increased in
accordance with, and subject to, the following provisions:
(A) The number of additional shares of
Common Stock issuable upon exercise of this Warrant shall be determined in
accordance with the following formula:
X = (WS) (NS)
---------
OS
X = The number of additional shares of Common Stock issuable upon exercise
of this Warrant
WS = The number of shares of Common Stock issuable upon exercise of this
Warrant immediately prior to the issuance or sale of New Shares.
NS = The number of shares of Common Stock issued or sold giving
rise to the adjustment pursuant to this Section 5(g), and/or the
maximum number of shares of Common Stock issuable upon exercise,
conversion or exchange of the Rights issued or sold giving rise to the
adjustment pursuant to this Section 5(g)
OS = 87,805,999
(B) Upon the expiration of any rights,
options, warrants or convertible or exchangeable securities for which an
adjustment was made hereunder, if any thereof shall not have been exercised,
the number of shares of Common Stock purchasable upon the exercise of each
Warrant shall, upon such expiration, be readjusted and shall thereafter be such
as it would have been had it been originally adjusted (or had the original
adjustment not been required, as the case may be) as if (i) the only rights,
options, warrants or convertible or exchangeable securities so issued were the
rights, options, warrants or convertible or exchangeable securities, if any,
actually exercised, converted or exchanged and (ii) such rights, options,
warrants or convertible or exchangeable securities, if any, were exercised,
converted or exchanged for the consideration actually received by the Company
upon such exercise, conversion or exchange plus the aggregate consideration, if
any, actually received by the Company for the issuance, sale or grant of all
such rights, options, warrants or convertible or exchangeable securities
whether or not exercised, converted or exchanged.
(C) Except as set forth below, "New Shares"
shall mean any shares of Common Stock or Rights issued or sold or proposed to
be issued or sold by the Company on or after the initial issue date (the
"Initial Issue Date") of the initial Class A Warrants and Class B Warrants
under the Term Loan Agreement. "New Shares" does not include (i) the Class A
Warrants and the Class B Warrants issued and sold by the Company or any shares
of Common Stock issued upon exercise of any thereof, (ii) shares of Common
Stock or Rights issued in consideration of the acquisition of all or any
portion of a business as a going concern, whether such acquisition shall be
effected by a purchase of assets, exchange of securities, merger,
consolidation, reorganization or otherwise, (iii) shares of Common Stock or
6
<PAGE> 7
Rights offered or proposed to be offered to the public pursuant to a
registration statement filed under the Securities Act of 1933, as amended, or
to any underwriter of any such offering, (iv) shares of Common Stock or Rights
issued in connection with any stock split or stock dividend by the Company, (v)
shares of Common Stock or Rights which the Company and the holders of at least
50% of the issued and outstanding shares issuable upon exercise of the Class A
Warrants agree in writing at any time and from time to time should not be
subject to the provisions of this Section 5(g); (vi) stock options granted to
the Company's directors, officers, employees, consultants and independent
contractors pursuant to bona fide stock option or employee benefit plans of the
Company approved by a majority of either the Board of Directors of the Company
or committee of the Board of Directors of the Company delegated to perform such
function, or shares of Common Stock issued upon exercise thereof, (vii) shares
of Common Stock issued upon exercise of Rights outstanding on the Initial Issue
Date, or (viii) shares of Common Stock issued upon exercise, exchange or
conversion of any Rights referred to in any preceding clause of this sentence.
No adjustment in the number of shares of Common Stock issuable or issued upon
exercise, exchange or conversion of any of the Rights referred to in the
immediately preceding sentence by reason of original provisions thereof which
provide for an automatic adjustment upon the occurrence of specified events
shall be deemed to be an issuance or proposed issuance of New Shares. For the
purposes of the definition of "New Shares", the term "Rights" shall mean any
options, warrants, convertible or exchangeable securities or other rights,
however denominated, to subscribe for, purchase or otherwise acquire Common
Stock or other Rights to subscribe for purchase or otherwise acquire Common
Stock, with or without payment of additional consideration in cash or property,
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.
(ii) The adjustments provided for in this Section
5(g) shall be made for all Subsequent Financings to the extent the aggregate
gross proceeds thereof do not exceed the difference of $40,000,000 less the
aggregate amount of Term Loans made by the Holder on the date of original
issuance and by all other holders of Class A Warrants and Class B Warrants on
or prior to such date.
(h) Accountants' Certificate of Adjustment. In each case of an
adjustment or readjustment of the Exercise Calculation Price or the number of
shares of Common Stock or other securities issuable upon exercise of this
Warrant, the Company, at its expense, reasonably promptly after such adjustment
or readjustment, 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 to prepare a statement
showing such adjustment or readjustment, and shall mail such statement, by first
class mail, postage prepaid, to the Holder of this Warrant at the Holder's
address as shown in the Company's books and records. The statement shall set
forth such adjustment or readjustment, showing in detail the facts upon which
such adjustment or readjustment is based.
Section 6. Reservation and Issuance of Common Stock
The Company shall at all times have authorized, and reserve and keep
available, free from preemptive rights, for the purpose of enabling it to
satisfy any obligation to issue fully paid and non-assessable shares of
7
<PAGE> 8
Common Stock upon the exercise of this Warrant, the number of shares of Common
Stock deliverable upon exercise of this Warrant, and the shares of Common Stock
issued upon exercise of this Warrant and full payment therefor in accordance
with the provisions hereof shall be validly issued, fully paid, non-assessable
and free of preemptive rights.
Section 7. Delivery of Stock Certificates on Exercise. As soon as
practicable after the exercise of this Warrant in full or in part, and in any
event within ten days thereafter, the Company at its expense (including the
payment by it of any applicable issue taxes) will cause to be issued in the
name of and delivered to the holder hereof, or as such holder (upon payment by
such holder of any applicable transfer taxes) may direct, a certificate or
certificates for the number of fully paid and nonassessable shares of Common
Stock (or Other Securities) to which such holder shall be entitled on such
exercise, plus, in lieu of any fractional share to which such holder would
otherwise be entitled, cash equal to such fraction multiplied by the then
current market value of one full share, together with any other stock or other
securities and property (including cash, where applicable) to which such holder
is entitled upon such exercise pursuant to Section 1 or otherwise under the
terms of this Warrant.
Section 8. No Impairment. The Company will not, by amendment of its
Certificate of Incorporation or through any reorganization, acquisition,
business combination, transfer of assets, consolidation, merger, dissolution,
issue or sale of securities or any other voluntary action, avoid or seek to
avoid the observance or performance of any of the terms of this Warrant, but
will at all times in good faith assist in the carrying out of all such terms
and in the taking of all such action as may be necessary or appropriate in
order to protect the rights of the holder of this Warrant. Without limiting the
generality of the foregoing, the Company:
(a) will not increase the par value of any shares of stock receivable
on the exercise of this Warrant above the amount payable therefor on such
exercise; and
(b) will take all such action as may be necessary or appropriate in
order that the Company may validly and legally issue fully paid and
nonassessable shares of Common Stock on the exercise of this Warrant from time
to time outstanding.
Section 9. Other Notices. In case at any time:
(a) The Company shall declare any cash dividend on its Common Stock;
(b) The Company shall pay any dividend payable in capital stock upon
its Common Stock or make any distribution (other than regular cash dividends)
to the holders of its Common Stock;
(c) The Company shall authorize the distribution to all holders of its
Common Stock of evidences of its indebtedness or assets (other than cash
dividends or cash distributions payable out of earnings or earned surplus or
dividends payable in Common Stock);
(d) There shall be any capital reorganization, or reclassification of
the capital stock of the Company, or consolidation or merger of the Company
with another entity (other than a subsidiary of the Company in which the
8
<PAGE> 9
Company is the surviving or continuing corporation and no change occurs in the
Company's Common Stock), or sale of all or substantially all of its assets to,
another person or entity;
(e) There shall be a voluntary or involuntary dissolution,
liquidation, bankruptcy, assignment for the benefit of creditors, or winding up
of the Company; or
(f) The Company proposes to take any other action or an event occurs
which would require an adjustment pursuant to Section 5;
then, in any one or more of said cases, the Company shall give written notice,
addressed to the Holder at the address of such Holder as shown on the books of
the Company within three business days thereafter.
Section 10. Governing Law and Jurisdiction. This Warrant shall be
governed by and interpreted under the law of the State of New York 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.
Section 11. Severability. If any part of this Warrant 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 construction in such
jurisdiction that effectuates the intent of the parties regarding this Warrant
and the unenforceable, invalid or conflicting part. Notwithstanding the
unenforceability, invalidity or conflict with applicable law of any part of
this Warrant, the remaining parts shall be valid, enforceable and binding on
the parties.
Section 12. Binding Effect. This Warrant shall be binding upon,
enforceable by and shall inure to the benefit of the parties hereto and their
respective permitted successors or assignees. Any Holder and its permitted
successors and assignees shall be deemed to be a Holder as defined and provided
for in this Warrant.
Section 13. Register; Assignment. The Holder may assign or transfer
all or any portion of this Warrant in compliance with the terms hereof. Any
Warrants issued upon the transfer or exercise in part of this Warrant shall be
numbered and shall be registered in a Warrant Register as they are issued. The
Company shall be entitled to treat the registered holder of any Warrant on the
Warrant Register as the owner in fact thereof for all purposes and shall not be
bound to recognize any equitable or other claim to or interest in such Warrant
on the part of any other person, and shall not be liable by reason of any
registration or transfer of Warrants which are registered or to be registered
in the name of a fiduciary or the nominee of a fiduciary unless made with the
actual knowledge that a fiduciary or nominee is committing a breach of trust in
requesting such registration or transfer, or with the knowledge of such facts
that its participation therein amounts to bad faith. This Warrant shall be
transferable only on the books of the Company upon delivery thereof duly
endorsed by the Holder or by its duly authorized attorney or representative, or
9
<PAGE> 10
accompanied by proper evidence of succession, assignment, or authority to
transfer. In all cases of transfer by an attorney, executor, administrator,
guardian, or other legal representative, duly authenticated evidence of his or
its authority shall be produced. Upon any registration of transfer, the Company
shall deliver a new Warrant or Warrants to the person entitled thereto. This
Warrant may be exchanged, at the option of the Holder thereof, for another
Warrant, or other Warrants of different denominations, of like tenor and
representing in the aggregate the right to purchase a like number of Warrants
(or portions thereof), upon surrender to the Company or its duly authorized
agent. Notwithstanding the foregoing, the Company shall have no obligation to
cause Warrants to be transferred on its books to any person unless it receives
an opinion from counsel reasonably satisfactory to it that such transfer
complies with the provisions of the Act, and the rules and regulations
thereunder.
Section 14. Amendment; Waiver. This Warrant may be amended only by a
writing signed by the parties hereto. Neither any failure nor any delay on the
part of any party to this Warrant 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 party, 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 Warrant.
Section 15. Notices.
(a) All notices permitted or required hereunder shall be in writing
and shall be delivered by hand, by 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 Company or the Holder, as the
case may be, at the addresses set forth below:
If to the Company:
Long Distance International Inc.
4150 SW 28th Way
Ft. Lauderdale, Florida 33312
Facsimile: (954) 524-5110
Attention: Chief Financial Officer
with a copy to the General Counsel
with a copy to:
Loeb & Loeb LLP
345 Park Avenue
New York, New York 10154
Facsimile: (212) 407-4990
Attention: David S. Schaefer, Esq.
If to the Holder:
Frederick A. DeLuca
512 NE 23rd Avenue
Ft. Lauderdale, Florida 33301
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<PAGE> 11
with a copy to:
Levy & Droney PC
74 Batterson Park Road
Farmington, CT 06032
Attn: Coleman Levy, Esq.
Fax No.: 203-676-3200
(b) Notices given by mail shall be deemed effective on the date shown
on the proof of receipt of such mail. 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.
Section 16. [INTENTIONALLY OMITTED]
Section 17. Entire Agreement. This Warrant and the exhibit attached
hereto embody the entire agreement and understanding of the parties hereto with
respect to the subject matter hereof, and supersede all prior and
contemporaneous agreements and understandings, oral or written, relative to
said subject matter, and each party acknowledges that there are no other
representations or warranties regarding the subjects addressed in this Warrant
or such related instruments given to the other party other than as expressly
set forth herein and therein.
Section 18. Headings. The headings contained herein are for reference
purposes only and shall not affect the meaning or interpretation of this
Warrant.
11
<PAGE> 12
IN WITNESS WHEREOF, the undersigned has executed this Warrant
as of July 20, 1999.
LONG DISTANCE INTERNATIONAL INC.
By: /s/ David R. Hess
---------------------------------
David R. Hess
Chief Executive Officer
SIGNATURE PAGE TO CLASS A BRIDGE LOAN WARRANT
12
<PAGE> 13
Exhibit A
EXERCISE FORM
For Exercise of Class A Bridge Loan Warrant to Purchase
Common Stock of Long Distance International Inc.
The undersigned Warrant Holder (the "Holder") hereby elects
to exercise the right, represented by the Warrant Certificate dated __________
to which this Exercise Form is annexed (the "Warrant"), to purchase ________
shares of common stock of Long Distance International Inc. (the "Company"), par
value $0.001 per share ("Common Stock"), for a purchase price of $0.001 per
share, and tenders payment in full for such Common Stock with this form in the
amount of $_______ in accordance with the terms of the Warrant. The undersigned
requests that the Company issue and register a certificate representing such
shares of Common Stock in the name of the Holder and deliver such certificate
to the address set forth below.
If the portion of the Common Stock purchased on their
exercise of the Warrant is less than all of the Common Stock purchasable under
the Warrant, then the undersigned requests that a new Warrant certificate
representing the balance of the Common Stock as to which the Warrant is not
exercised be issued by the Company to the Holder and be delivered to the
address set forth below.
- ----------------------------------------------
- ----------------------------------------------
- ----------------------------------------------
Date: _________________________________________
WARRANT HOLDER
By:
------------------------------
Name:
13
<PAGE> 1
Exhibit 10.23
THE SECURITIES EVIDENCED HEREBY HAVE BEEN ACQUIRED FOR INVESTMENT PURPOSES ONLY
AND HAVE NOT BEEN REGISTERED UNDER THE SECURITIES ACT OF 1933, AS AMENDED. SUCH
SECURITIES MAY NOT BE SOLD, ASSIGNED, TRANSFERRED, PLEDGED OR HYPOTHECATED
UNLESS REGISTERED UNDER THE SECURITIES ACT OF 1933, AS AMENDED, OR UNLESS THE
COMPANY HAS RECEIVED AN OPINION OF ITS COUNSEL OR COUNSEL REASONABLY
SATISFACTORY TO THE COMPANY THAT SUCH REGISTRATION IS NOT REQUIRED.
LONG DISTANCE INTERNATIONAL INC.,
A FLORIDA CORPORATION
WARRANT CERTIFICATE
Class B Bridge Loan Warrant to Purchase Common Stock
Long Distance International Inc., a Florida Corporation (the
"Company"), hereby certifies that, for value received, Frederick A. DeLuca, an
individual residing at 512 NE 23rd Avenue, Ft. Lauderdale, Florida 33301 (the
"Holder"), is entitled to purchase from the Company [number]1 of fully paid,
validly issued and non-assessable shares of common stock, par value $0.001 per
share, of the Company ("Common Stock") at an exercise price of $0.001 per share
(the "Exercise Price") at any time or from time to time from and after the
Initial Exercise Date up to and including July 20, 2004. This Warrant shall
automatically become null and void and of no further force and effect in the
event the loans outstanding under the Term Loan Agreement dated as of the date
hereof (the "Loan Agreement"), among the Holder, LDI Acquisition Sub Inc., Long
Distance International Inc., the lenders party thereto (the "Lenders"), and
Frederick A. DeLuca, as collateral agent for the Lenders, are repaid in full on
or prior to November 20, 1999 (the "Early Payment Date"). In the event of such
repayment, the Holder shall deliver this Warrant Certificate to the Company
marked "void".
This Warrant is one of a series of warrants designated the Class B
Bridge Loan Warrants to Purchase Common Stock ("Class B Warrants") and has been
issued with a companion warrant in a series designated the Class A Bridge Loan
Warrants to Purchase Common Stock ("Class A Warrants"). The Class B
- ------------
1 This number ("ws") will be determined in accordance with the
following formula:
( P )
WS = ( -----) (OS)-A
( 1-P )
p = the product of (a) 0.50, multiplied by (b) the quotient
of the amount of the Term Loan made by the Holder divided by $40
million,
os = 87,805,999, the number of outstanding shares of the
Company on a fully diluted basis immediately prior to the initial
closing under the Term Loan Agreement.
A = The number of shares subject to the Class A Warrant
issued as a companion to this Class B Warrant.
<PAGE> 2
Warrants and the Class A Warrants are being issued to the initial holders
thereof pursuant to the Loan Agreement, as additional consideration for, and as
an inducement to make, the Term Loans (as defined in the Loan Agreement). The
number of shares of Common Stock to be received upon the exercise of this
Warrant may be adjusted from time to time as provided herein.
Section 1. Exercise of Warrant. Subject to the second sentence of the
introductory paragraph of this Warrant, this Warrant may be exercised in whole
or in part at any time or from time to time on or after the Initial Exercise
Date of this Warrant; provided, however, that if the day of exercise is a day
on which banking institutions in the State of Florida are authorized by law to
close, then the exercise by the Holder shall be deemed to take place on the
next succeeding day that is not such a bank closing day. The Initial Exercise
Date shall, subject to the second sentence of the introductory paragraph of
this Warrant, mean the date on which the first to occur of the following events
has occurred: (a) the sixteenth month anniversary date of the original issuance
of this Warrant Certificate; (b) the date the Company consummates an initial
public offering of shares of Common Stock pursuant to an effective registration
statement under the Securities Act of 1933; (c) the date the Company
consummates a sale of all or a substantial portion of the business of the
Company and its consolidated subsidiaries taken as a whole, whether by way of
merger, consolidation, sale of assets or sale of capital stock; (d) the date a
bankruptcy petition is filed by or against the Company, LDI Acquisition Sub
Inc. or a material operating subsidiary of LDI Acquisition Sub Inc.; (e) the
effective date of a waiver under the Indenture, dated as of April 13, 1998 (the
"Indenture"), pursuant to which the Company's 12 1/4% Senior Notes Due 2008
were issued, the effect of which waiver would be to waive the requirement that
the Company repurchase the Notes pursuant to Section 4.12 of the Indenture
because of a Change of Control (as defined in the Indenture); (f) the date on
which the exercise of all Class A Warrants and all Class B Warrants would not
result in a Change of Control; (g) the date on which a Change of Control under
the Indenture occurs for a reason other than an exercise of any of the Class A
Warrants or Class B Warrants issued under the Term Loan Agreement and a waiver
with respect thereto described in clause (e) above is not obtained; and (h) the
date on which Clifford Friedland and David Glassman cease to be directors of
the Company (other than by reason of their death or disability) or beneficially
own in the aggregate less than 5,000,000 shares of the Common Stock; provided,
that, notwithstanding the foregoing, in no event shall the Initial Exercise
Date be earlier than the Early Payment Date. This Warrant shall be exercised by
presentation and surrender of this Warrant to the Company at its principal
office, with the Exercise Form annexed hereto as Exhibit A duly executed by the
Holder, accompanied by payment in full of an amount equal to the product of the
number of shares of Common Stock being purchased by the Holder hereunder and
one-tenth of one cent ($0.001). Payment for such shares shall be made to the
Company in U.S. dollars in cash, by wire transfer or by certified or official
bank check payable to the order of the Company. Promptly after each such
exercise of this Warrant, the Company shall issue and deliver to the Holder a
certificate or certificates for the Common Stock issuable upon such exercise,
registered in the name of the Holder. If this Warrant should be exercised in
part only, the Company shall, upon surrender of this Warrant for cancellation,
promptly execute and deliver a new Warrant, in substantially the form of this
Warrant, evidencing the rights of the Holder thereof to purchase the balance of
the Common Stock purchasable hereunder. Upon the last to occur of receipt by
the Company of this Warrant at its office in proper form for exercise, together
with a duly executed Exercise Form, and receipt by the Company of full payment
of the exercise price for the shares of Common Stock then being purchased
2
<PAGE> 3
hereunder, in accordance with the terms hereof, (i) the Holder shall be deemed
to be the holder of record of the shares of Common Stock issuable upon such
exercise, notwithstanding that the stock transfer books of the Company shall
then be closed or that certificates representing such shares of Common Stock
shall not then be physically delivered to the Holder, and (ii) such shares of
Common Stock shall be fully paid and non-assessable and free from all
preemptive rights of any shareholder and all taxes, liens and charges, with
respect to the issue thereof. The Company shall pay any stamp or issue taxes
payable in connection with issuance of Common Stock under this Warrant.
Section 2. Fractional Shares. No fractional shares or scrip
representing fractional shares shall be issued upon the exercise of this
Warrant. With respect to any fraction of a share called for upon any exercise
hereof, the Company shall pay to the Holder an amount in cash (rounded to the
nearest cent) equal to such fraction multiplied by one-tenth of one cent
($0.001) provided such amount is no less than one cent.
Section 3. Loss of Warrant. Upon receipt by the Company of evidence
satisfactory to it of the loss, theft, destruction or mutilation of this
Warrant (including any reasonable written certification that the Company may
require), and (in the case of loss, theft or destruction) of an agreement
indemnifying the Company in a form reasonably satisfactory to it, and (in the
case of mutilation) upon surrender and cancellation of this Warrant, the
Company shall execute and deliver to the Holder a new Warrant of like terms and
date.
Section 4. Rights of the Holder. This Warrant shall not entitle the
Holder hereof to any voting or other rights of a shareholder of the Company,
either at law or in equity, or to any notice of meetings of shareholders or of
any other proceedings of the Company, except as provided in this Warrant, and
except in connection with Common Stock that the Holder purchases as provided
herein. No provision of this Warrant, in the absence of the purchase by the
Holder of Common Stock hereunder, shall give rise to any liability of such
Holder for the exercise price or as a shareholder of the Company, whether to
the Company or creditors of the Company. The shares of Common Stock issued upon
exercise of this Warrant shall be subject to a stop transfer order and the
certificate or certificates evidencing such shares shall bear the following
legend:
"THE SHARES REPRESENTED BY THIS CERTIFICATE HAVE BEEN REGISTERED UNDER
THE SECURITIES ACT OF 1933, AS AMENDED (THE "ACT"), PURSUANT TO A
REGISTRATION STATEMENT FILED WITH THE SECURITIES AND EXCHANGE
COMMISSION. HOWEVER, SUCH SHARES MAY NOT BE OFFERED OR SOLD EXCEPT
PURSUANT TO (i) A POST-EFFECTIVE AMENDMENT TO SUCH REGISTRATION
STATEMENT, (ii) A SEPARATE REGISTRATION STATEMENT UNDER SUCH ACT, OR
(iii) AN EXEMPTION FROM REGISTRATION UNDER SUCH ACT."
and shall bear all legends as required pursuant to the other agreements to
which such Holder and the Company are a party. Any holder of any such
certificate or instrument bearing the foregoing legend shall be entitled to
3
<PAGE> 4
promptly receive from the Company, 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 effectively registered under the Act and are sold or otherwise
disposed of in accordance with the intended method of disposition by the seller
thereof set forth in the registration statement, or such securities may be
freely transferred by such holder by reason of an exemption from registration
under the Act, or such legend otherwise is not required in order to ensure
compliance with the Act. The opinion of Loeb & Loeb LLP or other legal counsel
selected by such holder and reasonably satisfactory to the Company with respect
to any of the foregoing or with respect to any question concerning whether any
proposed transfer of any shares of common stock would violate the Act, shall be
sufficient to determine the issue.
Section 5. Adjustments.
(a) Adjustment of Price and Number of Common Stock. The initial
Exercise Calculation Price per share shall be one-tenth of one cent ($0.001).
The Exercise Calculation Price shall be subject to adjustment from time to time
as provided in Section 5(b), (c) and (h). Upon each adjustment, the Holder
shall thereafter be entitled to purchase, at one-tenth of one cent ($0.001),
the number of shares of Common Stock obtained by multiplying the Exercise
Calculation Price in effect immediately prior to such adjustment by the number
of shares of Common Stock issuable upon exercise of this Warrant immediately
prior to such adjustment, and dividing the product thereof by the Exercise
Calculation Price resulting from such adjustment.
(b) Adjustment for Stock Splits and Combinations. If the Company at
any time or from time to time after the date of this Warrant (the "Commitment
Date") effects a subdivision of the outstanding Common Stock of the Company,
the Exercise Calculation 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
Exercise Calculation Price then in effect immediately before the combination
shall be proportionately increased. Any adjustment under this subsection (b)
shall become effective at the close of business on the date the subdivision or
combination becomes effective.
(c) Adjustments for Certain Dividends and Distributions. If the
Company at any 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 Exercise Calculation 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
Exercise Calculation 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.
(d) Adjustments for other Dividends and Distributions. In the event
the Company at any time after the Commitment Date makes, or fixes a record date
for the determination of holders of Common Stock entitled to receive a dividend
4
<PAGE> 5
or other distribution payable in securities (including options or warrants for
Common Stock) of the Company other than shares of Common Stock, then and in
each such event provision shall be made by the Company so that the Holder of
this Warrant shall receive upon exercise thereof, in addition to the number of
shares of Common Stock receivable thereupon, the amount of securities of the
Company which the Holder would have received had this Warrant been exercised to
purchase Common Stock immediately before the time of such issuance or the close
of business on such record date and had the Holder thereafter, during the
period from the date of such event to and including the exercise date, retained
such securities receivable by the Holder as aforesaid during such period,
subject to all other adjustments called for during such period under this
Section 5 with respect to the rights of the Holder, and subject to further
adjustment as provided herein.
(e) Adjustments for the 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 exercise of this Warrant 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 5),
then and in any such event the Holder of this Warrant shall have the right
thereafter to exercise this Warrant and receive the kind and amount of stock
and other securities and property receivable, upon such recapitalization,
reclassification or other change, which the Holder would have received had this
Warrant been exercised to purchase Common Stock immediately before the time of
such recapitalization, reclassification or change, and had the Holder
thereafter, during the period from the date of such event to and including the
exercise date, retained such securities receivable by the Holder as aforesaid
during such period, subject to all other adjustments called for during such
period under this Section 5 with respect to the rights of the Holder, and
subject to further adjustment as provided herein. In any such case, appropriate
adjustment shall be made in the application of the provisions of this Section 5
with respect to the rights of the Holder hereof after the reorganization,
merger, consolidation or sale to the end that the provision of this Section 5
(including adjustment of the Exercise Calculation Price then in effect and the
number of shares purchasable upon exercise hereof) shall be applicable after
that event and be as nearly equivalent as may be practicable.
(f) 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 5) or a merger or consolidation of the Company with or into
another entity, or the sale of all or substantially all of the Company's
properties and assets to any other person or entity, then as part of such
reorganization, merger, consolidation or sale, provision shall be made so that
the Holder of this Warrant shall thereafter be entitled to receive upon
exercise of the Warrant the number of shares of stock or other securities or
property which the Holder would have received had this Warrant been exercised
to purchase Common Stock immediately before the time of such capital
reorganization, merger, consolidation or sale, and had the Holder thereafter,
during the period from the date of such event to and including the exercise
date, retained such securities receivable by the Holder as aforesaid during
such period, subject to all other adjustments called for during such period
5
<PAGE> 6
under this Section 5 with respect to the rights of the Holder, and subject to
further adjustment as provided herein. In any such case, appropriate adjustment
shall be made in the application of the provisions of this Section 5 with
respect to the rights of the Holder hereof after the reorganization, merger,
consolidation or sale to the end that the provision of this Section 5
(including adjustment of the Exercise Calculation Price then in effect and the
number of shares purchasable upon exercise hereof) shall be applicable after
that event and be as nearly equivalent as may be practicable.
(g) Other Adjustments of Exercise Price and Number of Warrant Shares.
(i) In case the Company shall, at any time after the date
hereof and in connection with an equity investment in or a loan to the Company
and/or LDI Acquisition Sub Inc., (a "Subsequent Financing") issue or sell any
shares of Common Stock and/or any options, rights or warrants to subscribe for
shares of Common Stock ("New Shares"), then the number of shares of Common
Stock issuable upon exercise of this Warrant shall be increased in accordance
with, and subject to, the following provisions:
(A) The number of additional shares of Common Stock
issuable upon exercise of this Warrant shall be determined in accordance with
the following formula:
X = (WS) (NS)
---------
OS
X = The number of additional shares of Common Stock issuable upon
exercise of this Warrant
WS = The number of shares of Common Stock issuable upon exercise of this
Warrant immediately prior to the issuance or sale of New Shares.
NS = The number of shares of Common Stock issued or sold giving rise to
the adjustment pursuant to this Section 5(g) , and/or the maximum
number of Shares of Common Stock issuable upon exercise, conversion
or exchange of the Rights issued or sold giving rise to the
adjustment pursuant to this Section 5(g).
OS = 87,805,999
(B) Upon the expiration of any rights, options,
warrants or convertible or exchangeable securities for which an adjustment was
made hereunder, if any thereof shall not have been exercised, the number of
shares of Common Stock purchasable upon the exercise of each Warrant shall,
upon such expiration, be readjusted and shall thereafter be such as it would
have been had it been originally adjusted (or had the original adjustment not
been required, as the case may be) as if (i) the only rights, options, warrants
or convertible or exchangeable securities so issued were the rights, options,
warrants or convertible or exchangeable securities, if any, actually exercised,
converted or exchanged and (ii) such rights, options, warrants or convertible
or exchangeable securities, if any, were exercised, converted or exchanged for
the consideration actually received by the Company upon such exercise,
6
<PAGE> 7
conversion or exchange plus the aggregate consideration, if any, actually
received by the Company for the issuance, sale or grant of all such rights,
options, warrants or convertible or exchangeable securities whether or not
exercised, converted or exchanged.
(C) Except as set forth below, "New Shares" shall
mean any shares of Common Stock or Rights issued or sold or proposed to be
issued or sold by the Company on or after the initial issue date (the "Initial
Issue Date") of the initial Class A Warrants and Class B Warrants under the
Term Loan Agreement. "New Shares" does not include (i) the Class A Warrants and
the Class B Warrants issued and sold by the Company or any shares of Common
Stock issued upon exercise of any thereof, (ii) shares of Common Stock or
Rights issued in consideration of the acquisition of all or any portion of a
business as a going concern, whether such acquisition shall be effected by a
purchase of assets, exchange of securities, merger, consolidation,
reorganization or otherwise, (iii) shares of Common Stock or Rights offered or
proposed to be offered to the public pursuant to a registration statement filed
under the Securities Act of 1933, as amended, or to any underwriter of any such
offering, (iv) shares of Common Stock or Rights issued in connection with any
stock split or stock dividend by the Company, (v) shares of Common Stock or
Rights which the Company and the holders of at least 50% of the issued and
outstanding shares issuable upon exercise of the Class B Warrants agree in
writing at any time and from time to time should not be subject to the
provisions of this Section 5(g); (vi) stock options granted to the Company's
directors, officers, employees, consultants and independent contractors
pursuant to bona fide stock option or employee benefit plans of the Company
approved by a majority of either the Board of Directors of the Company or
committee of the Board of Directors of the Company delegated to perform such
function, or shares of Common Stock issued upon exercise thereof, (vii) shares
of Common Stock issued upon exercise of Rights outstanding on the Initial Issue
Date, or (viii) shares of Common Stock issued upon exercise, exchange or
conversion of any Rights referred to in any preceding clause of this sentence.
No adjustment in the number of shares of Common Stock issuable or issued upon
exercise, exchange or conversion of any of the Rights referred to in the
immediately preceding sentence by reason of original provisions thereof which
provide for an automatic adjustment upon the occurrence of specified events
shall be deemed to be an issuance or proposed issuance of New Shares. For the
purposes of the definition of "New Shares", the term "Rights" shall mean any
options, warrants, convertible or exchangeable securities or other rights,
however denominated, to subscribe for, purchase or otherwise acquire Common
Stock or other Rights to subscribe for purchase or otherwise acquire Common
Stock, with or without payment of additional consideration in cash or property,
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.
(ii) The adjustments provided for in this Section 5(g) shall
be made for all Subsequent Financings to the extent the aggregate gross
proceeds thereof do not exceed the difference of $40,000,000 less the aggregate
amount of Term Loans made by the Holder on the date of original issuance and by
all other holders of Class A Warrants and Class B Warrants on or prior to such
date.
(h) Accountants' Certificate of Adjustment. In each case of an
adjustment or readjustment of the Exercise Calculation Price or the number of
shares of Common Stock or other securities issuable upon exercise of this
Warrant, the Company, at its expense, reasonably promptly after such adjustment
or readjustment, shall cause independent public accountants of recognized
7
<PAGE> 8
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 to prepare a
statement showing such adjustment or readjustment, and shall mail such
statement, by first class mail, postage prepaid, to the Holder of this Warrant
at the Holder's address as shown in the Company's books and records. The
statement shall set forth such adjustment or readjustment, showing in detail
the facts upon which such adjustment or readjustment is based.
Section 6. Reservation and Issuance of Common Stock
The Company shall at all times have authorized, and reserve and keep
available, free from preemptive rights, for the purpose of enabling it to
satisfy any obligation to issue fully paid and non-assessable shares of Common
Stock upon the exercise of this Warrant, the number of shares of Common Stock
deliverable upon exercise of this Warrant, and the shares of Common Stock
issued upon exercise of this Warrant and full payment therefor in accordance
with the provisions hereof shall be validly issued, fully paid, non-assessable
and free of preemptive rights.
Section 7. Delivery of Stock Certificates on Exercise. As soon as
practicable after the exercise of this Warrant in full or in part, and in any
event within ten days thereafter, the Company at its expense (including the
payment by it of any applicable issue taxes) will cause to be issued in the
name of and delivered to the holder hereof, or as such holder (upon payment by
such holder of any applicable transfer taxes) may direct, a certificate or
certificates for the number of fully paid and nonassessable shares of Common
Stock (or Other Securities) to which such holder shall be entitled on such
exercise, plus, in lieu of any fractional share to which such holder would
otherwise be entitled, cash equal to such fraction multiplied by the then
current market value of one full share, together with any other stock or other
securities and property (including cash, where applicable) to which such holder
is entitled upon such exercise pursuant to Section 1 or otherwise under the
terms of this Warrant.
Section 8. No Impairment. The Company will not, by amendment of its
Certificate of Incorporation or through any reorganization, acquisition,
business combination, transfer of assets, consolidation, merger, dissolution,
issue or sale of securities or any other voluntary action, avoid or seek to
avoid the observance or performance of any of the terms of this Warrant, but
will at all times in good faith assist in the carrying out of all such terms
and in the taking of all such action as may be necessary or appropriate in
order to protect the rights of the holder of this Warrant. Without limiting the
generality of the foregoing, the Company:
(a) will not increase the par value of any shares of stock receivable
on the exercise of this Warrant above the amount payable therefor on such
exercise; and
(b) will take all such action as may be necessary or appropriate in
order that the Company may validly and legally issue fully paid and
nonassessable shares of Common Stock on the exercise of this Warrant from time
to time outstanding.
Section 9. Other Notices. In case at any time:
(a) The Company shall declare any cash dividend on its Common Stock;
8
<PAGE> 9
(b) The Company shall pay any dividend payable in capital stock upon
its Common Stock or make any distribution (other than regular cash dividends)
to the holders of its Common Stock;
(c) The Company shall authorize the distribution to all holders of its
Common Stock of evidences of its indebtedness or assets (other than cash
dividends or cash distributions payable out of earnings or earned surplus or
dividends payable in Common Stock);
(d) There shall be any capital reorganization, or reclassification of
the capital stock of the Company, or consolidation or merger of the Company
with another entity (other than a subsidiary of the Company in which the
Company is the surviving or continuing corporation and no change occurs in the
Company's Common Stock), or sale of all or substantially all of its assets to,
another person or entity;
(e) There shall be a voluntary or involuntary dissolution,
liquidation, bankruptcy, assignment for the benefit of creditors, or winding up
of the Company; or
(f) The Company proposes to take any other action or an event occurs
which would require an adjustment pursuant to Section 5;
then, in any one or more of said cases, the Company shall give written notice,
addressed to the Holder at the address of such Holder as shown on the books of
the Company within three business days thereafter.
Section 10. Governing Law and Jurisdiction. This Warrant shall be
governed by and interpreted under the law of the State of New York 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.
Section 11. Severability. If any part of this Warrant 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 construction in such
jurisdiction that effectuates the intent of the parties regarding this Warrant
and the unenforceable, invalid or conflicting part. Notwithstanding the
unenforceability, invalidity or conflict with applicable law of any part of
this Warrant, the remaining parts shall be valid, enforceable and binding on
the parties.
Section 12. Binding Effect. This Warrant shall be binding upon,
enforceable by and shall inure to the benefit of the parties hereto and their
respective permitted successors or assignees. Any Holder and its permitted
successors and assignees shall be deemed to be a Holder as defined and provided
for in this Warrant.
Section 13. Register; Assignment. The Holder may assign or transfer
all or any portion of this Warrant in compliance with the terms hereof. Any
Warrants issued upon the transfer or exercise in part of this Warrant shall be
numbered and shall be registered in a Warrant Register as they are issued. The
Company shall be entitled to treat the registered holder of any Warrant on the
Warrant Register as the owner in fact thereof for all purposes and shall not be
bound to recognize any equitable or other claim to or interest in such Warrant
9
<PAGE> 10
on the part of any other person, and shall not be liable by reason of any
registration or transfer of Warrants which are registered or to be registered
in the name of a fiduciary or the nominee of a fiduciary unless made with the
actual knowledge that a fiduciary or nominee is committing a breach of trust in
requesting such registration or transfer, or with the knowledge of such facts
that its participation therein amounts to bad faith. This Warrant shall be
transferable only on the books of the Company upon delivery thereof duly
endorsed by the Holder or by its duly authorized attorney or representative, or
accompanied by proper evidence of succession, assignment, or authority to
transfer. In all cases of transfer by an attorney, executor, administrator,
guardian, or other legal representative, duly authenticated evidence of his or
its authority shall be produced. Upon any registration of transfer, the Company
shall deliver a new Warrant or Warrants to the person entitled thereto. This
Warrant may be exchanged, at the option of the Holder thereof, for another
Warrant, or other Warrants of different denominations, of like tenor and
representing in the aggregate the right to purchase a like number of Warrants
(or portions thereof), upon surrender to the Company or its duly authorized
agent. Notwithstanding the foregoing, the Company shall have no obligation to
cause Warrants to be transferred on its books to any person unless it receives
an opinion from counsel reasonably satisfactory to it that such transfer
complies with the provisions of the Act, and the rules and regulations
thereunder.
Section 14. Amendment; Waiver. This Warrant may be amended only by a
writing signed by the parties hereto. Neither any failure nor any delay on the
part of any party to this Warrant 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 party, 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 Warrant.
Section 15. Notices.
(a) All notices permitted or required hereunder shall be in writing
and shall be delivered by hand, by 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 Company or the Holder, as the
case may be, at the addresses set forth below:
If to the Company:
Long Distance International Inc.
4150 SW 28th Way
Ft. Lauderdale, Florida 33312
Facsimile: (954) 524-5110
Attention: Chief Financial Officer
with a copy to:
Attention: General Counsel
with a copy to:
Loeb & Loeb LLP
345 Park Avenue
New York, New York 10154
Facsimile: (212) 407-4990
Attention: David S. Schaefer, Esq.
10
<PAGE> 11
If to the Holder:
Frederick A. DeLuca
512 NE 23rd Avenue
Ft. Lauderdale, Florida 33301
with a copy to:
Levy & Droney PC
74 Batterson Park Road
Farmington, Connecticut 06032
Attention: Coleman Levy, Esq.
Facsimile: (860) 676-3200
(b) Notices given by mail shall be deemed effective on the date shown
on the proof of receipt of such mail. 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.
Section 16. [INTENTIONALLY OMITTED]
Section 17. Entire Agreement. This Warrant and the exhibit attached
hereto embody the entire agreement and understanding of the parties hereto with
respect to the subject matter hereof, and supersede all prior and
contemporaneous agreements and understandings, oral or written, relative to
said subject matter, and each party acknowledges that there are no other
representations or warranties regarding the subjects addressed in this Warrant
or such related instruments given to the other party other than as expressly
set forth herein and therein.
Section 18. Headings. The headings contained herein are for reference
purposes only and shall not affect the meaning or interpretation of this
Warrant.
11
<PAGE> 12
IN WITNESS WHEREOF, the undersigned has executed this Warrant
as of July 20, 1999.
LONG DISTANCE INTERNATIONAL INC.
By: /s/ David R. Hess
-----------------------------------
David R. Hess
Chief Executive Officer
SIGNATURE PAGE TO CLASS B BRIDGE LOAN WARRANT
12
<PAGE> 13
Exhibit A
EXERCISE FORM
For Exercise of Class B Bridge Loan Warrant to Purchase
Common Stock of Long Distance International Inc.
The undersigned Warrant Holder (the "Holder") hereby elects
to exercise the right, represented by the Warrant Certificate dated __________
to which this Exercise Form is annexed (the "Warrant"), to purchase ________
shares of common stock of Long Distance International Inc. (the "Company"), par
value $0.001 per share ("Common Stock"), for a purchase price of $0.001 per
share, and tenders payment in full for such Common Stock with this form in the
amount of $_______ in accordance with the terms of the Warrant. The undersigned
requests that the Company issue and register a certificate representing such
shares of Common Stock in the name of the Holder and deliver such certificate
to the address set forth below.
If the portion of the Common Stock purchased on their
exercise of the Warrant is less than all of the Common Stock purchasable under
the Warrant, then the undersigned requests that a new Warrant certificate
representing the balance of the Common Stock as to which the Warrant is not
exercised be issued by the Company to the Holder and be delivered to the
address set forth below.
- ----------------------------------------------
- ----------------------------------------------
- ----------------------------------------------
Date: _________________________________________
WARRANT HOLDER
By:
--------------------------------
Name:
13
<PAGE> 1
EXHIBIT 10.24
UNDERTAKING OF CERTAIN ACTIONS
UNDERTAKING OF CERTAIN ACTIONS (this "Undertaking"), dated as of
July 20, 1999, made by Long Distance International Inc. in favor of Fred DeLuca.
The undersigned, Long Distance International Inc. ("LDI"), in order to
induce Fred DeLuca and/or his affiliates to make a Term Loan to LDI Acquisition
Sub Inc. pursuant to that certain Term Loan Agreement dated as of July 20, 1999,
undertakes, covenants and agrees that, for so long as any Term Loans made by Mr.
DeLuca and/or his affiliates are outstanding:
(a) BOARD REPRESENTATION. Mr. DeLuca will have the right to serve or to
designate another person to serve as a member of the board of directors
of LDI.
(b) STRATEGIC SERVICES. (1) LDI will provide strategic services in
telecommunications and telecommunications opportunities (e.g.,
re-selling of long distance services, calling cards, data services) to
Mr. DeLuca or his controlled companies at a price equal to the lower of
cost plus 8% or on a "most favored nations basis," if applicable, and
on terms and conditions to be negotiated in good faith, and, (2) to the
extent LDI has not sold its U.S. operations, will provide to Mr. DeLuca
or his controlled companies access to the U.S. network, platform and
all of the Company's right, title and interest in and to the U.S.
licenses of LDI and will allow Mr. DeLuca or his controlled companies
to assume all or any portion of such network, platform and licenses,
subject to any applicable regulatory approvals at no cost to Mr. DeLuca
but subject to the assumption of any liabilities or obligations
accruing after the date of assumption.
(d) MOST FAVORED NATIONS. If LDI or LDI Acquisition provides to other
investors more favorable terms in the current round of financing
pursuant to which Mr. DeLuca and/or his affiliates extending a Term
Loan, then Mr. DeLuca and/or his affiliates will receive the benefit of
such more favorable terms.
This Undertaking will be governed by the laws of the State of New York, without
giving effect to principles of conflicts of laws.
<PAGE> 2
IN WITNESS WHEREOF, the undersigned have executed this Undertaking as of the
date first above written.
LONG DISTANCE INTERNATIONAL INC.
By: /s/ David R. Hess
-------------------------------
David R. Hess
Chief Executive Officer
SIGNATURE PAGE TO UNDERTAKING OF CERTAIN ACTIONS
<TABLE> <S> <C>
<ARTICLE> 5
<S> <C>
<PERIOD-TYPE> 6-MOS
<FISCAL-YEAR-END> DEC-31-1999
<PERIOD-START> JAN-01-1999
<PERIOD-END> JUN-30-1999
<CASH> 7,180,528
<SECURITIES> 1,549,781
<RECEIVABLES> 24,281,174
<ALLOWANCES> (4,649,000)
<INVENTORY> 0
<CURRENT-ASSETS> 60,165,061
<PP&E> 51,939,271
<DEPRECIATION> (15,711,674)
<TOTAL-ASSETS> 257,620,231
<CURRENT-LIABILITIES> 77,769,402
<BONDS> 206,478,617
16,473,005
0
<COMMON> 57,703
<OTHER-SE> (70,032,586)
<TOTAL-LIABILITY-AND-EQUITY> 257,620,231
<SALES> 64,825,010
<TOTAL-REVENUES> 64,825,010
<CGS> 55,719,000
<TOTAL-COSTS> 55,719,000
<OTHER-EXPENSES> 10,330,557
<LOSS-PROVISION> 0
<INTEREST-EXPENSE> 16,269,986
<INCOME-PRETAX> (44,343,879)
<INCOME-TAX> 0
<INCOME-CONTINUING> (44,343,879)
<DISCONTINUED> (32,601,344)
<EXTRAORDINARY> 0
<CHANGES> 0
<NET-INCOME> (76,945,223)
<EPS-BASIC> (1.35)
<EPS-DILUTED> (1.35)
</TABLE>
