SCHEDULE 14A
(RULE 14a-101)
INFORMATION REQUIRED IN PROXY STATEMENT
SCHEDULE 14A INFORMATION
Proxy Statement Pursuant to Section 14(a) of the Securities
Exchange Act of 1934
Filed by the Registrant [X]
Filed by a Party other than the Registrant [ ]
Check the appropriate box:
[x] Preliminary Proxy Statement
[ ] Definitive Proxy Statement
[ ] Definitive Additional Materials
[ ] Soliciting Material Pursuant to Rule 14a-11(c) or Rule 14a-12
[ ] Confidential, for Use of the Commission Only as permitted by Rule
14a-6(e)(2))
e.spire Communications, Inc.
-----------------------------------------------
(Name of Registrant as Specified in Its Charter)
-----------------------------------------------
(Name of Person(s) Filing Proxy Statement if other than the Registrant)
Payment of Filing Fee (Check the appropriate box):
[x] No fee required.
[ ] Fee computed on table below per Exchange Act Rules 14a-6(i)(4) and 0-11.
(1) Title of each class of securities to which transaction applies:
-----------------------------------------------------------------------
(2) Aggregate number of securities to which transaction applies:
----------
(3) Per unit price or other underlying value of transaction computed
pursuant to Exchange Act Rule 0-11 (Set forth the amount on which the
filing fee is calculated and state how it was determined):
-----------------------------------------------------------------------
(4) Proposed maximum aggregate value of transaction:
-----------------------
(5) Total fee paid:
--------------------------------------------------------
[ ] Fee paid previously with preliminary materials.
[ ] Check box if any part of the fee is offset as provided by Exchange
Act Rule 0-11(a)(2) and identify the filing for which the offsetting
fee was paid previously. Identify the previous filing by registration
statement number, or the form or schedule and the date of its filing.
(1) Amount previously paid:
-------------------------------------------------
(2) Form, schedule or registration statement no.:
---------------------------
(3) Filing party:
-----------------------------------------------------------
(4) Date filed:
-------------------------------------------------------------
<PAGE>
[e.spire LOGO]
e.spire Communications, Inc.
12975 Worldgate Drive
Herndon, Virginia 21070
(703) 639-6000
Notice of Special Meeting of Stockholders
May __, 2000
To our Stockholders:
A special meeting of stockholders (the "Special Meeting") of e.spire
Communications, Inc., a Delaware corporation ("e.spire" or the "Company"), will
be held at on , 2000, at 10:00 a.m. Eastern time, for the following
purposes:
1. To approve the issuance of
o convertible preferred stock that (a) is initially convertible into up
to 25,284,450 shares of common stock at an initial conversion price
of $7.91 per share, and (b) provides that the Company will issue
additional shares of common stock as payment of accrued but unpaid
dividends on such convertible preferred stock; and
o warrants initially exercisable into up to 8,820,000 shares of common
stock at an initial exercise price of $9.89 per share
which, in the aggregate, are convertible into an amount of common stock
that exceeds 20% of the total outstanding common stock of the Company; and
2. To transact such other matters as may properly come before the meeting.
You should note that, out of the securities referred to above, we have
already issued warrants initially exercisable into 7,715,000 shares of common
stock and convertible preferred stock initially convertible into 10,264,385
shares of common stock, and the outstanding securities will remain outstanding
whether or not Proposal No. 1 is approved, with such terms as are described in
the accompanying Proxy Statement.
Accompanying this notice are a Proxy Card and a Proxy Statement. Whether
or not you expect to be present at the meeting, please sign and date the Proxy
Card and return it in the enclosed envelope provided for that purpose prior to
the date of the Special Meeting. The Proxy represented by the Proxy Card may be
revoked at any time prior to the time that it is voted at the Special Meeting.
The Board of Directors has set , 2000 as the record date for determining
the stockholders entitled to notice of and to vote at the Special Meeting or any
adjournments thereof. Only stockholders of record at the close of business
on , 2000 will be entitled to vote at the Special Meeting.
You are cordially invited to attend the Special Meeting, and you may vote
in person even though you have returned your Proxy Card.
By Order of the Board of Directors
----------------------------------
Juliette Pryor
Secretary
Herndon, Virginia
, 2000
<PAGE>
[e.spire LOGO]
e.spire Communications, Inc.
12975 Worldgate Drive
Herndon, Virginia 21070
(703) 639-6000
PROXY STATEMENT
Introduction
This Proxy Statement is furnished in connection with the solicitation of
proxies for use at the Special Meeting of stockholders of e.spire
Communications, Inc. ("e.spire" or the "Company") to be held at [location] on ,
2000 at 10:00 a.m. Eastern time and at any adjournments thereof. The
accompanying proxy is solicited by the Board of Directors of the Company and is
revocable by the stockholder at any time before it is voted. For more
information concerning the procedure for revoking the proxy, see below. This
Proxy Statement and the accompanying Proxy were first mailed to stockholders of
the Company on or about , 2000. The principal executive offices of the
Company are located at 12975 Worldgate Drive, Herndon, Virginia 21070,
telephone (703) 639-6000.
The Board of Directors, including all of our disinterested directors, has
unanimously determined that the issuance of the convertible preferred stock and
warrants described below (Proposal No. 1 on the proxy card) is fair to the
Company and recommends a vote for approval of the Proposal No. 1.
Houlihan, Lokey, Howard & Zukin Financial Advisors, financial advisor to
the Company, has delivered to the Board of Directors its written opinion to the
effect that the transaction is fair to the Company and the public stockholders
of the Company from a financial point of view. The full text of the written
opinion of Houlihan, Lokey containing the assumptions made, the matters
considered and the scope of the review undertaken in rendering such opinion, as
well as the limitations of such opinion, is included as Exhibit A to this proxy
statement. Stockholders are urged to read the full text of the opinion.
Outstanding Shares and Voting Rights
Only holders of record of the Company's common stock, $.01 par value (the
"Common Stock") outstanding at the close of business on [ ], 2000 (the "Record
Date") are entitled to receive notice of and vote at the Special Meeting.
As of the Record Date, [ ] shares of Common Stock were outstanding and
will be entitled to vote at the Special Meeting. Each share of Common Stock is
entitled to one vote on all matters. There are no cumulative voting rights.
Please note that none of the purchasers of the convertible preferred stock
and warrants issued in connection with the transaction described in Proposal
No. 1 will be permitted to vote any shares of Common Stock that may be issued
to such purchasers upon any conversion or exercise of such securities that
might occur (or that may be issued as dividends thereon) on or prior to the
record date.
Beneficial Ownership of Certain Holders
The following table sets forth the beneficial ownership of the Common
Stock as of December 31, 1999 by
o each director and named officer of the Company as of such date;
o those directors and officers as a group; and
1
<PAGE>
o each other person or group known to the Company to be the owner of
more than 5% of the Common Stock.
Unless otherwise indicated, the named persons exercise sole voting and
investment power over the shares that are shown as beneficially owned by them.
Number of shares
of Common Percent of class(3)
- -------------------------------------- ---------------- -------------------
The Huff Alternative Income Fund, L.P. 15,160,137 (4) 29%
ING Equity Partners, L.P., I 40,000 (5) *
ING Equity Holdings, Inc. 4,693,036 (6) 9.2%
Anthony J. Pompliano 1,553,665 (7) 3.0%
Riley M. Murphy 364,319 (8) *
Douglas R. Hudson 372,801 (9) *
Dennis J. Kern 96,250(10) *
John R. Polchin 32,375(11) *
Richard Putt 177,269(12) *
Edwin M. Banks 6,500(13) *
Peter C. Bentz 16,000(13) *
Frederick Galland 31,000(14) *
William R. Huff 118,999(15) *
Christopher L. Rafferty 4,000(16) *
All executive officers and directors
as a group (11 persons) 2,773,178 5.2%
- -------------------
* Less than one percent.
(1) The address of all officers and directors listed above is in the care of
the Company.
(2) In accordance with the rules of the Securities and Exchange Commission,
includes all shares of Common Stock that such person has the right to
acquire within the next 60 days, including upon the conversion of
outstanding warrants and options.
(3) The percentage of total outstanding for each stockholder is calculated by
dividing (i) the number of shares of Common Stock deemed to be
beneficially owned by such stockholder as of December 31, 1999 by (ii) the
sum of (A) the number of shares of Common Stock outstanding as of December
31, 1999 plus (B) the number of shares of Common Stock issuable upon the
exercise of options or warrants held by such stockholder which were
exercisable as of December 31, 1999 or will become exercisable within 60
days after December 31, 1999 ("currently exercisable").
(4) Includes currently exercisable warrants to purchase 200,000 shares and
currently exercisable Outside Directors Options to purchase an aggregate
of 70,000 shares awarded pursuant to the 1994 Employee Stock Option Plan
awarded as follows to each of Messrs. Banks, Bentz, Huff and Rafferty
respectively: 20,000, 20,000, 10,000 and 20,000. The address for Huff is
1776 On the Green, 67 Park Place, Morristown, NJ 07960.
Does not include:
o 10,274,344 shares of Common Stock issuable upon conversion of
outstanding convertible preferred stock and warrants already issued as
part of the transaction described in Proposal No. 1, or
o 6,777,889 additional shares of Common Stock that would be issuable
upon conversion of the convertible preferred stock and warrants
contemplated to be issued pursuant to Proposal No. 1.
If Proposal No. 1 is not accepted, then no additional shares of
convertible preferred stock and warrants will be issued as proposed by
Proposal No. 1, but the dividend rate on the outstanding convertible
preferred stock will be increased to 15% which, over time, will increase
the number of shares of Common Stock beneficially held by Huff, as the
Company will issue additional shares of Common Stock in payments of
dividends. See "Proposal No. 1--Interest of Certain Persons in Proposal
No. 1."
(5) Represents currently exercisable options to purchase 40,000 shares,
including 20,000 awarded to each of Messrs. Trouverey and Giess,
respectively, pursuant to the 1994 Employee Stock Option Plan. The address
for ING Equity Holdings Inc. is 230 Madison Avenue, New York, NY 10022.
(6) The address for ING Equity Partners, L.P. is 520 Madison Avenue, New York,
NY 10022.
2
<PAGE>
(7) Includes currently exercisable option to purchase 1,406,599 shares and
97,066 shares owned.
(8) Includes currently exercisable options to purchase 300,002 shares, 50,000
shares owned, 5,655 shares purchased through the 1996 Employee Stock
Purchase Plan and 8,662 of common stock awarded for her 1997 and 1998
bonuses pursuant to the Annual Performance Plan.
(9) Includes currently exercisable to purchase 362,083 shares, 10,650 shares
owned and remaining balance of 68 shares of common stock awarded for his
1997 and 1998 bonuses pursuant to the Annual Performance Plan.
(10) Includes currently exercisable options to purchase 81,250 shares and
15,000 shares owned.
(11) Includes currently exercisable options to purchase 32,375 shares.
(12) Includes currently exercisable options to purchase 165,625 shares, 4,354
shares owned, and 7,290 shares of common stock purchased through the 1996
Employee Stock Purchase Plan.
(13) Messrs. Banks and Bentz are employees of W.R. Huff Asset Management Co.,
L.L.C., an affiliate of Huff. Messrs. Banks and Bentz disclaim beneficial
ownership of all shares held by Huff.
(14) Represents 31,000 shares owned.
(15) Represents 118,999 shares owned. Mr. Huff is a managing member of
W.R. Huff Asset Management Co., L.P. and controls Huff. Mr. Huff disclaims
beneficial ownership of all shares held by Huff.
(16) Represents 4,000 shares owned. Mr. Rafferty is an employee of WRH
Partners, L.L.C., the general partner of Huff. Mr. Rafferty disclaims
beneficial ownership of all shares held by Huff.
-----------------------
Voting and Proxy Procedures
The presence, in person or by proxy, of the holders of a majority of the
shares of Common Stock issued and outstanding and entitled to vote at the
Special Meeting is necessary to constitute a quorum at the Special Meeting. The
affirmative vote of a majority of the shares of Common Stock present in person
or represented by proxy at the Special Meeting and entitled to vote thereon,
whether or not a quorum is present when a vote is taken, is required for
approval of Proposal No. 1. An automated system administered by the Company's
transfer agent will be used to tabulate the votes. Abstentions, votes against
or withholding approval and broker non-votes will be counted to determine
whether a quorum is present.
Abstentions and votes against or withholding approval will be counted as
votes against any given proposal, whereas broker non-votes will not be counted
in determining whether a particular proposal has been approved by the
stockholders.
The cost of soliciting proxies will be borne by the Company. In addition
to the use of mailings, proxies may be solicited by personal interview,
telephone and telegraph, and by directors, officers and regular employees of
the Company, without special compensation therefor. The Company has retained
Corporate Investor Communications, Inc. ("CIC") to assist it in its
solicitation of proxies for which CIC will receive a fee of approximately
$10,000, plus all reasonable expenses. In addition, the Company expects to
reimburse banks, brokers and other persons for their reasonable out-of-pocket
expenses in handling proxy materials for beneficial owners of the Common Stock.
The Board of Directors has selected Juliette Pryor and John R. Polchin,
and each of them, to act as proxies with full power of substitution. With
respect to the proposal to approve the issuance of the convertible preferred
stock and warrants, stockholders may (i) vote "for", (ii) vote "against" or
(iii) abstain from voting as to such matter. All properly executed proxy cards
delivered by stockholders and not revoked will be voted at the Special Meeting
in accordance with the directions given. If no specific instructions are given
with regard to the matters to be voted upon, the shares represented by a
properly executed proxy card will be voted "for" the proposal to approve the
issuance of the convertible preferred stock and warrants. Management knows of
no other matters that may come before the Special Meeting for consideration by
the stockholders. However, if any other matter properly comes
3
<PAGE>
before the Special Meeting, the persons named in the enclosed proxy card as
proxies will vote upon such matters in accordance with their judgment.
Any proxy given pursuant to this solicitation may be revoked by the person
giving it at any time before it is voted. Proxies may be revoked by filing with
the Secretary of the Company prior to the date of the Special Meeting written
notice of revocation bearing a later date than the proxy, by duly executing and
delivering to the Secretary of the Company prior to the date of the Special
Meeting a subsequent proxy relating to the same shares of Common Stock or by
attending the Special Meeting and voting in person. Attendance at the Special
Meeting will not in and of itself constitute revocation of a proxy unless the
stockholder votes his shares of Common Stock in person at the Special Meeting.
To be valid, any notice revoking a proxy should be sent to the Secretary of the
Company, Juliette Pryor, e.spire Communications, Inc., 12975 Worldgate Drive,
Herndon, Virginia 21070, in a manner designed to ensure that it is received by
the Secretary prior to the date of the Special Meeting.
Proposal No. 1 -- Issuance of Convertible Preferred Stock and Warrants
The Board of Directors, including all of our disinterested directors, has
unanimously determined that the issuance of the convertible preferred stock and
warrants described below (Proposal No. 1 on the proxy card) is fair to the
Company and recommends a vote for approval of Proposal No. 1.
Houlihan, Lokey, Howard & Zukin Financial Advisors, financial advisor to
the Company, has delivered to the Board of Directors its written opinion to the
effect that the transaction is fair to the Company and the public stockholders
of the Company from a financial point of view. The full text of the written
opinion of Houlihan, Lokey containing the assumptions made, the matters
considered and the scope of the review undertaken in rendering such opinion, as
well as the limitations of such opinion, is included as Exhibit A to this proxy
statement. Stockholders are urged to read the full text of the opinion.
Background of the Transaction
The Company needs a significant amount of cash to fund its operations,
capital expenditures and debt service. As the Company disclosed in its
Quarterly Report on Form 10-Q for the quarter ended September 30, 1999, its
available cash at such date was only sufficient to fund its operations and
other liquidity needs into 2000. To increase liquidity and provide funds for
operations, the Company has been seeking additional capital. Among the factors
that the Company's Board of Directors has considered in determining what type
of capital to raise are:
o the Company's senior secured credit facilities, which provide that
the Company will have an additional $36 million available under its
credit facilities if it is able to complete an additional issuance of
at least $100 million in aggregate gross proceeds of junior capital
(assuming that all other borrowing conditions, including the absence
of any default and the accuracy of all representations and warranties
contained in such credit facilities, are satisfied);
o the Company's capital lease financing, which provides that it will
have an additional $25 million available thereunder if it is able to
complete an additional issuance of junior capital that generates net
proceeds of at least $100 million (assuming that all conditions
thereunder, including the absence of any default, are satisfied); and
o the Company's outstanding bond indentures and preferred stock
instruments, which contain covenants limiting the Company's
incurrence of debt, permit the Company to borrow incremental debt
based upon additional equity raised (subject to certain additional
conditions).
After approaching other potential investors and being unable to reach an
agreement to secure financing, the Company approached The Huff Alternative
Income Fund, L.P. ("Huff"), which is the Company's controlling stockholder.
Huff offered to invest $100 million in convertible preferred stock and
warrants, which would satisfy the provisions in the Company's senior secured
credit facilities and capital lease financing, allowing the Company access to
an additional $61 million in additional financing under such facilities
(subject to satisfaction of the borrowing
4
<PAGE>
conditions thereunder), and would provide the Company with additional
flexibility to incur debt in accordance with the Company's bond indentures and
preferred stock instruments. In addition, Huff agreed to assist the Company in
locating other institutional investors that might be interested in investing in
the Company.
On January 18, 2000, the Company's board of directors approved a proposed
transaction with Huff, subject to completion of negotiations with respect to
certain terms and preparation of satisfactory documentation, and the Company
and Huff executed a binding commitment letter on February 3, 2000. In that
commitment letter, Huff agreed to purchase, for aggregate consideration of $100
million, convertible preferred stock with a liquidation value of $100 million
initially convertible into Common Stock at a price of $7.91 per share (120% of
the average of the closing price of the Common Stock on the twenty trading days
immediately preceding, and including, January 18, 2000 (such average, the
"initial benchmark price")) and warrants to purchase 4.41 million additional
shares of Common Stock at an exercise price of $9.89 (150% of the initial
benchmark price), in each case subject to the adjustments and conditions
described below. See "-Description of Convertible Preferred Stock" and
"-Description of Warrants." Huff received a commitment fee of $1 million from
the Company in connection with this transaction. In addition, the Company
agreed to use reasonable efforts to seek additional investors (excluding Huff)
to purchase an additional $150 million (the "additional investment") of the
Company's securities, $100 million of which would be on the same terms and
conditions, including the same conversion and exercise prices as described
above and $50 million of which could be on terms more favorable to the Company.
As a result of the Company's effort under this covenant:
o Greenwich Street Capital Partners II, L.P. signed a separate binding
commitment letter on February 3, 2000, on substantially the same
terms as Huff to purchase an additional $25 million in convertible
preferred stock and warrants as Huff.
o Honeywell International Inc. Master Retirement Trust signed a binding
commitment letter on February 24, 2000, on substantially the same
terms as Huff for an additional $50 million of the same securities.
This leaves $25 million of the same securities to be sold on the same
conditions and $50 million of the same securities to be sold on the same or
more favorable conditions.
NASDAQ
It is the policy (the "stockholder approval rule") of The NASDAQ National
Market System ("NASDAQ"), through which e.spire's Common Stock is quoted, to
require stockholder approval of a transaction if the present or potential
issuance of newly issued shares of Common Stock or securities convertible into
Common Stock could result in an increase of 20% or more in the outstanding
Common Stock of the Company whenever the sale price of the newly issued shares
of Common Stock is less than the greater of book value or market value of the
Common Stock on the date of issuance. The shares of convertible preferred stock
and warrants proposed to be issued in the transaction (including those
previously issued as described below) are convertible, in the aggregate, into a
number of shares equal to approximately 65% of the outstanding Common Stock and
may potentially be convertible into an even greater number because, as
described in further detail below: (i) dividends on the convertible preferred
stock will be paid, whether upon conversion of the convertible preferred stock
or as otherwise declared by the Company's Board of Directors, in the form of
additional shares of Common Stock, (ii) additional warrants will be issued, and
the dividend rate on the convertible preferred stock will increase, upon the
occurrence of a "Change of Control" (as defined below), (iii) the conversion
price on the convertible preferred stock, the price per share of Common Stock
issuable as dividends on the convertible preferred stock and the exercise price
for the warrants may be decreased as a result of anti-dilution adjustments
contained therein, and (iv) additional shares of convertible preferred stock
and warrants may be issued in connection with the additional investment. Under
the stockholder approval rule, the market value of common stock is determined
as of the date of signing a binding commitment letter; in connection with this
transaction, the conversion price was determined based on the market value as
of an earlier date (January 18, 2000, the date of approval of the transaction
by the board of directors). As a result, pursuant to the stockholder approval
rule, the Company may not issue Common Stock, or securities convertible into
Common Stock, in this transaction at a price below market value in an amount
that is more than 19.9% of the Company's Common Stock outstanding before the
issuance without first obtaining stockholder approval.
5
<PAGE>
In accordance with the stockholder approval rule, the Company has issued
(the "initial issuance") on March 3, 2000 convertible preferred stock initially
convertible into an aggregate of 19.9% of the Company's Common Stock
outstanding before the issuance, or 10,264,385 shares. Because the warrants
were sold at a price that, together with the exercise price thereon, was
greater than fair market value, the purchasers purchased all of the 7.715
million warrants proposed to be issued to them. In addition, the terms of the
convertible preferred stock prohibit the Company from (1) paying any dividends
in the form of Common Stock using a conversion price below fair market value or
(2) entering into transactions that would trigger anti-dilution provisions that
would, in any such case, result in the issuance of more than 19.9% of the
Common Stock at a price below market value, until stockholder approval is
obtained. The Company received approximately $100.6 million in gross proceeds
in connection with the initial issuance, which will permit it to borrow the
additional amounts under its senior secured credit facilities subject to
satisfaction of the borrowing conditions thereunder.
The Proposal
Stockholders are being asked to approve the issuance of shares of
convertible preferred stock and warrants (and the Common Stock issuable upon
conversion thereof) in connection with the transaction described above,
including any shares of convertible preferred stock and warrants that may be
issuable in connection with the additional investment, and shares of Common
Stock issued at conversion of the convertible preferred stock as dividends on
the convertible preferred stock. If the required vote is obtained and the
proposal is adopted, the Company:
o will issue the remaining shares to other purchasers as soon as
practicable after the date of the Special Meeting (assuming that all
conditions precedent, including the absence of any material adverse
change in the company's condition and the accuracy of all
representations and warranties in the purchase agreements, are
satisfied);
o would then be entitled to obtain additional capital lease financing
as described above, subject to satisfaction of borrowing conditions;
and
o will have additional cash to fund operations and other liquidity needs
in 2000.
If the required vote is not obtained and the proposal is not approved:
o Huff and the other purchasers will not purchase the additional
unissued securities;
o the Company will not be entitled to obtain the additional capital
lease financing as described above until it can issue additional
junior securities, and there can be no assurance that it will able to
issue additional junior securities;
o the dividend rate on the convertible preferred stock issued in the
initial issuance will be increased to 15% and, upon conversion of the
convertible preferred stock, accrued dividends on the preferred stock
will be paid in the form of Common Stock at an effective price equal
to the closing price of e.spire's Common Stock on March 3, 2000 (the
closing date of the initial issuance), which then would no longer
require stockholder approval;
o the Company will not be permitted to enter into transactions that
could trigger anti-dilution provisions of the convertible preferred
stock and warrants; and
o it will not receive any additional cash to fund operations and other
liquidity needs from this transaction, other than the cash received
from the initial issuance.
6
<PAGE>
Description of Convertible Preferred Stock
The following summarizes the principal features of the convertible
preferred stock. Because it is only a summary, it may not contain all of the
provisions that may be important to you. As a result, you may want to read the
certificate of designations, which is the legal document that sets out all of
the terms of the preferred stock, prior to making your decision on Proposal No.
1. A copy of the certificate of designations may be obtained from the Secretary
of the Company, Juliette Pryor, 12975 Worldgate Drive, Herndon, Virginia 21070.
Dividends. Shares of the convertible preferred stock will accrue dividends
on a daily basis from the date of issuance at a rate per annum (computed on the
basis of a 360-day year of twelve 30-day months), compounded quarterly (on each
March 31, June 30, September 30 and December 31), of 7.0% of $1,000 (the
"stated value"), plus 7.0% of the accrued but unpaid dividends thereon, subject
to dividend rate adjustments upon the occurrence of certain events described
below. Dividends on the convertible preferred stock are cumulative and shall
accrue whether or not the company has earnings or profits, whether or not there
are funds legally available for the payment of such dividends and whether or
not dividends are declared by the Company. Dividends on the convertible
preferred stock are payable only when and if declared by the Company; provided
that all accrued but unpaid dividends on any share of convertible preferred
stock must be paid by the Company upon the conversion of such share of
convertible preferred stock. All dividends on the convertible preferred stock
will be paid by the Company in shares of its Common Stock.
Notwithstanding any of the foregoing, no dividends will be paid on the
shares of convertible preferred stock issued in the initial issuance until the
earlier of (i) the date that the stockholder approval sought pursuant to this
proxy statement is obtained or (ii) the expiration of 150 days following the
closing with respect to the initial issuance. If the stockholder approval is
not obtained prior to the expiration of 150 days following the initial
issuance, (i) the dividend rate with respect to the convertible preferred stock
will be reset to accrue from and after the issue date at the rate per annum
(computed on the basis of a 360-day year of twelve 30-day months), compounded
quarterly as aforesaid, of 15.0% of the stated value, plus accrued but unpaid
dividends thereon and (ii) no additional shares of convertible preferred stock
will be issued by the Company.
In addition to the circumstances set forth in the preceding sentence, the
dividend rate with respect to the convertible preferred stock is subject to
adjustment upon the occurrence of any one or more of the following events:
o In the event of a change in control (as described below) of the
Company, and commencing as of the date such change in control is
effective, the dividend rate of the convertible preferred stock shall
be reset to accrue at the rate per annum (computed on the basis of a
360-day year of twelve 30-day months), compounded quarterly as
aforesaid, of 20.0% of the stated value, plus accrued but unpaid
dividends thereon;
o In the event that the Company fails to (i) file a shelf registration
statement with respect to the outstanding convertible preferred stock
prior to the later to occur of (A) May 2, 2000 and (B) the date that
is 15 days after closing of the purchase of the additional shares of
convertible preferred stock (the "filing date"), or (ii) have such
registration statement declared effective on or prior to the date
that is 90 days after the filing date (the "effective date") or (iii)
maintain the effectiveness of such registration statement (if
required to be maintained pursuant to the terms of the registration
rights agreement among the Company and the holders of the convertible
preferred stock), or (iv) to file and have declared effective an
additional registration statement within 45 days after the preceding
registration statement has ceased to be effective, then additional
dividends shall accrue and cumulate on the convertible preferred
stock as follows:
o If the shelf registration statement is not filed prior to the
filing date, additional dividends will accrue and cumulate on
the convertible preferred stock over and above the stated
dividend at a rate of 0.50% per annum.
7
<PAGE>
o If the shelf registration statement is not declared effective
prior to the effectiveness date, additional dividends will
accrue and cumulate on the convertible preferred stock over and
above the stated dividend at a rate of 0.50% per annum.
o If the shelf registration statement has been declared effective
and ceases to be effective at any time that the Company is
required to maintain the effectiveness thereof, unless an
additional shelf registration statement has been filed and
declared effective within 45 days fo the date on which the shelf
registration statement ceases to be effective, then additional
dividends will accrue and cumulate on the convertible preferred
stock over and above the stated dividend at a rate of 0.50% per
annum, commencing on the 45th day following the day such shelf
registration statement ceases to be effective.
The additional dividends accruing on the convertible preferred stock
as a result of the failure of the Company to file the shelf
registration statement prior to the filing date, to have the shelf
registration statement declared effective prior to the effectiveness
date or to maintain the effectiveness of the shelf registration
statement as required (or to file and have declared effective an
additional shelf registration statement) will cease to accrue as soon
as the Company's default has been cured.
As used above, a "change in control" of the Company means:
o the sale, conveyance, transfer or lease of all or substantially all
of the assets of the Company to any person or group (within the
meaning of sections 13(d)(3) and 14(d)(2) of the Exchange Act) other
than Huff, ING Equity Partners L.P.I., Apex Investment Fund I, L.P.,
Apex Investment Fund II, L.P., The Productivity Fund II, L.P. and
Anthony Pompliano, or any of their affiliates (the "permitted
holders"); or
o any person or group (within the meaning of sections 13(d)(3) and
14(d)(2) of the Exchange Act) other than the permitted holders
becoming the beneficial owner of more than 35% of the total voting
power of all classes of the Company's stock entitled to vote in the
election of the members of the Company's board of directors if that
percentage of voting power is greater than or equal to the total
voting power percentage of the permitted holders taken as a whole; or
o during any period of two consecutive years, individuals who at the
beginning of such period constituted the Board of Directors of the
Company cease for any reason to constitute a majority of the Board of
Directors then in office.
In addition to the dividends described above, holders of shares of
convertible preferred stock are entitled to receive, when, as and if declared
by the Board of Directors of the Company, dividends and other distributions
equivalent to those declared or paid on Common Stock, determined as if the
convertible preferred stock had, at the time such dividend or other
distribution is declared, been converted into Common Stock at the conversion
price (subject to adjustment as described below) (as if the shares of Common
Stock payable as dividends thereon had likewise been distributed).
Ranking of Dividends. The Certificate of Designations provides that:
o no dividend whatsoever (other than dividends payable in Common Stock)
shall be declared or paid upon, or any sum set apart for the payment
of dividends upon, any outstanding share of the Series A Convertible
Preferred Stock unless all dividends on all outstanding shares of
then outstanding capital stock of the Company that ranks senior in
right of payment to the convertible preferred stock (including,
without limitation, the Company's 14.75% Redeemable Preferred Stock)
(the "senior stock") for all preceding dividend periods in respect of
such senior stock have been declared and paid, or declared and a
sufficient sum set apart for the payment thereof; and
o dividends on the convertible preferred stock will rank on par with
dividends payable upon all other capital stock of the Company that
ranks pari passu in right of payment with the convertible preferred
stock (including the Company's 12.75% Redeemable Preferred Stock)
(the "parity stock") and senior to
8
<PAGE>
dividends on all capital stock of the Company that ranks junior in
right of payment to the convertible preferred stock (including the
Company's common stock)(the "junior stock").
Notwithstanding the foregoing, in the absence of any default under any of the
covenants contained in the certificate of designation and subject to compliance
with certain other conditions, (1) the Company may be permitted to pay
dividends on junior stock consisting of junior stock and may be permitted to
pay dividends on parity stock consisting of junior stock or parity stock, and
(ii) the Company may pay cash dividends and make other cash distributions on
parity stock or junior stock to the extent such payments are permitted by the
Company's outstanding debt instruments
Liquidation. Upon liquidation (whether voluntary or involuntary),
dissolution or winding-up of the Company, each holder of shares of convertible
preferred stock is entitled to be paid out of the assets of the Company
available for distribution to its stockholders, after payment to the holders of
any then outstanding senior stock of the Company, but before any payment is
made to holders of any then outstanding junior stock of the Company, an amount
(the "liquidation preference") equal to the greater of (i) the stated value of
the shares of convertible preferred stock held by such holders plus, to the
extent permitted by law, an amount in cash equal to all accrued and unpaid
dividends thereon (including accrued but unpaid dividends on such dividends)
through the date fixed for liquidation, dissolution or winding-up (the "accrued
dividends") and (ii) the liquidation value attributable to the shares of Common
Stock into which such shares of convertible preferred stock are then
convertible on an as-if-converted basis, plus accrued dividends. If the assets
of the Company available for distribution to its stockholders are not
sufficient, after payment of all amounts payable to holders of senior stock, to
pay in full all amounts payable to holders of shares of convertible preferred
stock and all other parity stock of the Company, the holders of shares of
convertible preferred stock and parity stock will share equally and ratably in
any distribution of the assets of the Company in proportion to the full
liquidation preferences and accrued but unpaid dividends to which each is
entitled.
Conversion. Shares of convertible preferred stock are convertible at any
time, at the option of the holder, into the number of shares of Common Stock
that is obtained by dividing (i) a number equal to (A) the number of shares of
convertible preferred stock to be converted, multiplied by (B) the stated value
of such shares; by (ii) the conversion price of $7.91 per share of convertible
preferred stock (subject to adjustment as described below). Shares of
convertible preferred stock are subject to mandatory conversion, at the option
of the Company, at any time after third anniversary of the initial issuance of
the convertible preferred stock (the "conversion trigger date"), if, for any
period of 30 consecutive trading days following the conversion trigger date,
the closing price for the Common Stock is equal to or greater than 175% of the
conversion price (subject to adjustment as described below) on each of such
trading days.
Upon conversion of any shares of convertible preferred stock, the Company
will pay to the holder of such shares, all accrued but unpaid dividends thereon
(including accrued but unpaid dividends on such dividends) through and
including the conversion date. All dividends are payable solely in shares of
Common Stock. The number of shares of Common Stock payable to any holder of
convertible preferred stock upon conversion of his shares shall be determined
as follows:
o In the event that the stockholder approval sought pursuant to this
proxy statement either (i) is not required in order to permit the
issuance of shares of convertible preferred stock which, in the
aggregate, are convertible into shares of Common Stock that exceeds
20% of the total outstanding Common Stock of the Company immediately
prior to the initial issuance without the violation, breach of
contravention of any NASDAQ rule or (ii) has been obtained, by
dividing (A) the aggregate amount of accrued but unpaid dividends
payable with respect to the shares of convertible preferred stock
being converted by (B) the conversion price (subject to adjustment as
described below); or
o In the event that the stockholder approval sought pursuant to this
proxy statement (i) is required in order to permit the issuance of
shares of convertible preferred stock which, in the aggregate, are
convertible into shares of Common Stock that exceeds 20% of the total
outstanding Common Stock of the Company immediately prior to the
initial issuance without the violation, breach of contravention of
any NASDAQ rule and (ii) has not been obtained, by dividing (A) the
aggregate amount of accrued but unpaid dividends payable with respect
to the shares of convertible preferred stock being converted by (B)
the closing price
9
<PAGE>
of the Common Stock on the trading day immediately preceding the date
of the initial issuance (subject to certain adjustments described
below, as if such closing price were the conversion price).
No fractional shares of Common Stock will be issued upon conversion of the
convertible preferred stock or upon issuance of shares of Common Stock in
respect of accrued but unpaid dividends payable upon such conversion. Instead,
the Company will pay to the holder surrendering shares of convertible preferred
stock for conversion an amount in cash equal to the current market value of his
or her fractional interest.
Notwithstanding the foregoing, no shares of convertible preferred stock
may be converted until each of the following have occurred: (i) any applicable
waiting period under the Hart-Scott-Rodino Act shall have expired; (ii) any
consent, approval, authorization or order of the United States Federal
Communications Commission necessary to allow such conversion shall have been
obtained, and (iii) any consent, approval, authorization or order any U.S.
state telecommunications regulatory authority or commission necessary to allow
such conversion shall have been obtained, except where the absence of such
state telecommunications regulatory authority or commission consent, approval,
authorization or order would not have a material adverse effect on the Company.
Adjustments to Conversion Price. The conversion price and the number of
shares of Common Stock issuable upon conversion of the convertible preferred
stock are subject to adjustment from time to time upon the occurrence of any of
the following events:
(i) If, at any time after the initial issuance, the Company (A) pays a
dividend or makes a distribution with respect to its Common Stock in
any shares of any class or series of its capital stock or other
securities, (B) subdivides or combines its outstanding shares of
Common Stock into a greater or smaller number of shares, as
applicable or (C) issues any shares of its capital stock in a
reclassification of its shares of Common Stock (other than pursuant
to a merger, consolidation or business combination);
(ii) If at any time after the initial issuance, the Company issues or
sells rights (subject to certain exceptions) to all holders of
shares of Common Stock, entitling the holders thereof to acquire
shares of Common Stock at a price per share of Common Stock that is
below the current market value per share of the Common Stock,
determined as of the record date for the issuance of said rights; or
(iii) If at any time after the initial issuance, the Company issues or
sells any shares of Common Stock or right (subject to certain
exceptions) at a price that is lower than the current market value
per share of the Common Stock immediately prior to such sale or
issuance.
In the event that the stockholder approval sought pursuant to this proxy
statement is required in order to implement the provisions described in (ii) or
(iii), or any adjustment to the conversion price triggered by the occurrence by
either of the events described in (ii) or (iii) without contravention of a
NASDAQ rule, no such adjustment shall be effective unless and until stockholder
approval is obtained and, the Company may not (without the affirmative vote of
the holders of a majority of the outstanding shares of convertible preferred
stock, voting or consenting as a single class) engage in any transaction that
would cause an adjustment to be made pursuant to either (ii) or (iii) above.
No adjustment in the conversion price or number of shares of Common Stock
issuable upon conversion of any share of convertible preferred stock shall be
required unless such adjustment would require an increase or decrease of at
least one percent (1%) in the conversion price or number of shares of Common
Stock issuable upon conversion of any share of convertible preferred stock, as
the case may be; provided however, that any adjustments which by reason of this
Section 6(e) are not required to be made shall be carried forward and taken
into account in any subsequent adjustment.
Merger, Consolidation, Sale of Assets. In the event that the Company
consolidates with, merges with or into, or sells, transfers or otherwise
disposes of all or substantially all of its property and assets to, any person,
and in connection therewith consideration is payable to holders of shares of
Common Stock (or other securities or property into which the convertible
preferred stock is then convertible), each share of convertible preferred stock
shall, after
10
<PAGE>
such consolidation, merger or sale, entitle the holder thereof to receive, upon
conversion, the number of shares of capital stock or other securities or
property (including cash) of the Company, or of such person resulting from such
consolidation or surviving such merger or to which such sale shall be made, or
of the parent of such person, as the case may be, that would have been
distributable or payable on account of the shares of Common Stock (or other
securities or property purchasable upon conversion of convertible preferred
stock) had such holder's shares of convertible preferred stock been converted
(and shares of Common Stock distributed) immediately prior to such merger,
consolidation or sale (or, if applicable, any record date therefor); and in any
such case, the provisions of the Certificate of Designation with respect to the
rights and interests thereafter of the holders of shares of convertible
preferred stock shall be appropriately adjusted by the Board of Directors, in
good faith, as evidenced by a board resolution delivered to the holder; so as
to be applicable, as nearly as reasonably possible, to any shares of capital
stock or other securities or any property thereafter deliverable upon
conversion of the convertible preferred stock. As a condition precedent to the
consummation of any merger, consolidation or sale of assets described above,
the person resulting from such consolidation or merger or to which such sale
has been made, or the parent of such person, as the case may be, shall have and
agree to maintain sufficient capital stock or other securities to reasonably
ensure compliance with this provision and otherwise take such actions as may be
reasonably requested by the holder of a majority of the outstanding shares of
convertible preferred stock to ensure such compliance.
Reservation of Shares. The Company has authorized and reserved for
issuance and will at all times reserve and keep available such number of shares
of Common Stock of the Company as will be issuable upon the conversion of all
outstanding shares of convertible preferred stock and dividends payable
thereon. Such shares of the Company's Common Stock, when paid for and issued,
will be duly and validly issued, fully paid and non-assessable, free of
preemptive rights and free from all taxes, liens, charges and security
interests with respect to issuance thereof.
Voting. The holders of convertible preferred stock are not entitled or
permitted to vote upon any matter required or permitted to be voted upon by the
stockholders of the Company, except that
(i) holders of convertible preferred stock are entitled and permitted to
vote on all matters required to be voted upon by them pursuant to
Delaware law,
(ii) holders of convertible preferred stock may, upon the affirmative
vote of a majority of the then outstanding shares of convertible
preferred stock, voting or consenting as a single class,
(A) waive compliance by the Company with any provision of the
certificate of designation relating to the convertible preferred
stock or
(B) waive any default by the Company of its obligations under the
financial covenants contained in such certificate of designation
(described below), and
(iii) the Company may not, without the affirmative vote or consent of
the holders of a majority of the then outstanding convertible
preferred stock, voting or consenting as a single class
(A) modify or amend any obligation or covenant of the Company under
the certificate of designation with respect to the convertible
preferred stock,
(B) authorize, create or issue any senior stock (other than shares
of 14.75% redeemable preferred stock already outstanding on the
date of the initial issuance (or additional shares issuable as
pay-in-kind dividends on such outstanding shares)), parity stock
(other than shares of 12.75% preferred stock already outstanding
on the date of the initial issuance (or additional shares
issuable as pay-in-kind dividends on such outstanding shares))
or any security convertible into or exchangeable for senior
stock or parity stock,
(C) hold any meeting of its stockholders or circulate or provide to
its stockholders (or participate or assist in the circulation or
provision of) any consent of its stockholders, which meeting of
stockholders or consent is being held or circulated or provided
for the purpose of considering the approval of a
11
<PAGE>
merger or consolidation to which the Company is a party, the
sale, lease or exchange of all or substantially all of the
Company's property and assets, or the dissolution of the
Company, or any transactions similar to any of the foregoing, if
such meeting would be held or such consent would be so
circulated or provided on a date on or prior to six months after
the final closing, or if there is no final closing, six months
after March 3, 2000; or
(D) amend or otherwise modify its bylaws, certificate of
incorporation, the certificate of designation relating to the
convertible preferred stock in a manner that would adversely
affect the powers, rights or privileges of the holders of
convertible preferred stock, or reduce the time for any notice
to which holders of convertible preferred stock are entitled.
In addition, to the extent that any waiver to be granted pursuant to clause
(ii) above or any action taken pursuant to clause (iii) above would adversely
affect the conversion price, date of conversion, liquidation preference,
dividend rate, form or timing of the payment of dividends with respect to the
convertible preferred stock or the voting rights of holders of convertible
preferred stock, the affirmative vote or consent of each holder of the then
outstanding shares of convertible preferred stock must be obtained.
Restrictions on Transfer. The convertible preferred stock is being issued
to Huff, Greenwich and the other purchasers in a private offering. As a
consequence, the convertible preferred stock can be sold without registration
only pursuant to a transaction exempt from the registration requirements of the
Securities Act and in compliance with any applicable state securities laws. See
"Registration Rights."
Restrictive Covenants. In connection with the issuance of the convertible
preferred stock, the Company has agreed to certain restrictive covenants, which
are substantially similar to the covenants that were entered into in connection
with the issuance of the Company's 12 3/4% Junior Redeemable Preferred Stock.
The terms of these restrictive covenants are attached to this proxy as Exhibit
B. The Certificate of Designation provides that these covenants shall be deemed
waived automatically if waived or amended by the holders of the 12 3/4%
preferred stock.
Description of Warrants
The following summarizes the principal features of the warrants: Because
it is only a summary, it may not contain all of the provisions that may be
important to you. As a result, you may want to read the warrant agreement,
which is the legal document that sets out all of the terms of the warrants,
prior to making your decision on Proposal No. 1. A copy of the warrant
agreement may be obtained from the Secretary of the Company, Juliette Pryor,
12975 Worldgate Drive, Herndon, Virginia 21070.
General. The warrants will entitle the holders to purchase a total of up
to 8.82 million shares of Common Stock, at an initial exercise price of $9.89
(the "initial exercise price"), which is the price equal to 150% of the initial
benchmark price, subject to the adjustments described below. The warrants will
automatically expire on the tenth anniversary after the date that they are
issued.
Exercise. Except as otherwise described in this section, the warrants are
exercisable at any time on or after the date that they are issued until the
date fixed for expiration of such warrants.
Notwithstanding the foregoing, no warrants may be exercised until each of
the following have occurred:
(i) any applicable waiting period under the Hart-Scott-Rodino Act has
expired;
(ii) any consent, approval, authorization or order of the United States
Federal Communication Commission necessary to allow such exercise has
been obtained;
(iii) any consent, approval, authorization or order of any U.S. state
telecommunications regulatory authority or commission necessary to
allow such exercise has been obtained, except where the absence of
such state
12
<PAGE>
telecommunications regulatory authority or commission consent,
approval, authorization or order would not have a material adverse
effect on the Company; and
(iv) a shelf registration statement relating to the warrants has been
filed and declared effective under the Securities Act; provided that
if such warrants are exercised in a "cashless exercise" or in
exchange for other securities of the Company and no cash
consideration is received by the Company (or in any other exchange
that is exempt from registration under the Securities Act), then the
requirements of clause (iv) need not be met. A "cashless exercise" is
effected by a holder of warrants by surrendering to the Company
certificates representing a warrant or warrants in exchange for that
number of shares of Common Stock equal to the product of (i) the
number of shares of Common Stock for which the surrendered warrant or
warrants are exercisable as of the date of exercise (as if the
exercise price with respect to such warrants were being paid in cash)
and (ii) a fraction, the numerator of which is equal to (A) the
current market value per share of the Common Stock on the date of
exercise, less (B) the exercise price per share as of the date of
exercise, and the denominator of which is equal to the current market
value per share of the Common Stock on the date of exercise.
Any warrant not exercised prior to the date fixed for its expiration shall
expire as of such date, and the holder of such warrant will have no further
rights under such warrant or the warrant agreement relating to such warrant.
Issuance of Additional Warrants upon a Change in Control. Upon the
occurrence of a Change in Control (as defined above), the purchasers will
receive additional warrants in an amount equal to 25% of the warrants initially
sold to them, each of which will be exercisable for the number of shares of
Common Stock and at no additional cost, and will have the same exercise price
and rights (including, without limitation, rights to adjustments described
below), as the warrants purchased by the purchasers as then in effect under any
outstanding warrants.
Exercise Price Adjustments. The exercise price of the warrants and the
number of shares of the Common Stock issuable upon exercise of each warrant are
subject to adjustment from time to time upon the occurrence of any of the
following events:
(i) If, at any time after the initial issuance, the Company (A) pays a
dividend or makes a distribution with respect to its Common Stock in
any shares of any class or series of its capital stock or other
securities, (B) subdivides or combines its outstanding shares of
Common Stock into a greater or smaller number of shares, as
applicable or (C) issues any shares of its capital stock in a
reclassification of its shares of Common Stock (other than pursuant
to a merger, consolidation or business combination);
(ii) If at any time after the initial issuance, the Company issues or
sells rights (subject to certain exceptions) to all holders of
shares of Common Stock, entitling the holders thereof to acquire
shares of Common Stock at a price per share of Common Stock that is
below the current market value per share of the Common Stock,
determined as of the record date for the issuance of said rights;
(iii) If at any time after the initial issuance, the Company issues or
sells any shares of Common Stock or right (subject to certain
exceptions) at a price that is lower than the current market value
per share of the Common Stock immediately prior to such sale or
issuance; or
(iv) If at any time after the initial issuance, the Company declares,
orders, pays or makes a dividend (other than cash dividends out of
current or retained earnings) or other distribution of property,
assets, debt securities or rights to all holders of shares of Common
Stock.
In the event that the stockholder approval sought pursuant to this proxy
statement is required in order to implement the events described in (ii), (iii)
or (iv) above, or any adjustment to the conversion price triggered by the
events described in (ii), (iii) or (iv) above without contravention of a NASDAQ
rule, no such adjustment shall be effective unless and until stockholder
approval is obtained and the Company may not (without the affirmative vote of
the holders of a majority of the outstanding shares of convertible preferred
stock, voting or consenting as a single class) engage in any transaction that
would cause an adjustment to be made pursuant to (ii), (iii) or (iv) above.
13
<PAGE>
No adjustment in the exercise price or number of shares of Common Stock
purchasable upon exercise of any warrant shall be required unless such
adjustment would require an increase or decrease of at least one percent (1%)
in the exercise price or number of shares of Common Stock purchasable upon the
exercise of each warrant, as the case may be; provided however, that any
adjustments which are not required to be made shall be carried forward and
taken into account in any subsequent adjustment.
Merger; Consolidation; Sale of Assets. Subject to the provisions of the
next succeeding paragraph, in the event that the Company consolidates with,
merges with or into, or sells, transfers or otherwise disposes of all or
substantially all of its property and assets to, any person, and in connection
therewith consideration is payable to holders of shares of common stock (or
other securities or property purchasable upon exercise of warrants), the
warrants shall remain subject to the terms and conditions set forth in the
warrant agreement and each warrant shall, after such consolidation, merger or
sale, entitle the holder thereof to receive, upon exercise, the number of
shares of capital stock or other securities or property (including cash) of the
Company, or of such person resulting from such consolidation or surviving such
merger or to which such sale shall be made, or of the parent of such person, as
the case may be, that would have been distributable or payable on account of
the shares of Common Stock (or other securities or property purchasable upon
exercise of warrants) if such holder's warrants had been exercised immediately
prior to such merger, consolidation or sale (or, if applicable, any record date
therefor); and, in any such case, the provisions of the warrant agreement with
respect to the rights and interests thereafter of the holders of warrants shall
be appropriately adjusted by the Board of Directors, in good faith, so as to be
applicable, as nearly as reasonably possible, to any shares of stock or other
securities or any property thereafter deliverable on the exercise of the
warrants.
Notwithstanding the foregoing, (x) if the Company consolidates with,
merges with or into, or sells, transfers or otherwise disposes of all or
substantially all of its property and assets to, any Person, and consideration
is payable to holders of shares of Common Stock in exchange for their shares of
Common Stock in connection with such merger, consolidation or sale which
consists solely of cash, or (y) in the event of the dissolution, liquidation or
winding-up of the Company, then the holder shall receive distributions at the
same time as and on an equal basis with holders of shares of Common Stock (or
other securities purchasable upon exercise of the warrants) as if the warrants
had been exercised immediately prior to such event (or, if applicable, any
record date therefor), less the exercise price. Upon receipt of such payment,
with respect to the warrants in respect of which such payment was received, the
rights of a holder hereunder shall terminate except as expressly provided
herein or in the warrant certificate and such warrants shall expire. In the
case of any such merger, consolidation or sale of assets, the surviving or
acquiring person or, in the event of any dissolution, liquidation or winding up
of the Company, the Company, shall deposit promptly in an escrow account
established by each holder the funds or other consideration, if any, necessary
to pay holders pursuant to this subsection.
Reservation of Shares. The Company has authorized and reserved for
issuance and will at all times reserve and keep available such number of shares
of Common Stock of the Company as will be issuable upon the exercise of all
outstanding warrants. Such shares of the Company's Common Stock, when paid for
and issued, will be duly and validly issued, fully paid and non-assessable,
free of preemptive rights and free from all taxes, liens, charges and security
interests with respect to issuance thereof.
Voting. The holders of warrants are not entitled or permitted to vote on
any matter required or permitted to be voted on by the Company's stockholders.
Restrictions on Transfer. The warrants are being issued to Huff and the
other purchasers in a private offering. As a consequence, the warrants can be
sold without registration under the Securities Act only pursuant to a
transaction exempt from the registration requirements of the Securities Act and
in compliance with any applicable state securities laws.
14
<PAGE>
Registration Rights
The Company has agreed to file a shelf registration statement with the
SEC to cover resales of the convertible preferred stock, warrants, and each
share of Common Stock issuable upon the conversion of the convertible preferred
stock and exercise of warrants by holders thereof. The Company has agreed to
maintain the continuous effectiveness of such shelf registration statement,
subject to customary blackout and deferral provisions, until the earlier of (i)
the date on which all of the securities covered thereby have been effectively
registered under the Securities Act and disposed of in accordance with the
shelf registration statement; (ii) the date on which a subsequent shelf
registration covering the securities has been declared effective under the
Securities Act or (iii) there are no longer outstanding any registrable
securities covered by the shelf registration or subsequent shelf registration.
The Company has agreed in the registration rights agreements to pay all
costs related to the registration obligations thereunder, subject to certain
exceptions, and has agreed to indemnify the holders against certain
liabilities, including liabilities under the Securities Act of 1933, as
amended.
Possible Dilutive Effect
You should be aware that conversion of the convertible preferred stock and
exercise of the warrants into shares of Common Stock will have a dilutive
effect on earnings per share and the relative voting power of the Company's
present stockholders. In addition, you should note that the Company will issue
additional shares of Common Stock in payment of dividends on the convertible
preferred stock, which will increase the number of shares of Common Stock that
may be issued in connection with the transaction described in this Proposal No.
1.
Interest of Certain Persons in Proposal No. 1
Four of e.spire's directors, William R. Huff, Edwin M. Banks, Peter Bentz,
and Joseph Thornton, are employees of W. R. Huff Asset Management Co., L.L.C.,
an affiliate of The Huff Alternative Income Fund, L.P., which is purchasing a
portion of the shares of convertible preferred stock and warrants, and one
other director, Christopher L. Rafferty, is an employee of WRH Partners,
L.L.C., the general partner of The Huff Alternative Income Fund, L.P. See
"Outstanding Shares and Voting Rights--Beneficial Ownership of Certain
Holders." In addition, Huff received a commitment fee of $1 million from the
Company in connection with its participation in the transactions described in
Proposal No. 1, and the Company has agreed to pay all fees and expenses,
including the reasonable fees and expenses of counsel, of the purchasers in
connection with this transaction, including the cost of holding and/or
converting the securities, subject to certain exceptions.
The Huff Alternative Income Fund, L.P. has advised the Company that it
intends to vote its shares in favor of Proposal No. 1.
Other Matters
The Board of Directors knows of no other matters to be brought before the
Special Meeting. If matters other than the foregoing should properly come
before the Special Meeting, it is intended that the shares represented by
proxies will be voted in accordance with the judgment of the persons named in
the proxy as to the best interests of the Company
15
<PAGE>
Stockholders' Proposals
The Company's next Annual Meeting of Stockholders will be held on or
around May 12, 2000. Such Annual Meeting of Stockholders will present
information relating to the Company's fiscal year ending December 31, 1999. Any
proposal by stockholders intended to be presented at the next Annual Meeting of
Stockholders must have been received by the Company at the above address for
inclusion in its Proxy Statement and form of proxy relating to that meeting by
January 13, 2000.
By Order of the Board of Directors
------------------------------------
Juliette Pryor
Secretary
Dated: , 2000
16
<PAGE>
e.spire Communications, Inc.
Proxy
Common Stock
Special Meeting: , 2000
This Proxy is solicited on behalf of the Board of Directors
Juliette Pryor and John R. Polchin, and each of them, to act as proxies
with full power of substitution in each of them, are hereby authorized to
represent and to vote, as designated below and on the reverse side, upon the
following proposals and in the discretion of the proxies on such other matters
as may properly come before the Special Meeting of Stockholders of e.spire
Communications, Inc. to be held at [location] on , 2000 or any
adjournment(s), postponement(s), or other delay(s) thereof (the "Special
Meeting"), all shares of Common Stock of e.spire Communications, Inc. to which
the undersigned is entitled to vote at the Special Meeting. The following
proposals are more fully described in the Notice of Special Meeting of
Stockholders and Proxy Statement (receipt of which is hereby acknowledged).
UNLESS OTHERWISE DIRECTED, THIS PROXY WILL BE VOTED "FOR" PROPOSAL NO. 1
AND WILL BE VOTED IN THE DISCRETION OF THE PROXIES ON SUCH OTHER MATTERS AS
MAY PROPERLY COME BEFORE THE SPECIAL MEETING. THE BOARD OF DIRECTORS
UNANIMOUSLY RECOMMENDS THAT STOCKHOLDERS VOTE "FOR" PROPOSAL NO. 1.
(Continued and to be dated and signed on the reverse side.)
<PAGE>
e.spire Communications, Inc.
P.O. Box 11144
NEW YORK, N.Y. 10203-0144
1. To approve the issuance of
o convertible preferred stock that (a) is initially convertible
into up to 25,284,450 shares of common stock at an initial
conversion price of $7.91 per share, and (b) provides that the
Company may issue additional shares of common stock as payment
of accrued but unpaid dividends, and
o warrants initially exercisable into up to 8,820,000 shares of
common stock at an initial exercise price of $9.89 per share
which, in the aggregate, are convertible into an amount of common
stock that exceeds 20% of the total outstanding common stock of the
Company;
FOR [ ] AGAINST [ ] ABSTAIN [ ]
PLEASE CHECK THIS BOX IF YOU EXPECT TO ATTEND THE SPECIAL MEETING IN
PERSON. [ ]
(Please sign exactly as name appears to
the left, date and return. If shares are
held by joint tenants, both should sign.
When signing as an attorney, executor,
administrator, trustee or guardian,
please give full title as such. If a
corporation, please sign in full
corporate name by president or other
authorized officer. If a partnership,
please sign in partnership name by
authorized person.)
Please Date:
----------------------------
Sign Here:
------------------------------
----------------------------------------
Signature (if held jointly)
----------------------------------------
Capacity (Title or Authority, i.e.,
President, Partner, Executor, Trustee)
PLEASE SIGN AND DATE AND RETURN YOUR PROXY TODAY. VOTES MUST BE INDICATED (X)
IN BLACK OR BLUE INK.
<PAGE>
EXHIBIT A
[Letterhead of Houlihan Lokey Howard & Zukin Financial Advisors, Inc.]
March 1 , 2000
The Board of Directors
e.spire Communications, Inc.
Dear Members of the Board:
We understand that e.spire Communications, Inc. ("e.spire" or the "Company") is
considering selling (the "Offering") to The Huff Alternative Income Fund, L.P.
("Huff"), Greenwich Street Capital Partners II, L.P., ("Greenwich") and other
investors (collectively the "Purchasers") $200 million of a newly issued class
of 7% Convertible Preferred Stock (the "Preferred Stock") which will initially
be convertible into approximately 25,284,450 shares of the Company's common
stock. We also understand that the Purchasers of the Preferred Stock will
receive ten-year warrants (the "Warrants") to purchase 8.82 million shares of
the Company's common stock at an exercise price of $9.89 per share. We also
understand that the Offering will be completed in an initial closing and
(subject to receipt of the requisite shareholder approval) a final closing. The
Offering and related transactions are referred to collectively herein as the
"Transaction."
You have requested our opinion (the "Opinion") as to the matters set forth
above. The Opinion does not address the Company's underlying business decision
to effect the Transaction. We have not been requested to, and did not, solicit
third party indications of interest in acquiring all or any part of the
Company. Furthermore, at your request, we have not negotiated the Transaction
or advised you with respect to alternatives to it.
In connection with this Opinion, we have made such reviews, analyses and
inquiries as we have deemed necessary and appropriate under the circumstances.
Among other things, we have:
1. reviewed e.spire's audited financial statements on Form 10-KSB for the
fiscal years ended June 1995 and 1996 and December 31, 1996, 1997 and
1998, and the unaudited financial statements on Form 10-Q for the quarter
ended September 30, 1999, which e.spire's management has identified as
being the most current financial statements available;
2. reviewed copies of the following documents and agreements:
(i) Unit Purchase Agreement between e.spire Communications, Inc. and
(a) The Huff Alternative Income Fund L.P., (b) Greenwich Street
Capital Partners II, L.P., GSCP Offshore Fund L.P., Greenwich
Fund L.P., Greenwich Street Employees Fund L.P. and TRV
Executive Fund L.P. and (c) Honeywell International Inc. Master
Retirement Trust, execution copies dated March 1,2000;
(ii) e.spire Communications, Inc. Certificate of Designation of Series
A Convertible Preferred Stock, execution copy dated March 1,
2000;
<PAGE>
(iii) Registration Rights Agreement between e.spire Communications,
Inc. and The Huff Alternative Income Fund L.P., Greenwich Street
Capital Partners II, L.P GSCP Offshore Fund L.P., Greenwich Fund
L.P., Greenwich Street Employees Fund L.P. and TRV Executive
Fund L.P. and Honeywell International Inc. Master Retirement
Trust, execution copy dated March 1, 2000;
(iv) Warrant Agreement among e.spire Communications, Inc. and The Huff
Alternative Income Fund L.P., Greenwich Street Capital Partners
II, L.P GSCP Offshore Fund L.P., Greenwich Street Employees Fund
L.P. and TRV Executive Fund L.P. and Honeywell International
Inc. Master Retirement Trust, execution copy dated March 1, 2000
draft dated 2/23/00;
3. spoke with certain members of the senior management of e.spire to discuss
the operations, financial condition, future prospects and projected
operations of e.spire;
4. reviewed forecasts and projections prepared by the Company's management
with respect to e.spire for the years ended December 31, 2000 through 2008;
5. reviewed the historical market prices and trading volume for e.spire's
publicly traded securities;
6. reviewed certain other publicly available financial data for certain
companies that we deem comparable to e.spire;
7. reviewed certain publicly available financial data for certain
transactions that we deemed comparableto the Transaction; and
8. conducted such other studies, analyses and inquiries as we have deemed
appropriate.
We have relied upon and assumed, without independent verification, that
the financial forecasts and projections provided to us have been reasonably
prepared and reflect the best currently available estimates of the future
financial results and condition of the Company, and that there has been no
material change in the assets, financial condition, business or prospects of
the Company since the date of the most recent financial statements made
available to us.
We have not independently verified the accuracy and completeness of the
information supplied to us with respect to the Company and do not assume any
responsibility with respect to it. We have not made any physical inspection or
independent appraisal of any of the properties or assets of the Company. Our
opinion is necessarily based on business, economic, market and other conditions
as they exist and can be evaluated by us at the date of this letter.
Based upon the foregoing, and in reliance thereon, it is our opinion that
the Transaction is fair to the Company and the Company's public stockholders
from a financial point of view.
/s/ HOULIHAN LOKEY HOWARD & ZUKIN FINANCIAL ADVISORS, INC.
----------------------------------------------------------
A-2
<PAGE>
EXHIBIT B
Covenants contained in the Certificate of Designations. See "Certain
Definitions" for the definitions of capitalized terms used below:
8. Restrictive Covenants
(a) Incurrence of Indebtedness and Issuance of Disqualified Stock
or Preferred Stock.
(i) The Corporation shall not, and shall not permit any of
its Subsidiaries to, directly or indirectly, create, incur, issue,
assume, guarantee or otherwise become directly or indirectly liable,
contingently or otherwise, for the payment of (collectively, "incur"
and correctively, "incurred" and "incurrence") any Indebtedness
(including, without limitation, Acquired Indebtedness) and shall not
issue any Disqualified Stock and shall not permit any of its
Subsidiaries to issue any shares of Subsidiary Preferred Stock;
provided that the Corporation may incur Indebtedness (including,
without limitation, Acquired Indebtedness) or issue shares of
Disqualified Stock or Subsidiary Preferred Stock if the Corporation's
Consolidated Leverage Ratio as of the last day of the Corporation's
most recently ended fiscal quarter for which internal financial
statements are available immediately preceding the date on which such
Indebtedness is incurred, or such Disqualified Stock or Subsidiary
Preferred Stock is issued, as the case may be, would have been greater
than zero and less than 5.0 to 1.0 determined on a pro forma basis
(including a pro forma application of the net proceeds therefrom), as
if the additional Indebtedness had been incurred, or the Disqualified
Stock or Subsidiary Preferred Stock had been issued, as the case may
be, at the beginning of such fiscal quarter.
(ii) The provisions of Section 8(a)(i) shall not apply to:
(A) the incurrence of Indebtedness by the
Corporation or any Subsidiary pursuant to Credit
Agreement(s); provided that the aggregate principal amount of
Indebtedness under such Credit Agreement(s) at any one time
outstanding under this clause (A) does not exceed $200.0
million for the Corporation and all of its Subsidiaries
combined;
(B) Existing Indebtedness (including all amounts that
accrue thereon);
(C) the incurrence of Vendor Debt by the Corporation
or any Subsidiary; provided that the aggregate principal
amount of such Vendor Debt does not exceed 80% of the
purchase price or cost of the construction, acquisition or
improvement of the applicable Telecommunications Related
Assets financed therewith (or 100% of the total cost of the
Telecommunications Related Assets financed therewith if such
Vendor Debt was extended for the purchase of tangible
physical assets and was so financed by the vendor thereof or
an affiliate of such vendor);
(D) the incurrence by the Corporation or any of its
Restricted Subsidiaries of Refinancing Indebtedness with
respect to Indebtedness permitted pursuant to clause (B) and
(C) of this paragraph;
(E) the incurrence of Indebtedness by the
Corporation not to exceed, at any one time outstanding, 2.0
times the sum of (1) the net cash proceeds received by the
Corporation from the issuance and sale of the Series A
Convertible Preferred Stock and the issuance and sale of any
other class or series of its Capital Stock (other than
Disqualified Stock) from and after the initial date of
issuance of the 12.75% Preferred Stock plus (2) the fair
market value at the time of issuance of Capital Stock (other
than Disqualified Stock) issued in connection with any
acquisition
B-1
<PAGE>
of a Telecommunications Corporation, in each case to a Person
other than a Subsidiary of the Corporation; and
(F) the incurrence by the Corporation of
Indebtedness (in addition to Indebtedness permitted by any
other clause of this paragraph) in an aggregate principal
amount (or accreted value, as applicable) at any time
outstanding not to exceed $100.0 million;
(iii) If an item of Indebtedness is permitted to be incurred or an
item of Disqualified Stock or Subsidiary Preferred Stock is permitted
to be issued on the basis of one or more of clauses (A) through (F)
of Section 8(a)(ii) above, or is permitted to be incurred on the
basis of Section 8(a)(i) above, then the Corporation shall, in its
sole discretion, classify such item in any manner that complies with
Section 8(a) and such item shall be treated as having been incurred
pursuant to only one of such clauses of Section 8(a)(ii) or pursuant
to Section 8(a)(i). Accrual of interest or dividends, the accretion
of accreted value or liquidation preference and the payment of
interest or dividends in the form of additional Indebtedness or
shares of Capital Stock shall not be deemed to be an incurrence of
Indebtedness for purposes of this Section 8(a).
(iv) For purposes of this Section 8(a), in the event that the
Corporation proposes to incur Indebtedness pursuant to Section
8(a)(ii)(E) hereof, the Corporation shall, simultaneously with the
incurrence of such Indebtedness, deliver to the Transfer Agent a
resolution of the Board of Directors set forth in an Officer's
Certificate stating that the sale or sales of Capital Stock forming
the basis for the incurrence of such Indebtedness (i) constitutes an
investment in the Corporation and (ii) has not been made for the
purpose of circumventing Section 8(a) hereof. In the event that the
Corporation rescinds, reverses or unwinds such sale of Capital Stock
or otherwise returns or refunds all or any portion of the net cash
proceeds of such sale of Capital Stock (whether by dividend,
distribution or otherwise) within 270 days of the date of the
incurrence of such Indebtedness, such Indebtedness shall be deemed to
be incurred on the date of, and immediately after giving effect to,
such rescission, reversal, unwinding, return or refund.
(b) Merger, Consolidation or Sale of Assets. The Corporation shall not
in any transaction or series of transactions consolidate with, or merge with or
into any other Person (other than a merger of a Restricted Subsidiary into the
Corporation in which the Corporation is the continuing corporation), or sell,
assign, transfer, lease, convey or otherwise dispose of all or substantially all
of the property or assets of the Corporation and the Restricted Subsidiaries
taken as a whole, to any other Person (any Person referred to in this Section
8(b) above, a "Successor") unless:
(i) either (A) the Corporation is the continuing corporation or
(B) the corporation (if other than the Corporation) formed by such
consolidation or into which the Corporation is merged, or the Person
which acquires, by sale, assignment, transfer, lease, conveyance or
other disposition, all or substantially all of the property and
assets of the Corporation and the Restricted Subsidiaries taken as a
whole (such corporation or Person, the "Surviving Entity"), shall be
a corporation organized and validly existing under the laws of the
United States of America, any political subdivision thereof, any
state thereof or the District of Columbia and the Series A
Convertible Preferred Stock shall be converted into or exchanged for,
and shall become shares of, such Surviving Entity, successor,
transferee or resulting Person, having in respect of such Surviving
Entity the same powers, preference and relative participating,
optional or other special rights and qualifications, limitations or
restrictions thereon, that the Series A Convertible Preferred Stock
had with respect to the Corporation immediately prior to such
transaction;
(ii) immediately after giving effect to such transaction or series
of elated transactions on a pro forma basis (including, without
limitation, any Indebtedness incurred or anticipated to be incurred
in connection with or in respect of such transaction or series of
related transactions) neither of the following events shall have
occurred or resulted therefrom (A) the Corporation fails to comply
with any of its covenants set forth in this Certificate of
Designation
B-2
<PAGE>
and such failure continues for at least 30 consecutive days after
receipt by the Corporation of notice of such failure from the Holders
of at least 25% of the shares of Series A Convertible Preferred Stock
then outstanding or (B) there occurs a default under any mortgage,
indenture or instrument under which there may be issued or by which
there may be secured or evidenced any Indebtedness for money borrowed
by the Corporation or any of its Subsidiaries (or the payment of
which is guaranteed by the Corporation or any of its Subsidiaries)
whether such Indebtedness or Guarantee now exists, or is created
after the Issue Date, which default (x) is caused by a failure to pay
principal of or premium, if any, or interest on such Indebtedness
prior to the expiration of the grace period provided in such
Indebtedness on the date of such default (a "Payment Default") or (y)
results in the acceleration of such Indebtedness prior to its express
maturity, and, in each case, the principal amount of any such
Indebtedness, together with the principal amount of any other such
Indebtedness under which there has been a Payment Default or the
maturity of which has been so accelerated, aggregates $10.0 million
or more, at any time, in each case, after a 60-day period during
which such Payment Default shall not have been cured or such
acceleration rescinded; or
(iii) immediately after giving effect to such transaction or series
of related transaction on a pro forms basis (including, without
limitation, any Indebtedness incurred or anticipated to be incurred
in connection with or in respect of such transaction or series of
related transactions), the Corporation (or the Successor, if the
Corporation is not continuing) would (A) be permitted to incur at
least $1.00 of additional Indebtedness pursuant to Section 8(a)(i)
hereof or (B) have a Total Equity Market Capitalization of at least
$750 million and total Indebtedness, net of cash and Cash Equivalents
(as presented on the Corporation's consolidated balance sheet), in an
amount less than 50% of its Total Market Capitalization.
(c) Dividend and Other Payment Restrictions Affecting Subsidiaries.
The Corporation shall not, and shall not permit any of its Restricted
Subsidiaries to, directly or indirectly, create or otherwise cause or suffer to
exist or become effective any encumbrance or restriction on the ability of any
Restricted Subsidiary to:
(i) (x) pay dividends or make any other distributions to the
Corporation or any of its Restricted Subsidiaries on its Capital
Stock or (y) pay any Indebtedness owed to the Corporation or any of
its Restricted Subsidiaries;
(ii) make loans or advances to the Corporation or any of its
Restricted Subsidiaries;
(iii) transfer any of its properties or assets to the Corporation
or any of its Restricted Subsidiaries, except for such encumbrances
or restrictions existing under or by reason of:
1. Existing Indebtedness as in effect on the Issue Date;
2. any Credit Agreement creating or evidencing
Indebtedness permitted by Section 8(a)(ii)(A) and any amendments,
modifications, restatements, renewals, increases, supplements,
refundings, replacements or refinancings thereof;
3. any encumbrance or restriction pursuant to an agreement
relating to an acquisition of assets or property, so long as the
encumbrances or restrictions in any agreement relate solely to the
assets of property so acquired;
4. this Certificate of Designation or the Series A
Convertible Preferred Stock;
5. applicable law;
B-3
<PAGE>
6. customary provisions restricting subletting or
assignment of any lease of the Corporation or any Restricted
Subsidiary;
7. customary provisions in certain agreements that
restrict the assignment of such agreement or any rights thereunder;
8. purchase money obligations or Vendor Debt for property
acquired in the ordinary course of business that impose restrictions
of the nature described in Section 8(c)(iii) on the property so
acquired;
9. any encumbrance or restriction relating to any
Indebtedness of any Restricted Subsidiary existing on the date on
which such Restricted Subsidiary is acquired by the Corporation or
any Restricted Subsidiary (other than Indebtedness issued by such
Restricted Subsidiary in connection with or in anticipation of its
acquisition);
10. any temporary encumbrance or restriction with respect
to a Restricted Subsidiary pursuant to an agreement that has been
entered into for the sale or disposition of all or substantially all
of the Capital Stock of, or property and assets of, such Restricted
Subsidiary;
11. any restriction on the sale or other disposition of
assets or property securing Indebtedness as a result of a Permitted
Lien on such assets or property; and
12. Refinancing Indebtedness; provided that such
encumbrances or restrictions are not materially more restrictive than
those contained in the documentation governing the Indebtedness being
extended, refinanced, renewed, replaced, defeased or refunded.
(d) Reports. Whether or not the Corporation is subject to Section
13(a) or 15(d) of the Exchange Act, or any successor provision thereto, the
Corporation shall file with the Commission the annual reports, quarterly reports
and other documents which the Corporation would have been required to file with
the Commission pursuant to such Section 13(a) or 15(d) or any successor
provision thereto if the Corporation were subject thereto, such documents to be
filed with the Commission on or prior to the respective dates (the "Required
Filing Dates") by which the Corporation would have been required to file them.
The Corporation shall also (whether or not it is required to file reports with
the Commission), within 30 days of each Required Filing Date, (1) transmit by
mail to all Holders of the Series A Convertible Preferred Stock, as their names
and addresses appear on the records of the Transfer Agent and to any Persons
that request such reports in writing, without cost to such holders or Persons,
and (ii) file with the Transfer Agent copies of the annual reports, quarterly
reports and other documents (without exhibits) which the Corporation has filed
or would have filed with the Commission pursuant to Section 13(a) or 15(d) of
the Exchange Act, any successor provisions thereto or this covenant. The
Corporation shall not be required to file any report or other information with
the Commission if the Commission does not permit such filing.
(e) Default. Unless such default is waived by the Holders of the
Series A Convertible Preferred Stock, in the event of any default by the
Corporation in the performance of any covenant set forth in this Section 8, if
such default is not cured by the Corporation within 30 days following notice to
the Corporation from Holders of no less than 25% of the outstanding shares of
Series A Convertible Preferred Stock of the existence of such default, or if
the Corporation is in default in its obligations under Section 3(g) or 5(c) or
clause (ii) of Section 7(c) above, the Corporation shall not, throughout the
period such default is continuing, declare, pay or set aside for payment any
dividends on any Junior Stock or Parity Stock (or pay-in-kind dividends
pursuant to the certificate of designation for the 12.75% Preferred Stock) or
purchase or redeem any shares of Junior Stock or Parity Stock (other than
mandatory redemption pursuant to the certificate of designation of the 12.75%
Preferred Stock). Nothing in this Section 8(e) is intended to limit any other
right or remedy to which the Holders of Series A Convertible Preferred Stock
are otherwise entitled. Notwithstanding any of the foregoing, a default under
Section 8(a), 8(b), 8(c) or 8(d) shall be automatically deemed waived by the
Holders if the holders of 12.75% Preferred Stock have, in accordance with the
provisions of Section 6(h) the certificate of designation of the 12.75%
Preferred Stock (the "12.75%
B-4
<PAGE>
Certificate of Designation"), waived (including by way of amendment) the
Corporation's default under the corresponding provisions (Sections 8(a), 8(b),
8(c) and 8(d), respectively) of the 12.75% Certificate of Designation.
Certain Definitions
Unless the context otherwise requires, each of the terms defined below
shall have, for all purposes of this Certificate of Designation, the meaning
herein specified (with terms defined in the singular having comparable meanings
when used in the plural):
"Acquired Indebtedness" means, with respect to any specified Person,
Indebtedness of any other Person existing at the time such other Person merged
with or into or became a Subsidiary of such specified Person, including
Indebtedness incurred in connection with, or in contemplation of, such other
Person merging with or into or becoming a Subsidiary of such specified Person,
but excluding Indebtedness which is extinguished, retired or repaid in
connection with such other Persons merging with or into or becoming a
Subsidiary of such specified Person.
"Affiliate" means, as to any Person, any other Person which directly or
indirectly controls, or is under common control with, or is controlled by, such
Person; provided that each Unrestricted Subsidiary shall be deemed to be an
Affiliate of the Corporation and of each other Subsidiary of the Corporation;
provided, further, that neither the Corporation nor any of its Restricted
Subsidiaries shall be deemed to be Affiliates of each other; and provided,
further, that any lender under the Secured Credit Facility and its Affiliates
shall not be deemed to be Affiliates of the Corporation or any Restricted
Subsidiary solely as a result of the existence of the Secured Credit Facility
or their holdings of Capital Stock of the Corporation or any Restricted
Subsidiary acquired in connection with the Secured Credit Facility. For
purposes of this definition, "control" (including, with correlative meanings,
the terms "controlling," "under common control with" and "controlled by"), and
as used with respect to any Person, shall mean the possession, directly or
indirectly, of the power to direct or cause the direction of the management or
policies of such Person, whether through the ownership of Voting Stock, by
agreement or otherwise; provided that beneficial ownership of 10% or more of
the Voting Stock of a Person shall be deemed to be control.
"Annualized Pro Forma EBITDA" means with respect to any Person, such
Person's Pro Forma EBITDA for the latest fiscal quarter for which internal
financial statements are then available multiplied by four.
"Asset Sale" means, with respect to any Person, any transfer, conveyance,
sale, lease or other disposition (including, without limitation, by way of
consolidation or merger, but excluding by means of any Sale and Leaseback
Transaction or by the granting of a Lien permitted under the definition of
"Permitted Liens" herein) by such Person or any of its Restricted Subsidiaries
to any Person other than the Corporation or a Restricted Subsidiary of the
Corporation, in one transaction, or a series of related transactions (each
hereinafter referred to as a "Disposition"), of property or assets of such
Person or any of its Restricted Subsidiaries, the Fair Market Value of which
exceeds $2.0 million, other than (i) a Disposition of property in the ordinary
course of business consistent with industry practice and (ii) a Disposition by
the Corporation in connection with a transaction permitted under Section 8(b)
hereof.
"Attributable Indebtedness" means, with respect to any Sale and Leaseback
Transaction of any Person, as at the time of determination, the greater of (i)
the capitalized amount in respect of such transaction that would appear on the
balance sheet of such Person in accordance with GAAP and (ii) the present value
(discounted at a rate consistent with accounting guidelines, as determined in
good faith by such Person) of the payments during the remaining term of the
lease (including any period for which such lease has been extended or may, at
the option of the lessor, be extended) or until the earliest date on which the
lessee may terminate such lease without penalty or upon payment of a penalty
(in which case the rental payments shall include such penalty).
"Capital Lease Obligation" of any Person means the obligation to pay rent
or other payment amounts under a lease of (or other Indebtedness arrangement
conveying the right to use) real or personal property of such Person which is
required to be classified and accounted for as a capital lease or a liability
on the face of a balance sheet of such Person in accordance with GAAP and the
stated maturity thereof shall be the date of the last payment of rent or any
amount due under such lease prior to the first date upon which such lease may
be terminated by the lessee without payment of a penalty.
B-5
<PAGE>
"Capital Stock" in any Person means any and all shares, interests,
participations or other equivalents in the equity interest (however designated)
in such Person and any rights (other than Indebtedness convertible into an
equity interest), warrants or option to acquire an equity interest in such
Person.
"Cash Equivalent" means (i) securities issued or directly and fully
guaranteed or insured by the United States of America or any agency or
instrumentality thereof (provided that the full faith and credit of the United
States of America is pledged in support thereof), (ii) time deposits and
certificates of deposit of any commercial bank organized in the United States
of America having capital and surplus in excess of $500 million with a maturity
date not more than one year from the date of acquisition, (iii) repurchase
obligations with a term of not more than seven days for underlying securities
of the types described in clause (i) above entered into with any bank meeting
the qualifications specified in clause (ii) above, (iv) direct obligations
issued by any state of the United States of America or any political
subdivision of any such state or any public instrumentality thereof maturing,
or subject to tender at the option of the holder thereof within ninety days
after the date of acquisition thereof, and, at the time of acquisition, having
a rating of A or better from Standard & Poor's Ratings Group ("Standard &
Poor's") or A-2 or better from Moody's Investors Service, Inc. ("Moody's"), (v)
commercial paper issued by the parent corporation of any commercial bank
organized in the United States of America having capital and surplus in excess
of $500 million and commercial paper issued by others having one of the two
highest ratings obtainable from either Standard & Poor's or Moody's and in each
case maturing within ninety days after the date of acquisition, (vi) overnight
bank deposits and bankers' acceptances at any commercial bank organized in the
United States of America having capital and surplus in excess of $500 million,
(vii) deposits available for withdrawal on demand with a commercial bank
organized in the United States of America having capital and surplus in excess
of $500 million and (viii) investments in money market funds substantially all
of whose assets comprise securities of the type described in clauses (i)
through (vi).
"Consolidated Interest Expense" means, with respect to any Person for any
period, without duplication, (A) the sum of (i) the aggregate amount of cash
and non-cash interest expense (including capitalized interest) of such Person
and its Restricted Subsidiaries for such period as determined on a consolidated
basis in accordance with GAAP in respect of Indebtedness (including, without
limitation, (v) any amortization of debt discount, (w) net costs associated
with Interest Hedging Obligations (including any amortization of discounts),
(x) the interest portion of any deferred payment obligation, (y) all accrued
interest and (z) all commissions, discounts and other fees and charges owed
with respect to letters of credit, bankers' acceptances or similar facilities)
paid or accrued, or scheduled to be paid or accrued, during such period; (ii)
dividends or distributions with respect to preferred stock or Disqualified
Stock of such Person (and of its Restricted Subsidiaries if paid to a Person
other than such Person or its Restricted Subsidiaries) declared and payable in
cash; (iii) the portion of any rental obligation of such Person or its
Restricted Subsidiaries in respect of any Capital Lease Obligation allocable to
interest expense in accordance with GAAP; (iv) the portion of any rental
obligation of such Person or its Restricted Subsidiaries in respect of any Sale
and Leaseback Transaction allocable to interest expense (determined as if such
were treated as a Capital Lease Obligation); and (v) to the extent any
Indebtedness of any other Person is Guaranteed by such Person or any of its
Restricted Subsidiaries, the aggregate amount of interest paid, accrued or
scheduled to be paid or accrued, by such other Person during such period
attributable to any such Indebtedness, less (B) to the extent included in (A)
above, amortization or write-off of deferred financing costs of such Person and
its Restricted Subsidiaries during such period and any charge related to any
premium or penalty paid in connection with redeeming or retiring any
Indebtedness of such Person and its Restricted Subsidiaries prior to its stated
maturity, in the case of both (A) and (B) above, after elimination of
intercompany accounts among such Person and its Restricted Subsidiaries and as
determined in accordance with GAAP.
"Consolidated Leverage Ratio" means, for any Person, as of any date, the
ratio of (i) the sum of the aggregate outstanding amount of all Indebtedness of
such Person and its Subsidiaries determined on a consolidated basis in
accordance with GAAP to (ii) the Annualized Pro Forma EBITDA of such Person.
"Consolidated Net Income" means, with respect to any Person for any
period, the aggregate net income (or net loss) of such Person and its
Restricted Subsidiaries for such period on a consolidated basis determined in
accordance with GAAP, provided that there shall be excluded therefrom, without
duplication, (i) all items classified as extraordinary, (ii) any net income of
any Person other than such Person and its Restricted Subsidiaries, except to
the
B-6
<PAGE>
extent of the amount of dividends or other distributions actually paid to such
Person or its Restricted Subsidiaries by such other Person during such period;
(iii) the net income of any Person acquired by such Person or any of its
Restricted Subsidiaries in a pooling of interests transaction for any period
prior to the date of the related acquisitions; (iv) any gain or loss, net of
taxes, realized on the termination of any employee pension benefit plan; (v)
net gains (but not net losses) in respect of Asset Sales by such Person or its
Restricted Subsidiaries (vi) the net income (but not net loss) of any
Restricted Subsidiary of such Person to the extent that the payment of
dividends or other distributions to such Person is restricted by the terms of
its charter or any agreement, instrument, contract, judgment, order, decree,
statute, rule, governmental regulation or otherwise, except for any dividends
or distributions actually paid by such Restricted Subsidiary to such Person;
(vii) with regard to a non-wholly owned Restricted Subsidiary, any aggregate
net income (or loss) in excess of such Person's or such Restricted Subsidiary's
pro rata share of such non-wholly owned Restricted Subsidiary's net income (or
loss); and (viii) the cumulative effect of changes in accounting principles.
"Credit Agreement" means, with respect to any Person, any agreement
entered into by and among such Person and one or more commercial banks or
financial institutions, providing for senior term or revolving credit
borrowings of a type similar to credit agreements typically entered into by
commercial banks and financial institutions, including any related notes,
Guarantees, collateral documents, instruments and agreements executed in
connection therewith, as such credit agreement and related agreements may be
amended, extended, refinanced, renewed, restated, replaced or refunded from
time to time.
"Disqualified Stock" means any Capital Stock (other than the 14.75%
Preferred Stock and the 12.75% Preferred Stock) which, by its terms (or by the
terms of any security into which it is convertible or for which it is
exchangeable), or upon the happening of any event, or otherwise, matures
(excluding any maturity as the result of an optional redemption by the issuer
thereof) or is mandatorily redeemable pursuant to a sinking fund obligation or
otherwise, or is redeemable at the option of the holder thereof, or is
exchangeable for Indebtedness at any time, in whole or in part, on or prior to
the Conversion Date.
"EBIT" means the amount calculated in the same manner as EBITDA, but not
including clauses (iii) and (iv) of the definition thereof.
"EBITDA" means, with respect to any Person for any period, the sum for
such Person for such period of Consolidated Net Income plus, to the extent
reflected in the income statement of such Person for such period from which
Consolidated Net Income is determined, without duplication, (i) Consolidated
Interest Expense, (ii) income tax expense (iii) depreciation expense, (iv)
amortization expense, (v) any non-cash expense related to the issuance to
employees of such Person of options to purchase Capital Stock of such Person
and (vi) any charge related to any premium or penalty paid in connection with
redeeming or retiring any Indebtedness prior to its stated maturity and minus,
to the extent reflected in such income statement, any non-cash credits that had
the effect of increasing Consolidated Net Income of such Person for such
period.
"Exchange Rate Obligation" means, with respect to any Person, any currency
swap agreements, forward exchange rate agreements, foreign currency futures or
options, exchange rate collar agreements, exchange rate insurance and other
agreements or arrangements, or combination thereof, designed to provide
protection against fluctuations in currency exchange rates.
"Existing Indebtedness" means Indebtedness of the Corporation and its
Subsidiaries outstanding on the Issue Date.
"Existing Notes" means, collectively, the Corporation's 13% Senior
Discount Notes due 2005 (the "2005 Notes"), the Corporation's 12.75% Senior
Discount Notes due 2006 (the "2006 Notes"), the Corporation's 13.75% Senior
Notes due 2007 (the "2007 Notes") and the Corporations 105/8% Senior Discount
Notes due 2008 (the "2008 Notes").
"Fiber Network" means a digital fiber optic telecommunications network
wholly owned by the Corporation that serves a Metropolitan Area.
B-7
<PAGE>
"GAAP" means United States generally accepted accounting principles,
consistently applied, as set forth in the opinions and pronouncements of the
Accounting Principles Board of the American Institute of Certified Public
Accountants and statements and pronouncements of the Financial Accounting
Standards Board, or in such other statements by such other entity as may be
approved by a significant segment of the accounting profession of the United
States, that are applicable to the circumstances as of the date of
determination; provided that, except as otherwise specifically provided, all
calculations made for purposes of determining compliance with the terms of the
provisions of this Certificate of Designation shall utilize GAAP as in effect
on the Issue Date.
"Goldman Facility" means the Credit Agreement dated as of August 11, 1999
among the Corporation and e.spire Finance Corporation, as Borrowers, the
Lenders listed therein, as Lenders, Goldman Sachs Credit Partners, L.P., as
sole lead arranger and syndication agent, The Bank of New York, as
administrative agent, First Union National Bank, as documentation agent and
Newcourt Commercial Finance Corporation, as collateral agent.
"Guarantee" means any direct or indirect obligation, contingent or
otherwise, of a Person guaranteeing or having the economic effect of
guaranteeing any Indebtedness of any other Person in any manner (and
"Guaranteed," "Guaranteeing" and "Guarantor" shall have meanings correlative to
the foregoing).
"Indebtedness" means at any time (without duplication), with respect to
any Person, whether recourse is to all or a portion of the assets of such
Person, and whether or not contingent, (i) any obligations of such Person for
money borrowed, (ii) any obligation of such Person evidenced by bonds,
debentures, notes, Guarantees or other similar instruments, including, without
limitation, any such obligations incurred in connection with acquisition of
property, assets or businesses, excluding trade accounts payable made in the
ordinary course of business, (iii) any reimbursement obligation of such Person
with respect to letters of credit, bankers' acceptances or similar facilities
issues for the account of such Person, (iv) any obligation of such Person
issued or assumed as the deferred purchase price of property or services (but
excluding trade accounts payable or accrued liabilities arising in the ordinary
course of business, which in either case are not more than 60 days overdue or
which are being contested in good faith), (v) any Capital Lease Obligation of
such Person, (vi) the maximum fixed redemption or repurchase price of
Disqualified Stock of such Person and, to the extent held by other Persons, the
maximum fixed redemption or repurchase price of Disqualified Stock of such
Person's Restricted Subsidiaries, at the time of determination, (vii) the
notional amount of any Interest Hedging Obligations or Exchange Rate
Obligations of such Person at the time of determination, (viii) any
Attributable Indebtedness with respect to any Sale and Leaseback Transaction to
which such Person is a party and (ix) any obligation of the type referred to in
clauses (i) through (viii) of this definition of another Person and all
dividends and distributions of another Person the payment of which, in either
case, such Person has Guaranteed or is responsible or liable for, directly or
indirectly, as obligor, Guarantor or otherwise. For purposes of the preceding
sentence, the maximum fixed repurchase price of any Disqualified Stock that
does not have a fixed repurchase price shall be calculated in accordance with
the terms of such Disqualified Stock as if such Disqualified Stock were
repurchased on any date on which Indebtedness shall be required to be
determined pursuant to this Certificate of Designation; provided that if such
Disqualified Stock is not then permitted to be repurchased, the repurchase
price shall be the book value of such Disqualified Stock. The amount of
Indebtedness of any Person at any date shall be the outstanding balance at such
date of all unconditional obligations as described above and the maximum
liability of any Guarantees at such date; provided that for purposes of
calculating the amount of any Indebtedness issued prior to the Issue Date with
an original issue discount ("Discounted Indebtedness") outstanding at any date,
the amount of such Discounted Indebtedness shall be the Accreted Value (as
defined in the relevant indenture) thereof as of such date unless cash interest
has commenced to accrue pursuant to the relevant indenture, in which case the
amount of the Discounted Indebtedness outstanding will be determined pursuant
to the relevant indenture and will not include any accrued and unpaid cash
interest which would otherwise be included in Accreted Value because of clause
(iii) of the definition thereof in the relevant indenture.
"Interest Hedging Obligation" means, with respect to any Person, an
obligation of such Person pursuant to any interest rate swap agreement,
interest rate cap, collar or floor agreement or other similar agreement or
arrangement designed to protect against or manage such Person's or any of its
Subsidiaries' exposure to fluctuations in interest rates.
B-8
<PAGE>
"Investment" in any Person means any direct, indirect or contingent (i)
advance or loan to, Guarantee of any Indebtedness of, extension of credit or
capital contribution to such Person, (ii) the acquisition of any shares of
Capital Stock, bonds, notes, debentures or other securities of such Person, or
(iii) the acquisition, by purchase or otherwise, of all or substantially all of
the business, assets or stock or other evidence of beneficial ownership of such
Person; provided that the Investments shall exclude commercially reasonable
extensions of trade credit. The amount of any Investment shall be the original
cost of such Investment, plus the cost of all additions thereto and minus the
amount of any portion of such investment repaid to such person in cash as a
repayment of principal or a return of capital, as the case may be, but without
any other adjustments for increases or decreases in value, or write-ups,
write-downs or write-offs with respect to such Investment. In determining the
amount of any Investment involving a transfer of any property other than cash,
such property shall be valued at its Fair Market Value at the time of such
transfer.
"Lien" means, with respect to any property or other asset, any mortgage or
deed of trust, pledge, hypothecation, assignment, deposit arrangement, security
interest, lien (statutory or other), charge, easement, encumbrance, preference,
priority or other security or similar agreement or preferential arrangement of
any kind or nature whatsoever on or with respect to such property or other
asset (including, without limitation, any conditional sale or title retention
agreement having substantially the same economic effect as any of the
foregoing).
"Metropolitan Area" means the metropolitan areas in which the Corporation,
as of the Issue Date, has a Fiber Network and other metropolitan areas deemed
in the reasonable business judgment of the management of the Corporation to
provide an opportunity for the building and operation of such a Fiber Network
with the reasonable potential to produce financial results for the Corporation
at least substantially comparable to the metropolitan areas in which the
Corporation has such operational Fiber Networks.
"Parent" means, with respect to any corporation or other entity, an entity
that, directly or indirectly, owns, at the time, a majority of the voting
interest of such corporation or other entity.
"Permitted Liens" means (i) Liens on property or assets of a Person
existing at the time such Person is merged into or consolidated with the
Corporation or any Subsidiary of the Corporation, provided that such Liens were
in existence prior to the contemplation of such merger or consolidation and do
not secure any property or assets of the Corporation or any of its Subsidiaries
other than the property or assets subject to such Liens prior to such merger or
consolidation; (ii) Liens on Telecommunications Related Assets existing during
the time of the construction thereof; (iii) Liens incurred or deposits made to
secure the performance of tenders, bids, leases, statutory or regulatory
obligations, surety or appeal bonds, performance bonds or other obligations of
a like nature incurred in the ordinary course of business consistent with
industry practice; (iv) Liens existing as of the Issue Date; (v) Liens to
secure borrowings permitted under Section 8(a)(ii)(A) hereof (including any
such liens arising in connection with a Secured Credit Facility); (vi) any Lien
on property of the Corporation in favor of the United States of America or any
state thereof, or any instrumentality of either, to secure certain payments
pursuant to any contract or statute; (vii) any Lien for taxes or assessments or
other governmental charges or levies not then due and payable or which, if due
and payable, are being contested in good faith and for which adequate reserves
are being maintained, to the extent required by GAAP); (viii) easements,
rights-of-way, licenses and other similar restrictions on the issue of
properties or minor imperfections of title that, in the aggregate, are not
material in amount and do not in any case materially detract from the
properties subject thereto or interfere with the ordinary conduct of the
business or the Corporation or its Subsidiaries; (ix) any Lien to secure
obligations under workmen's compensation laws or similar legislation, including
any Lien with respect to judgments that are not currently dischargeable; (x)
any statutory warehousemen's, materialmen's or other similar Liens for sums not
then due and payable (or which, if due and payable are being contested in good
faith and with respect to which adequate reserves are being maintained, to the
extent required by GAAP): (xi) any interest or title of a lessor in property
subject to a Capital Lease Obligation; (xii) Liens to secure any Vendor Debt;
provided that such Liens do not extend to any property or assets other than the
property or assets the acquisition of which was financed by such Indebtedness;
(xiii) Liens in favor of the Corporation or any Restricted Subsidiary; (xiv)
Liens on property or assets of a Person existing prior to the time such Person
is acquired by the Corporation as a result of (a) Investments by the
Corporation or a Restricted Subsidiary in or in respect of a Person to the
extent the consideration for such Investment consists of shares of Qualified
Stock of the Corporation or (b) Investments in certain joint venture entities,
provided that such Liens were in existence prior to the contemplation of
B-9
<PAGE>
such Investment and do not secure any property or assets of the Corporation or
any of its Subsidiaries other than the property or assets subject to such Liens
prior to such Investment; (xv) Liens securing reimbursement obligations with
respect to letters of credit that encumber documents and other property
relating to such letters of credit and the products and proceeds thereof; (xvi)
Liens on the escrow account for the 2007 Notes and all funds and securities
therein securing only the 2007 Notes equally and ratably; and (xvii) Liens to
secure any permitted extension, renewal refinancing or refunding (or successive
extensions, renewals, refinancings or refundings), in whole or in part, of any
Indebtedness secured by Liens referred to in the foregoing clauses (i) through
(v) and (xii), provided that such Liens do not extend to any other property or
assets and the principal amount of the Indebtedness secured by such Liens is
not increased.
"Person" means any individual, corporation, partnership, joint venture,
trust, unincorporated organization or government or any agency or political
subdivision thereof.
"Preferred Stock" means, with respect to any person, Capital Stock of such
Person of any class or classes (however designated) that ranks prior, as to the
payment of dividends or as to the distribution of assets upon any voluntary or
involuntary liquidation, dissolution or winding up of such Person, to shares of
Capital Stock of any other class of such Person.
"Pro Forma EBITDA" means, for any Person, for any period, the EBITDA of
such Person as determined on a consolidated basis in accordance with GAAP
consistently applied, after giving effect to the following: (i) if, during or
after such period, such Person or any of its Subsidiaries shall have made any
Asset Sale, Pro Forma EBITDA for such Person and its Subsidiaries for such
period shall be reduced by an amount equal to the Pro Form EBITDA (if positive)
directly attributable to the assets which are the subject of such Asset Sale
for the period or increased by an amount equal to the Pro Forma EBITDA (if
negative) directly attributable thereto for such period and (ii) if, during or
after such period, such Person or any of its Subsidiaries completes an
acquisition of any Person or business which immediately after such acquisition
is a Subsidiary of such Person, Pro Forma EBITDA shall be computed so as to
give pro forma effect to such Asset Sale or the acquisition of such Person or
business, as the case may be, as if such acquisition had been completed as of
the beginning of such period, and (iii) if, during or after such period, such
Person or any of its Subsidiaries incurs any Indebtedness (including without
limitation, any Acquired Indebtedness) or issues any Disqualified Stock, Pro
Forma EBITDA shall be computed so as to give pro forma effect (including pro
forma application of the proceeds therefrom) thereto as if such Indebtedness or
Disqualified Stock had been incurred as of the beginning of such period.
"Qualified Stock" of any Person means a class of Capital Stock other than
Disqualified Stock.
"Refinancing Indebtedness" means Indebtedness issued in exchange for, or
the proceeds of which are used to refinance, repurchase, replace, refund or
defease other Indebtedness.
"Restricted Subsidiary" means any Subsidiary of the Corporation that has
not been classified as an "Unrestricted Subsidiary".
"Rule 144" means Rule 144 promulgated under the Securities Act, as such
Rule may be amended from time to time, or any similar rule (other than Rule
144A) or regulation hereafter adopted by the Commission providing for offers
and sales of securities made in compliance therewith resulting in offers and
sales by subsequent holders that are not affiliates of an issuer of such
securities being free of the registration and prospectus delivery requirements
of the Securities Act.
"Rule 144A" means Rule 144A promulgated under the Securities Act, as such
Rule may be amended from time to time, or any similar rule (other than Rule
144) or regulation hereafter adopted by the Commission.
"Sale and Leaseback Transaction" means, with respect to any Person, any
direct or indirect arrangement pursuant to which property is sold or
transferred by such Person or a Restricted Subsidiary of such Person and is
thereafter leased back from the purchaser or transferee thereof by such Person
or one of its Restricted Subsidiaries.
B-10
<PAGE>
"Secured Credit Facility" means the AT&T Facility and the Goldman Facility
each as in effect on the Issue Date, and additional secured credit agreements
to which the Corporation is or becomes a party, in an aggregate amount not to
exceed $35.0 million, and all related amendments, notes, collateral documents,
guarantees, instruments and other agreement executed in connection therewith,
as the same may be amended, modified, supplemented, restated, renewed,
extended, refinanced, substituted or replaced from time to time.
"Stated Value" has the meaning set forth above.
"Subsidiary" means, with respect to any Person, (i) any corporation more
than 50% of the outstanding shares of Voting Stock of which is owned, directly
or indirectly, by such Person, or by one or more other Subsidiaries of such
Person, or by such Person and one or more other Subsidiaries of such Person,
(ii) any general partnership, joint venture or similar entity, more than 50% of
the outstanding partnership or similar interests in which are owned, directly
or indirectly, by such Person or by one or more other Subsidiaries of such
Person, or by such Person and one or more other Subsidiaries of such Person and
(iii) any limited partnership of which such Person or any Subsidiary of such
Person is a general partner.
"Telecommunications Business" means the business of (i) transmitting, or
providing services relating to the transmission of, voice, video or data
through owned or leased transmission facilities, (ii) creating, developing or
marketing communication-related network equipment, software and other devices
for use in (i) above or (iii) evaluating, participating or pursuing any other
activity or opportunity that is related to those specified in (i) or (ii)
above.
"Telecommunications Related Assets" means all assets, rights (contractual
or otherwise) and properties, whether tangible or intangible, used or intended
for use in connection with a Telecommunications Business.
"Total Equity Market Capitalization" of any Person means, as of any day of
determination, the sum of (1) the product of (A) the aggregate number of
outstanding primary shares of common stock of such Person on such day (which
shall not include any options or warrants on, or securities convertible or
exchangeable into or exercisable for, shares of common stock of such person)
multiplied by (B) the average closing price of such common stock over the 20
consecutive trading days immediately preceding such day, plus (ii) the
liquidation value of any outstanding shares of Preferred Stock of such Person
on such day.
"Total Market Capitalization" of any Person mean, as of any day of
determination, the sum of (1) the consolidated Indebtedness of such Person and
its Subsidiaries on such day, plus (2) the product of (i) the aggregate number
of outstanding primary shares of common stock of such Person on such day (which
shall not include any options or warrants on, or securities convertible or
exchangeable into, shares of common stock of such Person) and (ii) the average
closing price of such common stock of the 20 consecutive trading days
immediately preceding such day, plus (3) the liquidation value of any
outstanding shares of Preferred Stock of such Person on such day, less (4) cash
and cash equivalents as presented on such Person's consolidated balance sheet
on such date. If no such closing price exists with respect to shares of such
common stock, the value of such shares for purposes of clause (2) of the
preceding sentence shall be determined by an Independent Financial Advisor
retained by the Corporation, subject to the prior approval of the Holders of a
majority of the outstanding shares of Series A Convertible Preferred Stock.
"Unrestricted Subsidiary" means any Subsidiary of the Corporation that the
Corporation has classified as an "Unrestricted Subsidiary" and that has not
been reclassified as a Restricted Subsidiary, pursuant to the terms of each of
the indentures governing the Existing Notes.
"Value Report" has the meaning set forth in Section 5(f) below.
"Vendor Debt" means any purchase money Indebtedness of the Corporation or
any Subsidiary incurred in connection with the acquisition of
Telecommunications Related Assets.
"Voting Stock" means, with respect to any Person, securities of any class
or classes of Capital Stock in such Person entitling the holders thereof
(whether at all times or at the times that such class of Capital Stock has
voting
B-11
<PAGE>
power by reason of the happening of any contingency) to vote in the election of
members of the board of directors or comparable body of such Person.
B-12
