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UNITED STATES
SECURITIES AND EXCHANGE COMMISSION
WASHINGTON, D.C. 20549
FORM 10-K
(Mark One)
[X] ANNUAL REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT
OF 1934
For the fiscal year ended December 31, 1999
OR
[ ] TRANSITION REPORT UNDER SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT
OF 1934 For the transition period from ________ to ___________
Commission file number: 0-25314
E.SPIRE COMMUNICATIONS, INC.
(Exact name of registrant as specified in its charter)
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Delaware 52-1947746
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(State or other jurisdiction of (I.R.S. Employer
incorporation or organization) Identification No.)
12975 Worldgate Drive
Herndon, Virginia 20170
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(Address of principal executive offices) (Zip code)
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703.639.6000
(Issuer's telephone number including area code)
Securities registered pursuant to Section 12(b) of the Act: None
Securities registered pursuant to section 12(g) of the Act:
Common Stock, $0.01 par value
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Title of Securities
Indicate by check mark whether the registrant (1) has filed all reports required
to be filed by Section 13 or 15(d) of the Securities Exchange Act of 1934 during
the preceding 12 months (or for such shorter period that the registrant was
required to file such reports), and (2) has been subject to such filing
requirements for the past 90 days. Yes /X/ No / /
Indicate by check mark if disclosure of delinquent filers pursuant to Item 405
of Regulation S-K (Section 229.405 of this chapter) is not contained herein, and
will not be contained, to the best of registrant's knowledge, in definitive
proxy or information statements incorporated by reference in Part III of this
Form 10-K or any amendment to this Form 10-K. / /
The aggregate market value of the Common Stock of e.spire Communications, Inc.
("e.spire"), held by non-affiliates of the registrant (31,944,046 shares) as of
March 31, 2000, was $ 224,566,643. The number of shares of common stock of
e.spire, outstanding on March 31, 2000, was 51,990,718.
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DOCUMENTS INCORPORATED BY REFERENCE
The Index to Exhibits appears on page E-1.
The registrant's definitive 2000 Proxy Statement that will be filed
pursuant to Regulation 14A is incorporated by reference into Part III of this
Annual Report on Form 10-K.
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E.SPIRE COMMUNICATIONS, INC.
FORM 10-K
TABLE OF CONTENTS
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Page
Part I. Number
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Item 1. Business 7
Item 2. Properties 20
Item 3. Legal Proceedings 20
Item 4. Submission of Matters to a Vote of Security Holders 20
Part II.
Item 5. Market for Registrant's Common Equity and Related
Stockholder Matters 21
Item 6. Selected Financial Data 22
Item 7. Management's Discussion and Analysis 23
Item 7a. Quantitative & Qualitative Disclosure About Market Risk 34
Item 8. Financial Statements and Supplementary Data 35
Item 9. Changes in and Disagreements with Accountants on
Accounting and Financial Disclosure 35
Part III.
Item 10. Directors and Executive Officers of the Registrant 35
Item 11. Executive Compensation 35
Item 12. Security Ownership of Certain Beneficial
Owners and Management 35
Item 13. Certain Relationships and Related Transactions 35
Part IV.
Item 14. Exhibits, Financial Statement Schedules,
and Reports on Form 8-K 37
SIGNATURES __
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Information Regarding Forward-Looking Statements
This report contains or incorporates by reference "forward-looking
statements" (as such term is defined in the Private Securities Litigation Reform
Act of 1995) about the Company's financial condition, results of operations and
business. These statements include, among others:
- statements concerning the benefits that e.spire expects will result from
its business activities and certain transactions e.spire has completed,
and
- other statements of e.spire's expectation, beliefs, future plans and
strategies, anticipated developments and other matters that are not
historical facts.
These statements may be made expressly in this document, or may be
incorporated by reference to other documents e.spire has filed with the SEC. You
can find many of these statements by looking for words such as "believes,"
"expects," "anticipates," "estimates," or similar expressions used in this
report or incorporated by reference in this report.
These forward-looking statements are subject to numerous assumptions,
risks and uncertainties that may cause e.spire's actual results to be materially
different from any future results expressed or implied by e.spire in those
statements. The important factors that could cause actual results to differ
materially from those in the forward-looking statements include, without
limitation, the Company's degree of financial leverage, risks associated with
debt service requirements and interest rate fluctuations, risks associated with
acquisitions and the integration thereof, the impact of restriction under the
Company's financial instruments, dependence on availability of transmission
facilities, regulation risks including the impact of the Telecommunications Act
of 1996, contingent liabilities, the impact of competitive services and pricing,
and the ability of the Company to successfully implement its strategies. In
addition, the risks and uncertainties include those risks, uncertainties and
risk factors identified, among other places, under "Risk Factors" in e.spire's
registration statement on Form S-4, SEC file number 333-64079, beginning on page
10, incorporated by reference, and under "Management's Discussion and Analysis
of Financial Condition and Results of Operations" contained in this report.
The most important factors that could prevent e.spire from achieving its
stated goals include, but are not limited to, the following:
- operating and financial risks related to managing rapid growth and
sustaining operating cash flow to meet e.spire's debt service
requirements, and making capital expenditures and fund operations;
- potential fluctuation in quarterly results;
- compliance with debt covenants
- obtaining additional capital to finance operations
- attracting and retaining management
- volatility of stock price;
- intense competition in the communications services market;
- dependence on new product development;
- rapid and significant changes in technology and markets;
- adverse changes in the regulatory or legislative environment affecting
e.spire's business; and
- failure to maintain necessary rights of way.
Because the statements are subject to risks and uncertainties, actual
results may differ materially from those expressed or implied by the
forward-looking statements. e.spire cautions you not to place undue reliance on
the statements, which speak only as of the date of this report or, in the case
of documents incorporated by reference, the date of the document.
The cautionary statements contained or referred to in this section
should be considered in connection with any subsequent written or oral
forward-looking statements that e.spire or persons acting on its behalf may
issue. e.spire undertakes no obligation to review or confirm analysts'
expectations or estimates or to release publicly any revisions to any
forward-looking statements to reflect events or circumstances after the date of
this report or to reflect the occurrence of unanticipated events.
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PART I
ITEM 1. DESCRIPTION OF BUSINESS
THE COMPANY
e.spire Communications, Inc., formed in 1993, seeks to be a leading
facilities-based integrated communications provider to businesses. The Company
currently operates in 38 markets throughout the United States where it has
state-of-the-art local fiber optic networks. By the end of 1997, the Company had
become one of the first Competitive Local Exchange Carriers ("CLECs") to combine
the provision of dedicated, local and long distance voice services with frame
relay, ATM and Internet services. Having established this suite of
telecommunications services which emphasizes data capabilities in addition to
traditional CLEC offerings, e.spire seeks to provide customers with superior
service and competitive prices while offering a single source for integrated
communications services designed to meet its business customers' needs. The
Company's facilities-based network infrastructure is designed to provide
services to customers on an end-to-end basis, and, as of December 31, 1999, was
comprised of 3,830 route miles of fiber in its 38 local networks in 21 states,
and state of the art equipment including 46 ATM switches, 51 routers, 28 voice
switches and approximately 26,000 backbone long haul miles in its leased
coast-to-coast broadband data network.
With the passage of the federal Telecommunications Act of 1996 ("Telecom
Act, FTA or the Act"), the Company enhanced the scope of its product offerings
from dedicated services to a full range of switched voice, data and Internet
services in order to meet the needs of business end-users, and is expanding its
sales, marketing, customer care and operations support systems ("OSS")
capabilities. The Company introduced local switched voice services, including
local exchange services, in late 1996 and long distance services in late 1997.
In late 1998, e.spire announced that it would begin to eliminate its resale
business. As of December 31, 1999, e.spire had installed 165,290 customer access
lines of which approximately 95% were on-switch. This represents a significant
increase over the 133,090 access lines installed as of December 31, 1998 of
which approximately 47% were on-switch.
The development of the Company's business and the construction, acquisition
and expansion of its networks require significant capital expenditures, a
substantial portion of which are incurred before realization of revenues. These
expenditures, together with the associated early operating expenses, result in
negative cash flow until an adequate customer base is established. However, as
the Company's customer base grows, the Company expects that incremental revenues
can be generated with decreasing incremental operating expenses, which may
provide positive contributions to cash flow. The Company has made specific
strategic decisions to build high capacity networks with broad market coverage,
which initially increases its level of capital expenditures and operating
losses. However, the Company believes that over the long term this strategy will
enhance the Company's financial performance by increasing the traffic flow over
its network.
STRATEGY
The Company seeks to provide its customers via its facilities-based network
infrastructure state-of-the-art voice, data and Internet solutions from a single
communications provider. In order to increase penetration in its target markets,
build brand recognition and achieve its strategic objectives, the Company seeks
to:
PROVIDE "ONE-STOP" INTEGRATED COMMUNICATIONS SERVICES
To meet customer demand and to accelerate penetration in its markets, the
Company has broadened the range of voice, data and Internet services it offers
and has integrated these services into a bundled package offering a single
source solution designed to meet its customers' communications needs. Since
1998, the Company has offered a suite of products that provide an integrated
communications service for voice, data and Internet over a single multipurpose
T1 line. In 1999, e.spire introduced the e.spire XpressLink branding for the
product suite of integrated products that combine traditional voice services
with frame relay or high-speed dedicated Internet. The Company believes that its
ability to provide one-stop integrated communications services will enable it to
capture a larger portion of its customers' total expenditures on communication
services, and reduce customer turnover.
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EXPLOIT RAPIDLY GROWING MARKET FOR DATA/INTERNET SERVICES
The Company believes that data/Internet services is one of the fastest
growing segments of the communications market. The Company's suite of products
consists primarily of the e.spire family of high-speed Internet and data
products such as frame relay and ATM for small and medium-sized businesses.
Product traffic will be transported over the Company's coast-to-coast, leased
broadband data communications network and through CyberGate, Inc. ("CyberGate"),
the Company's wholly-owned Internet Service Provider ("ISP") subsidiary.
CyberGate's subsidiary FloridaNet, Inc. d/b/a ValueWeb ("ValueWeb") provides
Web-hosting services to customers around the world.
ENHANCE FACILITIES-BASED INFRASTRUCTURE
Expansion of the Company's facilities-based infrastructure will increase the
proportion of communications traffic that is originated and/or terminated on its
network and switching facilities, which the Company believes will result in
higher long-term operating margins and greater control over its network
operations. The Company employs an on-net strategy to capture new customers. The
Company's expansion decisions are structured to efficiently deploy capital and
are based upon a number of economic factors, including customer demographics in
each market and anticipated cost savings associated with particular
installations. The Company's state-of-the-art infrastructure and high capacity
bandwidth facilitate efficient network expansion.
BUILD MARKET SHARE THROUGH CUSTOMER SALES AND SERVICE
The Company believes that its local sales structure allows e.spire to
target customers in specific geographic regions to develop and maintain customer
relationships. In addition to its field sales force, the Company's major account
team targets large national accounts, and its carrier sales group targets
dedicated services to long distance carriers and ISPs.
e.spire is building its OSS environment with a strategic blend of
"off-the-shelf" applications and customized development. As the industry
continues to evolve towards integrated services and as interfaces with ILECs and
other CLECs begins to stabilize, e.spire will continue to enhance its OSS
platform with systems that deliver proven business solutions and provide the
essential amounts of flexibility and scalability to support aggressive growth.
These systems must also enable unimpeded access to all operational data elements
so they can be integrated into an overall Customer-centric back-office platform.
e.spire has completed its implementation of its billing, general ledger,
accounts payable and purchasing financial systems and has implemented new
modules for its provisioning and network management systems. e.spire will be
upgrading the functionality of our order management and circuit inventory
systems. While the development and support of an OSS platform is an ongoing
process, e.spire believes that progress on its system integration, and order
entry streamlining projects will reap significant benefits within the next six
to twelve months.
EXTEND GEOGRAPHIC FOCUS ON ATTRACTIVE MARKETS NATIONALLY
In 1999, the Company expanded its geographic coverage by turning up local
area networks in the New York, Philadelphia and Washington, D.C./Northern
Virginia local markets, and launching a long-haul fiber network between New York
and Baltimore through a long-term lease with Metromedia Fiber Network, Inc.
e.spire plans to continue to enhance its infrastructure of its 38 local area
networks and nationwide Tier 1 ATM network in 2000.
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DESIGN AND MANAGE THE CONSTRUCTION OF ADVANCED FIBER OPTIC NETWORKS
Through its ACSI Network Technologies, Inc. ("ACSI NT") subsidiary, the
Company designs and constructs high speed advanced fiber optic networks for
third parties, such as other CLECS, interexchange carriers ("IXC's") and
businesses. The continued growth of the Internet and bandwidth intensive
advanced data services has generated increasing demand for optimal network
design and efficient network construction by the providers of such services.
ACSI NT intends to meet the growing demand for network capacity by designing and
constructing high-quality, low-cost, customized networks that provide its
customers with unparalleled speed-to-market advantages. ACSI NT has built its
reputation performing the mission critical services that few telecommunications
service providers or construction contractors are equipped to provide,
including: executing preliminary market analyses, authoring business plans,
performing site assessments, managing liability and risk, managing construction
and installing fiber.
E.SPIRE SERVICES
VOICE SERVICES
SWITCHED VOICE SERVICES. As of December 31, 1999, the Company had installed 28
voice switches to provide facilities-based local exchange service in 28 of its
38 markets. As an adjunct to its local switched services, the Company provides
long distance, calling card and other interLATA services on a resale basis.
The Company's switched voice services include telephone exchange service,
including optional enhanced services such as call waiting, caller ID and
three-way conference calling; switching traffic between e.spire's switch and a
business customer's PBX and routing local, intraLATA and interLATA phone calls
according to the customers' specific requirements; providing local dial tone
services with functionality such as free internal communications, call
forwarding, call transfer, conference call and speed dialing; Integrated
Services Digital Network ("ISDN") data services; and origination and termination
of long distance traffic between a customer premises and interexchange carrier
via shared trunks utilizing the Company's local switch.
DEDICATED SERVICES. The Company's dedicated services provide high
capacity non-switched interconnections: (i) between Points of Presence ("POPs")
of the same Inter Exchange Carriers ("IXC"); (ii) between POPs of different
IXCs; (iii) between large business and government end-users and their selected
IXCs; (iv) between an IXC POP and an Incumbent Local Exchange Carrier ("ILEC")
central office or between two ILEC central offices; and (v) between different
locations of business or government end-users.
- SPECIAL ACCESS SERVICES. Special access services provide a link between
an end-user location and the POP of its IXC, or links between IXC POPs,
thus bypassing the facilities of the ILEC. These services, which may be
ordered by either the long distance customer or directly by its IXC,
typically provide the customer better reliability, shorter installation
intervals, and lower costs than similar services offered by the ILEC.
Customer charges are based on the number of channel terminations, fixed
and mileage-sensitive transport charges, and costs for any services
required to multiplex circuits.
- SWITCHED TRANSPORT SERVICES. Switched transport services are offered to
IXCs that have large volumes of long distance traffic aggregated by an
ILEC switch at a central office where the Company has collocated its
network. The Company provides dedicated facilities for transporting
these aggregated volumes of long distance traffic from the ILEC central
office to its POP or between ILEC central offices.
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- PRIVATE LINE SERVICES. Private line services provide dedicated
facilities between two end-user locations in the same metropolitan area
(e.g., a central banking facility and a branch office or a manufacturing
facility and its remote data processing center) and are priced like
special access services (channel termination charges plus transport and
any associated multiplexing charges). The Company expects the demand for
private line service to increase in conjunction with higher bandwidth
customer applications.
DATA/INTERNET SERVICES
HIGH SPEED INTERNET AND DATA SERVICES AND CYBERGATE ACQUISITION. In January
1997, the Company acquired CyberGate. CyberGate, an ISP, delivers high-speed
data communications services, including computer network connections and related
infrastructure services, that provide both commercial and residential customers
access to the Internet through their personal computers and the use of a modem.
As of December 31, 1999, CyberGate had more than 100,000 customers. Of these,
approximately 50,000 were dial-up access customers, and 50,000 were Web-hosting
customer accounts of subsidiary ValueWeb.
In 1997, the Company introduced the e.spire family of high-speed Internet
and data services for businesses, educational institutions, ISPs and carriers.
The e.spire family of services operates over the Company's coast-to-coast,
leased broadband data communications network which supports the following
services:
- e.spire INTERNET ACCESS SERVICE. The data and Internet backbone is
connected to the Global Internet via public and private peering
arrangements with Tier I-Internet backbone providers at strategic
Network Access Points ("NAPs") across the United States. This enables
the Company to provide high-quality dedicated and dial-up Internet
connectivity and IP transport for the business and reseller community.
The service is targeted to consumers, local and regional ISPs and
corporate Internet users requiring dedicated access. The service
operates at dedicated speeds ranging from 56 kbps to 45 Mbps and at
industry-standard dial-up speeds.
- e.spire COLOCATION SERVICE. To provide customers that own a server
appliance with a cost-effective way to enhance their Web site throughput
and data security ValueWeb introduced colocation service in 1999.
Through this service, automated security is provided via a proximity
badge system Biometric palm scanner. This provides security for
the customer's equipment, limits access solely to the customer and
authorized personnel and greatly reduces chances for human error,
security risks and potential breaches. Multiple data transfer plans are
available, including burstable bandwidth. As opposed to paying for
bandwidth up to a predetermined amount, our facility bills bandwidth
based on the average amount used per month. As a result, customers gain
a tremendous amount of additional bandwidth capacity which prevents
customers from losing site traffic due to a lack of bandwidth.
- e.spire DEDICATED SERVERS offered through ValueWeb. To provide
customers, particularly those in a shared hosting environment, a
cost-effective way to enhance their Web site capacity ValueWeb
introduced dedicated servers. Dedicated servers are an innovative option
for businesses with limited reinvestment capital to quickly upgrade
their server disk space and bandwidth without incurring considerable
overhead costs or additional debt. This provides a foundation for
managed services and application hosting without incurring overhead
costs that typically amount to many thousands of dollars.
- e.spire DIGITAL SUBSCRIBER LINE (DSL). In 1999, e.spire began offering
DSL service in 11 markets. The DSL service is available to e.spire
customers in Atlanta, GA; Austin, TX; Baltimore, MD; Dallas/Ft. Worth,
TX; West Palm Beach/Ft. Lauderdale/Miami, FL; New York, NY;
Philadelphia, PA; and Washington, D.C./Northern Virginia. e.spire's DSL
services enable businesses and telecommuters to use standard phone lines
to access the Internet or a corporate local area network at speeds
ranging from 144 Kbps to 1.1 Mbps. DSL service is an always-on,
dedicated connection that can be up to 25 time faster than a connection
via a standard 56K modem. Turnkey service packages include DSL
modem/routers, e-mail accounts, domain name registration services and
around-the-clock monitoring.
- e.spire WEB HOSTING offered through ValueWeb. Web hosting allows
customers to benefit from high-speed network connectivity, high
performance servers, around the clock monitoring and emergency
provisioning, at a fraction of what it would cost the customer to put a
comparable internal infrastructure in place. e.spire provides the
hardware and software necessary to establish a company's presence on the
web. Hosted sites are provisioned on shared commercial grade Unix
servers, complete with operating system and web server software. Each
server is provisioned with its' own 10Mb Ethernet connection to the
Internet.
- e.spire BUNDLED INTERNET SOLUTIONS. The Company also provides turnkey
business Internet solutions. These solutions include dedicated Internet
Access, pre-configured Customer Premises Equipment, web site hosting
account, domain
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name registration and maintenance, news feed, and end-to-end service
installation. These solutions enable businesses to benefit from
integrated billing and network management.
- e.spire FRAME RELAY SERVICE. This service is designed for bandwidth
needs that vary, and for interconnecting geographically dispersed
networks and equipment. Businesses of any size can take advantage of
e.spire Frame relay for internetworking, application sharing, e-mail,
file transfer, PC-to-PC and PC-to-Server communications. The Frame relay
backbone is connected to frame relay networks of other key providers via
NNIs (Network-to-Network Interfaces) thus enabling the Company to offer
comprehensive solutions to local, regional, and national businesses
regardless of their location. This service supports standard
multi-protocol encapsulation which makes it easier to integrate new and
legacy systems. The service supports user port connections ranging from
56 kbps to 1.5 Mbps with a wide range of Committed Information Rates.
- e.spire ATM SERVICE. This service provides a solution to local, regional
and national businesses with high-bandwidth, delay-sensitive data
communications applications. With e.spire ATM service, the performance
needs of complex, media-rich applications such as CAD/CAM, remote
super-computing, medical imaging, video conferencing, and voice calls
are easily met. This service is also ideal for higher-volume users of
applications such as PC-to-server and file transfer. The service
supports both Constant Bit Rate and Variable Bit Rate service levels
over Permanent Virtual Circuits with user port speeds ranging from 2
Mbps to 45 Mbps.
- e.spire CUSTOM NETWORK SERVICES. These services include design,
installation, maintenance, hardware (such as switches, routers and
modems) and configuration (such as maintaining consistent versions of
the router software and deploying consistent configurations) of a
customer's network. The Company's custom network services are designed
to eliminate many of the timing, coordination and inter-operability
issues that arise in installations requiring multiple vendors.
- e.spire MANAGED NETWORK SERVICE. This service provides complete
management and monitoring of all customer equipment and network elements
needed to operate dedicated Internet or frame relay services. Companies
of all sizes can enhance their competitive performance, eliminating the
need to commit their own resources to the costly, time-consuming job of
network management.
ACSI NT
e.spire's wholly-owned network development subisidiary, ACSI NT, formed in
1998, designs and constructs fiber optic networks for municipalities, IXCs and
other providers. ACSI NT is prepared to manage any and all aspects of network
development projects, including business planning, market analysis, engineering,
project management, construction and network monitoring center design. In 1999,
ASCI NT announced that since its formation in 1998 it had signed contracts with
a total value of more than $100 million.
SALES, MARKETING AND SERVICE DELIVERY
The Company seeks to provide its customers a choice for local access,
utilizing its facilities-based network infrastructure to deliver both voice and
data solutions. The Company's customers include corporations, financial services
companies, local government entities, and academic, scientific and other major
institutions as well as ISPs, IXCs and other carriers.
The Company's sales and marketing approach is to build long-term business
relationships with its customers, with the intent of becoming the single source
provider of their telecommunications services. The Company's sales force
includes specialized professionals who focus on sales to retail, wholesale and
alternate channel (agents and value-added resellers) consumers of the Company's
telecommunications services. The Company's sales staff works to gain a better
understanding of the customer's operations in order to develop innovative,
application-specific solutions to each customer's needs. Sales personnel locate
potential business customers by several methods, including customer referral,
market research, cold calling and networking alliances.
Enhanced data services, like all other Company services, are sold through
the Company's existing sales force and supported by engineers and other sales
channels such as agents and value-added resellers, including independent
providers of communications hardware to customers. This approach enables the
Company to (i) emphasize the applications solutions aspects of enhanced data
services and (ii) utilize the expertise and resources of other vendors. The
Company intends to continue expanding its sales and engineering support staff
and other technical specialists in order to meet the growing demand for enhanced
data services.
Historically, the Company has established new customer relationships by
providing customers with local or data services and subsequently marketing
additional services to such customers. The Company intends to emphasize its
ability to provide customers
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"one-stop" integrated voice, data and Internet communications services in its
sales and marketing efforts.
The Company's service delivery staff is primarily responsible for
coordinating service and installation activities. Service delivery activities
include coordinating installation dates and equipment delivery and testing. The
Company's customer service and technical staff plans, engineers, monitors and
maintains the integrity, quality and availability of the Company's networks. The
Company's technical staff are available to customers 24 hours every day.
NETWORK
The Company has deployed its network infrastructure approach by selecting
economic alternatives of constructing or leasing facilities or a combination
thereof. As of December 31, 1999, the Company had local fiber optic networks in
service in 38 markets. The Company generally chooses to own facilities where
(i) there is no attractive fiber optic network alternative, (ii) ownership
creates strategic value for the Company and/or (iii) large concentrations of
telecommunications traffic are accessible, or have been secured, to justify
network construction. In addition to the "build" vs. "lease" decision for
network deployment, the Company also will consider potential network
acquisitions from time to time.
The Company also seeks to expand the reach of its backbone data network
through agreements with certain third parties to deliver enhanced data
communications services through a seamless data network. Often, the Company
offers data services in geographic markets where it has not deployed its own
local fiber optic network by leasing facilities from a variety of entities,
including ILECs, utilities, IXCs, cable companies and various transit/highway
authorities. In many cases, such capacity is obtained through the purchase or
lease of "dark fiber." The combination of the Company's local networks and its
broadband data backbone network comprise the seamless network platform which the
Company utilizes to offer its broad array of telecommunications services to
customers.
The Company utilizes state of the art networking technology on its data
backbone network, allowing its network capacity to be efficiently shared between
multiple platforms. The Company's local networks are comprised of fiber optic
cable, integrated switching facilities, advanced electronics, data switching
equipment (e.g., frame relay and ATM), transmission equipment and associated
wiring and equipment. By virtue of their state-of-the-art equipment and
ring-like architecture, the Company's networks offer electronic redundancy and
diverse access routing. Through automatic protection switching, if any
electrical component or fiber optic strand fails, the signal is instantaneously
switched to a "hot standby" component or fiber. Since network outages and
transmission errors can be very disruptive and costly to long distance carriers
and other customers, consistent reliability is critical to customers.
In those markets where the Company chooses to deploy broadband fiber
networks, the Company's strategy is to first develop the "carrier ring" portion
of its network, a high capacity network designed to be accessible to all the
major long distance carriers and key ILEC central offices in the area. This
portion of the network allows the Company to provide access to the ILEC central
offices, the IXC POPs and customer buildings. Second, the Company designs a
larger "backbone ring" extending from the carrier ring, with a view toward
making the network accessible to the largest concentration of
telecommunications-intensive business and government customers in the area. Hubs
are strategically located on the backbone ring. Third, the Company concentrates
its sales and marketing efforts on adding business and government customers
located on or very near its backbone network and hub locations. Once the Company
determines that there is sufficient customer demand in a particular area, it
extends "distribution rings" from the backbone ring to reach specific business
customers in that area. The Company's emphasis is on the building and expansion
of these local networks to reach end user customers in buildings or office parks
with substantial telecommunications needs.
The Company's network management center in Herndon, Virginia monitors all of
the Company's networks from one central location. Centralized electronic
monitoring and control of the Company's networks allows the Company to avoid
duplication of this function in each city. This consolidated operations center
also helps make the Company's per customer monitoring and customer service costs
lower than if such costs were monitored on a single-city basis. The Company also
plans to enhance its use of this facility to monitor the performance of data and
switched voice services.
INDUSTRY OVERVIEW
The continuing deregulation of the telecommunications industry and
technological change have resulted in an increasingly information-intensive
business environment. Regulatory, technological, marketing and competitive
trends have expanded substantially the Company's opportunities in the converging
voice and data communications services markets. Technological advances,
including rapid growth of the Internet, the increased use of packet switching
technology for voice communications and the growth of multimedia applications,
are expected to result in substantial growth in the high-speed data services
market.
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DEDICATED SERVICES. Competition in the local exchange services market began
in the mid-1980s. In New York City, Chicago and Washington, D.C., newly formed
companies provided dedicated non-switched services by installing fiber optic
facilities connecting POPs of IXCs within a metropolitan area and, in some
cases, connecting business and government end-users with IXCs. Most of the early
competitors operated limited networks in the central business districts of major
cities in the United States where the highest concentration of voice and data
traffic, including IXC traffic, is typically found. Competitive Access Providers
("CAPs") used the substantial capacity and economies of scale inherent in fiber
optic cable to offer customers service that was generally less expensive and of
higher quality than could be obtained from the ILECs due, in part, to antiquated
copper-based facilities used in many ILEC networks.
LOCAL SWITCHED VOICE SERVICES. The FCC Interconnection Decisions in 1992 and
1993 enabled CAPs to provide interstate switched access services in competition
with ILECs, which has encouraged the development of the competitive interstate
switched access market. Competition in this market was further enhanced with the
passage of the FTA, which requires (i) removal of state, local and long distance
entry barriers, (ii) ILECs to provide interconnections to their facilities, and
(iii) access to rights-of-way.
DATA COMMUNICATIONS SERVICES. The Company believes that high-speed data
communications services represent one of the fastest growing segments of the
telecommunications services market, due in part to the continuing proliferation
of computers and the increasing need to interconnect these computers via local
and wide area networks, the dramatic growth of the Internet and the emergence of
multimedia applications. Together, these applications have spawned numerous
network technologies and communications protocols to support legacy, current and
emerging needs. The domestic network infrastructure currently supporting both
voice and data transport requirements, which focuses on IP switching and framed
relay services, is being strained by the increasing demand for high-bandwidth
transport at both the local and national levels. The Company believes that the
increasing volume and complexity of high-speed applications will further strain
the domestic network infrastructure and create an opportunity for e.spire to
provide a single high-quality ATM-based network capable of consistently
supporting diverse data communications needs. In addition, businesses are
increasingly using the Internet to transmit e-mail, engage in commercial
transactions (e.g., electronic commerce) and develop internal communications
networks, or "intranets." Increasing business utilization of the Internet has
added to the demand for higher-speed access applications.
ACSI NT. ACSI NT was established as a separate business unit of the Company
to design and manage the construction of fiber optic telecommunication networks
for third parties. ACSI NT provides broadband telecommunications infrastructure
solutions to communications carriers, corporate clients, and government agencies
throughout the United States. ACSI NT's service offering covers the full range
of fiber optic infrastructure solutions from initial design, planning, and
implementation of the data communications network to the construction of the
network management center and required network management architecture. ACSI NT
provides both customer driven services that are customized to meet a specific
client development plan either with project-based consulting or a turn-key
solution, and high-bandwidth infrastructure, that may include the lease of
conduit or dark fiber.
COMPETITION
The Company operates in a highly competitive environment and currently does
not have a significant market share in any of its markets. Most of its actual
and potential competitors have substantially greater financial, technical,
marketing and other resources (including brand name recognition) than the
Company. Also, the continuing trend toward business alliances in the
telecommunications industry and the absence of substantial barriers to entry in
the data and Internet services markets, could give rise to significant new
competition.
In each of its markets, the Company's primary competitor is the incumbent
local exchange carrier ("ILEC") serving that geographic area. ILECs are
established providers of dedicated and local telephone services to all or
virtually all telephone subscribers within their respective service areas. ILECs
also have long-standing relationships with regulatory authorities at the federal
and state levels. While recent Federal Communications Commission ("FCC")
administrative decisions and initiatives provide increased business
opportunities to voice, data and Internet-service providers such as the Company,
they also provide the ILECs with increased pricing flexibility for their private
line and special access and switched access services. If future regulatory
decisions afford the ILECs increased access services pricing flexibility or
other regulatory relief, such decisions could also have a material adverse
effect on competitors to the ILEC, including the Company.
In the local exchange market, the Company also faces competition or
prospective competition from several other carriers, many of which have
significantly greater financial resources than the Company. For example, AT&T,
MCI Worldcom and Sprint, which historically have been purely long distance
carriers, have each begun to offer local telecommunications services in major
U.S. markets using their own facilities or by resale of the ILECs' or other
providers' unbundled network elements or services. In addition to these long
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distance service providers, entities that currently offer or are potentially
capable of offering local switched services include companies that have
previously been known purely as competitive access providers, cable television
companies, electric utilities, microwave carriers, wireless telephone system
operators and large customers who build private networks. These entities, upon
entering into appropriate interconnection agreements or resale agreements with
ILECs, including Regional Bell Operating Companies ("RBOCs"), can offer single
source local and long distance services, like those offered by the Company. New
start-up companies also may enter markets and provide services in competition
with the Company. In addition, a continuing trend towards business combinations
and alliances in the telecommunications industry may create significant new
competitors to the Company. Many of these combined entities may have resources
far greater than those of the Company. These combined entities may provide a
bundled package of telecommunications products, including local and long
distance telephony, that is in direct competition with the products offered by
the Company.
The Company will also face competition from various fixed wireless services,
including Multichannel Multipoint Distribution Service ("MMDS"), Local
Multipoint Distribution Service ("LMDS"), 24 GHz and 38 GHz wireless
communications systems, Wireless Communications Service ("WCS"), FCC Part 15
unlicensed wireless radio devices, and other services that use existing
point-to-point wireless channels on other frequencies. The FCC has issued or is
in the process of issuing licenses for these services to provide broadband
integrated telecommunications services on a point-to-point and/or
point-to-multipoint basis. Many of these service providers have already raised
substantial capital and have commenced building their wide-area networks,
primarily in urban areas. Upon entering into appropriate interconnection
agreements with ILECs, these service providers are expected to provide
integrated voice and data services comparable to those the Company currently
offers or intends to offer. Many of these companies have announced plans to
target small and medium-sized businesses and may enjoy certain advantages over
the Company with respect to the speed with which they can deploy their own
facilities directly serving end user premises to the extent that they need not
lease or resell "last mile" facilities from the ILEC. In addition, the FCC has
allocated a number of spectrum blocks for use by wireless devices that do not
require site or network licensing. A number of vendors have developed such
devices that may provide competition to the Company, in particular for certain
low data-rate transmission services.
With respect to mobile wireless telephone system operators, the FCC has
authorized cellular, personal communications service ("PCS"), and other cellular
mobile radio service ("CMRS") providers to offer wireless services to fixed
locations, rather than just to mobile customers, in whatever capacity such CMRS
providers choose. Previously, cellular providers could provide service to fixed
locations only on an ancillary or incidental basis. This authority to provide
fixed as well as mobile services will enable CMRS providers to offer wireless
local loop service and other services to fixed locations (e.g., office and
apartment buildings) in direct competition with the Company and other providers
of traditional wireless telephone service.
Section 271 of the Federal Telecommunications Act ("FTA") prohibits a RBOC
from providing long-distance service that originates (or in certain cases
terminates) in one of its in-region states until the RBOC has satisfied certain
statutory conditions in that state and has received the approval of the FCC. The
FCC has denied the following applications for such approval: Southwestern Bell's
Oklahoma application in June 1997; Ameritech's Michigan application in August
1997; BellSouth's applications for South Carolina in December 1997; and two
BellSouth applications for Louisiana, in February and October 1998. In December
1999, the FCC approved Bell Atlantic's Section 271 application for New York and
thereby granted Bell Atlantic authority to provide long-distance service to New
Yorkers. Southwestern Bell currently has pending before the FCC an application
for Section 271 authority for the state of Texas. An FCC decision on that
application is due in July 2000. The Company anticipates that several RBOCs will
file additional applications for in-region long distance authority in 2000. The
FCC has 90 days from the date an application for in-region long distance
authority is filed to decide whether to grant or deny the application.
The market for data communications and Internet access services, including
Internet protocol ("IP") switching, is extremely competitive. There are no
substantial barriers to entry, and the Company expects that competition will
intensify in the future. The Company believes that its ability to compete
successfully depends on a number of factors, including: market presence; the
ability to execute a rapid expansion strategy: the capacity, reliability and
security of its network infrastructure; ease of access to and navigation of the
Internet; the pricing policies of its competitors and suppliers; the timing of
the introduction of new services by the Company and its competitors; the
Company's ability to support industry standards; and general industry and
economic trends. The Company's success in this market will depend heavily upon
its ability to provide high quality Internet connectivity and value-added
Internet services at competitive prices.
The Company's subsidiary, ACSI NT, provides complete turnkey
telecommunications infrastructure solutions to its customers throughout the
United States. These services encompass initial design, planning and
implementation of the data communications network to the construction of the
network management center and required network management architecture. ACSI
NT's customers are those that demand optimal network design and efficient
network construction. These customers look to outside independent suppliers to
meet growth needs and to address other high-level service and network management
requirements. The Company believes that ACSI NT is one of the few suppliers that
are able to provide the complete telecommunications infrastructure solutions
that customers demand.
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GOVERNMENT REGULATION
The following summary of regulatory developments and legislation describes the
primary present and proposed federal, state, and local regulation and
legislation that is related to the Internet service and telecommunications
industries and would have a material effect on our business. Existing federal
and state regulations are currently subject to judicial proceedings, legislative
hearings and administrative proposals that could change, in varying degrees, the
manner in which our industries operate. In addition, a number of legislative
proposals have been announced or made which could prove adverse to the Company.
We cannot predict the outcome of these proceedings or legislation, or their
impact upon the Internet service and telecommunications industries or upon us.
OVERVIEW
Our telecommunications services are subject to regulation by federal, state,
and local government agencies. Generally, Internet and certain data services are
not directly regulated, although the underlying telecommunications services may
be regulated in certain instances. We hold various federal and state regulatory
authorizations for our regulated service offerings. The FCC has jurisdiction
over our facilities and services to the extent those facilities are used in the
provision of interstate or international telecommunications. State regulatory
commissions also have jurisdiction over our facilities and services to the
extent they are used in intrastate telecommunications. Municipalities and other
local government agencies may require telecommunications services providers to
obtain licenses or franchises regulating use of public rights-of-way necessary
to install and operate their networks. The networks also are subject to certain
other local regulations such as building codes and generally applicable public
safety and welfare requirements. Many of the regulations issued by these
regulatory bodies may change and are the subject of various judicial
proceedings, legislative hearings and administrative proposals. We cannot
predict what impact, if any, these proceedings or changes will have on our
business or results of operations.
FEDERAL REGULATION
The following summary of regulatory developments and legislation describes the
primary present and proposed federal, state, and local regulation and
legislation that is related to the Internet service and telecommunications
industries and would have a material effect on our business. Existing federal
and state regulations are currently subject to judicial proceedings, legislative
hearings, and administrative proposals that could change, in varying degrees,
the manner in which our industries operate. We cannot predict the outcome of
these proceedings or their impact upon the Internet service and
telecommunications industries or upon us.
The FCC regulates us as a non-dominant common carrier, or one that is not
considered to be dominant over other service providers in the relevant product
or geographic markets in which it operates. Non-dominant carriers are subject to
lesser regulation than dominant carriers but remain subject to the general
requirements that they offer just and reasonable rates and terms of service and
do not unreasonably discriminate in the provision of services. We have obtained
authority from the FCC to provide domestic interstate long distance services and
international services between the United States and foreign countries and have
filed the required tariffs. While we believe we are in compliance with
applicable laws and regulations, we cannot assure you that the FCC or third
parties will not raise issues with regard to our compliance.
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THE FEDERAL TELECOMMUNICATIONS ACT
In February 1996, the FTA was passed by the United States Congress and signed
into law by President Clinton. This comprehensive telecommunications legislation
was designed to increase competition in the long-distance and local
telecommunications industries. The FTA imposes a variety of duties on
competitive telecommunications providers to facilitate competition in the
provision of local telecommunications and access services. Like all local
telecommunications carriers, where we provide local telephone services, we are
required to:
- - interconnect our networks with those of other telecommunications
carriers;
- - originate calls to and terminate calls from competing providers on a
reciprocal basis;
- - permit resale of our services;
- - permit users to retain their telephone numbers when changing providers;
and
- - provide competing providers with access to poles, ducts, conduits and
rights-of-way, if any.
ILECs, including GTE and the RBOCs, are subject to requirements in addition to
these, including the duty to:
- - undertake additional obligations applicable to the interconnection of
their networks with those of competitors;
- - permit collocation of competitors' equipment at their central offices;
- - provide access to individual network elements and "unbundled elements,"
including network facilities, features and capabilities, on
non-discriminatory and cost-based terms; and
- - offer their retail services for resale at wholesale rates.
The FCC is charged with establishing national rules implementing certain
portions of the FTA. In August 1996, the FCC released an order adopting an
extensive set of regulations governing network interconnection, network
unbundling, and resale of traditional telephone company services, under the FTA.
In July 1997, the United States Court of Appeals for the Eighth Circuit issued a
decision vacating substantial portions of these rules, principally on the ground
that the FCC had improperly intruded into matters reserved for state
jurisdiction.
In January 1999, the United States Supreme Court reversed many aspects of the
Eighth Circuit's decision, concluding that the FCC has jurisdiction to implement
the local competition provisions of the FTA. In so doing, the Supreme Court
found that the FCC has authority to establish pricing guidelines applicable to
the provision of unbundled network elements and the resale of traditional
telephone company services, to prevent ILECs from disaggregating existing
combinations of network elements, and to establish rules enabling competitors to
select all or portions of any existing traditional telephone company
interconnection agreements for use in their own interconnection agreements with
traditional telephone companies. The Supreme Court, however, did not evaluate
the specific pricing methodology adopted by the FCC and has remanded the case to
the Eighth Circuit for further consideration. While the Supreme Court resolved
many issues, including the FCC's jurisdictional authority, other issues remain
subject to further consideration by the courts and the FCC.
Although most of the challenged FCC rules were upheld by the Supreme Court, the
Court found that the FCC had not adequately considered certain statutory
criteria for requiring ILECs to make unbundled network elements available to
competitive telecommunications providers. The FCC then conducted new proceedings
to reexamine which unbundled network elements ILECs must provide. On November 5,
1999, the FCC released an order in which it required that ILECs make available
most, but not all, of the network elements specified in its initial order, as
well as certain new sub-types of network elements not included on the original
list. The FCC also clarified the obligation of ILECs to provide certain
combinations of network elements. Various interested parties have sought
reconsideration and filed appeals of the FCC's order. We are unable to predict
the outcome of those reconsideration and appellate proceedings. Notably, rates
charged for unbundled network elements are established through negotiation or by
state regulatory commissions, subject to general FCC rules governing pricing
methodology. Also as a result of the Supreme Court's decision, FCC rules that
require ILECs to establish geographically deaveraged pricing for network
elements will become effective in May 2000. Such deaveraging could result in
significant changes in the prices of network elements and may result in a
significant price increase for network elements in certain non-urban markets
served by the Company.
The FTA also eliminates certain pre-existing prohibitions on the provision of
traditional long distance services by the RBOCs on a phased-in basis. On
December 22, 1999, the FCC approved an application filed by Bell Atlantic
seeking authority to begin providing long distance services to customers located
in the State of New York, where it also provides local telephone service. This
action
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represents the first approval by the FCC of a regional Bell operating company
request to provide long distance services to customers located in their local
operating region. The FCC's approval of Bell Atlantic's application to provide
such long distance services is likely to strengthen its competitive position in
New York substantially. We anticipate that Bell Atlantic will soon apply to the
FCC to obtain such long distance service authority in other states in its
fourteen state operating region. Southwestern Bell currently has pending before
the FCC an application to provide traditional long distance services in Texas.
The FCC must issue a decision on that application in July 2000. We are unable to
predict the outcome of that decision. In addition, each RBOC has begun the
process to obtain permission to provide long distance services in various other
states. Entry of Bell Atlantic, and additional RBOCs, into the long distance
business could result in substantial competition to our services and may have a
material adverse effect on us as they will be able to offer integrated local and
long distance services and may enjoy a significant competitive advantage.
In the first half of 1998, four regional Bell operating companies petitioned
the FCC to be relieved of certain regulatory requirements in connection with
their provision of advanced telecommunications services. Advanced
telecommunications services are wireline, broadband telecommunications services,
as opposed to traditional voice services, and are widely used for Internet
access, often relying on DSL technology and packet-switching technology. In
response, in August 1998, the FCC issued an order and notice which clarified its
views on the applicability to advanced services of existing statutory
requirements in the FTA relating to network interconnection and unbundling. The
FCC also solicited public comments on a wide variety of issues associated with
the provision of advanced services by wireline carriers. The FCC generally
determined that advanced telecommunications services are subject to its
interconnection and unbundling rules. These orders have been appealed and are
the subject of further FCC proceedings as well. The FCC has not yet ruled on a
preliminary FCC proposal that would permit ILECs to deploy advanced
telecommunications services through a separate affiliate, which would not be
regulated as a traditional telephone company and therefore would not be subject
to the FTA's unbundling and resale provisions. However, the FCC in 1999 approved
a merger between SBC and Ameritech and imposed a requirement that those
companies establish separate affiliates for the provisioning of advanced
telecommunications services. Notably, a number of legislative proposals have
been made which would relieve ILECs of some or all of their obligations to
provide interconnection or unbundled network elements with respect to advanced
services.
In March 1999, the FCC adopted an order strengthening the rights of
competitive telecommunications providers such as the Company to obtain physical
collocation for purposes of interconnecting with ILEC networks, as well as
requiring that the ILECs permit competitive telecommunications providers to
collocate equipment used for interconnection and/or access to unbundled network
elements. The FCC also adopted rules designed to limit traditional telephone
companies' ability to deny competitive telecommunications providers the ability
to deploy transmission hardware in collocation space by purporting that the
equipment will cause electrical interference with other wires, requiring the
construction of caged enclosures, and imposing large minimum space requirements
and space preparation fees, among other things. The FCC also proposed rules
making these requirements more specific. On March 17, 2000, the U.S. Court of
Appeals for the District of Columbia vacated significant portions of these FCC
collocation rules, and remanded the matter to the FCC for further consideration.
Among other things, the appeals court vacated new FCC rules that would have
required ILECs to permit collocation of equipment usable to provide enhanced
services, use collocation space to cross connect to third party carriers, and
collocate their equipment in any unused space in their central offices.
Further FCC and appellate proceedings are expected.
ACCESS REGULATION
The FCC regulates the interstate access rates charged by ILECs for the
origination and termination of interstate long distance traffic. Those access
rates make up a significant portion of the cost of providing these long distance
services. Over the past few years, the FCC has implemented changes in interstate
access rules that result in the restructuring of the access charge system and
changes in access charge rate levels. On remand from an appeals court, the FCC
is conducting further proceedings to explain and refine its recent reforms
affecting access charge rate levels. In addition, the FCC is considering several
proposals to further reform access charge rate structures, including a proposal
submitted by a coalition of long distance companies and regional Bell companies
referred to as "CALLS". These and related actions may change access rates
structures and rate levels. If access rates are reduced, access revenues of all
local telecommunications carriers, including those of the Company, could be
reduced, and the costs to ILECs and long distance carriers to provide long
distance services also could be reduced significantly. The impact of these new
changes will not be known until they are fully implemented.
The FCC has also raised the issue of whether it should begin to regulate the
access charges imposed by competitive telecommunications providers. Currently,
competitive telecommunications providers are free to charge access rates at any
levels they deem appropriate so long as they are "just and reasonable" and
nondiscriminatory. The current proceeding seeks comment from the industry on
whether competitive telecommunications providers should be required to
cost-justify the access charges they impose on long distance carriers or whether
such rates should be limited to a prescribed range of "reasonable" charges. A
decision by the FCC to
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regulate competitive telecommunications providers' access charges could result
in the reduction of those charges for all competitive telecommunications
providers. Over the past few years, the FCC has granted ILECs significant
flexibility in pricing their interstate special and switched access services. We
anticipate that this pricing flexibility will result in ILECs lowering their
prices in high traffic density areas, the probable areas of competition with us.
We also anticipate that the FCC will grant ILECs increasing pricing flexibility
as the number of potential competitors increases in each of these markets.
In August 1999, the FCC released an order that granted substantial additional
pricing flexibility to ILECs for certain interstate services. Among other
things, the FCC granted immediate pricing flexibility to many ILECs in the form
of streamlined introduction of new services, the ability to change rates for
certain interstate services based on geographic location, and removal, after
certain local toll dialing restrictions are lifted, of certain interstate long
distance services from restrictive pricing regulation. The FCC also established
a framework for granting many ILECs greater flexibility in the pricing of all
interstate access services once they satisfy certain prescribed competitive
criteria. The FCC also invited public comment on proposals for yet further
traditional telephone company pricing flexibility.
In addition, in various contexts, certain ILECs have asked the FCC to rule
that certain calls made over the Internet are subject to regulation as
telecommunications services including the assessment of interstate switched
access charges and universal service fund assessments. Although the FCC has
suggested that Internet-based telephone-to-telephone calls may be considered
telecommunications services, it has not reached a final decision on that issue.
UNIVERSAL SERVICE
In 1997, the FCC established a significantly expanded universal service regime
to subsidize the cost of telecommunications services to high cost areas, and to
low-income customers and qualifying schools, libraries and rural health care
providers. Providers of telecommunications services, like us, as well as certain
other entities, must pay for these programs. The Company's share of the payments
into these subsidy funds will be based on its share of certain defined
telecommunications end-user revenues. Currently, the FCC is assessing these
payments on the basis of a telecommunications services provider's interstate and
international revenue for the previous year. Various states are also in the
process of implementing their own universal service programs. The Company
currently is unable to quantify the amount of subsidy payments it will be
required to make in the future or the effect that these required payments will
have on its financial condition. Moreover, the FCC's universal service rules
remain subject to change, which could increase the Company's costs.
DETARIFFING
In November 1996, the FCC issued an order that required non-dominant, long
distance carriers, like the Company, to cease filing tariffs for their domestic
long distance services. Tariffing is a traditional requirement of telephone
companies whereby such companies publish for public inspection at state and
federal regulatory agencies all terms, conditions, pricing, and available
services governing the sale of all such services to the public. Traditional long
distance service tariffs are filed with the FCC and tariffs for local telephone
services are filed with state regulatory commissions. The FCC's order required
mandatory detariffing for long distance services and gave interstate long
distance service providers nine months to withdraw federal tariffs and move to
contractual relationships with their customers. This order is subject to a stay
issued by a federal appeals court, and it is unclear at this time whether or
when the detariffing order will be implemented. In March 1999, the FCC adopted
further rules that, while still maintaining mandatory detariffing, required long
distance carriers to make specific public disclosures on their Internet websites
of their rates, terms, and conditions for domestic interstate services. The
effective date of these rules also is delayed until a court decision is rendered
on the appeal of the FCC's detariffing order. If the FCC's orders become
effective, non-dominant interstate services providers will no longer be able to
rely on the filing of tariffs with the FCC as a means of providing notice to
customers of prices, terms and conditions under which they offer their domestic
interstate services, and will have to rely more heavily on individually
negotiated agreements with end-users.
In June 1997, the FCC issued an order stating that non-dominant local service
providers may withdraw their tariffs for interstate access services provided to
long distance carriers. The FCC continues to require that service providers
obtain authority to provide service between the United States and foreign points
and file tariffs for international service.
RECIPROCAL COMPENSATION
Under its interconnection agreements with ILECs, the Company has a right to
charge ILECs reciprocal compensation for the transport and termination of local
traffic routed from ILEC end users to end users of the Company's local exchange
services. Many CLECs, like the
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Company, have accrued substantial revenue based on reciprocal compensation for
the termination of calls placed to Internet Service Providers ("ISPs") that are
subscribers to their local exchange services. ILECs have taken the position that
calls placed to ISPs do not terminate at the ISP and, therefore, are not "local"
traffic for which the CLEC is entitled to receive reciprocal compensation under
these interconnection agreements. Consequently, certain ILECs currently are
refusing to pay reciprocal compensation amounts for traffic attributable to
calls placed to ISPs. Since a significant portion of the Company's customer base
is comprised of ISPs, a failure by ILECs to pay ISP-related reciprocal
compensation could have a substantial impact on the Company's past and future
revenues. The obligation of ILECs to remit such compensation currently is the
subject of numerous proceedings at the FCC and State Commissions, and in Federal
and state courts, including complaint proceedings initiated by the Company at
State Commissions and through commercial arbitration for collection of such
compensation under its interconnection agreements. Any final order by the FCC or
a State Public Utility Commission ("PUC") in a state in which the Company's
interconnection agreements entitle it to reciprocal compensation, or a final
determination by a Federal or applicable state court or arbitration panel that
no reciprocal compensation is owed for calls placed to ISPs, could have a
material adverse effect on the Company.
In late 1998 and early 1999 the FCC determined that both dedicated access and
dial-up calls from a customer to an ISP are primarily interstate in nature and
therefore are to be considered interstate services, subject to the FCC's
jurisdiction. The FCC then initiated a proceeding to determine the effect that
this regulatory classification will have on the obligation of a service provider
to pay reciprocal compensation for dial-up calls to Internet service providers
that originate on one service provider's network and terminate on another
service provider's network. In that same order, the FCC permitted existing
reciprocal compensation arrangements between service providers, as set forth in
interconnection agreements and approved by state regulatory commissions, to
remain intact. However, on March 24, 2000, the FCC's jurisdictional
determination with respect to dial-up access traffic to Internet service
providers was vacated by the U.S. Court of Appeals for the District of Columbia
and remanded to the FCC for further proceedings.
The FCC is currently determining whether a new compensation mechanism should
be implemented. Presumably, in the context of the remand of its order on
reciprocal compensation from the Court of Appeals, the FCC also will further
consider whether dial-up traffic to Internet service providers is interstate in
nature and whether such traffic is subject to requirements governing the payment
of reciprocal compensation. Any decision that invalidates current reciprocal
compensation arrangements could result in the reduction, or elimination, of
potential revenues we may receive from reciprocal compensation payments for
traffic terminated over our network to ISPs.
As of March 2000, over 30 state PUCs have rendered decisions holding that
ILECs were required to make reciprocal compensation payments to CLECs for
dial-up traffic originating on ILEC networks and terminated by CLECs to ISPs. On
the other hand, a few other state PUCs recently have ruled that CLECs are not
entitled to collect reciprocal compensation for terminating ISP-bound traffic. A
few state PUCs also have ruled that CLECs are not entitled to collect reciprocal
compensation for terminating ISP-bound traffic prospectively under newly
arbitrated interconnection agreements.
The Company has successfully prosecuted multiple complaints against ILECs for
past due reciprocal compensation. Several favorable state PUC decisions are
currently on appeal. We are unable to predict the outcome of these appeals and
note that a reversal could have a materially adverse effect on the Company's
financial position. In addition, the Company has filed arbitration petitions
against BellSouth seeking to ensure that successor interconnection agreements
with BellSouth provide for reciprocal compensation for dial-up access traffic to
ISPs. Adverse decisions on this issue could have a materially adverse effect on
the Company's financial position.
STATE REGULATION
The FTA preempts state and local statutes and regulations that prohibit the
provision of competitive telecommunications services. As a result, we will be
free to provide the full range of local, long distance and data services in all
states in which we currently operate, and in any states into which we may wish
to expand. While this action greatly increases our potential for growth, it also
increases the amount of competition to which we may be subject. Because we
provide intrastate common carrier services, we are subject to various state laws
and regulations. Most state public utility and public service commissions
require some form of certification or registration. We must acquire this
authority before commencing intrastate common carrier service. In most states,
we are also required to file tariffs or price lists setting forth the terms,
conditions, and prices for services that are classified as intrastate.
We are required to update or amend these tariffs when we adjust our rates or
add new products and are subject to various reporting and record-keeping
requirements in these states. Many states also require prior approval for
transfers of control of certified providers, corporate reorganizations,
acquisitions of telecommunications operations, assignment of carrier assets,
carrier stock offerings, and incurrence of significant debt obligations. States
generally retain the right to sanction a service provider or to revoke
certification if a service provider violates applicable laws or regulations. If
any regulatory agency were to conclude that we are or were providing
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intrastate services without the appropriate authority or in violation of any
regulation, the agency could initiate enforcement actions, which could include
the imposition of fines, a requirement to disgorge revenues or the refusal to
grant the regulatory authority necessary for the future provision of intrastate
telecommunications services.
We are authorized to provide competitive local telecommunications services in
24 states. We have authority to provide intrastate long distance services in all
states where we hold local services authority, and in numerous other states as
well. We may apply for additional state authority in the future. However, there
can be no assurance that we will receive such authorizations.
LOCAL INTERCONNECTION
The FTA imposes a duty upon all ILECs to negotiate in good faith with
potential competitive telecommunications providers to provide interconnection to
their networks, exchange local traffic, make unbundled network elements
available, and permit resale of most local telephone services. In the event that
negotiations do not succeed, we have a right to seek arbitration with the state
regulatory authority of any unresolved issues. Arbitration decisions involving
interconnection arrangements in several states have been challenged and appealed
to federal courts.
We have entered into interconnection agreements with BellSouth, Pacific Bell,
Southwestern Bell, U S West, Bell Atlantic, GTE and Sprint/Central Telephone.
Arbitration decisions involving the Company's interconnection arrangements in
several states have been challenged in lawsuits filed in U.S. District Courts by
the affected ILECs. The Company has experienced some difficulty in obtaining
timely ILEC implementation of local interconnection agreements. Delays
encountered in obtaining facilities have caused the Company to file complaints
against BellSouth and U S West. Similar problems have been experienced with
other ILECs, and there can be no assurance that ILEC performance will improve.
A number of the Company's interconnection agreements will expire at various
times over the next six months, after which time, the Company will be required
to renegotiate each such agreement. The initial term of our interconnection
agreement with BellSouth already has lapsed, but its terms continue to apply
until a successor agreement is established through negotiation or state
regulatory commission arbitration proceedings. The Company has filed for
arbitration of a successor agreement in several BellSouth states. There can be
no assurance that these arbitrations, negotiations, and renegotiations of
interconnection agreements will be successful, that the agreements can be
extended in a favorable manner, or that State PUC arbitration of any unresolved
issues will be decided favorably to the Company.
LOCAL GOVERNMENT AUTHORIZATIONS
The Company is required to obtain street use and construction permits and
licenses, encroachment agreements and/or franchises to install and expand its
fiber optic networks using municipal rights-of-way. Termination of the existing
franchise or license agreements prior to their expiration dates could have a
materially adverse effect on the Company. In some municipalities where the
Company has installed or anticipates constructing networks, it will be required
to pay license or franchise fees based on a percentage of gross revenues or on a
per linear foot basis, as well as post performance bonds or letters of credit.
There can be no assurance that the Company will not be required to post similar
bonds in the future, nor is there any assurance that, following the expiration
of existing franchises, fees will remain at their current levels. In many
markets, the ILECs do not pay such franchise fees or pay fees that are
substantially less than those required to be paid by the Company. To the extent
that competitors do not pay the same level of fees as the Company, the Company
could be at a competitive disadvantage. However, the FTA provides that any
compensation extracted by states and localities for use of public rights-of-way
must be "fair and reasonable," applied on a "competitively neutral and
nondiscriminatory basis," and be "publicly disclosed" by such government entity.
CONTENT REGULATION
Because the Company does not hold itself out as editing or otherwise
controlling the content of communications that traverse its systems, it is
generally unaffected by government content regulation. On June 26, 1997, the
U.S. Supreme Court ruled unconstitutional provisions of the FTA, referred to as
the Communications Decency Act, which restricted transmission of "indecent" or
"patently offensive" material over the Internet, though it upheld restrictions
on transmission of obscene material. Congress attempted to remedy the
constitutional defects of the Constitutional Decency Act in 1998 by adopting the
Child Online Protection Act, but on February 1, 1999, a federal district court
judge issued a preliminary injunction against enforcement of that legislation on
the ground that it, too, will probably be held unconstitutional.
In recent years, Congress has adopted legislation designed to limit the
liability of data communications and online service providers. On
18
<PAGE> 19
November 12, 1997, the U.S. Court of Appeals for the Fourth Circuit ruled that
under certain defined circumstances the FTA protects interactive computer
service providers from liability for defamatory material posted on their systems
by third parties; the Supreme Court declined to review that case on June 22,
1998. The Digital Millenium Copyright Act, signed into law on October 28, 1998,
provides limitations against liability for online copyright infringement,
provided that certain conditions are met. Both acts are subject to
interpretation, however, and it is not certain that the Company will be able to
make successful use of the defenses provided if plaintiffs were to accuse it of
facilitating the dissemination of defamatory or copyright-infringing material.
Moreover, those statutes do not address every potential form of content
liability. For example, some courts have held that communications companies can
be held liable for consequential damages if they are grossly negligent or engage
in willful misconduct that delays or distorts the transmission of important or
time-sensitive information.
EMPLOYEES
As of December 31, 1999, the Company employed a total of 1,418 individuals
full time. The Company believes that its future success will depend on its
continued ability to attract and retain highly skilled and qualified employees.
None of the Company's employees are subject to a collective bargaining
agreement. The Company believes that its relations with its employees are good.
19
<PAGE> 20
ITEM 2. PROPERTIES
As of 12/31/99, e.spire leases 59,545 and 24,255 square foot office spaces in
Annapolis Junction, Maryland for its former corporate headquarters for $100,406
and $32,272 per month, respectively, as of December 31,1999, subject to periodic
increases in specified amounts. The primary lease expires in 2003 with an option
to renew for one additional five-year period. The secondary lease terminates in
April 2005. As of December 31, 1999, additional office space of 128,954 square
feet is leased in Columbia, Maryland and Laurel, Maryland for two additional
corporate offices, and the Company's billing center. These leases expire in
2007, 2000, and 2000, respectively. e.spire leases 167,285 square feet in
Herndon, Virginia, for corporate offices for $395,629 per month as of December
31, 1999, subject to periodic increases in specified amounts. The lease expires
in 2009 with two options to renew for additional three-year and five-year
periods. e.spire leases 25,460 square foot office space in Sterling, Virginia
for its network management center for $28,642. This lease expires in 2009 with
an option to renew for one additional five-year period.
As of December 31, 1999, the Company's various operating subsidiaries have
leased facilities for their offices and network nodes. The aggregate monthly
rent on these properties is approximately $925,300. The various leases expire on
dates ranging from March 2000 to December 2013. Most have renewal options.
Additional office space and equipment rooms will be leased as additional
networks are constructed and the Company's operations are expanded.
The Company believes that its insurance coverage on these properties is
adequate and in compliance with the related leases.
ITEM 3. LEGAL PROCEEDINGS
The Company and its subsidiaries are currently parties to routine litigation
incidental to their business, none of which, individually or in the aggregate,
are expected to have a material adverse effect on the Company. The Company and
its subsidiaries are parties to various court appeals and regulatory arbitration
proceedings relating to certain of the Company's interconnection agreements and
continue to participate in regulatory proceedings before the FCC and state
regulatory agencies concerning the authorization of services and the adoption of
new regulations. (See "Regulation")
ITEM 4. SUBMISSION OF MATTERS TO A VOTE OF SECURITY HOLDERS
No matters were submitted to a vote of security holders during the fourth
quarter of the year ended December 31, 1999.
20
<PAGE> 21
PART II
ITEM 5. MARKET FOR REGISTRANT'S COMMON EQUITY AND RELATED STOCKHOLDER MATTERS
The Company's Common Stock trades on The NASDAQ Stock Market under the
symbol "ESPI".
The following table sets forth, for the periods indicated, the range of high
and low closing bid quotations for the Common Stock obtained from The Nasdaq
Stock Market.
<TABLE>
<CAPTION>
HIGH PRICE LOW PRICE
---------- ---------
<S> <C> <C>
FISCAL YEAR ENDED DECEMBER 31, 1997
First Quarter ................... $ 11.13 $ 6.50
Second Quarter .................. 7.69 4.75
Third Quarter ................... 12.25 6.38
Fourth Quarter .................. 14.00 10.63
FISCAL YEAR ENDED DECEMBER 31, 1998
First Quarter ................... $ 19.63 $ 11.63
Second Quarter .................. 22.56 15.00
Third Quarter ................... 23.03 9.00
Fourth Quarter .................. 14.06 5.31
FISCAL YEAR ENDED DECEMBER 31, 1999
First Quarter ................... $ 13.75 $ 4.50
Second Quarter .................. 16.75 9.63
Third Quarter ................... 12.69 7.19
Fourth Quarter .................. 8.91 5.50
</TABLE>
On March 31, 2000, the last reported sales price for the Common Stock as
reported on The Nasdaq Stock Market was $7.031. As of December 31, 1999, there
were approximately 399 holders of record of the Common Stock.
DIVIDEND POLICY
The Company has never paid dividends on the Common Stock and does not expect
to declare any dividends on the Common Stock in the foreseeable future. The
Company's indentures, Credit Facilities and preferred stock instruments contain
certain covenants that restrict the Company's ability to declare or pay
dividends on the Common Stock.
RECENT SALES OF UNRESTRICTED SECURITIES
On March 3, 2000, in consideration of approximately $100.7 million, e.spire
issued an aggregate of 81,777 shares of Series A Convertible Preferred Stock and
175,000 warrants to The Honeywell International Inc. Master Retirement Trust,
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. Each share of Series A Convertible
Preferred Stock is initially convertible into 126.4 shares of Common Stock (an
effective conversion price of $7.91 per share), and each warrant is initially
exercisable for 44.1 shares of Common Stock (at an initial exercise price of
$9.89 per share). The securities were issued pursuant to Section 4(2) of the
Securities Act of 1933.
21
<PAGE> 22
ITEM 6. SELECTED FINANCIAL DATA
The selected consolidated financial data presented below under the captions
"Statement of Operations Data" for the years ended June 30, 1995 and 1996,
December 31, 1996, 1997, 1998 and 1999, and "Balance Sheet Data" as of June 30,
1995 and 1996, December 31, 1996, 1997, 1998 and 1999 are derived from and
qualified by reference to the audited Consolidated Financial Statements of the
Company and the related notes thereto, and should be read in conjunction
therewith and in conjunction with "Management's Discussion and Analysis of
Financial Condition and Results of Operations".
SELECTED CONSOLIDATED FINANCIAL DATA
(IN THOUSANDS, EXCEPT SHARE DATA)
<TABLE>
<CAPTION>
FISCAL
YEAR ENDED YEAR ENDED YEAR ENDED
JUNE 30, JUNE 30, DECEMBER 31,
1995 1996 1996
-------------------------------------------
<S> <C> <C> <C>
STATEMENT OF OPERATIONS DATA:
Revenues ............................. $ 389 $ 3,415 $ 9,417
Operating expenses:
Network, development and operations... 3,282 5,265 11,046
Selling, general and administrative... 4,598 13,464 30,656
Non-cash stock compensation .......... 6,419 2,736 2,081
Depreciation and amortization ........ 498 3,078 7,228
--------- --------- ---------
Total operating expenses ........... 14,797 24,543 51,011
--------- --------- ---------
Loss from operations ................. (14,408) (21,128) (41,594)
Interest and other income ............ 218 4,410 6,390
Interest and other expense ........... (170) (10,477) (18,032)
Debt conversion expense............... (385) 0 0
--------- --------- ---------
Net loss before minority interest..... (14,746) (27,195) (53,236)
Minority interest..................... 48 413 417
--------- --------- ---------
Net loss ............................. $ (14,698) $ (26,782) $ (52,819)
========= ========= =========
Preferred stock dividends and
accretion ............................ (1,071) (3,871) (4,021)
--------- --------- ---------
Net loss to common stockholders ...... $ (15,769) $ (30,653) $ (56,840)
========= ========= =========
Net loss per common share ............ $ (3.30) $ (4.96) $ (8.54)
========= ========= =========
Weighted average shares outstanding .. 4,772 6,185 6,653
OTHER DATA:
Adjusted EBITDA(1).................... $ (7,443) $ (14,901) $ (31,868)
Capital expenditures ................. 15,303 60,856 107,773
<CAPTION>
YEAR ENDED YEAR ENDED YEAR ENDED
DECEMBER 31, DECEMBER 31, DECEMBER 31,
1997 1998 1999
----------------------------------------------
<S> <C> <C> <C>
STATEMENT OF OPERATIONS DATA:
Revenues ............................. $ 59,001 $ 156,759 $ 244,009
Operating expenses:
Network, development and operations... 52,881 106,813 159,368
Selling, general and administrative... 59,851 103,639 169,180
Non-cash stock compensation .......... 4,274 9,928 11,473
Depreciation and amortization ........ 24,131 47,332 95,943
--------- --------- ---------
Total operating expenses ........... 141,137 267,712 435,964
--------- --------- ---------
Loss from operations ................. (82,136) (110,953) (191,955)
Interest and other income ............ 8,685 23,348 10,602
Interest and other expense ........... (41,565) (75,474) (96,395)
Debt conversion expense............... 0 0 0
--------- --------- ---------
Net loss before minority interest..... (115,016) (163,079) (277,748)
Minority interest..................... 0 0 0
--------- --------- ---------
Net loss ............................. $(115,016) $(163,079) $(277,748)
========= ========= =========
Preferred stock dividends and
accretion ............................ (11,630) (36,080) (40,646)
--------- --------- ---------
Net loss to common stockholders ...... $(126,646) $(199,159) $(318,394)
========= ========= =========
Net loss per common share ............ $ (4.65) $ (4.45) $ (6.38)
========= ========= =========
Weighted average shares outstanding .. 27,234 44,752 49,892
OTHER DATA:
Adjusted EBITDA(1).................... $ (53,731) $ (53,693) $ (84,160)
Capital expenditures ................. 135,036 249,256 286,744
</TABLE>
<TABLE>
<CAPTION>
BALANCE SHEET DATA (END OF PERIOD): JUNE 30, JUNE 30, DECEMBER 31, DECEMBER 31, DECEMBER 31, DECEMBER 31,
1995 1996 1996 1997 1998 1999
- ------------------------------------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C> <C> <C>
Cash and cash equivalents $20,351 $134,116 $ 78,619 $260,837 $ 328,758 $ 62,525
Total assets 37,627 223,600 230,038 638,896 982,957 941,242
Working capital (deficit) 13,908 114,966 46,001 272,234 325,734 (60,505)
Networks, equipment and furniture, net 15,567 76,739 136,083 250,478 485,934 682,474
Long-term debt, including current portion 3,798 184,382 210,410 461,285 749,815 970,124
Long-term liabilities 4,723 189,072 216,484 461,321 746,765 805,202
Redeemable stock and options 2,931 2,155 2,000 206,160 241,044 281,596
Stockholders' equity (deficit) 22,144 8,982 (27,038) (65,356) (101,734) (401,195)
</TABLE>
NOTE TO SELECTED CONSOLIDATED FINANCIAL DATA
(1) Adjusted EBITDA consists of net income (loss) before net interest, income
taxes, depreciation and amortization, and noncash stock compensation. It is a
measure commonly used in the telecommunications industry and is presented to
assist in understanding the Company's operating results. However, it is not
intended to represent cash flow or results of operations in accordance with
Generally Accepted Accounting Principles.
22
<PAGE> 23
ITEM 7. MANAGEMENT'S DISCUSSION AND ANALYSIS
e.spire Communications, Inc., formed in 1993, seeks to be a leading
facilities-based integrated communications provider to businesses. The Company
currently operates in 38 markets throughout the United States where it has
state-of-the-art local fiber optic networks. By the end of 1997, the Company had
become one of the first Competitive Local Exchange Carriers ("CLECs") to combine
the provision of dedicated, local and long distance voice services with frame
relay, ATM and Internet services. Having established this suite of
telecommunications services which emphasizes data capabilities in addition to
traditional CLEC offerings, e.spire seeks to provide customers with superior
service and competitive prices while offering a single source for integrated
communications services designed to meet its business customers' needs. The
Company's facilities-based network infrastructure is designed to provide
services to customers on an end-to-end basis, and, as of December 31, 1999, was
comprised of 3,830 route miles of fiber in its 38 local networks in 21 states,
state of the art equipment including 46 ATM switches, 51 routers, 28 voice
switches and approximately 26,000 backbone long haul miles in its leased
coast-to-coast broadband data network.
With the passage of the federal Telecommunications Act of 1996 ("Telecom
Act, FTA or the Act"), the Company enhanced the scope of its product offerings
from dedicated services to a full range of switched voice, data and Internet
services in order to meet the needs of business end-users, and is expanding its
sales, marketing, customer care and operations support systems ("OSS")
capabilities. The Company introduced local switched voice services, including
local exchange services, in late 1996 and long distance services in late 1997.
In late 1998, e.spire announced that it would begin to eliminate its resale
business. As of December 31, 1999, e.spire had installed 165,290 customer access
lines of which approximately 95% were on-switch. This represents a significant
increase over the 133,090 access lines installed as of December 31, 1998 of
which approximately 47% were on-switch.
The development of the Company's business and the construction, acquisition
and expansion of its networks require significant capital expenditures, a
substantial portion of which are incurred before realization of revenues. These
expenditures, together with the associated early operating expenses, result in
negative cash flow until an adequate customer base is established. However, as
the Company's customer base grows, the Company expects that incremental revenues
can be generated with decreasing incremental operating expenses. The Company has
made specific strategic decisions to build high capacity networks with broad
market coverage, which initially increases its level of capital expenditures and
operating losses. However, the Company believes that over the long term this
strategy will enhance the Company's financial performance by increasing the
traffic flow over its network.
ACSI NT was formed to pursue opportunities in fiber optic network design and
construction with carriers, large end user customers and municipalities. ACSI NT
is a wholly owned subsidiary of e.spire which provides full service network
development solutions including business planning, market analysis, engineering,
project management, construction and network monitoring center design.
RESULTS OF OPERATIONS - YEAR ENDED DECEMBER 31, 1999 COMPARED TO YEAR ENDED
DECEMBER 31, 1998
REVENUES
The Company reported an increase in total revenues of $87.2 million, or 56%,
to $244.0 million for the year ended December 31, 1999, compared with revenues
of $156.8 million for the year ended December 31, 1998 as discussed below.
TELECOMMUNICATIONS SERVICES
The Company reported an increase in Telecommunications services revenues of
$48.4 million, or 38%, to $175.7 million for the year ended December 31, 1999,
compared with revenues of $127.3 million for the year ended December 31, 1998.
Included in Telecommunications services are revenues from the dedicated access,
switched local, long distance, reciprocal compensation and data/Internet
products. The increase in revenues was attributable to the Company's greater
presence and expansion in its markets. The increase was principally due to
increased reciprocal compensation revenue as discussed below and increases in
the Company's other service offerings such as special access, switch and data
services. Also, these increases in revenues were partially offset by a decrease
in resale revenue due to the Company's elimination of its switched resale
portfolio. The Company's revenue was also adversely affected by increased
revenue reserves for customer churn, related in part to the Company's previously
announced elimination of its local switched resale business and increased
reserves for reciprocal compensation.
23
<PAGE> 24
The Company also increased the number of route miles, fiber miles,
co-locations, buildings connected, voice switches and data POPs. Between
December 31, 1999 and December 31, 1998, the Company increased route miles by
2,088 miles, or 120% and increased fiber miles by 23,070 or 14%. Of the 2,088
route miles added over the 12 month period, 1,670 route miles are long haul
connections between selected local metropolitan fiber networks of the Company,
with an associated 7,000 fiber miles. Co-locations increased by 17 or 18% and
buildings connected increased by 1,237, or 42%. Lucent 5ESS switches deployed
increased to 28 as of December 31, 1999, from 19 as of December 31, 1998. In
addition, the growth is attributable to the Company's leased coast-to-coast
broadband network infrastructure by which it delivers both ATM and frame relay
products via its 388 data POPs, which are a combination of both e.spire's
infrastructure and various network-to-network interconnection arrangements. The
number of data POPs has increased to 388 as of December 31, 1999, from 66 as of
December 31, 1998. Net access lines installed increased by 32,220, or 24% to
165,290 at December 31, 1999, from 133,070 at December 31, 1998. In line with
the Company's previously announced initiative to eliminate local switched
resale, over 60,000 resale lines have been eliminated from the access line base
through forced attrition and a multi-phase sale. At December 31, 1999,
approximately 95% of total installed lines were "on-switch" versus approximately
47% as of December 31, 1998.
Included in Telecommunications services revenues is reciprocal compensation
of approximately $38.9 million for the twelve months ended December 31, 1999 and
approximately $17.7 million for the twelve months ended December 31, 1998.
Reciprocal compensation relates to the transport and termination of local
traffic, primarily to ISPs from ILEC customers, pursuant to various
interconnection agreements. These ILECs have not paid a substantial portion of
the amount billed by the Company and have disputed these charges based on the
belief that such calls are not local traffic as defined by the various
agreements and under state and federal law and public policies. As of December
31, 1999, the Company has received approximately $14.4 million for reciprocal
compensation. In the first quarter of 2000, the Company received approximately
$16 million in reciprocal compensation from BellSouth and GTE. The continued
resolution of the remaining disputes will be based on rulings by state PUCs, the
FCC, the courts and/or commercial arbitrators. In February 1999, the FCC ruled
that ISP-bound traffic is jurisdictionally "interstate in nature." The FCC also
found that the reciprocal compensation provisions of the Telecommunications Act
did not apply to ISP traffic but delegated to state PUCs the decision of whether
reciprocal compensation must be paid under the terms of local interconnection
agreements. On March 24, 2000, the United States Court of Appeals for the
District of Columbia Circuit vacated and remanded the FCC's decision on the
grounds that the FCC did not provide an adequate basis for its decision that the
reciprocal compensation provisions of the Telecommunications Act did not apply
to ISP traffic, and remanded further consideration. e.spire has obtained
favorable rulings from the Georgia and Florida PSCs requiring payment of past
due reciprocal compensation from BellSouth in those states, although those
ruling have been appealed by BellSouth. e.spire has several pending proceedings
before state PSCs and commercial arbitrators to collect outstanding amounts
from multiple ILECs. Although there can be no assurance that future regulatory
or arbitration rulings will be favorable to the Company and the timing of
receipts cannot be predicted at this time, the Company believes that its
receivables for reciprocal compensation of $46.9 million at December 31, 1999,
net of allowance, are ultimately collectible. (see "Government Regulation")
NETWORK TECHNOLOGIES SERVICES
Network Technologies services revenues increased $38.8 million, or 132%, to
$68.3 million for the year ended December 31, 1999, compared with revenues of
$29.4 million for the year ended December 31, 1998. The increase in revenues is
attributable to the increased growth in the size and number of construction
contracts in this expanded operation. The Network Technologies segment offers
construction services, including the sale of IRUs on portions of e.spire's
networks to IXCs and other customers, fiber optic network design and project
management services. Also, included in Network Technologies revenues are
revenues for construction contracts and grants of IRUs on portions of e.spire's
networks to IXCs and other customers. The Company recognized approximately $14.9
million and $14.0 million for the twelve months ended December 31, 1999 and
1998, respectively, in revenues from agreements to exchange IRU multiple fibers
along certain sections of e.spire's networks for dissimilar assets or for IRUs
on other companies networks with substantial cash payments. Included in the
twelve months ended December 31, 1999, are revenues of approximately $40.1
million derived from contracts with three major customers. Included in the year
ended December 31, 1998 revenues was approximately $23.5 million derived from
contracts with five major customers with approximately $9.5 million coming from
a single customer. The Company expects to see continued increases in revenues
from Network Technologies due to future growth and expansion in this line of
business. However, the timing of future revenue recognition will be adversely
affected by the Company's adoption of FIN 43 which effects the recognition of
revenue for dark fiber sales. See Note 1 of the Notes to Consolidated Financial
Statements.
COST OF SALES
For the year ended December 31, 1999, compared with the year ended December
31, 1998, total cost of sales increased $52.5 million, or 49%, to $159.4 million
from $106.8 million for the twelve months ended December 31, 1998, as discussed
below.
24
<PAGE> 25
TELECOMMUNICATIONS SERVICES
Cost of sales for Telecommunications services increased $23.0 million, or
23%, to $121.2 million for the year ended December 31, 1999, from $98.2 million
for the same period of 1998. These increases relate to growth in the delivery of
switched, data and special access services and the addition of engineering and
operations personnel dedicated to supporting the network infrastructure.
Included in cost of sales are costs of Telecommunications services paid to
IXCs, ILECs and others for leased telecommunications facilities, access and
services. Such costs increased to approximately $108.2 million for the year
ended December 31, 1999, from approximately $84.7 million for the year ended
December 31, 1998. In addition, network related personnel costs such as employee
salaries and benefits are also included in cost of sales. For the year ended
December 31, 1999 and 1998, these costs were approximately $13.0 million and
$13.4 million, respectively.
NETWORK TECHNOLOGIES SERVICES
Cost of sales for Network Technologies services increased $29.6 million, to
approximately $38.2 million for the year ended December 31, 1999, compared with
$8.7 million for the same period of 1998. Included in Network Technologies cost
of sales are direct materials and labor associated with the construction of
networks and costs associated with contracted services. Increases in the costs
are attributable to the increased growth in this expanded line of business. The
Company expects this growth to continue into the future as Network Technologies
continues to expand. However, the costs associated with revenues deferred as a
result of the adoption of FIN 43 will be recognized ratably over the IRU period.
GROSS MARGIN
For the year ended December 31, 1999, total gross margin increased 280 basis
points to 34.7 percent from 31.9 percent for the year ended December 31, 1998,
as discussed below.
TELECOMMUNICATIONS SERVICES
Telecommunications services gross margin increased 810 basis points to 31.0
percent for the year ended December 31, 1999 from 22.9 percent for the year
ended December 31, 1998. These increases were primarily due to increases in
sales volume, which resulted in increases in reciprocal compensation as
described above. Furthermore, the Company continues to achieve network cost
savings through negotiations with vendors.
NETWORK TECHNOLOGIES SERVICES
Network Technologies services gross margin decreased 2,660 basis points to
44.1 percent for the year ended December 31, 1999 from 70.7 percent for the year
ended December 31, 1998. The decrease was due to the sale of lower margin
construction projects in 1999. The Company expects 1999 results to be more in
line with what future results will be for this line of business. The Company
expects that the gross margins in the future will be adversely effected
due to the provisions of FIN 43 as discussed above.
OPERATING EXPENSES
SELLING, GENERAL AND ADMINISTRATIVE
For the year ended December 31, 1999, selling, general and administrative
(SG&A) expenses increased $65.5 million, or 63%, to $169.2 million from $103.6
million for the same period of 1998.
Included in SG&A expenses are personnel costs such as employee salaries,
benefits and commissions. Such costs increased to $64.5 million for the year
ended December 31, 1999, from $32.4 million for the year ended December 31,
1998. Also, included in SG&A expenses are operating costs such as rent,
advertising and general administrative and office expenses. These expenses
increased to $104.7 million for the year ended December 31, 1999 from $71.2
million for the year ended December 31, 1998.
Increases in SG&A expenses are the result of increases in the Company's
personnel that are necessary to support and grow the Company's operations. Costs
directly related to the increase in personnel include salaries, benefits,
bonuses and commissions. Another significant portion of the SG&A increase is due
to backoffice expenses such as professional services cost which have been
necessary to maintain and improve existing processes. In addition, increases in
costs for facilities and related expenses have been
25
<PAGE> 26
incurred due to an increased number of office locations and facilities. Also, in
connection with the Company's growth in revenue, bad debt allowances have
increased. Costs associated with Year 2000 remediation efforts have also
contributed to the increases. The Company continues to monitor on an ongoing
basis its SG&A costs to evaluate any costs that can be eliminated.
NON-CASH STOCK COMPENSATION
Non-cash stock compensation expense increased $1.6 million, or 16%, to $11.5
million for the year ended December 31, 1999 from $9.9 million for the year
ended December 31, 1998.
Included in non-cash compensation are accruals for the issuance of common
stock in connection with performance bonuses and costs of grants of employee
stock options. Costs associated with the accrual for performance bonuses were
approximately $6.1 and $9.6 million for the years ended December 31, 1998 and
1999, respectively. The costs for the compensation associated with stock option
plans was approximately $3.8 for the year ended December 31, 1998 and $1.9 for
the same period of 1999.
DEPRECIATION AND AMORTIZATION
Depreciation and amortization expenses increased $48.6 million, or 103%, to
$95.9 million for the year ended December 31, 1999 from $47.3 million for the
year ended December 31, 1998. These increases were due to an increase in gross
capital assets to $849 million at December 31, 1999 compared with capital assets
of $562.0 million at December 31, 1998.
INTEREST AND OTHER INCOME
Interest and other income decreased $12.7 million, or 55%, to $10.6 million
for the year ended December 31, 1999 from $23.3 million for the year ended
December 31, 1998. The decrease in interest and other income reflects a decrease
in the unrestricted cash and cash equivalents balance of $266.2 million from
$328.8 million at December 31, 1998 to $62.5 million at December 31, 1999. These
funds have been invested in commercial paper, U.S. Government Securities and
money market instruments.
INTEREST AND OTHER EXPENSE
Interest and other expense increased $20.9 million, or 28%, to $96.4 million
for the year ended December 31, 1999 from $75.5 million for the year ended
December 31, 1998. The increase was primarily due to the accrual of interest
related to the 10 5/8% Senior Discount Notes due 2008 which were issued in July
1998 and the interest incurred in connection with the Credit Facilities.
Furthermore, the accrual of interest related to the 13% Senior Discount Notes
due 2005 (the "2005 Notes"), the 12 3/4% Senior Discount Notes due 2006 (the
"2006 Notes") and the interest expense associated with the Company's capital
leases also contributed to the increase in interest expense. Also, beginning in
the fourth quarter of 2000, cash interest payments under the 2005 Notes will
begin.
NET LOSS & NET LOSS APPLICABLE TO COMMON STOCKHOLDERS
As a result of the aforementioned increases in revenues, cost of sales,
operating expenses, depreciation and amortization, and interest income and
expense, net loss increased $114.6 million, or 70%, to $277.7 million for the
year ended December 31, 1999 from $163.1 million for the year ended December 31,
1998. Further, net loss applicable to common stockholders increased $119.2
million, or 60%, to $318.4 million for the year ended December 31, 1999 from
$199.2 million for the same period of 1998. These increases to net loss
applicable to common stockholders are primarily attributable to the preferred
stock dividends and accretion related to the 14 3/4% Preferred Stock and the 12
3/4% Preferred Stock.
RESULTS OF OPERATIONS - YEAR ENDED DECEMBER 31, 1998 COMPARED TO YEAR ENDED
DECEMBER 31, 1997
REVENUES
The Company reported an increase in total revenues of $97.7 million, or
166%, to $156.8 million for the year ended December 31, 1998, compared with
revenues of $59.1 million for the year ended December 31, 1997 as discussed
below.
TELECOMMUNICATIONS SERVICES
The Company reported an increase in telecommunications services revenues of
$71.2 million, or 127%, to $127.3 million for the
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year ended December 31, 1998, compared with revenues of $56.2 million for the
year ended December 31, 1997. Included in Telecommunications services are
revenues from the dedicated access, switch services and data/Internet products.
The increase in revenues was attributable to the Company's greater presence and
expansion in its 35 local fiber optic networks. Also, the introduction of new
service offerings such as e.spire Platinum and Gold have contributed to the
increase in revenues. The Company also increased the number of route miles,
buildings connected and voice and data switches deployed. Between December 31,
1997 and December 31, 1998, the Company increased route miles by 681, or 64% and
buildings connected increased by 1,308, or 82%. Lucent 5ESS switches deployed
increased to 19 as of December 31, 1998 from 16 as of December 31, 1997. In
addition, the Company has deployed 66 ATM switches over its coast-to-coast data
network as of December 31, 1998, up from 44 as of December 31, 1997. Also,
access lines installed, net of disconnects resulting from the Company's
previously announced plan to eliminate switched resale, increased by 97,965, or
279% to 133,070 at December 31, 1998, from 35,105 at December 31, 1997. More
than 80% of net access lines installed during the three months ended December
31, 1998 were on-net.
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Included in telecommunications services revenues are revenues of
approximately $17.7 million and $1.6 million, for the years ended December 31,
1998 and 1997, respectively, for reciprocal compensation relating to the
transport and termination of local traffic primarily to ISPs from customers of
incumbent local exchange carriers pursuant to various interconnection
agreements. These local exchange carriers have not paid and have disputed the
majority of these charges based on the belief that such calls are not local
traffic as defined by the various agreements and under state and federal law and
public policies. The resolution of these disputes will be based on rulings by
state PUCs, or the FCC, the courts and/or commercial arbitrators. The FCC
recently ruled that ISP-bound traffic is jurisdictionally "interstate in nature"
but delegated to state PUCs the decision of whether reciprocal compensation must
be paid under the terms of existing local interconnection agreements. To date,
there have been no unfavorable final rulings concerning payment of past due
reciprocal compensation amounts for ISP traffic in states in which e.spire
billed reciprocal compensation through December 31, 1998. Although there can be
no assurance that future regulatory rulings will be favorable to the Company,
the Company believes that all of these amounts are ultimately collectible,
although the timing of receipts cannot be predicted at this time. (See
"Regulation")
NETWORK TECHNOLOGIES SERVICES
Network technologies services revenues increased $26.5 million, or 930%, to
$29.4 million for the year ended December 31, 1998, compared with revenues of
$2.9 million for the year ended December 31, 1997. The increase in revenues is
attributable to the increased growth in the size and number of construction
contracts in this expanded operation. The network technologies segment offers
fiber optic network design, project management and construction services by ACSI
NT. Also, included in network technologies revenues are revenues for
construction contracts and grants of indefeasible rights of use ("IRUs") on
portions of e.spire's networks to IXCs and other customers. Included in the year
ended December 31, 1998 revenues was approximately $23.5 million derived from
contracts with five major customers with approximately $9.5 million coming from
a single customer. The Company recognized approximately $14 million in
non-monetary proceeds from agreements to exchange IRUs multiple fibers along
certain sections of e.spire's networks for IRUs on other companies networks. The
Company expects to see continued increases in revenues from network technologies
due to future growth and expansion in this line of business.
COST OF SALES
For the year ended December 31, 1998, compared with the year ended December
31, 1997, total cost of sales increased $53.9 million, or 102%, to $106.8
million from $52.9 million for the twelve months ended December 31, 1997, as
discussed below.
TELECOMMUNICATIONS SERVICES
Cost of sales for telecommunications services increased $45.6 million, or
87%, to $98.1 million for the year ended December 31, 1998, from $52.5 million
for the same period of 1997. These increases relate to growth in the delivery of
switched, data and special access services and the addition of engineering and
operations personnel dedicated to supporting the network infrastructure.
Included in cost of sales are costs of telecommunications services paid to
IXCs, ILECs and others for leased telecommunications facilities, access charges
and services. Such costs increased to approximately $84.6 million for the year
ended December 31, 1998, from approximately $39.7 million for the year ended
December 31, 1997. In addition, network related personnel costs such as employee
salaries and benefits are also included in cost of sales. For the year ended
December 31, 1998 and 1997, these costs were approximately $22.2 million and
$13.2 million, respectively.
NETWORK TECHNOLOGIES SERVICES
Cost of sales for network technologies services increased $8.3 million, to
approximately $8.7 million for the year ended December 31, 1998, compared with
$.4 million for the same period of 1997. Included in network technologies cost
of sales are direct materials and labor associated with the construction of
networks and costs associated with contracted services. The increase in these
costs was attributable to the increased growth in this expanded line of
business. The Company expects this growth to continue into the future as network
technologies continues to expand.
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GROSS MARGIN
For the year ended December 31, 1998, total gross margins increased $43.8
million, or 716%, to $49.9 million from $6.1 million for the year ended December
31, 1997.
TELECOMMUNICATIONS SERVICES
Telecommunications services gross margin increased $25.6 million, or 699% to
$29.3 million for the year ended December 31, 1998 from $3.7 million for the
same period of 1997. This increase was due to the increased sales volume as
described above.
NETWORK TECHNOLOGIES SERVICES
Network technologies services gross margin increased $18.2 million, or 742%
to $20.7 million for the twelve months ended December 31, 1998 from $2.5 million
for the twelve months ended December 31, 1997. The increase was due to the sale
of new higher margin construction projects in 1998.
OPERATING EXPENSES
SELLING, GENERAL AND ADMINISTRATIVE
For the year ended December 31, 1998, selling, general and administrative
(SG&A) expenses increased $43.8 million, or 73%, to $103.6 million from $59.9
million for the same period of 1997.
Included in selling, general and administrative expenses are personnel costs
such as employee salaries, benefits and commissions. Such costs increased to
$32.4 million for the year ended December 31, 1998, from $19.9 million for the
year ended December 31, 1997. Also, included in selling, general and
administrative expenses are operating costs such as rent, advertising and
general administrative and office expenses. These expenses increased to $71.2
million for the year ended December 31, 1998 from $40.0 million for the year
ended December 31, 1997.
Increases in selling, general and administrative expenses are a result of
the Company's efforts directed at obtaining more on-net customers through direct
sales, as well as conversion of customers that are not presently served on the
Company's facilities. The costs associated with the increase in direct sales
include commissions and marketing costs that have increased from 1997 and are
expected to continue to increase. Also contributing to the increases in SG&A
costs were backoffice expenses that were a result of increases in personnel and
professional service costs associated with the Company's rapid growth which were
necessary to maintain and improve existing processes. In addition, as the
Company implement continues implementation of its operations support systems
("OSS") program over the next twelve to eighteen months in which it will
continue to invest capital dollars. As these systems are being installed, the
Company will continue to incur backoffice operating expenses to support the
existing processes.
NON-CASH STOCK COMPENSATION
Non-cash stock compensation expense increased $5.7 million, or 132%, to $9.9
million for the year ended December 31, 1998 from $4.3 million for the year
ended December 31, 1997. Included in non-cash compensation for 1998 are accruals
for the issuance of common stock in connection with 1998 performance bonuses,
costs of grants of employee stock options, as well as costs associated with
stock options for former executives. Costs associated with the accrual for
performance bonuses were approximately $6.1 million and $2.9 million for the
years ended December 31, 1998 and 1997, respectively. The costs for the
compensation associated with stock option plans was approximately $3.8 million
for the year ended December 31, 1998 and $1.4 million for the same period of
1997.
DEPRECIATION AND AMORTIZATION
Depreciation and amortization expenses increased $23.2 million, or 96%, to
$47.3 million for the year ended December 31, 1998 from $24.1 million for the
year ended December 31, 1997. These increases were due to an increase in gross
capital assets to $562.0 million at December 31, 1998 compared with capital
assets of $282.2 million at December 31, 1997.
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INTEREST AND OTHER INCOME
Interest and other income increased $14.7 million, or 169%, to $23.3 million
for the year ended December 31, 1998 from $8.7 million for the year ended
December 31, 1997. The increases in interest and other income reflects the
increase in earnings from the proceeds received from the issuance of the 13 3/4%
Senior Notes due 2007 (the "2007 Notes"), the 14 3/4% Redeemable Preferred Stock
due 2008 (the "14 3/4% Preferred Stock"), the 12 3/4% Junior Redeemable
Preferred Stock due 2009 (the "12 3/4% Preferred Stock"), the 8,100,000 shares
of Common Stock (the "1998 Common Stock Offering") and the 10.625% Senior
Discount Notes due 2008 (the "2008 Notes") which have been invested in
commercial paper, U.S. Government Securities and money market instruments.
INTEREST AND OTHER EXPENSE
Interest and other expense increased $33.9 million, or 82%, to $75.5 million
for the year ended December 31, 1998 from $41.6 million for the year ended
December 31, 1997. The increase reflected the accrual of interest related to the
13% Senior Discount Notes due 2005 (the "2005 Notes"), the 12 3/4% Senior
Discount Notes due 2006 (the "2006 Notes"), and the 2008 Notes as well as
interest expense associated with the 2007 Notes and the Company's capital
leases.
NET LOSS & NET LOSS APPLICABLE TO COMMON STOCKHOLDERS
As a result of the aforementioned increases in revenues, cost of sales,
operating expenses, depreciation and amortization, and interest income and
expense, net loss increased $48.1 million, or 42%, to $163.1 million for the
year ended December 31, 1998 from $115.0 million for the year ended December 31,
1997. Further, net loss applicable to common stockholders increased $72.5
million, or 57%, to $199.2 million for the year ended December 31, 1998 from
$126.6 million for the same period of 1997. These increases to net loss
applicable to common stockholders are primarily attributable to the preferred
stock dividends and accretion related to the 14 3/4% Preferred Stock and the 12
3/4% Preferred Stock.
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CAPITAL EXPENDITURES; OPERATING CASH FLOW
As of December 31, 1999, the Company was operating 38 digital local fiber
optic networks. The costs associated with the initial construction and operation
of a network may vary, primarily due to market variations in geographic and
demographic characteristics, and the types of construction technologies, which
can be used to deploy the network. In addition, the Company has implemented
aggressive network expansion and optimization programs. This is evidenced by an
increase in fiber miles to 182,703 fiber miles at December 31, 1999, from
159,633 fiber miles at December 31, 1998. The Company also significantly
increased the number of buildings connected to its network to 4,149 at December
31, 1999 from 2,912 at December 31, 1998.
As the Company develops, introduces and expands its high-speed data/Internet
and voice services in each of its markets, additional capital expenditures and
net operating costs will be incurred. The amount of these costs will vary, based
on the number of customers served and the actual services provided to the
customers.
Although, as of December 31, 1999, the Company was generating revenues from
all of its fiber optic networks, on a consolidated basis it is still incurring
negative cash flows due, in part, to the funding requirements for continuing
network construction or development and to the roll-out of new data and voice
services. In 1999, the Company invested approximately $200 million in network
and telecommunications equipment. The Company expects it will continue to incur
negative cash flow for at least two years. There can be no assurance that the
Company's networks or any of its other services will ever provide a revenue base
adequate to sustain profitability or generate positive cash flow. The Company
estimates that in 2000, capital required for implementation of its integrated
networks and its other services and to fund negative cash flow, including
interest payments, will be approximately $275 million. As of December 31, 1999,
the Company's unrestricted cash balance was approximately $81,279. As of
December 31, 1999, the Company was in default of its Credit Facilities as
discussed below. However, on April 13, 2000, the Company obtained a waiver to
remedy the default under the Credit Facilities. In addition, the Company has
obtained additional financing commitments as discussed below. The Company
anticipates that current cash resources, together with amounts expected to be
available pursuant to the funding commitments described below, will be
sufficient to fund its continuing negative cash flow and required capital
expenditures through 2000.
LIQUIDITY AND CAPITAL RESOURCES
The Company's further development and enhancement of new services, the
continued development, construction, expansion, operation and potential
acquisition of networks will require substantial capital expenditures. The
funding of these expenditures is dependent upon the Company's ability to raise
substantial financing. From the Company's inception through December 31, 1999,
the Company has raised net proceeds of approximately $1.2 billion from debt and
equity financings. The Company's cash, cash equivalents and restricted cash
decreased $293,373 for the year ended December 31, 1999, due to capital expended
for the expansion of the Company's infrastructure and services and to fund
negative cash flow, including principal and interest payments. The Company
expects to incur additional capital expenditures for the expansion of its
infrastructure and services and to fund negative cash flow in the future. At
December 31, 1999, the Company had approximately $81,279 of cash, cash
equivalents and restricted cash available for such purposes. In the first
quarter of 2000, the Company announced that it had secured $175 million in
funding commitments from Greenwich Street Capital Partners II, L.P., The Huff
Alternative Income Fund, L.P. and Honeywell International Inc. Master Retirement
Trust. The Company has an additional $36 million available under the Credit
Facilities, contingent upon the Company obtaining an amendment to the financial
covenants under the Credit Facilities as discussed below. The Company continues
to consider potential acquisitions or other arrangements that may fit the
Company's strategic plan. Any such acquisitions or arrangements that the Company
might consider are likely to require additional equity or debt financing, which
the Company will seek to obtain as required and which may also require that the
Company obtain the consent of its debt holders.
e.spire signed commitment letters with Greenwich Street Capital Partners II,
L.P., and The Huff Alternative Income Fund , L.P. for a total of $125 million in
equity funding. In addition, e.spire signed a commitment letter with Honeywell
International Inc. Master Retirement Trust, in cooperation with Allied Capital
Management, L.L.C., a subsidiary of Honeywell International, Inc. for $50
million in equity funding. Pursuant to the commitment letters, e.spire will
issue 175,000 shares of Series A Convertible Preferred Stock (liquidation
preference $1,000 per share) and 175,000 warrants that will entitle the holders
to purchase, in the aggregate, a total of up to 7.72 million shares of Common
Stock. On March 3, 2000, e.spire completed a private offering of the first
tranche of these securities and received $100.7 million. In connection with the
private offering, e.spire issued 81,777 shares of Series A Convertible Preferred
Stock and 175,000 warrants. The issuance of the remaining shares of Series A
Convertible Preferred Stock and warrants is subject to shareholder approval and
satisfaction of various closing conditions, including the absence of any
material adverse change. Each share of Series A Convertible Preferred Stock is
initially convertible into 126.4 shares of Common Stock (an effective conversion
price of $7.91 per share), and each warrant is initially exercisable for 44.1
shares of Common Stock (at an initial exercise
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price of $9.89 per share). The warrants will automatically expire on the tenth
anniversary after the date that they are issued. Dividends on the Series A
Preferred Stock accrue from the date of issuance, are cumulative and are payable
quarterly in arrears, at a per annum rate of 7% of $1,000 (the "stated value"),
plus 7.0% of the accrued but unpaid dividends thereon, subject to an adjustment
in the dividend rate to 15% upon the occurrence of certain events and to 20
percent upon a change of control. 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. The convertible
preferred stock is junior to the 14.75% Redeemable Preferred Stock and ranks
pari passu to the 12.75% Redeemable Preferred Stock. All dividends will be paid
by the Company in shares of its Common Stock equal to accrued dividends divided
by a rate equal to the effective conversion price described above or, if no
shareholder approval has been obtained, the closing price of the common stock on
March 6, 2000. 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
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.
In December 1999, e.spire obtained an additional commitment of $50 million
in capital lease financing from GATX Capital Corporation, a diversified
financial services company, and its telecommunications investing affiliate, GATX
Telecom Investors II-A, L.L.C. (collectively "GATX"). The proceeds will be used
primarily to finance voice switches, including remote modules and associated
software, as well as other related telecommunications networking equipment. As
of December 31, 1999, e.spire had drawn approximately $16 million under these
capital leases. The Company's ability to draw the balance of approximately $34
million is subject to GATX discretion in light of EBIDTA loss.
On August 12, 1999, the Company closed the Credit Facilities which consists
of a $35 million revolver, a $55 million multiple draw term loan, each with a
6.5 year maturity, and a $110 million term loan with a 7 year maturity. Of the
Credit Facilities, a total of $164 million was immediately available to the
Company and is outstanding as of December 31, 1999. The remaining $36 million is
available to the Company contingent upon the Company obtaining an amendment to
the financial covenants under the Credit Facilities. Also, the Credit Facilities
contain an Incremental Facility of up to an additional $100 million, although no
lender is obligated to participate in the Incremental Facility. In conjunction
with the Credit Facilities, the Company retired a $35 million credit facility
with Newcourt Commercial Finance Corporation on August 12, 1999.
The Credit Facilities are collateralized by the capital stock of all of the
restricted subsidiaries of the Company and the assets of the Company and its
restricted subsidiaries, including promissory notes representing intercompany
indebtedness. In addition, the Credit Facilities contain certain covenants,
which impose restrictions on the Company and its restricted subsidiaries. These
include, without limitation, restrictions on the declaration or payment of
dividends with respect to the capital stock of the Company, the conduct of
certain activities, certain investments, the creation of additional liens or
indebtedness, the disposition of assets, transactions with affiliates and
fundamental changes.
The Senior Secured Credit Facilities (as described in note 8) contain
financial covenants with which the Company must comply, including adjusted
EBITDA (Earnings before interest, taxes, depreciation, amortization, and noncash
compensation), debt to capital ratio, and capital expenditures. The Company was
not in compliance with the financial covenants as of December 31, 1999,
resulting in a default under the Credit Facilities which allows the lenders to
accelerate the maturity of the borrowings under the Credit Facilities. Any such
acceleration would also result in the acceleration of other obligations of the
Company, including the 2005 Notes, 2006 Notes, 2007 Notes and 2008 Notes (the
Notes). In the event of an acceleration of its outstanding debt obligations, the
Company would not have sufficient liquidity to meet its obligations. On April
13, 2000, the Company obtained a waiver of the event of non-compliance as of
December 31, 1999. The Company is currently in discussion with its lenders and
believes that it will be successful in amending its financial covenants on a
going forward basis to amounts that the Company believes will allow for
compliance. However, there can be no assurance that the Company will be
successful in amending its covenants, that the Company will be in compliance
with its debt covenants throughout 2000 or that the Credit Facilities will not
be accelerated, causing an acceleration of other obligations. The Company has
classified its obligation under the Credit Facilities as a current liability as
a result of the debt covenant violation. The Senior Notes cannot be accelerated
unless payment of amounts due under the Credit Facilities is accelerated and
therefore, remain classified as long-term obligations at December 31, 1999. In
the event that the Company is unsuccessful in negotiating amendments to the
financial covenants, the Company believes that it will have access to sufficient
financial resources to ensure that the Notes will not be accelerated.
A significant portion of the Company's cash resources are committed to
existing obligations. However, management anticipates that the Company's current
cash resources, together with other available sources of cash, will be
sufficient to fund the Company's continuing negative cash flow and required
capital expenditures through 2000. To meet its additional remaining capital
requirements and to successfully implement its strategy, the Company will be
required to sell additional equity securities, increase its existing Credit
Facilities, acquire additional credit facilities or sell additional debt
securities. The Company is currently exploring additional sources of financing
including increases to its existing capital lease programs. Accordingly, there
can be no assurance that the Company will be able to obtain the additional
financing necessary to satisfy its cash requirements or to implement its
strategy successfully, in which event the Company will be unable to fund its
ongoing operations, which would have a material adverse effect on its business,
results of operations and financial condition.
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On November 14, 1995, the Company completed a private offering of the 2005
Notes and warrants from which the Company received approximately $96.1 million
in net proceeds. The 2005 Notes will accrue to an aggregate principal amount of
$190.0 million by November 1, 2000, after which cash interest will accrue and be
payable on a semi-annual basis.
On March 21, 1996, the Company completed a private offering of the 2006
Notes from which the Company received net proceeds of approximately $61.8
million. The 2006 Notes will accrue to an aggregate principal amount of $120.0
million by April 1, 2001, after which cash interest will accrue and be payable
on a semi-annual basis.
On April 15, 1997, the Company completed the offering of 8,000,000 shares of
Common Stock. In connection therewith, the Company completed the sale of an
additional 660,000 shares on May 14, 1997 upon exercise of the underwriters'
over-allotment option and received aggregate net proceeds of approximately $40.0
million from the sale of these 8,660,000 shares.
On July 10, 1997, the Company completed the issuance and sale of 75,000
units (the "Unit Offering"), consisting of 14 3/4% Redeemable Preferred Stock
due 2008 and warrants (the "Unit Warrants") from which the Company received net
proceeds of approximately $67.7 million. Dividends on the 14 3/4% Preferred
Stock accrue from the date of issuance, are cumulative and are payable quarterly
in arrears, at a rate per annum of 14 3/4% of the liquidation preference per
share. Dividends on the 14 3/4% Preferred Stock will be paid, at the Company's
option, either in cash or by the issuance of additional shares of 14 3/4%
Preferred Stock; provided, however, that after June 30, 2002, to the extent and
for so long as the Company is not precluded from paying cash dividends on the 14
3/4% Preferred Stock by the terms of any then outstanding indebtedness or any
other agreement or instrument to which the Company is then subject, the Company
shall pay dividends on the 14 3/4% Preferred Stock in cash.
On July 23, 1997, the Company completed the sale of the 2007 Notes. Of the
total net proceeds of $204.3 million, the Company placed $70.0 million
representing funds sufficient to pay the first five interest payments on the
2007 Notes into an escrow account for the benefit of the holders thereof.
Payments of interest on the 2007 Notes are payable semi-annually, and began in
January 1998.
In October 1997, the Company issued the 12 3/4% Preferred Stock from which
the Company received net proceeds of approximately $146.0 million. Dividends on
the 12 3/4% Preferred Stock accrue from the date of issuance, are cumulative and
are payable quarterly in arrears, at a rate per annum of 12 3/4% of the
liquidation preference per share. Dividends on the 12 3/4% Preferred Stock will
be paid, at the Company's option, either in cash or by the issuance of
additional shares of 12 3/4% Preferred Stock; provided, however, that after
October 15, 2002, to the extent and for so long as the Company is not precluded
from paying cash dividends on the 12 3/4% Preferred Stock by the terms of any
agreement or instrument governing any of its then outstanding indebtedness, the
Company shall pay dividends on the 12 3/4% Preferred Stock in cash.
On February 26, 1998, the Company paid approximately $10.3 million to effect
amendments (the "Amendments") to the indentures under which three classes of its
outstanding debt securities were issued. The Amendments revised certain
covenants in the indentures which significantly limited the ability of the
Company and its subsidiaries to incur additional indebtedness or make certain
investments or acquisitions. The limitations on indebtedness contained in the
indentures were amended to provide an alternative test permitting the incurrence
of additional indebtedness based on a debt to capital ratio test, and increases
the amount of unrestricted indebtedness that the Company can incur. The
Amendments also permit the incurrence of indebtedness solely for the
construction, acquisition, and improvement of telecommunications assets, subject
to certain limitations.
On March 31, 1998, the Company restructured certain leases resulting in a
change from operating to capital lease treatment. This transaction resulted in
capital leases obligations totaling $24.5 million being included in liabilities
as of December 31, 1998.
On April 3, 1998, the Company completed the public offering of 8,100,000
shares of Common Stock at a price of $18.50 per share of which 7,502,418 shares
were issued and sold by the Company and certain stockholders of the Company sold
597,582 shares. Total net proceeds to the Company from the 1998 Common Stock
Offering and the exercise of certain options and warrants in connection
therewith were approximately $134.2 million.
On July 24,1998, the Company completed a private placement of 10 5/8% Senior
Discount Notes due 2008 yielding net proceeds to the Company of approximately
$225 million. The 2008 Notes will accrue to an aggregate principal amount of
$375 million by July 2008. The 2008 Notes will require payment of cash interest
semi-annually in arrears beginning January 1, 2004.
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YEAR 2000 PROGRAM
There have been no material Year 2000 impacts reported with respect to the
Company's products, services or back office systems that were classified as Year
2000 ready. The Company has experienced no material supply chain problems
attributable to the Year 2000 date transition. The Company's mission critical
systems for its telecommunications network, network construction and Internet
services, have not, as of March 2, 2000, experienced any material adverse
impacts as a result of the Year 2000 date transition. For the purposes of this
disclosure, the Company defines the term "mission critical" to mean: any
component or system involved in the delivery of telecommunication, internet or
network construction services. Because of its reliance on third party vendors,
and because of the possibility that some latent problem that has not yet
manifested itself could still occur, it is possible that the Company may
experience adverse impacts as a result of the Year 2000 date transition that
have not yet been identified.
As of March 2, 2000, the Company has incurred approximately $3 million
cumulatively for the initial Year 2000 Assessment Report, inventory database and
validation, remediation and contingency planning efforts. The total cost of the
Year 2000 Program has been expensed as incurred and funded with existing cash
resources. The costs of the program and the date on which the Company believed
it would complete the Year 2000 modifications were based on management's best
estimates, which were derived from numerous assumptions of then future events,
including the continued availability of certain resources, third party
modification plans and other factors.
NEW ACCOUNTING PRONOUNCEMENTS
In June 1999, the Financial Accounting Standards Board (the FASB) issued
FASB Interpretation No. 43, Real Estate Sales, an interpretation of FASB
Statement No. 66 (FIN 43). FIN 43 establishes standards for recognition of
profit on all real estate sales transactions without regard to the nature of the
seller's business. Specifically, FIN 43 expands the concept of real estate to
include "integral equipment," which is defined in FIN 43 as "any physical
structure or equipment attached to the real estate that cannot be removed and
used separately without incurring significant costs." The provisions of FIN 43
are effective for all sales of real estate with property improvements or
integral equipment entered into after June 30, 1999.
The Company believes FIN 43 limits the application of sale-type lease
accounting to grants of indefeasible rights of use (IRUs) of constructed dark
fiber in exchange for cash unless the Company transfers ownership of the
underlying assets to the customer as, under this interpretation, dark fiber and
conduit are considered integral equipment and, accordingly, title must transfer
to a customer in order for a lease transaction to be accounted for as a
sales-type lease. In the event that sales-type lease accounting is not
applicable to portions of or all of an IRU, the Company will apply operating
lease accounting and recognize revenue and operating costs ratably over the term
of the agreement. The effect of adopting the provisions of FIN 43 on 1999
results was to decrease revenues by $12.3 million and increase net loss by $10.9
million. Revenues for 2000 and forward will be negatively impacted by FIN 43.
ITEM 7a. QUANTITATIVE AND QUALITATIVE DISCLOSURES ABOUT MARKET RISK
The Company's long term debt includes both fixed and variable rate
instruments. The fair market value of the Company's fixed rate long-term debt is
sensitive to changes in interest rates. The Company runs the risk that market
rates will decline and the required payments will exceed those based on current
market rate. Under its current policies, the Company does not use interest rate
derivative instruments to manage its exposure to interest rate changes.
The following table provides information about the Company's significant
financial instruments that are sensitive to changes in interest rates. (In
thousands)
<TABLE>
<CAPTION>
Future Principal Payments
ESTIMATED
FAIR VALUE
ON DECEMBER 31, 1999 2000 2001 2002 2003 2004 THEREAFTER
-------------------- ---- ---- ---- ---- ---- ----------
<S> <C> <C> <C> <C> <C> <C> <C>
Long-term debt, including Current portion:
Fixed rate:
2005 Senior Discount Notes, interest at 13%,
maturing 2005 $100,947 0 0 0 0 0 $165,632
2006 Senior Discount Notes, interest at 12 3/4%,
maturing 2006 $ 57,156 0 0 0 0 0 $102,791
2007 Senior Discount Notes, interest at 13 3/4%,
maturing 2007 $156,200 0 0 0 0 0 $220,000
2008 Senior Discount Notes, interest at 10 5/8%,
maturing 2008 $168,750 0 0 0 0 0 $260,983
Senior Secured Credit Facility $164,000 164,000 0 0 0 0 $ 0
Total $647,053 164,000 0 0 0 0 $749,406
</TABLE>
34
<PAGE> 35
ITEM 8. FINANCIAL STATEMENTS AND SUPPLEMENTARY DATA
The financial statements required by this item are included in this Report
beginning on page F-1 following the signature page.
ITEM 9. CHANGES IN AND DISAGREEMENTS WITH ACCOUNTANTS ON ACCOUNTING AND
FINANCIAL DISCLOSURE
NONE
35
<PAGE> 36
PART III
ITEM 10. DIRECTORS AND EXECUTIVE OFFICERS OF THE REGISTRANT
The sections of the Company's 1999 Proxy Statement entitled "Election of
Directors - Information Concerning Director Nominees," "- -Business Experience
of Director Nominees," "Section 16(a) Beneficial Ownership Reporting
Compliance," and "Management - Business Experience of Executive Officers" are
incorporated herein by reference.
ITEM 11. EXECUTIVE COMPENSATION
The sections of the Company's 1999 Proxy Statement entitled "Election of
Directors - Directors' Compensation," "--Compensation Committee Interlocks and
Insider Participation," "Compensation of Executive Officers and Directors -
Summary Compensation Table," "--Option Grants in Fiscal Year Ended December 31,
1998," "--Option Exercises and Fiscal Year End Values," and "Management
Employment and Termination Agreements" are incorporated herein by reference.
ITEM 12. SECURITY OWNERSHIP OF CERTAIN BENEFICIAL OWNERS AND MANAGEMENT
The section of Company's 1999 Proxy Statement entitled "Stock Ownership of
Certain Beneficial Owners, Directors and Management" is incorporated herein by
reference.
ITEM 13. CERTAIN RELATIONSHIPS AND RELATED TRANSACTIONS
The section of the Company's 1999 Proxy Statement entitled "Certain
Relationships and Related Transactions" is incorporated herein by reference.
36
<PAGE> 37
PART IV
ITEM 14. EXHIBITS, FINANCIAL STATEMENT SCHEDULES, AND REPORTS ON FORM 8-K
a) EXHIBITS
<TABLE>
<CAPTION>
EXHIBIT NO. OR
EXHIBIT INCORPORATION
NO. DESCRIPTION BY REFERENCE
- -----------------------------------------------------------------------------------------------------------------------------------
<S> <C> <C>
3.1 3rd Amended and Restated Certificate of Incorporation of the Company. !!!
3.2 Certificate of Designation of the Company's 14.75% Redeemable Preferred Stock due 2008. ####
3.3 Certificate of Amendment of the Certificate of Designation of the Company's 14.75% Redeemable ####
Preferred Stock due 2008.
3.4 Amended and Restated By-Laws of the Company, as amended. !!!!
3.5 Governance Agreement dated November 8, 1995, between the Company and the holders of its Preferred ++
Stock.
3.6 Certificate of Designation of the Company's 12 3/4% Junior Redeemable Preferred Stock due 2009. !
3.7 Certificate of Correction dated March 11, 1996 #
3.8 Supplemental Governance Agreement dated February 26, 1996. #
3.9 Certificate of Designation Series A Convertible Preferred Stock E-1
4.1 Specimen Certificate of the Company's Common Stock. *
4.2 March 11, 1996 Supplement to 1995 Indenture #####
4.3 Indenture dated November 14, 1995, between the Company and Chemical
Bank, as trustee, relating to $190,000,000 in principal amount of
13% Senior Discount Notes due 2005, including the form of global note. ++
4.4 Initial Global Note dated November 14, 1995. ++
4.5 Warrant Agreement dated November 14, 1995, between the Company and
Smith Barney Inc. and Salomon Brothers Inc. +++
4.6 Initial Global Warrant dated November 14, 1995. +++
4.7 Indenture dated March 21, 1996, between the Company and Chemical Bank, +++++
as trustee, relating to $120,000,000 in principal amount of 12 3/4%
Senior Discount Notes due 2006, including the form of global note (the "1996 Indenture").
4.8 Supplemental Indenture dated as of January 13, 1997, between the Company and the +++++
Chase Manhattan Bank, as trustee, to the Indenture dated November 14, 1995, as
amended, relating to the Company's 13% Senior Discount Notes due 2005.
4.9 Supplemental Indenture dated as of January 13, 1997, between the Company and the Chase Manhattan ++++
Bank, as trustee, to the Indenture dated March 26, 1996, as amended, relating to the Company's
12 3/4% Senior Discount Notes due 2006.
4.10 Supplemental Indenture dated as of July 7, 1997, between the Company and the Chase Manhattan Bank, ####
as trustee, to the Indenture dated November 14, 1995, as amended, relating to the Company's 13%
Senior Discount Notes due 2005.
4.11 Supplemental Indenture dated as of July 7, 1997, between the Company and the Chase Manhattan Bank, ####
as trustee, to the Indenture dated March 26, 1996, as amended, relating to the Company's 12 3/4%
Senior Discount Notes due 2006.
4.12 Specimen Certificate of the Company's 14.75% Redeemable Preferred Stock due 2008. ####
4.13 Warrant Agreement dated as of July 10, 1997, between the Company and The Chase Manhattan Bank, as ####
warrant agent.
4.14 Form of Warrant. ####
4.15 Indenture dated as of July 23, 1997, between the Company and The Chase Manhattan Bank, as trustee, ####
relating to the Company's 13 3/4% Senior Notes due 2007.
4.16 Specimen Certificate of the Company's 12 3/4% Junior Redeemable Preferred Stock due 2009. !
4.17 Warrant Agreement dated March 6, 1997 between the Company and MCI metro
Access Transmission Services, Inc. *****
4.18 Supplemental Indenture dated as of February 27, 1998 between the Company and the Chase Manhattan
Bank, as trustee, to the Indenture dated November 14, 1995, as amended, relating to the Company's
13% Senior Discount Notes due 2005. ####
4.19 Supplemental Indenture dated as of February 27, 1998 between the Company and the Chase Manhattan
Bank, as trustee, to the Indenture dated March 26, 1996, as amended, relating to the Company's
12 3/4% Senior Discount Notes due 2006. ####
4.20 Supplemental Indenture dated as of February 27, 1998 between the Company and the Chase Manhattan
Bank, as trustee, to the Indenture dated July 23, 1997, as amended, relating to the Company's
13 3/4% Senior Discount Notes due 2007. ####
</TABLE>
37
<PAGE> 38
<TABLE>
<S> <C> <C>
4.21 Indenture dated as of July 24, 1998, between the Company and the Chase Manhattan Bank, as trustee,
relating to the Company's 10.625% Senior Discount Notes due July 1, 2008, including the form of
global note. !!
9.1 Standstill Agreement dated June 26, 1995, between the Company and
certain of its Preferred Stockholders. ****
9.2 Standstill Agreement dated November 8, 1995, between the Company and ++
certain of its Preferred Stockholders.
</TABLE>
38
<PAGE> 39
<TABLE>
<CAPTION>
EXHIBIT NO. OR
EXHIBIT INCORPORATION
NO. DESCRIPTION BY REFERENCE
- -----------------------------------------------------------------------------------------------------------------------------------
<S> <C> <C>
9.3 Voting Rights Agreement dated November 8, 1995, between the Company and
certain of its Preferred Stockholders. ++
9.4 Amendment to Voting Rights Agreement dated December 14, 1995. #
10.1 Exchange Agreement, dated June 1, 1994, between the Company and certain of
its Preferred Shareholders. *
10.2 Exchange Agreement, dated June 26, 1995, between the Company and its 9%
Series A Preferred Shareholders. **
10.3 Company's amended 1994 Stock Option Plan. ++
10.4 Company's Employee Stock Purchase Plan ++++
10.5 Registration Rights Agreement dated July 1, 1992, between American
Lightwave, Inc. and persons named therein. *
10.6 Supplemental Registration Rights Agreement dated June 26, 1995. ****
10.7 Management Registration Rights Agreement dated June 30, 1995. ****
10.8 Registration Rights Agreement dated June 26, 1995, between the Company
and certain Preferred Stockholders. **
10.9 Form of Warrant Agreement issued to certain Preferred Stockholders on
June 26, 1995. ****
10.10 Form of $.01 Warrant Agreement. ****
10.11 Form of $1.79 Warrant Agreement. ****
10.12 Form of $2.25 Warrant Agreement. ****
10.13 Stockholders Agreement dated June 26, 1995, between the Company and
certain Preferred Stockholders. ****
10.14 2nd Amendment to the Third Amended and Restated Employment Agreement between the Company and %%%
Anthony J. Pompliano ##
10.15 Third Amended and Restated Employment Agreement between the Company ## ****
and Riley M. Murphy.
10.16 Employment Agreement between the Company and David L. Piazza ## *****
10.17 Form of Stock Option Certificates, as amended, issued to executive officers under employment ****
agreements.
10.18 Agreement, dated October 19, 1994, between the Company and Marvin *
Saffian & Company.
10.19 Lease Agreement for the Company's executive offices at 131 National **** Business Parkway,
Suite 100, Annapolis Junction, Maryland, as amended.
10.20 Note Purchase Agreement, dated June 28, 1994. *
10.21 Stock Purchase Agreement dated December 17, 1996 by and between the Company and CyberGate, Inc. + + + +
10.22 Stock and Warrant Purchase Agreement, dated June 26, 1995, between the Company and **
the Purchasers named therein.
10.23 Form of Indemnity Agreement between the Company and its Director, as ****
amended.
10.24 Assignment and Assumption Agreement dated June 21, 1995, between the ****
Company and Apex Investment Fund II, L.P.
10.25 Letter Agreement dated November 14, 1995, between the Company and ING Equity Partners, ++
L.P.I, with respect to the purchase of 50,000 shares of the Company's 9% Series
B-4 Convertible Preferred Stock and warrants to purchase 214,286 shares of Common Stock.
10.26 Warrant to Purchase Shares of American Communications Services, Inc. ++
Common Stock dated December 28, 1995, between the Company
and Gerard Klauer, Mattison & Co. ("GKM Warrant I").
10.27 Warrant to Subscribe For and Purchase Common Stock of American Communications Services, Inc. ++
dated December 28, 1995, between the Company and Gerard Klauer, Mattison & Co. ("GKM Warrant II").
10.28 Amended 1994 Stock Option Plan of the Company. ++
10.29 Amendment to Amended 1994 Stock Option Plan of the Company !!!!!
10.30 Registration Rights Agreement dated as of July 10, 1997 among the Company, BT Securities ####
Corporation, Alex. Brown & Sons, Incorporated, The Huff Alternative Income Fund,
L.P., General Motors Domestic Group Pension Trust, Societe
Generale Securities Corporation, ING Baring (U.S.)
Securities, Inc. and McDermott Inc. Master Trust.
10.31 Registation Rights Agreement dated as of July 23, 1997 among the Company and BT Securities as
representatives of the Initial Purchase therein. ####
10.32 Supplemental Registration Rights Agreement, dated as of July 10, 1997, among the Company, the Huff %
Alternative Income Fund, L.P., General Motors Domestic Group Pension Trust and McDermott Inc. Master
Trust.
10.33 Lease Agreement dated as of August 26, 1997, between the Company and Constellation Real Estate, ###
Inc. for the Company's executive offices at 133 National Business Parkway, Suite 200, Annapolis
Junction, Maryland.
10.34 Registration Rights Agreement, dated as of July 24, 1998 between the Company and Goldman Sachs & !!
Co., Bear, Stearns & Co. Inc. and ING Furman Selz LLC
10.35 Form of Non-Qualified Stock Option Certificates, as amended, issued to ++++
Anthony J. Pompliano.
</TABLE>
39
<PAGE> 40
<TABLE>
<CAPTION>
EXHIBIT NO. OR
EXHIBIT INCORPORATION BY
NO. DESCRIPTION REFERENCE
- -----------------------------------------------------------------------------------------------------------------------------------
<S> <C> <C>
10.36 Registration Rights Agreement dated March 6, 1997 between the Company and MCI metro ++++
Access Transmission Services, Inc.
10.37 American Communications Services, Inc. Annual Performance Plan effective as of January 1, 1997 ###
10.38 Lease Agreement dated as of October 28, 1998, between the Company and Monument One LLC for the
Company's offices at 12975 Worldgate Drive, Herndon, Fairfax County, Virginia. %%%%
10.39 LEASE AGREEMENT BETWEEN E.SPIRE COMMUNICATIONS, INC. AND B.F. SAUL REAL ESTATE INVESTMENT %%%%%
Trust for the Company's offices at 8201 Greensboro Dr., McLean, VA
10.40 Lease Agreement between e.spire Communications, Inc. and Dulles North Office Park II %%%%%
Corporation for the Company's offices at 22685 Holiday Park Drive, Sterling, VA
10.41 Employment Agreement between American Communications Services, Inc. and Richard Putt &
10.42 Amendment No. 1 to Employment Agreement between American Communications Services, Inc. &
and Richard Putt
10.43 $200 million Senior Secured Credit Facility Agreement &&
10.44 Lease Agreement between e.spire Communications, Inc. and CMD Properties, Inc. &&
10.45 Lease Agreement between e.spire Communications, Inc. and Colgate Drive Associates, L.P. &&
10.46 Master Equipment Lease Agreement, dated as of December 13, 1999, between e.spire E-2
Communications, Inc. and GATX Capital Corporation
10.47 Master Equipment Lease Agreement, dated as of December 13, 1999, between e.spire E-3
Communications, Inc. and GATX Telecom Investors II-A, L.L.C.
10.48 Purchase Agreement for units consisting of Series A Convertible Preferred Stock and Warrants E-4
to purchase shares of common stock by and between e.spire Communications, Inc. and Northern
Trust Company, as Trustee for the Honeywell International Inc. Master Retirement Trust,
dated as of March 1, 2000
10.49 Purchase Agreement for units consisting of Series A Convertible Preferred Stock and Warrants E-5
to purchase shares of common stock by and between e.spire Communications, Inc. and The Huff
Alternative Income Fund, L.P. dated as of March 1, 2000.
10.50 Purchase Agreement for units consisting of Series A Convertible Preferred Stock and Warrants E-6
to purchase shares of common stock by and between e.spire Communications, Inc. and Greenwich
Street Capital Partners II, L.P., GSCP Offshore Fund, L.P., Greenwich Fund, L.P., Greenwich Street
Employees Fund, L.P., TRV Executive Fund, L.P., dated as of March 1, 2000.
10.51 Registration Rights Agreement (the "Agreement"), dated as of March 1, 2000, among e.spire E-7
Communications, Inc., The Huff Alternative Income Fund, L.P. ("Huff"), 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. ( the "Initial Purchasers") and such other
parties who may be made a signatory hereto from time to time (the Subsequent Purchasers," and,
collectively with the Initial Purchasers, the "Purchasers").
10.52 Warrant Agreement among e.spire Communications, Inc. and The Huff Alternative Income Fund, L.P., E-8
Greenwich Street Capital Partners II, L.P., GSCP Offshore Fund, L.P., Greenwich Fund, L.P.,
Greenwich Street Employees Fund, L.P., TRV Executive Fund, L.P. and such other parties as
may become signatories hereto, dated as of March 1, 2000.
11.1 Statement re: computation of per share earnings (loss). E-9
16.1 Letter re: change in certifying accountant. ***
21.1 Subsidiaries of the Registrant. %%%%
23.1 Consent of KPMG LLP E-10
27.1 Financial Data Schedules. E-11
99.1 Supplemental Financial Information E-12
</TABLE>
* Previously filed as an exhibit to the Company's Registration
Statement on Form SB-2 (File No. 33-87200) and incorporated by
reference.
** Previously filed as an exhibit to the Company's Current Report
on Form 8-K dated June 26, 1995, and incorporated by reference.
*** Previously filed as an exhibit to the Company's Quarterly Report
on Form 10-QSB for the fiscal quarter ended March 31, 1995, and
incorporated by reference.
**** Previously filed as an exhibit to the Company's Annual Report on
Form 10-KSB for the fiscal year ended June 30, 1995, and
incorporated Reference
***** Previously filed as an exhibit to the Company's Annual Report on
Form 10-KSB for the fiscal period ended December 31, 1996, and
incorporated by reference.
40
<PAGE> 41
+ Previously filed as an exhibit to the Company's Annual Report on Form
10-QSB for the fiscal year ended June 30, 1995, and the Company's
Quarterly Report on Form 10-QSB for the fiscal quarter ended September
30, 1995, both of which are incorporated by reference
++ Previously filed as an exhibit to the Company's Registration Statement
on Form S-4 (File No. 33-80305) and incorporated by reference.
+++ Previously filed as an exhibit to the Company's Registration Statement
on Form SB-2 (File No. 33-80673) and incorporated by reference.
++++ Previously filed as an exhibit to the Company's Registration Statement
on Form SB-2 (File No. 33-20867) and incorporated by reference.
+++++ Previously filed as an exhibit to the Company's Current Report on Form
8-K dated March 26, 1996 and incorporated by reference.
# Previously filed as an exhibit to the Company's Registration Statement
on Form S-4 (File No. 333-3632) and incorporated by reference.
## Management contracts or compensatory plan or arrangement.
### Previously filed as an exhibit to the Company's Quarterly Report on Form
10-QSB for the fiscal year ended December 31, 1998 and incorporated by
reference.
#### Previously filed as an exhibit to the Company's Quarterly Report on Form
10-QSB for the fiscal quarter ended June 30, 1997 and incorporated by
reference.
##### Previously filed as an exhibit to the Company's Registration Statement
on Form SB-2 (File No. 333-20867) and incorporated by reference.
! Previously filed as an exhibit to the Company's Registration Statement
on Form S-4 (File No. 333-34395) and incorporated by reference.
!! Previously filed as an exhibit to the Company's Registration Statement
on Form S-4 (File No. 333-64079) and incorporated by reference.
!!! Previously filed as an exhibit to the Company's Registration Statement
on Form S-8 (File No. 333-58457) and incorporated by reference.
!!!! Previously filed as exhibit to Company's Registration Statement on Form
S-8 (File No. 333-71387) and incorporated by reference.
!!!!! Previously filed with the Definitive Proxy Statement filed on October
14, 1996 and incorporated by reference.
% Previously filed as exhibit to Company's Registration Statement on Form
S-3 (File No. 333-58457) and incorporated by reference.
%% Previously filed as an exhibit to the Company's Current Report on Form
8-K dated January 17, 1997 and incorporated by reference.
%%% Filed as an exhibit to the Company's Form 10-Q filed for the quarter
ending September 30, 1998, and incorporated by reference.
%%%% Previously filed as an exhibit to the Company's Annual Report on Form
10-KSB for the fiscal year ended December 31, 1998, and incorporated by
reference.
%%%%% Previously filed as an exhibit to the Company's Quarterly Report on Form
10-QSB for the fiscal quarter ended March 31, 1999, and incorporated by
reference.
& Previously filed as an exhibit to the Company's Quarterly Report on Form
10-QSB for the fiscal quarter ended June 30, 1999, and incorporated by
reference.
41
<PAGE> 42
&& Previously filed as an exhibit to the Company's Quarterly Report on
Form 10-QSB for the fiscal quarter ended September 30, 1999.
b) REPORTS ON FORM 8-K
a) Form 8-K, as filed on February 22, 1999, announcing resignation
of Ronald E. Spears, effective July 1, 1999, and appointment of
Dennis Kern as Chief Operating Officer.
b) Form 8-K, as filed July 8, 1999, announcing $200 million Secured
Credit Facilities.
c) Form 8-K, as filed on October 28, 1999, announcing third quarter
results and resignation of David Piazza.
d) Form 8-K, as filed on November 1, 1999, announcing William R.
Huff and Frederick Galland appointments to the Board and Olivier
Trouveroy and Benjamin P. Giess resignations from the Board.
e) Form 8-K, as filed December 3, 1999, announcing waiver to Credit
Agreement default.
42
<PAGE> 43
E.SPIRE COMMUNICATIONS, INC.
SCHEDULE II-VALUATION AND QUALIFYING ACCOUNTS
<TABLE>
<CAPTION>
BALANCE AT CHARGED TO BALANCE
BEGINNING COSTS AND CHARGED TO AT END
DESCRIPTION OF PERIOD EXPENSES REVENUE DEDUCTIONS OF PERIOD
- ---------------------------------------- ------------ ------------ ------------ ------------ -----------
<S> <C> <C> <C> <C> <C>
Year ended December 31, 1999 Deducted
from assets accounts:
Allowance for doubtful accounts $ 5,581 $10,690 $16,379 $ 3,943 $28,707
Year ended December 31, 1998 Deducted
from assets accounts:
Allowance for doubtful accounts $ 1,921 $ 5,357 $ 1,496 $ 3,193 $ 5,581
Year ended December 31, 1997 Deducted
from assets accounts:
Allowance for doubtful accounts $ 433 $ 2,171 $ 0 $ 683 $ 1,921
</TABLE>
43
<PAGE> 44
SIGNATURES
Pursuant to the requirements of Section 13 or 15(d) of the Securities
Exchange Act of 1934, the registrant has duly caused this report to be signed on
its behalf by the undersigned, thereunto duly authorized.
E.SPIRE COMMUNICATIONS, INC.
<TABLE>
<S> <C>
April 14, 2000 By: /s/ George F. Schmitt
-------------- -------------------------
Date George F. Schmitt, Chairman of the Board of Directors and
Interim Chief Executive Officer
</TABLE>
Pursuant to the requirements of the Securities Exchange Act of 1934,
this report has been signed below by the following persons on behalf of the
registrant and in the capacities and on the dates indicated.
<TABLE>
<S> <C>
April 14, 2000 By: /s/ George F. Schmitt
-------------- -------------------------
Date George F. Schmitt, Chairman of the Board of Directors
(Principal Executive Officer)
April 14, 2000 By:
-------------- -----------------------
Date William R. Huff, Vice Chairman of the Board of Directors
April 14, 2000 By:
-------------- -----------------------
Date Edwin M. Banks, Director
April 14, 2000 By: /s/ Christopher L. Rafferty
-------------- -------------------------------
Date Christopher L. Rafferty, Director
April 14, 2000 By: /s/ Frederick Galland :
-------------- ---------------------------
Date Frederick Galland, Director
April 14, 2000 By: /s/ Joseph Thornton
-------------- -----------------------
Date Joseph Thornton, Director
April 14, 2000 By: /s/ Peter C. Bentz:
-------------- -----------------------
Date Peter C. Bentz, Director
</TABLE>
44
<PAGE> 45
<TABLE>
<CAPTION>
INDEX OF EXHIBITS
-----------------
EXHIBIT NO. DESCRIPTION PAGE NO.
----------- ----------- --------
<S> <C> <C>
11.1 Statement re: computation of per share earnings (loss). E-3
23.1 Consent of KPMG LLP E-4
27.1 Financial Data Schedule E-5
99.1 Supplemental Financial Information E-6
</TABLE>
45
<PAGE> 46
INDEX TO FINANCIAL STATEMENTS
<TABLE>
<S> <C>
Independent Auditors' Report.......................................................... F-2
Consolidated Balance Sheets as of December 31, 1997, 1998 and 1999.................... F-3
Consolidated Statements of Operations for the Years Ended
December 31, 1997, 1998 and 1999...................................................... F-4
Consolidated Statements of Stockholders' Deficit for the Years Ended
December 31, 1997, 1998 and 1999...................................................... F-5
Consolidated Statements of Cash Flows for the Years Ended
December 31, 1997, 1998 and 1999...................................................... F-6
Notes to Consolidated Financial Statements............................................ F-8
</TABLE>
F-1
<PAGE> 47
INDEPENDENT AUDITORS' REPORT
The Board of Directors and Stockholders
e.spire Communications, Inc.:
We have audited the accompanying consolidated balance sheets of e.spire
Communications, Inc. and subsidiaries as of December 31, 1998 and 1999, and the
related consolidated statements of operations, stockholders' deficit, and cash
flows for each of the years in the three-year period ended December 31, 1999.
These consolidated financial statements are the responsibility of the Company's
management. Our responsibility is to express an opinion on these consolidated
financial statements based on our audits.
We conducted our audits in accordance with generally accepted auditing
standards. Those standards require that we plan and perform the audit to obtain
reasonable assurance about whether the financial statements are free of material
misstatement. An audit includes examining, on a test basis, evidence supporting
the amounts and disclosures in the financial statements. An audit also includes
assessing the accounting principles used and significant estimates made by
management, as well as evaluating the overall financial statement presentation.
We believe that our audits provide a reasonable basis for our opinion.
In our opinion, the consolidated financial statements referred to above present
fairly, in all material respects, the financial position of e.spire
Communications, Inc. and subsidiaries as of December 31, 1998 and 1999, and the
results of their operations and their cash flows for each of the years in the
three-year period ended December 31, 1999, in conformity with generally
accepted accounting principles.
As discussed in Note 1 to the consolidated financial statements, effective July
1, 1999, the Company changed its method of accounting for revenue recognition
associated with leasing its fiber-optic network.
Washington, D.C.
March 24, 2000, except as
to Notes 2, 8 and 19, which
are as of April 13, 2000
F-2
<PAGE> 48
e.spire COMMUNICATIONS, INC.
Consolidated Balance Sheets
(in thousands, except share and per share data)
<TABLE>
<CAPTION>
DECEMBER 31,
--------------------------------
ASSETS 1998 1999
-------------- ---------------
<S> <C> <C>
Current assets:
Cash and cash equivalents $ 328,758 62,525
Restricted cash and investments 30,769 18,754
Trade accounts receivable, net of allowance for doubtful accounts of
$5,581 and $28,707 at December 31, 1998 and 1999, respectively 42,254 97,238
Unbilled revenue 12,093 14,032
Other current assets 8,742 9,435
-------------- ---------------
Total current assets 422,616 201,984
Networks, equipment and furniture, gross 561,954 848,698
Less - accumulated depreciation and amortization (76,020) (166,224)
-------------- ---------------
Networks, equipment and furniture, net 485,934 682,474
Deferred financing fees, net of accumulated amortization of $7,855 and
$13,246 at December 31, 1998 and 1999, respectively 42,184 44,660
Intangible assets, net of accumulated amortization of $3,897 and $11,203
at December 31, 1998 and 1999, respectively 14,743 7,452
Restricted cash and investments 15,125 --
Other assets 2,355 4,672
-------------- ---------------
Total assets $ 982,957 941,242
============== ===============
LIABILITIES, REDEEMABLE STOCK,
AND STOCKHOLDERS' DEFICIT
Current liabilities:
Notes payable - current portion $ 2,188 164,000
Obligations under capital leases - current portion 3,607 9,932
Accounts payable 66,647 46,106
Accrued interest 13,864 14,344
Accrued employee costs 1,682 5,262
Other accrued liabilities 8,894 15,995
-------------- ---------------
Total current liabilities 96,882 255,639
Long-term liabilities:
Notes payable, less current portion 723,105 749,406
Obligations under capital leases, less current portion 20,915 46,786
Other long-term liabilities 2,745 9,010
-------------- ---------------
Total liabilities 843,647 1,060,841
Redeemable stock:
14 3/4% Redeemable Preferred Stock due 2008 (liquidation value $107,235
at December 31, 1999) 70,136 87,051
12 3/4% Junior Redeemable Preferred Stock due 2009 (liquidation value $197,054
at December 31, 1999) 170,908 194,545
-------------- ---------------
Total redeemable stock 241,044 281,596
-------------- ---------------
Stockholders' deficit:
Common stock, $.01 par value, 125,000,000 shares authorized, 48,446,064, and
51,149,825 shares issued and outstanding at
December 31, 1998 and 1999, respectively 484 511
Additional paid-in capital 258,317 236,577
Accumulated deficit (360,535) (638,283)
-------------- ---------------
Total stockholders' deficit (101,734) (401,195)
-------------- ---------------
Commitments and contingencies (notes 1, 2, 7, 8, 12, 13, 16 and 19)
Total liabilities, redeemable stock, and stockholders' deficit $ 982,957 941,242
============== ===============
</TABLE>
See accompanying notes to consolidated financial statements.
F-3
<PAGE> 49
e.spire COMMUNICATIONS, INC.
Consolidated Statements of Operations
(in thousands, except share and per share data)
<TABLE>
<CAPTION>
YEARS ENDED DECEMBER 31,
-----------------------------------------------
1997 1998 1999
-------------- --------------- --------------
<S> <C> <C> <C>
Revenues:
Telecommunications services $ 56,144 127,343 175,704
Network technologies services 2,857 29,416 68,305
-------------- --------------- --------------
59,001 156,759 244,009
-------------- --------------- --------------
Cost of sales:
Telecommunications services (excluding noncash stock
compensation of $983, $3,673 and $2,868, respectively) 52,481 98,074 121,170
Network technologies services (excluding noncash stock
compensation of $342, $298 and $229, respectively) 400 8,739 38,198
-------------- --------------- --------------
52,881 106,813 159,368
-------------- --------------- --------------
Gross margin:
Telecommunications services 3,663 29,269 54,534
Network technologies services 2,457 20,677 30,107
-------------- --------------- --------------
6,120 49,946 84,641
-------------- --------------- --------------
Operating expenses:
Selling, general, and administrative (excluding noncash stock
compensation of $2,949, $5,957 and $8,376, respectively) 59,851 103,639 169,180
Noncash stock compensation 4,274 9,928 11,473
Depreciation and amortization 24,131 47,332 95,943
-------------- --------------- --------------
Total operating expenses 88,256 160,899 276,596
-------------- --------------- --------------
Operating loss (82,136) (110,953) (191,955)
Nonoperating income (expenses):
Interest and other income 8,685 23,348 10,602
Interest and other expense (41,565) (75,474) (96,395)
-------------- --------------- --------------
Net loss (115,016) (163,079) (277,748)
Preferred stock dividends and accretion (11,630) (36,080) (40,646)
-------------- --------------- --------------
Net loss applicable to common
stockholders $ (126,646) (199,159) (318,394)
============== =============== ==============
Basic and diluted net loss per common
share $ (4.65) (4.45) (6.38)
============== =============== ==============
Weighted average number of common
shares outstanding 27,233,642 44,751,690 49,891,910
============== =============== ==============
</TABLE>
See accompanying notes to consolidated financial statements.
F-4
<PAGE> 50
e.spire COMMUNICATIONS, INC.
Consolidated Statements of Stockholders' Deficit
Years ended December 31, 1997, 1998 and 1999
(in thousands, except share data)
<TABLE>
<CAPTION>
SERIES A-1 SERIES B
PREFERRED STOCK PREFERRED STOCK
---------------------------- ----------------------------
SHARES AMOUNT SHARES AMOUNT
-------------- ----------- -------------- -----------
<S> <C> <C> <C> <C>
Balances December 31, 1996 186,664 $ 187 277,500 $ 278
Shares issued as consideration for acquisitions -- -- -- --
Series A and B Preferred Stock dividends -- -- -- --
Issuance of common stock -- -- -- --
Conversion of preferred shares (186,664) (187) (277,500) (278)
Preferred dividends paid in stock -- -- -- --
Warrants and stock options exercised -- -- -- --
Cancellation of put right obligation -- -- -- --
Stock compensation expense -- -- -- --
Warrants issued -- -- -- --
Redeemable Preferred Warrants -- -- -- --
Preferred stock dividends/accretion -- -- -- --
Shares issued to AT&T -- -- -- --
Shares issued under employee stock purchase plan -- -- -- --
Accretion of consulting agreement credit to exercise price of
warrants -- -- -- --
Net loss -- -- -- --
-------------- ----------- -------------- -----------
Balances at December 31, 1997 -- -- -- --
Issuance of common stock -- -- -- --
Warrants and stock options exercised -- -- -- --
Stock compensation expense -- -- -- --
Warrants issued -- -- -- --
Preferred stock dividends/accretion -- -- -- --
Shares issued under employee stock purchase plan and performance
plan -- -- -- --
Cancellation of put right obligations -- -- -- --
Shares issued as consideration for acquisitions -- -- -- --
Net loss -- -- -- --
-------------- ----------- -------------- -----------
Balances at December 31, 1998 -- -- -- --
Warrants and stock options exercised -- -- -- --
Stock compensation expense -- -- -- --
Warrants issued -- -- -- --
Preferred stock dividends/accretion -- -- -- --
Shares issued under employee stock purchase plan and performance
plan -- -- -- --
Net loss -- -- -- --
-------------- ----------- -------------- -----------
Balances at December 31, 1999 -- $ -- -- $ --
============== =========== ============== ===========
</TABLE>
<TABLE>
<CAPTION>
COMMON STOCK ADDITIONAL
------------------------------- PAID-IN
SHARES AMOUNT CAPITAL
----------------- ----------- ---------------
<S> <C> <C> <C>
Balances December 31, 1996 6,784,996 $ 68 $ 54,870
Shares issued as consideration for acquisitions 1,081,166 11 9,374
Series A and B Preferred Stock dividends -- -- (1,114)
Issuance of common stock 8,660,000 86 39,866
Conversion of preferred shares 17,377,275 174 291
Preferred dividends paid in stock 1,650,207 16 7,791
Warrants and stock options exercised 1,367,460 14 3,254
Cancellation of put right obligation -- -- 1,000
Stock compensation expense -- -- 4,274
Warrants issued -- -- 480
Redeemable Preferred Warrants -- -- 21,604
Preferred stock dividends/accretion -- -- (10,516)
Shares issued to AT&T 207,964 2 (2)
Shares issued under employee stock purchase plan 90,351 1 538
Accretion of consulting agreement credit to exercise price of
warrants -- -- 18
Net loss -- -- --
----------------- ----------- ---------------
Balances at December 31, 1997 37,219,419 372 131,728
Issuance of common stock 7,502,418 75 130,236
Warrants and stock options exercised 3,148,993 32 16,767
Stock compensation expense -- -- 8,975
Warrants issued -- -- 805
Preferred stock dividends/accretion -- -- (36,080)
Shares issued under employee stock purchase plan and performance
plan 404,169 4 2,201
Cancellation of put right obligations -- -- 1,000
Shares issued as consideration for acquisitions 171,065 1 2,685
Net loss -- -- --
----------------- ----------- ---------------
Balances at December 31, 1998 48,446,064 484 258,317
Warrants and stock options exercised 1,768,427 18 5,322
Stock compensation expense 677,056 6 11,467
Warrants issued -- -- 358
Preferred stock dividends/accretion -- -- (40,646)
Shares issued under employee stock purchase plan and performance
plan 258,278 3 1,759
Net loss -- -- --
----------------- ----------- ---------------
Balances at December 31, 1999 51,149,825 $ 511 $ 236,577
================= =========== ===============
</TABLE>
<TABLE>
<CAPTION>
TOTAL
ACCUMULATED STOCKHOLDERS'
DEFICIT EQUITY (DEFICIT)
------------------ --------------------
<S> <C> <C>
Balances December 31, 1996 $ (82,440) $ (27,037)
Shares issued as consideration for acquisitions -- 9,385
Series A and B Preferred Stock dividends -- (1,114)
Issuance of common stock -- 39,952
Conversion of preferred shares -- --
Preferred dividends paid in stock -- 7,807
Warrants and stock options exercised -- 3,268
Cancellation of put right obligation -- 1,000
Stock compensation expense -- 4,274
Warrants issued -- 480
Redeemable Preferred Warrants -- 21,604
Preferred stock dividends/accretion -- (10,516)
Shares issued to AT&T -- --
Shares issued under employee stock purchase plan -- 539
Accretion of consulting agreement credit to exercise price of
warrants -- 18
Net loss (115,016) (115,016)
------------------ --------------------
Balances at December 31, 1997 (197,456) (65,356)
Issuance of common stock -- 130,311
Warrants and stock options exercised -- 16,799
Stock compensation expense -- 8,975
Warrants issued -- 805
Preferred stock dividends/accretion -- (36,080)
Shares issued under employee stock purchase plan and performance
plan -- 2,205
Cancellation of put right obligations -- 1,000
Shares issued as consideration for acquisitions -- 2,686
Net loss (163,079) (163,079)
------------------ --------------------
Balances at December 31, 1998 (360,535) (101,734)
Warrants and stock options exercised -- 5,340
Stock compensation expense -- 11,473
Warrants issued -- 358
Preferred stock dividends/accretion -- (40,646)
Shares issued under employee stock purchase plan and performance
plan -- 1,762
Net loss (277,748) (277,748)
------------------ --------------------
Balances at December 31, 1999 $ (638,283) $ (401,195)
================== ====================
</TABLE>
See accompanying notes to consolidated financial statements.
F-5
<PAGE> 51
e.spire COMMUNICATIONS, INC.
Consolidated Statements of Cash Flows
(in thousands, except share data)
<TABLE>
<CAPTION>
YEARS ENDED DECEMBER 31,
---------------------------------------------
1997 1998 1999
-------------- -------------- -------------
<S> <C> <C> <C>
Cash flows from operating activities:
Net loss $ (115,016) (163,079) (277,748)
Adjustments to reconcile net loss to net cash used in
operating activities:
Depreciation and amortization 23,526 47,332 95,943
Interest deferral and accretion 41,032 39,489 58,676
Amortization of deferred financing fees 2,579 4,206 5,391
Noncash compensation, consultants, and other
expenses 4,274 9,928 11,473
Non-monetary revenue -- (13,950) (14,057)
Other operating activities 498 569 --
Changes in operating assets and liabilities:
Trade accounts receivable (12,959) (33,766) (42,866)
Other assets (4,762) (4,075) (1,099)
Accounts payable (19,232) 48,101 (20,541)
Accrued liabilities 3,707 7,270 17,426
-------------- -------------- -------------
Net cash used in operating activities (76,353) (57,975) (167,402)
-------------- -------------- -------------
Cash flows from investing activities:
Acquisitions -- (6,734) --
Restricted cash related to network activities (1,119) (1) 2,407
Network development costs and purchases of
equipment and furniture (135,036) (242,522) (247,935)
-------------- -------------- -------------
Net cash used in investing activities (136,155) (249,257) (245,528)
-------------- -------------- -------------
Cash flows from financing activities:
Issuance of notes payable 223,698 224,959 164,000
Payment of deferred financing fees (19,230) (21,359) (7,867)
Warrant and stock option exercises 3,268 16,799 5,340
Payments of notes and other financing (495) (438) (34,563)
Payment of obligations under capital leases -- (3,081) (6,613)
Restricted cash related to notes payable (68,439) 26,007 24,733
Shares issued under the Employee Stock Purchase Plan 539 1,149 1,762
Issuance of common stock 39,953 130,311 --
Issuance of redeemable preferred stock 216,248 -- --
Other financing activities (816) 806 (95)
-------------- -------------- -------------
Net cash provided by financing activities 394,726 375,153 146,697
-------------- -------------- -------------
Net increase (decrease) in cash and cash
equivalents 182,218 67,921 (266,233)
Cash and cash equivalents, beginning of year 78,619 260,837 328,758
============== ============== =============
Cash and cash equivalents, end of year $ 260,837 328,758 62,525
============== ============== =============
</TABLE>
(Continued)
F-6
<PAGE> 52
e.spire COMMUNICATIONS, INC.
Consolidated Statements of Cash Flows (continued)
(in thousands, except share data)
<TABLE>
<CAPTION>
YEARS ENDED DECEMBER 31,
---------------------------------------------
1997 1998 1999
-------------- -------------- -------------
<S> <C> <C> <C>
Supplemental disclosure of cash flow information:
Interest paid on all debt obligations $ 2,085 31,087 39,597
Supplemental disclosure of noncash investing and
financing activities:
Dividends declared in connection with Series A
and B Preferred Stock $ 1,114 -- --
Dividends declared with Preferred Stock $ 5,349 27,730 37,106
Accrual of stock bonuses $ 2,886 4,762 6,881
Cancellation of put right obligations $ (1,000) (1,000) --
Shares issued as consideration for acquisitions $ 8,755 2,686 --
Assets acquired under capital leases and
non-monetary transactions $ -- 37,231 38,784
</TABLE>
See accompanying notes to consolidated financial statements.
F-7
<PAGE> 53
e.spire COMMUNICATIONS, INC.
Notes to Consolidated Financial Statements
December 31, 1997, 1998 and 1999
(in thousands, except share and per share data)
(1) BASIS OF PRESENTATION AND RELATED MATTERS
(a) ORGANIZATION
The consolidated financial statements include the accounts of
e.spire Communications, Inc. and its wholly-owned subsidiaries
("e.spire" or the "Company"). All material intercompany accounts
and transactions have been eliminated in consolidation.
(b) BUSINESS
e.spire is an integrated communications provider. The Company owns
and operates digital fiber optic networks and offers a variety of
telecommunications services to other communications providers and
business, government and consumer end users in selected target
markets, principally in the southern and eastern United States.
The Company provides nonswitched dedicated services, including
special access, switched transport, and private line services, as
well as high speed data services, Internet services, local
switched voice services and long-distance services using its own
facilities and on a resale basis.
In 1997, the Company began offering fiber optic network design,
construction and project management services ("network
technologies services") to carriers, large customers and
municipalities. The Company also began to enter into contracts
for grants of Indefeasible Rights of Use ("IRUs") on portions of
its fiber optic networks. In 1998, the Company formed ASCI Network
Technologies, Inc. ("Network technologies"), a wholly owned
subsidiary, to further pursue these opportunities. On January
17, 1997, the Company acquired CyberGate, Inc. ("CyberGate"), a
Florida based ISP that delivers Internet, high-speed data
communications and web-hosting services.
(c) CASH AND CASH EQUIVALENTS
The Company considers all highly liquid investments, with original
maturities of three months or less, to be cash equivalents. The
Company's investments consist of commercial paper, US Government
Securities and money market instruments. The cost of these
investments approximates fair value.
(d) RESTRICTED CASH AND INVESTMENTS
The Company has provided performance bonds and letters of credit
in various cities in connection with its operations, resulting in
a restriction to cash amounting to approximately $1,222 and $3,629
at December 31, 1998 and 1999, respectively. The face amount of
all bonds and letters of credit is approximately $21,559 as of
December 31, 1999. In addition, the Company placed approximately
$70,677 into an escrow account during 1997 to fund the first five
interest payments of its 13 3/4 percent Senior Notes due 2007 (see
note 8). At December 31, 1998 and 1999, restricted cash related to
this escrow account amounted to approximately $44,672 and $15,125,
respectively, of which $15,125 was considered long-term at
December 31, 1998. At December 31, 1999, the escrow account is
invested in marketable securities consisting of government and
commercial securities with maturity dates ranging from January 7,
2000 to January 13, 2000.
(e) MARKETABLE SECURITIES
The Company's short- and long-term debt securities and marketable
equity securities are carried at estimated fair value. The
estimated fair value of short- and long-term investments is
determined based on quoted market prices. The Company's marketable
securities have been classified as available for sale and are
recorded at current estimated fair value with an offsetting
F-8 (Continued)
<PAGE> 54
e.spire COMMUNICATIONS, INC.
Notes to Consolidated Financial Statements
December 31, 1997, 1998 and 1999
(in thousands, except share and per share data)
adjustment, if any, to stockholders' deficit. At December 31, 1998
and 1999, fair value approximated amortized cost.
(f) NETWORKS, EQUIPMENT, AND FURNITURE
Networks, equipment, and furniture are stated at cost less
accumulated depreciation and amortization. Costs capitalized
during the network development stage include costs associated
with network engineering, design and construction, negotiation of
rights-of-way, obtaining legal and regulatory authorizations and
the amount of interest costs associated with the network
development.
Provisions for depreciation of networks, equipment, and furniture
are computed using the straight-line method over the estimated
useful lives of the assets, beginning in the month a network is
substantially complete and available for use and equipment and
furniture are acquired.
The estimated useful lives of the Company's principle classes of
assets are as follows:
<TABLE>
<CAPTION>
Networks:
<S> <C>
Fiber optic cables and installation costs 20 years
Telecommunications equipment 3 - 10 years
Capitalized network development costs 18 months - 10 years
Leasehold improvements Shorter of term of lease or
estimated useful life
Furniture and fixtures 5 years
Computer software 3 years
</TABLE>
(g) INTANGIBLE ASSETS
Intangible assets include customer lists and goodwill. Goodwill is
being amortized on a straight-line basis over the period of
expected benefit, generally a period of ten years. Amortization
expense related to goodwill for the years ended December 31, 1997,
1998 and 1999 was approximately $726, $1,144 and $2,333,
respectively.
The costs of purchased customer lists are amortized on a
straight-line basis over their estimated useful lives, generally
eighteen months. The Company determines the useful lives of
customer lists based upon the estimated length of the acquired
customers' future service. Amortization expense related to
purchased customer lists was approximately $50, $1,977 and $4,973
for the years ended December 31, 1997, 1998 and 1999,
respectively.
(h) VALUATION OF LONG-LIVED ASSETS
The Company accounts for the valuation of long-lived assets under
SFAS No. 121, "Accounting for the Impairment of Long-Lived Assets
and for Long-Lived Assets to be Disposed of." This statement
requires that long-lived assets and certain identifiable
intangibles be reviewed for impairment whenever events or changes
in circumstances indicate that the carrying amount of an asset may
not be recoverable. Recoverability of assets to be held and used
is measured by a comparison of the carrying amount of an asset to
future undiscounted net cash flows expected to be generated by the
asset. If such assets are considered to be impaired, the
impairment to be recognized is measured by the amount by which the
carrying amount of the assets exceeds the
F-9 (Continued)
<PAGE> 55
e.spire COMMUNICATIONS, INC.
Notes to Consolidated Financial Statements
December 31, 1997, 1998 and 1999
(in thousands, except share and per share data)
estimated fair value of the assets. Assets to be disposed of are
reported at the lower of the carrying amount or fair value less
costs to sell.
(i) DEFERRED FINANCING FEES
Deferred financing fees include commitment fees and other costs
related to certain debt financing transactions and are being
amortized using the effective interest method over the initial
term of the related debt. Deferred financing fees also include
payments to bondholders for debt modifications that do not result
in debt extinguishment.
(j) REVENUE RECOGNITION
Revenue from telecommunications services is recognized as services
are provided. Billings to customers for services in advance of
providing such services are deferred and recognized as revenue
when earned.
The Company recognizes revenue associated with engineering and
construction contracts using the percentage-of-completion method,
based primarily on contract costs incurred to date compared with
total estimated contract costs. These revenues are included as
network technologies services in the consolidated statements of
operations. Network construction costs include all direct material
and labor costs and those indirect costs related to contract
performance. General and administrative costs are charged to
expense as incurred. Revenue which has been earned under the
percentage of completion method, but has not been billed to the
customer is included in unbilled revenue in the consolidated
balance sheets. Changes to total estimated contract costs or
losses, if any, are recognized in the period in which they are
determined.
To the extent that the Company's contracts for the provision of
dark fiber entered into subsequent to June 30, 1999 do not
transfer title to the customer, the contracts are accounted for as
operating leases under which the Company recognizes recurring
monthly revenues. Effective June 30, 1999, the Financial
Accounting Standards Board issued FASB Interpretation No. 43 Real
Estate Sales, an interpretation of Statement of Financial
Accounting Standards ("SFAS") No. 66, ("FIN 43") which requires
that sales or leases of integral equipment be accounted for in
accordance with real estate accounting rules. The Company believes
that the staff of the Securities and Exchange Commission requires
the classification of dark fiber and conduit as integral equipment
as defined by FIN 43. FIN 43 defines integral equipment as, "any
physical structure or equipment attached to the real estate that
cannot be removed and used separately without incurring
significant costs." It requires the Company to recognize the
revenue from certain transactions as operating leases over the
terms of the contract as opposed to the prior method of
recognizing revenue during the period over which the Company
delivers the fiber and generally collects payment. As a result,
this change in accounting treatment reduces the revenue and income
that the Company recognizes in the early years of the contract
and recognizes it over the term of the contract, regardless of
when the cash is received or the delivery of the fiber takes
place. The effect of adopting the provisions of FIN 43 on 1999
results was to decrease revenues by $12.3 million and increase net
loss by $10.9 million.
F-10 (Continued)
<PAGE> 56
e.spire COMMUNICATIONS, INC.
Notes to Consolidated Financial Statements
December 31, 1997, 1998 and 1999
(in thousands, except share and per share data)
(k) EARNINGS (LOSS) PER COMMON SHARE
The computations of basic and diluted earnings (loss) per common
share are based upon the weighted average number of common shares
outstanding during the year. Dilutive earnings per share give
effect to all potentially dilutive common securities. Potentially
dilutive securities include convertible preferred stock, stock
options and warrants.
(l) INCOME TAXES
Deferred income taxes are recognized for temporary differences
between financial statement and income tax bases of assets and
liabilities and loss carryforwards and tax credit carryforwards
for which income tax benefits are expected to be realized in
future years. A valuation allowance is established to reduce
deferred tax assets if it is more likely than not that all, or
some portion, of such deferred tax assets will not be realized.
The effect on deferred taxes of a change in tax rates is
recognized in income in the period that includes the enactment
date.
(m) STOCK OPTIONS
The Company applies the intrinsic value-based method of accounting
prescribed by Accounting Principles Board ("APB") Opinion No. 25,
Accounting for Stock Issued to Employees, and related
interpretations, in accounting for its fixed plan stock options.
As such, compensation expense is recorded on the date of grant
only if the current market price of the underlying stock exceeds
the exercise price. SFAS No. 123, Accounting for Stock-Based
Compensation, established accounting and disclosure requirements
using a fair value-based method of accounting for stock-based
employee compensation plans. As allowed by SFAS No. 123, the
Company has elected to continue to apply the intrinsic value-based
method of accounting described above, and has adopted the
disclosure requirements of SFAS No. 123.
(n) RECLASSIFICATIONS
Certain reclassifications were made in the 1998 and prior
consolidated financial statements to conform to the 1999
presentation. Such reclassifications had no effect on net loss or
total stockholders' deficit.
(o) USE OF ESTIMATES
The preparation of the consolidated financial statements in
conformity with generally accepted accounting principles requires
management to make estimates and assumptions that affect the
reported amounts of assets and liabilities and disclosure of
contingent assets and liabilities at the dates of the consolidated
financial statements and the reported amounts of revenue and
expenses during the reporting periods. Actual results may differ
from those estimates.
F-11 (Continued)
<PAGE> 57
e.spire COMMUNICATIONS, INC.
Notes to Consolidated Financial Statements
December 31, 1997, 1998 and 1999
(in thousands, except share and per share data)
(2) RISKS AND UNCERTAINTIES
(a) LIQUIDITY AND NEGATIVE CASH FLOW
To date, the Company has funded the construction of its networks
and its operations with external financing though various
preferred stock, common stock, and debt issuances, as well as
through capital lease financing. As a result of certain of these
transactions, the Company will be required to satisfy
substantially higher periodic cash debt service obligations in the
future. There can be no assurance that the Company will be able to
generate sufficient cash flow or otherwise obtain funds to cover
interest, principal and redeemable preferred stock dividend
payments associated with currently outstanding and future debt and
other obligations.
The Company has never been profitable, has never generated
positive cash flow from consolidated operations and, since its
inception has incurred significant net operating losses and
negative cash flow. In accordance with the terms of its debt
facilities, the Company has also deferred payment of most of its
interest charges. During fiscal year 2000, the Company will be
required to make cash interest payments on its 2007 Senior Notes
and Senior Secured Credit Facility (both as described in note 8).
The Company's continued development, construction, expansion, and
operation of local networks, as well as the further development of
additional services, including local switched voice and high-speed
data services, will require continued substantial capital
expenditures. The Company's ability to fund these expenditures is
dependent upon the Company raising substantial financing. To meet
its remaining capital requirements and to fund operations and cash
flow deficiencies, the Company will be required to sell additional
equity securities, increase its existing credit facility, acquire
additional credit facilities or sell additional debt securities,
certain of which may require the consent of the Company's
bondholders. There can be no assurance that the Company will be
able to obtain the additional financing necessary to satisfy its
cash requirements or to successfully implement its growth
strategy. Failure to raise sufficient capital could compel the
Company to delay or abandon some or all of its plans or
expenditures, which could have a material adverse effect on its
business, results of operations, and financial condition.
Subsequent to year-end, the Company received commitment letters
for $175,000 in equity funding. The Company received approximately
$100,700 of this amount in March 2000. The remaining $75,000 is
subject to shareholder approval and satisfaction of various
closing conditions, including the absence of any material change
or debt covenant violation. As described below, the Company
received a waiver of the debt covenant violation on April 13,
2000. The Company has also entered into a stand-by commitment for
an additional $50,000 in equity funding, subject to certain
conditions. Management believes that the Company's current cash
resources, together with amounts expected to be available pursuant
to the funding commitments described above, will be sufficient to
fund the Company's continuing negative cash flow and required
capital expenditures through 2000. If required, the Company also
believes that it could raise additional funds from the sale of
certain assets which are not essential to the Company's
operations.
The Senior Secured Credit Facilities (as described in note 8)
contain financial covenants with which the Company must comply,
including adjusted EBITDA (Earnings before interest, taxes,
depreciation, amortization, and noncash compensation), debt to
capital ratio, and capital expenditures. The Company was not in
compliance with the financial covenants as of December 31, 1999,
resulting in a default under the Credit Facilities which allows
the lenders to accelerate the maturity of the borrowings under the
Credit Facilities. Any such acceleration would also result in the
acceleration of other obligations of the Company, including the
2005 Notes, 2006 Notes, 2007 Notes and 2008 Notes (the Notes). In
the event of an acceleration of its outstanding debt obligations,
the Company would not have sufficient liquidity to meet its
obligations. On April 13, 2000, the Company obtained a waiver of
the event of non-compliance as of December 31, 1999. The Company
is currently in discussion with its lenders and believes that it
will be successful in amending its financial covenants on a going
forward basis to amounts that the Company believes will allow for
compliance. However, there can be no assurance that the Company
will be successful in amending its covenants, that the Company
will be in compliance with its debt covenants throughout 2000 or
that the Credit Facilities will not be accelerated, causing an
acceleration of other obligations. The Company has classified its
obligation under the Credit Facilities as a current liability as a
result of the debt covenant violation. The Senior Notes cannot be
accelerated unless payment of amounts due under the Credit
Facilities is accelerated and therefore, remain classified as
long-term obligations at December 31, 1999. In the event that the
Company is unsuccessful in negotiating amendments to the financial
covenants, the Company believes that it will have access to
sufficient financial resources to ensure that the Notes will not
be accelerated.
F-12 (Continued)
<PAGE> 58
e.spire COMMUNICATIONS, INC.
Notes to Consolidated Financial Statements
December 31, 1997, 1998 and 1999
(in thousands, except share and per share data)
(b) RECIPROCAL COMPENSATION
The Company has recorded net revenue of approximately $1.6
million, $17.7 million and $38.9 million for the years ended
December 31, 1997, 1998 and 1999, respectively, for reciprocal
compensation relating to the transport and termination of local
traffic, primarily to Internet Service Providers ("ISPs"), from
customers of Incumbent Local Exchange Carriers ("ILECs") pursuant
to various interconnection agreements. During this period, the
ILECs have not paid a substantial portion of the amounts billed by
the Company and have disputed these charges based on the belief
that such calls are not local traffic as defined by the various
agreements and are not subject to payment of transport and
termination charges under state and federal laws and public
policies. However, the Company has resolved certain of these
disputes, as discussed in the following paragraphs. The
resolutions of these disputes have been, and will continue to be,
based on rulings by state public utility commissions and/or by the
Federal Communications Commission (FCC), commercial arbitrators,
or through negotiations between the parties. To date, there have
been favorable final rulings from over 30 state public utility
commissions that ISP traffic is subject to the payment of
reciprocal compensation under current interconnection agreements.
Many of these state commission decisions have been appealed by the
ILECs. To date, five federal court decisions, including two
federal circuit court of appeals decisions have been issued
upholding state commission decisions ordering the payment of
reciprocal compensation for ISP traffic.
On February 25, 1999, the FCC issued a decision that ISP-bound
traffic is jurisdictionally interstate in nature. The decision
relies on the long-standing federal policy that ISP traffic,
although jurisdictionally interstate, is treated as though it is
local traffic for pricing purposes. The decision also emphasized
that, because the FCC concluded that there currently are no
federal rules governing inter-carrier compensation for ISP
traffic, the determination as to whether such traffic was subject
to reciprocal compensation under the terms of interconnection
agreements was properly made by the state commissions and that
carriers were bound by their interconnection agreements and state
commission decisions regarding the payment of reciprocal
compensation for ISP traffic.
The FCC has initiated a rulemaking proceeding regarding the
adoption of prospective federal rules for intercarrier
compensation for ISP traffic. In its notice of rulemaking, the FCC
expressed its preference that compensation rates for this traffic
continue to be set by negotiations between carriers, with disputes
resolved by arbitrations conducted by state commissions, pursuant
to the Telecommunications Act.
Since the issuance of the FCC's decision on February 25, 1999, 19
state public utility commissions, have either ruled or reaffirmed
that ISP traffic is subject to reciprocal compensation under
current interconnection agreements, and two state commissions have
declined to apply reciprocal compensation for ISP traffic under
current interconnection agreements. One state has declined to
order reciprocal compensation in an arbitration proceeding, and
two states have declined to decide the issue in the arbitration
until after the FCC and/or the state commission reaches a decision
in pending proceedings on prospective compensation.
On March 24, 2000, the United States Court of Appeals for the
District of Columbia Circuit vacated and remanded the FCC's
February 25, 1999 decision. The court found that the FCC did not
provide an adequate basis for its February 1999 decision that the
reciprocal compensation provisions of the Telecommunications Act
and the FCC rules did not apply to ISP traffic. The Company does
not believe that the Circuit Court's decision will adversely
affect the state decisions noted above with respect to reciprocal
compensation. The decision does, however, create some uncertainty,
and there can be no assurance that future FCC or state rulings
will be favorable to the Company. The
F-13 (Continued)
<PAGE> 59
e.spire COMMUNICATIONS, INC.
Notes to Consolidated Financial Statements
December 31, 1997, 1998 and 1999
(in thousands, except share and per share data)
Company has participated in a number of regulatory proceedings
that address the obligation of the ILECs to pay the Company
reciprocal compensation for ISP-bound traffic under the Company's
interconnection agreements. These proceedings include complaint
proceedings brought by the Company against individual ILECs for
failure to pay reciprocal compensation under the terms of a
current interconnection agreement; generic state commission
proceedings concerning the obligations of ILECs to pay reciprocal
compensation to CLECs, and arbitration proceedings before state
commissions addressing the payment of reciprocal compensation on a
prospective basis under new interconnection agreements.
In January 2000, a commercial arbitrator awarded e.spire damages
in the amount of approximately $1.9 million, including interest,
from an ILEC for the state of Florida. This award settles
reciprocal compensation from such ILEC for the state of Florida
through July 31, 1999. The Company has initiated the process to
obtain a further award through at least December 31, 1999. In
February 2000, a commercial arbitrator granted e.spire the right
to recover $14.2 million from Bell South, representing reciprocal
compensation, including accrued interest, through December 31,
1999 for the states of Alabama, Louisiana, and South Carolina.
e.spire has subsequently collected these amounts.
The Company has outstanding trade accounts receivable related to
reciprocal compensation of approximately $46.9 million at December
31, 1999, net of allowances of approximately $8.7 million. The
allowances are determined based on a state by state analysis of
the collectibility of billed amounts. The Company believes that
this receivable, net of allowances, is collectible, and that
future reciprocal compensation will be realized, although the
timing of receipts cannot be predicted at this time.
Certain of the Company's interconnection agreements with the ILECs
have expired or will soon expire. The Company believes that there
is substantial risk that the future rates for reciprocal
compensation under new interconnection agreements, some of which
are currently in negotiation, will be significantly less than
current rates.
(c) CONCENTRATION OF CREDIT RISK
The Company receives a significant portion of its revenues from a
small number of major customers, particularly the long distance
telecommunications companies that service the Company's markets.
For the years ended December 31, 1997, 1998 and 1999,
approximately 20 percent, 12 percent and 34 percent, respectively,
of the Company's revenues were attributable to services provided
to five, five and six, respectively, of the largest long distance
telecommunications companies. The loss of any one of these
customers could have a material adverse impact on the Company's
financial condition and results of operations.
The Company provides services to certain ISPs. Such companies
operate in a highly competitive and uncertain environment.
Approximately 20 percent, 10 percent and 5 percent, respectively,
of the Company's revenues for the years ended December 31, 1997,
1998 and 1999 were attributed to these companies. At December 31,
1998 and 1999, the Company had trade accounts receivable of $4,800
and $3,900, respectively, from ISPs. At December 31, 1999, the
Company also has equipment with a carrying value of approximately
$19,600 that is dedicated to providing service to these ISPs. The
Company believes that, if necessary, this equipment can be
redeployed throughout the Company's data network.
F-14 (Continued)
<PAGE> 60
e.spire COMMUNICATIONS, INC.
Notes to Consolidated Financial Statements
December 31, 1997, 1998 and 1999
(in thousands, except share and per share data)
(3) SEGMENT REPORTING
During 1998, the Company adopted SFAS No. 131, Disclosures about
Segments of an Enterprise and Related Information. The Company has
identified three reportable segments: Telecommunications, CyberGate, and
Network Technologies. The Telecommunications segment provides special
access, local switched voice, and data transmission over the Company's
own facilities and on a resale basis. CyberGate provides Internet,
high-speed data communications and web-hosting services. The Network
Technologies segment offers fiber optic network design, project
management and construction services. The Company's reportable segments
are strategic business units that offer different products and services.
They are managed separately because each business unit requires
different technology and marketing strategies.
The accounting policies of the segments are the same as those described
in the summary of significant accounting policies included in note 1. The
Company evaluates performance based on revenue from third parties and
gross margin. The Company also evaluates performance based on adjusted
EBITDA for CyberGate.
A summary of the information related to the Company's operations for
1997, 1998 and 1999 is as follows (revenue is generated solely from
external customers):
<TABLE>
<CAPTION>
1997
----------------------------------------------------------
TELECOMMUNICATIONS CYBERGATE TOTAL
--------------------- --------- -----------------
<S> <C> <C> <C>
Revenue $ 49,501 9,500 59,001
Cost of revenue 50,328 2,553 52,881
--------------------- --------- -----------------
Gross margin $ (827) 6,947 6,120
===================== ========= =================
Adjusted EBITDA 41
===================== ========= =================
Total assets $ 625,748 13,148 638,896
===================== ========= =================
Increase in long-lived assets $ 276,880 2,921 279,801
===================== ========= =================
Significant noncash items -- -- --
</TABLE>
<TABLE>
<CAPTION>
1998
-----------------------------------------------------------------------------
TELE- NETWORK
COMMUNICATIONS CYBERGATE TECHNOLOGIES TOTAL
--------------------- --------- ----------------- -----------------
<S> <C> <C> <C> <C>
Revenue $ 111,086 16,257 29,416 156,759
Cost of revenue 90,097 7,977 8,739 106,813
--------------------- --------- ----------------- -----------------
Gross margin $ 20,989 8,280 20,677 49,946
===================== ========= ================= =================
Adjusted EBITDA 736
===================== ========= ================= =================
Total assets $ 948,588 20,730 13,639 982,957
===================== ========= ================= =================
Increase in long-lived assets $ 275,257 4,096 448 279,801
===================== ========= ================= =================
Significant noncash items:
Noncash revenue $ -- -- 13,950 13,950
MCI warrant expense (805) -- -- (805)
--------------------- --------- ----------------- -----------------
Total noncash items $ (805) -- 13,950 13,145
===================== ========= ================= =================
</TABLE>
F-15 (Continued)
<PAGE> 61
e.spire COMMUNICATIONS, INC.
Notes to Consolidated Financial Statements
December 31, 1997, 1998 and 1999
(in thousands, except share and per share data)
<TABLE>
<CAPTION>
1999
----------------------------------------------------------------------------
TELE- NETWORK
COMMUNICATIONS CYBERGATE TECHNOLOGIES TOTAL
--------------------- --------- ----------------- -----------------
<S> <C> <C> <C> <C>
Revenue $ 150,632 25,072 68,305 244,009
Cost of revenue 109,580 11,590 38,198 159,368
--------------------- --------- ----------------- -----------------
Gross margin $ 41,052 13,482 30,107 84,641
===================== ========= ================= =================
Adjusted EBITDA 766
===================== ========= ================= =================
Total assets $ 858,014 16,332 66,896 941,242
===================== ========= ================= =================
Increase in long-lived assets $ 260,287 3,973 22,484 286,744
===================== ========= ================= =================
Significant noncash items:
Noncash revenue $ -- -- 14,057 14,057
MCI warrant expense (358) -- -- (358)
--------------------- --------- ----------------- -----------------
Total noncash items $ (358) -- 14,057 13,699
===================== ========= ================= =================
</TABLE>
The Company reports separately, in its consolidated statement of
operations, revenue and the associated cost of sales of
Telecommunications and Network Technologies segments. Selling, general,
and administrative expenses, noncash stock compensation, depreciation and
amortization, nonoperating income and expense and minority interest are
not allocated for these two segments.
The Company has one large customer which represents approximately 11
percent and 13 percent of total revenues for the years ended December 31,
1998 and 1999, respectively. Of these revenues, approximately $9,500 and
$7,600 was earned by the Network technologies and telecommunications
segments, respectively for 1998; and approximately $15,400 and $17,500
was earned by the Network technologies and telecommunications segments,
respectively for 1999.
(4) NETWORKS, EQUIPMENT, AND FURNITURE
Networks, equipment, and furniture consists of the following:
<TABLE>
<CAPTION>
DECEMBER 31,
-------------------------------------
1998 1999
----------------- -----------------
<S> <C> <C>
Networks and telecommunications equipment $ 494,721 691,788
Furniture and fixtures 15,934 19,942
Operating support systems 44,211 109,107
Leasehold improvements 7,088 27,861
----------------- -----------------
561,954 848,698
Less: accumulated depreciation and amortization 76,020 166,224
----------------- -----------------
Total, net of accumulated depreciation
and amortization $ 485,934 682,474
================= =================
</TABLE>
For the years ended December 31, 1997, 1998 and 1999, the Company
capitalized interest of approximately $3,933, $3,246 and $7,873,
respectively.
F-16 (Continued)
<PAGE> 62
e.spire COMMUNICATIONS, INC.
Notes to Consolidated Financial Statements
December 31, 1997, 1998 and 1999
(in thousands, except share and per share data)
(5) PREFERRED STOCK
In October 1994, the Company completed a private placement of its 9
percent Series A Convertible Preferred Stock, $1.00 par value (the
"Series A Preferred Stock"). A total of 186,664 shares of the Series A
Preferred Stock were issued. Further, as discussed in note 9 to the
consolidated financial statements, certain parties obtained warrants to
purchase shares of the Company's common stock. In June 1995, the Series A
Preferred Stock was exchanged for an identical number of 9 percent Series
A-1 Convertible Preferred Stock, $1.00 par value (the "Series A-1
Preferred Stock").
In June 1995, the Company completed a private placement of its 9 percent
Series B-1 Convertible Preferred Stock (the "Series B-1 Preferred"), 9
percent Series B-2 Convertible Preferred Stock (the "Series B-2
Preferred") and 9 percent Series B-3 Convertible Preferred Stock (the
"Series B-3 Preferred"), each having a par value of $1.00 per share.
There were 227,500 shares issued for cash at $100 per share with proceeds
of $20,662, net of placement agent commissions and related placement fees
and costs. In November 1995, 50,000 shares of 9 percent Series B-4
Convertible Preferred Stock (the "Series B-4 Preferred") were issued for
cash of $100 per share resulting in proceeds of $5,000. The Series B-1
Preferred, the Series B-2 Preferred, the Series B-3 Preferred and the
Series B-4 Preferred are hereafter collectively referred to as the
"Series B Preferred Stock." The Series A-1 Preferred Stock and the Series
B Preferred Stock are hereafter collectively referred to as the
"Preferred Stock." Further, as discussed in note 9 to the consolidated
financial statements, certain parties obtained warrants to purchase
shares of the Company's Common Stock.
During 1997, the Preferred Stock was converted into 17,377,275 shares of
Common Stock. In connection with its Series A-1 and Series B Preferred
Stock, the Company recorded approximately $1,114 for the year ended
December 31, 1997 as a reduction in additional paid-in capital, for the
payment of anticipated dividends. The Company's certificate of
incorporation required the Company to accrue dividends, on a quarterly
basis, at an annual rate of 9 percent of the face value of the Series A-1
and B Preferred Stock. These dividends were paid during 1997 in
connection with the conversion of the Preferred Stock (see note 6).
(6) COMMON STOCK OFFERINGS
During 1997, the Company issued 8,660,000 shares of Common Stock for net
proceeds of approximately $40,000, net of underwriters discounts and
other expenses of the offering. Concurrent with this transaction, 186,664
shares of the Company's Series A-1 Preferred Stock and 277,500 shares of
the Company's Series B Preferred Stock were converted into 17,377,275
shares of the Company's Common Stock (see note 5). In addition, of the
approximately $8,000 of dividends accrued on the Preferred Stock prior to
conversion, approximately $7,750 was paid with 1,650,207 shares of the
Company's common stock. The remaining accrued dividends were paid in
cash.
On April 3, 1998, the Company completed a public offering of 8,100,000
shares of Common Stock at a price of $18.50 per share, of which 7,502,418
shares were issued and sold by the Company and 597,582 shares were sold
by certain shareholders of the Company. The total net proceeds to the
Company from this offering were approximately $130,311, net of
underwriters discounts and other expenses of the offering.
F-17 (Continued)
<PAGE> 63
e.spire COMMUNICATIONS, INC.
Notes to Consolidated Financial Statements
December 31, 1997, 1998 and 1999
(in thousands, except share and per share data)
(7) REDEEMABLE PREFERRED STOCK
On July 10, 1997, the Company consummated the sale of 75,000 units
consisting of its 14 3/4 percent Redeemable Preferred Stock due 2008 (the
"Redeemable Preferred Stock due 2008") and warrants to purchase
approximately 6,023,800 shares of its Common Stock yielding net proceeds
to the Company of approximately $70,200, net of underwriters fees and
other related expenses. The value attributed to the warrants was
approximately $21,600. The Company will be required to redeem all
outstanding shares of Redeemable Preferred Stock due 2008 at a price
equal to $1,000 per share plus any accrued and unpaid dividends.
The Redeemable Preferred Stock due 2008 may be redeemed, in whole or in
part, at the option of the Company, at any time after January 1, 2003, at
the redemption prices set forth below, plus any accrued and unpaid
dividends as of that date. The redemption prices, expressed in
percentages, are as follows:
<TABLE>
<CAPTION>
YEAR PERCENTAGE
------------- -----------------
<S> <C> <C>
2003 107.375%
2004 104.917%
2005 102.458%
2006 and thereafter 100.000%
</TABLE>
On October 6, 1997, the Company consummated the sale of 150,000 shares of
its 12 3/4 percent Junior Redeemable Preferred Stock due 2009 (the
"Junior Redeemable Preferred Stock due 2009") for proceeds of
approximately $146,000, net of underwriters fees and other related
expenses. The Company will be required to redeem all outstanding shares
of the Junior Redeemable Preferred Stock due 2009 on October 15, 2009 at
$1,000 per share plus any accrued and unpaid dividends.
The Junior Redeemable Preferred Stock due 2009 may be redeemed, in whole
or in part, at the option of the Company, at any time after October 15,
2003, at the redemption prices set forth below, plus any accrued and
unpaid dividends as of that date. The redemption prices, expressed in
percentages, are as follows:
<TABLE>
<CAPTION>
YEAR PERCENTAGE
------------- -----------------
<S> <C> <C>
2003 106.375%
2004 104.781%
2005 103.188%
2006 101.594%
2007 and thereafter 100.000%
</TABLE>
Dividends on the Redeemable Preferred Stock due 2008 and Junior
Redeemable Preferred Stock due 2009 (collectively "the Redeemable
Preferred Stock") may be paid, at the Company's option, either in cash or
by the issuance of additional shares of the Redeemable Preferred Stock;
provided, however, that after June 30, 2002, to the extent and so long as
the Company is not precluded from paying cash dividends on the Redeemable
Preferred Stock by the terms of any then outstanding indebtedness, the
Company is required to pay dividends on the Redeemable Preferred Stock in
cash.
The holders of the Redeemable Preferred Stock are not entitled to vote on
any matter required or permitted to be voted upon by the stockholders of
the Company. If, however, after June 30, 2002, the Company violates
certain covenants, including the payment of dividends, the Redeemable
Preferred
F-18 (Continued)
<PAGE> 64
e.spire COMMUNICATIONS, INC.
Notes to Consolidated Financial Statements
December 31, 1997, 1998 and 1999
(in thousands, except share and per share data)
Stockholders are permitted to vote as a single class to elect not less
than 25 percent of the members of the Board of Directors.
A summary of the changes in the Redeemable Preferred Stock is as follows:
<TABLE>
<CAPTION>
JUNIOR
REDEEMABLE REDEEMABLE
PREFERRED PREFERRED
STOCK STOCK
DUE 2008 DUE 2009
------------------ ------------------
<S> <C> <C>
Balance at issuance, net of underwriters fees and
other related expenses $ 48,598 146,045
Payment of dividends in shares of Redeemable
Preferred Stock 5,349 --
Accrued dividends -- 3,985
Accretion to redemption value 1,114 69
------------------ ------------------
Balance at December 31, 1997 55,061 150,099
Payment of dividends in shares of Redeemable
Preferred Stock 12,480 15,250
Accrued dividends -- 4,517
Accretion to redemption value 2,595 1,042
------------------ ------------------
Balance at December 31, 1998 70,136 170,908
Payment of dividends in shares of Redeemable
Preferred Stock 14,406 18,182
Accrued dividends -- 5,120
Accretion to redemption value 2,509 335
------------------ ------------------
Balance at December 31, 1999 $ 87,051 194,545
================== ==================
</TABLE>
F-19 (Continued)
<PAGE> 65
e.spire COMMUNICATIONS, INC.
Notes to Consolidated Financial Statements
December 31, 1997, 1998 and 1999
(in thousands, except share and per share data)
(8) DEBT
Long-term debt consists of the following:
<TABLE>
<CAPTION>
DECEMBER 31,
-------------------------------------
1998 1999
----------------- -----------------
<S> <C> <C>
AT&T Credit Corporation equipment and working
capital financing facility $ 34,563 --
2005 Senior Discount notes, interest at 13%,
maturing November 1, 2005 144,593 165,632
2006 Senior Discount notes, interest at 12 3/4%,
maturing April 1, 2006 90,821 102,791
2007 Senior Notes, interest at 13 3/4%, maturing
July 15, 2007 220,000 220,000
2008 Senior Notes, interest at 10.625%, maturing
July 1, 2008 235,316 260,983
Senior secured credit facility -- 164,000
----------------- -----------------
Total long-term debt 725,293 913,406
Less current portion 2,188 164,000
----------------- -----------------
$ 723,105 749,406
================= =================
</TABLE>
Principal payments for each of the years from 1999 to 2003 and
thereafter, are due as follows:
<TABLE>
<CAPTION>
YEAR ENDING DECEMBER 31,
<S> <C> <C>
2000 $ 164,000
2001 --
2002 --
2003 --
2004 --
Thereafter 749,406
-------------------
$ 913,406
===================
</TABLE>
(a) AT&T CREDIT CORPORATION EQUIPMENT AND WORKING CAPITAL FINANCING
FACILITY
In October 1994, the Company entered into the AT&T Credit Facility
pursuant to which AT&T Credit Corporation agreed to provide
financing for the development and construction of fiber optic
networks by certain of the Company's subsidiaries. Pursuant to the
AT&T Credit Facility, during 1996 the Company's subsidiaries in
Louisville, Fort Worth, Greenville, Columbia, and El Paso entered
into loan agreements with AT&T Credit Corporation providing for up
to $31,200 in loans collateralized by the assets of such
subsidiaries. Pursuant to the AT&T Credit Facility, AT&T Credit
Corporation purchased 7.25 percent of the outstanding capital
stock of each of the Company's operating subsidiaries for which it
provided financing.
On December 30, 1997, the Company and AT&T Credit Corporation
agreed to amend the terms of the facility, increasing the facility
to $35,000 and transferring the loan agreements from the Company's
five subsidiaries to the Company as a whole.
F-20 (Continued)
<PAGE> 66
e.spire COMMUNICATIONS, INC.
Notes to Consolidated Financial Statements
December 31, 1997, 1998 and 1999
(in thousands, except share and per share data)
In addition, as part of the modification, the Company issued
207,964 shares of common stock in exchange for all of AT&T Credit
Corporation's 7.25 percent ownership interest in the five
subsidiaries.
The balance outstanding under the AT&T Credit Facility was paid in
1999 in connection with the completion of the Senior Secured
Credit Facility described below.
(b) SENIOR NOTES
On November 14, 1995, the Company completed an offering of 190,000
Units (the "Units") consisting of $190,000 principal amount of 13
percent Senior Discount Notes due 2005 (the "2005 Notes") and
warrants to purchase 2,432,000 shares of the Company's common
stock at a price of $7.15 per share (the "Warrants"). The 2005
Notes will accrete at a rate of 13 percent compounded
semi-annually to an aggregate principal amount of $190,000 by
November 1, 2000. Thereafter, interest on the 2005 Notes will
accrue at the annual rate of 13 percent and will be payable in
cash semi-annually. The 2005 Notes will mature November 1, 2005.
The Company received net proceeds of approximately $96,100 from
the sale of the Units. The value ascribed to the Warrants was
$8,684.
On March 21, 1996, the Company completed an offering of $120,000
of 12 3/4 percent Senior Discount Notes due 2006 (the "2006
Notes") resulting in net proceeds of approximately $61,800. The
2006 Notes will accrete at a rate of 12 3/4 percent compounded
semi-annually to an aggregate principal amount of $120,000 by
April 1, 2001. Thereafter, interest on the 2006 Notes will accrue
at the annual rate of 12 3/4 percent and will be payable in cash
semi-annually. The 2006 Notes will mature on April 1, 2006.
On July 23, 1997, the Company completed the sale of $220,000
aggregate principal amount of 13 3/4 percent Senior Notes due 2007
(the "2007 Notes"). Of the total net proceeds of approximately
$204,300, the Company placed approximately $70,000, representing
funds, together with interest thereon, sufficient to pay the first
five semi-annual interest payments on the 2007 Notes, into an
escrow account for the benefit of the holders. The 2007 Notes
accrue interest at a rate of 13 3/4 percent, payable in cash
semi-annually, on January 15 and July 15, commencing January 15,
1998. The 2007 Notes will mature on July 15, 2007.
On February 26, 1998, the Company paid approximately $10.3 million
to effect amendments (the "Amendments") to the indentures under
which the three classes of its outstanding debt securities were
issued. The Amendments revised certain covenants in the indentures
which significantly limited the ability of the Company and its
subsidiaries to incur additional indebtedness or make certain
investments or acquisitions. The limitations on indebtedness
contained in the indentures were amended to provide an alternative
test permitting the incurrence of additional indebtedness based on
a debt to capital ratio test, and increased the amount of
unrestricted indebtedness that the Company can incur. The
Amendments also permit the incurrence of indebtedness solely for
F-21 (Continued)
<PAGE> 67
e.spire COMMUNICATIONS, INC.
Notes to Consolidated Financial Statements
December 31, 1997, 1998 and 1999
(in thousands, except share and per share data)
the construction, acquisition, and improvement of
telecommunications assets, subject to certain limitations.
On July 24, 1998, the Company completed the sale of $375,000
aggregate principal amount of 10.625 percent Senior Discount Notes
due 2008 (the "2008 Notes") resulting in net proceeds of
approximately $225,000. The 2008 Notes will accrete at a rate of
10.625 percent compounded semi-annually to an aggregate principal
amount of $375,000 by July 1, 2003. No cash interest will be paid
on the 2008 Notes prior to July 1, 2003. Thereafter, the 2008
Notes will accrue cash interest at the annual rate of 10.625
percent payable semi-annually. The 2008 Notes will mature on July
1, 2008.
The 2005 Notes, 2006 Notes, 2007 Notes and 2008 Notes
(collectively the "Notes") are general, unsubordinated and
unsecured senior obligations of the Company. The Company's
subsidiaries have no obligation to pay amounts due on the Notes
and do not guarantee the notes. Therefore, the Notes are
effectively subordinated to all liabilities of the Company's
subsidiaries, including trade payables. Any rights of the Company
and its creditors, including the holders of the Notes, to
participate in the assets of any of the Company's subsidiaries
upon any liquidation or reorganization of any such subsidiaries
will be subject to the prior claims of that subsidiary's
creditors.
The Notes are subject to certain covenants which, among other
things restrict the ability of e.spire and certain of its
subsidiaries to incur additional indebtedness, pay dividends, or
make distributions.
(c) SENIOR SECURED CREDIT FACILITIES
On August 12, 1999, the Company closed the Senior Secured Credit
Facilities (the "Credit Facilities"), consisting of a $35 million
revolver and a $55 million multiple draw term loan, each with a
6.5 year maturity, as well as a $110 million term loan with a 7
year maturity. Of the Credit Facilities, a total of $164 million
was immediately available to the Company, of which the Company
drew $110 million. On December 15, 1999, the Company drew an
additional $54 million under the Credit Facilities. The remaining
$36 million becomes available if the Company is able to obtain
additional junior capital of at least $100 million. Also, the
Credit Facilities contain an Incremental Facility of up to an
additional $100 million, although no lender is obligated to
participate in the Incremental Facility. The Credit Facilities
bear interest at the Eurodollar rate plus 4 percent for the
revolver and multiple draw term loan and 4.5 percent for the $110
million term loan. At December 31, 1999, the interest rate on the
revolver and multiple draw term loan was 10.1875 percent and the
rate on the $110 million term loan was 11 percent.
In addition, the Credit Facilities contain financial covenants
with which the Company must comply, including Adjusted EBITDA
(Earnings before interest, taxes, depreciation, amortization, and
noncash compensation), debt to capital ratio, and capital
expenditures. The Company was not in compliance with certain of
the financial covenants as of December 31, 1999, that resulted in
a default under the Credit Facilities which would allow the
lenders to accelerate the maturity of the borrowings under the
Credit Facilities. Any such acceleration would also result in the
acceleration of other obligations of the Company, including the
2005 Notes, 2006 Notes, 2007 Notes and 2008 Notes. In the event of
an acceleration of its outstanding debt obligations, the Company
would not have sufficient liquidity to meet its obligations. On
April 13, 2000, the Company obtained a waiver of the event of
non-compliance as of December 31, 1999. The Company is currently
in discussion with its lenders and believes that it will be
successful in amending its financial covenants on a going forward
basis to amounts that the Company believes will allow for
compliance. However, there can be no assurance that the Company
will be successful in amending its covenants, that the Company
will be in compliance with its debt covenants throughout 2000, or
that the Credit Facilities will not be accelerated, causing an
acceleration of other obligations. The Company has classified its
obligation under the Credit Facilities as a current liability as
of December 31, 1999, as a result of the debt covenant
F-22 (Continued)
<PAGE> 68
e.spire COMMUNICATIONS, INC.
Notes to Consolidated Financial Statements
December 31, 1997, 1998 and 1999
(in thousands, except share and per share data)
violation. The Senior Notes cannot be accelerated unless payment
of amounts due under the Credit Facilities is accelerated and
therefore, remain classified as long-term obligations at December
31, 1999.
(9) STOCK COMPENSATION AND STOCK PURCHASE WARRANTS
(a) STOCK COMPENSATION
The Company has a stock option plan which provides for the
granting of options to officers, employees, directors, and
consultants of the Company to purchase shares of its common stock
within prescribed periods.
In 1994, the Company entered into employment agreements with five
executive officers. Pursuant to the agreements, as amended, such
officers were granted options to purchase shares of common stock
of the Company. In accordance with their employment agreements,
these individuals had the right to sell certain of their shares to
the Company (the put right) for a price equal to fair market
value. On June 26, 1995, the employment agreements were amended to
limit the purchase price paid by the Company pursuant to the put
right to a maximum of $2,500, which amount is subject to further
reductions based on the employees' sales of stock. During the year
ended December 31, 1996, the limit was further reduced to $2,000.
During the year ended December 31, 1997, put rights related to
$1,000 expired without exercise. During the year ended December
31, 1998, the final $1,000 expired without exercise.
In 1997, the Company's Board of Directors adopted an Annual
Performance Plan, through which it will award its 1998 and 1999
performance bonuses to management and employees through the
issuance of shares of the Company's common stock. The Company has
accrued approximately $4,800 and $6,400, in noncash compensation
cost at December 31, 1998 and 1999, respectively, for this
purpose.
The Company applies APB Opinion 25 and related Interpretations in
accounting for its plans. Accordingly, compensation cost has been
recognized for its stock option plans based on the intrinsic value
of the option at the date of grant. The compensation cost that has
been charged against income for stock option plans was
approximately $1,400, $4,200 and $1,900 for the years ended
December 31, 1997, 1998 and 1999, respectively. Had compensation
cost for the Company's plan and the employee stock purchase plan
(described below) been determined based on the fair value at the
grant dates, consistent with FASB Statement No. 123, for all
options granted after June 30, 1995, and the intrinsic value for
all options granted prior to July 1, 1995, the Company's net loss
and net loss per share would have been reduced to the pro forma
amounts indicated below:
<TABLE>
<CAPTION>
YEARS ENDED DECEMBER 31,
-------------------------------------------
1997 1998 1999
-------------- ------------- --------------
<S> <C> <C> <C>
Net loss:
As reported $ (115,016) (163,079) (277,748)
Pro forma $ (120,538) (175,657) (288,040)
Net loss per common share:
As reported: $ (4.65) (4.45) (6.38)
Pro forma $ (4.85) (4.73) (6.59)
</TABLE>
F-23 (Continued)
<PAGE> 69
e.spire COMMUNICATIONS, INC.
Notes to Consolidated Financial Statements
December 31, 1997, 1998 and 1999
(in thousands, except share and per share data)
Pro forma net loss reflects compensation cost under SFAS No. 123
only for options granted for the year ended June 30, 1996, the six
months ended December 31, 1996, and subsequent fiscal years.
Therefore, the full impact of calculating compensation cost for
stock options under SFAS No. 123 is not reflected in the pro forma
net loss amounts presented above because compensation cost is
reflected over the vesting period and compensation cost under SFAS
No. 123 for options granted prior to July 1, 1995 is not
considered.
The fair value of each option grant is estimated on the date of
grant using the Black-Scholes option pricing model with the
following weighted-average assumptions used for grants in the
years ended December 31, 1997, 1998 and 1999, respectively:
dividend yield of 0 percent for all periods, expected volatility
of 50 percent, 75 percent and 85 percent, risk-free interest rates
of 6.0 percent, 5.14 percent and 6.36 percent and expected lives
of 4.06, 3.18 and 3.46 years.
A summary of the status of the Company's stock options as of
December 31, 1997, 1998 and 1999 and changes during the periods
ending on those dates is presented below:
<TABLE>
<CAPTION>
DECEMBER 31, 1997 DECEMBER 31, 1998 DECEMBER 31, 1999
-------------------------- --------------------------- --------------------------
WEIGHTED- WEIGHTED- WEIGHTED-
AVERAGE AVERAGE AVERAGE
SHARES EXERCISE SHARES EXERCISE SHARES EXERCISE
(`000S) PRICE (`000S) PRICE (`000S) PRICE
----------- -------------- ----------- --------------- ---------- --------------
<S> <C> <C> <C> <C> <C> <C>
Outstanding at
beginning of year 7,457 $ 3.60 7,827 $ 4.69 8,644 $ 6.60
Granted 2,141 $ 8.25 2,873 $ 10.46 3,876 $ 8.97
Exercised (926) $ 2.39 (1,411) $ 3.23 (964) $ 2.30
Forfeited (845) $ 6.60 (645) $ 9.02 (1,857) $ 9.66
----------- ----------- ----------
Outstanding at end
of year 7,827 $ 4.69 8,644 $ 6.60 9,699 $ 7.37
=========== =========== ==========
Options exercisable
at year-end 4,379 5,279 5,732
=========== =========== ==========
Weighted-average fair
value of options
granted during the
year $4.96 $6.60 $6.06
</TABLE>
F-24 (Continued)
<PAGE> 70
e.spire COMMUNICATIONS, INC.
Notes to Consolidated Financial Statements
December 31, 1997, 1998 and 1999
(in thousands, except share and per share data)
The following table summarizes information about fixed stock
options at December 31, 1999:
<TABLE>
<CAPTION>
OPTIONS OUTSTANDING OPTIONS EXERCISABLE
---------------------------------- ---------------------------------
WEIGHTED-
NUMBER AVERAGE WEIGHTED- NUMBER WEIGHTED-
OUTSTANDING REMAINING AVERAGE OUTSTANDING AVERAGE
RANGE OF AT 12/31/99 CONTRACTUAL EXERCISE AT 12/31/99 EXERCISE
EXERCISE PRICES (`000S) LIFE PRICE (`000S) PRICE
----------------- ---------------- -------------- ---------------- ---------------
<S> <C> <C> <C> <C> <C>
$0.875 to $4.52 2,647 2.02 years $ 2.14 2,460 $ 1.97
$4.57 to $9.12 2,510 5.31 years $ 7.49 1,165 $ 7.66
$9.13 to $9.38 2,446 5.77 years $ 9.27 1,200 $ 9.38
$9.50 to $21.50 2,096 5.52 years $ 11.63 907 $ 12.00
----------------- ---------------- -------------- ---------------- ---------------
$0.875 to $21.50 9,699 4.57 years $ 7.37 5,732 $ 6.26
================= ================ ============== ================ ===============
</TABLE>
(b) STOCK PURCHASE WARRANTS
During fiscal years ended June 30, 1995 and 1996, in connection
with the Series A-1 and Series B Preferred Stock private
placements and related bridge note conversions, warrants for
4,367,078 shares of common stock were issued at prices ranging
from $.01 to $3.10. In fiscal 1996, as part of the issuance of the
2005 Notes, detachable warrants to purchase 2,432,000 shares of
the Company's common stock at a price of $7.15 per share were
issued. During 1997, as part of the issuance of the Redeemable
Preferred Stock due 2008, the Company issued warrants to purchase
6,023,850 shares of common stock at $7.15 per share. The Company
also issued 657,582 warrants to MCIMetro Access Transmission
Services, Inc. during 1997. These warrants include certain
anti-dilution provisions.
On March 6, 1997, the Company entered into a preferred provider
agreement with MCIMetro Access Transmission Services, Inc. In
connection with the agreement, the Company issued warrants to
purchase 620,000 shares of the Company's common stock at $9.87 per
share. 360,000 of these warrants vested during 1997. The value
attributed to the vested warrants was approximately $1,300, which
is being recognized as network cost over the five year term of the
agreement. The Company also agreed to issue warrants to purchase
up to an aggregate of approximately 1.7 million additional shares
of the Company's common stock at fair market value on the date of
grant in tranches every six months, contingent upon certain
increases in revenue to the Company generated under the agreement.
At December 31, 1999, the Company had issued 91,031 of such
warrants with exercise prices ranging from $9.87 to $16.88 per
share. The value attributed to these warrants was approximately
$917. During 1997, 1998 and 1999, respectively, the Company
recognized approximately $480, $805 and $358 in network expense
related to these warrants.
F-25 (Continued)
<PAGE> 71
e.spire COMMUNICATIONS, INC.
Notes to Consolidated Financial Statements
December 31, 1997, 1998 and 1999
(in thousands, except share and per share data)
At December 31, 1999, unexercised warrants outstanding are as
follows:
<TABLE>
<CAPTION>
NUMBER
(`000S) PRICE PER SHARE
----------------- ---------------------
<S> <C> <C>
Series A and Series B Preferred Stock placements 422 $ 1.79 - 3.10
2005 Senior Discount Notes offering 2,331 6.47
Redeemable Preferred Stock due 2008 offering 5,646 7.15
Other 305 9.87 - 16.88
----------------- ---------------------
Total 8,704 $ 1.79 - 16.88
================= =====================
</TABLE>
The gross proceeds that would be received by the Company on the
exercise of all outstanding options and warrants is approximately
$131,000.
(c) EMPLOYEE STOCK PURCHASE PLAN
The Company adopted the Employee Stock Purchase Plan (the "ESPP")
on November 15, 1996. Under the ESPP, an aggregate of 500,000
shares of common stock may be purchased from the Company by the
employees through payroll withholding pursuant to a series of
offerings. All full-time employees who have met certain service
requirements (as defined in the ESPP), except for employees who
own common stock of the Company or options on such stock which
represent more than 5 percent of common stock of the Company, are
eligible to participate. The purchase price of the common stock is
85 percent of the fair market value on the date the common stock
is purchased. Purchases of common stock are made on a monthly
basis. During the years ended December 31, 1997, 1998 and 1999,
the Company sold 96,784, 108,601 and 258,278 shares, respectively,
of common stock to the ESPP for a total of $749, $1,150 and
$1,759, respectively.
The fair value of the employees' purchase rights of ESPP shares is
estimated using the Black-Scholes option pricing model with the
following weighted-average assumptions used for purchases in the
years ended December 31, 1997, 1998 and 1999, respectively:
dividend yield of 0 percent for all years, expected volatility of
50 percent, 75 percent and 85 percent, risk free interest rate of
6.0 percent, 5.14 percent and 6.36 percent and expected life of
one month for all years.
The weighted-average fair value of the purchase rights granted in
1997, 1998 and 1999 was $1.48, $2.23 and $1.50 per share.
F-26 (Continued)
<PAGE> 72
e.spire COMMUNICATIONS, INC.
Notes to Consolidated Financial Statements
December 31, 1997, 1998 and 1999
(in thousands, except share and per share data)
(10) BASIC AND DILUTED EARNINGS PER SHARE
The following tables present the computation of basic and diluted
earnings per share:
<TABLE>
<CAPTION>
FOR THE YEAR ENDED DECEMBER 31, 1997
--------------------------------------------------------
INCOME SHARES PER SHARE
(NUMERATOR) (DENOMINATOR) AMOUNT
----------------- ----------------- -----------------
<S> <C> <C> <C>
Net loss $ (115,016)
Less: Preferred Stock dividends/accretion (11,630)
-----------------
Basic and diluted earnings per share:
Net loss to common stockholders $ (126,646) 27,233,642 $ (4.65)
================= ================= =================
</TABLE>
Options and warrants to purchase 7,827,318 and 11,267,365 shares of
common stock, respectively, were not included in the computation of
diluted earnings per share for the year ended December 31, 1997 as their
inclusion would be anti-dilutive.
<TABLE>
<CAPTION>
FOR THE YEAR ENDED DECEMBER 31, 1998
--------------------------------------------------------
INCOME SHARES PER SHARE
(NUMERATOR) (DENOMINATOR) AMOUNT
------------------ ----------------- ----------------
<S> <C> <C> <C>
Net loss $ (163,079)
Less: preferred stock dividends/accretion (36,080)
------------------
Basic and diluted earnings per share:
Net loss to common stockholders $ (199,159) 44,751,690 $ (4.45)
================== ================= ================
</TABLE>
Options and warrants to purchase 8,643,545 and 9,521,130 shares of common
stock, respectively, were not included in the computation of diluted
earnings per share for the year December 31, 1998 as their inclusion
would be anti-dilutive.
<TABLE>
<CAPTION>
FOR THE YEAR ENDED DECEMBER 31, 1999
--------------------------------------------------------
INCOME SHARES PER SHARE
(NUMERATOR) (DENOMINATOR) AMOUNT
------------------ ----------------- ----------------
<S> <C> <C> <C>
Net loss $ (277,748)
Less: preferred stock dividends/accretion (40,646)
------------------
Basic and diluted earnings per share:
Net loss to common stockholders $ (318,394) 49,891,910 $ (6.38)
================== ================= ================
</TABLE>
Options and warrants to purchase 9,698,971 and 8,704,452 shares of common
stock, respectively, were not included in the computation of diluted
earnings per share for the year December 31, 1999 as their inclusion
would be anti-dilutive.
(11) RETIREMENT PLAN
On February 1, 1996, the Company began sponsoring the e.spire
Communications, Inc. 401(k) Plan (the "Plan"), a defined contribution
plan. All individuals employed on February 1, 1996 were eligible to
participate. Participation to all other employees is available after
three months of full-time
F-27 (Continued)
<PAGE> 73
e.spire COMMUNICATIONS, INC.
Notes to Consolidated Financial Statements
December 31, 1997, 1998 and 1999
(in thousands, except share and per share data)
equivalent service. The Company contributions under the Plan are
discretionary and may be as much as 6 percent of an employee's gross
compensation subject to certain limits. Total expense under the Plan
amounted to approximately $244, $320 and $275 for the years ended
December 31, 1997, 1998 and 1999, respectively.
(12) COMMITMENTS AND CONTINGENCIES
LEGAL PROCEEDINGS
The Company is a party to certain litigation and regulatory proceedings
arising in the ordinary course of business. In the opinion of management,
based upon the advice of counsel, the ultimate disposition of these
matters will not have a material adverse effect on the Company's
consolidated financial position or results of operations.
(13) LEASES
The Company restructured several operating leases into capital leases
during 1998 and entered into new leases in 1999, for the leasing of
telecommunications equipment. The capital leases provide for the lessee
to pay taxes, maintenance, insurance and certain other operating costs of
the leased equipment. These new leases also contain renewal provisions.
The equipment under capital leases is included in networks and
telecommunications equipment as follows:
<TABLE>
<CAPTION>
DECEMBER 31, 1999
-------------------------
<S> <C>
Networks and telecommunications equipment $ 65,746
Less: accumulated amortization 8,687
-------------------------
$ 57,059
=========================
</TABLE>
The Company is obligated under various noncancelable operating leases for
office and node space, telecommunications equipment, and office
furniture.
F-28 (Continued)
<PAGE> 74
e.spire COMMUNICATIONS, INC.
Notes to Consolidated Financial Statements
December 31, 1997, 1998 and 1999
(in thousands, except share and per share data)
The minimum future lease obligations under these noncancelable operating
and capital leases as of December 31, 1999 are approximately as follows:
<TABLE>
<CAPTION>
OPERATING CAPITAL
YEAR ENDING DECEMBER 31, LEASES LEASES
----------------- -----------------
<S> <C> <C>
2000 $ 19,597 14,405
2001 19,708 17,034
2002 20,196 14,768
2003 19,434 10,845
2004 18,984 8,442
Thereafter 73,241 4,246
----------------- -----------------
Total minimum lease payments $ 171,160 69,740
=================
Less: amounts representing interest and executory costs 13,022
-----------------
Present value of minimum lease payments 56,718
Less: current portion 9,932
-----------------
Long-term obligations under capital leases $ 46,786
=================
</TABLE>
Rent expense for the years ended December 31, 1997, 1998 and 1999 was
approximately $6,100, $10,900 and $15,800, respectively.
(14) INDEFEASIBLE RIGHTS OF USE
The Company has entered into various agreements to provide indefeasible
rights of use ("IRUs") of multiple fibers along certain sections of
e.spire's networks. Such agreements include contracts with five major
customers for an aggregate purchase price of approximately $78,444 at
December 31, 1999. Network technologies revenue related to five major
customers was approximately $0, $23,450 and $48,685 for the years ended
December 31, 1997, 1998 and 1999, respectively. Progress billings are
made primarily based on customers' acceptance of certain performance
milestones.
The Company expects to bill and collect all costs and estimated earnings
in excess of billings as of December 31, 1999, in 2000. In 1998 and 1999,
the Company recognized approximately $14,000 and $14,100, respectively,
in revenue from non-monetary proceeds from IRU transactions. Non-monetary
proceeds consist of transfers of dissimilar assets or exchanges of
similar assets with significant cash payments.
Although these construction agreements provide for certain penalties if
the Company does not complete construction within the time frames
specified in each respective agreement, management does not anticipate
that the Company will incur any substantial penalties under these
provisions.
F-29 (Continued)
<PAGE> 75
e.spire COMMUNICATIONS, INC.
Notes to Consolidated Financial Statements
December 31, 1997, 1998 and 1999
(in thousands, except share and per share data)
(15) INCOME TAXES
Temporary differences and carryforwards that give rise to deferred tax
assets and liabilities are as follows:
<TABLE>
<CAPTION>
DECEMBER 31,
-------------------------------------
1998 1999
----------------- -----------------
<S> <C> <C>
Deferred tax assets:
Capitalized start-up and other costs $ 5,829 8,899
Stock options - noncash compensation 7,162 7,812
Net operating loss carryforwards 151,670 225,288
Bond discounts 29,494 57,078
Other accrued liabilities 1,188 14,482
----------------- -----------------
Total gross deferred assets 195,343 313,559
Less: valuation allowance 152,082 265,707
----------------- -----------------
Net deferred tax assets 43,261 47,852
Deferred tax liabilities - fixed assets depreciation and
amortization 43,261 47,852
----------------- -----------------
Net deferred tax assets (liabilities) $ -- --
================= =================
</TABLE>
The net change in the total valuation allowance for the years ended
December 31, 1998 and 1999 was an increase of $70,716 and $113,625,
respectively. The valuation allowances at December 31, 1998 and 1999 are
a result of the uncertainty regarding the ultimate realization of the tax
benefits related to the deferred tax assets. The utilization of the tax
benefits associated with net operating losses of approximately $563,000
at December 31, 1999 is dependent upon the Company's ability to generate
future taxable income. The net operating loss carryforward period expires
commencing in 2008 through the year 2019. Further, as a result of certain
financing and capital transactions, an annual limitation on the future
utilization of a portion of the net operating loss carryforward has
occurred.
No income tax provision has been provided for the years ended December
31, 1997, 1998 and 1999 as the aforementioned deferred tax assets have
provided no tax benefit.
(16) ACQUISITIONS
On January 17, 1997, the Company acquired 100 percent of the outstanding
capital stock of CyberGate, Inc. ("CyberGate") in exchange for 1,030,000
shares of common stock plus up to an additional 150,000 shares if certain
performance goals are achieved, for an aggregate purchase price of
approximately $8,800. CyberGate, a Florida based ISP, delivers Internet,
high-speed data communications and web-hosting services. The acquisition
has been accounted for using the purchase method and, therefore, the
Company's consolidated financial statements include the results of
operations of CyberGate from the date of acquisition. The purchase price
of $8,800 plus transaction expenses of approximately $500 has been
allocated to assets and liabilities acquired based on their fair values
and goodwill of approximately $8,400 has been recorded. The goodwill is
being amortized on a straight-line basis over a ten year period.
F-30 (Continued)
<PAGE> 76
e.spire COMMUNICATIONS, INC.
Notes to Consolidated Financial Statements
December 31, 1997, 1998 and 1999
(in thousands, except share and per share data)
On October 3, 1997, the Company acquired the customers and receivables of
NetRunner, Inc., a Florida based ISP, in exchange for 51,166 shares of
Common Stock for an initial purchase price of $685. In conjunction with
this acquisition, the Company also placed 130,705 shares of the Company's
Common Stock in escrow to be issued upon the seller meeting certain
obligations. The Company recorded an intangible asset for that portion of
the purchase price attributable to the customer list, which is being
amortized over 18 months. During 1998, the Company released the remaining
130,705 shares held in escrow, resulting in a $2,200 increase in
intangible assets.
On September 2, 1998, the Company acquired 100 percent of the outstanding
capital stock of Data Access Technologies, Inc. in exchange for $1,500
and 149,275 shares of Common Stock for an aggregate purchase price of
$2,100. In conjunction with this acquisition, 40,360 shares were issued
on September 2, 1998 and the remaining 108,915 shares were placed in
escrow to be issued upon the seller meeting certain obligations. At
December 31, 1999, the 108,915 shares remained in escrow. These shares of
Common Stock are released from escrow as contingent events occur, at
which time the Company will record the transactions as an increase in
goodwill. The acquisition has been accounted for using the purchase
method and, therefore, the Company's consolidated financial statements
include the results of operation of Data Access Technologies from the
date of acquisition. The purchase price has been allocated to assets and
liabilities acquired based on their estimated fair values, and goodwill
of approximately $2,300 has been recorded. The goodwill is being
amortized on a straight-line basis over an 18 month period.
On November 17, 1998, the Company acquired the customers and certain
assets of Internet Communications of America, Inc. (ICANECT) in exchange
for $5,300 and 203,438 shares of Common Stock for an initial purchase
price of $5,300. In accordance with the purchase agreement, these shares
were placed in escrow to be issued upon the seller meeting certain
obligations. As of December 31, 1999 none of these shares had been
issued. The Company recorded an intangible asset of approximately $5,300,
which is being amortized over an 18 month period.
(17) FAIR VALUE OF FINANCIAL INSTRUMENTS
The following notes summarize the major methods and assumptions used in
estimating the fair value of financial instruments:
(a) CASH AND CASH EQUIVALENTS
The carrying amount approximates fair value due to the relatively
short period to maturity of these instruments.
The Company's short- and long-term debt securities are carried at
fair market value as determined by quoted market prices.
(b) LETTERS OF CREDIT
The fair value of the letters of credit is based on fees currently
charged for similar agreements.
F-31 (Continued)
<PAGE> 77
e.spire COMMUNICATIONS, INC.
Notes to Consolidated Financial Statements
December 31, 1997, 1998 and 1999
(in thousands, except share and per share data)
(c) LONG-TERM DEBT AND REDEEMABLE PREFERRED STOCK
The fair value of the Company's long-term debt and redeemable
preferred stock are estimated based on the quoted market prices
for the same or similar issues if available or based on the
present value of expected cash flows at rates currently available
to the Company for borrowings with similar terms.
The carrying amounts and estimated fair values of the Company's
financial instruments at December 31, 1999 were:
<TABLE>
<CAPTION>
CARRYING ESTIMATED
VALUE FAIR VALUE
------------------ ------------------
<S> <C> <C>
Cash and cash equivalents (including restricted cash) $ 81,279 81,279
Letters of credit $ -- 37
Redeemable preferred stock $ 281,596 63,581
Long-term debt, including obligations under capital
leases $ 970,124 703,771
</TABLE>
F-32 (Continued)
<PAGE> 78
e.spire COMMUNICATIONS, INC.
Notes to Consolidated Financial Statements
December 31, 1997, 1998 and 1999
(in thousands, except share and per share data)
(18) QUARTERLY FINANCIAL DATA (UNAUDITED)
<TABLE>
<CAPTION>
MAR. 31 JUN. 30 SEPT. 30 DEC. 31
-------------- -------------- -------------- --------------
(IN THOUSANDS, EXCEPT PER SHARE DATA)
<S> <C> <C> <C> <C>
1999:
Revenues $ 58,073 $ 63,320 $ 65,116 $ 57,500
Cost of sales 37,237 39,262 41,340 41,529
Gross Margin 20,836 24,058 23,776 15,971
Operating expenses 59,446 63,476 73,240 80,434
Non-operating income (expense) (18,578) (19,959) (22,519) (24,737)
Net loss (57,188) (59,377) (71,983) (89,200)
Preferred stock dividends/accretion 9,697 10,000 10,305 10,644
Net loss to common stockholders (66,885) (69,377) (82,288) (99,844)
Net loss per common share
(Basic & Diluted) (1.37) (1.40) (1.64) (1.96)
1998:
Revenues $ 27,469 $ 35,752 $ 45,460 $ 48,078
Cost of sales 19,253 24,344 29,197 34,019
Gross Margin 8,216 11,408 16,263 14,059
Operating expenses 29,690 33,219 41,798 56,837
Non-operating income (expense) (10,621) (10,634) (13,241) (16,985)
Net loss (32,095) (32,445) (38,776) (59,763)
Preferred stock dividends/accretion 8,493 8,607 9,022 9,958
Net loss to common stockholders (40,588) (41,052) (47,798) (69,721)
Net loss per common share
(Basic & Diluted) (1.08) (0.91) (1.00) (1.44)
1997:
Revenues 8,177 11,616 16,055 23,153
Cost of sales 8,669 10,400 13,676 20,180
Gross Margin (492) 1,216 2,379 2,973
Operating expenses 18,282 20,774 22,243 26,913
Non-operating income (expense) (5,249) (6,094) (10,100) (11,438)
Net loss (24,023) (25,652) (29,964) (35,378)
Preferred stock dividends/accretion 989 106 2,489 8,046
Net loss to common stockholders (25,012) (25,758) (32,453) (43,424)
Net loss per common share
(Basic & Diluted) (3.19) (0.92) (0.90) (1.18)
</TABLE>
The effect of adopting the provisions of FIN43, as described in note 1,
on fourth quarter results was a reduction of revenue of $9.9 million and
a reduction of network cost of $400, for an impact on net loss of $9.5
million. The Company also recorded additional reserves against revenue
of approximately $15 million.
The September 30, 1999 operating results have been restated to reflect
the impact on certain transactions which occurred during the third
quarter of adopting the provisions of FIN 43. The impact of this
restatement on revenue was a reduction of $2,400 and the impact on
network cost was a reduction of $400.
(19) SUBSEQUENT EVENTS
In the first quarter of 2000, the Company announced that it had signed
commitment letters with Greenwich Street Capital Partners II, L.P. and
The Huff Alternative Income Fund, L.P. for a total of $125 million in
equity funding consisting of preferred stock and warrants. In addition,
during the first quarter of 2000, the Company signed a commitment letter
with Honeywell International Inc. Master Retirement Trust, in cooperation
with Allied Capital Management, L.L.C., a subsidiary of Honeywell
International, Inc. for $50 million in equity funding. The Company
received approximately $100,000 of these amounts in March 2000. The
remaining $75,000 is subject to shareholder approval and satisfaction of
various closing conditions, including the absence of any material change
or debt covenant violation. (See note 8)
On April 13, 2000, the Company obtained a waiver to its Credit
Facilities to remedy its default under these facilities. As of April
13, 2000, the Company was in negotiations with the lenders on its Credit
Facilities for amendments of its debt covenants on a going forward basis.
On April 13, 2000, the Company obtained a standby commitment for an
additional $50,000 of equity funding, subject to certain conditions.
F-33
<PAGE> 1
EXHIBIT 3.9
CERTIFICATE OF DESIGNATION
SERIES A CONVERTIBLE PREFERRED STOCK
OF
E.SPIRE COMMUNICATIONS, INC.
THE UNDERSIGNED, Dennis J. Kern, Chief Operating Officer of E.SPIRE
COMMUNICATIONS, INC., a corporation organized and existing under the laws of
the State of Delaware (the "Corporation"), HEREBY CERTIFIES:
That pursuant to the authority conferred upon the Board of
Directors of the Corporation by the Corporation's Third Amended and Restated
Certificate of Incorporation (the "Certificate of Incorporation") and in
accordance with the provisions of Section 151 of the General Corporation Law of
the State of Delaware, said Board of Directors, acting at a meeting of the
board held on February 25, 2000, duly approved and adopted the following
resolution (hereinafter, this "Certificate of Designation"):
RESOLVED, that pursuant to the authority vested in the Board
of Directors by the Certificate of Incorporation, the Board of Directors does
hereby designate, create, authorize and provide for the issue by the
Corporation, out of the authorized but unissued shares of Preferred Stock, par
value $1.00 per share, 250,000 shares of Series A Convertible Preferred Stock
(the "Series A Convertible Preferred Stock") with a stated value (the "Stated
Value") of $ 1,000 per share. The Series A Convertible Preferred Stock shall
have the powers, preferences and relative, participating, optional and other
special rights, and the qualifications, limitations and restrictions that are
set forth in the Certificate of Incorporation and in this resolution as
follows:
1. Certain Definitions
Unless the context otherwise requires, each of the terms
defined in this Section 1 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):
"Accrued Dividends" has the meaning set forth in Section 4
below.
"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
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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.
"Additional Dividends" has the meaning set forth in Section
3(j)(i) below.
"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
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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).
"Board of Directors" means the Board of Directors of the
Corporation.
"Business Day" means any day other than a Saturday, a Sunday
or any day on which banking institutions in New York, New York, are required or
authorized by law or other governmental action to be closed.
"Capital Lease Obligation" of any Person means the obligation
to pay rent or other payment amounts under a lease of (or other Indebtedness
arrangement conveying the right to use) real or personal property of such
Person which is required to be classified and accounted for as a capital lease
or a liability on the face of a balance sheet of such Person in accordance with
GAAP and the stated maturity thereof shall be the date of the last payment of
rent or any amount due under such lease prior to the first date upon which such
lease may be terminated by the lessee without payment of a penalty.
"Capital Stock" in any Person means any and all shares,
interests, participations or other equivalents in the equity interest (however
designated) in such Person and any rights (other than Indebtedness convertible
into an equity interest), warrants or 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
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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).
"Change of Control" means (i) the sale, conveyance, transfer
or lease of all or substantially all of the assets of the Corporation (which
for all purposes of this definition shall include any Successor) to any
"Person" or "group" (within the meaning of Section 13(d)(3) and 14(d)(2) of the
Exchange Act or any successor provision to either of the foregoing, including
any group acting for the purpose of acquiring, holding or disposing of
securities within the meaning of Rule 13d-5(b)(i) under the Exchange Act),
other than to The Huff Alternative Income Fund, L.P., 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 (including any Affiliate of
any of the foregoing other than the Corporation or any Restricted Subsidiary)
(the "Permitted Holders"), shall have occurred; or (ii) any "Person" or
"group" (within the meaning of Sections 13(d)(3) and 14(d)(2) of the Exchange
Act or any successor provision to either of the forgoing, including any group
acting for the purpose of acquiring, holding or disposing of securities within
the meaning of Rule 13d-5(b)(i) under the Exchange Act), other than any
Permitted Holder, becomes the "beneficial owner" (as defined under the Exchange
Act) of more than 35 percent of the total voting power of all classes of the
voting capital stock of the Corporation (including any warrants, options or
rights to acquire such voting capital stock), calculated on fully diluted
basis, and such voting power percentage is greater than or equal to the total
voting power percentage then beneficially owned by the Permitted Holders in the
aggregate; or (iii) during any period of two consecutive years, individuals who
at the beginning of such period constituted the Board of Directors (together
with any new directors whose election or appointment by such board or whose
nomination for election by the stockholders of the Corporation was approved by
a vote a majority of the directors then still in office who were either
directors at the beginning of such period or whose election or nomination for
election was previously so approved) cease for any reason to constitute a
majority of the Board of Directors then in office.
"Commission" means the Securities and Exchange Commission.
"Common Stock" means the Common Stock, par value $.01 per
share, of the Corporation.
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"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 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
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<PAGE> 6
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.
"Conversion Date" has the meaning set forth in Section 5(d)
below.
"Conversion Price" has the meaning set forth in Section
5(a)(ii) below.
"Conversion Shares" has the meaning set forth in Section 5(a)
below.
"Conversion Trigger Date" has the meaning set forth in Section
5(b) below.
"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.
"Current Market Value" has the meaning set forth in Section
5(e) below.
"DGCL" shall mean the Delaware General Corporation Law, as
amended.
"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.
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<PAGE> 7
"Dividend Shares" has the meaning set forth in Section 5(c)
below.
"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.
"Effectiveness Date" means the 90th day following the Filing
Date.
"Exchange Act" means the Securities Exchange Act of 1934, as
amended, and the rules and regulations promulgated thereunder.
"Exchange Rate Obligation" means, with respect to any Person,
any currency swap agreements, forward exchange rate 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 10e% Senior
Discount Notes due 2008 (the "2008 Notes").
"Fair Market Value" means, with respect to any asset or
property, the sale value that would be obtained in an arm's-length transaction
between an informed and willing seller under no compulsion to sell and an
informed and willing buyer under no compulsion to buy, as determined in good
faith by the Board of Directors.
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"Fiber Network" means a digital fiber optic telecommunications
network wholly owned by the Corporation that serves a Metropolitan Area.
"Filing Date" means the later of (i) the 60th day after the
Issue Date and (ii) if Additional Preferred Stock (as such term is defined in
the Registration Rights Agreement) is being sold by the Corporation, the 15th
day after the Final Closing (as such term is defined in the Purchase
Agreements).
"Financial Advisor" means a nationally recognized investment
banking firm.
"14.75% Preferred Stock" means the Corporation's 14.75%
Redeemable Preferred Stock due 2008.
"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).
"Holder" means the record holder of one or more shares of
Series A Convertible Preferred Stock, as shown on the books and records of the
Transfer Agent.
"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)
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<PAGE> 9
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.
"Independent Financial Advisor" means, as of any date of
determination, a Financial Advisor that has not been retained by the
Corporation, other than to perform an equity valuation, within the preceding
twelve months of such date of determination. The Independent Financial Advisor
may be compensated and indemnified by the
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<PAGE> 10
Corporation as may be customary for opinions or services it provides as an
Independent Financial Advisor.
"Initial Shares" means the shares of Series A Convertible
Preferred Stock issued by the Corporation on the Issue Date.
"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.
"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.
"Issue Date" means the date of initial issuance of the Series
A Convertible Preferred Stock.
"Junior Stock" has the meaning set forth in Section 2 below.
"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).
"Liquidation Preference" has the meaning set forth in Section
4 below.
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"Mandatory Conversion Date" has the meaning set forth in
Section 5(b) below.
"Mandatory Conversion Notice" has the meaning set forth in
Section 5(b) below.
"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.
"National Securities Exchange" means any national securities
exchange and shall include The NASDAQ Stock Market or any successor market
thereto.
"NASDAQ" means The NASDAQ Stock Market and any related body.
"NASDAQ Rule" means any rule or other requirement or any
criteria for listing or continued trading of NASDAQ.
"Optional Conversion Date" has the meaning set forth in
Section 5(a).
"Optional Conversion Notice" has the meaning set forth in
Section 5(a) below.
"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.
"Parity Stock" has the meaning set forth in Section 2 below.
"Payment Default" has the meaning set forth in Section
8(b)(ii) below.
"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,
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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 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.
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"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.
"Purchase Agreements" means the Purchase Agreement dated
February 18, 2000 between the Corporation and The Huff Alternative Income Fund,
L.P. ("Huff"), the Purchase Agreement dated February 18, 2000 among the
Corporation, 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. (collectively, "Greenwich"), and the Purchase Agreement
dated February 18, 2000 between the Corporation and The Honeywell International
Inc. Master Retirement Trust ("Honeywell").
"Qualified Stock" of any Person means a class of Capital Stock
other than Disqualified Stock.
"Record Date" has the meaning set forth in Section 3(a) below.
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<PAGE> 14
"Refinancing Indebtedness" means Indebtedness issued in
exchange for, or the proceeds of which are used to refinance, repurchase,
replace, refund or defease other Indebtedness.
"Registration Rights Agreement" means the Registration Rights
Agreement dated as of the Issue Date among the Corporation, 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 such other parties as become signatories
thereto.
"Registration Statement" means a registration statement under
the Securities Act filed by the Corporation with the Commission pursuant to the
provisions of the Registration Rights Agreement.
"Restricted Subsidiary" means any Subsidiary of the
Corporation that has not been classified as an "Unrestricted Subsidiary".
"Rights" means rights, options or warrants for the purchase
of, or securities convertible into or exchangeable for, common stock.
"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.
"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
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<PAGE> 15
be amended, modified, supplemented, restated, renewed, extended, refinanced,
substituted or replaced from time to time.
"Securities Act" means the Securities Act of 1933, as amended,
and the rules and regulations promulgated thereunder.
"Senior Stock" has the meaning set forth in Section 2 below.
"Shelf Registration Statement" means a Registration Statement
with respect to the offer and sale of shares of Series A Convertible Preferred
Stock (and the shares of Common Stock issuable upon conversion of, or payable
as dividends on, such shares of Series A Convertible Preferred Stock) by the
holders thereof.
"Stated Value" has the meaning set forth above.
"Stockholder Approval" means the affirmative vote of the
holders of a majority of the shares of the Corporation's Common Stock present
in person or by proxy at a meeting of the stockholders of the Corporation duly
called and held (and at which a quorum is present).
"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.
"Successor" has the meaning set forth in Section 8(b) below.
"Surviving Entity" has the meaning set forth in Section
8(b)(i) below.
"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.
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<PAGE> 16
"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.
"Transfer Agent" means the entity designated from time to time
by the Corporation to act as the registrar and transfer agent for the Series A
Convertible Preferred Stock.
"12.75% Preferred Stock" has the meaning set forth in Section
2 below.
"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.
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<PAGE> 17
"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 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.
"Warrants" means the warrants exercisable to purchase shares
of Common Stock issued by the Corporation pursuant to the Purchase Agreements,
including, without limitation, the Change in Control Warrants (as defined in
the Purchase Agreements).
2. Ranking
The Series A Convertible Preferred Stock shall, with respect
to dividend rights and rights on the liquidation, winding-up and dissolution of
the Corporation (as provided in Sections 3 and 4 below), rank (i) to the extent
described below, senior to all classes of common stock and to each other class
of Capital Stock or series of Preferred Stock established hereafter by the
Board of Directors other than the Parity Stock and the Senior Stock
(collectively referred to as "Junior Stock"), (ii) to the extent described
below, on a parity with the Series A and Series B 12.75% Junior Redeemable
Preferred Stock (the "12.75% Preferred Stock") and each other class of Capital
Stock or series of Preferred Stock established hereafter by the Board of
Directors with the affirmative vote or consent of the Holders of at least a
majority of the outstanding shares of the Series A Convertible Preferred Stock,
voting or consenting as a single class, the terms of which expressly provide
that such class or series ranks on a parity with the Series A Convertible
Preferred Stock as to dividend rights and rights on the liquidation, winding-up
and dissolution of the Corporation (collectively referred to as "Parity Stock")
and (iii) junior to the 14.75% Redeemable Preferred Stock (the "14.75%
Preferred Stock") and any future class of Preferred Stock established hereafter
by the Board of Directors with the affirmative vote or consent of the Holders
of at least a majority of the outstanding shares of the Series A Convertible
Preferred Stock, voting or consenting as a single class, the terms of which
expressly provide that such class ranks senior to the Series A Convertible
Preferred Stock as to dividend rights and rights on liquidation, winding-up and
dissolution of the Corporation (collectively referred to as the "Senior
Stock").
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<PAGE> 18
3. Dividends
(a) Beginning on the date of issuance of any shares of
Series A Preferred Stock, the Holders of such shares of the Series A
Convertible Preferred Stock shall be entitled to receive prior and in
preference to (except as set forth below in Section 3(k)) declaration or
payment of any dividend or distribution to the holders of any Junior Stock, and
in addition to and not in limitation of the dividend rights provided in Section
3(g) below, dividends which shall accrue cumulatively on each share of Series A
Convertible Preferred Stock at the rate and in the manner prescribed in this
Section 3 from and including the date of issuance of such shares of Series A
Preferred Stock through the earliest of (i) the date on which the conversion of
such share of Series A Convertible Preferred Stock is effected or (ii) the date
on which the Liquidation Preference in respect of the shares of Series A
Convertible Preferred Stock is paid to the Holder of such shares in connection
with the liquidation of the Corporation. The date on which the Corporation
initially issues any share of Series A Convertible Preferred Stock shall be
deemed to be its "date of issuance" regardless of the number of times a
transfer of such share of Series A Convertible Preferred Stock is made on the
stock records maintained by or for the Corporation and regardless of the number
of certificates which may be issued to evidence such share of Series A
Convertible Preferred Stock.
(b) Dividends shall accrue on a daily basis from the date
of issue on each share of Series A Convertible Preferred Stock 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 the Stated Value thereof plus 7.0% of the amount of the accrued but
unpaid dividends thereon (such rate being subject to adjustment as provided in
Sections 3(f), 3(h) and 3(j) below). Such dividends shall be paid in Common
Stock (with the number of shares of Common Stock being calculated for such
purpose in the same fashion as is set forth under Section 5(c) below).
(c) Dividends on the Series A Convertible Preferred Stock
shall accrue whether or not the Corporation 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. The Corporation shall take all actions
required or permitted under the DGCL to permit the payment of dividends on the
Series A Convertible Preferred Stock, including, without limitation, through
the revaluation of its assets in accordance with the DGCL, to make or keep
funds legally available for the payment of dividends.
(d) Except as provided in Section 5(c) below, nothing
herein contained shall in any way or under any circumstances be construed or
deemed to require the Board of Directors to declare, or the Corporation to pay
or set apart for payment, any dividends on shares of the Series A Convertible
Preferred Stock at any time.
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<PAGE> 19
(e) 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 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.
(f) In the event of a Change of Control, and commencing
as of the date such Change of Control is effective, cumulative dividends on the
Series A 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 thereof, plus
accrued but unpaid dividends thereon.
(g) In addition to and not in limitation of the dividends
provided for in Sections 3(a), 3(f) and 3(h) herein, the Holders of Series A
Convertible Preferred Stock shall be entitled to receive dividends and other
distributions equivalent to those declared or paid on Common Stock (including
dividends and distributions of cash, property, assets, debt securities or
Rights, but excluding any Rights covered by Sections 6(a), 6(b) or 6(c) below),
determined as if the Series A Convertible Preferred Stock has been converted
into Common Stock at the then effective Conversion Price and Dividend Shares
have been distributed as contemplated by Section 5(c) below, and payable when,
as and if declared by the Board of Directors on such Common Stock.
(h) Notwithstanding the provisions of Section 3(b) above,
if the Corporation fails to obtain the Stockholder Approval prior to the
expiration of 100 days following the Issue Date (to the extent such approval is
required to permit, without contravention of any NASDAQ Rule, the issuance of
shares of Series A Convertible Preferred Stock and Warrants which, in the
aggregate, are convertible into or exchangeable for, or with respect to which
dividends are payable in, Common Stock that exceeds 20% of the total
outstanding Common Stock immediately prior to the Issue Date) then (i) the
dividend rate of the Series A Convertible Preferred Stock shall 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 thereof plus accrued but unpaid
dividends thereon and (ii) other than the Initial Shares, no other shares of
Series A Convertible Stock shall be issued by the Corporation.
(i) Notwithstanding any other provision of this Section
3, if at any time both the provisions of Section 3(f) and Section 3(h) apply,
dividends on the Series A Convertible Preferred Stock shall accrue at the rate
prescribed in Section 3(f) from and after the date a Change of Control is
effective.
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<PAGE> 20
(j) Subject to the terms and provisions of the
Registration Rights Agreement:
(i) If the Corporation fails to file a Shelf
Registration Statement prior to the Filing Date or the Shelf
Registration Statement is not declared effective prior to the
Effectiveness Date, or the Shelf Registration Statement is
filed and declared effective prior to the Effectiveness Date
but shall thereafter cease to be effective (at any time that
the Corporation is obligated to maintain the effectiveness
thereof) without being succeeded within 45 days by an
additional Shelf Registration Statement, filed and declared
effective, then, in recognition that the limited liquidity of
the Series A Convertible Preferred Stock has deleteriously
affected its value, additional dividends (the "Additional
Dividends") shall accrue and cumulate on the Series A
Convertible Preferred Stock as set forth in paragraphs (ii),
(iii) and (iv) below, respectively.
(ii) if the Shelf Registration Statement is not
filed prior to the Filing Date, Additional Dividends shall
accrue and cumulate on the Series A Convertible Preferred
Stock over and above the stated dividend at a rate of 0.50%
per annum.
(iii) If the Shelf Registration Statement is not
declared effective prior to the Effectiveness Date, Additional
Dividends shall accrue and cumulate on the Series A
Convertible Preferred Stock over and above the stated dividend
at a rate of 0.50% per annum.
(iv) If the Shelf Registration Statement has been
declared effective and ceases to be effective at any time that
the Corporation is obligated to maintain the effectiveness
thereof, unless an additional Shelf Registration Statement has
been filed and declared effective within 45 days of the date
on which the Shelf Registration Statement ceases to be
effective, then Additional Dividends shall accrue on the
Series A Convertible Preferred Stock over and above the stated
dividend rate of 0.50% per annum commencing on the 45th day
following the day such Shelf Registration Statement ceases to
be effective.
(v) Notwithstanding paragraphs (i)-(iv) of this
Section 3(j), the Additional Dividends payable hereunder shall
not exceed in the aggregate 0.50% per annum. In addition, (1)
upon the filing of the Shelf Registration Statement (in the
case of Section 3(j)(ii) above), (2) upon the effectiveness of
the Shelf Registration Statement (in the case of Section 3(j)
(iii) above) or (3) upon the effectiveness of the Shelf
Registration Statement that had ceased to remain effective (in
the case of Section
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<PAGE> 21
3(j)(iv) above), the dividend rate on the Series A Convertible
Preferred Stock shall revert to the dividend rate set forth in
Section 3(a), 3(f) or 3(h), as applicable, and Additional
Dividends on the Series A Convertible Preferred Stock shall
cease to accrue and cumulate.
(k) Notwithstanding anything to the contrary herein, but
subject to Section 8(e) below, and provided that all dividends which are then
required to be paid under Section 3(g) above and Section 5(c) below have been
paid in full (i) the Corporation 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
Corporation may pay cash dividends and make other cash distributions on Parity
Stock or Junior Stock to the extent such payments are permitted by the
Corporation's outstanding debt instruments.
4. Liquidation Preference
Upon any voluntary or involuntary liquidation, dissolution or
winding-up of the Corporation, each Holder of shares of the Series A
Convertible Preferred Stock shall be entitled to be paid out of the assets of
the Corporation available for distribution to its stockholders, after payment
to the holders of any then outstanding Senior Stock (including, without
limitation, the 14.75% Preferred Stock), but before any distribution is made
on any Junior Stock (including, without limitation, Common Stock), an amount
(such amount the "Liquidation Preference") equal to the greater of (i) the
Stated Value per share of Series A Convertible Preferred Stock held by such
Holder 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 ("Accrued Dividends") and (ii) the liquidation value attributable to
the shares of Common Stock into which such shares of Series A Convertible
Preferred Stock are then convertible on an as-if-converted basis plus Accrued
Dividends. If, upon any voluntary or involuntary liquidation, dissolution or
winding-up of the Corporation, the assets of the Corporation available for
distribution to its stockholders, after payment of all amounts required to be
paid to the holders of any then outstanding Senior Stock, are not sufficient to
pay in full all amounts payable to the holders of outstanding shares of Series
A Convertible Preferred Stock and all other Parity Stock, the Holders of the
Series A Convertible Preferred Stock and the Parity Stock shall share equally
and ratably in any distribution of assets of the Corporation in proportion to
the full liquidation preference and accrued and unpaid dividends to which each
is entitled. After payment of the full amount of the Liquidation Preference,
the Holders of the Series A Convertible Preferred Stock will not be entitled to
any further participation in any distribution of assets of the Corporation.
However, neither the voluntary sale, conveyance, exchange or transfer (for
cash, shares of stock securities or other consideration) of all or
substantially all of the property or assets of the Corporation nor the
consolidation or merger of the Corporation with or into one or more
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<PAGE> 22
other entities, shall be deemed to be a voluntary or involuntary liquidation,
dissolution or winding-up of the Corporation unless such sale, conveyance,
exchange or transfer shall be in connection with a liquidation, dissolution or
winding up of the business of the Corporation.
5. Conversion.
(a) Optional Conversion. Subject to the terms and
conditions of this Section 5, the Holder of any share or shares of Series A
Convertible Preferred Stock shall have the right, at such Holder's option at
any time or from time to time, to convert all or any such shares of Series A
Convertible Preferred Stock into such number of fully paid and non-assessable
shares of Common Stock (the "Conversion Shares") as is obtained by dividing:
(i) (x) the number of shares of Series A
Convertible Preferred Stock so to be converted, multiplied by
(y) the Stated Value of such shares; by
(ii) the conversion price of $7.91 per share of
Series A Convertible Preferred Stock (as adjusted upon the
occurrence of any event described in Section 6 hereof, the
"Conversion Price").
Such rights of conversion shall be exercised by the Holder
thereof by giving written notice (the "Optional Conversion Notice") to the
Corporation that the Holder elects to convert a stated number of shares of
Series A Convertible Preferred Stock into Conversion Shares and by surrender of
a certificate or certificates representing such shares of Series A Convertible
Preferred Stock to the Corporation, duly endorsed (or otherwise in proper form
for transfer, as determined by the Corporation), at the office of the Transfer
Agent at any time during its usual business hours, together with a statement of
the name or names (with address), subject to compliance with applicable laws to
the extent such designation shall involve a transfer, in which the certificate
or certificates for shares of Common Stock shall be issued. The date with
respect to any optional conversion of Series A Convertible Preferred Stock is
effective (the "Optional Conversion Date") shall be the date on which the
Optional Conversion Notice, together with the shares of Series A Convertible
Preferred Stock to be converted pursuant to such notice, have been delivered
and received in accordance with this Section 5.
(b) Mandatory Conversion. If not converted by the
Holders thereof on or prior to the third anniversary of the Issue Date (the
"Conversion Trigger Date"), the Series A Convertible Preferred Stock may be
converted by the Corporation into Conversion Shares at the Conversion Price if,
for any period of 30 consecutive trading
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<PAGE> 23
days following the Conversion Trigger Date, the closing price for the Common
Stock is equal to or greater than 175% of the Conversion Price on each of such
trading days. In the event the Corporation determines to effect such mandatory
conversion of the Series A Convertible Preferred Stock, the Corporation shall,
within 30 days after the expiration of the 30 day trading period described
above, send written notice (the "Mandatory Conversion Notice") by first class
mail, postage prepaid, to each Holder of record of the Series A Convertible
Preferred Stock at such Holder's address as it appears on the stock books of
the Corporation, provided that no failure to give such notice nor any
deficiency therein shall affect the validity of the procedure for conversion of
any shares of Series A Convertible Preferred Stock, except as to the Holder or
Holders to whom the Corporation has failed to give said notice or except as to
the Holder or Holders whose notice was finally judicially determined by a court
of competent jurisdiction to be defective. The Mandatory Conversion Notice
shall state :
(A) the date fixed, which shall in no
event be later than 30 days after the date of the
Mandatory Conversion Notice, for mandatory conversion
of the Series A Convertible Preferred Stock (the
"Mandatory Conversion Date");
(B) the Conversion Price;
(C) that the Holder is to surrender to
the Corporation, at the offices of the Transfer Agent
and in the manner designated, his certificate or
certificates representing the shares of Series A
Convertible Preferred Stock to be converted;
(D) that dividends of the shares of
Series A Convertible Preferred Stock converted shall
cease to accumulate on such Mandatory Conversion
Date; and
(E) that the Holder shall receive a
number of Conversion Shares equal to (i) (x) the
number of shares of Series A Convertible Preferred
Stock held by such Holder, multiplied by (y) the
stated value of such shares; divided by (ii) the
Conversion Price
Following receipt of the Mandatory Conversion Notice, each
Holder of shares of Series A Convertible Preferred Stock shall surrender the
certificate or certificates representing such shares of Series A Convertible
Preferred Stock to the Corporation, duly endorsed (or otherwise in proper form
for transfer, as determined by the Corporation), at the office of the Transfer
Agent at any time during its usual business hours in the manner designated in
the Mandatory Conversion Notice, together with a statement of the name or names
(with address), subject to compliance with
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<PAGE> 24
applicable laws to the extent such designation shall involve a transfer, in
which the certificate or certificates for Conversion Shares shall be issued.
(c) Treatment of Accrued Dividends Upon Conversion. Upon
any conversion of shares of Series A Convertible Preferred Stock, all accrued
but unpaid dividends thereon (including accrued but unpaid dividends on such
dividends) through the Conversion Date shall be automatically converted into
shares of Common Stock. The number of shares of Common Stock payable to such
Holder pursuant to this Section 5(c) (such shares, together with any shares
payable as dividends under Section 3(b), the "Dividend Shares") shall be
determined as follows:
(i) in the event that the Stockholder Approval
either (A) is not required in order to permit the issuance of
shares of Series A Convertible Preferred Stock which, in the
aggregate, are convertible into Common Stock that exceeds 20%
of the total outstanding Common Stock immediately prior to the
Issue Date without the violation, breach or contravention of a
NASDAQ Rule or (B) has been obtained, by dividing (x) the
aggregate amount of accrued but unpaid dividends payable with
respect to the shares of Series A Convertible Preferred Stock
being converted by (y) the Conversion Price; or
(ii) in the event that the Stockholder Approval
(A) is required in order to permit the issuance of shares of
Series A Convertible Preferred Stock which, in the aggregate
are convertible into Common Stock that exceeds 20% of the
total outstanding Common Stock immediately prior to the Issue
Date without the violation, breach or contravention of any
NASDAQ Rule and (B) has not been obtained, by dividing (x) the
aggregate amount of accrued but unpaid dividends payable with
respect to the shares of Series A Convertible Preferred Stock
being converted by (y) the closing price of the Common Stock
on the trading day immediately preceding the Issue Date (with
such closing price being adjusted in accordance with the
provisions of Section 6(f) upon the occurrence of any event
specified in Section 6(a) or 6(b) below, as if such closing
price were the Conversion Price).
(d) Procedures for Conversion. Promptly after the
receipt by the Corporation of the surrendered certificate or certificates for
the share or shares of Series A Convertible Preferred Stock being converted,
the Corporation shall issue and deliver, or cause to be issued and delivered,
to the Holder, registered in such name or names as such Holder may direct,
subject to compliance with applicable laws to the extent such designation shall
involve a transfer, a certificate or certificates for the number of whole
Conversion Shares issuable upon conversion of such share or shares of Series A
Convertible Preferred Stock plus, the number of whole Dividend Shares
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issuable in respect of accumulated dividends pursuant to Section 5(c) above.
With respect to each conversion of Series A Convertible Preferred Stock, to the
extent permitted by law, such conversion shall be deemed to have been effected
and the applicable Conversion Price shall be determined as of the close of
business on the applicable Conversion Date, and at such time the rights of the
Holder of such share or shares of shall cease and (i) with respect to any
conversion pursuant to Section 5(a) above, the person or persons in whose name
or names any certificate or certificates representing Conversion Shares and
Dividend Shares shall be issuable upon such conversion shall be deemed to have
become the holder or holders of record of the shares represented thereby or
(ii) with respect to any conversion pursuant to Section 5(b) above, each
certificate representing the share or shares of Series A Preferred Stock shall
represent only the right of the Holder to receive a certificate or certificates
representing the Conversion Shares and Dividend Shares to which he is entitled
upon surrender of such certificate or certificates. As used herein, the term
"Conversion Date" shall mean the Optional Conversion Date or the Mandatory
Conversion Date, as applicable.
In the event that, in connection with a conversion pursuant to
Section 5(a) above, less than all of the shares represented by any surrendered
certificate or certificates are converted into Conversion Shares, a new
certificate representing the shares of Series A Convertible Preferred Stock not
so converted shall be issued in the name or names or the persons designated by
the Holder to receive such shares, subject to compliance with applicable laws
to the extent such designation shall involve a transfer.
No fractional shares of Common Stock shall be issued upon
conversion of the Series A Convertible Preferred Stock or upon issuance of
Dividend Shares and the number of Conversion Shares and Dividend Shares to be
issued shall be rounded to the nearest whole share. If any fractional interest
in a share of Common Stock would, except for the provisions of the first
sentence of this paragraph, be delivered upon any such conversion or upon
issuance of Dividend Shares, the Corporation, in lieu of delivering the
fractional share thereof, shall pay to the Holder surrendering the Series A
Convertible Preferred Stock for conversion an amount in cash equal to the
Current Market Value of such fractional interest.
In addition, no shares of Series A Convertible Preferred Stock
may be converted unless, prior to such conversion, any (i) applicable
Hart-Scott-Rodino Act waiting period 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 of 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,
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<PAGE> 26
approval, authorization or order would not have a material adverse affect on
the Corporation.
(e) Current Market Value. For the purposes of any
computation under this Certificate of Designation, the Current Market Value per
share of Common Stock or of any other security (such share of Common Stock or
other security herein referred to as a "security") at any date herein specified
shall equal:
(i) if the security is not registered under the
Exchange Act, the value of the security determined as of such
date by an Independent Financial Advisor selected by the
Holders of a majority of the outstanding shares of Series A
Convertible Preferred Stock, subject to the approval of the
Corporation, such approval not to be unreasonably withheld,
for the purpose of making such determination; or
(ii) if the security is registered under the
Exchange Act, the average of the daily market prices of the
security for the 20 consecutive trading days immediately
preceding such date or, if the security has been registered
under the Exchange Act for less than 20 consecutive trading
days before such date, the average of the daily market prices
for all trading days preceding such date for which daily
market prices are available. The daily market price for each
such trading day shall be: (A) in the case of a security
listed or admitted to trading on any National Securities
Exchange, the closing sales price, regular way, on such day,
or if no sale takes place on such day, the average of the
closing bid and asked prices on such day, on the principal
National Securities Exchange on which such security is listed
or admitted, (B) in the case of a security not then listed or
admitted to trading on any National Securities Exchange, the
last reported sale price on such day, or if no sale takes
place on such day, the average of the closing bid and asked
prices on such day, as reported by a reputable quotation
source designated by the Corporation, (C) in the case of a
security not then listed or admitted to trading on any
National Securities Exchange and as to which no such reported
sale price or bid and asked prices are available, the average
of the reported high bid and low asked prices on such day, as
reported by a reputable quotation source or a newspaper of
general circulation in The City of New York customarily
published on each Business Day, designated by the Corporation,
or, if there shall be no bid and asked prices on such day, the
average of the high bid and low asked prices, as so reported
on the most recent day (not more than 10 days prior to the
date in question) for which prices have been so reported or
(D) if the prices specified in clause (A), (B) or (C) are not
available, the Current Market Value of a security shall
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<PAGE> 27
be determined as if such security were not registered under
the Exchange Act.
(f) Value Determination. If required pursuant to Section
5(e)(i), the Current Market Value shall be deemed to be equal to the value
determined by an Independent Financial Advisor and set forth in a written
report by such Independent Financial Advisor (a "Value Report"). In making any
determination of Current Market Value, such Independent Financial Advisor shall
(i) use one or more valuation methods that, in its best professional judgment,
it determines to be most appropriate and (ii) not take into account any
discount for minority interests or lack of liquidity of the relevant security.
The Corporation shall cause such Independent Financial Advisor to deliver the
Value Report to the Board of Directors and Corporation, within 25 days of the
appointment of such Independent Financial Advisor. The Value Report shall
state the Current Market Value of the Common Stock and/or any other securities
being valued, as of the date of determination, and shall contain a brief
statement as to the nature and scope of the examination or investigation upon
which the determination of value was made. The Corporation shall make the
Value Report available for inspection by the Holders of Series A Convertible
Preferred Stock. Any determination of Current Market Value in accordance with
the provisions of this Section 5(f) shall be conclusive as to all Persons
absent manifest error.
6. Adjustments. The Conversion Price and the number of
Conversion Shares issuable upon conversion of the Series A Convertible
Preferred Stock shall be subject to adjustment from time to time as follows:
(a) Adjustments for Change in Common Stock. If the
Corporation at any time after the date of this Agreement:
(i) pays a dividend or makes any other
distribution with respect to shares of its Common Stock in
shares of any class or series of its capital stock, or other
securities;
(ii) subdivides its outstanding shares of Common
Stock into a greater number of shares;
(iii) combines its outstanding shares of Common
Stock into a smaller number of shares; or
(iv) issues any shares of its capital stock in a
reclassification of the shares of its Common Stock (other than
a reclassification in connection with a merger, consolidation
or other business combination governed by Section 6(h)
hereof);
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<PAGE> 28
The number of shares of Common Stock issuable upon conversion
of the Series A Convertible Preferred Stock, at the time of the record date for
such dividend or of the effective date of such subdivision, combination or
reclassification, shall be proportionately adjusted so that the Holder of any
share or shares of Series A Convertible Preferred Stock converted after such
time shall be entitled to receive the aggregate number of Conversion Shares
and/or shares of other capital stock or other securities of the Corporation
which, if such share or shares had been converted immediately prior to such
date, such Holder would have owned upon such exercise and been entitled to
receive by virtue of such dividend, subdivision, combination or
reclassification. An adjustment made pursuant to this Section 6(a) shall
become effective immediately after the record date in the case of a dividend or
distribution and immediately after the effective date in the case of a
subdivision, combination or reclassification. Such adjustment shall be made
successively whenever any event listed above shall occur.
If at any time, as a result of an adjustment made pursuant to
this Section 6(a), the Holder of any share or shares of Series A Convertible
Preferred Stock thereafter converted becomes entitled to receive any securities
other than Conversion Shares, the number of such other securities so receivable
upon exercise of such share or shares of Series A Convertible Preferred Stock
shall be subject to adjustment from time to time in a manner and on terms as
nearly equivalent as practicable to the provisions with respect to the
Conversion Shares issuable upon conversion of the Series A Convertible
Preferred Stock contained in this Section 6(a).
(b) Rights; Options; Warrants. If, at any time after the
Issue Date, the Corporation shall issue or sell Rights (other than in an
issuance subject to Section 6(a) hereof and any Rights referred to in Section
6(c)(iv) below) to all holders of shares of Common Stock, which Rights entitle
the holders thereof to acquire shares of Common Stock at a price per share of
Common Stock (determined by dividing (x) the sum of (A) the total amount
receivable or received by the Corporation in consideration of the sale and
issuance of such Rights, plus (B) the total consideration payable to the
Corporation upon exercise, conversion or exchange thereof, by (y) the total
number of shares of Common Stock covered by such Rights) that is lower than the
Current Market Value price per share of Common Stock as of the record date for
such issuance, the number of Conversion Shares thereafter shall be determined
by multiplying the number of shares of Conversion Shares theretofore issuable
upon the conversion of each share of Series A Convertible Preferred Stock by a
fraction, the numerator of which shall be the sum of (A) the number of shares
of Common Stock outstanding immediately prior to the issuance of such Rights,
plus (B) the number of shares of Common Stock offered for subscription or
purchase pursuant to such Rights, and the denominator of which shall be the sum
of (A) the number of shares of Common Stock outstanding immediately prior to
the issuance of such Rights, plus (B) the number of shares which the aggregate
offering price of the total number of shares of Common Stock offered pursuant
to such
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<PAGE> 29
Rights would purchase at the then Current Market Value per share of Common
Stock, as of the record date for such issuance. Such adjustment shall be made
successively whenever such Rights are issued or sold and shall become effective
on the date of issuance or sale retroactive to the record date for the
determination of stockholders entitled to receive such Rights.
(c) Issuance of Shares of Common Stock at Lower Values.
If, at any time after the Issue Date, the Corporation shall issue or sell any
share of Common Stock or Right (excluding (i) any Right issued or sold in any
transaction covered by Section 6(a) or Section 6(b) hereof, (ii) any share of
Common Stock issued or sold pursuant to a Right outstanding on the date of the
Issue Date, (iii) any Right issued pursuant to the terms and conditions of a
Purchase Agreement, including the Change In Control Warrants, (iv) any share of
Common Stock issued or sold pursuant to a Right, if on the date such Right was
issued, the exercise, conversion or exchange price per share of Common Stock
with respect thereto was at least equal to the Current Market Value per share
of Common Stock, (v) any share of Common Stock or Right issued or sold as
consideration when any corporation or business is acquired, merged into or
becomes part of the Corporation or a subsidiary of the Corporation in an
arm's-length transaction between the Corporation and a Person other than an
Affiliate of the Corporation, (vi) any Rights which may be issued under a
"shareholders' rights" plan and which trade with the Common Stock, (vii) any
share of Common Stock or Right issued by the Corporation to its directors,
officers or employees or any director, officer or employee of any of its
Subsidiaries in the ordinary course of business in connection with any bona
fide equity compensation plan, including any stock grant plan, stock option
plan, stock purchase plan or pension or profit-sharing plan, and (viii) any
shares of Common Stock sold at the then-current market price thereof in a
registered underwritten offering) at a price per share of Common Stock
(determined in the case of Rights, by dividing (x) the sum of (A) the total
amount receivable or received by the Corporation in consideration of the sale
and issuance of such Rights, plus (B) the total consideration payable to the
Corporation upon exercise, conversion or exchange thereof, by (y) the total
number of shares of Common Stock covered by such Rights) that is lower than the
Current Market Value per share of Common Stock immediately prior to such sale
or issuance, the number of Conversion Shares thereafter issuable upon the
conversion of each share of Series A Convertible Preferred Stock shall be
determined by multiplying the number of Conversion Shares theretofore issuable
upon the conversion of each share of Series A Convertible Preferred Stock by a
fraction, the numerator of which shall be the number of shares of Common Stock
outstanding immediately after such sale or issuance (determined as provided
below), and the denominator of which shall be the sum of (A) the number of
shares of Common Stock outstanding immediately prior to such sale or issuance,
plus (B) the number of shares of Common Stock which the aggregate consideration
received by the Corporation (determined as provided below) for such sale or
issuance would purchase at such Current Market Value per share of Common Stock.
Such adjustment shall be made
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<PAGE> 30
successively whenever such Rights are issued or sold and shall be effective
immediately after such issuance or sale.
For purposes of any adjustments made pursuant to this Section
6(c), the shares of Common Stock which the holder of any such Right shall be
entitled to subscribe for or purchase pursuant to such Right shall be deemed to
be issued and outstanding as of the date of the sale or issuance of such Right,
and the consideration received by the Corporation therefor shall be deemed to
be the consideration receivable or received by the Corporation for such Right,
plus the consideration or premiums stated in such Right to be paid for the
shares of Common Stock covered thereby. In case the Corporation shall sell and
issue any share of Common Stock or any Right, for consideration consisting, in
whole or in part, of property other than cash or cash equivalents, then in
determining the "price per share of Common Stock" and the "consideration
received by the Corporation" for purposes of the first sentence of this Section
6(c), the fair value of said property shall be determined by an Independent
Financial Advisor selected by the Holders of a majority of the outstanding
shares of Series A Convertible Preferred Stock, subject to the approval of the
Corporation, such approval not to be unreasonably withheld, and notice of such
determination shall promptly be distributed by the Corporation to each Holder
of Series A Convertible Preferred Stock. In case the Corporation shall sell or
issue any Right together with one or more other securities as part of a unit at
a price per unit, then in determining the "price per share of Common Stock" and
the "consideration received by the Corporation" for purposes of the first
sentence of this Section 6(c), the fair value of such Right then being sold as
part of such unit shall be determined by an Independent Financial Advisor
selected by the Holders of a majority of the outstanding shares of Series A
Convertible Preferred Stock, subject to the approval of the Corporation, such
approval not to be unreasonably withheld, and notice of such determination
shall promptly be distributed by the Corporation to each Holder of Series A
Convertible Preferred Stock.
(d) Expiration of Rights, Options and Conversion
Privileges. Upon the expiration of any unexercised Rights the issuance of
which previously resulted in an adjustment hereunder, the Conversion Price and
the number of Conversion Shares and Dividend Shares issuable upon conversion of
each share of Series A Convertible Preferred Stock shall, upon such expiration,
be readjusted so that thereafter the Conversion Price and the number of
Conversion Shares and Dividend Shares issuable upon conversion of each share of
Series A Preferred Stock shall be such as they would have been had they
originally been adjusted as if (i) the only shares of Common Stock considered
in the adjustment made with respect to such Rights were the shares of Common
Stock, if any, actually issued or sold upon the exercise of such Rights and
(ii) such shares of Common Stock, if any, were issued or sold for the
consideration actually received by the Corporation upon such exercise plus the
consideration, if any, actually received by the Corporation for issuance, sale
or grant of all such Rights, whether or not exercised; provided that no such
readjustment shall have the effect of increasing
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<PAGE> 31
the Conversion Price by an amount, or decreasing the number of shares of Common
Stock issuable upon conversion of each share of Series A Convertible Preferred
Stock by a number, in excess of the amount or number, as the case may be, of
the adjustment initially made with respect to the issuance or sale of such
Rights.
(e) De Minimis Adjustments. No adjustment in the
Conversion Price or number of Conversion Shares or Dividend Shares issuable
upon conversion of any share of Series A 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 Conversion Shares and
Dividend Shares issuable upon conversion of any share of Series A 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. All
calculations shall be made to the nearest one-thousandth of a share or nearest
$.0001, as the case may be.
(f) Adjustment of Conversion Price. Whenever the number
of Conversion Shares issuable upon conversion of any share of Series A
Convertible Preferred Stock is adjusted, as herein provided, the Conversion
Price per share of Common Stock payable upon conversion of each share of Series
A Convertible Preferred Stock shall be adjusted (calculated to the nearest
$.0001) so that it shall equal the price determined by multiplying such
Conversion Price immediately prior to such adjustment by a fraction, the
numerator of which shall be the number of Conversion Shares issuable upon
conversion of any share of Series A Convertible Preferred Stock immediately
prior to such adjustment, and the denominator of which shall be the number of
shares of Common Stock so purchasable immediately thereafter.
(g) Adjustments by Board. In addition to the foregoing
adjustments, the Board of Directors may (but shall have no obligation to) make
any other adjustment, as evidenced by a board resolution delivered to the
Holders, to increase the number of Conversion Shares purchasable upon
conversion of Series A Convertible Preferred Stock, (and/or the number of
Dividends Shares issuable hereunder) or to decrease the Conversion Price
(and/or the amount referred to in Section 5(c) (ii) (y) above) as it may, in
good faith, deem desirable to protect the rights and benefits of Holders
hereunder. Any adjustments made by the Board of Directors pursuant to this
Section 6(g) shall be conclusive absent manifest error.
(h) Consolidation, Merger or Sale of Assets; Liquidation.
Without limiting the provisions of Section 8(b) below, in the event that, at
any time after the Issue Date, the Corporation 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
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<PAGE> 32
Stock (or other securities or property into which the Series A Convertible
Preferred Stock is then convertible), each share of Series A Convertible
Preferred Stock shall, after 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 Corporation, 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
Series A Convertible Preferred Stock) had such Holder's shares of Series A
Convertible Preferred Stock been converted (and Dividend Shares distributed)
immediately prior to such merger, consolidation or sale (or, if applicable, any
record date therefor); and in any such case, the provisions of this Certificate
of Designation with respect to the rights and interests thereafter of the
Holders of shares of Series A 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 Series
A Convertible Preferred Stock. As a condition precedent to the consummation of
any merger, consolidation or sale of assets described in this Section 8(h), 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 Section 8(h) and otherwise take such actions as may
be reasonably requested by the holder of a majority of the outstanding shares
of Series A Convertible Preferred Stock to ensure such compliance.
(i) Limitation on Adjustments. Notwithstanding anything
to the contrary contained herein, in the event that Stockholder Approval is
necessary in order to permit the implementation of the provisions of Sections
6(b) or 6(c),as applicable (or any adjustment to the Conversion Price under
Section 6(f) above triggered by an adjustment under Section 6(b) or 6(c))
without contravention of a NASDAQ Rule, (A) Sections 6(b) and 6(c) (and any
adjustment to the Conversion Price under Section 6(f) triggered by an
adjustment under Section 6(b) or 6(c)) shall not be effective until such
Stockholder Approval is obtained, and (B) the Corporation shall not (without
the affirmative vote of Holders of a majority of the then outstanding shares of
Series A Convertible Preferred Stock, voting or consenting as a single class)
engage in any transaction which would trigger an adjustment under Section 6(b)
or 6(c) until such Stockholder Approval has been obtained.
7. Voting Rights; Amendment; Waiver
(a) The Holders of record of shares of the Series A
Convertible Preferred Stock, except as otherwise required under Delaware law or
as set forth in this
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<PAGE> 33
Certificate of Designation (including without limitation in Sections 7(b), (c)
and (d) below), shall not be entitled or permitted to vote on any matter
required or permitted to be voted on by the stockholders of the Corporation.
(b) The Holders of a majority of the then outstanding
shares of Series A Convertible Preferred Stock may, by affirmative vote or
consent of such Holders, voting or consenting as a single class, (i) waive
compliance by the Corporation with any provisions of this Certificate of
Designation; and/or (ii) waive any default by the Corporation of its
obligations set forth in Section 8 hereunder; provided that no such waiver may
be granted without the consent of each Holder of the then outstanding shares of
Series A Convertible Preferred Stock affected thereby if such waiver adversely
affects (i) the Conversion Price; (ii) the Conversion Date; (iii) the
Liquidation Preference; (iv) the dividend rates hereunder or the form or timing
of the payment of dividends hereunder for the Series A Convertible Preferred
Stock; or (v) the voting rights of the Series A Convertible Preferred Stock,
including, without limitation, under this Section 7(b).
(c) The Corporation may not, without the affirmative vote
or consent of the Holders of a majority of the then outstanding shares of
Series A Convertible Preferred Stock, voting or consenting as a single class,
(i) modify or amend any obligation or covenant of the Corporation hereunder;
(ii) authorize, create (by reclassification or otherwise) or issue any Senior
Stock (other than shares of 14.75% Preferred Stock outstanding on the Issue
Date and additional shares of 14.75% Preferred Stock issuable as dividends on
shares of 14.75% Preferred Stock, including as additional dividends (as defined
in the certificate of designation with respect to the 14.75% Preferred Stock)
or Parity Stock (other than shares of 12.75% Preferred Stock outstanding on the
Issue Date and additional shares of 12.75 Preferred Stock issuable as dividends
on shares of 12.75% Preferred Stock, including as additional dividends (as
defined in the certificate of designation with respect to the 12.75% Preferred
Stock)), or any security convertible into, exchangeable for or evidencing the
right to purchase any Senior Stock or Parity Stock; (iii) the Corporation shall
not 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
merger or consolidation to which the Corporation is a party, the sale, lease or
exchange of all or substantially all of the Corporation's property and assets,
or the dissolution of the Corporation, 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 to prior six months after the Final
Closing (as such term is defined in the Purchase Agreements) or, if there is no
Final Closing, on or prior to six months after the Issue Date; or (iv) amend
or otherwise alter or modify its by-laws or its Certificate of Incorporation or
this Certificate of Designation so as to affect adversely the powers, rights
or privileges of the Holders of the Series A Convertible Preferred
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<PAGE> 34
Stock or reduce the time for any notice to which such Holders may be entitled,
including without limitation any such amendment, modification or alteration of
its bylaws, Certificate of Incorporation or this Certificate of Designation in
connection with or as a result of any merger or consolidation of the
Corporation; provided that no such modification, amendment, alteration or other
change pursuant to the preceding clauses (i) and (iii) of this Section 7(c) may
be made without the consent of each Holder of the then outstanding shares of
Series A Convertible Preferred Stock affected thereby if it would adversely
affect (A) the Conversion Price; (B) the Conversion Date; (C) the Liquidation
Preference; (D) the dividend rates hereunder or the form or timing of the
payment of dividends hereunder for the Series A Convertible Preferred Stock; or
(E) the voting rights of the Series A Convertible Preferred Stock, including,
without limitation, under this Section 7. Any amendment or modification to
this Certificate of Designation which is favorable to Huff and does not treat
all Holders uniformly shall apply equally to Greenwich.
(d) In any case in which the Holders of Series A
Convertible Preferred Stock shall be entitled to vote, give a consent, make a
determination or take any similar action under this Certificate of Designation
or pursuant to Delaware law, each Holder of Series A Convertible Preferred
Stock entitled to vote with respect to each such matter shall be entitled to
one vote for each share of Series A Convertible Preferred Stock held. For all
purposes of voting, giving a consent, making a determination or taking any
similar actions are aforesaid, shares of Series A Convertible Preferred Stock
held by the Corporation or any of its Subsidiaries shall not be deemed
outstanding or entitled to vote.
(e) The Corporation in its sole discretion may, without
the vote or consent of any Holders of the Series A Convertible Preferred Stock,
amend or supplement this Certificate of Designation:
(i) to provide for uncertificated Series A
Convertible Preferred Stock in addition to or in place of
certificated Series A Convertible Preferred Stock; or
(ii) to make any change that would provide any
additional rights or benefits to the Holders of the Series A
Convertible Preferred Stock.
8. Certain 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,
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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
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<PAGE> 36
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 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
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<PAGE> 37
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 related transactions on a pro forma
basis (including, without limitation, any Indebtedness
incurred or anticipated to be incurred in connection with or
in respect of such transaction or series of related
transactions) 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 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
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<PAGE> 38
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:
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<PAGE> 39
(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;
(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
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<PAGE> 40
(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 manner set forth in
Section 7(b), 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% Certificate of Designation"), waived (including by
way of amendment) the Corporation's default under the
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<PAGE> 41
corresponding provisions (Sections 8(a), 8(b), 8(c) and 8(d), respectively) of
the 12.75% Certificate of Designation.
9. Payment
(a) All amounts payable in cash with respect to the
Series A Convertible Preferred Stock shall be payable in United States dollars
at the office or agency of the Corporation maintained for such purpose within
the City and State of New York or, at the option of the Corporation, payment of
dividends (if any) may be made by check mailed to the Holders of the Series A
Convertible Preferred Stock at their respective addresses set forth in the
register of Holders of Series A Convertible Preferred Stock maintained by the
Transfer Agent.
(b) Any payment on the Series A Convertible Preferred
Stock due on any day that is not a Business Day need not be made on such day,
but may be made on the next succeeding Business Day with the same force and
effect as if made on such due date, provided that dividends shall continue to
accrue until such next succeeding Business Day.
(c) The Corporation will initially act as the "Transfer
Agent" and the "Paying Agent." The Corporation may at any time terminate the
appointment of any Paying Agent and appoint additional or other Paying Agents;
provided that until the Series A Convertible Preferred Stock has been delivered
to the Corporation for cancellation, or moneys sufficient to pay the
Liquidation Preference of the Series A Convertible Preferred Stock plus,
without duplication, accumulated and unpaid dividends (including an amount in
cash equal to a prorated dividend for any partial dividend period) thereon
shall have been made available for payment and either paid or returned to the
Corporation as provided in this Certificate of Designation, the Corporation
shall maintain an office or agency in the Borough of Manhattan, The City of New
York for surrender of shares of Series A Convertible Preferred Stock for
payment and exchange.
(d) All moneys and shares of Series A Convertible
Preferred Stock deposited by the Corporation with any Paying Agent or held by
the Corporation in trust for the payment of the Liquidation Preference and
accumulated and unpaid dividends on the Series A Convertible Preferred Stock,
which moneys and shares remain unclaimed at the end of two years after such
payment has become due and payable shall be repaid to the Corporation, and the
Holder of the shares of Series A Convertible Preferred Stock in respect of
which such moneys and shares were so deposited or held in trust shall
thereafter look only to Corporation for payment thereof.
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<PAGE> 42
10. Reissuance of Shares of Series A Convertible
Preferred Stock
Shares of Series A Convertible Preferred Stock that have been
issued and reacquired in any manner, including shares purchased or redeemed or
exchanged, shall (upon compliance with any applicable provisions of the laws of
Delaware) have the status of authorized but unissued shares of Preferred Stock
of the Corporation undesignated as to series and may be redesignated and
reissued as part of any series of Preferred Stock of the Corporation, including
the Series A Convertible Preferred Stock, provided that any issuance or
reissuance of such shares as Series A Convertible Preferred Stock must be in
compliance with the terms thereof.
11. Headings of Subdivisions
The headings of the various subdivisions hereof are for
convenience of reference only and shall not affect the interpretation of any of
the provisions hereof.
12. Severability of Provisions
If any powers, preferences and relative, participating,
optional and other special rights of the Series A Convertible Preferred Stock
and the qualifications, limitations and restrictions thereof set forth in this
Certificate of Designation (as it may be amended from time to time) is invalid,
unlawful or incapable of being enforced by reason of any rule or law or public
policy, all other powers, preferences and relative, participating, optional and
other special rights of the Series A Convertible Preferred Stock and the
qualifications, limitations and restrictions thereof set forth in this
Certificate of Designation (as so amended) which can be given effect without
the invalid, unlawful or unenforceable powers, preferences and relative,
participating, optional and other special rights of the Series A Convertible
Preferred Stock and the qualifications, limitations and restrictions thereof
shall, nevertheless, remain in full force and effect, and no powers,
preferences and relative, participating, optional or other special rights of
the Series A Convertible Preferred Stock and the qualifications, limitations
and restrictions thereof herein set forth shall be deemed dependent upon any
other such powers, preferences and relative, participating, optional or other
special rights of Series A Convertible Preferred Stock and qualifications,
limitations and restrictions thereof unless so expressed herein.
Executed at 12975 Worldgate Dr., Herndon VA on the 3rd day of March, 2000.
/s/ DENNIS J. KERN
-----------------------------
Dennis J. Kern
Chief Operating Officer
Attest: /s/ RILEY M. MURPHY
-----------------------------
Riley M. Murphy
Secretary
42
<PAGE> 1
MASTER EQUIPMENT LEASE AGREEMENT
Agreement No. 1970 Dated as of December 13, 1999
between
GATX CAPITAL CORPORATION
Four Embarcadero Center, Suite 2200
San Francisco, CA 94111
as Lessor
and
e.SPIRE COMMUNICATIONS, INC.
a Delaware corporation
131 National Business Parkway, Suite 100
Annapolis Junction, Maryland 20701
as Lessee
LESSOR'S COMMITMENT: $10,413,775
Initial Rent Factor: 5.733% quarterly Initial Lease Term: 6 years
Treasury Base Rate 5.72% Treasury Note Maturity 6 years
Initial Implicit Rate 12.00%
Eligible Equipment: Not less than four (2) Lucent Technologies, Inc. 5ESS
Switches, including host switches, remote modules
together with peripheral equipment, system software and
upgrades thereto, fiber optic connections to local
tandems, installation costs, and other related
telecommunications networking equipment acceptable to
Lessor.
The terms and information set forth on this cover page are a part of
the MASTER EQUIPMENT LEASE AGREEMENT, dated as of the date first written above
(this "Lease"), entered into by and between GATX CAPITAL CORPORATION ("Lessor")
and the Lessee set forth above, the terms and conditions of which are as
follows:
<PAGE> 2
LESSOR'S OBLIGATIONS UNDER THIS LEASE AND EACH SCHEDULE ARE SUBJECT TO
THE PRIOR SATISFACTION OF THE CONDITIONS SET FORTH ON RIDER I HERETO.
1. DEFINITIONS: Unless otherwise defined in this Lease (which term
shall include the cover page, any Rider, any Exhibit or any Schedule hereto),
capitalized terms shall have the following meanings:
"Commitment Termination Date" means the earlier of (i) the first
anniversary of the earlier of (A) the date of first funding of a Schedule
hereunder or (B) the same day of the month as the date hereof occurring in the
third (3rd) month after the date hereof, or (ii) the same day of the month as
the date hereof occurring in the sixth (6th) month after the date hereof if no
Schedule shall have been funded by such date; provided, however, that if a
specific installation of Equipment has been identified prior to the date that
would otherwise be the Commitment Termination Date, the Commitment Termination
Date shall be extended once for not more than three (3) months.
"Delivery Date" means, with respect to any Schedule, the date first set
forth on such Schedule.
"EBITDA" means, for any period, the consolidated net income (loss) of
Lessee and its subsidiaries (excluding extraordinary gains and non-cash
extraordinary losses) for the period, plus interest expense, tax expense,
depreciation and amortization for the period, determined in accordance with
generally acceptable accounting principles.
"Eligible Equipment" means Equipment of the types listed following such
term on the cover page of this Lease to the extent acceptable to Lessor.
"Environmental Law" means the Resource Conservation and Recovery Act of
1987, the Comprehensive Environmental Response, Compensation and Liability Act,
and any other Federal, state or local statute, law, ordinance, code, rule,
regulation, order or decree (in each case having the force of law) regulating or
imposing liability or standards of conduct concerning any Hazardous Materials or
other hazardous, toxic or dangerous waste, constituent, or other substance,
whether solid, liquid or gas, as now or at any time hereafter in effect.
"Equipment" means all Units listed in any Schedule together with all
replacement parts, additions, accessions and accessories to such Units.
"Event of Default" shall have the meaning set forth in Section 12
hereof.
"GATX II-A Lease" means the Master Equipment Lease Agreement, dated as
of the date hereof, between Lessee and GATX Telecom Investors II-A, L.L.C.
"Hazardous Material" means any hazardous or toxic substance, material,
pollutant or waste which is regulated by any Federal, state or local
governmental authority.
"Implicit Rate" means, with respect to a Schedule, an implicit interest
rate used in calculating the Rent Factor applicable to such Schedule, calculated
as set forth in Section 3(b) of this Lease.
"Initial Implicit Rate" means the implicit interest rate set forth
following such term on the cover page of this Lease.
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<PAGE> 3
"Initial Lease Term" means the period of months set forth following
such term on the cover page of this Lease.
"Initial Rent Factor" means the Rent Factor set forth following such
term on the cover page of this Lease calculated using the Initial Implicit Rate.
"Interim Rental Payment" shall have the meaning set forth in Section
3(a) of this Lease.
"Lessor's Commitment" means the maximum amount that Lessor may be
obligated to fund under the Lease, which amount is set forth opposite such term
on the cover page of this Lease; provided, however, that Lessor's obligation to
fund any amount in excess of $15,000,000 is subject to Lessee having closed a
sale after the date hereof of its non-redeemable equity securities having net
proceeds to Lessee of not less than $100,000,000.
"Lessor's Cost" means, with respect to a Unit of Equipment, the total
cost to Lessor of purchasing such Unit, as indicated on the applicable Schedule.
"Material Adverse Change" means either (a) as of the end of any fiscal
quarter of Lessee, any negative variance of actual EBITDA for such quarter of
greater than 20% from the mutually agreed upon forecasted EBITDA for such
quarter (as set forth in the projections of Lessee dated as of August 2, 1999),
or (b) as of the end of any fiscal quarter of Lessee, any negative variance of
actual cumulative EBITDA for the period beginning on the first day of the fiscal
quarter during which this Lease is executed of greater than 10% from the
mutually agreed upon forecasted EBITDA for such period (as set forth in the
projections of Lessee dated as of August 2, 1999).
"Rent Commencement Date" shall have the meaning, with respect to any
Schedule, set forth in Section 3(a) of such Schedule.
"Rent Factor" means, with respect to a Schedule, the rent factor
calculated using the Implicit Rate applicable on the date of preparation of such
Schedule.
"Rental Payment" means, for any Schedule, the quarterly rent payment
for the Units identified in such Schedule.
"Schedule" or "Schedule No." means a schedule in the form of Exhibit D
to this Lease identifying this Lease and incorporating this Lease by reference,
which is executed by both parties hereto.
"Stipulated Loss Value" shall have the meaning set forth in Section
11(e).
"Term" means the Initial Lease Term, together with any renewal or
extension thereof.
"Termination Value" means that percentage of Lessor's Cost of the
affected Unit(s) set forth in the table attached to the applicable Schedule as
Annex C opposite the Rental Payment date next following the event giving rise to
Lessee's obligation to pay Termination Value.
"Treasury Base Rate" means the interest rate set forth following such
term on the cover page of this Lease.
"Treasury Note Maturity" means the period set forth following such term
on the cover page of this Lease.
3
<PAGE> 4
"Unit" means an item of Equipment.
2. LEASE: Lessor agrees to lease to Lessee and Lessee agrees to lease
from Lessor the Equipment described in each Schedule on the terms and subject to
the conditions specified herein and therein. Each Schedule shall constitute a
separate and independent lease and contractual obligation of Lessee
incorporating the terms of this Lease. Lessor's obligation to fund Schedules
under this Lease shall terminate on the Commitment Termination Date; provided,
however, that if the event in either clause (i) or clause (ii) of the definition
of Commitment Termination Date shall occur and Lessee shall have ordered
additional Equipment prior to such date and identified the specific installation
of such Equipment in writing to Lessor, then the Commitment Termination Date
shall be extended by three months. Lessor may, in its sole discretion, terminate
its commitment herein to fund the Lessor's Commitment or any unfunded portion
thereof at any time if: (a) there is any Material Adverse Change, or (b) any
Event of Default exists. Lessor shall have no obligation to fund any Schedule if
any term or condition in such Schedule is not satisfied by the Delivery Date of
such Schedule. This Lease, and Lessee's obligation to pay all rent and other
sums hereunder, shall constitute a "finance lease" under the California Uniform
Commercial Code ("UCC") and shall be absolute and unconditional, and shall not
be subject to, and Lessee hereby waives any right of or to, abatement,
reduction, set-off, defense or counterclaim. Lessee waives any and all rights
and remedies conferred upon Lessee by UCC Sections 10508 through 10522,
including (without limitation) Lessee's rights to (i) cancel or repudiate this
Lease, (ii) reject or revoke acceptance of the leased property, (iii) recover
damages from Lessor for breach of warranty or for any other reason, (iv) claim a
security interest in any rejected property in Lessee's possession or control,
(v) deduct from Rental Payments all or any part of any claimed damages resulting
from Lessor's default under this Lease, (vi) accept partial delivery of the
Equipment, (vii) "cover" by making any purchase or lease of other property in
substitution for property due from Lessor, (viii) recover from the Lessor any
general, special, incidental or consequential damages, for any reason
whatsoever, and (ix) seek specific performance, replevin or the like for any of
the Equipment. Lessee acknowledges that it has received and approved the terms
of the agreements with the vendors under which Lessor will, subject to the terms
and conditions of this Lease, purchase the Units. The Units shall be leased for
commercial purposes only, and not for consumer, personal, home or family
purposes.
3. TERM AND RENTALS: THIS LEASE SHALL BE EFFECTIVE UPON EXECUTION AND
DELIVERY HEREOF by Lessee and Lessor. (a) The Initial Lease Term for each
Schedule shall commence upon the Rent Commencement Date set forth in such
Schedule. For the Initial Lease Term of such Schedule, Lessee agrees to pay
Lessor aggregate rentals equal to the number of quarters in the Initial Lease
Term of such Schedule multiplied by the amount of the Rental Payment specified
in such Schedule. In addition, for the period from the Delivery Date of each
Schedule until such Schedule's Rent Commencement Date, Lessee shall pay an
interim rental ("Interim Rental Payment") equal to the product of (i) the total
annual rental for the first year of the Initial Lease Term of such Schedule
divided by 365 and (ii) the actual number of days between the Delivery Date and
the Rent Commencement Date, including the Delivery Date but excluding the Rent
Commencement Date. The Interim Rental Payment shall be payable as set forth in
each Schedule to this Lease. Lessor will make reasonable efforts to send Lessee
invoices for Rental Payments, but the failure to do so or the incorrectness of
any invoice will not relieve Lessee of its obligation to pay all amounts,
including Rental Payments, due under this Lease. The Interim Rental Payment for
each Schedule is due on the Delivery Date for such Schedule and the remaining
Rental Payments are due commencing on the Rent Commencement Date (which shall be
the first day of a calendar month) and thereafter on the first day of each
succeeding three-month period of the Term, or as specified in the applicable
Schedule. Any overdue payments shall accrue interest at a rate per annum equal
to the highest implicit interest rate for any Schedule plus 2%, or the highest
lawful rate, whichever is less. Any amount which is due and payable on a day
which is not a business day shall be payable on the next succeeding business
day. (b) The Rent Factor will be calculated for each Schedule based on a basis
point for basis point adjustment (if any) to the Initial Implicit Rate
(applicable to the type of Equipment being funded under such Schedule) equal to
any increase from the
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<PAGE> 5
initial Treasury Base Rate in the U.S. Treasury note rate for notes of a term
equal to the Treasury Note Maturity as quoted in The Wall Street Journal dated
the fifth Business Day prior to funding. (c) It is not the intent of the parties
to create rent or other payment obligations of Lessee which will be considered
usurious under applicable law. However, if any such payment shall be found to be
usurious by a court of competent jurisdiction, then Rental Payments or such
other amounts shall automatically be reduced to the highest rate or amounts
permitted by applicable law and the usurious portion of the Rental Payments or
such other amounts shall be applied to the Lessee's remaining obligations under
the Lease in a manner reasonably determined by Lessor. If Lessee retains
possession of any Unit after the expiration or termination of this Lease, Rental
Payments shall continue to be paid with respect to such Unit at the rate set
forth in Section 3(a) of the Schedule relating to such Unit until all
obligations of Lessee under this Lease relating to such Unit, including, without
limitation, Rental Payments and payments due under Section 4 of this Lease, have
been satisfied. This Lease may only be terminated as expressly provided herein.
4. OPTIONS AT END OF INITIAL LEASE TERM:
(a) Provided that the Lease has not been terminated and that
no Event of Default or event which, with notice or lapse of time or both, would
become an Event of Default shall have occurred and be continuing (in the case of
clauses (i) and (ii) below only), not more than 180 days and not less than 90
days prior to the expiration of the Initial Lease Term of the Units which are
subject to each Schedule, by written notice to Lessor, Lessee shall irrevocably
elect one of the following options in clauses (i), (ii) or (iii) below:
(i) Lessee's Option to Renew: At the expiration of the
Initial Lease Term of a Schedule, Lessee may elect to renew the Lease with
respect to any or all of the Units under such Schedule for not less than twelve
(12) months or the remainder of a Unit's remaining useful life if shorter, for a
rent equal to the "Fair Rental Value" (as defined in Section 4(b) below) of such
Units for such additional period, which rent shall be paid quarterly in advance.
(ii) Lessee's Option to Purchase: At the expiration of the
Initial Lease Term of a Schedule or any renewal or extension thereof, Lessee may
elect to purchase any or all of the Units under such Schedule to the Lease for a
purchase price equal to the "Fair Market Value" (as defined in Section 4(b)
below) thereof as of the end of the Initial Lease Term of such Schedule plus any
applicable sales or other transfer tax.
(iii) Lessee's Option to Return: At the expiration of the
Initial Lease Term of a Schedule, Lessee may elect to return all, but not less
than all, of the Units subject to such Schedule in accordance with Section 6(c).
At the expiration of the Initial Lease Term of any such Schedule, assuming
Lessee returns the Equipment, Lessee shall pay to Lessor a remarketing fee equal
to five percent of the original Lessor's Cost of the Units subject to such
Schedule.
If none of the foregoing options is duly exercised by Lessee, this Lease shall
be renewed at the rental in effect immediately prior to the renewal with respect
to all Units covered by the applicable Schedule from the expiration date of the
Initial Lease Term of such Schedule on a quarter to quarter basis. Lessee may
terminate any such extended term on 90 days' written notice to Lessor and shall
along with such notice elect one of the options in clauses (i), (ii) or (iii)
above.
(b) Fair Market Value or Fair Rental Value, as the case may
be, shall be determined on the basis of and shall be equal in amount to the
value which would obtain in an arm's-length transaction between an informed and
willing buyer-user or lessee-user (other than a used equipment dealer) and an
informed and willing seller or lessor under no compulsion to sell or lease, on
the assumptions that: such Units (i) are being sold "in place and in use"; (ii)
are free and clear of all liens and encumbrances; and (iii) are in the
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<PAGE> 6
condition required upon the return of the Units under Section 9 of this Lease.
In such determination, costs of removal from the location of current use shall
not be a deduction from such value(s).
(c) Lessor shall initially determine the Fair Market Value or
Fair Rental Value within 30 days of receipt of notice of the election to
purchase or renew the Lease with respect to a Unit. If Lessee does not agree
with the determination of the Fair Market Value or Fair Rental Value of any Unit
it may within 10 days after receipt of Lessor's determination, require that the
determination be made by a certified independent appraiser paid for by Lessee
and approved by both Lessor and Lessee, such approvals not to be unreasonably
withheld. The appraiser shall be furnished with a letter of instruction
concerning the preparation of the appraisal setting forth the guidelines
specified in Section 4(b) above, together with a copy of the Lease and Schedule
and, to the extent available, related purchase orders and/or invoices. The
appraiser shall be instructed to make such determination within 30 days
following appointment. The determination made by the appraiser shall be final
and binding on both Lessor and Lessee.
(d) The purchase of the Units by Lessee pursuant to its option
herein shall be "AS IS, WHERE IS", without recourse to or any warranty by
Lessor, other than a warranty that the Units are free and clear of liens and
encumbrances resulting from acts of Lessor.
5. WARRANTIES; INDEMNITY:
(a) Lessee acknowledges that it has made the selection of each
Unit based upon its own judgment. LESSOR MAKES NO EXPRESS OR IMPLIED WARRANTIES
INCLUDING, WITHOUT LIMITATION, THOSE OF DESCRIPTION, INFRINGEMENT,
MERCHANTABILITY OR FITNESS FOR A PARTICULAR USE OR PURPOSE WITH RESPECT TO THE
EQUIPMENT AND HEREBY DISCLAIMS THE SAME. Lessor shall have no liability for any
damages, whether direct or consequential, incurred by Lessee as a result of any
defect or malfunction of a Unit. Lessee agrees to look solely to the
manufacturer or vendor of any defective or malfunctioning Unit for the repair or
replacement of such Unit and to continue to make all Rental Payments with
respect to such Unit in spite of such defect or malfunction. Lessor hereby
assigns to Lessee, for and during the Term, any warranty of the manufacturer or
vendor issued to Lessor with respect to any Unit.
(b) Lessee shall indemnify, reimburse and hold Lessor
(including without limitation, each of its partners) and each of their
respective successors, assigns, agents, officers, directors, shareholders,
servants, agents and employees harmless from and against all liabilities,
losses, damages, actions, suits, demands, claims of any kind and nature
(including, without limitation, claims relating to environmental discharge,
cleanup or compliance), and all costs and expenses whatsoever to the extent they
may be incurred or suffered by such indemnified party in connection therewith
(including, without limitation, reasonable attorneys' fees and expenses), fines,
penalties (and other charges of applicable governmental authorities), licensing
fees relating to any Unit, damage to or loss of use of property (including,
without limitation, consequential or special damages to third parties or damages
to Lessee's property), or bodily injury to or death of any person (including,
without limitation, any agent or employee of Lessee) (each a "Claim"), directly
or indirectly relating to or arising out of the acquisition, use, lease or
sublease, ownership, operation, possession, control, storage, return or
condition of any Unit during the Term or in connection with the return of the
Equipment in accordance with the terms of this Lease (regardless of whether such
Unit is at the time in the possession of Lessee), the falsity of any non-tax
representation or warranty of Lessee or Lessee's failure to comply with the
terms of the Lease during the Term. The foregoing indemnity shall cover, without
limitation, (i) any Claim in connection with a design or other defect (latent or
patent) in any Unit, (ii) any Claim for infringement of any patent, copyright,
trademark or other intellectual property right, (iii) any Claim resulting from
the presence on or under or the escape, seepage, leakage, spillage, discharge,
emission or release from
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<PAGE> 7
any Unit of any Hazardous Materials, including, without limitation, any Claims
asserted or arising under any Environmental Law, or (iv) any Claim for
negligence or strict or absolute liability in tort; provided, however, that
Lessee shall not indemnify Lessor for any liability incurred by Lessor as a
direct and sole result of Lessor's gross negligence or willful misconduct. Such
indemnities shall continue in full force and effect, notwithstanding the
expiration or termination of this Lease. Upon Lessor's written demand, Lessee
shall assume and diligently conduct, at its sole cost and expense, the entire
defense of Lessor and its agents, employees, successors and assigns against any
indemnified Claim described in this Section 5. Lessee shall not settle or
compromise any Claim against or involving Lessor without first obtaining
Lessor's written consent thereto, which consent shall not be unreasonably
withheld.
6. TITLE, LOCATION AND RETURN:
(a) Lessor and Lessee hereby confirm their intent that the
Equipment remain and be deemed personal property and that title thereto shall
remain in Lessor. If requested at any time by Lessor, Lessee will place in a
conspicuous location on each item of Equipment a notice (to be supplied by
Lessor) which reads: "GATX CAPITAL CORPORATION - Owner/Lessor". Such
notice shall not be removed (or if damaged such notice shall be replaced) until
the Equipment is returned to Lessor or purchased by Lessee.
(b) Lessee may not remove the Equipment from its place of
installation set forth in the applicable Schedule (i) in the case of a removal
to a different state, without having given Lessor thirty (30) days' prior
written notice to Lessor and executing such financing statements, instruments or
other documents as Lessor may reasonably request to protect its interest in the
Equipment, or (ii) in the case of a removal to a location within the same state,
without giving notice to Lessor within ninety (90) days after such removal.
Lessor shall have the right to inspect the Equipment during regular business
hours, with reasonable notice, and in compliance with Lessee's reasonable
security procedures. Lessee shall keep the Equipment free and clear of all liens
and encumbrances except those created by Lessor.
(c) If for any reason the Equipment is to be returned to
Lessor, Lessee shall, together with the written notice of return (if
applicable):
(i) Provide Lessor a detailed inventory of all of the
Units to be returned (including each major component). The inventory should
include a listing of model, serial numbers for all components comprising the
Equipment, circuit boards, modules and software features.
(ii) Provide or cause the vendors or manufacturers of the
Units to provide up-to-date (1) service manuals, blue prints, process flow
diagrams and operating manuals including replacements and/or additions thereto;
and (2) documents detailing equipment configuration, operating requirements,
diagrams, maintenance records and other technical data concerning the set-up and
operation of the Units.
(iii) Provide to Lessor certifications from each vendor or
manufacturer of a Unit that such Unit (as of the date of return) (1) has been
tested and is operating in accordance with the manufacturer's specifications,
together with a report detailing the condition of the Unit, the results of such
test(s) or inspection(s) and all repairs that were performed as a result of such
test(s) or inspection(s), (2) that the Unit qualified for the manufacturer's
used equipment maintenance program, if applicable; and (3) that all component
parts are in good operating condition and meet or exceed the manufacturer's
minimum recommended specifications. Such certification as to qualification for
the manufacturer's used equipment maintenance program, if applicable, shall be
transferable to another operator of the Unit and shall permit another operator
to receive a transfer of any software license and to otherwise enjoy all rights
and privileges of use of the Unit as if it were the original user of the Unit.
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<PAGE> 8
In addition, during the period after notice is given of a return of Units and in
connection with the return, Lessee shall at its expense:
(i) Make the Units to be returned, to the extent they were
manufactured by Lucent, available for on-site operational inspections by Lessor
under power and provide personnel, power and other requirements necessary to
demonstrate electrical, mechanical and other functionality of each Unit.
(ii) Clean and treat all Units to be returned with respect
to rust, corrosion and appearance in accordance with the manufacturer's
recommendation and consistent with the best practices of dealers in used
equipment similar to the Units and remove all Lessee installed markings which
are not necessary for the operation, maintenance or repair of the Units.
(iii) Ensure that all Units to be returned are free of all
Hazardous Materials (except to the extent that Hazardous Materials contained in
Units are maintained in accordance with applicable law) and conform to all
applicable local, state and federal laws, and health and safety guidelines which
may be in effect at the time of return.
(iv) Allow Lessor the right to attempt resale of the Units
at the Units' location with the Lessee's full cooperation and assistance, prior
to and for a period of up to sixty (60) days after the end of the Initial Lease
Term (or any extension thereof).
(v) At Lessor's request, provide insurance (but at
Lessor's expense) and safe, secure storage for the Units for a period of up to
sixty (60) days after the end of the Initial Lease Term (or any extension
thereof).
(vi) Provide for the deinstallation, packing, transporting
and certifying of the Units (as of the date of return) including, without
limitation, (1) deinstallation of the Units by the vendor's or manufacturer's
representative or other qualified personnel acceptable to Lessor; (2) proper
packing of the Units for shipping in accordance with the vendor's or
manufacturer's recommendations.
(vii) If applicable, provide for the professional
decontamination of the Units and have the Units certified for removal and
transport by appropriate authorities, in accordance with industry standards and
applicable laws, rules and regulations, and consistent with the mode of
transportation specified by Lessor.
(viii) Ship the Units (together with all "ship group"
items such as cables, manuals, circuit packs and other accessories) to not more
than two (2) locations anywhere in the continental United States selected by
Lessor and provide for a policy of transit insurance covering such shipment with
Lessor named as loss payee thereof.
7. SUBLEASE, ASSIGNMENT: Lessee acknowledges and agrees that
Lessor may, subject to the terms of this Lease, sell, assign, grant a security
interest in, or otherwise transfer all or any part of its rights, title and
interest in this Lease and the Equipment; provided, however, that either (i) any
such transfer shall be either to an affiliate of Lessor which does not provide
telecommunications services which are competitive with those services then
provided by the Company or its subsidiaries, or (ii) any such transfer (A) is to
an institutional investor having a tangible net worth of not less than
$50,000,000 and which does not provide telecommunications services which are
competitive with those services then provided by the Company or its
subsidiaries, and (B) will result in Lessor retaining at least a twenty-five
percent (25%) interest in each Schedule to this Lease. Upon Lessor's written
notice, Lessee shall, if requested, pay directly to such assignee without
abatement, deduction or set-off all amounts which become due hereunder. Lessee
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<PAGE> 9
waives and agrees it will not assert against such assignee any counterclaim or
set-off in any action for rent under the Lease. Such assignee shall have and be
entitled to exercise any and all rights and remedies of Lessor hereunder, and
all references herein to Lessor shall include Lessor's assignee. Lessee
acknowledges that such a sale, assignment, grant or transfer would neither
materially change the Lessee's duties nor materially increase the burdens or
risks imposed on the Lessee under this Lease. LESSEE MAY NOT, WITHOUT LESSOR'S
PRIOR WRITTEN CONSENT, SUBLEASE, TRANSFER, DISPOSE OF, GRANT A SECURITY INTEREST
IN OR ASSIGN ITS RIGHTS IN RESPECT OF ANY UNIT OR ITS RIGHTS OR OBLIGATIONS
UNDER THIS LEASE (except (x) to a subsidiary or other party so long as Lessee
remains primarily liable under this Lease and each Schedule or (y) to a
successor in interest to all or substantially all of the business of Lessee to
which the Equipment relates, provided, that such successor has a net worth
(after giving effect to the business and assets of Lessee acquired by such
successor) greater than or equal to that of Lessee at the time of execution of
this Lease as determined in good faith by Lessor prior to such transfer).
8. TAXES: Lessee agrees to pay if and when due, in addition to
other amounts due hereunder and under each Schedule, all fees and assessments,
and all sales, use, property, excise and other taxes and charges (including all
interest and penalties) (collectively "Taxes"), now or hereafter imposed by any
governmental body or agency upon any of the Equipment or upon the purchase,
ownership, possession, leasing, operation, use, rentals or other payments, or
disposition hereunder whether payable by Lessor or Lessee (exclusive of taxes on
or measured by Lessor's net income). Lessee agrees to prepare and file promptly
with the appropriate offices any and all tax and similar returns required to be
filed with respect thereto, or, if requested by Lessor, to notify Lessor of such
requirements and furnish Lessor with all information required by Lessor so that
it may effect such filing, at Lessee's expense. Any Taxes paid by or imposed on,
Lessor on behalf of Lessee shall become immediately due and payable on Lessor's
demand. Lessor, as owner, shall be entitled to any and all depreciation and
modified cost recovery deductions provided under the Internal Revenue Code of
1986, as amended from time to time and any other such tax benefits which may now
or hereafter be available to an owner of such Equipment (collectively, "Tax
Benefits"). If as a result of (i) the inaccuracy or breach of any of Lessee's
representations, warranties and covenants herein or in any Schedule, or (ii) the
acts or failure to act of Lessee or any person claiming an interest in the
Equipment through the Lessee (other than a casualty or other event described in
Section 11 with respect to which Stipulated Loss Value shall have been paid by
Lessee), Lessor or any of its assigns shall lose, or shall not, in its
reasonable opinion, have the right to claim, or there shall be disallowed,
deferred or recaptured, any portion of the Tax Benefits with respect to a Unit
(a "Loss of Tax Benefits") or there shall be included in Lessor's gross income
any amounts other than Rental Payments in respect of the purchase price of any
Unit (an "Inclusion"), then, on and after the next succeeding Rent Payment date
after written notice to Lessee by Lessor, Lessee agrees as follows: The rent for
the Equipment shall, on the Rent Payment date next succeeding Lessor's written
notice to Lessee of Lessor's payment of any tax payment attributable to such
Inclusion or of a Loss of Tax Benefits, be increased to such amount or amounts
as shall, by the end of the original term of the last Schedule to this Lease, in
the reasonable opinion of Lessor, after deduction of all fees, taxes, or other
charges required to be paid by Lessor in respect of the receipt of all amounts
payable by Lessee to Lessor under this Section 8 under the laws of any federal,
state, or local government or taxing authority in the United States, cause
Lessor's after-tax yield and cash flow in respect of the Equipment to equal
those which would have been realized by Lessor if Lessor had not incurred such a
Loss of Tax Benefits or had such an Inclusion. If any claim or contest regarding
any tax indemnity covered by this Section 8 shall arise, such claim or contest
shall be addressed or conducted, at Lessee's expense, in the manner reasonably
specified by Lessor. The provisions of this Section 8 shall survive the
cancellation or termination of the Lease or any Schedule.
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<PAGE> 10
9. USE; MAINTENANCE; SUBSTITUTION OF EQUIPMENT:
(a) Lessee, at its expense, shall make all necessary site
preparations and cause the Equipment to be operated in accordance with any
applicable manufacturer's manuals or instructions. So long as no Event of
Default has occurred and is continuing, Lessee and any permitted sublessee shall
have the right to quietly possess and use the Equipment as provided herein
without interference by Lessor.
(b) Lessee, at its expense, shall maintain the Equipment in
good condition, reasonable wear and tear excepted, and will comply with all
laws, ordinances and regulations to which the use and operation of the Equipment
may be or become subject. Such obligation shall extend to repair and replacement
of any partial loss or damage to the Equipment, regardless of the cause. Lessee
shall obtain and keep in effect at all times during the Term maintenance service
contracts with the vendor or manufacturer of the Equipment. Each Unit of
Equipment shall be brought up to the current engineering changes and software
releases within ninety (90) days of the announcement of such changes or
releases. All parts furnished in connection with such maintenance, repair or
routine upgrades shall immediately become part of the Equipment. All such
maintenance, repair and replacement services shall be immediately paid for and
discharged by Lessee with the result that no lien will attach to the Equipment.
Only qualified personnel of Lessee shall operate the Equipment. The Equipment
shall be used only for the purposes for which it was designed. Lessee may make
improvements, modifications or additions to the Equipment; provided, that if
such improvements, modifications or additions would (i) render the Equipment
"limited use property"; (ii) are not capable of being removed without causing
material damage to the Equipment, or (iii) would decrease the Fair Market Value,
useful life or residual value of the Equipment, then Lessor's prior written
consent shall be required. If any improvements, modifications or additions are
to be financed, Lessor shall have the right of offer to finance the same.
(c) Provided that no Event of Default exists and at its
expense, Lessee may elect for valid business reasons to replace a Unit of
Equipment (a "Substituted Unit") with another Unit of Equipment (a "Replacement
Unit"). Each Replacement Unit shall be free and clear of all liens and
encumbrances, shall have a fair market value, residual value and remaining
useful life equal to or greater than that of the Substituted Unit and shall be
in as good an operating condition as the Substituted Unit (assuming that the
Substituted Unit has been maintained in accordance with the provisions of this
Agreement). Each Replacement Unit shall be in the same location as the
Substituted Unit. Lessee shall give Lessor notice of such substitution within
ninety (90) days of physical substitution, and in connection with such notice,
Lessee shall execute and deliver to Lessor a bill of sale and an amended Annex A
to the applicable Schedule with respect to each Replacement Unit, together with
such documents and instruments as reasonably may be required by Lessor in
connection with such substitution, including, without limitation, financing
statements or amendments to financing statements to be filed at Lessee's
expense. Such documentation shall include a representation by Lessee that the
Replacement Units meet the requirements set forth in this Section 9(c). Upon
compliance by Lessee with the provisions hereof, Lessor will transfer to Lessee,
on an "AS IS, WHERE IS" basis, without recourse or warranty, express or implied,
of any kind whatsoever, all of Lessor's interest in and to the Substituted Unit.
Lessor shall not be required to make and may specifically disclaim any
representation or warranty as to the condition of the Substituted Unit and any
other matters (except that Lessor shall warrant that it has conveyed whatever
interest it received in such Substituted Unit free and clear of any lien or
encumbrance created by or through Lessor). Lessor shall execute and deliver to
Lessee such financing statement releases or terminations as reasonably may be
required in order to terminate any interest of Lessor in and to such Substituted
Unit.
10. INSURANCE: (a) Lessee shall obtain and maintain for the Term,
at its own expense, (i) "all risk" insurance against loss or damage to the
Equipment, (ii) commercial general liability insurance (including contractual
liability, products liability and completed operations coverages) reasonably
satisfactory to Lessor,
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and (iii) such other insurance against such other risks of loss and with such
terms, as shall in each case be reasonably satisfactory to or reasonably
required by Lessor (as to carriers, amounts and otherwise). (b) The amount of
the "all risk" insurance shall be the greater of the replacement value of the
Equipment (as new) or the "Stipulated Loss Value" specified in the applicable
Schedules, which amount shall be determined to Lessor's reasonable satisfaction
as of each anniversary date of this Lease with the amount so determined being
put into effect on the next succeeding renewal or inception date of such
insurance. (c) The deductible with respect to "all-risk" insurance required by
clause (b) above and product liability insurance required by clause (a) above
shall not exceed $25,000; otherwise there shall be no deductible with respect to
any insurance required to be maintained hereunder. (d) The amount of commercial
general liability insurance (other than products liability coverage and
completed operations insurance) required by clause (a) above shall be at least
$5,000,000 per occurrence. The amount of the products liability and completed
operations insurance required by clause (a) above shall be at least $5,000,000
per occurrence. (e) Each "all risk" policy shall: (i) name Lessor as sole loss
payee with respect to the Equipment, (ii) provide for each insurer's waiver of
its right of subrogation against Lessor, and (iii) provide that such insurance
(A) shall not be invalidated by any action of, or breach of warranty by, Lessee
of a provision of any of its insurance policies, and (B) shall waive set-off,
counterclaim or offset against Lessor. Each liability policy shall (w) name
Lessor as an additional insured in the full amount of Lessee's liability
coverage limits (or the coverage limits of any successor to Lessee or such
successor's parent which is providing coverage) and (x) provide that such
insurance shall have cross-liability and severability of interest endorsements
(which shall not increase the aggregate policy limits of Lessee's insurance).
All insurance policies shall (y) provide that Lessee's insurance shall be
primary without a right of contribution of Lessor's insurance, if any, or any
obligation on the part of Lessor to pay premiums of Lessee, and (z) shall
contain a clause requiring the insurer to give Lessor at least 30 days' prior
written notice of its cancellation (other than cancellation for non-payment for
which 10 days' notice shall be sufficient). Lessee shall on or prior to the
Delivery Date of Schedule No. 1 and prior to each policy renewal, furnish to
Lessor certificates of insurance or other evidence satisfactory to Lessor that
such insurance coverage is in effect. Lessee further agrees to give Lessor
prompt notice of any damage to, or loss of, the Equipment, or any part thereof.
11. LOSS; DAMAGE; DESTRUCTION AND SEIZURE: (a) Lessee shall bear
the risk of the Units being lost, stolen, destroyed, damaged or seized by
governmental authority for any reason whatsoever at any time until the latest to
occur of (i) the expiration or termination of the Term or (ii) any storage
period thereafter (if Lessee controls the storage arrangements) or (iii) the
return of the subject Unit to Lessor, and shall proceed diligently and cooperate
fully to recover any and all damages, insurance proceeds or condemnation awards.
(b) Except as described in Section 11(c) hereof, if during the Term or the
storage period thereafter (if Lessee controls the storage arrangements), any
Unit shall be lost, stolen, destroyed, irreparably damaged or seized by a
governmental authority for a period equal to at least the remainder of the Term,
Lessor shall receive from the proceeds of insurance obtained pursuant to Section
10 hereof, from any award paid by the seizing governmental authority and, to the
extent not received from the proceeds of such insurance or award or both, from
Lessee, on or before the Rental Payment date next succeeding such loss, theft,
destruction, damage or governmental seizure: (i) all accrued and unpaid rent in
respect of such Unit including rent due on the Rental Payment date next
succeeding the date of such loss or seizure if the rent is in arrears; (ii) the
Stipulated Loss Value of such Unit, determined as of such Rental Payment date;
(iii) all other sums, if any, that shall have become due and payable hereunder;
and (iv) interest on the foregoing at the lower of the rate per annum equal to
the highest implicit interest rate for any Schedule plus 2% or the highest rate
then permitted by applicable law from the due dates(s) of such payment(s) to the
date of payment. On receipt by Lessor of the amount specified hereinabove with
respect to each such Unit so lost, stolen, destroyed, damaged or seized, (i)
this Lease shall be deemed terminated as to such Unit and rent in respect of
such Unit shall be deemed abated, as of the Rental Payment date next succeeding
such loss, theft, damage, destruction or seizure; and (ii) so long as no default
or Event of Default has occurred and is continuing hereunder, Lessor shall on
demand, transfer title to such Unit, "AS IS, WHERE IS, WITHOUT RECOURSE,
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REPRESENTATION OR WARRANTY," to Lessee, or, if appropriate in Lessor's sole
judgment, which judgment shall be exercised in a reasonable manner, and on prior
notice to Lessee, to Lessee's insurance carrier. Any proceeds of insurance
payable to Lessor pursuant to this Section 11 and Section 10 hereof received by
Lessee shall be paid to Lessor promptly upon their receipt by Lessee. If any
proceeds of insurance or awards received from governmental authorities are in
excess of the amount owed under this Section 11(b), Lessor shall promptly remit
to Lessee the amount in excess of the amount owed to Lessor. (c) So long as no
Event of Default shall have occurred and be continuing, any proceeds of
insurance obtained pursuant to Section 10 hereof received with respect to any
Unit the repair of which is practical shall, at the election of Lessee, be
applied either to the repair of such Unit or, upon Lessor's receipt of evidence
of the repair of the Unit reasonably satisfactory to Lessor, to the
reimbursement of Lessee for the cost of such repair. (d) Lessee shall promptly,
but in any event within 30 days thereafter, notify Lessor in writing in
reasonable detail of any loss, theft, destruction or seizure described in this
Section 11. (e) The Stipulated Loss Value payable by Lessee under this Lease
shall be that percentage of Lessor's Cost of the affected Unit(s) set forth in
the table attached to the applicable Schedule as Annex B opposite the Rental
Payment date next following the event giving rise to Lessee's obligation to pay
Stipulated Loss Value. Stipulated Loss Values and Rental Payments shall not be
prorated.
12. EVENTS OF DEFAULT: An "Event of Default" shall occur if
Lessee: (a) fails to pay any Rental Payment, payment of Stipulated Loss Value or
Termination Value when due and such failure continues for a period of five (5)
business days or fails to make any other payment due hereunder and such failure
continues for a period of fifteen (15) business days after written notice of
such failure by Lessor; or (b) fails to perform or observe any other material
covenant, condition or agreement hereunder or breaches any provision contained
herein or in any other document furnished Lessor in connection herewith, and
such failure or breach continues for a period of thirty (30) days after written
notice by Lessor; or (c) makes any material representation or warranty herein or
in any document furnished in connection herewith, which shall have been
materially false or inaccurate when made; or (d) fails to maintain insurance
under this Lease or otherwise required by the Lessor hereunder; or (e) shall
admit in writing that it is unable to pay its debts as they become due, become
insolvent or bankrupt or make an assignment for the benefit of its creditors or
consents to the appointment of a trustee or receiver or insolvency proceedings
shall be instituted by or against Lessee (and in the case of any involuntary
proceedings such proceedings are not dismissed within sixty (60) days); or (f)
shall have outstanding any single indebtedness exceeding the sum of one million
dollars ($1,000,000.00), or aggregate indebtedness exceeding the sum of two
million dollars ($2,000,000.00), under any other lease(s) or contract(s) for the
borrowing of money or on account of the deferred purchase price of property, and
the maturity of such indebtedness shall be accelerated or such indebtedness
shall not be paid when due; or (g) shall have rendered against it any single
judgment for payment of money damages in excess of one million dollars
($1,000,000.00), or aggregate judgments for payment of money damages in excess
of two million dollars ($2,000,000.00), and the same shall remain unstayed or
undischarged for a period of thirty (30) days; or (h) except as is expressly
permitted herein, without Lessor's prior written consent, shall have removed,
parted possession with, sold transferred, encumbered, assigned or sublet any
Unit of Equipment or Lessee's interest under this Lease or attempted to do any
of the foregoing or shall have converted any interest of Lessor arising under
this Lease or any purchase order, or resulting from the purchase of Equipment or
attempted to convert any of the foregoing.
13. REMEDIES: Upon the occurrence of any Event of Default and at
any time thereafter, provided such Event of Default is then continuing (which
occurrence, for purposes of clause (a)(ii)(B) below is the day Lessee shall be
deemed to tender possession of the Equipment to Lessor), (a) Lessor may, in its
discretion, do any one or more of the following, all of which Lessor and Lessee
expressly agree are commercially reasonable under the UCC and any other
applicable law: (i) terminate this Lease; (ii) declare to be immediately due and
payable: (A) all unpaid rent and sums then due and payable under this Lease
(other than amounts payable under clause (B) hereof, if any,) plus (B) an amount
equal to the greater of the then
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<PAGE> 13
applicable Stipulated Loss Value (which value Lessee acknowledges has a
reasonable discount rate implicit therein) or the then applicable fair market
value of the Equipment as determined by Lessor (and upon receipt of all such
payments due under this clause (ii), Lessor shall transfer title to the
Equipment to Lessee); (iii) require that Lessee return all Equipment to Lessor
in accordance with Section 6 hereof; (iv) enter upon the premises where such
Equipment is located and take immediate possession of and remove the same, all
without liability to Lessor or its agents for such entry; (v) sell any or all of
the Equipment at public or private sale, with or without notice to Lessee or
advertisement, or otherwise dispose of, hold, use, operate, lease to others or
keep idle such Equipment, all free and clear of any rights of Lessee and without
any duty to account to Lessee for such action or inaction or for any proceeds
with respect thereto subject to applicable law; (vi) exercise any other right or
remedy which may be available under the UCC or other applicable law including
the right to recover damages for the breach hereof. (b) In addition, Lessee
shall be liable for, and reimburse Lessor for, all reasonable and necessary
attorneys' fees and other expenses incurred by Lessor as a result of the
foregoing defaults, or the exercise of Lessor's remedies, including without
limitation placing any Equipment in the condition required by Section 9 hereof.
No remedy referred to in this Section 13 is intended to be exclusive, but each
shall be cumulative and in addition to any other remedy referred to above or
otherwise available to Lessor at law or in equity. (c) There shall be no waiver
by Lessor of any default unless in writing and such waiver shall not constitute
a waiver of any other default by Lessee, or a waiver of any of Lessor's other
rights. Lessee waives any rights now or hereafter conferred by statute or
otherwise that may require Lessor to sell, re-lease or otherwise use or dispose
any Unit in mitigation of the Lessor's damages or that might otherwise limit or
modify any of Lessor's rights or remedies under this Lease.
14. LESSEE'S REPRESENTATIONS, WARRANTIES AND COVENANTS: (a) Lessee
warrants and represents the following as of the date hereof: (i) Lessee is a
corporation duly organized, validly existing and in good standing under the laws
of the state of its incorporation and is duly qualified and authorized to do
business in the state where the Equipment will be located; (ii) Lessee has the
full corporate power, authority and legal right and has obtained all approvals
and consents and has given all notices necessary to execute and deliver this
Lease and perform the terms hereof and of each Schedule; (iii) except as set
forth on Exhibit G to this Lease, there is no action, proceeding or patent claim
pending or, insofar as Lessee knows, threatened against Lessee or any of its
subsidiaries before any court or administrative agency which might have a
materially adverse effect on the business, condition or operations of Lessee or
such subsidiary; and (iv) this Lease has been and each Schedule will be duly
executed and delivered by Lessee and constitute or will constitute the valid,
binding and enforceable obligations of Lessee. (b) Lessee agrees that by its
signature on each Schedule it shall be deemed to have warranted and represented
the following as of the Delivery Date of such Schedule: (i) all of the Units
being delivered on the Delivery Date of such Schedule are accurately described
in Annex A attached to such Schedule, have been fully assembled and conform to
all applicable performance criteria; (ii) the requirements of this Lease and of
Lessor with respect to the identification of the Units have been met; and (iii)
each of the representations and warranties set forth in clause (a) of this
Section 14 remains true and correct.
15. NOTICES. All notices (and financial information required to be
delivered to Lessor under Section 16(c) of this Lease) shall be addressed as
follows:
If to Lessor:
GATX CAPITAL CORPORATION
Four Embarcadero Center, Suite 2200
San Francisco, CA 94111
Attn: Contract Administration
If to Lessee, at the address set forth on the cover page of this Lease.
13
<PAGE> 14
16. MISCELLANEOUS: (a) Any notices hereunder shall be in writing
and shall be deemed given when delivered personally, by private courier, by
facsimile transmission or sent by certified mail, postage prepaid, addressed to
the other party at its address set forth herein or to such other address as
either party may designate in writing. Such notices or demands shall be deemed
given upon receipt in the case of personal delivery, mailing or facsimile
transmission. (b) Lessee will promptly execute and deliver to Lessor such
further reasonable documents (including, but not limited to, financing
statements for precautionary purposes) and take such further reasonable action
(such as obtaining landlord or mortgagee's waivers), as Lessor may request in
order to more effectively carry out the intent and purpose of this Lease or an
assignment of Lessor's interest herein. (c) Lessee shall promptly as they become
available furnish to Lessor quarterly and audited annual financial statements
and such other financial information as Lessor may reasonably request from time
to time. (d) This Lease constitutes the entire agreement on the subject matter
hereof between the parties hereto (other than any document executed in
connection herewith, including any confidentiality agreement), supersedes the
provisions of any "term sheet" executed by the parties hereto and shall be
binding upon and inure to the benefit of the parties hereto, their permitted
successors and assigns. (e) Any provision of the Lease which is unenforceable in
any jurisdiction shall, as to such jurisdiction, be ineffective to the extent of
such prohibition or unenforceability without invalidating the remaining
provisions hereof; and any such prohibition or unenforceability in any
jurisdiction shall not invalidate or render unenforceable such provision in any
other jurisdiction. (f) Time is of the essence with respect to the Lease. (g)
The captions set forth herein are for convenience only and shall not define or
limit any of the terms hereof. (h) The language in this Lease and the related
documents is to be construed as to its fair meaning and not strictly for or
against any party. (i) All payments shall be paid to the address designated by
Lessor in the applicable Schedule or otherwise in a writing signed by Lessor.
(j) Lessee's and Lessor's obligations hereunder shall survive the expiration and
termination of the Term to the extent required for full performance and
satisfaction thereof. (k) ALL MATTERS INVOLVING THE CONSTRUCTION, VALIDITY,
PERFORMANCE AND ENFORCEMENT OF THIS LEASE WILL BE GOVERNED BY THE LAWS OF THE
STATE OF CALIFORNIA WITHOUT GIVING EFFECT TO PRINCIPLES OF CONFLICTS OF LAW OR
CHOICE OF LAW. This Lease is being executed in the State of California and is to
be performed in such State. (l) This Lease may be executed by the parties hereto
in separate counterparts, each of which when so executed and delivered shall be
an original, but all such counterparts shall together constitute one and the
same instrument; provided, however, that to the extent, if any, that this Lease
constitutes chattel paper (as such term is defined in the Uniform Commercial
Code as in effect in any applicable jurisdiction), no security interest in this
Lease may be created through the transfer or possession of any counterpart of
this Lease or any Schedule other than the original counterparts marked "Lessor's
Original Counterpart". (m) Lessee shall pay on demand (i) all reasonable fees
and expenses, including reasonable attorneys' fees and expenses, incurred by
Lender in connection with the preparation, execution and delivery of, and the
exercise of its duties under, this Lease and the other documents executed in
connection therewith and the preparation, execution and delivery of amendments
and waivers hereunder and (ii) all reasonable fees and expenses, including
reasonable attorneys' fees and expenses, incurred by Lender in connection with
the enforcement or attempted enforcement of this Lease or any of the obligations
under this Lease or in preserving any of Lender's rights and remedies
(including, without limitation, all such fees and expenses incurred in
connection with any "workout" or restructuring affecting this Lease or the
Obligations or any bankruptcy or similar proceeding involving Lessee or any of
its affiliates).
17. AMENDMENTS, MODIFICATIONS, WAIVERS: NONE OF THE PROVISIONS OF
THIS LEASE MAY BE AMENDED, MODIFIED OR WAIVED EXCEPT IN A WRITING SIGNED BY
LESSOR AND LESSEE.
INITIALS M (LESSEE) INITIALS JP (LESSOR)
14
<PAGE> 15
This Lease is hereby duly executed by the parties hereto as set forth
below.
LESSEE: LESSOR:
e.SPIRE COMMUNICATIONS, INC. GATX CAPITAL CORPORATION
BY: John Polchin BY: Michael Liebek
---------------------------- ---------------------------------------
NAME (PRINT): NAME (PRINT):
------------------ -----------------------------
TITLE: TITLE: V.P. Telecom Investing
------------------------- ------------------------------------
This Lease incorporates the following Riders as if set forth herein:
Rider I, Rider II, Rider III, Rider IV and Rider V
INITIALS JP (LESSEE) INITIALS M (LESSOR)
------------ ------------
<PAGE> 16
RIDER I
TO MASTER EQUIPMENT
LEASE AGREEMENT NO. 1970
DATED December 13, 1999
Conditions to Lessor's Obligations
By their initials below and on the signature page of the Master
Equipment Lease Agreement referenced in the upper right corner of this page,
Lessor and Lessee agree that the Lease incorporates the following terms:
1. On or prior to the date of execution of the Lease by Lessor, Lessor
shall have received in form and substance satisfactory to Lessor:
(a) A legal opinion of Lessee's legal counsel in form and substance
reasonably satisfactory to Lessor covering the matters set
forth in Exhibit E hereto.
(b) Copies, certified by the Secretary or Assistant Secretary or
Chief Financial Officer of Lessee, of: (A) the
Certificate/Articles of Incorporation and By-Laws of Lessee (as
amended to the date of the Lease) and (B) the resolutions
adopted by Lessee's board of directors authorizing the
execution and delivery of this Lease, the Schedules and the
other documents referred to herein and the performance by
Lessee of its obligations hereunder and thereunder.
(c) A good standing certificate (including franchise tax status)
with respect to Lessee from Lessee's state of incorporation,
the state where Lessee's chief executive office is located and
each state where Equipment is expected to be located, each
dated a date reasonably close to the date of acceptance of the
Lease by Lessor.
(d) Evidence of the insurance coverage required by Section 10 of
the Lease.
(e) All other documents as Lessor shall have reasonably requested.
2. Prior to any funding on a Delivery Date, Lessee shall have satisfied
all of the conditions set forth in the applicable Schedule.
RIDER I
Initials M (Lessor)
-----------
Initials JP (Lessee
-----------
<PAGE> 17
RIDER II
TO MASTER EQUIPMENT
LEASE AGREEMENT NO. 1970
DATED December 13, 1999
Early Buy-Out Option
By their initials below and on the signature page of the Master
Equipment Lease Agreement referenced in the upper right corner of this page,
Lessor and Lessee agree that the Lease incorporates the following terms:
Provided that the Lease has not been terminated and that no Event of
Default under the Lease or event which, with notice or lapse of time or both,
would become an Event of Default shall have occurred and be continuing, on the
fourth anniversary of the Rent Commencement Date of each Schedule, Lessee shall
have the option, exercisable by irrevocable written notice given at least 90
days but not more than 180 days in advance, to purchase all, but not less than
all, of the Equipment on such Schedule for a purchase price equal to fifty-three
percent (53%) of the Lessor's Cost of the Equipment subject to such Schedule.
All other terms with respect to the exercise of this option shall be those
applicable to the exercise of a purchase option at the end of an Initial Lease
Term under the Lease.
RIDER II
Initials M (Lessor)
-----------
Initials JP (Lessee)
-----------
<PAGE> 18
RIDER III
TO MASTER EQUIPMENT
LEASE AGREEMENT NO. 1970
DATED December 13, 1999
Termination Option
By their initials below and on the signature page of the Master
Equipment Lease Agreement referenced in the upper right corner of this page,
Lessor and Lessee agree that the Lease incorporates the following terms:
Provided that the Lease has not been terminated and that no Event of
Default under the Lease or event which, with notice or lapse of time or both,
would become an Event of Default shall have occurred and be continuing, Lessee
shall have the option, exercisable by written notice given at least 180 days in
advance and only to the extent the analogous termination option in the GATX
Lease has not been exercised, to terminate the Lease only with respect to up to
two Lucent 5ESS-2000 switches (e.g. if the analogous termination option under
the GATX Lease has been exercised as to one switch, this termination option may
only be exercised as to one switch) upon the following conditions:
1. The date of termination specified in Lessee's notice ("Early
Termination Date") shall be any Rental Payment due date after
the third anniversary of the Rent Commencement Date with
respect to each Unit being terminated.
2. In electing the early termination option, Lessee shall not
discriminate against the Equipment leased by Lessor in favor
of continuing to operate Equipment owned by Lessee. To elect
the early termination option, Lessee must in good faith
determine by a certified resolution of its Board of Directors
delivered to Lessor that the Lucent 5ESS-2000 switches being
terminated are obsolete, are surplus to Lessee's needs in a
geographic market or have inadequate capacity for the specific
geographic market and additional capacity cannot be obtained
in such market by upgrading the switches or by adding
additional switches.
3. During the period from the notice of termination until the
Early Termination Date, Lessee will use commercially
reasonable best efforts on Lessor's behalf to sell the
terminating Units to an unrelated third party for a sale price
consented to in writing by Lessor; provided, that upon receipt
of notice of early termination Lessor may simply elect to
retain the Unit(s).
4. Lessee shall pay to Lessor on the Early Termination Date an
amount equal to the Termination Value of the terminating Units
on the Early Termination Date, less the sale price if the
Units are sold. If Lessee requests that Lessor undertake the
remarketing of the terminating Units, the payment shall be
equal to the Termination Value of the terminating Units on the
Early Termination Date plus Qualified Remarketing Costs, less
the sale price of the Units. If Lessor elects to retain any
Unit, Lessee shall pay any Rental Payments with respect to
such Unit due on the Early Termination Date, but no
Termination Value shall be payable.
RIDER III
Initials M (Lessor)
-----------
Initials JP (Lessee)
-----------
<PAGE> 19
5. The term "Remarketing Costs" shall mean all expenses incurred
by Lessor in selling Units, including, without limitation,
reasonable commissions and fees incurred in locating
subsequent users and a financing commitment, attorneys' fees,
transportation, installation, refurbishing and reconditioning
charges. However, Lessor shall attempt to recover such costs
from the subsequent users in lump-sum payments (not part of
the monthly rental payment), in which event such reimbursed
costs shall not be part of the "Remarketing Costs" payable by
Lessee.
RIDER III
Initials M (Lessor)
-----------
Initials JP (Lessee)
-----------
<PAGE> 20
RIDER IV
TO MASTER EQUIPMENT
LEASE AGREEMENT NO. 1970
DATED December 13, 1999
Funding Agreement
By their initials below and on the signature page of the Master
Equipment Lease Agreement referenced in the upper right corner of this page,
Lessor and Lessee agree that the Lease incorporates the following terms:
1. Lessee agrees that by execution of the Lease it has agreed to
lease Equipment from Lessor having an aggregate Lessor's Cost
of not less than thirty-one million dollars ($31,000,000) (the
"Minimum Funding Amount"). If Lessee fails to meet the Minimum
Funding Amount because (a) it has not requested funding of
Eligible Equipment under the Lease in the amount of the
Minimum Funding Amount, or (b) it has failed to satisfy any
condition to any funding of Eligible Equipment (provided that
for purposes of this clause (b) Lessee shall be deemed to have
satisfied the conditions to funding a Schedule if Lessor does
not fund the Schedule due to failure to obtain a Landlord
Consent after diligent efforts to do so or if Lessor does not
fund a Schedule due to the occurrence of a Material Adverse
Effect), then Lessee shall pay to Lessor (i) a fee equal to
one percent (1%) of the unfunded amount of Lessor's Commitment
to compensate Lessor for its expenses in entering into and
administering the Lease, plus (ii) an amount sufficient to
compensate Lessor for its lost economic return (on an after
tax basis) which results from Lessee's failure to meet the
Minimum Funding Amount.
2. Lessee further agrees to lease not less than four (4) Lucent
5ESS switches under the Lease.
RIDER IV
Initials M (Lessor)
-----------
Initials JP (Lessee)
------------
<PAGE> 21
RIDER V
TO MASTER EQUIPMENT
LEASE AGREEMENT NO. 1970
DATED December 13, 1999
Milestone Funding
By their initials below and on the signature page of the Master
Equipment Lease Agreement referenced in the upper right corner of this page,
Lessor and Lessee agree that the Lease incorporates the following terms:
If the purchase price of Equipment subject to the Lease is payable upon
the achievement of certain milestones, the Delivery Date of such Equipment shall
be the date the first such milestone payment is due, and in connection with the
delivery of the Schedule on that date, Lessee shall deliver to Lessor a
Milestone Acceptance Certificate in the form of Exhibit E to the Lease. On the
Delivery Date, Lessee shall make an Interim Rental Payment with respect to such
milestone payment for the period from the Delivery Date until the first day of
the next calendar month. When each subsequent milestone is achieved, Lessee
shall deliver a Milestone Acceptance Certificate and Lessor shall fund the
milestone payment then due and on the date of funding Lessee shall make an
Interim Rental Payment with respect to such milestone payment for the period
from the date of such milestone payment until the first day of the next calendar
month. The Rent Commencement Date shall not occur until the first day of the
calendar month occurring after the final milestone payment is funded and Lessee
shall have certified that the applicable Unit has been finally accepted. If the
Rent Commencement Date does not occur on the first day of the calendar month
following the funding of a milestone payment, Lessee shall make an additional
Interim Rental Payment with respect to such milestone payment on such date for
the period from such date until the first day of the next calendar month. If a
milestone payment is not the last milestone payment for a Unit, Lessee shall not
be deemed to have made the representations in clause (b)(i) of Section 14 of the
Lease or Section 2 of the Schedule.
RIDER V
Initials M (Lessor)
----------
Initials JP (Lessee)
----------
<PAGE> 22
Exhibit A - Landlord Waiver
Exhibit B - Purchase Order and Invoice Assignment
Exhibit C - [Intentionally omitted]
Exhibit D - Form of Schedule
Exhibit E - Legal Opinion
Exhibit F - Milestone Acceptance Certificate
Exhibit G - Litigation
<PAGE> 23
EXHIBIT A
LANDLORD WAIVER
<PAGE> 24
RECORDING REQUESTED BY
AND WHEN RECORDED RETURN TO:
GATX CAPITAL CORPORATION
Four Embarcadero Center, Suite 2200
San Francisco, CA 94111
Attn: Contract Administration
LANDLORD'S WAIVER AND CONSENT
THIS LANDLORD'S WAIVER AND CONSENT (this "Waiver"), dated as of
_______________, 199___, is executed by and between _______________________,
________________________ ("Landlord") and GATX CAPITAL CORPORATION
("Lessor").
RECITALS
A. Landlord and e.SPIRE COMMUNICATIONS, INC. ("Tenant") are parties to
a __________ ______________________________ [Lease Agreement], dated as of
_______________, 19 ___ (together with any other agreement between Landlord and
Tenant relating to the Premises, as defined below, all as amended from time to
time, to be referred to herein collectively as the "Lease"), pursuant to which
Landlord has leased to Tenant that certain real property commonly known as
___________________________________________________________________________, and
more particularly described in Attachment 1 hereto (the "Premises").
B. Tenant and Lessor intend to or have entered into a Master Equipment
Lease Agreement dated as of December 13, 1999 (the "Credit Agreement") pursuant
to which Lessor has agreed or will agree to lease to Tenant from time to time
certain equipment (the "Equipment") which will be located on the Premises.
AGREEMENT
NOW, THEREFORE, in consideration of the above recitals and for other
good and valuable consideration, the receipt and adequacy of which are hereby
acknowledged, Landlord and Lessor hereby agree as follows:
1. Waiver and Consent. Landlord hereby consents to the location of the
Equipment on the Premises and does irrevocably waive, disclaim and relinquish
and assign to Lessor any and all rights to impose, receive, assert or enforce
any lien, encumbrance, charge, security interest, ownership interest, claim or
demand of any kind against or involving the Equipment, whether arising by common
law, statute or consensually (under the Lease or otherwise) and whether now in
existence or hereafter created, including, but not limited to, those for rent or
other right of payment. This waiver, disclaimer, relinquishment and assignment
shall survive the termination of the Lease. Landlord further agrees that (a)
neither the Equipment nor any item thereof shall become part of, or otherwise be
or become a fixture attached to, the Premises, notwithstanding the manner of the
Equipment's annexation, the Equipment's adaptability to the uses and purposes
for which the Premises are used, and the intentions of the party making the
annexation; (b) the Equipment (or any item thereof) may be repossessed by
Lessor; (c) in connection with such repossession or otherwise, Lessor, and any
of its agents and employees, may enter upon the Premises for the purposes of (i)
guarding and maintaining the Equipment (or any item thereof), (ii) showing the
Equipment (or any item thereof) to prospective lenders, buyers, lessees and
sublessees, as applicable, and any of their respective
<PAGE> 25
agents and employees, (iii) preparing, disassembling, dismantling, loading
and/or removing the Equipment (or any item thereof), and (iv) general
inspections of the Equipment pursuant to the Credit Agreement; and (d) the right
of Lessor to enter the Premises and the other rights granted to Lessor in this
Waiver shall not terminate until thirty (30) days after Lessor receives written
notice from Landlord of the termination of the Lease. If Lessor should exercise
its rights hereunder (and the failure to exercise such rights shall not be
construed as a waiver thereof), Landlord agrees upon receiving prior written
notice, to provide ingress and egress to effect such exercise as well as provide
reasonably adequate space contiguous to the location of the Equipment to permit
the exercise of such rights. Landlord further agrees that Lessor has no
obligation to exercise any right granted to Lessor in this Waiver and that
Lessor may elect to remove only a portion or none of the Equipment from the
Premises.
2. Costs. Lessor agrees to indemnify and hold the Landlord harmless
from any out-of-pocket costs incurred by Landlord for any physical damage to the
Premises caused by Lessor solely from the exercise of its rights under clause
(b) or (c) of Paragraph 1 above.
3. Lease Defaults. Landlord further agrees to provide Lessor written
notice of any default or event of default under the Lease (each a "Default
Notice") simultaneously with the giving of notice of the same to Tenant or, if
no such notice is required under the Lease, at least thirty (30) days prior to
the date Landlord would be entitled to terminate the Lease. Each such notice
shall be sent to the address of Lessor set forth below the signature of Lessor
on the last page hereof or such other address as Lessor may from time to time
provide to Landlord, and shall be deemed delivered (i) in the case of notice by
letter, five (5) business days after deposited in the United States mail
registered and return receipt requested, (ii) in the case of notice by overnight
courier, two (2) business days after delivery to such courier and (iii) in the
case of notice given by telex or telecommunication, when given or sent with
electronic confirmation of receipt. During any time period when Tenant is in
default under the Lease, Lessor shall have the option, but not the obligation,
to cure any such default. Landlord shall accept such cure if it occurs within
thirty (30) days after Lessor has received the relevant Default Notice as fully
as if Tenant had fully performed its obligation under the Lease. Upon curing any
such default, Lessor shall be subrogated to the rights of Landlord against
Tenant and, as between Landlord and Tenant, such cured defaults shall no longer
exist.
4. Landlord's Representations and Warranties. Landlord hereby warrants
and represents to Lessor that (a) Landlord is the lessor under the Lease; (b)
there are no other agreements between the parties affecting or relating to the
Premises; (c) Landlord has all requisite power and authority to execute and
deliver this Waiver and no consents from any third party are required to do so;
(d) Landlord is the sole owner of the landlord's interest under the Lease and
has not conveyed, transferred or assigned any part of that interest to any other
person or entity; (e) no event of default (nor any event which with the passage
of time would constitute an event of default) has occurred under the Lease; (f)
there exists no litigation affecting title to the Premises or any adverse claim
with respect to the Premises of which Landlord has received notice; (g) there is
no condemnation proceeding pending with respect to any part of the Premises, nor
any threat thereof, of which the Landlord has received notice; (h) the Lease is
in full force and effect; and (i) the Premises are not subject to any mortgage
or other security interest in favor of any person which has not executed an
attornment agreement acceptable to Lessor with respect to this Waiver.
5. Miscellaneous. This Waiver and all rights hereby granted to Lessor
hereunder shall remain in effect so long as there are any obligations owing by
Tenant under the Credit Agreement or any present or future agreement between
Tenant and Lessor which involves the Equipment. All the terms and provisions of
this Waiver shall be binding on and inure to the benefit of the respective
successors and assigns of Landlord and Lessor, and Landlord covenants and agrees
that any assignment, mortgage or other transfer of all or any part of its
interest as the owner and/or landlord of the Premises shall provide and shall be
subject and subordinate to all the terms and provisions hereof. Landlord shall
provide each of Tenant and Lessor a duly
<PAGE> 26
executed copy of the agreement evidencing such subordination. Such agreement
shall be in form and substance reasonably satisfactory to Lessor. The rights and
benefits of this Waiver may be assigned or transferred by Lessor or to third
parties who may become the lessor, directly or indirectly, to Tenant. Lessor
shall provide subsequent written notice to Landlord and Tenant of the assignment
or transfer. Headings in this Waiver are for convenience of reference only and
are not part of the substance hereof. This Waiver shall be governed by and
construed in accordance with the laws of the State of California.
IN WITNESS WHEREOF, Landlord and Lessor have executed this Waiver as of
the date and year first written above.
By:
-------------------------------------------
Name:
------------------------------------
Title:
-----------------------------------
Address:
-----------------------------------------------
-----------------------------------------------
-----------------------------------------------
Attention:
------------------------------------
GATX CAPITAL CORPORATION
By:
-------------------------------------------
Name:
------------------------------------
Title:
-----------------------------------
Address:
GATX CAPITAL CORPORATION
Four Embarcadero Center
Suite 2200
San Francisco, CA 94111
Attention: Contract Administrator
<PAGE> 27
ATTACHMENT 1
LEGAL DESCRIPTION OF PREMISES
[To Be Provided By Tenant]
<PAGE> 28
State of )
)
County of )
On ____________, 19____ before me, the undersigned, personally appeared
__________________________________________________________________, personally
known to me (or proved to me on the basis of satisfactory evidence) to be the
person(s) whose name(s) is/are subscribed to the within instrument and
acknowledged to me that he/she/they executed the same in his/her/their
authorized capacity(ies), and that by his/her/their signature(s) on the
instrument the person(s), or the entity upon behalf of which the person(s)
acted, executed the instrument.
WITNESS my hand and official seal.
Signature ____________________________ (Seal)
State of )
)
County of )
On _________________, 19 ____ before me, the undersigned, personally
appeared ____________________________________________________, personally known
to me (or proved to me on the basis of satisfactory evidence) to be the
person(s) whose name(s) is/are subscribed to the within instrument and
acknowledged to me that he/she/they executed the same in his/her/their
authorized capacity(ies), and that by his/her/their signature(s) on the
instrument the person(s), or the entity upon behalf of which the person(s)
acted, executed the instrument.
WITNESS my hand and official seal.
Signature ____________________________ (Seal)
<PAGE> 29
EXHIBIT B
PURCHASE ORDER AND INVOICE ASSIGNMENT
<PAGE> 30
PURCHASE ORDER AND INVOICE ASSIGNMENT
(LUCENT TECHNOLOGIES INC.)
THIS PURCHASE ORDER AND INVOICE ASSIGNMENT, dated as of _________,
199___ (this "Assignment"), between E.SPIRE COMMUNICATIONS, INC. ("Assignor")
and GATX CAPITAL CORPORATION ("Assignee");
W I T N E S S E T H :
WHEREAS, Assignor has submitted its Purchase Orders and Invoices listed
in Schedule 1 hereto (collectively, the "Purchase Orders") to LUCENT
TECHNOLOGIES INC. (the "Vendor") concerning certain Units of equipment (the
"Units") listed in Schedule 1 hereto to be subject to a Master Equipment Lease
Agreement, dated as of ______], 1997 (the "Lease"), between Assignor and
Assignee (all terms used but not otherwise defined herein shall have the meaning
given to them in the Lease), which Purchase Orders and Invoices are subject to
that certain General Agreement Number LNS940215JC, between Vendor and Assignor,
and that certain Addendum Number One (Contract No. LNS960322CRACS) thereto
(collectively, the "General Agreement"):
NOW, THEREFORE, in consideration of the premises and the mutual
covenants herein contained, the parties hereto agree as follows:
1. Assignor does hereby sell, assign, transfer and set over unto
Assignee, all of the Assignor's rights to and interests in the Purchase Orders
as and to the extent that the same relates to the Units. The assignment herein
shall include, without limitation, the right of Assignee to purchase the Units
pursuant to the Purchase Orders and to take title to the Units, all claims for
damages in respect of the Units arising as a result of any default by Vendor
under the Purchase Orders, together with any and all rights of Assignor to
compel performance of the terms of the Purchase Orders in respect of the Units.
Assignee's rights in and to any Units shall be subject in all respects to the
terms and conditions set forth in the General Agreement; provided that Assignee
shall have no duty to perform Assignor's obligations under the General Agreement
(which obligations shall continue to be performed by Assignor) other than the
payment of invoices upon the certification of Assignor that the various
milestones have been achieved. Assignor and Assignee agree that the Licensed
Materials (as defined in the General Agreement) and any updates are furnished
subject to the following terms and conditions:
(a) Assignee agrees that the license to the Licensed Materials
shall be deemed granted to Assignor as "licensee".
(b) Assignee agrees that it will have no right to use the Licensed
Materials; provided, however, that if Assignee shall repossess
or otherwise come into lawful possession of the Units and
wishes to sell, transfer, release or otherwise dispose of the
Products, Vendor shall authorize the transfer of the license
to the Licensed Materials to a transferee or lessee which
agrees to assume and be bound by the provisions of the General
Agreement with respect to the Licensed Materials; provided,
however, that any such transferee shall have the financial
ability to support any ongoing payment obligations to Vendor
and such transferee shall not be a manufacturer of
telecommunications equipment.
(c) Assignor agrees that if it breaches the General Agreement and
the license to the Licensed Materials is terminated, such
termination shall constitute an Event of Default under the
Lease and Schedule with respect to the Units affected by such
termination. Vendor agrees that
<PAGE> 31
notwithstanding any such termination due to Assignor's breach,
Assignee may transfer a license on the same terms to the
Licensed Materials to a transferee or lessee of the Units in
accordance with paragraph 1(b) above; provided, however, that
if Assignor's breach is for non-payment of amounts due Vendor,
the foregoing right of Assignee to transfer shall also be
subject to the full payment by Assignee of all amounts due
Vendor (but if Assignee does not exercise its right to
transfer, it shall not be obligated to make any such payment).
2. The exercise by Assignee of any of the rights assigned
hereunder shall not release Assignor from any of its duties or obligations to
Vendor under the Purchase Orders except to the extent that such exercise by
Assignee shall constitute performance of such duties and obligations.
3. Upon satisfaction of the conditions set forth in the
applicable Schedule to the Lease with respect to the Units, Assignee shall
purchase such Unit by paying or causing to be paid, by wire transfer to Vendor,
on such date or thereafter as permitted by Vendor, an amount equal to the
applicable milestone payment for the Unit (as set forth in Section 5 of Addendum
Number One), as such amount may be adjusted in accordance with the terms of the
Purchase Orders and reflected on invoices prepared by Vendor to Assignee.
Assignor and Vendor agree that mutually acceptable performance criteria for
acceptance of the Units are set forth in Exhibit B to the General Agreement.
Assignor agrees with Assignee that the final milestone payment shall only be
made upon Assignor's certification to Assignee that final acceptance has
occurred.
4. Assignor agrees that it will, at any time and from time to
time, upon the written request of Assignee, promptly and duly execute and
deliver any and all such further instruments and documents and take such further
action as Assignee may reasonably request in order that Assignee may obtain the
full benefits of this Agreement and of the rights and powers herein granted.
5. Assignor does hereby represent and warrant that the Purchase
Orders are in full force and effect and that Assignor is not in default under
any of them. Assignor does hereby further represent and warrant that Assignor
has not assigned or pledged, and so long as this Assignment shall remain in
effect, will not assign or pledge, the whole or any part of the rights hereby
assigned or any of its rights with respect to the Units under the Purchase
Orders to anyone other than Assignee.
<PAGE> 32
IN WITNESS WHEREOF, the parties hereto have caused this Purchase Order
Assignment to be duly executed as of the day and year first above written.
e.SPIRE COMMUNICATIONS, INC. GATX CAPITAL CORPORATION
By _________________________________ By ____________________________________
Title ______________________________ Title _________________________________
Acknowledged and Consented to this
________ day of __________________, 199 ____.
LUCENT TECHNOLOGIES INC. (Vendor)
By: ________________________________
Title: _____________________________
<PAGE> 33
EXHIBIT C
[INTENTIONALLY OMITTED]
<PAGE> 34
EXHIBIT D
FORM OF SCHEDULE
<PAGE> 35
SCHEDULE NO. _______
This Schedule No. _____ (this "Schedule"), dated __________________,
199 ______ (such date being the "Delivery Date" for this Schedule), is a part of
the Master Equipment Lease Agreement, dated as of December 13, 1999, Agreement
No. ___ (the "Lease"), between GATX CAPITAL CORPORATION ("Lessor") and e.SPIRE
COMMUNICATIONS, INC. ("Lessee") and is incorporated therein by this reference.
The terms used in this Schedule shall have the meanings given to them in the
Lease unless otherwise defined herein.
1. Description and Cost of Units
The Units subject to this Schedule are described in Annex A hereto. The
Lessor's Cost for this Schedule is:
$________________
2. Acceptance; Obligations
Lessee confirms that on the Delivery Date hereof (i) all of
the Units described in Annex A attached hereto were duly accepted by Lessee and
became subject to the Lease or, if applicable, the conditions to the first
milestone payment have been achieved; and (ii) Lessee became obligated to make
Rental Payments to Lessor and perform certain other obligations with respect to
such Units as provided in the Lease and this Schedule.
3. Rent
(a) If this Schedule is subject to milestone payments, they shall
be made in the following amounts:
First Installment: $________________
Second Installment: $________________
Third Installment: $________________
[ ] Milestone payments not applicable.
(b) Rent Factor applicable to this Schedule: ___________%
(If this Schedule is subject to milestone payments, the Rent
Factor is determined on the date of funding of the first
milestone payment.)
Number of quarterly installments: ___________
Rent Commencement Date: ___________, 199__
(If this Schedule is subject to milestone payments, the Rent
Commencement Date will be the first day of the calendar month
following the funding of the third milestone payment and
Lessor is authorized to complete this Schedule by filling in
such date)
<PAGE> 36
Amount of scheduled Rental Payment: $________________
(If this Schedule is subject to milestone payments, the
scheduled Rental Payment is determined as of the date of the
first funding of a milestone payment as to the full amount of
Lessor's Cost for this Schedule)
(c) The Lease Term for the Units subject to this Schedule is __________
quarters and commences on the Rent Commencement Date. The Lease Term for the
Units subject to this Schedule shall expire on:
_______________, 199_____
(d) If this Schedule is not subject to milestone payments: The Interim
Rental Payment for the period from the Delivery Date of this Schedule through
the Rent Commencement Date (which date shall be the first day of the next
calendar month following the Delivery Date), is:
$_____________.
The Interim Rental Payment is due on the Delivery Date.
If this Schedule is subject to milestone payments: The Interim
Rental Payments will be invoiced in accordance with Rider V to the Lease.
(e) If this Schedule is subject to milestone payments: Lessee
acknowledges and agrees that if the final milestone payment is not funded within
six months of the date of the initial milestone payment or, if earlier, Lessee
does not accept the Unit(s) and returns them to Lessor, an Event of Loss shall
be deemed to have occurred as to the Unit(s) subject to this Schedule to the
extent of the amount previously funded and Lessee shall make a payment to Lessor
equal to the sum of (i) all accrued and unpaid Interim Rental Payments in
respect of such Unit(s); (ii) the Stipulated Loss Value of such Unit, determined
as of the first Rental Payment date shown on the schedule of Stipulated Loss
Values multiplied by the amount previously funded; (iii) all other sums, if any,
that shall have become due and payable hereunder with respect to the Unit(s);
and (iv) interest on the foregoing at the lower of the rate per annum equal to
the highest implicit interest rate for any Schedule plus 2% or the highest rate
then permitted by applicable law from the due dates(s) of such payment(s) to the
date of payment.
4. Conditions. Lessor's obligations under the Lease and this Schedule
are subject to the prior satisfaction of the following conditions on or before
the Delivery Date of this Schedule:
(a) Lessor shall have received, in form and substance satisfactory to
Lessor:
(i) A Landlord's Waiver and Consent of a landlord and/or mortgagee,
substantially in the form of Exhibit A to the Lease.
(ii) To the extent Lessor deems it necessary, a release or other
arrangement with any other lessor or lender to the Lessee to insure that there
will be no impairment of Lessor's interest in the Units subject to this or other
Schedules.
(iii) A sales tax exemption or other similar certificate from
Lessee with respect to any Units included in this Schedule, but not placed in
service by Lessee before the Delivery Date of this Schedule.
(iv) Copies of invoices, purchase orders and canceled checks
relating to all Units being placed under the Lease pursuant to a sale/leaseback
on the Delivery Date of this Schedule and/or a Purchase Order and Invoice
Assignment from Lessee to Lessor substantially in the form of Exhibit B to the
Lease (or
- 2 -
<PAGE> 37
such other form as Lessor may agree to), instead of copies of canceled checks,
for all Units to be purchased by Lessor directly from the vendor.
(v) An executed copy of each manufacturer's service contract
entered into by Lessee pursuant to Section 9 of the Lease.
(a) Lessee shall have filed or recorded, to the satisfaction of
Lessor, all instruments and documents, including, but not limited to, Financing
Statements on Form UCC-1 and Releases and Termination Statements on Form UCC-2,
then deemed necessary by Lessor to preserve and protect its rights hereunder,
under the Uniform Commercial Code (including the termination of any
after-acquired property clause of third parties with respect to any Unit).
(b) Lessor shall have received all other documents and Lessee shall
have performed all other acts as Lessor shall have reasonably requested to
consummate the transaction contemplated by this Schedule.
(c) Except with the prior written consent of Lessor, the aggregate
of Lessor's Cost of all Units subject to this Schedule and all Schedules
previously made subject to the Lease which consist of computer software,
tooling, assembly jigs, other equipment manufactured specially for Lessee and/or
delivery and installation costs shall not exceed 10% of the total Lessor's Cost
of Equipment funded.
(d) The Delivery Date of this Schedule shall not be later than the
Commitment Termination Date.
(e) On the Delivery Date of this Schedule no Event of Default or
event, which with the passage of time or the giving of notice or both would
constitute an Event of Default, shall exist.
(f) Except with the prior written consent of Lessor which shall not
be unreasonably withheld, all of the Units listed on Annex A shall consist of
Eligible Equipment.
(g) If applicable, Lessor shall have received an executed Milestone
Funding Certificate in the form of Exhibit F to the Lease from Lessee with
respect to each milestone funding payment.
(h) If the aggregate of Lessor's Cost of all Units subject to this
Schedule and all Schedules previously made subject to the Lease would be in
excess of $15,000,000, Lessee shall have closed a sale after the date hereof of
its non-redeemable equity securities having net proceeds to Lessee of not less
than $100,000,000.
5. Representations and Warranties. Lessee hereby makes the
representations and warranties set forth in Section 14 of the Lease.
6. Payments. Pursuant to Section 16(h) of the Lease, all payments
shall be made to Lessor as follows:
GATX CAPITAL CORPORATION
Bank Name: First Union National Bank
Bank Address: Orlando, Florida
Account No. [____________]
ABA No. 063000021
Reference: e.spire Communications, Inc. Invoice #
- 3 -
<PAGE> 38
This Schedule is hereby duly executed by the parties hereto as of the
date first written above.
GATX CAPITAL CORPORATION
By
---------------------------------------
Title
------------------------------------
(Lessor)
LESSEE'S ADDRESS
FOR NOTICES: e.SPIRE COMMUNICATIONS, INC.
- --------------------------------
ATTN: By
-------------------------- ---------------------------------------
Title
------------------------------------
(Lessee)
- 4 -
<PAGE> 39
Annex A - Description of Units
Annex B - Stipulated Loss Values
Annex C - Termination Values
<PAGE> 40
ANNEX A
DESCRIPTION OF UNITS
<TABLE>
<CAPTION>
Identification or
Description of Unit Manufacturer or Vendor Serial No. Lessor's Cost Location
<S> <C> <C> <C> <C>
</TABLE>
<PAGE> 41
ANNEX B
STIPULATED LOSS VALUES
<TABLE>
<CAPTION>
Rental Stipulated Loss Value
Payment Date Percentage of Lessor's Cost
------------ ---------------------------
<S> <C>
Thereafter ______________________ *
</TABLE>
* If Lessee renews the Lease, the Stipulated Loss Value during
any extended Term shall be an amount equal to the fair market value of
the Units as at the end of the applicable initial lease term, as
reasonably determined by Lessor, or in the event of disagreement
between Lessor and Lessee, as determined by the independent appraiser
selected under the provisions of Section 4(b) of the Lease; provided,
however, that such Stipulated Loss Value shall not be less than 20% of
Lessor's Cost of the Units.
<PAGE> 42
ANNEX C
TERMINATION VALUES
<PAGE> 43
EXHIBIT E
MATTERS TO BE COVERED IN LEGAL OPINION
(a) Lessee is a corporation duly organized, validly existing and in
good standing under the laws of the State of ____________ and is qualified to do
business and in good standing in the state of ____________.
(b) Lessee has the requisite corporate power and authority to execute,
deliver and perform the Lease and the Schedules. All action on the part of
Lessee, its directors, and its shareholders necessary for the authorization,
execution, delivery, and performance of the Lease and the Schedules has been
taken. The Lease has been duly executed and delivered by an authorized officer
of Lessee.
(c) The execution, delivery and performance of the Schedules (i) do not
conflict with or violate any provision of Lessee's Certificate/Articles of
Incorporation or Bylaws, or applicable law and (ii) do not conflict with or
constitute a default under any provision of any judgment, writ, decree, order or
material agreement, indenture, or instrument to which Lessee is a party or by
which it is bound.
(d) The Lease constitutes and the Schedules will constitute legal,
valid and binding obligations of Lessee, enforceable in accordance with their
respective terms.
(e) To our knowledge, there are no actions, suits, proceedings or
investigations pending against Lessee or its properties before any court or
governmental agency (nor, to our knowledge, has Lessee received any written
threat thereof), which, either in any case or in the aggregate, are likely to
result in any material adverse change in the business or financial condition of
Lessee or any of its properties, or in any material impairment of the right or
ability of Lessee to carry on its business as now conducted, or which questions
the validity of the Lease and the Schedules or any action taken or to be taken
by Lessee in connection there-with.
(f) No consent, approval or authorization of or designation,
declaration or filing with any governmental authority on the part of Lessee is
required in connection with the valid execution and delivery of the Lease and
the Schedules, or the consummation of any other transactions contemplated by the
Lease and the Schedules.
<PAGE> 44
EXHIBIT F
MILESTONE ACCEPTANCE CERTIFICATE
to Schedule No. ___ dated __________, 199___
under Master Equipment Lease Agreement No. __________
dated as of December 13, 1999
To GATX CAPITAL CORPORATION:
This Certificate relates to (describe Unit):
Lessee hereby certifies that the following milestone with respect to
the Unit(s) subject to the above-referenced Schedule has been fully achieved
with respect to the Unit:
The payment due upon achieving milestone for the Unit is
$_____________________.
This is the _________________ Installment referred to in the
above-referenced Schedule.
[IF THIS CERTIFICATE RELATES TO THE FINAL MILESTONE PAYMENT WITH RESPECT TO A
UNIT, ADD:
Lessee hereby certifies with respect to the above described Unit that
(i) the Unit has been delivered to the location specified in the Schedule,
inspected by, tested and accepted as of the date hereof by Lessee upon the terms
and conditions of the Lease and such Schedule, (ii) the Unit is of a size,
design, capacity and manufacture acceptable to Lessee and suitable for Lessee's
purposes, (iii) is in good working order, repair and condition, and (iv) has
been installed to Lessee's satisfaction.]
Terms used in this Milestone Acceptance Certificate which are not
otherwise defined herein shall have the meanings set forth in the
above-referenced Master Equipment Lease Agreement.
e.SPIRE COMMUNICATIONS, INC.
By:
-----------------------------------------
Name:
---------------------------------------
Title:
--------------------------------------
-2-
<PAGE> 45
EXHIBIT G
LITIGATION
<PAGE> 1
MASTER EQUIPMENT LEASE AGREEMENT
Agreement No. 20100 Dated as of December 13, 1999
between
GATX TELECOM INVESTORS II-A, L.L.C.,
Four Embarcadero Center, Suite 2200
San Francisco, CA 94111
as Lessor
and
e.SPIRE COMMUNICATIONS, INC.
a Delaware corporation
131 National Business Parkway, Suite 100
Annapolis Junction, Maryland 20701
as Lessee
LESSOR'S COMMITMENT: $39,586,225
<TABLE>
<S> <C>
Initial Rent Factor: 5.733 % quarterly Initial Lease Term: 6 years
------- -------
Treasury Base Rate 5.72 % Treasury Note Maturity 6 years
-------------- -------
Initial Implicit Rate 12.00 %
--------------
</TABLE>
Eligible Equipment: Not less than four (4) Lucent Technologies, Inc. 5ESS
Switches, including host switches, remote modules
together with peripheral equipment, system software and
upgrades thereto, fiber optic connections to local
tandems, installation costs, and other related
telecommunications networking equipment acceptable to
Lessor.
The terms and information set forth on this cover page are a part of
the MASTER EQUIPMENT LEASE AGREEMENT, dated as of the date first written above
(this "Lease"), entered into by and between GATX TELECOM INVESTORS II-A, L.L.C.
("Lessor") and the Lessee set forth above, the terms and conditions of which are
as follows:
<PAGE> 2
LESSOR'S OBLIGATIONS UNDER THIS LEASE AND EACH SCHEDULE ARE SUBJECT TO
THE PRIOR SATISFACTION OF THE CONDITIONS SET FORTH ON RIDER I HERETO.
1. DEFINITIONS: Unless otherwise defined in this Lease (which term
shall include the cover page, any Rider, any Exhibit or any Schedule hereto),
capitalized terms shall have the following meanings:
"Commitment Termination Date" means the earlier of (i) the first
anniversary of the earlier of (A) the date of first funding of a Schedule
hereunder or (B) the same day of the month as the date hereof occurring in the
third (3rd) month after the date hereof, or (ii) the same day of the month as
the date hereof occurring in the sixth (6th) month after the date hereof if no
Schedule shall have been funded by such date; provided, however, that if a
specific installation of Equipment has been identified prior to the date that
would otherwise be the Commitment Termination Date, the Commitment Termination
Date shall be extended once for not more than three (3) months.
"Delivery Date" means, with respect to any Schedule, the date first set
forth on such Schedule.
"EBITDA" means, for any period, the consolidated net income (loss) of
Lessee and its subsidiaries (excluding extraordinary gains and non-cash
extraordinary losses) for the period, plus interest expense, tax expense,
depreciation and amortization for the period, determined in accordance with
generally acceptable accounting principles.
"Eligible Equipment" means Equipment of the types listed following such
term on the cover page of this Lease to the extent acceptable to Lessor.
"Environmental Law" means the Resource Conservation and Recovery Act of
1987, the Comprehensive Environmental Response, Compensation and Liability Act,
and any other Federal, state or local statute, law, ordinance, code, rule,
regulation, order or decree (in each case having the force of law) regulating or
imposing liability or standards of conduct concerning any Hazardous Materials or
other hazardous, toxic or dangerous waste, constituent, or other substance,
whether solid, liquid or gas, as now or at any time hereafter in effect.
"Equipment" means all Units listed in any Schedule together with all
replacement parts, additions, accessions and accessories to such Units.
"Event of Default" shall have the meaning set forth in Section 12
hereof.
"GATX Lease" means the Master Equipment Lease Agreement, dated as of
the date hereof, between Lessee and GATX Capital Corporation.
"Hazardous Material" means any hazardous or toxic substance, material,
pollutant or waste which is regulated by any Federal, state or local
governmental authority.
"Implicit Rate" means, with respect to a Schedule, an implicit interest
rate used in calculating the Rent Factor applicable to such Schedule, calculated
as set forth in Section 3(b) of this Lease.
"Initial Implicit Rate" means the implicit interest rate set forth
following such term on the cover page of this Lease.
2
<PAGE> 3
"Initial Lease Term" means the period of months set forth following
such term on the cover page of this Lease.
"Initial Rent Factor" means the Rent Factor set forth following such
term on the cover page of this Lease calculated using the Initial Implicit Rate.
"Interim Rental Payment" shall have the meaning set forth in Section
3(a) of this Lease.
"Lessor's Commitment" means the maximum amount that Lessor may be
obligated to fund under the Lease, which amount is set forth opposite such term
on the cover page of this Lease; provided, however, that Lessor's obligation to
fund any amount in excess of $15,000,000 is subject to Lessee having closed a
sale after the date hereof of its non-redeemable equity securities having net
proceeds to Lessee of not less than $100,000,000.
"Lessor's Cost" means, with respect to a Unit of Equipment, the total
cost to Lessor of purchasing such Unit, as indicated on the applicable Schedule.
"Material Adverse Change" means either (a) as of the end of any fiscal
quarter of Lessee, any negative variance of actual EBITDA for such quarter of
greater than 20% from the mutually agreed upon forecasted EBITDA for such
quarter (as set forth in the projections of Lessee dated as of August 2, 1999),
or (b) as of the end of any fiscal quarter of Lessee, any negative variance of
actual cumulative EBITDA for the period beginning on the first day of the fiscal
quarter during which this Lease is executed of greater than 10% from the
mutually agreed upon forecasted EBITDA for such period (as set forth in the
projections of Lessee dated as of August 2, 1999).
"Rent Commencement Date" shall have the meaning, with respect to any
Schedule, set forth in Section 3(a) of such Schedule.
"Rent Factor" means, with respect to a Schedule, the rent factor
calculated using the Implicit Rate applicable on the date of preparation of such
Schedule.
"Rental Payment" means, for any Schedule, the quarterly rent payment
for the Units identified in such Schedule.
"Schedule" or "Schedule No. " means a schedule in the form of Exhibit
D to this Lease identifying this Lease and incorporating this Lease by
reference, which is executed by both parties hereto.
"Stipulated Loss Value" shall have the meaning set forth in Section
11(e).
"Term" means the Initial Lease Term, together with any renewal or
extension thereof.
"Termination Value" means that percentage of Lessor's Cost of the
affected Unit(s) set forth in the table attached to the applicable Schedule as
Annex C opposite the Rental Payment date next following the event giving rise to
Lessee's obligation to pay Termination Value.
"Treasury Base Rate" means the interest rate set forth following such
term on the cover page of this Lease.
"Treasury Note Maturity" means the period set forth following such term
on the cover page of this Lease.
3
<PAGE> 4
"Unit" means an item of Equipment.
2. LEASE: Lessor agrees to lease to Lessee and Lessee agrees to lease
from Lessor the Equipment described in each Schedule on the terms and subject to
the conditions specified herein and therein. Each Schedule shall constitute a
separate and independent lease and contractual obligation of Lessee
incorporating the terms of this Lease. Lessor's obligation to fund Schedules
under this Lease shall terminate on the Commitment Termination Date; provided,
however, that if the event in either clause (i) or clause (ii) of the definition
of Commitment Termination Date shall occur and Lessee shall have ordered
additional Equipment prior to such date and identified the specific installation
of such Equipment in writing to Lessor, then the Commitment Termination Date
shall be extended by three months. Lessor may, in its sole discretion, terminate
its commitment herein to fund the Lessor's Commitment or any unfunded portion
thereof at any time if: (a) there is any Material Adverse Change, or (b) any
Event of Default exists. Lessor shall have no obligation to fund any Schedule if
any term or condition in such Schedule is not satisfied by the Delivery Date of
such Schedule. This Lease, and Lessee's obligation to pay all rent and other
sums hereunder, shall constitute a "finance lease" under the California Uniform
Commercial Code ("UCC") and shall be absolute and unconditional, and shall not
be subject to, and Lessee hereby waives any right of or to, abatement,
reduction, set-off, defense or counterclaim. Lessee waives any and all rights
and remedies conferred upon Lessee by UCC Sections 10508 through 10522,
including (without limitation) Lessee's rights to (i) cancel or repudiate this
Lease, (ii) reject or revoke acceptance of the leased property, (iii) recover
damages from Lessor for breach of warranty or for any other reason, (iv) claim a
security interest in any rejected property in Lessee's possession or control,
(v) deduct from Rental Payments all or any part of any claimed damages resulting
from Lessor's default under this Lease, (vi) accept partial delivery of the
Equipment, (vii) "cover" by making any purchase or lease of other property in
substitution for property due from Lessor, (viii) recover from the Lessor any
general, special, incidental or consequential damages, for any reason
whatsoever, and (ix) seek specific performance, replevin or the like for any of
the Equipment. Lessee acknowledges that it has received and approved the terms
of the agreements with the vendors under which Lessor will, subject to the terms
and conditions of this Lease, purchase the Units. The Units shall be leased for
commercial purposes only, and not for consumer, personal, home or family
purposes.
3. TERM AND RENTALS: THIS LEASE SHALL BE EFFECTIVE UPON EXECUTION AND
DELIVERY HEREOF by Lessee and Lessor. (a) The Initial Lease Term for each
Schedule shall commence upon the Rent Commencement Date set forth in such
Schedule. For the Initial Lease Term of such Schedule, Lessee agrees to pay
Lessor aggregate rentals equal to the number of quarters in the Initial Lease
Term of such Schedule multiplied by the amount of the Rental Payment specified
in such Schedule. In addition, for the period from the Delivery Date of each
Schedule until such Schedule's Rent Commencement Date, Lessee shall pay an
interim rental ("Interim Rental Payment") equal to the product of (i) the total
annual rental for the first year of the Initial Lease Term of such Schedule
divided by 365 and (ii) the actual number of days between the Delivery Date and
the Rent Commencement Date, including the Delivery Date but excluding the Rent
Commencement Date. The Interim Rental Payment shall be payable as set forth in
each Schedule to this Lease. Lessor will make reasonable efforts to send Lessee
invoices for Rental Payments, but the failure to do so or the incorrectness of
any invoice will not relieve Lessee of its obligation to pay all amounts,
including Rental Payments, due under this Lease. The Interim Rental Payment for
each Schedule is due on the Delivery Date for such Schedule and the remaining
Rental Payments are due commencing on the Rent Commencement Date (which shall be
the first day of a calendar month) and thereafter on the first day of each
succeeding three-month period of the Term, or as specified in the applicable
Schedule. Any overdue payments shall accrue interest at a rate per annum equal
to the highest implicit interest rate for any Schedule plus 2%, or the highest
lawful rate, whichever is less. Any amount which is due and payable on a day
which is not a business day shall be payable on the next succeeding business
day. (b) The Rent Factor will be calculated for each Schedule based on a basis
point for basis point adjustment (if any) to the Initial Implicit Rate
(applicable to the type of Equipment being funded under such Schedule) equal to
any increase from the
4
<PAGE> 5
initial Treasury Base Rate in the U.S. Treasury note rate for notes of a term
equal to the Treasury Note Maturity as quoted in The Wall Street Journal dated
the fifth Business Day prior to funding. (c) It is not the intent of the parties
to create rent or other payment obligations of Lessee which will be considered
usurious under applicable law. However, if any such payment shall be found to be
usurious by a court of competent jurisdiction, then Rental Payments or such
other amounts shall automatically be reduced to the highest rate or amounts
permitted by applicable law and the usurious portion of the Rental Payments or
such other amounts shall be applied to the Lessee's remaining obligations under
the Lease in a manner reasonably determined by Lessor. If Lessee retains
possession of any Unit after the expiration or termination of this Lease, Rental
Payments shall continue to be paid with respect to such Unit at the rate set
forth in Section 3(a) of the Schedule relating to such Unit until all
obligations of Lessee under this Lease relating to such Unit, including, without
limitation, Rental Payments and payments due under Section 4 of this Lease, have
been satisfied. This Lease may only be terminated as expressly provided herein.
4. OPTIONS AT END OF INITIAL LEASE TERM:
(a) Provided that the Lease has not been terminated and that
no Event of Default or event which, with notice or lapse of time or both, would
become an Event of Default shall have occurred and be continuing (in the case of
clauses (i) and (ii) below only), not more than 180 days and not less than 90
days prior to the expiration of the Initial Lease Term of the Units which are
subject to each Schedule, by written notice to Lessor, Lessee shall irrevocably
elect one of the following options in clauses (i), (ii) or (iii) below:
(i) Lessee's Option to Renew: At the expiration of
the Initial Lease Term of a Schedule, Lessee may elect to renew the Lease with
respect to any or all of the Units under such Schedule for not less than twelve
(12) months or the remainder of a Unit's remaining useful life if shorter, for a
rent equal to the "Fair Rental Value" (as defined in Section 4(b) below) of such
Units for such additional period, which rent shall be paid quarterly in advance.
(ii) Lessee's Option to Purchase: At the expiration
of the Initial Lease Term of a Schedule or any renewal or extension thereof,
Lessee may elect to purchase any or all of the Units under such Schedule to the
Lease for a purchase price equal to the "Fair Market Value" (as defined in
Section 4(b) below) thereof as of the end of the Initial Lease Term of such
Schedule plus any applicable sales or other transfer tax.
(iii) Lessee's Option to Return: At the expiration of
the Initial Lease Term of a Schedule, Lessee may elect to return all, but not
less than all, of the Units subject to such Schedule in accordance with Section
6(c). At the expiration of the Initial Lease Term of any such Schedule, assuming
Lessee returns the Equipment, Lessee shall pay to Lessor a remarketing fee equal
to five percent of the original Lessor's Cost of the Units subject to such
Schedule.
If none of the foregoing options is duly exercised by Lessee, this Lease shall
be renewed at the rental in effect immediately prior to the renewal with respect
to all Units covered by the applicable Schedule from the expiration date of the
Initial Lease Term of such Schedule on a quarter to quarter basis. Lessee may
terminate any such extended term on 90 days' written notice to Lessor and shall
along with such notice elect one of the options in clauses (i), (ii) or (iii)
above.
(b) Fair Market Value or Fair Rental Value, as the case may
be, shall be determined on the basis of and shall be equal in amount to the
value which would obtain in an arm's-length transaction between an informed and
willing buyer-user or lessee-user (other than a used equipment dealer) and an
informed and willing seller or lessor under no compulsion to sell or lease, on
the assumptions that: such Units (i) are being sold "in place and in use"; (ii)
are free and clear of all liens and encumbrances; and (iii) are in the
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condition required upon the return of the Units under Section 9 of this Lease.
In such determination, costs of removal from the location of current use shall
not be a deduction from such value(s).
(c) Lessor shall initially determine the Fair Market Value or
Fair Rental Value within 30 days of receipt of notice of the election to
purchase or renew the Lease with respect to a Unit. If Lessee does not agree
with the determination of the Fair Market Value or Fair Rental Value of any Unit
it may within 10 days after receipt of Lessor's determination, require that the
determination be made by a certified independent appraiser paid for by Lessee
and approved by both Lessor and Lessee, such approvals not to be unreasonably
withheld. The appraiser shall be furnished with a letter of instruction
concerning the preparation of the appraisal setting forth the guidelines
specified in Section 4(b) above, together with a copy of the Lease and Schedule
and, to the extent available, related purchase orders and/or invoices. The
appraiser shall be instructed to make such determination within 30 days
following appointment. The determination made by the appraiser shall be final
and binding on both Lessor and Lessee.
(d) The purchase of the Units by Lessee pursuant to its option
herein shall be "AS IS, WHERE IS", without recourse to or any warranty by
Lessor, other than a warranty that the Units are free and clear of liens and
encumbrances resulting from acts of Lessor.
5. WARRANTIES; INDEMNITY:
(a) Lessee acknowledges that it has made the selection of each
Unit based upon its own judgment. LESSOR MAKES NO EXPRESS OR IMPLIED WARRANTIES
INCLUDING, WITHOUT LIMITATION, THOSE OF DESCRIPTION, INFRINGEMENT,
MERCHANTABILITY OR FITNESS FOR A PARTICULAR USE OR PURPOSE WITH RESPECT TO THE
EQUIPMENT AND HEREBY DISCLAIMS THE SAME. Lessor shall have no liability for any
damages, whether direct or consequential, incurred by Lessee as a result of any
defect or malfunction of a Unit. Lessee agrees to look solely to the
manufacturer or vendor of any defective or malfunctioning Unit for the repair or
replacement of such Unit and to continue to make all Rental Payments with
respect to such Unit in spite of such defect or malfunction. Lessor hereby
assigns to Lessee, for and during the Term, any warranty of the manufacturer or
vendor issued to Lessor with respect to any Unit.
(b) Lessee shall indemnify, reimburse and hold Lessor
(including without limitation, each of its partners) and each of their
respective successors, assigns, agents, officers, directors, shareholders,
servants, agents and employees harmless from and against all liabilities,
losses, damages, actions, suits, demands, claims of any kind and nature
(including, without limitation, claims relating to environmental discharge,
cleanup or compliance), and all costs and expenses whatsoever to the extent they
may be incurred or suffered by such indemnified party in connection therewith
(including, without limitation, reasonable attorneys' fees and expenses), fines,
penalties (and other charges of applicable governmental authorities), licensing
fees relating to any Unit, damage to or loss of use of property (including,
without limitation, consequential or special damages to third parties or damages
to Lessee's property), or bodily injury to or death of any person (including,
without limitation, any agent or employee of Lessee) (each a "Claim"), directly
or indirectly relating to or arising out of the acquisition, use, lease or
sublease, ownership, operation, possession, control, storage, return or
condition of any Unit during the Term or in connection with the return of the
Equipment in accordance with the terms of this Lease (regardless of whether such
Unit is at the time in the possession of Lessee), the falsity of any non-tax
representation or warranty of Lessee or Lessee's failure to comply with the
terms of the Lease during the Term. The foregoing indemnity shall cover, without
limitation, (i) any Claim in connection with a design or other defect (latent or
patent) in any Unit, (ii) any Claim for infringement of any patent, copyright,
trademark or other intellectual property right, (iii) any Claim resulting from
the presence on or under or the escape, seepage, leakage, spillage, discharge,
emission or release from any Unit of any Hazardous Materials, including, without
limitation, any Claims asserted or arising under any
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<PAGE> 7
Environmental Law, or (iv) any Claim for negligence or strict or absolute
liability in tort; provided, however, that Lessee shall not indemnify Lessor for
any liability incurred by Lessor as a direct and sole result of Lessor's gross
negligence or willful misconduct. Such indemnities shall continue in full force
and effect, notwithstanding the expiration or termination of this Lease. Upon
Lessor's written demand, Lessee shall assume and diligently conduct, at its sole
cost and expense, the entire defense of Lessor and its agents, employees,
successors and assigns against any indemnified Claim described in this Section
5. Lessee shall not settle or compromise any Claim against or involving Lessor
without first obtaining Lessor's written consent thereto, which consent shall
not be unreasonably withheld.
6. TITLE, LOCATION AND RETURN:
(a) Lessor and Lessee hereby confirm their intent that the
Equipment remain and be deemed personal property and that title thereto shall
remain in Lessor. If requested at any time by Lessor, Lessee will place in a
conspicuous location on each item of Equipment a notice (to be supplied by
Lessor) which reads: "GATX TELECOM INVESTORS II-A, L.L.C. - Owner/Lessor". Such
notice shall not be removed (or if damaged such notice shall be replaced) until
the Equipment is returned to Lessor or purchased by Lessee.
(b) Lessee may not remove the Equipment from its place of
installation set forth in the applicable Schedule (i) in the case of a removal
to a different state, without having given Lessor thirty (30) days' prior
written notice to Lessor and executing such financing statements, instruments or
other documents as Lessor may reasonably request to protect its interest in the
Equipment, or (ii) in the case of a removal to a location within the same state,
without giving notice to Lessor within ninety (90) days after such removal.
Lessor shall have the right to inspect the Equipment during regular business
hours, with reasonable notice, and in compliance with Lessee's reasonable
security procedures. Lessee shall keep the Equipment free and clear of all liens
and encumbrances except those created by Lessor.
(c) If for any reason the Equipment is to be returned to
Lessor, Lessee shall, together with the written notice of return (if
applicable):
(i) Provide Lessor a detailed inventory of all of the
Units to be returned (including each major component). The inventory should
include a listing of model, serial numbers for all components comprising the
Equipment, circuit boards, modules and software features.
(ii) Provide or cause the vendors or manufacturers of
the Units to provide up-to-date (1) service manuals, blue prints, process flow
diagrams and operating manuals including replacements and/or additions thereto;
and (2) documents detailing equipment configuration, operating requirements,
diagrams, maintenance records and other technical data concerning the set-up and
operation of the Units.
(iii) Provide to Lessor certifications from each
vendor or manufacturer of a Unit that such Unit (as of the date of return) (1)
has been tested and is operating in accordance with the manufacturer's
specifications, together with a report detailing the condition of the Unit, the
results of such test(s) or inspection(s) and all repairs that were performed as
a result of such test(s) or inspection(s), (2) that the Unit qualified for the
manufacturer's used equipment maintenance program, if applicable; and (3) that
all component parts are in good operating condition and meet or exceed the
manufacturer's minimum recommended specifications. Such certification as to
qualification for the manufacturer's used equipment maintenance program, if
applicable, shall be transferable to another operator of the Unit and shall
permit another operator to receive a transfer of any software license and to
otherwise enjoy all rights and privileges of use of the Unit as if it were the
original user of the Unit.
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<PAGE> 8
In addition, during the period after notice is given of a return of Units and in
connection with the return, Lessee shall at its expense:
(i) Make the Units to be returned, to the extent they
were manufactured by Lucent, available for on-site operational inspections by
Lessor under power and provide personnel, power and other requirements necessary
to demonstrate electrical, mechanical and other functionality of each Unit.
(ii) Clean and treat all Units to be returned with
respect to rust, corrosion and appearance in accordance with the manufacturer's
recommendation and consistent with the best practices of dealers in used
equipment similar to the Units and remove all Lessee installed markings which
are not necessary for the operation, maintenance or repair of the Units.
(iii) Ensure that all Units to be returned are free
of all Hazardous Materials (except to the extent that Hazardous Materials
contained in Units are maintained in accordance with applicable law) and conform
to all applicable local, state and federal laws, and health and safety
guidelines which may be in effect at the time of return.
(iv) Allow Lessor the right to attempt resale of the
Units at the Units' location with the Lessee's full cooperation and assistance,
prior to and for a period of up to sixty (60) days after the end of the Initial
Lease Term (or any extension thereof).
(v) At Lessor's request, provide insurance (but at
Lessor's expense) and safe, secure storage for the Units for a period of up to
sixty (60) days after the end of the Initial Lease Term (or any extension
thereof).
(vi) Provide for the deinstallation, packing,
transporting and certifying of the Units (as of the date of return) including,
without limitation, (1) deinstallation of the Units by the vendor's or
manufacturer's representative or other qualified personnel acceptable to Lessor;
(2) proper packing of the Units for shipping in accordance with the vendor's or
manufacturer's recommendations.
(vii) If applicable, provide for the professional
decontamination of the Units and have the Units certified for removal and
transport by appropriate authorities, in accordance with industry standards and
applicable laws, rules and regulations, and consistent with the mode of
transportation specified by Lessor.
(viii) Ship the Units (together with all "ship group"
items such as cables, manuals, circuit packs and other accessories) to not more
than two (2) locations anywhere in the continental United States selected by
Lessor and provide for a policy of transit insurance covering such shipment with
Lessor named as loss payee thereof.
7. SUBLEASE, ASSIGNMENT: Lessee acknowledges and agrees that Lessor
may, subject to the terms of this Lease, sell, assign, grant a security interest
in, or otherwise transfer all or any part of its rights, title and interest in
this Lease and the Equipment; provided, however, that either (i) any such
transfer shall be either to an affiliate of Lessor which does not provide
telecommunications services which are competitive with those services then
provided by the Company or its subsidiaries, or (ii) any such transfer (A) is to
an institutional investor having a tangible net worth of not less than
$50,000,000 and which does not provide telecommunications services which are
competitive with those services then provided by the Company or its
subsidiaries, and (B) will result in Lessor retaining at least a twenty-five
percent (25%) interest in each Schedule to this Lease. Upon Lessor's written
notice, Lessee shall, if requested, pay directly to such assignee without
abatement, deduction or set-off all amounts which become due hereunder. Lessee
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<PAGE> 9
waives and agrees it will not assert against such assignee any counterclaim or
set-off in any action for rent under the Lease. Such assignee shall have and be
entitled to exercise any and all rights and remedies of Lessor hereunder, and
all references herein to Lessor shall include Lessor's assignee. Lessee
acknowledges that such a sale, assignment, grant or transfer would neither
materially change the Lessee's duties nor materially increase the burdens or
risks imposed on the Lessee under this Lease. LESSEE MAY NOT, WITHOUT LESSOR'S
PRIOR WRITTEN CONSENT, SUBLEASE, TRANSFER, DISPOSE OF, GRANT A SECURITY INTEREST
IN OR ASSIGN ITS RIGHTS IN RESPECT OF ANY UNIT OR ITS RIGHTS OR OBLIGATIONS
UNDER THIS LEASE (except (x) to a subsidiary or other party so long as Lessee
remains primarily liable under this Lease and each Schedule or (y) to a
successor in interest to all or substantially all of the business of Lessee to
which the Equipment relates, provided, that such successor has a net worth
(after giving effect to the business and assets of Lessee acquired by such
successor) greater than or equal to that of Lessee at the time of execution of
this Lease as determined in good faith by Lessor prior to such transfer).
8. TAXES: Lessee agrees to pay if and when due, in addition to other
amounts due hereunder and under each Schedule, all fees and assessments, and all
sales, use, property, excise and other taxes and charges (including all interest
and penalties) (collectively "Taxes"), now or hereafter imposed by any
governmental body or agency upon any of the Equipment or upon the purchase,
ownership, possession, leasing, operation, use, rentals or other payments, or
disposition hereunder whether payable by Lessor or Lessee (exclusive of taxes on
or measured by Lessor's net income). Lessee agrees to prepare and file promptly
with the appropriate offices any and all tax and similar returns required to be
filed with respect thereto, or, if requested by Lessor, to notify Lessor of such
requirements and furnish Lessor with all information required by Lessor so that
it may effect such filing, at Lessee's expense. Any Taxes paid by or imposed on,
Lessor on behalf of Lessee shall become immediately due and payable on Lessor's
demand. Lessor, as owner, shall be entitled to any and all depreciation and
modified cost recovery deductions provided under the Internal Revenue Code of
1986, as amended from time to time and any other such tax benefits which may now
or hereafter be available to an owner of such Equipment (collectively, "Tax
Benefits"). If as a result of (i) the inaccuracy or breach of any of Lessee's
representations, warranties and covenants herein or in any Schedule, or (ii) the
acts or failure to act of Lessee or any person claiming an interest in the
Equipment through the Lessee (other than a casualty or other event described in
Section 11 with respect to which Stipulated Loss Value shall have been paid by
Lessee), Lessor or any of its assigns shall lose, or shall not, in its
reasonable opinion, have the right to claim, or there shall be disallowed,
deferred or recaptured, any portion of the Tax Benefits with respect to a Unit
(a "Loss of Tax Benefits") or there shall be included in Lessor's gross income
any amounts other than Rental Payments in respect of the purchase price of any
Unit (an "Inclusion"), then, on and after the next succeeding Rent Payment date
after written notice to Lessee by Lessor, Lessee agrees as follows: The rent for
the Equipment shall, on the Rent Payment date next succeeding Lessor's written
notice to Lessee of Lessor's payment of any tax payment attributable to such
Inclusion or of a Loss of Tax Benefits, be increased to such amount or amounts
as shall, by the end of the original term of the last Schedule to this Lease, in
the reasonable opinion of Lessor, after deduction of all fees, taxes, or other
charges required to be paid by Lessor in respect of the receipt of all amounts
payable by Lessee to Lessor under this Section 8 under the laws of any federal,
state, or local government or taxing authority in the United States, cause
Lessor's after-tax yield and cash flow in respect of the Equipment to equal
those which would have been realized by Lessor if Lessor had not incurred such a
Loss of Tax Benefits or had such an Inclusion. If any claim or contest regarding
any tax indemnity covered by this Section 8 shall arise, such claim or contest
shall be addressed or conducted, at Lessee's expense, in the manner reasonably
specified by Lessor. The provisions of this Section 8 shall survive the
cancellation or termination of the Lease or any Schedule.
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<PAGE> 10
9. USE; MAINTENANCE; SUBSTITUTION OF EQUIPMENT:
(a) Lessee, at its expense, shall make all necessary site
preparations and cause the Equipment to be operated in accordance with any
applicable manufacturer's manuals or instructions. So long as no Event of
Default has occurred and is continuing, Lessee and any permitted sublessee shall
have the right to quietly possess and use the Equipment as provided herein
without interference by Lessor.
(b) Lessee, at its expense, shall maintain the Equipment in
good condition, reasonable wear and tear excepted, and will comply with all
laws, ordinances and regulations to which the use and operation of the Equipment
may be or become subject. Such obligation shall extend to repair and replacement
of any partial loss or damage to the Equipment, regardless of the cause. Lessee
shall obtain and keep in effect at all times during the Term maintenance service
contracts with the vendor or manufacturer of the Equipment. Each Unit of
Equipment shall be brought up to the current engineering changes and software
releases within ninety (90) days of the announcement of such changes or
releases. All parts furnished in connection with such maintenance, repair or
routine upgrades shall immediately become part of the Equipment. All such
maintenance, repair and replacement services shall be immediately paid for and
discharged by Lessee with the result that no lien will attach to the Equipment.
Only qualified personnel of Lessee shall operate the Equipment. The Equipment
shall be used only for the purposes for which it was designed. Lessee may make
improvements, modifications or additions to the Equipment; provided, that if
such improvements, modifications or additions would (i) render the Equipment
"limited use property"; (ii) are not capable of being removed without causing
material damage to the Equipment, or (iii) would decrease the Fair Market Value,
useful life or residual value of the Equipment, then Lessor's prior written
consent shall be required. If any improvements, modifications or additions are
to be financed, Lessor shall have the right of offer to finance the same.
(c) Provided that no Event of Default exists and at its
expense, Lessee may elect for valid business reasons to replace a Unit of
Equipment (a "Substituted Unit") with another Unit of Equipment (a "Replacement
Unit"). Each Replacement Unit shall be free and clear of all liens and
encumbrances, shall have a fair market value, residual value and remaining
useful life equal to or greater than that of the Substituted Unit and shall be
in as good an operating condition as the Substituted Unit (assuming that the
Substituted Unit has been maintained in accordance with the provisions of this
Agreement). Each Replacement Unit shall be in the same location as the
Substituted Unit. Lessee shall give Lessor notice of such substitution within
ninety (90) days of physical substitution, and in connection with such notice,
Lessee shall execute and deliver to Lessor a bill of sale and an amended Annex A
to the applicable Schedule with respect to each Replacement Unit, together with
such documents and instruments as reasonably may be required by Lessor in
connection with such substitution, including, without limitation, financing
statements or amendments to financing statements to be filed at Lessee's
expense. Such documentation shall include a representation by Lessee that the
Replacement Units meet the requirements set forth in this Section 9(c). Upon
compliance by Lessee with the provisions hereof, Lessor will transfer to Lessee,
on an "AS IS, WHERE IS" basis, without recourse or warranty, express or implied,
of any kind whatsoever, all of Lessor's interest in and to the Substituted Unit.
Lessor shall not be required to make and may specifically disclaim any
representation or warranty as to the condition of the Substituted Unit and any
other matters (except that Lessor shall warrant that it has conveyed whatever
interest it received in such Substituted Unit free and clear of any lien or
encumbrance created by or through Lessor). Lessor shall execute and deliver to
Lessee such financing statement releases or terminations as reasonably may be
required in order to terminate any interest of Lessor in and to such Substituted
Unit.
10. INSURANCE: (a) Lessee shall obtain and maintain for the Term, at
its own expense, (i) "all risk" insurance against loss or damage to the
Equipment, (ii) commercial general liability insurance (including contractual
liability, products liability and completed operations coverages) reasonably
satisfactory to Lessor,
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and (iii) such other insurance against such other risks of loss and with such
terms, as shall in each case be reasonably satisfactory to or reasonably
required by Lessor (as to carriers, amounts and otherwise). (b) The amount of
the "all risk" insurance shall be the greater of the replacement value of the
Equipment (as new) or the "Stipulated Loss Value" specified in the applicable
Schedules, which amount shall be determined to Lessor's reasonable satisfaction
as of each anniversary date of this Lease with the amount so determined being
put into effect on the next succeeding renewal or inception date of such
insurance. (c) The deductible with respect to "all-risk" insurance required by
clause (b) above and product liability insurance required by clause (a) above
shall not exceed $25,000; otherwise there shall be no deductible with respect to
any insurance required to be maintained hereunder. (d) The amount of commercial
general liability insurance (other than products liability coverage and
completed operations insurance) required by clause (a) above shall be at least
$5,000,000 per occurrence. The amount of the products liability and completed
operations insurance required by clause (a) above shall be at least $5,000,000
per occurrence. (e) Each "all risk" policy shall: (i) name Lessor as sole loss
payee with respect to the Equipment, (ii) provide for each insurer's waiver of
its right of subrogation against Lessor, and (iii) provide that such insurance
(A) shall not be invalidated by any action of, or breach of warranty by, Lessee
of a provision of any of its insurance policies, and (B) shall waive set-off,
counterclaim or offset against Lessor. Each liability policy shall (w) name
Lessor as an additional insured in the full amount of Lessee's liability
coverage limits (or the coverage limits of any successor to Lessee or such
successor's parent which is providing coverage) and (x) provide that such
insurance shall have cross-liability and severability of interest endorsements
(which shall not increase the aggregate policy limits of Lessee's insurance).
All insurance policies shall (y) provide that Lessee's insurance shall be
primary without a right of contribution of Lessor's insurance, if any, or any
obligation on the part of Lessor to pay premiums of Lessee, and (z) shall
contain a clause requiring the insurer to give Lessor at least 30 days' prior
written notice of its cancellation (other than cancellation for non-payment for
which 10 days' notice shall be sufficient). Lessee shall on or prior to the
Delivery Date of Schedule No. 1 and prior to each policy renewal, furnish to
Lessor certificates of insurance or other evidence satisfactory to Lessor that
such insurance coverage is in effect. Lessee further agrees to give Lessor
prompt notice of any damage to, or loss of, the Equipment, or any part thereof.
11. LOSS; DAMAGE; DESTRUCTION AND SEIZURE: (a) Lessee shall bear the
risk of the Units being lost, stolen, destroyed, damaged or seized by
governmental authority for any reason whatsoever at any time until the latest to
occur of (i) the expiration or termination of the Term or (ii) any storage
period thereafter (if Lessee controls the storage arrangements) or (iii) the
return of the subject Unit to Lessor, and shall proceed diligently and cooperate
fully to recover any and all damages, insurance proceeds or condemnation awards.
(b) Except as described in Section 11(c) hereof, if during the Term or the
storage period thereafter (if Lessee controls the storage arrangements), any
Unit shall be lost, stolen, destroyed, irreparably damaged or seized by a
governmental authority for a period equal to at least the remainder of the Term,
Lessor shall receive from the proceeds of insurance obtained pursuant to Section
10 hereof, from any award paid by the seizing governmental authority and, to the
extent not received from the proceeds of such insurance or award or both, from
Lessee, on or before the Rental Payment date next succeeding such loss, theft,
destruction, damage or governmental seizure: (i) all accrued and unpaid rent in
respect of such Unit including rent due on the Rental Payment date next
succeeding the date of such loss or seizure if the rent is in arrears; (ii) the
Stipulated Loss Value of such Unit, determined as of such Rental Payment date;
(iii) all other sums, if any, that shall have become due and payable hereunder;
and (iv) interest on the foregoing at the lower of the rate per annum equal to
the highest implicit interest rate for any Schedule plus 2% or the highest rate
then permitted by applicable law from the due dates(s) of such payment(s) to the
date of payment. On receipt by Lessor of the amount specified hereinabove with
respect to each such Unit so lost, stolen, destroyed, damaged or seized, (i)
this Lease shall be deemed terminated as to such Unit and rent in respect of
such Unit shall be deemed abated, as of the Rental Payment date next succeeding
such loss, theft, damage, destruction or seizure; and (ii) so long as no default
or Event of Default has occurred and is continuing hereunder, Lessor shall on
demand, transfer title to such Unit, "AS IS, WHERE IS, WITHOUT RECOURSE,
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REPRESENTATION OR WARRANTY," to Lessee, or, if appropriate in Lessor's sole
judgment, which judgment shall be exercised in a reasonable manner, and on prior
notice to Lessee, to Lessee's insurance carrier. Any proceeds of insurance
payable to Lessor pursuant to this Section 11 and Section 10 hereof received by
Lessee shall be paid to Lessor promptly upon their receipt by Lessee. If any
proceeds of insurance or awards received from governmental authorities are in
excess of the amount owed under this Section 11(b), Lessor shall promptly remit
to Lessee the amount in excess of the amount owed to Lessor. (c) So long as no
Event of Default shall have occurred and be continuing, any proceeds of
insurance obtained pursuant to Section 10 hereof received with respect to any
Unit the repair of which is practical shall, at the election of Lessee, be
applied either to the repair of such Unit or, upon Lessor's receipt of evidence
of the repair of the Unit reasonably satisfactory to Lessor, to the
reimbursement of Lessee for the cost of such repair. (d) Lessee shall promptly,
but in any event within 30 days thereafter, notify Lessor in writing in
reasonable detail of any loss, theft, destruction or seizure described in this
Section 11. (e) The Stipulated Loss Value payable by Lessee under this Lease
shall be that percentage of Lessor's Cost of the affected Unit(s) set forth in
the table attached to the applicable Schedule as Annex B opposite the Rental
Payment date next following the event giving rise to Lessee's obligation to pay
Stipulated Loss Value. Stipulated Loss Values and Rental Payments shall not be
prorated.
12. EVENTS OF DEFAULT: An "Event of Default" shall occur if Lessee: (a)
fails to pay any Rental Payment, payment of Stipulated Loss Value or Termination
Value when due and such failure continues for a period of five (5) business days
or fails to make any other payment due hereunder and such failure continues for
a period of fifteen (15) business days after written notice of such failure by
Lessor; or (b) fails to perform or observe any other material covenant,
condition or agreement hereunder or breaches any provision contained herein or
in any other document furnished Lessor in connection herewith, and such failure
or breach continues for a period of thirty (30) days after written notice by
Lessor; or (c) makes any material representation or warranty herein or in any
document furnished in connection herewith, which shall have been materially
false or inaccurate when made; or (d) fails to maintain insurance under this
Lease or otherwise required by the Lessor hereunder; or (e) shall admit in
writing that it is unable to pay its debts as they become due, become insolvent
or bankrupt or make an assignment for the benefit of its creditors or consents
to the appointment of a trustee or receiver or insolvency proceedings shall be
instituted by or against Lessee (and in the case of any involuntary proceedings
such proceedings are not dismissed within sixty (60) days); or (f) shall have
outstanding any single indebtedness exceeding the sum of one million dollars
($1,000,000.00), or aggregate indebtedness exceeding the sum of two million
dollars ($2,000,000.00), under any other lease(s) or contract(s) for the
borrowing of money or on account of the deferred purchase price of property, and
the maturity of such indebtedness shall be accelerated or such indebtedness
shall not be paid when due; or (g) shall have rendered against it any single
judgment for payment of money damages in excess of one million dollars
($1,000,000.00), or aggregate judgments for payment of money damages in excess
of two million dollars ($2,000,000.00), and the same shall remain unstayed or
undischarged for a period of thirty (30) days; or (h) except as is expressly
permitted herein, without Lessor's prior written consent, shall have removed,
parted possession with, sold transferred, encumbered, assigned or sublet any
Unit of Equipment or Lessee's interest under this Lease or attempted to do any
of the foregoing or shall have converted any interest of Lessor arising under
this Lease or any purchase order, or resulting from the purchase of Equipment or
attempted to convert any of the foregoing.
13. REMEDIES: Upon the occurrence of any Event of Default and at any
time thereafter, provided such Event of Default is then continuing (which
occurrence, for purposes of clause (a)(ii)(B) below is the day Lessee shall be
deemed to tender possession of the Equipment to Lessor), (a) Lessor may, in its
discretion, do any one or more of the following, all of which Lessor and Lessee
expressly agree are commercially reasonable under the UCC and any other
applicable law: (i) terminate this Lease; (ii) declare to be immediately due and
payable: (A) all unpaid rent and sums then due and payable under this Lease
(other than amounts payable under clause (B) hereof, if any,) plus (B) an amount
equal to the greater of the then
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<PAGE> 13
applicable Stipulated Loss Value (which value Lessee acknowledges has a
reasonable discount rate implicit therein) or the then applicable fair market
value of the Equipment as determined by Lessor (and upon receipt of all such
payments due under this clause (ii), Lessor shall transfer title to the
Equipment to Lessee); (iii) require that Lessee return all Equipment to Lessor
in accordance with Section 6 hereof; (iv) enter upon the premises where such
Equipment is located and take immediate possession of and remove the same, all
without liability to Lessor or its agents for such entry; (v) sell any or all of
the Equipment at public or private sale, with or without notice to Lessee or
advertisement, or otherwise dispose of, hold, use, operate, lease to others or
keep idle such Equipment, all free and clear of any rights of Lessee and without
any duty to account to Lessee for such action or inaction or for any proceeds
with respect thereto subject to applicable law; (vi) exercise any other right or
remedy which may be available under the UCC or other applicable law including
the right to recover damages for the breach hereof. (b) In addition, Lessee
shall be liable for, and reimburse Lessor for, all reasonable and necessary
attorneys' fees and other expenses incurred by Lessor as a result of the
foregoing defaults, or the exercise of Lessor's remedies, including without
limitation placing any Equipment in the condition required by Section 9 hereof.
No remedy referred to in this Section 13 is intended to be exclusive, but each
shall be cumulative and in addition to any other remedy referred to above or
otherwise available to Lessor at law or in equity. (c) There shall be no waiver
by Lessor of any default unless in writing and such waiver shall not constitute
a waiver of any other default by Lessee, or a waiver of any of Lessor's other
rights. Lessee waives any rights now or hereafter conferred by statute or
otherwise that may require Lessor to sell, re-lease or otherwise use or dispose
any Unit in mitigation of the Lessor's damages or that might otherwise limit or
modify any of Lessor's rights or remedies under this Lease.
14. LESSEE'S REPRESENTATIONS, WARRANTIES AND COVENANTS: (a) Lessee
warrants and represents the following as of the date hereof: (i) Lessee is a
corporation duly organized, validly existing and in good standing under the laws
of the state of its incorporation and is duly qualified and authorized to do
business in the state where the Equipment will be located; (ii) Lessee has the
full corporate power, authority and legal right and has obtained all approvals
and consents and has given all notices necessary to execute and deliver this
Lease and perform the terms hereof and of each Schedule; (iii) except as set
forth on Exhibit G to this Lease, there is no action, proceeding or patent claim
pending or, insofar as Lessee knows, threatened against Lessee or any of its
subsidiaries before any court or administrative agency which might have a
materially adverse effect on the business, condition or operations of Lessee or
such subsidiary; and (iv) this Lease has been and each Schedule will be duly
executed and delivered by Lessee and constitute or will constitute the valid,
binding and enforceable obligations of Lessee. (b) Lessee agrees that by its
signature on each Schedule it shall be deemed to have warranted and represented
the following as of the Delivery Date of such Schedule: (i) all of the Units
being delivered on the Delivery Date of such Schedule are accurately described
in Annex A attached to such Schedule, have been fully assembled and conform to
all applicable performance criteria; (ii) the requirements of this Lease and of
Lessor with respect to the identification of the Units have been met; and (iii)
each of the representations and warranties set forth in clause (a) of this
Section 14 remains true and correct.
15. NOTICES. All notices (and financial information required to be
delivered to Lessor under Section 16(c) of this Lease) shall be addressed as
follows:
If to Lessor:
GATX TELECOM INVESTORS II-A, L.L.C.
Four Embarcadero Center, Suite 2200
San Francisco, CA 94111
Attn: Contract Administration
If to Lessee, at the address set forth on the cover page of this Lease.
13
<PAGE> 14
16. MISCELLANEOUS: (a) Any notices hereunder shall be in writing and
shall be deemed given when delivered personally, by private courier, by
facsimile transmission or sent by certified mail, postage prepaid, addressed to
the other party at its address set forth herein or to such other address as
either party may designate in writing. Such notices or demands shall be deemed
given upon receipt in the case of personal delivery, mailing or facsimile
transmission. (b) Lessee will promptly execute and deliver to Lessor such
further reasonable documents (including, but not limited to, financing
statements for precautionary purposes) and take such further reasonable action
(such as obtaining landlord or mortgagee's waivers), as Lessor may request in
order to more effectively carry out the intent and purpose of this Lease or an
assignment of Lessor's interest herein. (c) Lessee shall promptly as they become
available furnish to Lessor quarterly and audited annual financial statements
and such other financial information as Lessor may reasonably request from time
to time. (d) This Lease constitutes the entire agreement on the subject matter
hereof between the parties hereto (other than any document executed in
connection herewith, including any confidentiality agreement), supersedes the
provisions of any "term sheet" executed by the parties hereto and shall be
binding upon and inure to the benefit of the parties hereto, their permitted
successors and assigns. (e) Any provision of the Lease which is unenforceable in
any jurisdiction shall, as to such jurisdiction, be ineffective to the extent of
such prohibition or unenforceability without invalidating the remaining
provisions hereof; and any such prohibition or unenforceability in any
jurisdiction shall not invalidate or render unenforceable such provision in any
other jurisdiction. (f) Time is of the essence with respect to the Lease. (g)
The captions set forth herein are for convenience only and shall not define or
limit any of the terms hereof. (h) The language in this Lease and the related
documents is to be construed as to its fair meaning and not strictly for or
against any party. (i) All payments shall be paid to the address designated by
Lessor in the applicable Schedule or otherwise in a writing signed by Lessor.
(j) Lessee's and Lessor's obligations hereunder shall survive the expiration and
termination of the Term to the extent required for full performance and
satisfaction thereof. (k) ALL MATTERS INVOLVING THE CONSTRUCTION, VALIDITY,
PERFORMANCE AND ENFORCEMENT OF THIS LEASE WILL BE GOVERNED BY THE LAWS OF THE
STATE OF CALIFORNIA WITHOUT GIVING EFFECT TO PRINCIPLES OF CONFLICTS OF LAW OR
CHOICE OF LAW. This Lease is being executed in the State of California and is to
be performed in such State. (l) This Lease may be executed by the parties hereto
in separate counterparts, each of which when so executed and delivered shall be
an original, but all such counterparts shall together constitute one and the
same instrument; provided, however, that to the extent, if any, that this Lease
constitutes chattel paper (as such term is defined in the Uniform Commercial
Code as in effect in any applicable jurisdiction), no security interest in this
Lease may be created through the transfer or possession of any counterpart of
this Lease or any Schedule other than the original counterparts marked "Lessor's
Original Counterpart". (m) Lessee shall pay on demand (i) all reasonable fees
and expenses, including reasonable attorneys' fees and expenses, incurred by
Lender in connection with the preparation, execution and delivery of, and the
exercise of its duties under, this Lease and the other documents executed in
connection therewith and the preparation, execution and delivery of amendments
and waivers hereunder and (ii) all reasonable fees and expenses, including
reasonable attorneys' fees and expenses, incurred by Lender in connection with
the enforcement or attempted enforcement of this Lease or any of the obligations
under this Lease or in preserving any of Lender's rights and remedies
(including, without limitation, all such fees and expenses incurred in
connection with any "workout" or restructuring affecting this Lease or the
Obligations or any bankruptcy or similar proceeding involving Lessee or any of
its affiliates).
17. AMENDMENTS, MODIFICATIONS, WAIVERS: NONE OF THE PROVISIONS OF THIS
LEASE MAY BE AMENDED, MODIFIED OR WAIVED EXCEPT IN A WRITING SIGNED BY LESSOR
AND LESSEE.
INITIALS /s/ JP (LESSEE) INITIALS /s/ ML (LESSOR)
-------- --------
14
<PAGE> 15
This Lease is hereby duly executed by the parties hereto as set forth
below.
LESSEE: LESSOR:
E.SPIRE COMMUNICATIONS, INC. GATX TELECOM INVESTORS II-A, L.L.C.
By: GATX Capital Corporation, its
Managing Member
BY: /s/ JOHN R. POLCHIN BY: /s/ MICHAEL LIEBEK
------------------------------ ------------------------------
NAME (PRINT): JOHN R. POLCHIN NAME (PRINT): MICHAEL LIEBEK
---------------------- ----------------------
TITLE: VICE PRESIDENT & CFO TITLE: VP TELECOM INVESTING
----------------------------- -----------------------------
This Lease incorporates the following Riders as if set forth herein:
Rider I, Rider II, Rider III, Rider IV and Rider V
INITIALS /s/ JP (LESSEE) INITIALS /s/ ML (LESSOR)
-------- --------
15
<PAGE> 16
RIDER I
TO MASTER EQUIPMENT
LEASE AGREEMENT NO. 20100
DATED December 13, 1999
Conditions to Lessor's Obligations
By their initials below and on the signature page of the Master
Equipment Lease Agreement referenced in the upper right corner of this page,
Lessor and Lessee agree that the Lease incorporates the following terms:
1. On or prior to the date of execution of the Lease by Lessor, Lessor
shall have received in form and substance satisfactory to Lessor:
(a) A legal opinion of Lessee's legal counsel in form and
substance reasonably satisfactory to Lessor covering
the matters set forth in Exhibit E hereto.
(b) Copies, certified by the Secretary or Assistant
Secretary or Chief Financial Officer of Lessee, of:
(A) the Certificate/Articles of Incorporation and
By-Laws of Lessee (as amended to the date of the
Lease) and (B) the resolutions adopted by Lessee's
board of directors authorizing the execution and
delivery of this Lease, the Schedules and the other
documents referred to herein and the performance by
Lessee of its obligations hereunder and thereunder.
(c) A good standing certificate (including franchise tax
status) with respect to Lessee from Lessee's state of
incorporation, the state where Lessee's chief
executive office is located and each state where
Equipment is expected to be located, each dated a
date reasonably close to the date of acceptance of
the Lease by Lessor.
(d) Evidence of the insurance coverage required by
Section 10 of the Lease.
(e) All other documents as Lessor shall have reasonably
requested.
2. Prior to any funding on a Delivery Date, Lessee shall have satisfied
all of the conditions set forth in the applicable Schedule.
RIDER I Initials /s/ ML (Lessor)
--------
Initials /s/ JP (Lessee)
--------
<PAGE> 17
RIDER II
TO MASTER EQUIPMENT
LEASE AGREEMENT NO. 20100
DATED December 13, 1999
Early Buy-Out Option
By their initials below and on the signature page of the Master
Equipment Lease Agreement referenced in the upper right corner of this page,
Lessor and Lessee agree that the Lease incorporates the following terms:
Provided that the Lease has not been terminated and that no Event of
Default under the Lease or event which, with notice or lapse of time or both,
would become an Event of Default shall have occurred and be continuing, on the
fourth anniversary of the Rent Commencement Date of each Schedule, Lessee shall
have the option, exercisable by irrevocable written notice given at least 90
days but not more than 180 days in advance, to purchase all, but not less than
all, of the Equipment on such Schedule for a purchase price equal to fifty-three
percent (53%) of the Lessor's Cost of the Equipment subject to such Schedule.
All other terms with respect to the exercise of this option shall be those
applicable to the exercise of a purchase option at the end of an Initial Lease
Term under the Lease.
RIDER II Initials /s/ ML (Lessor)
--------
Initials /s/ JP (Lessee)
--------
<PAGE> 18
RIDER III
TO MASTER EQUIPMENT
LEASE AGREEMENT NO. 20100
DATED December 13, 1999
Termination Option
By their initials below and on the signature page of the Master
Equipment Lease Agreement referenced in the upper right corner of this page,
Lessor and Lessee agree that the Lease incorporates the following terms:
Provided that the Lease has not been terminated and that no Event of
Default under the Lease or event which, with notice or lapse of time or both,
would become an Event of Default shall have occurred and be continuing, Lessee
shall have the option, exercisable by written notice given at least 180 days in
advance and only to the extent the analogous termination option in the GATX
Lease has not been exercised, to terminate the Lease only with respect to up to
two Lucent 5ESS-2000 switches (e.g. if the analogous termination option under
the GATX Lease has been exercised as to one switch, this termination option may
only be exercised as to one switch) upon the following conditions:
1. The date of termination specified in Lessee's notice ("Early
Termination Date") shall be any Rental Payment due date after
the third anniversary of the Rent Commencement Date with
respect to each Unit being terminated.
2. In electing the early termination option, Lessee shall not
discriminate against the Equipment leased by Lessor in favor
of continuing to operate Equipment owned by Lessee. To elect
the early termination option, Lessee must in good faith
determine by a certified resolution of its Board of Directors
delivered to Lessor that the Lucent 5ESS-2000 switches being
terminated are obsolete, are surplus to Lessee's needs in a
geographic market or have inadequate capacity for the specific
geographic market and additional capacity cannot be obtained
in such market by upgrading the switches or by adding
additional switches.
3. During the period from the notice of termination until the
Early Termination Date, Lessee will use commercially
reasonable best efforts on Lessor's behalf to sell the
terminating Units to an unrelated third party for a sale price
consented to in writing by Lessor; provided, that upon receipt
of notice of early termination Lessor may simply elect to
retain the Unit(s).
4. Lessee shall pay to Lessor on the Early Termination Date an
amount equal to the Termination Value of the terminating Units
on the Early Termination Date, less the sale price if the
Units are sold. If Lessee requests that Lessor undertake the
remarketing of the terminating Units, the payment shall be
equal to the Termination Value of the terminating Units on the
Early Termination Date plus Qualified Remarketing Costs, less
the sale price of the Units. If Lessor elects to retain any
Unit, Lessee shall pay any Rental Payments with respect to
such Unit due on the Early Termination Date, but no
Termination Value shall be payable.
RIDER III Initials /s/ ML (Lessor)
--------
Initials /s/ JP (Lessee)
--------
<PAGE> 19
5. The term "Remarketing Costs" shall mean all expenses incurred
by Lessor in selling Units, including, without limitation,
reasonable commissions and fees incurred in locating
subsequent users and a financing commitment, attorneys' fees,
transportation, installation, refurbishing and reconditioning
charges. However, Lessor shall attempt to recover such costs
from the subsequent users in lump-sum payments (not part of
the monthly rental payment), in which event such reimbursed
costs shall not be part of the "Remarketing Costs" payable by
Lessee.
RIDER III Initials ILLEGIBLE (Lessor)
---------
Initials ILLEGIBLE (Lessee)
---------
<PAGE> 20
RIDER IV
TO MASTER EQUIPMENT
LEASE AGREEMENT NO. 20100
DATED December 13, 1999
Funding Agreement
By their initials below and on the signature page of the Master
Equipment Lease Agreement referenced in the upper right corner of this page,
Lessor and Lessee agree that the Lease incorporates the following terms:
1. Lessee agrees that by execution of the Lease it has agreed to
lease Equipment from Lessor having an aggregate Lessor's Cost
of not less than thirty-one million dollars ($31,000,000) (the
"Minimum Funding Amount"). If Lessee fails to meet the Minimum
Funding Amount because (a) it has not requested funding of
Eligible Equipment under the Lease in the amount of the
Minimum Funding Amount, or (b) it has failed to satisfy any
condition to any funding of Eligible Equipment (provided that
for purposes of this clause (b) Lessee shall be deemed to have
satisfied the conditions to funding a Schedule if Lessor does
not fund the Schedule due to failure to obtain a Landlord
Consent after diligent efforts to do so or if Lessor does not
fund a Schedule due to the occurrence of a Material Adverse
Effect), then Lessee shall pay to Lessor (i) a fee equal to
one percent (1%) of the unfunded amount of Lessor's Commitment
to compensate Lessor for its expenses in entering into and
administering the Lease, plus (ii) an amount sufficient to
compensate Lessor for its lost economic return (on an after
tax basis) which results from Lessee's failure to meet the
Minimum Funding Amount.
2. Lessee further agrees to lease not less than four (4) Lucent
5ESS switches under the Lease.
RIDER IV Initials ML (Lessor)
---------
Initials JP (Lessee)
---------
<PAGE> 21
RIDER V
TO MASTER EQUIPMENT
LEASE AGREEMENT NO. 20100
DATED December 13, 1999
Milestone Funding
By their initials below and on the signature page of the Master
Equipment Lease Agreement referenced in the upper right corner of this page,
Lessor and Lessee agree that the Lease incorporates the following terms:
If the purchase price of Equipment subject to the Lease is payable upon
the achievement of certain milestones, the Delivery Date of such Equipment shall
be the date the first such milestone payment is due, and in connection with the
delivery of the Schedule on that date, Lessee shall deliver to Lessor a
Milestone Acceptance Certificate in the form of Exhibit E to the Lease. On the
Delivery Date, Lessee shall make an Interim Rental Payment with respect to such
milestone payment for the period from the Delivery Date until the first day of
the next calendar month. When each subsequent milestone is achieved, Lessee
shall deliver a Milestone Acceptance Certificate and Lessor shall fund the
milestone payment then due and on the date of funding Lessee shall make an
Interim Rental Payment with respect to such milestone payment for the period
from the date of such milestone payment until the first day of the next calendar
month. The Rent Commencement Date shall not occur until the first day of the
calendar month occurring after the final milestone payment is funded and Lessee
shall have certified that the applicable Unit has been finally accepted. If the
Rent Commencement Date does not occur on the first day of the calendar month
following the funding of a milestone payment, Lessee shall make an additional
Interim Rental Payment with respect to such milestone payment on such date for
the period from such date until the first day of the next calendar month. If a
milestone payment is not the last milestone payment for a Unit, Lessee shall not
be deemed to have made the representations in clause (b)(i) of Section 14 of the
Lease or Section 2 of the Schedule.
RIDER V Initials ML (Lessor)
---------
Initials JP (Lessee)
---------
<PAGE> 22
Exhibit A - Landlord Waiver
Exhibit B - Purchase Order and Invoice Assignment
Exhibit C - [Intentionally omitted]
Exhibit D - Form of Schedule
Exhibit E - Legal Opinion
Exhibit F - Milestone Acceptance Certificate
Exhibit G - Litigation
<PAGE> 23
EXHIBIT A
LANDLORD WAIVER
<PAGE> 24
RECORDING REQUESTED BY
AND WHEN RECORDED RETURN TO:
GATX TELECOM INVESTORS II-A, L.L.C.
Four Embarcadero Center, Suite 2200
San Francisco, CA 94111
Attn: Contract Administration
LANDLORD'S WAIVER AND CONSENT
THIS LANDLORD'S WAIVER AND CONSENT (this "Waiver"), dated as of
_______________, 199___, is executed by and between ___________________________,
________________________ ("Landlord") and GATX TELECOM INVESTORS II-A, L.L.C.
("Lessor").
RECITALS
A. Landlord and e.SPIRE COMMUNICATIONS, INC. ("Tenant") are parties to
a __________ ______________________________ [Lease Agreement], dated as of
_______________, 19 ___ (together with any other agreement between Landlord and
Tenant relating to the Premises, as defined below, all as amended from time to
time, to be referred to herein collectively as the "Lease"), pursuant to which
Landlord has leased to Tenant that certain real property commonly known as
___________________________________________________________________, and more
particularly described in Attachment 1 hereto (the "Premises").
B. Tenant and Lessor intend to or have entered into a Master Equipment
Lease Agreement dated as of December 13, 1999 (the "Credit Agreement") pursuant
to which Lessor has agreed or will agree to lease to Tenant from time to time
certain equipment (the "Equipment") which will be located on the Premises.
AGREEMENT
NOW, THEREFORE, in consideration of the above recitals and for other
good and valuable consideration, the receipt and adequacy of which are hereby
acknowledged, Landlord and Lessor hereby agree as follows:
1. Waiver and Consent. Landlord hereby consents to the location of the
Equipment on the Premises and does irrevocably waive, disclaim and relinquish
and assign to Lessor any and all rights to impose, receive, assert or enforce
any lien, encumbrance, charge, security interest, ownership interest, claim or
demand of any kind against or involving the Equipment, whether arising by common
law, statute or consensually (under the Lease or otherwise) and whether now in
existence or hereafter created, including, but not limited to, those for rent or
other right of payment. This waiver, disclaimer, relinquishment and assignment
shall survive the termination of the Lease. Landlord further agrees that (a)
neither the Equipment nor any item thereof shall become part of, or otherwise be
or become a fixture attached to, the Premises, notwithstanding the manner of the
Equipment's annexation, the Equipment's adaptability to the uses and purposes
for which the Premises are used, and the intentions of the party making the
annexation; (b) the Equipment (or any item thereof) may be repossessed by
Lessor; (c) in connection with such repossession or otherwise, Lessor, and any
of its agents and employees, may enter upon the Premises for the purposes of (i)
guarding and maintaining the Equipment (or any item thereof), (ii) showing the
Equipment (or any item thereof) to prospective lenders, buyers, lessees and
sublessees, as applicable, and any of their respective
<PAGE> 25
agents and employees, (iii) preparing, disassembling, dismantling, loading
and/or removing the Equipment (or any item thereof), and (iv) general
inspections of the Equipment pursuant to the Credit Agreement; and (d) the right
of Lessor to enter the Premises and the other rights granted to Lessor in this
Waiver shall not terminate until thirty (30) days after Lessor receives written
notice from Landlord of the termination of the Lease. If Lessor should exercise
its rights hereunder (and the failure to exercise such rights shall not be
construed as a waiver thereof), Landlord agrees upon receiving prior written
notice, to provide ingress and egress to effect such exercise as well as provide
reasonably adequate space contiguous to the location of the Equipment to permit
the exercise of such rights. Landlord further agrees that Lessor has no
obligation to exercise any right granted to Lessor in this Waiver and that
Lessor may elect to remove only a portion or none of the Equipment from the
Premises.
2. Costs. Lessor agrees to indemnify and hold the Landlord harmless
from any out-of-pocket costs incurred by Landlord for any physical damage to the
Premises caused by Lessor solely from the exercise of its rights under clause
(b) or (c) of Paragraph 1 above.
3. Lease Defaults. Landlord further agrees to provide Lessor written
notice of any default or event of default under the Lease (each a "Default
Notice") simultaneously with the giving of notice of the same to Tenant or, if
no such notice is required under the Lease, at least thirty (30) days prior to
the date Landlord would be entitled to terminate the Lease. Each such notice
shall be sent to the address of Lessor set forth below the signature of Lessor
on the last page hereof or such other address as Lessor may from time to time
provide to Landlord, and shall be deemed delivered (i) in the case of notice by
letter, five (5) business days after deposited in the United States mail
registered and return receipt requested, (ii) in the case of notice by overnight
courier, two (2) business days after delivery to such courier and (iii) in the
case of notice given by telex or telecommunication, when given or sent with
electronic confirmation of receipt. During any time period when Tenant is in
default under the Lease, Lessor shall have the option, but not the obligation,
to cure any such default. Landlord shall accept such cure if it occurs within
thirty (30) days after Lessor has received the relevant Default Notice as fully
as if Tenant had fully performed its obligation under the Lease. Upon curing any
such default, Lessor shall be subrogated to the rights of Landlord against
Tenant and, as between Landlord and Tenant, such cured defaults shall no longer
exist.
4. Landlord's Representations and Warranties. Landlord hereby warrants
and represents to Lessor that (a) Landlord is the lessor under the Lease; (b)
there are no other agreements between the parties affecting or relating to the
Premises; (c) Landlord has all requisite power and authority to execute and
deliver this Waiver and no consents from any third party are required to do so;
(d) Landlord is the sole owner of the landlord's interest under the Lease and
has not conveyed, transferred or assigned any part of that interest to any other
person or entity; (e) no event of default (nor any event which with the passage
of time would constitute an event of default) has occurred under the Lease; (f)
there exists no litigation affecting title to the Premises or any adverse claim
with respect to the Premises of which Landlord has received notice; (g) there is
no condemnation proceeding pending with respect to any part of the Premises, nor
any threat thereof, of which the Landlord has received notice; (h) the Lease is
in full force and effect; and (i) the Premises are not subject to any mortgage
or other security interest in favor of any person which has not executed an
attornment agreement acceptable to Lessor with respect to this Waiver.
5. Miscellaneous. This Waiver and all rights hereby granted to Lessor
hereunder shall remain in effect so long as there are any obligations owing by
Tenant under the Credit Agreement or any present or future agreement between
Tenant and Lessor which involves the Equipment. All the terms and provisions of
this Waiver shall be binding on and inure to the benefit of the respective
successors and assigns of Landlord and Lessor, and Landlord covenants and agrees
that any assignment, mortgage or other transfer of all or any part of its
interest as the owner and/or landlord of the Premises shall provide and shall be
subject and subordinate to all the terms and provisions hereof. Landlord shall
provide each of Tenant and Lessor a duly
-2-
<PAGE> 26
executed copy of the agreement evidencing such subordination. Such agreement
shall be in form and substance reasonably satisfactory to Lessor. The rights and
benefits of this Waiver may be assigned or transferred by Lessor or to third
parties who may become the lessor, directly or indirectly, to Tenant. Lessor
shall provide subsequent written notice to Landlord and Tenant of the assignment
or transfer. Headings in this Waiver are for convenience of reference only and
are not part of the substance hereof. This Waiver shall be governed by and
construed in accordance with the laws of the State of California.
IN WITNESS WHEREOF, Landlord and Lessor have executed this Waiver as of
the date and year first written above.
----------------------------------------
By:
-----------------------------------
Name:
-----------------------------
Title:
-----------------------------
Address:
----------------------------------------
----------------------------------------
----------------------------------------
Attention:
-----------------------------
GATX TELECOM INVESTORS II-A, L.L.C.
By: GATX Capital Corporation,
Its Managing Member
By:
-----------------------------------
Name:
-----------------------------
Title:
-----------------------------
Address:
GATX TELECOM INVESTORS II-A, L.L.C.
Four Embarcadero Center
Suite 2200
San Francisco, CA 94111
Attention: Contract Administrator
-3-
<PAGE> 27
ATTACHMENT 1
LEGAL DESCRIPTION OF PREMISES
[To Be Provided By Tenant]
<PAGE> 28
State of _________________________)
)
County of ________________________)
On _____________________, 19____ before me, the undersigned, personally
appeared __________________________________________________________________,
personally known to me (or proved to me on the basis of satisfactory evidence)
to be the person(s) whose name(s) is/are subscribed to the within instrument and
acknowledged to me that he/she/they executed the same in his/her/their
authorized capacity(ies), and that by his/her/their signature(s) on the
instrument the person(s), or the entity upon behalf of which the person(s)
acted, executed the instrument.
WITNESS my hand and official seal.
Signature ____________________________ (Seal)
State of _________________________)
)
County of ________________________)
On _____________________, 19____ before me, the undersigned, personally
appeared __________________________________________________________________,
personally known to me (or proved to me on the basis of satisfactory evidence)
to be the person(s) whose name(s) is/are subscribed to the within instrument and
acknowledged to me that he/she/they executed the same in his/her/their
authorized capacity(ies), and that by his/her/their signature(s) on the
instrument the person(s), or the entity upon behalf of which the person(s)
acted, executed the instrument.
WITNESS my hand and official seal.
Signature ____________________________ (Seal)
<PAGE> 29
EXHIBIT B
PURCHASE ORDER AND INVOICE ASSIGNMENT
<PAGE> 30
PURCHASE ORDER AND INVOICE ASSIGNMENT
(LUCENT TECHNOLOGIES INC.)
THIS PURCHASE ORDER AND INVOICE ASSIGNMENT, dated as of _________,
199___ (this "Assignment"), between E.SPIRE COMMUNICATIONS, INC. ("Assignor")
and GATX TELECOM INVESTORS II-A, L.L.C. ("Assignee");
W I T N E S S E T H :
WHEREAS, Assignor has submitted its Purchase Orders and Invoices listed
in Schedule 1 hereto (collectively, the "Purchase Orders") to LUCENT
TECHNOLOGIES INC. (the "Vendor") concerning certain Units of equipment (the
"Units") listed in Schedule 1 hereto to be subject to a Master Equipment Lease
Agreement, dated as of ______], 1997 (the "Lease"), between Assignor and
Assignee (all terms used but not otherwise defined herein shall have the meaning
given to them in the Lease), which Purchase Orders and Invoices are subject to
that certain General Agreement Number LNS940215JC, between Vendor and Assignor,
and that certain Addendum Number One (Contract No. LNS960322CRACS) thereto
(collectively, the "General Agreement"):
NOW, THEREFORE, in consideration of the premises and the mutual
covenants herein contained, the parties hereto agree as follows:
1. Assignor does hereby sell, assign, transfer and set over unto
Assignee, all of the Assignor's rights to and interests in the Purchase Orders
as and to the extent that the same relates to the Units. The assignment herein
shall include, without limitation, the right of Assignee to purchase the Units
pursuant to the Purchase Orders and to take title to the Units, all claims for
damages in respect of the Units arising as a result of any default by Vendor
under the Purchase Orders, together with any and all rights of Assignor to
compel performance of the terms of the Purchase Orders in respect of the Units.
Assignee's rights in and to any Units shall be subject in all respects to the
terms and conditions set forth in the General Agreement; provided that Assignee
shall have no duty to perform Assignor's obligations under the General Agreement
(which obligations shall continue to be performed by Assignor) other than the
payment of invoices upon the certification of Assignor that the various
milestones have been achieved. Assignor and Assignee agree that the Licensed
Materials (as defined in the General Agreement) and any updates are furnished
subject to the following terms and conditions:
(a) Assignee agrees that the license to the Licensed Materials
shall be deemed granted to Assignor as "licensee".
(b) Assignee agrees that it will have no right to use the Licensed
Materials; provided, however, that if Assignee shall repossess
or otherwise come into lawful possession of the Units and
wishes to sell, transfer, release or otherwise dispose of the
Products, Vendor shall authorize the transfer of the license
to the Licensed Materials to a transferee or lessee which
agrees to assume and be bound by the provisions of the General
Agreement with respect to the Licensed Materials; provided,
however, that any such transferee shall have the financial
ability to support any ongoing payment obligations to Vendor
and such transferee shall not be a manufacturer of
telecommunications equipment.
(c) Assignor agrees that if it breaches the General Agreement and
the license to the Licensed Materials is terminated, such
termination shall constitute an Event of Default under the
Lease and Schedule with respect to the Units affected by such
termination. Vendor agrees that
<PAGE> 31
notwithstanding any such termination due to Assignor's breach,
Assignee may transfer a license on the same terms to the
Licensed Materials to a transferee or lessee of the Units in
accordance with paragraph 1(b) above; provided, however, that
if Assignor's breach is for non-payment of amounts due Vendor,
the foregoing right of Assignee to transfer shall also be
subject to the full payment by Assignee of all amounts due
Vendor (but if Assignee does not exercise its right to
transfer, it shall not be obligated to make any such payment).
2. The exercise by Assignee of any of the rights assigned hereunder
shall not release Assignor from any of its duties or obligations to Vendor under
the Purchase Orders except to the extent that such exercise by Assignee shall
constitute performance of such duties and obligations.
3. Upon satisfaction of the conditions set forth in the applicable
Schedule to the Lease with respect to the Units, Assignee shall purchase such
Unit by paying or causing to be paid, by wire transfer to Vendor, on such date
or thereafter as permitted by Vendor, an amount equal to the applicable
milestone payment for the Unit (as set forth in Section 5 of Addendum Number
One), as such amount may be adjusted in accordance with the terms of the
Purchase Orders and reflected on invoices prepared by Vendor to Assignee.
Assignor and Vendor agree that mutually acceptable performance criteria for
acceptance of the Units are set forth in Exhibit B to the General Agreement.
Assignor agrees with Assignee that the final milestone payment shall only be
made upon Assignor's certification to Assignee that final acceptance has
occurred.
4. Assignor agrees that it will, at any time and from time to time,
upon the written request of Assignee, promptly and duly execute and deliver any
and all such further instruments and documents and take such further action as
Assignee may reasonably request in order that Assignee may obtain the full
benefits of this Agreement and of the rights and powers herein granted.
5. Assignor does hereby represent and warrant that the Purchase Orders
are in full force and effect and that Assignor is not in default under any of
them. Assignor does hereby further represent and warrant that Assignor has not
assigned or pledged, and so long as this Assignment shall remain in effect, will
not assign or pledge, the whole or any part of the rights hereby assigned or any
of its rights with respect to the Units under the Purchase Orders to anyone
other than Assignee.
<PAGE> 32
IN WITNESS WHEREOF, the parties hereto have caused this Purchase Order
Assignment to be duly executed as of the day and year first above written.
E.SPIRE COMMUNICATIONS, INC. GATX TELECOM INVESTORS II-A, L.L.C.
By: GATX Capital Corporation,
Its Managing Member
By _____________________________ By _____________________________
Title _____________________________ Title _____________________________
Acknowledged and Consented to this
_____ day of _________________, 199__.
LUCENT TECHNOLOGIES INC. (Vendor)
By _____________________________
Title _____________________________
<PAGE> 33
EXHIBIT C
[INTENTIONALLY OMITTED]
<PAGE> 34
EXHIBIT D
FORM OF SCHEDULE
<PAGE> 35
SCHEDULE NO. _______
This Schedule No. _____ (this "Schedule"), dated __________________,
199 ______ (such date being the "Delivery Date" for this Schedule), is a part of
the Master Equipment Lease Agreement, dated as of December 13, 1999, Agreement
No. ___ (the "Lease"), between GATX TELECOM INVESTORS II-A, L.L.C. ("Lessor")
and e.SPIRE COMMUNICATIONS, INC. ("Lessee") and is incorporated therein by this
reference. The terms used in this Schedule shall have the meanings given to them
in the Lease unless otherwise defined herein.
1. Description and Cost of Units
The Units subject to this Schedule are described in Annex A hereto. The
Lessor's Cost for this Schedule is:
$____________
2. Acceptance; Obligations
Lessee confirms that on the Delivery Date hereof (i) all of
the Units described in Annex A attached hereto were duly accepted by Lessee and
became subject to the Lease or, if applicable, the conditions to the first
milestone payment have been achieved; and (ii) Lessee became obligated to make
Rental Payments to Lessor and perform certain other obligations with respect to
such Units as provided in the Lease and this Schedule.
3. Rent
(a) If this Schedule is subject to milestone payments, they shall be
made in the following amounts:
First Installment: $________________
Second Installment: $________________
Third Installment: $________________
/ / Milestone payments not applicable.
(b) Rent Factor applicable to this Schedule: ___________%
(If this Schedule is subject to milestone payments, the Rent
Factor is determined on the date of funding of the first
milestone payment.)
Number of quarterly installments: ___________
Rent Commencement Date: ___________, 199__
(If this Schedule is subject to milestone payments, the Rent
Commencement Date will be the first day of the calendar month
following the funding of the third milestone payment and
Lessor is authorized to complete this Schedule by filling in
such date)
<PAGE> 36
Amount of scheduled Rental Payment: $________________
(If this Schedule is subject to milestone payments, the
scheduled Rental Payment is determined as of the date of the
first funding of a milestone payment as to the full amount of
Lessor's Cost for this Schedule)
(c) The Lease Term for the Units subject to this Schedule is __________
quarters and commences on the Rent Commencement Date. The Lease Term for the
Units subject to this Schedule shall expire on:
_______________, 199_____
(d) If this Schedule is not subject to milestone payments: The Interim
Rental Payment for the period from the Delivery Date of this Schedule through
the Rent Commencement Date (which date shall be the first day of the next
calendar month following the Delivery Date), is:
$________________.
The Interim Rental Payment is due on the Delivery Date.
If this Schedule is subject to milestone payments: The Interim
Rental Payments will be invoiced in accordance with Rider V to the Lease.
(e) If this Schedule is subject to milestone payments: Lessee
acknowledges and agrees that if the final milestone payment is not funded within
six months of the date of the initial milestone payment or, if earlier, Lessee
does not accept the Unit(s) and returns them to Lessor, an Event of Loss shall
be deemed to have occurred as to the Unit(s) subject to this Schedule to the
extent of the amount previously funded and Lessee shall make a payment to Lessor
equal to the sum of (i) all accrued and unpaid Interim Rental Payments in
respect of such Unit(s); (ii) the Stipulated Loss Value of such Unit, determined
as of the first Rental Payment date shown on the schedule of Stipulated Loss
Values multiplied by the amount previously funded; (iii) all other sums, if any,
that shall have become due and payable hereunder with respect to the Unit(s);
and (iv) interest on the foregoing at the lower of the rate per annum equal to
the highest implicit interest rate for any Schedule plus 2% or the highest rate
then permitted by applicable law from the due dates(s) of such payment(s) to the
date of payment.
4. Conditions. Lessor's obligations under the Lease and this Schedule
are subject to the prior satisfaction of the following conditions on or before
the Delivery Date of this Schedule:
(a) Lessor shall have received, in form and substance satisfactory to
Lessor:
(i) A Landlord's Waiver and Consent of a landlord and/or
mortgagee, substantially in the form of Exhibit A to the Lease.
(ii) To the extent Lessor deems it necessary, a release or
other arrangement with any other lessor or lender to the Lessee to insure that
there will be no impairment of Lessor's interest in the Units subject to this or
other Schedules.
(iii) A sales tax exemption or other similar certificate from
Lessee with respect to any Units included in this Schedule, but not placed in
service by Lessee before the Delivery Date of this Schedule.
(iv) Copies of invoices, purchase orders and canceled checks
relating to all Units being placed under the Lease pursuant to a sale/leaseback
on the Delivery Date of this Schedule and/or a Purchase Order and Invoice
Assignment from Lessee to Lessor substantially in the form of Exhibit B to the
Lease (or
-2-
<PAGE> 37
such other form as Lessor may agree to), instead of copies of canceled checks,
for all Units to be purchased by Lessor directly from the vendor.
(v) An executed copy of each manufacturer's service contract
entered into by Lessee pursuant to Section 9 of the Lease.
(a) Lessee shall have filed or recorded, to the satisfaction
of Lessor, all instruments and documents, including, but not limited to,
Financing Statements on Form UCC-1 and Releases and Termination Statements on
Form UCC-2, then deemed necessary by Lessor to preserve and protect its rights
hereunder, under the Uniform Commercial Code (including the termination of any
after-acquired property clause of third parties with respect to any Unit).
(b) Lessor shall have received all other documents and Lessee
shall have performed all other acts as Lessor shall have reasonably requested to
consummate the transaction contemplated by this Schedule.
(c) Except with the prior written consent of Lessor, the
aggregate of Lessor's Cost of all Units subject to this Schedule and all
Schedules previously made subject to the Lease which consist of computer
software, tooling, assembly jigs, other equipment manufactured specially for
Lessee and/or delivery and installation costs shall not exceed 10% of the total
Lessor's Cost of Equipment funded.
(d) The Delivery Date of this Schedule shall not be later than
the Commitment Termination Date.
(e) On the Delivery Date of this Schedule no Event of Default
or event, which with the passage of time or the giving of notice or both would
constitute an Event of Default, shall exist.
(f) Except with the prior written consent of Lessor which
shall not be unreasonably withheld, all of the Units listed on Annex A shall
consist of Eligible Equipment.
(g) If applicable, Lessor shall have received an executed
Milestone Funding Certificate in the form of Exhibit F to the Lease from Lessee
with respect to each milestone funding payment.
(h) If the aggregate of Lessor's Cost of all Units subject to
this Schedule and all Schedules previously made subject to the Lease would be in
excess of $15,000,000, Lessee shall have closed a sale after the date hereof of
its non-redeemable equity securities having net proceeds to Lessee of not less
than $100,000,000.
5. Representations and Warranties. Lessee hereby makes the
representations and warranties set forth in Section 14 of the Lease.
6. Payments. Pursuant to Section 16(h) of the Lease, all payments shall
be made to Lessor as follows:
GATX TELECOM INVESTORS II, L.L.C.
Bank Name: First Union National Bank
Bank Address: Orlando, Florida
Account No. [____________]
ABA No. 063000021
Reference: e.spire Communications, Inc. Invoice #
-3-
<PAGE> 38
This Schedule is hereby duly executed by the parties hereto as of the
date first written above.
GATX TELECOM INVESTORS II-A, L.L.C.
By __________________________________
Title __________________________________
(Lessor)
LESSEE'S ADDRESS
FOR NOTICES: e.SPIRE COMMUNICATIONS, INC.
___________________________________
ATTN: _____________________________ By __________________________________
___________________________________ Title __________________________________
(Lessee)
-4-
<PAGE> 39
Annex A - Description of Units
Annex B - Stipulated Loss Values
Annex C - Termination Values
<PAGE> 40
ANNEX A
DESCRIPTION OF UNITS
<TABLE>
<CAPTION>
Identification or
Description of Unit Manufacturer or Vendor Serial No. Lessor's Cost Location
------------------- ---------------------- ----------------- ------------- --------
<S> <C> <C> <C> <C>
</TABLE>
<PAGE> 41
ANNEX B
STIPULATED LOSS VALUES
<TABLE>
<CAPTION>
Rental Stipulated Loss Value
Payment Date Percentage of Lessor's Cost
------------ ---------------------------
<S> <C>
Thereafter ______________________ *
</TABLE>
* If Lessee renews the Lease, the Stipulated Loss Value during
any extended Term shall be an amount equal to the fair market value of
the Units as at the end of the applicable initial lease term, as
reasonably determined by Lessor, or in the event of disagreement
between Lessor and Lessee, as determined by the independent appraiser
selected under the provisions of Section 4(b) of the Lease; provided,
however, that such Stipulated Loss Value shall not be less than 20% of
Lessor's Cost of the Units.
<PAGE> 42
ANNEX C
TERMINATION VALUES
<PAGE> 43
EXHIBIT E
MATTERS TO BE COVERED IN LEGAL OPINION
(a) Lessee is a corporation duly organized, validly existing and in
good standing under the laws of the State of ____________ and is qualified to do
business and in good standing in the state of ____________.
(b) Lessee has the requisite corporate power and authority to execute,
deliver and perform the Lease and the Schedules. All action on the part of
Lessee, its directors, and its shareholders necessary for the authorization,
execution, delivery, and performance of the Lease and the Schedules has been
taken. The Lease has been duly executed and delivered by an authorized officer
of Lessee.
(c) The execution, delivery and performance of the Schedules (i) do not
conflict with or violate any provision of Lessee's Certificate/Articles of
Incorporation or Bylaws, or applicable law and (ii) do not conflict with or
constitute a default under any provision of any judgment, writ, decree, order or
material agreement, indenture, or instrument to which Lessee is a party or by
which it is bound.
(d) The Lease constitutes and the Schedules will constitute legal,
valid and binding obligations of Lessee, enforceable in accordance with their
respective terms.
(e) To our knowledge, there are no actions, suits, proceedings or
investigations pending against Lessee or its properties before any court or
governmental agency (nor, to our knowledge, has Lessee received any written
threat thereof), which, either in any case or in the aggregate, are likely to
result in any material adverse change in the business or financial condition of
Lessee or any of its properties, or in any material impairment of the right or
ability of Lessee to carry on its business as now conducted, or which questions
the validity of the Lease and the Schedules or any action taken or to be taken
by Lessee in connection therewith.
(f) No consent, approval or authorization of or designation,
declaration or filing with any governmental authority on the part of Lessee is
required in connection with the valid execution and delivery of the Lease and
the Schedules, or the consummation of any other transactions contemplated by the
Lease and the Schedules.
<PAGE> 44
EXHIBIT F
MILESTONE ACCEPTANCE CERTIFICATE
to Schedule No. ___ dated __________, 199___
under Master Equipment Lease Agreement No. __________
dated as of December 13, 1999
To GATX TELECOM INVESTORS II-A, L.L.C.:
This Certificate relates to (describe Unit):
Lessee hereby certifies that the following milestone with respect to
the Unit(s) subject to the above-referenced Schedule has been fully achieved
with respect to the Unit:
The payment due upon achieving milestone for the Unit is $____________.
This is the _________________ Installment referred to in the
above-referenced Schedule.
[IF THIS CERTIFICATE RELATES TO THE FINAL MILESTONE PAYMENT WITH RESPECT TO A
UNIT, ADD:
Lessee hereby certifies with respect to the above described Unit that
(i) the Unit has been delivered to the location specified in the Schedule,
inspected by, tested and accepted as of the date hereof by Lessee upon the terms
and conditions of the Lease and such Schedule, (ii) the Unit is of a size,
design, capacity and manufacture acceptable to Lessee and suitable for Lessee's
purposes, (iii) is in good working order, repair and condition, and (iv) has
been installed to Lessee's satisfaction.]
Terms used in this Milestone Acceptance Certificate which are not
otherwise defined herein shall have the meanings set forth in the
above-referenced Master Equipment Lease Agreement.
e.SPIRE COMMUNICATIONS, INC.
By: __________________________________
Name: __________________________________
Title:__________________________________
<PAGE> 45
EXHIBIT G
LITIGATION
<PAGE> 1
e.spire COMMUNICATIONS, INC.
UNITS CONSISTING OF
SERIES A CONVERTIBLE PREFERRED STOCK
AND
WARRANTS TO PURCHASE SHARES OF COMMON STOCK
PURCHASE AGREEMENT
March 1, 2000
To: Northern Trust Company, as Trustee for the
Honeywell International Inc.
Master Retirement Trust
50 South LaSalle Street
Chicago, IL 60675
Ladies and Gentlemen:
e.spire COMMUNICATIONS, INC. (the "Company"), a Delaware
corporation, hereby confirms its agreement with the HONEYWELL INTERNATIONAL
INC. MASTER RETIREMENT TRUST acting through its trustee, the Northern Trust
Company (the "Purchaser"), as set forth below.
1. The Securities. Subject to the terms and conditions herein
contained, the Company hereby agrees to issue and sell to the Purchaser and the
Purchaser hereby agrees to purchase from the Company up to an aggregate of
50,000 Units (hereinafter defined) at a price of $1,000 per Unit (or $792.29 per
share of Preferred Stock (hereinafter defined) and $207.71 per Warrant
(hereinafter defined)) for an aggregate purchase price of $50 million. Each Unit
shall consist of one (1) share of Series A Convertible Preferred Stock of the
Company par value $1.00 per share (collectively, the "Preferred Stock"), each
share of which Preferred Stock is initially convertible into 126.42225 shares of
the common stock, par value
<PAGE> 2
- 2 -
$.01 per share (the "Common Stock") of the Company at a conversion price of
$7.91 per share, subject to adjustment as provided in the Transaction Documents
(hereinafter defined) and one (1) Warrant in the form attached as Exhibit A
hereto (collectively, the "Warrants," and, together with the Preferred Stock,
the "Units"), each of which Warrants is initially exercisable to purchase 44.1
shares (the "Warrant Shares") of the Common Stock at an exercise price of $9.89
per share, subject to adjustment as provided in Section 6(d) and as provided in
the Warrant Agreement (hereinafter defined). The Preferred Stock shall upon
issuance have the rights and preferences set forth in the Certificate of
Designation ("Certificate of Designation") attached hereto as Exhibit B. The
Units, the Preferred Stock and the Warrants are herein collectively referred to
as the "Securities."
The Securities will be offered and sold to the Purchaser
without being registered under the Securities Act of 1933, as amended (the
"Act"), in reliance upon one or more exemptions therefrom.
The Purchaser and the direct and indirect transferees of the
Securities will be entitled to the benefits of (i) the Registration Rights
Agreement substantially in the form attached hereto as Exhibit C (the
"Registration Rights Agreement"), among the Company and the other signatories
thereto, which will require the Company, among other things, to file with the
Securities and Exchange Commission (the "Commission") a shelf registration
statement (the "Registration Statement") pursuant to Rule 415 under the Act
relating to the resale of the Preferred Stock and shares of Common Stock
issuable in connection with the conversion thereof (collectively, the
"Conversion Shares" and, together with the Warrant Shares and the Additional
Warrant Shares (hereinafter defined), the "Additional Securities") and to use
its reasonable best efforts to cause such registration statement to be declared
and remain effective in accordance therewith and (ii) the Warrant Agreement
among the Company and the other signatories thereto substantially in the form
attached hereto as Exhibit D (the "Warrant Agreement") which will require the
Company, among other things, to file with the Commission a registration
statement (the "Warrant Registration Statement") pursuant to Rule 415 under the
Securities Act relating to the resale of the Warrants and Warrant Shares and to
use its reasonable best efforts to cause such registration statement to be
declared and remain effective in accordance therewith.
This purchase agreement (the "Agreement"), the Certificate of
Designation, the Warrant Agreement and related Warrants and the Registration
Rights Agreement are herein collectively referred to as the "Transaction
Documents."
2. Representations and Warranties of the Company. The Company
represents and warrants to and agrees with the Purchaser that:
<PAGE> 3
- 3 -
(a) Since January 1, 1999 and to the date of this Agreement, the
Company has filed with the Commission, a Proxy Statement on Schedule 14A with
respect to the Company's 1999 Annual Meeting of Stockholders, the Company's
Annual Report on Form 10-K for the year ended December 31, 1998, the Company's
Quarterly Reports on Form 10-Q for the fiscal quarters ended March 31, June 30
and September 30, 1999, respectively, and the Company's Current Reports on Form
8-K dated February 22, 1999, July 8, 1999, October 28, 1999, November 1, 1999,
December 3, 1999 and February 1, 2000 (including all exhibits to any of such
documents) (collectively the "SEC Reports"), which constitute all reports,
schedules, forms, statements and other documents required to be filed with the
Commission during such period by the Company. As of their respective dates, the
SEC Reports complied in all material respects with the requirements of the
Securities Exchange Act of 1934, as amended (the "Exchange Act"), and the rules
and regulations of the Commission promulgated thereunder applicable to the SEC
Reports, and none of the SEC Reports as of such dates contained any untrue
statement of a material fact or omitted to state a material fact required to be
stated therein, in light of the circumstances under which they were made, not
misleading. Except to the extent that any SEC Report has been revised or
superseded by a later filed SEC Report, none of the SEC Reports contains any
untrue statement of a material fact or omits to state any material fact required
to be stated therein or necessary in order to make the statements therein, in
light of the circumstances under which they were made, not misleading. The
consolidated financial statements of the Company included in the SEC Reports
comply as to form in all material respects with applicable accounting
requirements and the published rules and regulations of the Commission with
respect thereto, have been prepared in accordance with generally accepted
accounting principles (except, in the case of unaudited consolidated quarterly
statements, as permitted by Form 10-Q of the Commission) applied on a consistent
basis during the periods involved (except as may be indicated in the notes
thereto) and fairly present in all materials respects the consolidated financial
position of the Company and its consolidated subsidiaries as of the dates
thereof and the consolidated results of their operations and cash flows for the
periods then ended (subject, in the case of unaudited quarterly statements, to
normal year-end audit adjustments).
(b) The Company owns all the issued and outstanding capital stock or
other equity interests of each of its direct and indirect subsidiaries (the
"Subsidiaries"). Each of the Company and the Subsidiaries is duly incorporated
or organized, validly existing and in good standing as a corporation or a
limited liability company, as the case may be, under the laws of its
jurisdiction of incorporation or organization, with all requisite corporate or
limited liability company power and authority to own or lease its properties and
conduct its business as now conducted, and as proposed to be conducted as
described in the Company's SEC Reports. Except as described on Schedule 2(b)(i),
each of the Company and the Subsidiaries
<PAGE> 4
- 4 -
is duly qualified to do business as a foreign corporation in good standing in
the jurisdiction in which it has its principal place of business and in all
other jurisdictions where the ownership or leasing of its properties or the
conduct of its business requires such qualification, except where the failure to
be so qualified would not, singly or in the aggregate, have a material adverse
effect on the business, condition (financial or other), assets, nature of
assets, liabilities, operations, prospects or results of operations of the
Company and the Subsidiaries, taken as a whole (any such event, a "Material
Adverse Effect"). Except as described in the SEC Reports, the Company does not
own or control, directly or indirectly, any material interest in any other
corporation, association, or other business entity.
(c) Except as set forth on Schedule 2(c)(i), the Preferred Stock, the
Warrants, the Conversion Shares, the Warrant Shares, the Change in Control
Warrants (hereinafter defined), any shares of Common Stock issuable upon
exercise of the Change in Control Warrants (the "Additional Warrant Shares"),
and the Certificate of Designation have been duly authorized by the Company. The
Preferred Stock, the Warrants and the Change in Control Warrants, when issued,
sold and delivered in accordance with the terms hereof and for the consideration
expressed herein, and the Warrant Shares, the Additional Warrant Shares and the
Conversion Shares when issued in accordance with the terms of the Warrants, the
Change in Control Warrants and Preferred Stock, as the case may be, (i) will be
duly and validly issued and, in the case of the Preferred Stock, the Warrant
Shares, the Additional Warrant Shares and the Conversion Shares, fully paid and
nonassessable, (ii) will be free of any pledges, liens, security interests,
claims, rights or other encumbrances of any kind (other than under applicable
federal and state securities laws), (iii) assuming the accuracy of the
Purchaser's representations and warranties in this Agreement, will be issued in
compliance with all applicable federal and state securities laws, and (iv) will
not be issued in violation of any preemptive rights of stockholders. Except as
set forth on Schedule 2(c)(ii), the Preferred Stock, the Warrant Shares, the
Additional Warrant Shares and the Conversion Shares have been duly and validly
reserved for issuance.
(d) The Company has all requisite corporate power and authority to
execute and deliver the Warrant Agreement and the Registration Rights Agreement;
the Warrant Agreement and the Registration Rights Agreement have been duly
authorized by the Company and, when executed and delivered by the Company
(assuming due authorization, execution and delivery by the parties thereto other
than the Company) will constitute valid and legally binding agreements of the
Company, enforceable against the Company in accordance with their terms, except
that (i) the enforcement thereof may be subject to (A) bankruptcy, insolvency,
reorganization, fraudulent conveyance, moratorium or other similar laws now or
hereafter in effect relating to creditors' rights generally, (B) general
principles of equity and the discretion of the court before which any proceeding
therefor may be brought and
<PAGE> 5
- 5 -
(C) any rights to indemnity or contribution thereunder may be limited by federal
and state securities laws and public policy considerations.
(e) The Company has all requisite corporate power and authority to
execute and deliver this Agreement, the Warrants and the Change in Control
Warrants, to issue the Warrant Shares and the Additional Warrant Shares and,
subsequent to the filing of the Certificate of Designation, to issue and deliver
the Preferred Stock and the Conversion Shares, and to consummate the
transactions contemplated hereby. This Agreement and each other Transaction
Document has been duly authorized, and this Agreement has been and each other
Transaction Document has been or as of the Initial Closing will be duly executed
and delivered by the Company. No consent, approval, authorization or order of
any foreign or domestic national, state, provincial or local government or any
instrumentality, subdivision, court or governmental agency or body thereof, or
any arbitral body (each, a "Governmental Authority") having jurisdiction over
the Company or the Subsidiaries or their respective businesses (including,
without limitation, the Federal Communications Commission (the "FCC")) is
required for the performance of this Agreement and the other Transaction
Documents by the Company or the consummation by the Company of the transactions
contemplated hereby or thereby, except for (x) such consents as have been
obtained, (y) such consents as may be required under state securities or "Blue
Sky" laws in connection with the purchase and resale of the Securities and the
Additional Securities by the Purchaser and (z) any notification as may be
required under the Hart-Scott-Rodino Antitrust Improvements Act of 1976, as
amended (the "HSR Act"), or any consent as may be required by the FCC or any
state telecommunications regulatory authorities or commissions ("State
Telecommunications Authorities"), in each such case, as a result of the
Purchaser's conversion of Preferred Stock or exercise of Warrants or Additional
Warrants. Neither the Company nor any of the Subsidiaries nor their operations
is (i) in violation of its certificate of incorporation or by-laws (or similar
organizational document), (ii) in violation of any statute, judgment, decree,
order, rule or regulation applicable to the Company or the Subsidiaries, which
violation would, individually or in the aggregate, be reasonably likely to have
a Material Adverse Effect or (iii) other than as disclosed in the Company's SEC
Reports or as otherwise disclosed in Schedule 2(e), in default in the
performance or observance of any obligation, agreement, covenant or condition
contained in any indenture, mortgage, deed of trust, loan agreement, note,
lease, license, franchise agreement, permit, certificate, contract or other
agreement or instrument to which the Company or the Subsidiaries is a party or
to which the Company or the Subsidiaries or their respective assets is subject,
which default would, individually or in the aggregate, be reasonably likely to
have a Material Adverse Effect.
(f) Neither the issuance and sale of the Securities or the Change in
Control Warrants and the Additional Securities, nor the execution, delivery and
<PAGE> 6
- 6 -
performance by the Company of this Agreement, the Warrant Agreement or the
Registration Rights Agreement or the consummation of the transactions
contemplated hereby and thereby, will (i) conflict with the certificate of
incorporation or by-laws of the Company, as the same will be in effect as of
each Closing, (ii) constitute or result in a breach, default or violation of
(with or without the giving of notice, passage of time or both), or result in
the creation or imposition of a lien, charge or encumbrance on any properties or
assets of the Company or the Subsidiaries under any of the terms or provisions
of, any indenture, mortgage, deed of trust, loan agreement, note, lease,
license, franchise agreement, or other agreement or instrument to which the
Company is a party or to which the Company or its respective properties is
subject, (iii) require the consent of any third party or any Governmental
Authorities, and including without limitation as of the Initial Closing, The
NASDAQ Stock Market and any related body ("NASDAQ"), other than (A) required
consents under the Credit Agreement dated as of August 11, 1999 among the
Company, e.spire Finance Corporation, the Lenders, Goldman Sachs Credit Partners
L.P., the Bank of New York, First Union National Bank and Newcourt Commercial
Finance Corporation (the "Credit Agreement"), (B) solely with respect to the
Securities to be issued and sold at the Final Closing, the Stockholder Approval
(hereinafter defined) and (C) any required consents of the FCC or any State
Telecommunications Authority as a result of the Purchaser's conversion of
Preferred Stock or exercise of Warrants; or (iv) (assuming compliance with all
applicable state securities and "Blue Sky" laws, all applicable rules and
regulations of the FCC and State Telecommunications Authorities, and the HSR
Act, and assuming the receipt by the Company of the Stockholder Approval and
assuming the accuracy of the representations and warranties of the Purchaser in
Section 7 hereof) contravene any statute, judgment, decree, order, rule or
regulation of any Governmental Authority applicable to the Company or any of its
respective properties, except for any conflict, breach, violation, default,
lien, charge, contravention or encumbrance referred to in clauses (ii) and (iii)
of this Section 2(f) which would not, individually or in the aggregate, be
reasonably likely to have a Material Adverse Effect. For purposes of this
Agreement, "Stockholder Approval" shall mean the affirmative vote of the holders
of a majority of the shares of the Company's Common Stock present in person or
by proxy at a meeting of stockholders of the Company duly called and held (and
at which meeting a quorum is present) approving the issuance of the Preferred
Stock and Conversion Shares hereunder and to Huff and Greenwich (as each term is
hereinafter defined), as well as the Preferred Stock included in the Subsequent
Securities referred to in Section 13 (and Conversion Shares relating thereto),
as and to the extent all such Preferred Stock and Conversion Shares taken
together may result in the issuance of a number of shares of Common Stock which
exceeds 20% of the total outstanding Common Stock immediately prior to the
Initial Closing. The issuance and sale of the Warrants and the Initial Preferred
Stock (hereinafter defined) at the Initial Closing, any issuance of Change in
Control Warrants, and the issuance of any Additional Securities with respect to
such Initial Preferred Stock and
<PAGE> 7
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Change in Control Warrants pursuant to the conversion or exercise thereof (at an
adjusted conversion or exercise price, as the case may be), without in any case
obtaining Stockholder Approval, is not and at the time of issuance of such
Additional Securities will not be in violation, breach or contravention of any
rule or other requirement or any criteria for listing or continued trading
through NASDAQ (a "NASDAQ Rule") and does not and will not require any consent
of NASDAQ. Subject to obtaining Stockholder Approval, the Remaining Preferred
Stock (hereinafter defined) may be issued and sold at the Final Closing and any
Additional Securities may be issued and sold with respect thereto without
violation, breach or contravention of any NASDAQ Rule and will not require any
consent of NASDAQ.
(g) Except as described in the Company's SEC Reports, there is neither
pending nor, to the best knowledge of the Company after due inquiry, threatened,
any action, suit, proceeding, inquiry or investigation to which the Company or
any of the Subsidiaries is a party, or to which any of their respective
properties or assets are or would be subject, before or brought by any
Governmental Authority (including, without limitation, the FCC) that would,
individually or in the aggregate, be reasonably likely to have a Material
Adverse Effect or that seeks to restrain, enjoin, prevent the consummation of or
otherwise challenge or relate to the issuance or sale of the Securities or
Additional Securities to be sold hereunder or the consummation of the other
transactions contemplated herein or in the other Transaction Documents.
(h) Except as disclosed on Schedule 2(h), each of the Company and the
Subsidiaries owns or possesses adequate licenses or other rights to use all
patents, trademarks, service marks, trade names, copyrights and know-how, and as
of each Closing (hereinafter defined) will continue to own or possess such
licenses, rights and know-how and other intellectual property necessary to
conduct the businesses currently operated by it, or as proposed to be conducted
by it as described in the Company's SEC Reports, except for any the absence of
which would not, individually or in the aggregate, be reasonably likely to have
a Material Adverse Effect, and neither the Company nor the Subsidiaries has
received any notice of infringement of, or conflict with (or knows of any such
infringement of or conflict with) asserted rights of others with respect to any
patents, trademarks, service marks, trade names, copyrights or know-how
necessary to conduct the businesses operated by it that, if such assertion of
infringement or conflict were sustained, would, individually or in the
aggregate, have a Material Adverse Effect.
(i) Each of the Company and the Subsidiaries has obtained, or has
applied for, all consents, approvals, authorizations, orders, registrations,
filings, qualifications, licenses (including, without limitation, all licenses
from the FCC and state, local or other governmental authorities), permits,
franchises and other governmental authorizations necessary to conduct its
businesses (or proposed
<PAGE> 8
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businesses) as described in the Company's SEC Reports, except for any the
absence of which, individually or in the aggregate, would not be reasonably
likely to have a Material Adverse Effect. Neither the Company nor any of the
Subsidiaries has received any notice of proceedings related to the revocation or
materially adverse modification of any such consent, approval, authorization,
order, registration, filing, qualification, license or permit, except for any
which would not, individually or in the aggregate, be reasonably likely to have
a Material Adverse Effect.
(j) Except as disclosed in the SEC Reports, subsequent to September 30,
1999, (i) neither the Company nor any of the Subsidiaries has incurred any
liabilities or obligations, direct or contingent, or entered into any material
transactions not in the ordinary course of business that would, individually or
in the aggregate, be reasonably likely to have a Material Adverse Effect; and
(ii) the Company has not purchased any of its outstanding capital stock or
(except for regularly scheduled pay-in-kind dividends on shares of preferred
stock described under Section 2(r) below) declared, paid or otherwise made any
dividend or distribution of any kind on its capital stock.
(k) There are no legal or governmental proceedings involving or
affecting the Company or any of the Subsidiaries or any of their respective
properties or assets (other than proceedings, individually or in the aggregate,
which would not, if the subject of an unfavorable decision, ruling or finding,
result in a Material Adverse Effect) that are not described in the SEC Reports.
Except as described in the SEC Reports or Schedule 2(e), neither the Company nor
any of the Subsidiaries is in default under any contract, has received a notice
or claim of any such default or has knowledge of any breach of any such contract
by the other party or parties thereto, except such defaults or breaches which
would not, individually or in the aggregate, be reasonably likely to have a
Material Adverse Effect.
(l) Each of the Company and the Subsidiaries has filed all necessary
federal, state, local and foreign income, franchise and property tax returns,
except where the failure to so file such returns would not, individually or in
the aggregate, be reasonably likely to have a Material Adverse Effect, and each
of the Company and the Subsidiaries has paid all taxes shown as due when due;
and other than tax deficiencies that the Company or any of the Subsidiaries is
contesting in good faith and for which adequate reserves have been provided,
there is no tax deficiency that has been asserted against the Company or any of
the Subsidiaries that would, individually or in the aggregate, be reasonably
likely to have a Material Adverse Effect. The charges, accruals and reserves on
the consolidated books of the Company in respect of any tax liability for any
years not finally determined are adequate to meet any assessments or
re-assessments for additional tax for any years not finally determined, except
to the extent of any inadequacy that would not,
<PAGE> 9
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individually or in the aggregate, be reasonably likely to have a Material
Adverse Effect.
(m) Except as disclosed in the SEC Reports, each of the Company and the
Subsidiaries has good and marketable title to all real property and good title
to all personal property owned or claimed to be owned by it and good and valid
title to all leasehold interests in the real and personal property leased by it
(except for those leases of real property in which the Company has good title
and that would be marketable but for the requirement that the landlord consent
to an assignment or sublease of the lease), free and clear of all liens,
charges, encumbrances or restrictions, except to the extent the failure to have
such title or the existence of such liens, charges, encumbrances or restrictions
would not, individually or in the aggregate, be reasonably likely to have a
Material Adverse Effect. All leases, contracts and agreements to which the
Company or any of the Subsidiaries is a party or by which any of them is bound
are valid and enforceable against the Company or such Subsidiaries and are valid
and enforceable against the other party or parties thereto and are in full force
and effect with only such exceptions as would not, individually or in the
aggregate, be reasonably likely to have a Material Adverse Effect. No real or
personal property, rights-of-way, conduits, pole attachments or fiber leased,
licensed or used by the Company or any of the Subsidiaries lies in an area that
is, or to the best knowledge of the Company will be, subject to zoning, use, or
building code restrictions that would prohibit, and no state of facts relating
to the actions or inaction of another person or entity or his, her or its
ownership, leasing, licensing or use of any such real or personal property,
rights-of-way, conduits, pole attachments or fiber exists that would prevent the
continued effective leasing, licensing or use of such real or personal property,
rights-of-way, conduits, pole attachments or fiber in the business of the
Company or any of the Subsidiaries as presently conducted, subject in each case
to such exceptions as, individually or in the aggregate, do not have and are not
reasonably likely to have a Material Adverse Effect.
(n) None of the Company or any of the Subsidiaries is and, after giving
effect to the offering and sale of the Securities and the Additional Securities
and the application of the proceeds therefrom as described herein, none will be,
an "investment company," as such term is defined in the Investment Company Act
of 1940, as amended, and the rules and regulations thereunder.
(o) Neither the Company nor any of its directors, officers or
controlling persons (provided that Huff is excluded from the warranty in this
Section 2(o)) has taken, directly or indirectly, any action designed, or that
might reasonably be expected, to cause or result, under the Securities Act or
otherwise, in, or that has constituted, stabilization or manipulation of the
price of any security of the Company to facilitate the sale or resale of any of
the Securities or the Additional Securities.
<PAGE> 10
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(p) Each of the Company and the Subsidiaries (i) makes and keeps
accurate books and records and (ii) maintains internal accounting controls that
provide reasonable assurance that (A) transactions are executed in accordance
with management's authorization, (B) transactions are recorded as necessary to
permit preparation of its financial statements and to maintain accountability
for its assets, (C) access to its assets is permitted only in accordance with
management's authorization and (D) the reported accountability for its assets is
compared with existing assets at reasonable intervals.
(q) None of the Company, any of the Subsidiaries or any of their
respective Affiliates (as defined in Rule 501(b) of Regulation D under the
Securities Act) (provided that Huff is excluded from the warranty in this
Section 2(q)) has directly, or through any agent, (i) sold, offered for sale,
solicited offers to buy or otherwise negotiated in respect of, any "security"
(as defined in the Securities Act) that is or could be integrated with the sale
of the Securities or the Additional Securities in a manner that would require
the registration under the Securities Act of the Securities or the Additional
Securities or (ii) engaged in any form of general solicitation or general
advertising (as those terms are used in Regulation D under the Securities Act)
in connection with the offering of the Securities or the Additional Securities
or in any manner involving a public offering within the meaning of Section 4(2)
of the Securities Act. Assuming the accuracy of the representations and
warranties of the Purchaser in Section 7 hereof, it is not necessary in
connection with the offer, sale and delivery of the Securities or the Additional
Securities to the Purchaser in the manner contemplated by this Agreement to
register any of the Securities or the Additional Securities under the Securities
Act.
(r) As of the date of this Agreement, the authorized capital of the
Company consists of (i) 125,000,000 shares of Common Stock, of which 51,570,766
shares were issued and outstanding at January 31, 2000 and 43,981,263 are
reserved for issuance and (ii) 3,000,000 shares of preferred stock, par value
$1.00 per share, of which (x) 400,000 shares have been designated 14.75%
Redeemable Preferred Stock due 2008 (the "14.75% Preferred Stock") of which
107,235.94 shares are issued and outstanding, (y) 200,000 shares have been
designated Series A 12.75% Junior Redeemable Preferred Stock due 2009 of which
18.25 shares are issued and outstanding and (z) 700,000 shares have been
designated Series B 12.75% Junior Redeemable Preferred Stock (the "12.75%
Preferred Stock") of which 198,843 shares are issued and outstanding. Except for
(A) 5,968 shares of Common Stock reserved for issuance under the Company's 1996
Employee Stock Purchase Plan; (B) 20,000 shares of Common Stock reserved for
issuance under the Company's 1998 Restricted Stock Plan; (C) 5,646,355 shares of
Common Stock reserved for issuance upon exercise of the warrants issued by the
Company in connection with the sale of the 14.75% Preferred Stock; (D) 2,330,757
shares of Common Stock reserved for issuance upon exercise of the warrants
issued by the
<PAGE> 11
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Company in connection with the sale of the Company's 13% Senior Discount Notes
due 2005, (E) 5,500,544 shares of Common Stock reserved for issuance in
connection with the Company's non-plan employee stock options; (F) 3,573,806
shares of Common Stock reserved for issuance under the Company's 1994 Employee
Stock Option Plan; (G) 596,493 shares of Common Stock reserved for issuance
under the Company's Annual Performance Plan; (H) 480,000 shares of Common Stock
reserved for issuance in connection with stock options granted to the Company's
outside directors; (I) 100,000 shares of Common Stock reserved for issuance upon
exercise of warrants issued by the Company in connection with the sale of 12.75%
Preferred Stock; (J) 305,614 shares of Common Stock reserved for issuance upon
exercise of warrants issued by the Company in connection with certain preferred
provider and local services agreements entered into by the Company; (K) 421,726
shares of Common Stock reserved for issuance upon the exercise of warrants
registered pursuant to Form S-3, Commission File No. 333-40337, (L) shares of
Common Stock in an amount up to $600,000 reserved for issuance in connection
with a settlement agreement to be entered into between the Company and a third
party and (M) 29,841,394 shares of Common Stock reserved to be issued in
connection with this Purchase Agreement and the respective purchase agreements,
between Huff and Greenwich and the Company, there are not outstanding (and,
except as contemplated by this Agreement, the Company does not have any plan to
issue, grant or enter into) any options, warrants, rights (including conversion
or preemptive rights), subscriptions or agreements for the purchase, or
acquisition from or by the Company of any shares of its or any of its
Subsidiaries capital stock or any other securities convertible into or
exercisable for any shares of its or any of its Subsidiaries capital stock.
There are no voting agreements, voting trust agreements, stockholder agreements
or other agreements relating to the capital stock of the Company or any of its
Subsidiaries or any other securities convertible into or exercisable for any
shares of its or any of its Subsidiaries capital stock. Except as disclosed in
Schedule 2(r), no outstanding options, warrants or other securities exercisable
for or convertible into Common Stock require anti-dilution adjustments by reason
of the consummation of the transactions contemplated hereby.
(s) Other than as described in the SEC Reports or in Schedule 2(e),
since September 30,1999 (i) there has not been any change in the capital stock
or long-term indebtedness of the Company or any of the Subsidiaries which could,
individually or in the aggregate, be reasonably expected to have a Material
Adverse Effect and (ii) there has not occurred, nor has information become known
nor has any state of facts arisen that could, individually or in the aggregate,
reasonably be expected to have a Material Adverse Effect whether or not arising
in the ordinary course of business.
<PAGE> 12
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(t) Other than routine individual grievances or disputes in an
individual amount less than $50,000 and in the aggregate less than $250,000,
there is no strike, labor dispute, slowdown or work stoppage with the employees
of the Company or any of the Subsidiaries that is pending or, to the knowledge
of the Company or any of the Subsidiaries, threatened. Neither the Company nor
any Subsidiary is a party to any collective bargaining agreement. The Company
does not know of any activities or proceedings of any labor organization (or
representative thereof) to organize any employees of the Company or any
Subsidiary.
(u) Each of the Company and the Subsidiaries carries insurance in such
amounts and covering such risks as is adequate for the conduct of its business
and the value of its properties.
(v) The Company maintains, sponsors, contributes to, or has or has had
an obligation with respect to "employee benefit plans," within the meaning of
Section 3(3) of ERISA, and may or has had obligations with respect to other
bonus, profit sharing, compensation, pension, severance, deferred compensation,
fringe benefit, insurance, welfare, post-retirement, health, life, stock option,
stock purchase, restricted stock, tuition refund, service award, company car,
scholarship, relocation, disability, accident, sick, vacation, holiday,
termination, unemployment, individual employment, consulting, executive
compensation, incentive, commission, payroll practices, retention, change in
control, noncompetition, collective bargaining and other plans, agreements,
policies, trust funds, or arrangements (whether written or unwritten, insured or
self-insured) on behalf of employees, directors, or shareholders of the Company
(whether current, former, or retired) or their beneficiaries (each a "Plan" and,
collectively, the "Plans"). Neither the Company nor any ERISA Affiliate has any
liability, direct or indirect, or actual or contingent (but excluding any
contributions due in the ordinary course) with respect to any plan subject to
Section 412 of the Code, Section 302 of ERISA or Title IV of ERISA that has or
could reasonably be expected to have a Material Adverse Effect. The consummation
of the transactions contemplated by this Agreement will not give rise to any
liability with respect to any Plan that could reasonably be expected to have a
Material Adverse Effect, including, without limitation, liability for severance
pay, unemployment compensation, termination pay or withdrawal liability, or
accelerate the time of payment or vesting or increase the amount of compensation
or benefits due to any employee, director, or shareholder of the Company
(whether current, former, or retired) or their beneficiaries solely by reason of
such transactions. Except as would not individually or in the aggregate have, or
could not reasonably be expected to have, a Material Adverse Effect: (i) neither
the Company nor any ERISA Affiliate has made any promises or commitments to
create any additional plan, agreement, or arrangement; (ii) no event, condition,
or circumstance exists that could result in an increase of the benefits provided
under any Plan or the expense of maintaining any Plan from the level of benefits
or expense incurred for the most recent fiscal year
<PAGE> 13
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ended before Closing; and (iii) neither the Company nor any ERISA Affiliate has
or could be expected to have any liability for any prohibited transaction as
defined in Section 406 of ERISA or Section 4975 of the Code. With respect to
each of the Plans: (i) each Plan intended to qualify under Section 401(a) of the
Code has been qualified since its inception and has received a determination
letter under Revenue Procedure 93-39 from the IRS to the effect that the Plan is
qualified under Section 401 of the Code and any trust maintained pursuant
thereto is exempt from federal income taxation under Section 501 of the Code and
nothing has occurred or is expected to occur at or before Closing that caused or
could cause the loss of such qualification or exemption or the imposition of any
penalty or tax liability that has or could reasonably be expected to have a
Material Adverse Effect; (ii) no claim, lawsuit, arbitration, audit or
investigation or other action has been threatened, asserted, instituted, or
anticipated against the Plans (other than non-material routine claims for
benefits, and appeals of such claims), any trustee or fiduciaries thereof, the
Company, any ERISA Affiliate, any director, officer, or employee thereof, or any
of the assets of any trust of the Plans that would have or could reasonably be
expected to have a Material Adverse Effect; (iii) the Plan complies in all
material respects and has been maintained and operated in all material respects
in accordance with its terms and applicable law, including, without limitation,
ERISA and the Code; and (iv) with respect to each Plan that is funded mostly or
partially through an insurance policy, the Company has no liability in the
nature of retroactive rate adjustment, loss sharing arrangement or other actual
or contingent liability arising wholly or partially out of events occurring on
or before Closing that has or could reasonably be expected to have a Material
Adverse Effect.
(w) Except for matters which would not in the aggregate have a Material
Adverse Effect,
(i) (A) the Company and each Subsidiary is in compliance with all
applicable Environmental Laws (as defined below); (B) all permits and
other authorizations of any Governmental Authority currently held by
the Company and each Subsidiary pursuant to the Environmental Laws are
in full force and effect, the Company and each Subsidiary is in
compliance with all of the terms of such permits and authorizations,
and no other permits or authorizations are required by the Company or
any Subsidiary for the conduct of their respective businesses on the
date hereof; and (C) the management, handling, storage, transportation,
treatment, and disposal by the Company and each Subsidiary of any
Hazardous Materials (as defined below) has been in compliance with all
applicable Environmental Laws. Neither the Company nor any Subsidiary
has received any written communication that alleges that the Company or
any Subsidiary is not in compliance in all material respects with all
applicable Environmental Laws.
<PAGE> 14
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(ii) There is no Environmental Claim (hereinafter defined) pending
or, to the knowledge of the Company, threatened against or involving
the Company or any of the Subsidiaries or against any person or entity
whose liability for any Environmental Claim the Company or any of the
Subsidiaries has or may have retained or assumed either contractually
or by operation of law.
(iii) To the knowledge of the Company, there are no past or present
actions or activities by the Company or any Subsidiary including the
storage, treatment, release, emission, discharge, disposal or
arrangement for disposal of any Hazardous Materials, that could
reasonably form the basis of any Environmental Claim against the
Company or any of the Subsidiaries or against any person or entity
whose liability for any Environmental Claim the Company or any
Subsidiary may have retained or assumed either contractually or by
operation of law.
(iv) As used herein, these terms shall have the following meanings:
(A) "Environmental Claim" means any and all administrative,
regulatory or judicial actions, suits, demands, demand letters,
directives, claims, liens, investigations, proceedings or notices
of noncompliance or violation (written or oral) by any person or
governmental authority alleging potential liability arising out of
based on or resulting from the presence, or release or threatened
release into the environment, of any Hazardous Materials at any
location owned or leased by the Company or any Subsidiary or other
circumstances forming the basis of any violation or alleged
violation of any Environmental Law.
(B) "Environmental Laws" means all applicable foreign,
federal, state and local laws (including the common law), rules,
requirements and regulations relating to pollution, the environment
(including, without limitation, ambient air, surface water,
groundwater, land surface or subsurface strata) or protection of
human health as it relates to the environment including, without
limitation, laws and regulations relating to releases of Hazardous
Materials, or otherwise relating to the manufacture, processing,
distribution, use, treatment, storage, disposal, transport or
handling of Hazardous Materials or relating to management of
asbestos in buildings.
(C) "Hazardous Materials" means wastes, substances, or
materials (whether solids, liquids or gases) that are deemed
hazardous, toxic, pollutants, or contaminants, including without
limitation,
<PAGE> 15
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substances defined as "hazardous substances", "toxic substances",
"radioactive materials", or other similar designations in, or otherwise
subject to regulation under, any Environmental Laws.
(x) At the Initial Closing, the Company will deliver to the Trustees
under each of the indentures with respect to the Company's Existing Notes (as
such term is defined in the Certificate of Designation): (i) a resolution of the
Company's Board of Directors certifying that (A) the transactions contemplated
by this Agreement and the other Transaction Documents are on terms no less
favorable to the Company than those that would have been obtained in a
comparable arms-length transaction by the Company with a person or entity that
is not an Affiliate (as such term is defined in the respective Indentures), and
(B) the transactions contemplated by this Agreement have been unanimously
approved by the Independent Directors (as such term is defined in the respective
Indentures) on the Company's Board of Directors, who have determined that such
transactions are in the best interests of the Company, (ii) opinions of Houlihan
Lokey Howard & Zukin that such transactions are fair to the Company from a
financial point of view, and (iii) copies of the officers' certificates
delivered to the Trustees to the effect that such opinions comply with the
Indentures, all of the foregoing in conformity with the requirements of the
Indentures. None of such resolutions, opinions or certificates has been
withdrawn or modified in any material respect.
(y) Except for (i) commitment fees paid to the Purchaser and to Huff
and Honeywell, if any, and (ii) payment of commissions to Marvin Saffian
pursuant to the terms of the Consulting Agreement, dated October 19, 1994,
between Marvin Saffian and the Company (which is the Company's obligation), no
broker, finder or investment banker is entitled to any brokerage, finder's or
other fee or commission in connection with the transactions contemplated by this
Agreement or the other Transaction Documents based upon arrangement made by or
on behalf of the Company.
Any certificate signed by any officer of the Company or any Subsidiary
and delivered to the Purchaser or to counsel for the Purchaser shall be deemed a
representation and warranty by the Company and each of its Subsidiaries to the
Purchaser as to the matters covered thereby.
No representation or warranty of the Company contained herein shall be
affected by any knowledge of or attributable to any employee or other
representative of the Purchaser including without limitation any present or
former representative on or observer to the Company's or its Subsidiaries'
boards of directors who is an employee, designee, or affiliate of the Purchaser.
2A. Representations and Warranties of the Purchaser.
<PAGE> 16
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The Purchaser represents and warrants to and agrees with the Company
that the source of funds (the "Source") to be used by the Purchaser to pay the
purchase price of the Securities to be purchased by the Purchaser hereunder is
one or more employee benefit plans, or a separate account or trust fund
comprised of one or more employee benefit plans, each of which has been
identified to the Company in writing. As used in this Section, the term
"employee benefit plan", has the meaning assigned to such term in Section 3 of
ERISA.
3. Purchase, Sale and Delivery of the Securities.
(a) Subject to the terms and conditions of this Agreement, (i) at the
Initial Closing, subject to possible reduction in the number of Securities to be
purchased by the Purchaser at the Initial Closing in accordance with Section
3(d) below, the Purchaser shall purchase and the Company shall sell and issue to
the Purchaser (A) all of the Warrants and (B) that number of shares of Preferred
Stock (the "Initial Preferred Stock") as would result (if the shares of
Preferred Stock included in the Initial Preferred Stock were then converted) in
the issuance of shares of Common Stock equal to 19.9% of the shares of Common
Stock of the Company outstanding immediately prior to the Initial Closing and
(ii) at the Final Closing (hereinafter defined) the Purchaser shall purchase and
the Company shall sell and issue to the Purchaser that number of shares of
Preferred Stock (the "Remaining Preferred Stock") equal to the difference
between (x) 100,000 and (y) the number of shares of Initial Preferred Stock sold
and issued to the Purchaser at the Initial Closing. The Company shall deliver to
the Purchaser at the Initial Closing a schedule, certified by the Company's
Chief Financial Officer, setting forth in such reasonable detail as may be
requested by the Purchaser, the calculations called for by this Section 3(a).
(b) The purchase and sale of the Warrants and the Initial Preferred
Stock shall take place at the offices of Proskauer Rose LLP, 1585 Broadway, New
York, New York 10036, within two (2) days following the satisfaction of the
conditions set forth in this Agreement required to be satisfied prior to the
consummation of the purchase and sale of the Warrants and the Initial Preferred
Stock hereunder, but in no event later than March 6, 2000, or at such other time
and place as the Company and the Purchaser mutually agree upon in writing (which
time and place are designated as the "Initial Closing"). At the Initial Closing,
the Company shall deliver to the Purchaser one or more certificates representing
the Initial Preferred Stock being sold and issued, and an executed Warrant
representing all of the Warrants, in such denomination or denominations and
registered in such name or names as the Purchaser shall request upon notice to
the Company against payment by or on behalf of the Purchaser of the purchase
price therefor by wire transfer, payable to or upon the order of the Company in
immediately available funds.
<PAGE> 17
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(c) The purchase and sale of the Remaining Preferred Stock shall take
place at the offices of Proskauer Rose LLP, 1585 Broadway, New York, New York
10036, within two (2) days following the satisfaction of the conditions set
forth in this Agreement required to be satisfied prior to consummation of the
purchase and sale of the Remaining Preferred Stock, but in no event later than
100 days following the Initial Closing, or at such other time and place as the
Company and the Purchaser mutually agree upon orally or in writing (which time
and place are designated as the "Final Closing"). At the Final Closing, the
Company shall deliver to the Purchaser one or more certificates representing the
Remaining Preferred Stock being sold and issued, in such denomination or
denominations and registered in such name or names as the Purchaser shall
request upon notice to the Company, against payment by or on behalf of the
Purchaser of the purchase price therefor by wire transfer, payable to or upon
the order of the Company in immediately available funds.
(d) In the event that Greenwich Street Capital Partners II, L.P. or any
affiliate fund thereof ("Greenwich") and The Huff Alternative Income Fund, L.P.
("Huff"), agree to purchase Securities at the Initial Closing, then (i) the full
number of Warrants provided under Section 3(a)(i) above to be issued and sold by
the Company to the Purchaser at the Initial Closing shall be issued and sold to
the Purchaser at the Initial Closing; and (ii) the number of shares of Initial
Preferred Stock provided under Section 3(a)(i) above to be issued and sold by
the Company to the Purchaser at the Initial Closing shall be allocated 28.57143%
to the Purchaser, 14.28572% to Greenwich and 57.14285% to Huff.
(e) Notwithstanding anything to the contrary elsewhere in this
Agreement, in the event that the per share closing price of the Common Stock on
the day immediately preceding the Initial Closing is less than $6.27, then (A)
notwithstanding anything to the contrary contained herein (including without
limitation Section 6(c)(i) below), no Stockholder Approval shall be required in
connection with the transactions contemplated by this Agreement and (B) the
Final Closing shall occur as soon as reasonably practicable after the Initial
Closing.
The Initial Closing and the Final Closing are sometimes referred to
collectively in this Agreement as the "Closings" and each as a "Closing".
4. Covenants of the Company. The Company covenants and agrees with
the Purchaser (and in the case of the last sentence of Section 4(f), the
Purchaser agrees) that:
(a) The Company will cooperate at its expense with the Purchaser in
arranging for the qualification of the Securities and the Additional Securities
for offering and sale under the securities or "Blue Sky" laws of such
jurisdictions as the Purchaser may designate and will continue such U.S.
qualifications in effect for as
<PAGE> 18
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long as may be necessary to complete the resale of the Securities and the
Additional Securities by the Purchaser; provided, however, that in connection
therewith the Company shall not be required to qualify as a foreign corporation
or to execute a general consent to service of process in any jurisdiction or
subject the Company to any tax in any such jurisdiction where it is not then so
subject. The Company will cooperate with the Purchaser to (i) if requested,
permit the Warrants and the Change in Control Warrants, to the extent eligible
for resale pursuant to Rule 144A, to be designated PORTAL securities in
accordance with the rules and regulations adopted by the NASD relating to
trading in the Private Offerings, Resales and Trading through Automated Linkages
Market (the "PORTAL Market"), (ii) if requested, permit the Securities upon
issuance and registration under the Securities Act to be eligible for clearance
and settlement through The Depository Trust Company and (iii) permit the
Additional Securities upon issuance and registration under the Securities Act to
be listed for quotation through the Nasdaq National Market or listed on any
national securities exchange on which the Company's Common Stock is then listed.
(b) Approximately two-thirds of the aggregate net proceeds from the
issuance and sale of the Units will be used by the Company for general corporate
purposes; the remaining one-third of the aggregate net proceeds will be
contributed by the Company to its subsidiary, ACSI Network Technologies, Inc.,
for its general corporate purposes.
(c) From time to time, and as soon as reasonably practicable upon
demand, the Company will provide to the Purchaser such additional information
regarding results of operations, financial condition, business or prospects of
the Company or the Subsidiaries, including without limitation, cash flow
analyses, financial statements, budgets, business plans, projections and other
financial information and minutes of any meetings of the Board of Directors of
the Company or the Subsidiaries, as may be reasonably requested by the
Purchaser. The Company shall also afford to the Purchaser (and its
representatives) access, at reasonable times and on reasonable prior notice, to
the books, records and properties of the Company and the Subsidiaries, and shall
permit the Purchaser (and its representatives) to make copies of such books and
records and also shall afford such access to meet and consult with management
and the advisors of the Company and its Subsidiaries with respect to the
business of the Company and its Subsidiaries.
(d) Neither the Company nor any of its Affiliates (provided that the
Purchaser shall be excluded from the Company's obligations under this Section
4(d)) will sell, offer for sale or solicit offers to buy or otherwise negotiate
in respect of any "security" (as defined in the Securities Act) that could be
integrated with the sale of the Securities or the Additional Securities in a
manner that would require the registration under the Securities Act of the
Securities or the Additional Securities.
<PAGE> 19
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(e) The Company will not, and will not permit any of the Subsidiaries
to, engage in any form of general solicitation or general advertising (as those
terms are used in Regulation D under the Securities Act) in connection with the
offering of the Securities or the Additional Securities or in any manner
involving a public offering within the meaning of Section 4(2) of the Securities
Act.
(f) The Company will take all action necessary in accordance with
applicable law and its Certificate of Incorporation and By-laws to convene a
special meeting of its stockholders as promptly as practicable to obtain the
Stockholder Approval. The Board of Directors of the Company shall, subject to
its fiduciary duties, recommend such approval to the stockholders of the Company
and the Company shall take all lawful actions and use its best efforts to
solicit and obtain such approval. The Company and the Purchaser hereby
acknowledge and agree that neither any Conversion Shares nor any Warrant Shares
may be voted at such meeting or otherwise to obtain Stockholder Approval.
(g) As soon as practicable (but not later than March 7, 2000), the
Company shall file a proxy statement in preliminary form with the Commission in
connection with the special meeting of the Company's stockholders to consider
and vote upon the Stockholder Approval. Such proxy statement (or the proxy
statement for the next annual meeting of stockholders) shall include a proposal
seeking stockholder approval of an increase in the authorized Common Stock of
the Company for the reservation for issuance of a sufficient number of shares of
Common Stock issuable upon conversion, exercise or payment of dividends with
respect to the Securities. The Company shall make the drafts of the proxy
statement available to the Purchaser for its review reasonably in advance of
filing. The Purchaser agrees to reasonably cooperate with the Company in the
preparation of the proxy statement. The definitive proxy statement ("Proxy
Statement") for the stockholders meeting shall be mailed to stockholders as soon
as practicable. The Company shall cause the Proxy Statement to comply in all
material respects with the requirements of the Exchange Act, and the applicable
rules and regulations thereunder, and to contain no untrue statement of any
material fact or omit to state any material fact required to be stated therein
or necessary to make the statements therein, in light of the circumstances in
which they were made, not misleading.
(h) At all times prior to the earlier to occur of the Final Closing or
termination of this Agreement (including any termination of this Agreement with
respect to the Remaining Preferred Stock) pursuant to Section 10(a)(iv)), the
Company will amend or supplement each SEC Report to the extent required to
correct any untrue statement of a material fact contained therein or any
omission of a material fact required to be stated therein to make the statements
in such SEC Report, in light of the circumstances under which they were made,
not misleading. From and after the date of this Agreement and at all times prior
to the earlier to occur
<PAGE> 20
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of the Final Closing or termination of this Agreement (including any termination
of this Agreement with respect to the Remaining Preferred Stock pursuant to
10(a)(iv)), the Company shall timely file with the Commission true, accurate and
complete copies of all reports, schedules, forms, statements and other documents
required to be filed by the Company ("Required Filings"). All of such Required
Filings shall comply in all material respects with the requirements of the
Securities Act, or the Exchange Act, as the case may be, and the rules and
regulations of the Commission promulgated thereunder applicable to the Required
Filings.
(i) The Company hereby covenants and agrees that, prior to the earlier
to occur of the Final Closing or the termination of this Agreement, unless
otherwise expressly contemplated by this Agreement or consented to beforehand in
writing by Huff, the Company shall, and shall cause each Subsidiary to, operate
its business only in the usual and ordinary course consistent with past
practices.
(j) The Company hereby covenants and agrees that, prior to the Initial
Closing it shall file or cause to be filed with the Secretary of State of
Delaware the Certificate of Designation.
(k) The Company hereby covenants and agrees that, prior to the earlier
to occur of the Final Closing or termination of this Agreement, unless consented
to in writing beforehand by Huff, and except for pay-in-kind dividends in
respect of the 14.75% Preferred Stock and the 12.75% Preferred Stock, the
Company will not issue or take any action to issue any capital stock or
securities convertible into or exercisable for any capital stock having rights,
privileges or preferences, including, without limitation, with respect to the
payment of dividends or payment upon liquidation of the Company (bankruptcy or
otherwise), that are on a par or senior to any payment on the Preferred Stock in
any respect, or that are redeemable for cash, or that provide for the payment of
dividends in cash ahead of any payment on the Preferred Stock, whether at the
option or right of the holder or the Company or its affiliates, unless expressly
consented to beforehand in writing by the Purchaser.
(l) The Company shall timely file any and all statements or reports
required to be filed by it with the Commission under and in accordance with the
Securities Act and the Exchange Act.
(m) As soon as practicable after the Purchaser's request therefor, the
Company shall (at its sole expense) file any notices, requests, registrations or
approvals required to be filed with the Federal Communications Commission or any
applicable state regulatory agency or commission in connection with the sale of
the Securities and the Additional Securities under the Purchase Agreements and
the sale of any Subsequent Securities and shall use its reasonable best efforts
to cause such
<PAGE> 21
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notices, requests, registrations or approvals to be processed successfully or
approved, as the case may be.
(n) As soon as practicable after the Purchaser's request therefor, the
Company shall (at its sole expense) file any notifications under the HSR Act as
may be required as a result of the conversion or exercise of the Securities and
shall use its reasonable best efforts and shall cooperate with Purchaser to
cause the early termination or expiration of the waiting period for any such
notifications.
(o) The Company shall comply with all of its obligations in respect of
the MCI Preemptive Right.
5. Expenses. The Company agrees to pay the following costs and
expenses and all other costs and expenses incident to the performance of its
obligations under this Agreement and the other Transaction Documents, whether or
not the transactions contemplated herein or therein are consummated or this
Agreement is terminated pursuant to Section 10 hereof: (i) the preparation
(including printing), issuance and delivery to the Purchaser of certificates
evidencing the Securities and the Additional Securities, including transfer
agent's fees, (ii) the qualification of the Securities and the Additional
Securities under state securities and "Blue Sky" laws, including filing fees and
reasonable fees and disbursements of counsel relating thereto, (iii) the fees
and expenses of the transfer agent and registrar of the Company, including fees
and expenses of its counsel, (iv) any fees and expenses incurred by the
Purchaser in connection with any filing required to be made pursuant to the HSR
Act, including filing fees and reasonable fees and disbursements of their
respective counsel whenever such filings are made, (v) Purchaser's appraisal
costs not to exceed $10,000 annually, (vi) all expenses and listing fees
incurred in connection with the application, if requested, for quotation of the
Warrants and the Change of Control Warrants on the PORTAL Market, to the extent
eligible for resale under Rule 144A, and (vii) all other ongoing costs of
holding or converting or exercising the Securities, but excluding ordinary
custodial expenses, brokerage and/or underwriting commissions and taxes.
6. Conditions of the Obligations of the Purchaser.
(a) Conditions to the Purchaser's Obligations at Each Closing.
The obligations of the Purchaser with respect to each Closing under
this Agreement are subject to the fulfillment at or before each Closing of each
of the following conditions:
(i) The Purchaser shall have received opinions, dated as of each
Closing, of (i) the opinion of Riley M. Murphy, Esq., General Counsel
for the
<PAGE> 22
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Company; (ii) the opinion of Kelly Drye & Warren LLP, special
regulatory counsel for the Company, and (iii) the opinion of Davis Polk
& Wardwell, special counsel for the Company, all in form and substance
consistent with the Company's opinions in prior private placements as
may be reasonably agreed upon by the parties.
(ii) The representations and warranties of the Company contained in
this Agreement shall be true and correct when made and true and correct
at each Closing as if made on and as of each Closing (other than to the
extent any such representation or warranty is expressly made as to a
certain date); the Company shall have performed all covenants and
agreements in all material respects and satisfied all conditions on its
part to be performed or satisfied hereunder at or prior to the Closing;
and subsequent to September 30, 1999 no event shall have occurred which
has had, or in the judgment of the Purchaser, is reasonably likely to
have a Material Adverse Effect, other than as described in the SEC
Reports or as disclosed in Schedule 2(e).
(iii) The issuance and sale of the Securities and Change in Control
Warrants pursuant to this Agreement shall not be enjoined (temporarily
or permanently) and no restraining order or other injunctive order
shall have been issued or any action, suit or proceeding shall have
been commenced with respect to this Agreement or other Transaction
Document before any court or Governmental Authority (including, without
limitation, the FCC).
(iv) The Purchaser shall have received certificates, dated as of
each Closing, signed on behalf of the Company by its Chief Operating
Officer and its Chief Financial Officer to the effect that:
(A) The representations and warranties of the Company in this
Agreement were true and correct when made and true and correct at
each Closing as if made on and as of each Closing (other than to
the extent any such representation or warranty is expressly made as
to a certain date), and the Company has performed all covenants and
agreements in all material respects and satisfied all conditions on
its part to be performed or satisfied hereunder at or prior to the
Closing;
(B) Subsequent to September 30, 1999, no event has occurred
that has had, or is reasonably likely to have, a Material Adverse
Effect, other than as described in the SEC Reports or as disclosed
in Schedule 2(e);
<PAGE> 23
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(C) The issuance and sale of the Securities and the Change in
Control Warrants hereunder by the Company has not been enjoined
(temporarily or permanently);
(D) As at December 31, 1999 (and after giving effect to all
financial results, events and other circumstances through the close
of business on such date), the Company and e.spire Finance
Corporation were in compliance with each of the covenants and
obligations of the Company and e.spire Finance Corporation set
forth in Sections 6.5 and 6.6 of the Credit Agreement.
(v) All authorizations, approvals or permits, if any, of any
Governmental Authority that are required in connection with the lawful
issuance and sale of the Securities or the Change in Control Warrants
pursuant to this Agreement or (subject to the matters set forth in
Section 2 (e) and (z) above) the Additional Securities pursuant to the
terms thereof shall have been duly obtained.
(vi) Other than the Stockholder Approval in the case of the Final
Closing and other than any notification under the HSR Act and any
consent of the FCC or any State Telecommunications Authority that may
be required as a result of the conversion or exercise of the
Securities, all consents and waivers, if any, of third parties that are
required in connection with such Closing under this Agreement and the
consummation of the transactions contemplated hereby, shall be duly
obtained and effective as of the Closing.
(vii) All corporate and other proceedings required in connection
with the transactions contemplated at such Closing and all documents
incident thereto shall be satisfactory in form and substance to the
Purchaser and its counsel and the Purchaser and such counsel shall have
received such counterpart originals and certified or other copies of
such documents as they may reasonably request.
(viii) On or before the Closing Date, the Purchaser (and its
counsel) shall have received such further documents, certificates and
schedules or instruments relating to the business, corporate, legal and
financial affairs of the Company as they shall have heretofore
reasonably requested from the Company.
(ix) The Company and the Purchaser shall have entered into the
Registration Rights Agreement and the Warrant Agreement.
<PAGE> 24
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(x) The Company shall have received the written confirmation of
NASDAQ, in form and substance satisfactory to the Purchaser and its
counsel, that other than obtaining Stockholder Approval as contemplated
by Section 2(f) above, the Securities, Additional Securities and Change
in Control Warrants may be issued and sold, and the transactions
contemplated by this Agreement and the other Transaction Documents may
be consummated, without breach, violation or contravention of any
NASDAQ Rule ("NASDAQ Approval").
(xi) The Company shall have filed the Certificate of Designation
with the Secretary of State of Delaware and the same shall have become
effective and be in full force and effect.
(xii) Since January 18, 2000, there shall not have been any
material adverse change in the price of the Common Stock.
(xiii) As at December 31, 1999 (and after giving effect to all
financial results, events and other circumstances through the close of
business on such date), the Company and e.spire Finance Corporation
were in compliance with each of the covenants and obligations of the
Company and e.spire Finance Corporation set forth in Sections 6.5 and
6.6 of the Credit Agreement.
(xiv) Either the Purchaser shall have received confirmation from
the Company's independent certified public accountants reasonably
satisfactory to the Purchaser that no "going concern" or similar
exception will be taken in connection with the Company's financial
statements for the year ended December 31, 1999, or the Purchaser shall
have received a waiver reasonably acceptable to it from the lenders
under the Credit Agreement of any default under the Credit Agreement
relating to such "going concern" or similar exception, provided, that
if Huff waives the Company's compliance with Section 6(a)(xiv) of the
purchase agreement between the Company and Huff dated as of the date
hereof, such waiver shall be deemed a waiver by the Purchaser of the
Company's compliance under this Section 6(a)(xiv).
(b) Additional Conditions to the Purchaser's Obligation at the Initial
Closing.
In addition to the conditions set forth in Section 6(a) above, the
obligations of the Purchaser to the Company under this Agreement are subject to
the fulfillment on or before the Initial Closing of the following additional
conditions:
(i) Approval of Budget. The Company shall have prepared and
submitted to Huff its final budget for the fiscal year ended December
31, 2000
<PAGE> 25
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and Huff shall have approved such budget (together with any updates or
revisions thereof) or shall have waived in writing such approval.
(ii) Issuance of Warrants. The Warrants (and if a Change in Control
shall have occurred, the Change in Control Warrants) shall have been
issued at the Initial Closing.
(iii) Issuance of Stock Certificates. The certificates representing
the shares of Initial Preferred Stock shall have been executed and
delivered by the Company to the Purchaser at the Initial Closing.
(c) Additional Conditions to the Purchaser's Obligations at the Final
Closing
In addition to the conditions set forth in Section 6(a) above, the
obligations of the Purchaser to the Company under this Agreement are subject to
the fulfillment on or before the Final Closing of the following additional
conditions:
(i) Stockholder Approval. The Company shall have obtained the
Stockholder Approval or it shall have been determined that such
approval is not required as provided in Section 3(e).
(ii) Issuance of any Change in Control Warrants. If a Change in
Control shall have occurred, the Change in Control Warrants shall have
been issued.
(iii) Issuance of Stock Certificates. The certificates representing
the Remaining Preferred Stock shall have been executed and delivered by
the Company to the Purchaser at the Final Closing.
(d) Failure of Certain Conditions To Be Met.
(i) If on the trading day immediately preceding the Initial Closing
the closing price of the Common Stock as reported in the New York
edition of the Wall Street Journal is less than $6.26145 per share
(subject to appropriate adjustment for stock dividends, stock splits
and similar events) (a "Stock Decline"), then in such event the
exercise price of all Warrants (including, without limitation, the
Change in Control Warrants) shall be reset to equal $7.25 per share
(subject to adjustment in accordance with the provisions of the Warrant
Agreement in connection with events other than the Stock Decline).
(ii) In the event that there shall be a Change in Control of the
Company, then the Purchaser shall receive simultaneously with the
<PAGE> 26
- 26 -
occurrence of the Change in Control or as soon thereafter as shall be
practicable 12,500 additional Warrants (the "Change in Control
Warrants"), each of which Change in Control Warrants being exercisable
for the same number of shares of Common Stock and at the same exercise
price as are than in effect under the Warrants (or, if no Warrants are
then outstanding, as would have been in effect had Warrants then been
outstanding) and otherwise having the same terms and subject to the
same conditions as the Warrants. As used herein, the term "Change in
Control" means (A) the sale, conveyance, transfer or lease of all or
substantially all of the assets of the Company (which, for purposes of
this sentence, shall include any successor to the Company) to any
"person" or "group" (within the meaning of Section 13(d)(3) and
14(d)(2) of the Exchange Act or any successor provision to either of
the foregoing, including any group acting for the purpose of acquiring,
holding or disposing of securities within the meaning of Rule
13d-5(b)(i) under the Exchange Act), other than to the Purchaser, 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
(including any affiliate of any of the foregoing other than the Company
or any Restricted Subsidiary of the Company (as defined in the
Indenture, dated July 24, 1998 with respect to the Company's 10.625%
Senior Discount Notes Due July 1, 2008)) (the "Permitted Holders")
shall have occurred; or (B) any "person" or "group" (within the meaning
of Sections 13(d)(3) and 14(d)(2) of the Exchange Act or any successor
provision to either of the foregoing, including any group acting for
the purpose of acquiring, holding or disposing of securities within the
meaning of Rule 13d-5(b)(i) under the Exchange Act), other than any
Permitted Holder, becomes the "beneficial owner" (as defined under the
Exchange Act) of more than 35 percent of the total voting power of all
classes of the voting capital stock of the Company (including any
warrants, options or rights to acquire such voting capital stock),
calculated on fully diluted basis, and such voting power percentage is
greater than or equal to the total voting power percentage then
beneficially owned by the Permitted Holders in the aggregate; or (C)
during any period of two consecutive years, individuals who at the
beginning of such period constituted the Board of Directors of the
Company (together with any new directors whose election or appointment
by such board or whose nomination for election by the stockholders of
the Company was approved by a vote a majority of the directors then
still in office who were either directors at the beginning of such
period or whose election or nomination for election was previously so
approved) cease for any reason to constitute a majority of the Board of
Directors then in office. Notwithstanding anything to the contrary
herein or in any other Transaction Document, the parties hereby agree
that the provisions of this Section 6(e) (and any other provisions
hereof or any other Transaction Document relating to the Change in
Control Warrants or any Additional Securities issuable in connection
therewith)
<PAGE> 27
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may be amended by the Company and the holders of a majority of the
outstanding shares of Preferred Stock (including any shares of
Preferred Stock issued to Purchaser hereunder, to Greenwich, to Huff
and to any Additional Purchasers (hereinafter defined) (the "Majority
Holders"), and any waiver relating to such change in Control Warrants
and/or Additional Securities may be given on behalf of the Purchaser by
such Majority Holders; provided, however, that any such amendment or
waiver treats all holders of Preferred Stock in the same fashion.
7. Restrictions on Transfer. The Purchaser hereby represents and
warrants to the Company that:
(a) The Securities to be purchased by the Purchaser will be acquired
for investment for its own account, and, except as contemplated by the Warrant
Agreement and the Registration Rights Agreement or otherwise in accordance with
applicable securities laws, not with a view to the resale or distribution of any
part thereof and without the present intention of selling, granting any
participation in, or otherwise distributing the same.
(b) The Purchaser is an "accredited investor" within the meaning of
Rule 501(a) under the Securities Act and can bear the economic risk of its
investment and has such knowledge and experience in financial or business
matters that it is capable of evaluating the merits and risks of the investment
in the Securities and has received all information from the Company that it has
requested with respect to the Company and the Securities.
(c) The Purchaser understands that the Securities it is purchasing are
characterized as "restricted securities" under the federal securities laws
inasmuch as they are being acquired from the Company in a transaction not
involving a public offering and that under such laws and applicable regulations
such securities may be resold without registration under the Securities Act,
only in certain limited circumstances. In this connection, the Purchaser
represents that it is familiar with Rule 144 of the Commission, as presently in
effect, and understands the resale limitations imposed hereby by the Securities
Act.
(d) The Purchaser understands that the certificates evidencing the
Securities will bear a legend evidencing the foregoing restrictions on transfer.
The Securities shall not be required to bear a restrictive legend if a
registration statement under the Securities Act is effective with respect to the
transfer of such securities or an opinion of counsel reasonably satisfactory to
the Company is delivered to the Company to the effect that neither the legend
nor the restrictions on transfer described in this Agreement are required to
ensure compliance with the
<PAGE> 28
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Securities Act. Whenever, pursuant to the preceding sentence, any certificate
for any of the Securities is no longer required to bear a restrictive legend,
the Company may and if requested by the holder thereof, shall, issue to the
holder, at the Company's expense any new certificate not bearing a restrictive
legend.
8. Indemnification. (a) The Company agrees to indemnify the
Purchaser, each of its affiliates and each officer, director, employee, member,
partner (whether general or limited) and agent of the Purchaser and of each of
its affiliates (the "Indemnified Parties") for, and to hold each Indemnified
Party harmless from and against any and all damages, losses, claims and other
liabilities of any and every kind, including, without limitation, judgments and
costs of settlement (or actions or other proceedings commenced or threatened in
respect thereof) and reasonable expenses that arise out of, result from or in
any way relate to this Agreement or any other Transaction Document, or in
connection with any of the transactions contemplated hereby or thereby,
including, without limitation, in connection with the preparation, filing with
the Commission and mailing to the Company's stockholders of the proxy statement
for the Stockholder Approval and any other proxy statement for the increase in
the authorized Common Stock referred to in Section 4(g) (other than ordinary
investment losses to the extent not arising in connection with (A) any actual or
alleged misrepresentation or breach of covenant, warranty duty or obligation by
the Company or (B) any actual or threatened action or proceeding arising out of,
resulting from or in any way relating to this Agreement or any other Transaction
Document, or any of the transactions contemplated hereby or thereby), and to
reimburse each Indemnified Party, upon its demand, for any reasonable legal or
other expenses incurred in connection with investigating, defending or
participating in any such loss, claim, damage, liability or action or other
proceeding (whether or not such person is a party to any action or proceeding
out of which such expenses arise). The Indemnified Parties shall have the right
to select counsel, subject to the prior consent of the Company, which consent
shall not be unreasonably withheld or delayed, to defend the Indemnified Parties
at the Company's expense in any action or proceeding that is the subject of
indemnification hereunder, provided, that the Company shall not be liable for
the fees and expenses of more than one counsel (plus any local counsel) for all
Indemnified Parties (unless any Indemnified Party shall have reasonably
determined that an actual or potential conflict of interest makes such common
representation inappropriate) in connection with any such action or proceeding.
The Company will not be required to indemnify any Indemnified Party for any
amount paid in settlement of any action or proceeding which is the subject of
indemnification hereunder unless the Company shall have consented in writing to
such settlement, such consent not to be unreasonably withheld or delayed. The
Company shall not, without the prior consent of the Indemnified Party, effect
any settlement or compromise of any pending or threatened proceeding in respect
of which any Indemnified Party is or could have been a party, or indemnity could
have been sought hereunder by such Indemnified Party, unless such settlement (A)
<PAGE> 29
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includes an unconditional written release of such Indemnified Party, in form and
substance reasonably satisfactory to such Indemnified Party, from all liability
on claims that are the subject matter of such proceeding and (B) does not
include any statement as to an admission of fault, culpability or failure to act
by or on behalf of any Indemnified Party.
(b) If the indemnification provided for in Section 8(a) above is for
any reason unavailable to, or insufficient to hold harmless, an Indemnified
Party in respect of any losses, claims, damages or liabilities referred to
therein, then the Company, in lieu of indemnifying such Indemnified Party
thereunder and in order to provide for just and equitable contribution, shall
contribute to the amount paid or payable by such Indemnified Party as a result
of such losses, claims, damages or liabilities in such proportion as is
appropriate to reflect (i) the relative benefits received by the Indemnified
Party or Parties on the one hand and the Company on the other from the offering
of the Units or the Change in Control Warrants or (ii) if the allocation
provided by the foregoing clause (i) is not permitted by applicable law, not
only such relative benefits but also the relative fault of the Company on the
one hand and the Indemnified Party or Parties on the other in connection with
any statements or omissions or alleged statements or omissions or other matters
that resulted in such losses, claims, damages or liabilities (or actions in
respect thereof) as well as any other relevant equitable considerations. The
relative fault of the parties shall be determined by reference to, among other
things, whether any untrue or alleged untrue statement of a material fact or the
omission or alleged omission to state a material fact relates to information
supplied by the Company on the one hand or such Indemnified Party, on the other,
the parties' relative intent, knowledge, access to information and opportunity
to correct or prevent such statement or omission, and any other equitable
considerations appropriate in the circumstances.
(c) The parties agree that it would not be just and equitable if
contribution pursuant to this Section 8 were determined by pro rata allocation
(even if the Indemnified Parties were treated as one entity for such purpose) or
by any other method of allocation that does not take account of the equitable
considerations referred to in Section 8(b) above. The amount paid or payable by
the Company as a result of the losses, claims, damages and liabilities referred
to in Section 8(b) above shall be deemed to include, subject to the limitations
set forth above, any reasonable legal or other expenses actually incurred by
such Indemnified Party in connection with investigating or defending any such
action or claim.
9. Survival Clause. The respective representations, warranties,
agreements, covenants, indemnities and other statements of the Company or its
officers and of the Purchaser set forth in this Agreement or made by or on
behalf of them, respectively, pursuant to this Agreement shall remain in full
force and effect, regardless of (i) any investigation made by or on behalf of
the Company or the
<PAGE> 30
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Purchaser and (ii) delivery of and payment for the Securities. The respective
agreements, covenants, indemnities and other statements set forth in Sections 5
and 8 hereof shall remain in full force and effect, regardless of any
termination or cancellation of this Agreement.
10. Termination.
(a) This Agreement may be terminated prior to the Initial Closing or
the Final Closing, as the case may be, under the following circumstances and by
the following persons:
(i) by the Purchaser, if subsequent to September 30, 1999, any
event shall have occurred which, in the sole judgment of the Purchaser,
has had, individually or in the aggregate, a Material Adverse Effect,
or there shall have been, in the sole judgment of the Purchaser, any
events or developments that, individually or in the aggregate, have or
could be reasonably likely to have a Material Adverse Effect (except
for the events disclosed in the SEC Reports or in Schedule 2(e));
(ii) by the mutual consent of the Purchaser and the Company;
(iii) by the Purchaser at any time after March 6, 2000 or such
later date as shall have been agreed to in writing by the parties
hereto, if at the time notice of such termination is given, the Initial
Closing shall not have been consummated;
(iv) solely with respect to the Remaining Preferred Stock, by the
Purchaser at any time after the expiration of 100 days following the
Initial Closing (or such later date as shall have been agreed to in
writing by the parties hereto), if at the time notice of such
termination is given the Final Closing shall not have been consummated;
(v) by the Purchaser or the Company if any court of competent
jurisdiction in the United States or other United States Governmental
Authority has issued an order, decree or ruling or taken any other
action restraining, enjoining or otherwise prohibiting the transactions
contemplated by this Agreement or the other Transaction Documents and
such order, decree, ruling or other action shall have become final and
nonappealable provided, that the provisions of this clause (v) shall
not be available to any party whose failure to fulfill its obligations
pursuant to this Agreement shall have been the cause of, or shall have
resulted in, such order, decree, ruling or other action;
<PAGE> 31
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(vi) by the Purchaser, if there has been a material
misrepresentation or omission or material breach on the part of the
Company in any of the representations, warranties, covenants or
agreements of the Company set forth herein or in any other Transaction
Document, or if there has been any material failure on the part of the
Company to comply with its obligations and satisfy all conditions on
its part to be performed or satisfied hereunder at or prior to Closing
including, without limitation, and solely with respect to the Final
Closing, obtaining the Stockholder Approval within 100 days after the
Initial Closing (unless not required as provided in Section 3(e));
(vii) by the Purchaser, if there has been a suspension in trading
in securities of the Company or in securities generally on the New York
Stock Exchange, American Stock Exchange or The Nasdaq Stock Market or
if minimum or maximum prices shall have been established on any such
exchange or market;
(viii) by the Purchaser, if a banking moratorium shall have been
declared by New York or United States authorities;
(ix) by the Purchaser, if there has been (A) an outbreak or
escalation of hostilities between the United States and any foreign
power, or (B) an outbreak or escalation of any other insurrection or
armed conflict involving the United States or any other national or
international calamity or emergency, or (C) any material adverse change
in (1) the capital markets generally, (2) the capital markets for
equity securities or (3) the capital markets for telecommunication
company equity securities which, in the case of (A), (B) or (C) above
and in the sole judgment of the Purchaser, makes it impracticable or
inadvisable to proceed with the purchase and sale of the Securities as
contemplated by this Agreement; or
(x) by the Purchaser, if third parties, the approvals of which are
necessary to consummate the transactions contemplated hereby or by the
other Transaction Documents, require changes to the terms of this
Agreement or any other Transaction Document that are adverse to the
Purchaser, as determined by the Purchaser in its sole judgment.
(b) Termination of this Agreement pursuant to this Section 10 shall be
without liability of any party to any other party except as provided in Sections
5, 8 and 9.
11. Notices. All communications hereunder shall be in writing and,
if sent to the Purchaser, shall be mailed or delivered or telecopied and
confirmed in writing to the Purchaser at 101 Columbia Road, Morristown, NJ
07960, Attention: Jay
<PAGE> 32
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Burden, Telecopier Number (973) 455-6761 with a copy to Morgan Lewis & Bockius,
1701 Market Street, Philadelphia, PA 19103-2921, Attention: John H. Grady,
Telecopier Number (215) 963-5299; if sent to the Company, shall be mailed or
delivered or telecopied and confirmed in writing to the Company at 12975
Worldgate Drive, Herndon, Virginia 21070, Attention: General Counsel, Telecopier
Number (703) 639-6011; with a copy to Davis Polk & Wardwell, Attention: Richard
Drucker, 450 Lexington Avenue, New York, New York 10017, Telecopier Number (212)
474- 3700.
All such notices and communications shall be deemed to have been duly
given: when delivered by hand, if personally delivered; five business days after
being deposited in the mail, postage prepaid, if mailed; and one business day
after being timely delivered to a next-day air courier; and when receipt is
acknowledged by the addressee, if telecopied.
12. Successors. This Agreement shall inure to the benefit of and be
binding upon the parties hereto and their respective successors and legal
representatives, and nothing expressed or mentioned in this Agreement is
intended or shall be construed to give any other person any legal or equitable
right, remedy or claim under or in respect of this Agreement, or any provisions
herein contained; this Agreement and all conditions and provisions hereof being
intended to be and being for the sole and exclusive benefit of such persons and
for the benefit of no other person except that the indemnities of the Company
contained in Section 8 of this Agreement shall also be for the benefit of any
Indemnified Party and any person or persons who control the Purchaser within the
meaning of Section 15 of the Securities Act or Section 20 of the Exchange Act.
13. Subsequent Securities. In addition to the issuance and sale of
the Securities hereunder and any purchase of Securities by Greenwich and Huff,
the Company shall use reasonable efforts to sell to other investors (which
investors shall exclude the Purchaser) acceptable to the Company's Board of
Directors (the "Additional Investors") up to $75,000,000 of additional Preferred
Stock and Warrants (the "Subsequent Securities"), of which up to $25,000,000 of
such Subsequent Securities shall be on the same terms and conditions (including
initial conversion price and initial warrant exercise price) as the Preferred
Stock and Warrants included in the Securities and up to $50,000,000 of such
Subsequent Securities may, if so determined by the Company's Board of Directors,
be on terms and conditions more favorable to the Company. Such purchases will
occur at the Final Closing (or in the event there is no Final Closing, at one or
more closings on mutually convenient dates, times and places, no later than 100
days after the Initial Closing). Such purchases shall be conditioned in addition
to the conditions to the Closings set forth above, upon (i) Stockholder
Approval, and (ii) the execution and delivery by the Additional Purchasers of
definitive commitment letters to the Company covering their investments no later
than March 6, 2000 (with a copy to be delivered by the Company to Purchaser
promptly thereafter).
<PAGE> 33
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14. Equitable Adjustments. In the event that at any time after the
date hereof and prior to the issuance of any Securities or Change in Control
Warrants there shall occur any event which would trigger antidilution
adjustments in connection with such Securities or Change in Control Warrants had
they been previously issued, the number of shares of Common Stock issuable upon
the conversion or exercise thereof, and the conversion or exercise price
applicable thereto, shall be equitably adjusted to reflect such events.
15. Entire Agreement. This Agreement, together with the Exhibits
and Schedules hereto, the Warrant Agreement and the Registration Rights
Agreement, is intended by the parties as a final and exclusive statement of the
agreement and understanding of the parties hereto in respect of the subject
matter contained herein and therein and any and all prior oral or written
agreements, representations, or warranties, contracts, understandings,
correspondence, conversations and memoranda between the Purchaser on the one
hand and the Company on the other, or between or among any agents,
representatives, parents, subsidiaries, affiliates, predecessors in interest or
successors in interest with respect to the subject matter hereof and thereof are
merged herein and replaced hereby.
16. Counterparts. This Agreement may be executed in two or more
counterparts, each of which shall be deemed an original, but all of which
together shall constitute one and the same instrument.
17. APPLICABLE LAW. THE VALIDITY AND INTERPRETATION OF THIS
AGREEMENT, AND THE TERMS AND CONDITIONS SET FORTH HEREIN, SHALL BE GOVERNED BY
AND CONSTRUED IN ACCORDANCE WITH THE LAWS OF THE STATE OF NEW YORK, WITHOUT
GIVING EFFECT TO ANY PROVISIONS RELATING TO CONFLICTS OF LAW.
<PAGE> 34
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If the foregoing correctly sets forth our understanding, please
indicate your acceptance thereof in the space provided below for that purpose,
whereupon this letter shall constitute a binding agreement between the Company
and the Purchaser.
Very truly yours,
E.SPIRE COMMUNICATIONS, INC.
By: /s/ John R. Polchin
------------------------------------------
Name: John R. Polchin
----------------------------------------
Title: Interim Chief Financial Officer
---------------------------------------
The foregoing Agreement is hereby
confirmed and accepted as of the
date first above written.
HONEYWELL INTERNATIONAL INC.
MASTER RETIREMENT TRUST
By: Northern Trust Company,
as trustee
By: /s/ Deborah D. Thomas
----------------------------------------
Name: Deborah D. Thomas
--------------------------------------
Title: Senior Vice President & Division Head
-------------------------------------
The Northern Trust Company executes this
instrument as trustee of aforesaid, and is not
to be held liable in its individual capacity
in any way by reason of this instrument.
<PAGE> 1
e.spire COMMUNICATIONS, INC.
UNITS CONSISTING OF
SERIES A CONVERTIBLE PREFERRED STOCK
AND
WARRANTS TO PURCHASE SHARES OF COMMON STOCK
PURCHASE AGREEMENT
March 1, 2000
To: The Huff Alternative Income Fund, L.P.
1776 On The Green
67 Park Place
Morristown, New Jersey 07960
Ladies and Gentlemen:
e.spire COMMUNICATIONS, INC. (the "Company"), a Delaware
corporation, hereby confirms its agreement with THE HUFF ALTERNATIVE INCOME
FUND, L.P. (the "Purchaser"), a Delaware limited partnership, as set forth
below.
1. The Securities. Subject to the terms and conditions herein
contained, the Company hereby agrees to issue and sell to the Purchaser and the
Purchaser hereby agrees to purchase from the Company up to an aggregate of
100,000 Units (hereinafter defined) at a price of $1,000 per Unit (or $792.29
per share of Preferred Stock (hereinafter defined) and $207.71 per Warrant
(hereinafter defined)) for an aggregate purchase price of $100 million. Each
Unit shall consist of one (1) share of Series A Convertible Preferred Stock of
the Company par value $1.00 per share (collectively, the "Preferred Stock"),
each share of which Preferred Stock is initially convertible into 126.42225
shares of the common stock, par value $.01 per share (the "Common Stock") of the
Company at a conversion price of $7.91 per share, subject to adjustment as
provided in the Transaction Documents
<PAGE> 2
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(hereinafter defined) and one (1) Warrant in the form attached as Exhibit A
hereto (collectively, the "Warrants," and, together with the Preferred Stock,
the "Units"), each of which Warrants is initially exercisable to purchase 44.1
shares (the "Warrant Shares") of the Common Stock at an exercise price of $9.89
per share, subject to adjustment as provided in Section 6(d) and as provided in
the Warrant Agreement (hereinafter defined). The Preferred Stock shall upon
issuance have the rights and preferences set forth in the Certificate of
Designation ("Certificate of Designation") attached hereto as Exhibit B. The
Units, the Preferred Stock and the Warrants are herein collectively referred to
as the "Securities."
The Securities will be offered and sold to the Purchaser
without being registered under the Securities Act of 1933, as amended (the
"Act"), in reliance upon one or more exemptions therefrom.
The Purchaser and the direct and indirect transferees of the
Securities will be entitled to the benefits of (i) the Registration Rights
Agreement substantially in the form attached hereto as Exhibit C (the
"Registration Rights Agreement"), among the Company, the Purchaser and the other
signatories thereto, which will require the Company, among other things, to file
with the Securities and Exchange Commission (the "Commission") a shelf
registration statement (the "Registration Statement") pursuant to Rule 415 under
the Act relating to the resale of the Preferred Stock and shares of Common Stock
issuable in connection with the conversion thereof (collectively, the
"Conversion Shares" and, together with the Warrant Shares and the Additional
Warrant Shares (hereinafter defined), the "Additional Securities") and to use
its reasonable best efforts to cause such registration statement to be declared
and remain effective in accordance therewith and (ii) the Warrant Agreement
among the Company, the Purchaser and other signatories thereto substantially in
the form attached hereto as Exhibit D (the "Warrant Agreement") which will
require the Company, among other things, to file with the Commission a
registration statement (the "Warrant Registration Statement") pursuant to Rule
415 under the Securities Act relating to the resale of the Warrants and Warrant
Shares and to use its reasonable best efforts to cause such registration
statement to be declared and remain effective in accordance therewith.
This purchase agreement (the "Agreement"), the Certificate of
Designation, the Warrant Agreement and related Warrants and the Registration
Rights Agreement are herein collectively referred to as the "Transaction
Documents."
2. Representations and Warranties. The Company represents and
warrants to and agrees with the Purchaser that:
(a) Since January 1, 1999 and to the date of this Agreement, the
Company has filed with the Commission, a Proxy Statement on Schedule 14A with
respect to
<PAGE> 3
- 3 -
the Company's 1999 Annual Meeting of Stockholders, the Company's Annual Report
on Form 10-K for the year ended December 31, 1998, the Company's Quarterly
Reports on Form 10-Q for the fiscal quarters ended March 31, June 30 and
September 30, 1999, respectively, and the Company's Current Reports on Form 8-K
dated February 22, 1999, July 8, 1999, October 28, 1999, November 1, 1999,
December 3, 1999 and February 1, 2000 (including all exhibits to any of such
documents) (collectively the "SEC Reports"), which constitute all reports,
schedules, forms, statements and other documents required to be filed with the
Commission during such period by the Company. As of their respective dates, the
SEC Reports complied in all material respects with the requirements of the
Securities Exchange Act of 1934, as amended (the "Exchange Act"), and the rules
and regulations of the Commission promulgated thereunder applicable to the SEC
Reports, and none of the SEC Reports as of such dates contained any untrue
statement of a material fact or omitted to state a material fact required to be
stated therein, in light of the circumstances under which they were made, not
misleading. Except to the extent that any SEC Report has been revised or
superseded by a later filed SEC Report, none of the SEC Reports contains any
untrue statement of a material fact or omits to state any material fact required
to be stated therein or necessary in order to make the statements therein, in
light of the circumstances under which they were made, not misleading. The
consolidated financial statements of the Company included in the SEC Reports
comply as to form in all material respects with applicable accounting
requirements and the published rules and regulations of the Commission with
respect thereto, have been prepared in accordance with generally accepted
accounting principles (except, in the case of unaudited consolidated quarterly
statements, as permitted by Form 10-Q of the Commission) applied on a consistent
basis during the periods involved (except as may be indicated in the notes
thereto) and fairly present in all materials respects the consolidated financial
position of the Company and its consolidated subsidiaries as of the dates
thereof and the consolidated results of their operations and cash flows for the
periods then ended (subject, in the case of unaudited quarterly statements, to
normal year-end audit adjustments).
(b) The Company owns all the issued and outstanding capital stock or
other equity interests of each of its direct and indirect subsidiaries (the
"Subsidiaries"). Each of the Company and the Subsidiaries is duly incorporated
or organized, validly existing and in good standing as a corporation or a
limited liability company, as the case may be, under the laws of its
jurisdiction of incorporation or organization, with all requisite corporate or
limited liability company power and authority to own or lease its properties and
conduct its business as now conducted, and as proposed to be conducted as
described in the Company's SEC Reports. Except as described on Schedule 2(b)(i),
each of the Company and the Subsidiaries is duly qualified to do business as a
foreign corporation in good standing in the jurisdiction in which it has its
principal place of business and in all other jurisdictions
<PAGE> 4
- 4 -
where the ownership or leasing of its properties or the conduct of its business
requires such qualification, except where the failure to be so qualified would
not, singly or in the aggregate, have a material adverse effect on the business,
condition (financial or other), assets, nature of assets, liabilities,
operations, prospects or results of operations of the Company and the
Subsidiaries, taken as a whole (any such event, a "Material Adverse Effect").
Except as described in the SEC Reports, the Company does not own or control,
directly or indirectly, any material interest in any other corporation,
association, or other business entity.
(c) Except as set forth on Schedule 2(c)(i), the Preferred Stock, the
Warrants, the Conversion Shares, the Warrant Shares, the Change in Control
Warrants (hereinafter defined), any shares of Common Stock issuable upon
exercise of the Change in Control Warrants (the "Additional Warrant Shares", and
the Certificate of Designation have been duly authorized by the Company. The
Preferred Stock, the Warrants and the Change in Control Warrants, when issued,
sold and delivered in accordance with the terms hereof and for the consideration
expressed herein, and the Warrant Shares, the Additional Warrant Shares and the
Conversion Shares when issued in accordance with the terms of the Warrants, the
Change in Control Warrants and Preferred Stock, as the case may be, (i) will be
duly and validly issued and, in the case of the Preferred Stock, the Warrant
Shares, the Additional Warrant Shares and the Conversion Shares, fully paid and
nonassessable, (ii) will be free of any pledges, liens, security interests,
claims, rights or other encumbrances of any kind (other than under applicable
federal and state securities laws), (iii) assuming the accuracy of the
Purchaser's representations and warranties in this Agreement, will be issued in
compliance with all applicable federal and state securities laws, and (iv) will
not be issued in violation of any preemptive rights of stockholders. Except as
set forth on Schedule 2(c)(ii), the Preferred Stock, the Warrant Shares, the
Additional Warrant Shares and the Conversion Shares have been duly and validly
reserved for issuance.
(d) The Company has all requisite corporate power and authority to
execute and deliver the Warrant Agreement and the Registration Rights Agreement;
the Warrant Agreement and the Registration Rights Agreement have been duly
authorized by the Company and, when executed and delivered by the Company
(assuming due authorization, execution and delivery by the parties thereto other
than the Company) will constitute valid and legally binding agreements of the
Company, enforceable against the Company in accordance with their terms, except
that (i) the enforcement thereof may be subject to (A) bankruptcy, insolvency,
reorganization, fraudulent conveyance, moratorium or other similar laws now or
hereafter in effect relating to creditors' rights generally, (B) general
principles of equity and the discretion of the court before which any proceeding
therefor may be brought and (C) any rights to indemnity or contribution
thereunder may be limited by federal and state securities laws and public policy
considerations.
<PAGE> 5
- 5 -
(e) The Company has all requisite corporate power and authority to
execute and deliver this Agreement, the Warrants and the Change in Control
Warrants, to issue the Warrant Shares and the Additional Warrant Shares and,
subsequent to the filing of the Certificate of Designation, to issue and deliver
the Preferred Stock and the Conversion Shares, and to consummate the
transactions contemplated hereby. This Agreement and each other Transaction
Document has been duly authorized, and this Agreement has been and each other
Transaction Document has been or as of the Initial Closing will be duly executed
and delivered by the Company. No consent, approval, authorization or order of
any foreign or domestic national, state, provincial or local government or any
instrumentality, subdivision, court or governmental agency or body thereof, or
any arbitral body (each, a "Governmental Authority") having jurisdiction over
the Company or the Subsidiaries or their respective businesses (including,
without limitation, the Federal Communications Commission (the "FCC")) is
required for the performance of this Agreement and the other Transaction
Documents by the Company or the consummation by the Company of the transactions
contemplated hereby or thereby, except for (x) such consents as have been
obtained, (y) such consents as may be required under state securities or "Blue
Sky" laws in connection with the purchase and resale of the Securities and the
Additional Securities by the Purchaser and (z) any notification as may be
required under the Hart-Scott-Rodino Antitrust Improvements Act of 1976, as
amended (the "HSR Act"), or any consent as may be required by the FCC or any
state telecommunications regulatory authorities or commissions ("State
Telecommunications Authorities"), in each such case, as a result of the
Purchaser's conversion of Preferred Stock or exercise of Warrants or Additional
Warrants. Neither the Company nor any of the Subsidiaries nor their operations
is (i) in violation of its certificate of incorporation or by-laws (or similar
organizational document), (ii) in violation of any statute, judgment, decree,
order, rule or regulation applicable to the Company or the Subsidiaries, which
violation would, individually or in the aggregate, be reasonably likely to have
a Material Adverse Effect or (iii) other than as disclosed in the Company's SEC
Reports or as otherwise disclosed in Schedule 2(e), in default in the
performance or observance of any obligation, agreement, covenant or condition
contained in any indenture, mortgage, deed of trust, loan agreement, note,
lease, license, franchise agreement, permit, certificate, contract or other
agreement or instrument to which the Company or the Subsidiaries is a party or
to which the Company or the Subsidiaries or their respective assets is subject,
which default would, individually or in the aggregate, be reasonably likely to
have a Material Adverse Effect.
(f) Neither the issuance and sale of the Securities or the Change in
Control Warrants and the Additional Securities, nor the execution, delivery and
performance by the Company of this Agreement, the Warrant Agreement or the
Registration Rights Agreement or the consummation of the transactions
contemplated hereby and thereby, will (i) conflict with the certificate of
incorporation
<PAGE> 6
- 6 -
or by-laws of the Company, as the same will be in effect as of each Closing,
(ii) constitute or result in a breach, default or violation of (with or without
the giving of notice, passage of time or both), or result in the creation or
imposition of a lien, charge or encumbrance on any properties or assets of the
Company or the Subsidiaries under any of the terms or provisions of, any
indenture, mortgage, deed of trust, loan agreement, note, lease, license,
franchise agreement, or other agreement or instrument to which the Company is a
party or to which the Company or its respective properties is subject, (iii)
require the consent of any third party or any Governmental Authorities, and
including without limitation as of the Initial Closing, The NASDAQ Stock Market
and any related body ("NASDAQ"), other than (A) required consents under the
Credit Agreement dated as of August 11, 1999 among the Company, e.spire Finance
Corporation, the Lenders, Goldman Sachs Credit Partners L.P., the Bank of New
York, First Union National Bank and Newcourt Commercial Finance Corporation (the
"Credit Agreement"), (B) solely with respect to the Securities to be issued and
sold at the Final Closing, the Stockholder Approval (hereinafter defined)and (C)
any required consents of the FCC or any State Telecommunications Authority as a
result of the Purchaser's conversion of Preferred Stock or exercise of Warrants;
or (iv) (assuming compliance with all applicable state securities and "Blue Sky"
laws, all applicable rules and regulations of the FCC and State
Telecommunications Authorities, and the HSR Act, and assuming the receipt by the
Company of the Stockholder Approval and assuming the accuracy of the
representations and warranties of the Purchaser in Section 7 hereof) contravene
any statute, judgment, decree, order, rule or regulation of any Governmental
Authority applicable to the Company or any of its respective properties, except
for any conflict, breach, violation, default, lien, charge, contravention or
encumbrance referred to in clauses (ii) and (iii) of this Section 2(f) which
would not, individually or in the aggregate, be reasonably likely to have a
Material Adverse Effect. For purposes of this Agreement, "Stockholder Approval"
shall mean the affirmative vote of the holders of a majority of the shares of
the Company's Common Stock present in person or by proxy at a meeting of
stockholders of the Company duly called and held (and at which meeting a quorum
is present) approving the issuance of the Preferred Stock and Conversion Shares
hereunder and to Greenwich and Honeywell (as each term is hereinafter defined),
as well as the Preferred Stock included in the Subsequent Securities referred to
in Section 13 (and Conversion Shares relating thereto), as and to the extent all
such Preferred Stock and Conversion Shares taken together may result in the
issuance of a number of shares of Common Stock which exceeds 20% of the total
outstanding Common Stock immediately prior to the Initial Closing. The issuance
and sale of the Warrants and the Initial Preferred Stock (hereinafter defined)
at the Initial Closing, any issuance of Change in Control Warrants, and the
issuance of any Additional Securities with respect to such Initial Preferred
Stock and Change in Control Warrants pursuant to the conversion or exercise
thereof (at an adjusted conversion or exercise price, as the case may be),
without in any case obtaining Stockholder Approval, is not and at the time of
<PAGE> 7
- 7 -
issuance of such Additional Securities will not be in violation, breach or
contravention of any rule or other requirement or any criteria for listing or
continued trading through NASDAQ (a "NASDAQ Rule") and does not and will not
require any consent of NASDAQ. Subject to obtaining Stockholder Approval, the
Remaining Preferred Stock (hereinafter defined) may be issued and sold at the
Final Closing and any Additional Securities may be issued and sold with respect
thereto without violation, breach or contravention of any NASDAQ Rule and will
not require any consent of NASDAQ.
(g) Except as described in the Company's SEC Reports, there is neither
pending nor, to the best knowledge of the Company after due inquiry, threatened,
any action, suit, proceeding, inquiry or investigation to which the Company or
any of the Subsidiaries is a party, or to which any of their respective
properties or assets are or would be subject, before or brought by any
Governmental Authority (including, without limitation, the FCC) that would,
individually or in the aggregate, be reasonably likely to have a Material
Adverse Effect or that seeks to restrain, enjoin, prevent the consummation of or
otherwise challenge or relate to the issuance or sale of the Securities or
Additional Securities to be sold hereunder or the consummation of the other
transactions contemplated herein or in the other Transaction Documents.
(h) Except as disclosed on Schedule 2(h), each of the Company and the
Subsidiaries owns or possesses adequate licenses or other rights to use all
patents, trademarks, service marks, trade names, copyrights and know-how, and as
of each Closing (hereinafter defined) will continue to own or possess such
licenses, rights and know-how and other intellectual property necessary to
conduct the businesses currently operated by it, or as proposed to be conducted
by it as described in the Company's SEC Reports, except for any the absence of
which would not, individually or in the aggregate, be reasonably likely to have
a Material Adverse Effect, and neither the Company nor the Subsidiaries has
received any notice of infringement of, or conflict with (or knows of any such
infringement of or conflict with) asserted rights of others with respect to any
patents, trademarks, service marks, trade names, copyrights or know-how
necessary to conduct the businesses operated by it that, if such assertion of
infringement or conflict were sustained, would, individually or in the
aggregate, have a Material Adverse Effect.
(i) Each of the Company and the Subsidiaries has obtained, or has
applied for, all consents, approvals, authorizations, orders, registrations,
filings, qualifications, licenses (including, without limitation, all licenses
from the FCC and state, local or other governmental authorities), permits,
franchises and other governmental authorizations necessary to conduct its
businesses (or proposed businesses) as described in the Company's SEC Reports,
except for any the absence of which, individually or in the aggregate, would not
be reasonably likely to
<PAGE> 8
- 8 -
have a Material Adverse Effect. Neither the Company nor any of the Subsidiaries
has received any notice of proceedings related to the revocation or materially
adverse modification of any such consent, approval, authorization, order,
registration, filing, qualification, license or permit, except for any which
would not, individually or in the aggregate, be reasonably likely to have a
Material Adverse Effect.
(j) Except as disclosed in the SEC Reports, subsequent to September 30,
1999, (i) neither the Company nor any of the Subsidiaries has incurred any
liabilities or obligations, direct or contingent, or entered into any material
transactions not in the ordinary course of business that would, individually or
in the aggregate, be reasonably likely to have a Material Adverse Effect; and
(ii) the Company has not purchased any of its outstanding capital stock or
(except for regularly scheduled pay-in-kind dividends on shares of preferred
stock described under Section 2(r) below) declared, paid or otherwise made any
dividend or distribution of any kind on its capital stock.
(k) There are no legal or governmental proceedings involving or
affecting the Company or any of the Subsidiaries or any of their respective
properties or assets (other than proceedings, individually or in the aggregate,
which would not, if the subject of an unfavorable decision, ruling or finding,
result in a Material Adverse Effect) that are not described in the SEC Reports.
Except as described in the SEC Reports or Schedule 2(e), neither the Company nor
any of the Subsidiaries is in default under any contract, has received a notice
or claim of any such default or has knowledge of any breach of any such contract
by the other party or parties thereto, except such defaults or breaches which
would not, individually or in the aggregate, be reasonably likely to have a
Material Adverse Effect.
(l) Each of the Company and the Subsidiaries has filed all necessary
federal, state, local and foreign income, franchise and property tax returns,
except where the failure to so file such returns would not, individually or in
the aggregate, be reasonably likely to have a Material Adverse Effect, and each
of the Company and the Subsidiaries has paid all taxes shown as due when due;
and other than tax deficiencies that the Company or any of the Subsidiaries is
contesting in good faith and for which adequate reserves have been provided,
there is no tax deficiency that has been asserted against the Company or any of
the Subsidiaries that would, individually or in the aggregate, be reasonably
likely to have a Material Adverse Effect. The charges, accruals and reserves on
the consolidated books of the Company in respect of any tax liability for any
years not finally determined are adequate to meet any assessments or
re-assessments for additional tax for any years not finally determined, except
to the extent of any inadequacy that would not, individually or in the
aggregate, be reasonably likely to have a Material Adverse Effect.
<PAGE> 9
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(m) Except as disclosed in the SEC Reports, each of the Company and the
Subsidiaries has good and marketable title to all real property and good title
to all personal property owned or claimed to be owned by it and good and valid
title to all leasehold interests in the real and personal property leased by it
(except for those leases of real property in which the Company has good title
and that would be marketable but for the requirement that the landlord consent
to an assignment or sublease of the lease), free and clear of all liens,
charges, encumbrances or restrictions, except to the extent the failure to have
such title or the existence of such liens, charges, encumbrances or restrictions
would not, individually or in the aggregate, be reasonably likely to have a
Material Adverse Effect. All leases, contracts and agreements to which the
Company or any of the Subsidiaries is a party or by which any of them is bound
are valid and enforceable against the Company or such Subsidiaries and are valid
and enforceable against the other party or parties thereto and are in full force
and effect with only such exceptions as would not, individually or in the
aggregate, be reasonably likely to have a Material Adverse Effect. No real or
personal property, rights-of-way, conduits, pole attachments or fiber leased,
licensed or used by the Company or any of the Subsidiaries lies in an area that
is, or to the best knowledge of the Company will be, subject to zoning, use, or
building code restrictions that would prohibit, and no state of facts relating
to the actions or inaction of another person or entity or his, her or its
ownership, leasing, licensing or use of any such real or personal property,
rights-of-way, conduits, pole attachments or fiber exists that would prevent the
continued effective leasing, licensing or use of such real or personal property,
rights-of-way, conduits, pole attachments or fiber in the business of the
Company or any of the Subsidiaries as presently conducted, subject in each case
to such exceptions as, individually or in the aggregate, do not have and are not
reasonably likely to have a Material Adverse Effect.
(n) None of the Company or any of the Subsidiaries is and, after giving
effect to the offering and sale of the Securities and the Additional Securities
and the application of the proceeds therefrom as described herein, none will be,
an "investment company," as such term is defined in the Investment Company Act
of 1940, as amended, and the rules and regulations thereunder.
(o) Neither the Company nor any of its directors, officers or
controlling persons (provided that the Purchaser is excluded from the warranty
in this Section 2(o)) has taken, directly or indirectly, any action designed, or
that might reasonably be expected, to cause or result, under the Securities Act
or otherwise, in, or that has constituted, stabilization or manipulation of the
price of any security of the Company to facilitate the sale or resale of any of
the Securities or the Additional Securities.
<PAGE> 10
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(p) Each of the Company and the Subsidiaries (i) makes and keeps
accurate books and records and (ii) maintains internal accounting controls that
provide reasonable assurance that (A) transactions are executed in accordance
with management's authorization, (B) transactions are recorded as necessary to
permit preparation of its financial statements and to maintain accountability
for its assets, (C) access to its assets is permitted only in accordance with
management's authorization and (D) the reported accountability for its assets is
compared with existing assets at reasonable intervals.
(q) None of the Company, any of the Subsidiaries or any of their
respective Affiliates (as defined in Rule 501(b) of Regulation D under the
Securities Act) (provided that the Purchaser is excluded from the warranty in
this Section 2(q)) has directly, or through any agent, (i) sold, offered for
sale, solicited offers to buy or otherwise negotiated in respect of, any
"security" (as defined in the Securities Act) that is or could be integrated
with the sale of the Securities or the Additional Securities in a manner that
would require the registration under the Securities Act of the Securities or the
Additional Securities or (ii) engaged in any form of general solicitation or
general advertising (as those terms are used in Regulation D under the
Securities Act) in connection with the offering of the Securities or the
Additional Securities or in any manner involving a public offering within the
meaning of Section 4(2) of the Securities Act. Assuming the accuracy of the
representations and warranties of the Purchaser in Section 7 hereof, it is not
necessary in connection with the offer, sale and delivery of the Securities or
the Additional Securities to the Purchaser in the manner contemplated by this
Agreement to register any of the Securities or the Additional Securities under
the Securities Act.
(r) As of the date of this Agreement, the authorized capital of the
Company consists of (i) 125,000,000 shares of Common Stock, of which 51,570,766
shares were issued and outstanding at January 31, 2000 and 54,827,337 are
reserved for issuance and (ii) 3,000,000 shares of preferred stock, par value
$1.00 per share, of which (x) 400,000 shares have been designated 14.75%
Redeemable Preferred Stock due 2008 (the "14.75% Preferred Stock") of which
[107,235.94] shares are issued and outstanding, (y) 200,000 shares have been
designated Series A 12.75% Junior Redeemable Preferred Stock due 2009 of which
18.25 shares are issued and outstanding and (z) 700,000 shares have been
designated Series B 12.75% Junior Redeemable Preferred Stock (the "12.75%
Preferred Stock") of which 198,843 shares are issued and outstanding. Except for
(A) 489,405 shares of Common Stock reserved for issuance under the Company's
1996 Employee Stock Purchase Plan; (B) 20,000 shares of Common Stock reserved
for issuance under the Company's 1998 Restricted Stock Plan; (C) 5,646,355
shares of Common Stock reserved for issuance upon exercise of the warrants
issued by the Company in connection with the sale of the 14.75% Preferred Stock;
(D) 2,330,757 shares of Common Stock reserved for issuance upon exercise of the
warrants issued by the
<PAGE> 11
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Company in connection with the sale of the Company's 13% Senior Discount Notes
due 2005, (E) 5,259,294 shares of Common Stock reserved for issuance in
connection with the Company's non-plan employee stock options; (F) 9,471,992
shares of Common Stock reserved for issuance under the Company's 1994 Employee
Stock Option Plan; (G) 560,800 shares of Common Stock reserved for issuance
under the Company's Annual Performance Plan; (H) 480,000 shares of Common Stock
reserved for issuance in connection with stock options granted to the Company's
outside directors; (I) 305,614 shares of Common Stock reserved for issuance upon
exercise of warrants issued by the Company in connection with certain preferred
provider and local services agreements entered into by the Company; (J) 421,726
shares of Common Stock reserved for issuance upon the exercise of warrants
registered pursuant to Form S-3, Commission File No. 333-40337, (K) shares of
Common Stock in an amount up to $600,000 reserved for issuance in connection
with a settlement agreement to be entered into between the Company and a third
party and (L) 29,841,394 shares of Common Stock reserved to be issued in
connection with this Purchase Agreement and the respective purchase agreements,
if any, between Greenwich and Honeywell and the Company, there are not
outstanding (and, except as contemplated by this Agreement, the Company does not
have any plan to issue, grant or enter into) any options, warrants, rights
(including conversion or preemptive rights), subscriptions or agreements for the
purchase, or acquisition from or by the Company of any shares of its or any of
its Subsidiaries capital stock or any other securities convertible into or
exercisable for any shares of its or any of its Subsidiaries capital stock.
There are no voting agreements, voting trust agreements, stockholder agreements
or other agreements relating to the capital stock of the Company or any of its
Subsidiaries or any other securities convertible into or exercisable for any
shares of its or any of its Subsidiaries capital stock. Except as disclosed in
Schedule 2(r), no outstanding options, warrants or other securities exercisable
for or convertible into Common Stock require anti-dilution adjustments by reason
of the consummation of the transactions contemplated hereby.
(s) Other than as described in the SEC Reports or in Schedule 2(e),
since September 30,1999 (i) there has not been any change in the capital stock
or long-term indebtedness of the Company or any of the Subsidiaries which could,
individually or in the aggregate, be reasonably expected to have a Material
Adverse Effect and (ii) there has not occurred, nor has information become known
nor has any state of facts arisen that could, individually or in the aggregate,
reasonably be expected to have a Material Adverse Effect whether or not arising
in the ordinary course of business.
(t) Other than routine individual grievances or disputes in an
individual amount less than $50,000 and in the aggregate less than $250,000,
there is no strike, labor dispute, slowdown or work stoppage with the employees
of the
<PAGE> 12
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Company or any of the Subsidiaries that is pending or, to the knowledge of the
Company or any of the Subsidiaries, threatened. Neither the Company nor any
Subsidiary is a party to any collective bargaining agreement. The Company does
not know of any activities or proceedings of any labor organization (or
representative thereof) to organize any employees of the Company or any
Subsidiary.
(u) Each of the Company and the Subsidiaries carries insurance in such
amounts and covering such risks as is adequate for the conduct of its business
and the value of its properties.
(v) The Company maintains, sponsors, contributes to, or has or has had
an obligation with respect to "employee benefit plans," within the meaning of
Section 3(3) of ERISA, and may or has had obligations with respect to other
bonus, profit sharing, compensation, pension, severance, deferred compensation,
fringe benefit, insurance, welfare, post-retirement, health, life, stock option,
stock purchase, restricted stock, tuition refund, service award, company car,
scholarship, relocation, disability, accident, sick, vacation, holiday,
termination, unemployment, individual employment, consulting, executive
compensation, incentive, commission, payroll practices, retention, change in
control, noncompetition, collective bargaining and other plans, agreements,
policies, trust funds, or arrangements (whether written or unwritten, insured or
self-insured) on behalf of employees, directors, or shareholders of the Company
(whether current, former, or retired) or their beneficiaries (each a "Plan" and,
collectively, the "Plans"). Neither the Company nor any ERISA Affiliate has any
liability, direct or indirect, or actual or contingent (but excluding any
contributions due in the ordinary course) with respect to any plan subject to
Section 412 of the Code, Section 302 of ERISA or Title IV of ERISA that has or
could reasonably be expected to have a Material Adverse Effect. The consummation
of the transactions contemplated by this Agreement will not give rise to any
liability with respect to any Plan that could reasonably be expected to have a
Material Adverse Effect, including, without limitation, liability for severance
pay, unemployment compensation, termination pay or withdrawal liability, or
accelerate the time of payment or vesting or increase the amount of compensation
or benefits due to any employee, director, or shareholder of the Company
(whether current, former, or retired) or their beneficiaries solely by reason of
such transactions. Except as would not individually or in the aggregate have, or
could not reasonably be expected to have, a Material Adverse Effect: (i) neither
the Company nor any ERISA Affiliate has made any promises or commitments to
create any additional plan, agreement, or arrangement; (ii) no event, condition,
or circumstance exists that could result in an increase of the benefits provided
under any Plan or the expense of maintaining any Plan from the level of benefits
or expense incurred for the most recent fiscal year ended before Closing; and
(iii) neither the Company nor any ERISA Affiliate has or could be expected to
have any liability for any prohibited transaction as defined in Section 406 of
ERISA or Section 4975 of the Code. With respect to each of the
<PAGE> 13
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Plans: (i) each Plan intended to qualify under Section 401(a) of the Code has
been qualified since its inception and has received a determination letter under
Revenue Procedure 93-39 from the IRS to the effect that the Plan is qualified
under Section 401 of the Code and any trust maintained pursuant thereto is
exempt from federal income taxation under Section 501 of the Code and nothing
has occurred or is expected to occur at or before Closing that caused or could
cause the loss of such qualification or exemption or the imposition of any
penalty or tax liability that has or could reasonably be expected to have a
Material Adverse Effect; (ii) no claim, lawsuit, arbitration, audit or
investigation or other action has been threatened, asserted, instituted, or
anticipated against the Plans (other than non-material routine claims for
benefits, and appeals of such claims), any trustee or fiduciaries thereof, the
Company, any ERISA Affiliate, any director, officer, or employee thereof, or any
of the assets of any trust of the Plans that would have or could reasonably be
expected to have a Material Adverse Effect; (iii) the Plan complies in all
material respects and has been maintained and operated in all material respects
in accordance with its terms and applicable law, including, without limitation,
ERISA and the Code; and (iv) with respect to each Plan that is funded mostly or
partially through an insurance policy, the Company has no liability in the
nature of retroactive rate adjustment, loss sharing arrangement or other actual
or contingent liability arising wholly or partially out of events occurring on
or before Closing that has or could reasonably be expected to have a Material
Adverse Effect.
(w) Except for matters which would not in the aggregate have a Material
Adverse Effect,
(i) (A) the Company and each Subsidiary is in compliance with
all applicable Environmental Laws (as defined below); (B) all permits
and other authorizations of any Governmental Authority currently held
by the Company and each Subsidiary pursuant to the Environmental Laws
are in full force and effect, the Company and each Subsidiary is in
compliance with all of the terms of such permits and authorizations,
and no other permits or authorizations are required by the Company or
any Subsidiary for the conduct of their respective businesses on the
date hereof; and (C) the management, handling, storage, transportation,
treatment, and disposal by the Company and each Subsidiary of any
Hazardous Materials (as defined below) has been in compliance with all
applicable Environmental Laws. Neither the Company nor any Subsidiary
has received any written communication that alleges that the Company or
any Subsidiary is not in compliance in all material respects with all
applicable Environmental Laws.
(ii) There is no Environmental Claim (hereinafter defined)
pending or, to the knowledge of the Company, threatened against or
involving the Company or any of the Subsidiaries or against any person
or entity whose
<PAGE> 14
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liability for any Environmental Claim the Company or any of the
Subsidiaries has or may have retained or assumed either contractually
or by operation of law.
(iii) To the knowledge of the Company, there are no past or
present actions or activities by the Company or any Subsidiary
including the storage, treatment, release, emission, discharge,
disposal or arrangement for disposal of any Hazardous Materials, that
could reasonably form the basis of any Environmental Claim against the
Company or any of the Subsidiaries or against any person or entity
whose liability for any Environmental Claim the Company or any
Subsidiary may have retained or assumed either contractually or by
operation of law.
(iv) As used herein, these terms shall have the following
meanings:
(A) "Environmental Claim" means any and all
administrative, regulatory or judicial actions, suits,
demands, demand letters, directives, claims, liens,
investigations, proceedings or notices of noncompliance or
violation (written or oral) by any person or governmental
authority alleging potential liability arising out of based on
or resulting from the presence, or release or threatened
release into the environment, of any Hazardous Materials at
any location owned or leased by the Company or any Subsidiary
or other circumstances forming the basis of any violation or
alleged violation of any Environmental Law.
(B) "Environmental Laws" means all applicable
foreign, federal, state and local laws (including the common
law), rules, requirements and regulations relating to
pollution, the environment (including, without limitation,
ambient air, surface water, groundwater, land surface or
subsurface strata) or protection of human health as it relates
to the environment including, without limitation, laws and
regulations relating to releases of Hazardous Materials, or
otherwise relating to the manufacture, processing,
distribution, use, treatment, storage, disposal, transport or
handling of Hazardous Materials or relating to management of
asbestos in buildings.
(C) "Hazardous Materials" means wastes, substances,
or materials (whether solids, liquids or gases) that are
deemed hazardous, toxic, pollutants, or contaminants,
including without limitation, substances defined as "hazardous
substances", "toxic substances", "radioactive materials", or
other similar designations in, or otherwise subject to
regulation under, any Environmental Laws.
<PAGE> 15
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(x) At the Initial Closing, the Company will deliver to the Trustees
under each of the indentures with respect to the Company's Existing Notes (as
such term is defined in the Certificate of Designation): (i) a resolution of the
Company's Board of Directors certifying that (A) the transactions contemplated
by this Agreement and the other Transaction Documents are on terms no less
favorable to the Company than those that would have been obtained in a
comparable arms-length transaction by the Company with a person or entity that
is not an Affiliate (as such term is defined in the respective Indentures), and
(B) the transactions contemplated by this Agreement have been unanimously
approved by the Independent Directors (as such term is defined in the respective
Indentures) on the Company's Board of Directors, who have determined that such
transactions are in the best interests of the Company, (ii) opinions of Houlihan
Lokey Howard & Zukin that such transactions are fair to the Company from a
financial point of view, and (iii) copies of the officers' certificates
delivered to the Trustees to the effect that such opinions comply with the
Indentures, all of the foregoing in conformity with the requirements of the
Indentures. None of such resolutions, opinions or certificates has been
withdrawn or modified in any material respect.
(y) Except for (i) commitment fees paid to the Purchaser and to
Greenwich and Honeywell, if any, and (ii) payment of commissions to Marvin
Saffian pursuant to the terms of the Consulting Agreement, dated October 19,
1994, between Marvin Saffian and the Company (which is the Company's
obligation), no broker, finder or investment banker is entitled to any
brokerage, finder's or other fee or commission in connection with the
transactions contemplated by this Agreement or the other Transaction Documents
based upon arrangement made by or on behalf of the Company.
Any certificate signed by any officer of the Company or any Subsidiary
and delivered to the Purchaser or to counsel for the Purchaser shall be deemed a
representation and warranty by the Company and each of its Subsidiaries to the
Purchaser as to the matters covered thereby.
No representation or warranty of the Company contained herein shall be
affected by any knowledge of or attributable to any employee or other
representative of the Purchaser including without limitation any present or
former representative on or observer to the Company's or its Subsidiaries'
boards of directors who is an employee, designee, or affiliate of the Purchaser.
<PAGE> 16
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3. Purchase, Sale and Delivery of the Securities.
(a) Subject to the terms and conditions of this Agreement, (i) at the
Initial Closing, subject to possible reduction in the number of Securities to be
purchased by the Purchaser at the Initial Closing in accordance with Section
3(d) below, the Purchaser shall purchase and the Company shall sell and issue to
the Purchaser (A) all of the Warrants and (B) that number of shares of Preferred
Stock (the "Initial Preferred Stock") as would result (if the shares of
Preferred Stock included in the Initial Preferred Stock were then converted) in
the issuance of shares of Common Stock equal to 19.9% of the shares of Common
Stock of the Company outstanding immediately prior to the Initial Closing and
(ii) at the Final Closing (hereinafter defined) the Purchaser shall purchase and
the Company shall sell and issue to the Purchaser that number of shares of
Preferred Stock (the "Remaining Preferred Stock") equal to the difference
between (x) 100,000 and (y) the number of shares of Initial Preferred Stock sold
and issued to the Purchaser at the Initial Closing. The Company shall deliver to
the Purchaser at the Initial Closing a schedule, certified by the Company's
Chief Financial Officer, setting forth in such reasonable detail as may be
requested by the Purchaser, the calculations called for by this Section 3(a).
(b) The purchase and sale of the Warrants and the Initial Preferred
Stock shall take place at the offices of Proskauer Rose LLP, 1585 Broadway, New
York, New York 10036, within two (2) days following the satisfaction of the
conditions set forth in this Agreement required to be satisfied prior to the
consummation of the purchase and sale of the Warrants and the Initial Preferred
Stock hereunder, but in no event later than March 6, 2000, or at such other time
and place as the Company and the Purchaser mutually agree upon in writing (which
time and place are designated as the "Initial Closing"). At the Initial Closing,
the Company shall deliver to the Purchaser one or more certificates representing
the Initial Preferred Stock being sold and issued, and an executed Warrant
representing all of the Warrants, in such denomination or denominations and
registered in such name or names as the Purchaser shall request upon notice to
the Company against payment by or on behalf of the Purchaser of the purchase
price therefor by wire transfer, payable to or upon the order of the Company in
immediately available funds.
(c) The purchase and sale of the Remaining Preferred Stock shall take
place at the offices of Proskauer Rose LLP, 1585 Broadway, New York, New York
10036, within two (2) days following the satisfaction of the conditions set
forth in this Agreement required to be satisfied prior to consummation of the
purchase and sale of the Remaining Preferred Stock, but in no event later than
100 days following the Initial Closing, or at such other time and place as the
Company and the Purchaser mutually agree upon orally or in writing (which time
and place are designated as the "Final Closing"). At the Final Closing, the
Company shall deliver to the Purchaser one or more certificates representing the
Remaining Preferred Stock being sold and
<PAGE> 17
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issued, in such denomination or denominations and registered in such name or
names as the Purchaser shall request upon notice to the Company, against payment
by or on behalf of the Purchaser of the purchase price therefor by wire
transfer, payable to or upon the order of the Company in immediately available
funds.
(d) In the event that Greenwich Street Capital Partners II, L.P. or any
affiliate fund thereof ("Greenwich") and The Honeywell International Inc. Master
Retirement Trust or any affiliate thereof ("Honeywell"), agree to purchase
Securities at the Initial Closing, then (i) the full number of Warrants provided
under Section 3(a)(i) above to be issued and sold by the Company to the
Purchaser at the Initial Closing shall be issued and sold to the Purchaser at
the Initial Closing; and (ii) the number of shares of Initial Preferred Stock
provided under Section 3(a)(i) above to be issued and sold by the Company to the
Purchaser at the Initial Closing shall be allocated 57.14285% to the Purchaser,
14.28572% to Greenwich and 28.57143% to Honeywell. (In the event that only one
of Greenwich and Honeywell enters into such an agreement, the number of shares
of Initial Preferred Stock shall be appropriately prorated between the Purchaser
and Greenwich or Honeywell, as the case may be.)
(e) Notwithstanding anything to the contrary elsewhere in this
Agreement, in the event that the per share closing price of the Common Stock on
the day immediately preceding the Initial Closing is less than $6.27, then (A)
notwithstanding anything to the contrary contained herein (including without
limitation Section 6(c)(i) below), no Stockholder Approval shall be required in
connection with the transactions contemplated by this Agreement and (B) the
Final Closing shall occur as soon as reasonably practicable after the Initial
Closing.
The Initial Closing and the Final Closing are sometimes referred to
collectively in this Agreement as the "Closings" and each as a "Closing".
4. Covenants of the Company. The Company covenants and agrees
with the Purchaser (and in the case of the last sentence of Section 4(f), the
Purchaser agrees) that:
(a) The Company will cooperate at its expense with the Purchaser in
arranging for the qualification of the Securities and the Additional Securities
for offering and sale under the securities or "Blue Sky" laws of such
jurisdictions as the Purchaser may designate and will continue such U.S.
qualifications in effect for as long as may be necessary to complete the resale
of the Securities and the Additional Securities by the Purchaser; provided,
however, that in connection therewith the Company shall not be required to
qualify as a foreign corporation or to execute a general consent to service of
process in any jurisdiction or subject the Company to any tax in any such
jurisdiction where it is not then so subject. The Company will cooperate with
the Purchaser to (i) if requested, permit the Warrants and the Change
<PAGE> 18
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in Control Warrants, to the extent eligible for resale pursuant to Rule 144A, to
be designated PORTAL securities in accordance with the rules and regulations
adopted by the NASD relating to trading in the Private Offerings, Resales and
Trading through Automated Linkages Market (the "PORTAL Market"), (ii) if
requested, permit the Securities upon issuance and registration under the
Securities Act to be eligible for clearance and settlement through The
Depository Trust Company and (iii) permit the Additional Securities upon
issuance and registration under the Securities Act to be listed for quotation
through the Nasdaq National Market or listed on any national securities exchange
on which the Company's Common Stock is then listed.
(b) Approximately two-thirds of the aggregate net proceeds from the
issuance and sale of the Units will be used by the Company for general corporate
purposes; the remaining one-third of the aggregate net proceeds will be
contributed by the Company to its subsidiary, ACSI Network Technologies, Inc.,
for its general corporate purposes.
(c) From time to time, and as soon as reasonably practicable upon
demand, the Company will provide to the Purchaser such additional information
regarding results of operations, financial condition, business or prospects of
the Company or the Subsidiaries, including without limitation, cash flow
analyses, financial statements, budgets, business plans, projections and other
financial information and minutes of any meetings of the Board of Directors of
the Company or the Subsidiaries, as may be reasonably requested by the
Purchaser. The Company shall also afford to the Purchaser (and its
representatives) access, at reasonable times and on reasonable prior notice, to
the books, records and properties of the Company and the Subsidiaries, and shall
permit the Purchaser (and its representatives) to make copies of such books and
records and also shall afford such access to meet and consult with management
and the advisors of the Company and its Subsidiaries with respect to the
business of the Company and its Subsidiaries.
(d) Neither the Company nor any of its Affiliates (provided that the
Purchaser shall be excluded from the Company's obligations under this Section
4(d)) will sell, offer for sale or solicit offers to buy or otherwise negotiate
in respect of any "security" (as defined in the Securities Act) that could be
integrated with the sale of the Securities or the Additional Securities in a
manner that would require the registration under the Securities Act of the
Securities or the Additional Securities.
(e) The Company will not, and will not permit any of the Subsidiaries
to, engage in any form of general solicitation or general advertising (as those
terms are used in Regulation D under the Securities Act) in connection with the
offering of the Securities or the Additional Securities or in any manner
involving a public offering within the meaning of Section 4(2) of the Securities
Act.
<PAGE> 19
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(f) The Company will take all action necessary in accordance with
applicable law and its Certificate of Incorporation and By-laws to convene a
special meeting of its stockholders as promptly as practicable to obtain the
Stockholder Approval. The Board of Directors of the Company shall, subject to
its fiduciary duties, recommend such approval to the stockholders of the Company
and the Company shall take all lawful actions and use its best efforts to
solicit and obtain such approval. The Company and the Purchaser hereby
acknowledge and agree that neither any Conversion Shares nor any Warrant Shares
may be voted at such meeting or otherwise to obtain Stockholder Approval.
(g) As soon as practicable (but not later than March 7, 2000), the
Company shall file a proxy statement in preliminary form with the Commission in
connection with the special meeting of the Company's stockholders to consider
and vote upon the Stockholder Approval. Such proxy statement (or the proxy
statement for the next annual meeting of stockholders) shall include a proposal
seeking stockholder approval of an increase in the authorized Common Stock of
the Company for the reservation for issuance of a sufficient number of shares of
Common Stock issuable upon conversion, exercise or payment of dividends with
respect to the Securities. The Company shall make drafts of the proxy statement
available to the Purchaser for its review reasonably in advance of filing. The
Purchaser agrees to reasonably cooperate with the Company in the preparation of
the proxy statement. The definitive proxy statement ("Proxy Statement") for the
stockholders meeting shall be mailed to stockholders as soon as practicable. The
Company shall cause the Proxy Statement to comply in all material respects with
the requirements of the Exchange Act, and the applicable rules and regulations
thereunder, and to contain no untrue statement of any material fact or omit to
state any material fact required to be stated therein or necessary to make the
statements therein, in light of the circumstances in which they were made, not
misleading.
(h) At all times prior to the earlier to occur of the Final Closing or
termination of this Agreement (including any termination of this Agreement with
respect to the Remaining Preferred Stock) pursuant to Section 10(a)(iv)), the
Company will amend or supplement each SEC Report to the extent required to
correct any untrue statement of a material fact contained therein or any
omission of a material fact required to be stated therein to make the statements
in such SEC Report, in light of the circumstances under which they were made,
not misleading. From and after the date of this Agreement and at all times prior
to the earlier to occur of the Final Closing or termination of this Agreement
(including any termination of this Agreement with respect to the Remaining
Preferred Stock pursuant to 10(a)(iv)), the Company shall timely file with the
Commission true, accurate and complete copies of all reports, schedules, forms,
statements and other documents required to be filed by the Company ("Required
Filings"). All of such Required Filings shall comply in all material respects
with the requirements of the Securities Act, or the Exchange Act, as
<PAGE> 20
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the case may be, and the rules and regulations of the Commission promulgated
thereunder applicable to the Required Filings.
(i) The Company hereby covenants and agrees that, prior to the earlier
to occur of the Final Closing or the termination of this Agreement, unless
otherwise expressly contemplated by this Agreement or consented to beforehand in
writing by The Huff Alternative Income Fund, L.P., the Company shall, and shall
cause each Subsidiary to, operate its business only in the usual and ordinary
course consistent with past practices.
(j) The Company hereby covenants and agrees that, prior to the Initial
Closing it shall file or cause to be filed with the Secretary of State of
Delaware the Certificate of Designation.
(k) The Company hereby covenants and agrees that, prior to the earlier
to occur of the Final Closing or termination of this Agreement, unless consented
to in writing beforehand by The Huff Alternative Income Fund, L.P., and except
for pay-in-kind dividends in respect of the 14.75% Preferred Stock and the
12.75% Preferred Stock, the Company will not issue or take any action to issue
any capital stock or securities convertible into or exercisable for any capital
stock having rights, privileges or preferences, including, without limitation,
with respect to the payment of dividends or payment upon liquidation of the
Company (bankruptcy or otherwise), that are on a par or senior to any payment on
the Preferred Stock in any respect, or that are redeemable for cash, or that
provide for the payment of dividends in cash ahead of any payment on the
Preferred Stock, whether at the option or right of the holder or the Company or
its affiliates, unless expressly consented to beforehand in writing by the
Purchaser.
(l) The Company shall timely file any and all statements or reports
required to be filed by it with the Commission under and in accordance with the
Securities Act and the Exchange Act.
(m) As soon as practicable after the Purchaser's request therefor, the
Company shall (at its sole expense) file any notices, requests, registrations or
approvals required to be filed with the Federal Communications Commission or any
applicable state regulatory agency or commission in connection with the sale of
the Securities and the Additional Securities under the Purchase Agreements and
the sale of any Subsequent Securities and shall use its reasonable best efforts
to cause such notices, requests, registrations or approvals to be processed
successfully or approved, as the case may be.
(n) As soon as practicable after the Purchaser's request therefor, the
Company shall (at its sole expense) file any notifications under the HSR Act as
may
<PAGE> 21
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be required as a result of the conversion or exercise of the Securities and
shall use its reasonable best efforts and shall cooperate with Purchaser to
cause the early termination or expiration of the waiting period for any such
notifications.
(o) The Company shall comply with all of its obligations in respect of
the MCI Preemptive Right.
5. Expenses. The Company agrees to pay the following costs and
expenses and all other costs and expenses incident to the performance of its
obligations under this Agreement and the other Transaction Documents, whether or
not the transactions contemplated herein or therein are consummated or this
Agreement is terminated pursuant to Section 10 hereof: (i) the reasonable fees
and disbursements of counsel, accountants and any other experts or advisors
retained by the Company and/or the Purchaser, (ii) the preparation (including
printing), issuance and delivery to the Purchaser of certificates evidencing the
Securities and the Additional Securities, including transfer agent's fees, (iii)
the qualification of the Securities and the Additional Securities under state
securities and "Blue Sky" laws, including filing fees and reasonable fees and
disbursements of counsel relating thereto, (iv) the fees and expenses of the
transfer agent and registrar of the Company, including fees and expenses of its
counsel, (v) any fees and expenses incurred by the Purchaser in connection with
any filing required to be made pursuant to the HSR Act, including filing fees
and reasonable fees and disbursements of their respective counsel whenever such
filings are made, (vi) Purchaser's appraisal costs not to exceed $10,000
annually, (vii) all expenses and listing fees incurred in connection with the
application, if requested, for quotation of the Warrants and the Change of
Control Warrants on the PORTAL Market, to the extent eligible for resale under
Rule 144A, and (viii) all other ongoing costs of holding or converting or
exercising the Securities, but excluding ordinary custodial expenses, brokerage
and/or underwriting commissions and taxes. Without limiting the provisions of
this Section 5 above, if the issuance and sale of the Securities provided for
herein are not consummated because any condition to the obligations of the
Purchaser set forth in Section 6 hereof is not satisfied or because of any
failure, refusal or inability on the part of the Company to perform all
obligations and satisfy all conditions on its part to be performed or satisfied
hereunder (other than solely by reason of a default by the Purchaser of its
obligations hereunder after all conditions hereunder have been satisfied in
accordance herewith), the Company will reimburse the Purchaser upon demand for
all reasonable out-of-pocket expenses (including reasonable counsel fees and
disbursements) that shall have been incurred by the Purchaser in connection with
the proposed purchase and sale of the Securities.
<PAGE> 22
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6. Conditions of the Obligations of the Purchaser.
(a) Conditions to the Purchaser's Obligations at Each Closing.
The obligations of the Purchaser with respect to each Closing under
this Agreement are subject to the fulfillment at or before each Closing of each
of the following conditions:
(i) The Purchaser shall have received opinions, dated as of
each Closing, of (i) the opinion of Riley M. Murphy, Esq., General
Counsel for the Company; (ii) the opinion of Kelly Drye & Warren LLP,
special regulatory counsel for the Company, and (iii) the opinion of
Davis Polk & Wardwell, special counsel for the Company, all in form and
substance consistent with the Company's opinions in prior private
placements as may be reasonably agreed upon by the parties.
(ii) The representations and warranties of the Company
contained in this Agreement shall be true and correct when made and
true and correct at each Closing as if made on and as of each Closing
(other than to the extent any such representation or warranty is
expressly made as to a certain date); the Company shall have performed
all covenants and agreements in all material respects and satisfied all
conditions on its part to be performed or satisfied hereunder at or
prior to the Closing; and subsequent to September 30, 1999 no event
shall have occurred which has had, or in the judgment of the Purchaser,
is reasonably likely to have a Material Adverse Effect, other than as
described in the SEC Reports or as disclosed in Schedule 2(e).
(iii) The issuance and sale of the Securities and Change in
Control Warrants pursuant to this Agreement shall not be enjoined
(temporarily or permanently) and no restraining order or other
injunctive order shall have been issued or any action, suit or
proceeding shall have been commenced with respect to this Agreement or
other Transaction Document before any court or Governmental Authority
(including, without limitation, the FCC).
(iv) The Purchaser shall have received certificates, dated as
of each Closing, signed on behalf of the Company by its Chief Operating
Officer and its Chief Financial Officer to the effect that:
(A) The representations and warranties of the Company
in this Agreement were true and correct when made and true and
correct at each Closing as if made on and as of each Closing
(other than to the extent any such representation or warranty
is expressly made as to a
<PAGE> 23
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certain date), and the Company has performed all covenants and
agreements in all material respects and satisfied all
conditions on its part to be performed or satisfied hereunder
at or prior to the Closing;
(B) Subsequent to September 30, 1999, no event has
occurred that has had, or is reasonably likely to have, a
Material Adverse Effect, other than as described in the SEC
Reports or as disclosed in Schedule 2(e);
(C) The issuance and sale of the Securities and the
Change in Control Warrants hereunder by the Company has not
been enjoined (temporarily or permanently);
(D) As at December 31, 1999 (and after giving effect
to all financial results, events and other circumstances
through the close of business on such date), the Company and
e.spire Finance Corporation were in compliance with each of
the covenants and obligations of the Company and e.spire
Finance Corporation set forth in Sections 6.5 and 6.6 of the
Credit Agreement.
(v) All authorizations, approvals or permits, if any, of any
Governmental Authority that are required in connection with the lawful
issuance and sale of the Securities or the Change in Control Warrants
pursuant to this Agreement or (subject to the matters set forth in
Section 2 (e) and (z) above) the Additional Securities pursuant to the
terms thereof shall have been duly obtained.
(vi) Other than the Stockholder Approval in the case of the
Final Closing and other than any notification under the HSR Act and any
consent of the FCC or any State Telecommunications Authority that may
be required as a result of the conversion or exercise of the
Securities, all consents and waivers, if any, of third parties that are
required in connection with such Closing under this Agreement and the
consummation of the transactions contemplated hereby, shall be duly
obtained and effective as of the Closing.
(vii) All corporate and other proceedings required in
connection with the transactions contemplated at such Closing and all
documents incident thereto shall be satisfactory in form and substance
to the Purchaser and its counsel and the Purchaser and such counsel
shall have received such counterpart originals and certified or other
copies of such documents as they may reasonably request.
<PAGE> 24
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(viii) On or before the Closing Date, the Purchaser (and its
counsel) shall have received such further documents, certificates and
schedules or instruments relating to the business, corporate, legal and
financial affairs of the Company as they shall have heretofore
reasonably requested from the Company.
(ix) The Company and the Purchaser shall have entered into the
Registration Rights Agreement and the Warrant Agreement.
(x) The Company shall have received the written confirmation
of NASDAQ, in form and substance satisfactory to the Purchaser and its
counsel, that other than obtaining Stockholder Approval as contemplated
by Section 2(f) above, the Securities, Additional Securities and Change
in Control Warrants may be issued and sold, and the transactions
contemplated by this Agreement and the other Transaction Documents may
be consummated, without breach, violation or contravention of any
NASDAQ Rule ("NASDAQ Approval").
(xi) The Company shall have filed the Certificate of
Designation with the Secretary of State of Delaware and the same shall
have become effective and be in full force and effect.
(xii) Since January 18, 2000, there shall not have been any
material adverse change in the price of the Common Stock.
(xiii) As at December 31, 1999 (and after giving effect to all
financial results, events and other circumstances through the close of
business on such date), the Company and e.spire Finance Corporation
were in compliance with each of the covenants and obligations of the
Company and e.spire Finance Corporation set forth in Sections 6.5 and
6.6 of the Credit Agreement.
(xiv) Either the Purchaser shall have received confirmation
from the Company's independent certified public accountants reasonably
satisfactory to the Purchaser that no "going concern" or similar
exception will be taken in connection with the Company's financial
statements for the year ended December 31, 1999, or the Purchaser shall
have received a waiver reasonably acceptable to it from the lenders
under the Credit Agreement of any default under the Credit Agreement
relating to such "going concern" or similar exception.
<PAGE> 25
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(b) Additional Conditions to the Purchaser's Obligation at the Initial
Closing.
<PAGE> 26
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In addition to the conditions set forth in Section 6(a) above,
the obligations of the Purchaser to the Company under this Agreement are subject
to the fulfillment on or before the Initial Closing of the following additional
conditions:
(i) Approval of Budget. The Company shall have prepared and
submitted to the Purchaser its final budget for the fiscal year ended
December 31, 2000 and the Purchaser shall have approved such budget
(together with any updates or revisions thereof) or shall have waived
in writing such approval.
(ii) Issuance of Warrants. The Warrants (and if a Change in
Control shall have occurred, the Change in Control Warrants) shall have
been issued at the Initial Closing.
(iii) Issuance of Stock Certificates. The certificates
representing the shares of Initial Preferred Stock shall have been
executed and delivered by the Company to the Purchaser at the Initial
Closing.
(iv) Completion of Capital Calls by Purchaser. The Purchaser
shall have received the funds necessary to pay the purchase price for
the Warrants and Initial Preferred Stock being purchased by the
Purchaser at the Initial Closing in accordance with the capital call
procedures applicable to the Purchaser under the Purchaser's capital
call instruments, but in no event later than five business days after
the Purchaser receives written notice from the Company that all
conditions to Closing set forth under Sections 6(a) and (c) hereof have
been satisfied.
(c) Additional Conditions to the Purchaser's Obligations at the Final
Closing
In addition to the conditions set forth in Section 6(a) above,
the obligations of the Purchaser to the Company under this Agreement are subject
to the fulfillment on or before the Final Closing of the following additional
conditions:
(i) Stockholder Approval. The Company shall have obtained the
Stockholder Approval.
(ii) Issuance of any Change in Control Warrants. If a Change
in Control shall have occurred, the Change in Control Warrants shall
have been issued.
(iii) Issuance of Stock Certificates. The certificates
representing the Remaining Preferred Stock shall have been executed and
delivered by the Company to the Purchaser at the Final Closing.
<PAGE> 27
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(iv) Completion of Capital Calls by the Purchaser. The
Purchaser shall have received the funds necessary to pay the purchase
price for the Remaining Preferred Stock being purchased by the
Purchaser at the Final Closing in accordance with the capital call
procedures applicable to the Purchaser under the Purchaser's capital
call instruments but in no event later than five business days after
the Purchaser receives written notice from the Company that all
conditions to Closing set forth under Sections 6(a) and (b) hereof have
been satisfied.
(d) Failure of Certain Conditions To Be Met.
(i) If on the trading day immediately preceding the Initial
Closing the closing price of the Common Stock as reported in the New
York edition of the Wall Street Journal is less than $6.26145 per share
(subject to appropriate adjustment for stock dividends, stock splits
and similar events) (a "Stock Decline"), then in such event the
exercise price of all Warrants (including, without limitation, the
Change in Control Warrants) shall be reset to equal $7.25 per share
(subject to adjustment in accordance with the provisions of the Warrant
Agreement in connection with events other than the Stock Decline).
(ii) In the event that there shall be a Change in Control of
the Company, then the Purchaser shall receive simultaneously with the
occurrence of the Change in Control or as soon thereafter as shall be
practicable 25,000 additional Warrants (the "Change in Control
Warrants"), each of which Change in Control Warrants being exercisable
for the same number of shares of Common Stock and at the same exercise
price as are than in effect under the Warrants (or, if no Warrants are
then outstanding, as would have been in effect had Warrants then been
outstanding) and otherwise having the same terms and subject to the
same conditions as the Warrants. As used herein, the term "Change in
Control" means (A) the sale, conveyance, transfer or lease of all or
substantially all of the assets of the Company (which, for purposes of
this sentence, shall include any successor to the Company) to any
"person" or "group" (within the meaning of Section 13(d)(3) and
14(d)(2) of the Exchange Act or any successor provision to either of
the foregoing, including any group acting for the purpose of acquiring,
holding or disposing of securities within the meaning of Rule
13d-5(b)(i) under the Exchange Act), other than to the Purchaser, 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
(including any affiliate of any of the foregoing other than the Company
or any Restricted Subsidiary of the Company (as defined in the
Indenture, dated July 24, 1998 with respect to the Company's 10.625%
Senior Discount Notes Due July 1, 2008)) (the "Permitted Holders")
shall have
<PAGE> 28
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occurred; or (B) any "person" or "group" (within the meaning of
Sections 13(d)(3) and 14(d)(2) of the Exchange Act or any successor
provision to either of the foregoing, including any group acting for
the purpose of acquiring, holding or disposing of securities within the
meaning of Rule 13d-5(b)(i) under the Exchange Act), other than any
Permitted Holder, becomes the "beneficial owner" (as defined under the
Exchange Act) of more than 35 percent of the total voting power of all
classes of the voting capital stock of the Company (including any
warrants, options or rights to acquire such voting capital stock),
calculated on fully diluted basis, and such voting power percentage is
greater than or equal to the total voting power percentage then
beneficially owned by the Permitted Holders in the aggregate; or (C)
during any period of two consecutive years, individuals who at the
beginning of such period constituted the Board of Directors of the
Company (together with any new directors whose election or appointment
by such board or whose nomination for election by the stockholders of
the Company was approved by a vote a majority of the directors then
still in office who were either directors at the beginning of such
period or whose election or nomination for election was previously so
approved) cease for any reason to constitute a majority of the Board of
Directors then in office. Notwithstanding anything to the contrary
herein or in any other Transaction Document, the parties hereby agree
that the provisions of this Section 6(e) (and any other provisions
hereof or any other Transaction Document relating to the Change in
Control Warrants or any Additional Securities issuable in connection
therewith) may be amended by the Company and the holders of a majority
of the outstanding shares of Preferred Stock (including any shares of
Preferred Stock issued to Purchaser hereunder, to Greenwich, to
Honeywell and to any Additional Purchasers (hereinafter defined) (the
"Majority Holders"), and any waiver relating to such change in Control
Warrants and/or Additional Securities may be given on behalf of the
Purchaser by such Majority Holders; provided, however, that any such
amendment or waiver treats all holders of Preferred Stock in the same
fashion.
7. Restrictions on Transfer. The Purchaser hereby represents
and warrants to the Company that:
(a) The Securities to be purchased by the Purchaser will be acquired
for investment for its own account, and, except as contemplated by the Warrant
Agreement and the Registration Rights Agreement or otherwise in accordance with
applicable securities laws, not with a view to the resale or distribution of any
part thereof and without the present intention of selling, granting any
participation in, or otherwise distributing the same.
<PAGE> 29
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(b) The Purchaser is an "accredited investor" within the meaning of
Rule 501(a) under the Securities Act and can bear the economic risk of its
investment and has such knowledge and experience in financial or business
matters that it is capable of evaluating the merits and risks of the investment
in the Securities and has received all information from the Company that it has
requested with respect to the Company and the Securities.
(c) The Purchaser understands that the Securities it is purchasing are
characterized as "restricted securities" under the federal securities laws
inasmuch as they are being acquired from the Company in a transaction not
involving a public offering and that under such laws and applicable regulations
such securities may be resold without registration under the Securities Act,
only in certain limited circumstances. In this connection, the Purchaser
represents that it is familiar with Rule 144 of the Commission, as presently in
effect, and understands the resale limitations imposed hereby by the Securities
Act.
(d) The Purchaser understands that the certificates evidencing the
Securities will bear a legend evidencing the foregoing restrictions on transfer.
The Securities shall not be required to bear a restrictive legend if a
registration statement under the Securities Act is effective with respect to the
transfer of such securities or an opinion of counsel reasonably satisfactory to
the Company is delivered to the Company to the effect that neither the legend
nor the restrictions on transfer described in this Agreement are required to
ensure compliance with the Securities Act. Whenever, pursuant to the preceding
sentence, any certificate for any of the Securities is no longer required to
bear a restrictive legend, the Company may and if requested by the holder
thereof, shall, issue to the holder, at the Company's expense any new
certificate not bearing a restrictive legend.
8. Indemnification. (a) The Company agrees to indemnify the
Purchaser, each of its affiliates and each officer, director, employee, member,
partner (whether general or limited) and agent of the Purchaser and of each of
its affiliates (the "Indemnified Parties") for, and to hold each Indemnified
Party harmless from and against any and all damages, losses, claims and other
liabilities of any and every kind, including, without limitation, judgments and
costs of settlement (or actions or other proceedings commenced or threatened in
respect thereof) and reasonable expenses that arise out of, result from or in
any way relate to this Agreement or any other Transaction Document, or in
connection with any of the transactions contemplated hereby or thereby,
including, without limitation, in connection with the preparation, filing with
the Commission and mailing to the Company's stockholders of the proxy statement
for the Stockholder Approval and any other proxy statement for the increase in
the authorized Common Stock referred to in Section 4(g) (other than ordinary
investment losses to the extent not arising in connection with (A) any actual
<PAGE> 30
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or alleged misrepresentation or breach of covenant, warranty duty or obligation
by the Company or (B) any actual or threatened action or proceeding arising out
of, resulting from or in any way relating to this Agreement or any other
Transaction Document, or any of the transactions contemplated hereby or
thereby), and to reimburse each Indemnified Party, upon its demand, for any
reasonable legal or other expenses incurred in connection with investigating,
defending or participating in any such loss, claim, damage, liability or action
or other proceeding (whether or not such person is a party to any action or
proceeding out of which such expenses arise). The Indemnified Parties shall have
the right to select counsel, subject to the prior consent of the Company, which
consent shall not be unreasonably withheld or delayed, to defend the Indemnified
Parties at the Company's expense in any action or proceeding that is the subject
of indemnification hereunder, provided, that the Company shall not be liable for
the fees and expenses of more than one counsel (plus any local counsel) for all
Indemnified Parties (unless any Indemnified Party shall have reasonably
determined that an actual or potential conflict of interest makes such common
representation inappropriate) in connection with any such action or proceeding.
The Company will not be required to indemnify any Indemnified Party for any
amount paid in settlement of any action or proceeding which is the subject of
indemnification hereunder unless the Company shall have consented in writing to
such settlement, such consent not to be unreasonably withheld or delayed. The
Company shall not, without the prior consent of the Indemnified Party, effect
any settlement or compromise of any pending or threatened proceeding in respect
of which any Indemnified Party is or could have been a party, or indemnity could
have been sought hereunder by such Indemnified Party, unless such settlement (A)
includes an unconditional written release of such Indemnified Party, in form and
substance reasonably satisfactory to such Indemnified Party, from all liability
on claims that are the subject matter of such proceeding and (B) does not
include any statement as to an admission of fault, culpability or failure to act
by or on behalf of any Indemnified Party.
(b) If the indemnification provided for in Section 8(a) above is for
any reason unavailable to, or insufficient to hold harmless, an Indemnified
Party in respect of any losses, claims, damages or liabilities referred to
therein, then the Company, in lieu of indemnifying such Indemnified Party
thereunder and in order to provide for just and equitable contribution, shall
contribute to the amount paid or payable by such Indemnified Party as a result
of such losses, claims, damages or liabilities in such proportion as is
appropriate to reflect (i) the relative benefits received by the Indemnified
Party or Parties on the one hand and the Company on the other from the offering
of the Units or the Change in Control Warrants or (ii) if the allocation
provided by the foregoing clause (i) is not permitted by applicable law, not
only such relative benefits but also the relative fault of the Company on the
one hand and the Indemnified Party or Parties on the other in connection with
any statements or omissions or alleged statements or omissions or other matters
that resulted in
<PAGE> 31
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such losses, claims, damages or liabilities (or actions in respect thereof) as
well as any other relevant equitable considerations. The relative fault of the
parties shall be determined by reference to, among other things, whether any
untrue or alleged untrue statement of a material fact or the omission or alleged
omission to state a material fact relates to information supplied by the Company
on the one hand or such Indemnified Party, on the other, the parties' relative
intent, knowledge, access to information and opportunity to correct or prevent
such statement or omission, and any other equitable considerations appropriate
in the circumstances.
(c) The parties agree that it would not be just and equitable if
contribution pursuant to this Section 8 were determined by pro rata allocation
(even if the Indemnified Parties were treated as one entity for such purpose) or
by any other method of allocation that does not take account of the equitable
considerations referred to in Section 8(b) above. The amount paid or payable by
the Company as a result of the losses, claims, damages and liabilities referred
to in Section 8(b) above shall be deemed to include, subject to the limitations
set forth above, any reasonable legal or other expenses actually incurred by
such Indemnified Party in connection with investigating or defending any such
action or claim.
9. Survival Clause. The respective representations,
warranties, agreements, covenants, indemnities and other statements of the
Company or its officers and of the Purchaser set forth in this Agreement or made
by or on behalf of them, respectively, pursuant to this Agreement shall remain
in full force and effect, regardless of (i) any investigation made by or on
behalf of the Company or the Purchaser and (ii) delivery of and payment for the
Securities. The respective agreements, covenants, indemnities and other
statements set forth in Sections 5 and 8 hereof shall remain in full force and
effect, regardless of any termination or cancellation of this Agreement.
10. Termination.
(a) This Agreement may be terminated prior to the Initial Closing or
the Final Closing, as the case may be, under the following circumstances and by
the following persons:
(i) by the Purchaser, if subsequent to September 30, 1999, any
event shall have occurred which, in the sole judgment of the Purchaser,
has had, individually or in the aggregate, a Material Adverse Effect,
or there shall have been, in the sole judgment of the Purchaser, any
events or developments that, individually or in the aggregate, have or
could be reasonably likely to have a Material Adverse Effect (except
for the events disclosed in the SEC Reports or in Schedule 2(e));
<PAGE> 32
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(ii) by the mutual consent of the Purchaser and the Company;
(iii) by the Purchaser at any time after March 6, 2000 or such
later date as shall have been agreed to in writing by the parties
hereto, if at the time notice of such termination is given, the Initial
Closing shall not have been consummated;
(iv) solely with respect to the Remaining Preferred Stock, by
the Purchaser at any time after the expiration of 100 days following
the Initial Closing (or such later date as shall have been agreed to in
writing by the parties hereto), if at the time notice of such
termination is given the Final Closing shall not have been consummated;
(v) by the Purchaser or the Company if any court of competent
jurisdiction in the United States or other United States Governmental
Authority has issued an order, decree or ruling or taken any other
action restraining, enjoining or otherwise prohibiting the transactions
contemplated by this Agreement or the other Transaction Documents and
such order, decree, ruling or other action shall have become final and
nonappealable provided, that the provisions of this clause (v) shall
not be available to any party whose failure to fulfill its obligations
pursuant to this Agreement shall have been the cause of, or shall have
resulted in, such order, decree, ruling or other action;
(vi) by the Purchaser, if there has been a material
misrepresentation or omission or material breach on the part of the
Company in any of the representations, warranties, covenants or
agreements of the Company set forth herein or in any other Transaction
Document, or if there has been any material failure on the part of the
Company to comply with its obligations and satisfy all conditions on
its part to be performed or satisfied hereunder at or prior to Closing
including, without limitation, and solely with respect to the Final
Closing, obtaining the Stockholder Approval within 100 days after the
Initial Closing (unless not required as provided in Section 3(e));
(vii) by the Purchaser, if there has been a suspension in
trading in securities of the Company or in securities generally on the
New York Stock Exchange, American Stock Exchange or The Nasdaq Stock
Market or if minimum or maximum prices shall have been established on
any such exchange or market;
(viii) by the Purchaser, if a banking moratorium shall have
been declared by New York or United States authorities;
<PAGE> 33
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(ix) by the Purchaser, if there has been (A) an outbreak or
escalation of hostilities between the United States and any foreign
power, or (B) an outbreak or escalation of any other insurrection or
armed conflict involving the United States or any other national or
international calamity or emergency, or (C) any material adverse change
in (1) the capital markets generally, (2) the capital markets for
equity securities or (3) the capital markets for telecommunication
company equity securities which, in the case of (A), (B) or (C) above
and in the sole judgment of the Purchaser, makes it impracticable or
inadvisable to proceed with the purchase and sale of the Securities as
contemplated by this Agreement; or
(x) by the Purchaser, if third parties, the approvals of which
are necessary to consummate the transactions contemplated hereby or by
the other Transaction Documents, require changes to the terms of this
Agreement or any other Transaction Document that are adverse to the
Purchaser, as determined by the Purchaser in its sole judgment.
(b) Termination of this Agreement pursuant to this Section 10 shall be
without liability of any party to any other party except as provided in Sections
5, 8 and 9.
11. Notices. All communications hereunder shall be in writing
and, if sent to the Purchaser, shall be mailed or delivered or telecopied and
confirmed in writing to the Purchaser at 1776 On The Green, 67 Park Place,
Morristown, NJ 07960, Attention: Joseph R. Thornton, Telecopier Number (973)
984-5818, with a copy to Proskauer Rose LLP, 1585 Broadway, New York, New York
10036, Attention: Peter G. Samuels, Telecopier Number (212) 969-2900; if sent to
the Company, shall be mailed or delivered or telecopied and confirmed in writing
to the Company at 12975 Worldgate Drive, Herndon, Virginia 21070, Attention:
General Counsel, Telecopier Number (703) 639-6011; with a copy to Davis Polk &
Wardwell, Attention: Richard Drucker, 450 Lexington Avenue, New York, New York
10017, Telecopier Number (212) 474-3700.
All such notices and communications shall be deemed to have been duly
given: when delivered by hand, if personally delivered; five business days after
being deposited in the mail, postage prepaid, if mailed; and one business day
after being timely delivered to a next-day air courier; and when receipt is
acknowledged by the addressee, if telecopied.
12. Successors. This Agreement shall inure to the benefit of
and be binding upon the parties hereto and their respective successors and legal
representatives, and nothing expressed or mentioned in this Agreement is
intended or shall be construed to give any other person any legal or equitable
right, remedy or
<PAGE> 34
- 34 -
claim under or in respect of this Agreement, or any provisions herein contained;
this Agreement and all conditions and provisions hereof being intended to be and
being for the sole and exclusive benefit of such persons and for the benefit of
no other person except that the indemnities of the Company contained in Section
8 of this Agreement shall also be for the benefit of any Indemnified Party and
any person or persons who control the Purchaser within the meaning of Section 15
of the Securities Act or Section 20 of the Exchange Act.
13. Subsequent Securities. In addition to the issuance and
sale of the Securities hereunder and any purchase of Securities by Greenwich and
Honeywell, the Company shall use reasonable efforts to sell to other investors
(which investors shall exclude the Purchaser) acceptable to the Company's Board
of Directors (the "Additional Investors") up to $75,000,000 of additional
Preferred Stock and Warrants (the "Subsequent Securities"), of which up to
$25,000,000 of such Subsequent Securities shall be on the same terms and
conditions (including initial conversion price and initial warrant exercise
price) as the Preferred Stock and Warrants included in the Securities and up to
$50,000,000 of such Subsequent Securities may, if so determined by the Company's
Board of Directors, be on terms and conditions more favorable to the Company.
Such purchases will occur at the Final Closing (or in the event there is no
Final Closing, at one or more closings on mutually convenient dates, times and
places, no later than 100 days after the Initial Closing). Such purchases shall
be conditioned in addition to the conditions to the Closings set forth above,
upon (i) Stockholder Approval, and (ii) the execution and delivery by the
Additional Purchasers of definitive commitment letters to the Company covering
their investments no later than March 6, 2000 (with a copy to be delivered by
the Company to Purchaser promptly thereafter).
14. Equitable Adjustments. In the event that at any time after
the date hereof and prior to the issuance of any Securities or Change in Control
Warrants there shall occur any event which would trigger antidilution
adjustments in connection with such Securities or Change in Control Warrants had
they been previously issued, the number of shares of Common Stock issuable upon
the conversion or exercise thereof, and the conversion or exercise price
applicable thereto, shall be equitably adjusted to reflect such events.
15. Entire Agreement. This Agreement, together with the
Exhibits and Schedules hereto, the Warrant Agreement and the Registration Rights
Agreement, is intended by the parties as a final and exclusive statement of the
agreement and understanding of the parties hereto in respect of the subject
matter contained herein and therein and any and all prior oral or written
agreements, representations, or warranties, contracts, understandings,
correspondence, conversations and memoranda between the Purchaser on the one
hand and the Company on the other, or between or among any agents,
representatives, parents, subsidiaries, affiliates, predecessors in interest or
successors in interest with respect to the subject matter hereof and thereof are
merged herein and replaced hereby.
16. Counterparts. This Agreement may be executed in two or
more counterparts, each of which shall be deemed an original, but all of which
together shall constitute one and the same instrument.
17. APPLICABLE LAW. THE VALIDITY AND INTERPRETATION OF THIS
AGREEMENT, AND THE TERMS AND CONDITIONS SET FORTH HEREIN, SHALL BE GOVERNED BY
AND CONSTRUED IN ACCORDANCE WITH THE LAWS OF THE STATE OF NEW YORK, WITHOUT
GIVING EFFECT TO ANY PROVISIONS RELATING TO CONFLICTS OF LAW.
<PAGE> 35
- 35 -
If the foregoing correctly sets forth our understanding,
please indicate your acceptance thereof in the space provided below for that
purpose, whereupon this letter shall constitute a binding agreement between the
Company and the Purchaser.
Very truly yours,
e.spire COMMUNICATIONS, INC.
By: /s/ John R. Polchin
-------------------------------------
Name: John R. Polchin
----------------------------------
Title: Interim Chief Financial Officer
----------------------------------
The foregoing Agreement is hereby
confirmed and accepted as of the
date first above written.
THE HUFF ALTERNATIVE INCOME FUND, L.P.
By: /s/ Ed Banks
---------------------------------
Name: Ed Banks
---------------------------
Title: Investment Officer
---------------------------
<PAGE> 1
e.spire COMMUNICATIONS, INC.
UNITS CONSISTING OF
SERIES A CONVERTIBLE PREFERRED STOCK
AND
WARRANTS TO PURCHASE SHARES OF COMMON STOCK
PURCHASE AGREEMENT
March 1, 2000
To: Greenwich Street Capital Partners II, L.P.
GSCP Offshore Fund, L.P.
Greenwich Fund, L.P.
Greenwich Street Employees Fund, L.P.
TRV Executive Fund, L.P.
c/o Greenwich Street Investments II, L.L.C.,
General Partner
388 Greenwich Street
New York, NY 10010
Ladies and Gentlemen:
e.spire COMMUNICATIONS, INC. (the "Company"), a Delaware
corporation, hereby confirms its agreement with 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. (collectively, the
"Purchasers").
1. The Securities. Subject to the terms and conditions herein
contained, the Company hereby agrees to issue and sell to the Purchasers and the
Purchasers jointly and severally hereby agree to purchase from the Company up to
an aggregate of 25,000 Units (hereinafter defined) at a price of $1,000 per Unit
(or $792.29 per share of Preferred Stock (hereinafter defined) and $ 207.71 per
Warrant (hereinafter defined)) for an aggregate purchase price of $25 million.
Each Unit shall consist of one (1) share of Series A Convertible Preferred Stock
of the Company, par value $1.00 per share (collectively, the "Preferred Stock"),
each share of which Preferred Stock is initially convertible into 126.42225
shares of the common stock, par value $.01 per share (the "Common Stock") of the
Company at a conversion price of $7.91 per share, subject to adjustment as
provided in the Transaction Documents (hereinafter defined), and one (1) Warrant
in the form attached as Exhibit A hereto (collectively, the "Warrants," and,
together with the Preferred Stock, the "Units"), each of which Warrants is
initially
<PAGE> 2
exercisable to purchase 44.1 shares (the "Warrant Shares") of the Common Stock
at an exercise price of $9.89 per share, subject to adjustment as provided in
Section 6(d) and as provided in the Warrant Agreement (hereinafter defined). The
Preferred Stock shall upon issuance have the rights and preferences set forth in
the Certificate of Designation ("Certificate of Designation") attached hereto as
Exhibit B. The Units, the Preferred Stock and the Warrants are herein
collectively referred to as the "Securities."
The Securities will be offered and sold to the Purchasers
without being registered under the Securities Act of 1933, as amended (the
"Act"), in reliance upon one or more exemptions therefrom.
Each of the Purchasers and the direct and indirect transferees
of the Securities will be entitled to the benefits of (i) the Registration
Rights Agreement substantially in the form attached hereto as Exhibit C (the
"Registration Rights Agreement"), among the Company, the Purchasers and the
other signatories thereto, which will require the Company, among other things,
to file with the Securities and Exchange Commission (the "Commission") a shelf
registration statement (the "Registration Statement") pursuant to Rule 415 under
the Securities Act relating to the resale of the Preferred Stock and shares of
Common Stock issuable in connection with the conversion thereof (collectively,
the "Conversion Shares" and, together with the Warrant Shares and the Additional
Warrant Shares (hereinafter defined), the "Additional Securities") and to use
its reasonable best efforts to cause such registration statement to be declared
and remain effective in accordance therewith and (ii) the Warrant Agreement
among the Company, the Purchasers and other signatories thereto substantially in
the form attached hereto as Exhibit D (the "Warrant Agreement"), which requires
the Company, among other things, to file with the Commission a shelf
registration statement (the "Warrant Registration Statement") pursuant to Rule
415 under the Securities Act relating to the resale of the Warrants and Warrant
Shares and to use its reasonable best efforts to cause such registration
statement to be declared and remain effective in accordance therewith.
This purchase agreement (the "Agreement"), the Certificate of
Designation, the Warrant Agreement and related Warrants and the Registration
Rights Agreement are herein collectively referred to as the "Transaction
Documents."
2. Representations and Warranties. The Company represents and
warrants to and agrees with each Purchaser that:
(a) Since January 1, 1999 and to the date of this Agreement, the
Company has filed with the Commission: a Proxy Statement on Schedule 14A with
respect to the Company's 1999 Annual Meeting of Stockholders, the Company's
Annual Report on Form 10-K for the year ended December 31, 1998, the Company's
Quarterly Reports on Form 10-Q for the fiscal quarters ended March 31, June 30
and September 30, 1999, respectively, and the Company's Current Reports on Form
8-K dated February 22, 1999, July 8, 1999, October 28, 1999, November 1, 1999,
December 3, 1999 and February 1, 2000 (including all exhibits to any of such
documents) (collectively, the "SEC Reports"),
2
<PAGE> 3
which constitute all reports, schedules, forms, statements and other documents
required to be filed with the Commission during such period by the Company. As
of their respective dates, the SEC Reports complied in all material respects
with the requirements of the Securities Exchange Act of 1934, as amended (the
"Exchange Act"), and the rules and regulations of the Commission promulgated
thereunder applicable to the SEC Reports, and none of the SEC Reports as of such
dates contained any untrue statement of a material fact or omitted to state a
material fact required to be stated therein, in light of the circumstances under
which they were made, not misleading. Except to the extent that any SEC Report
has been revised or superseded by a later filed SEC Report, none of the SEC
Reports contains any untrue statement of a material fact or omits to state any
material fact required to be stated therein or necessary in order to make the
statements therein, in light of the circumstances under which they were made,
not misleading. The consolidated financial statements of the Company included in
the SEC Reports comply as to form in all material respects with applicable
accounting requirements and the published rules and regulations of the
Commission with respect thereto, have been prepared in accordance with generally
accepted accounting principles (except, in the case of unaudited consolidated
quarterly statements, as permitted by Form 10-Q of the Commission) applied on a
consistent basis during the periods involved (except as may be indicated in the
notes thereto) and fairly present in all material respects the consolidated
financial position of the Company and its consolidated subsidiaries as of the
dates thereof and the consolidated results of their operations and cash flows
for the periods then ended (subject, in the case of unaudited quarterly
statements, to normal year-end audit adjustments).
(b) The Company owns all the issued and outstanding capital stock or
other equity interests of each of its direct and indirect subsidiaries (the
"Subsidiaries"). Each of the Company and the Subsidiaries is duly incorporated
or organized, validly existing and in good standing as a corporation or a
limited liability company, as the case may be, under the laws of its
jurisdiction of incorporation or organization, with all requisite corporate or
limited liability company power and authority to own or lease its properties and
conduct its business as now conducted, and as proposed to be conducted as
described in the Company's SEC Reports. Except as described in Schedule 2(b)(i),
each of the Company and the Subsidiaries is duly qualified to do business as a
foreign corporation in good standing in the jurisdiction in which it has its
principal place of business and in all other jurisdictions where the ownership
or leasing of its properties or the conduct of its business requires such
qualification, except where the failure to be so qualified would not, singly or
in the aggregate, have a material adverse effect on the business, condition
(financial or other), assets, nature of assets, liabilities, operations,
prospects or results of operations of the Company and the Subsidiaries, taken as
a whole (any such event, a "Material Adverse Effect"). Except as described in
the SEC Reports, the Company does not own or control, directly or indirectly,
any material interest in any other corporation, association, or other business
entity.
(c) Except as set forth on Schedule 2(c)(i), the Preferred Stock, the
Warrants, the Conversion Shares, the Warrant Shares, the Change in Control
Warrants (hereinafter
3
<PAGE> 4
defined), any shares of Common Stock issuable upon exercise of the Change in
Control Warrants (the "Additional Warrant Shares") and the Certificate of
Designation have been duly authorized by the Company. The Preferred Stock, the
Warrants and the Change in Control Warrants, when issued, sold and delivered in
accordance with the terms hereof and for the consideration expressed herein, and
the Warrant Shares, the Additional Warrant Shares and the Conversion Shares when
issued in accordance with the terms of the Warrants, the Change in Control
Warrants and Preferred Stock, as the case may be, (i) will be duly and validly
issued and, in the case of the Preferred Stock, the Warrant Shares, the
Additional Warrant Shares and the Conversion Shares, fully paid and
nonassessable, (ii) will be free of any pledges, liens, security interests,
claims, rights or other encumbrances of any kind (other than under applicable
federal and state securities laws), (iii) assuming the accuracy of each
Purchaser's representations and warranties in this Agreement, will be issued in
compliance with all applicable federal and state securities laws, and (iv) will
not be issued in violation of any preemptive rights of stockholders. Except as
set forth on Schedule 2(c)(ii), the Preferred Stock, the Warrant Shares, the
Additional Warrant Shares and the Conversion Shares have been duly and validly
reserved for issuance.
(d) The Company has all requisite corporate power and authority to
execute and deliver the Warrant Agreement and the Registration Rights Agreement;
the Warrant Agreement and the Registration Rights Agreement have been duly
authorized by the Company and, when executed and delivered by the Company
(assuming due authorization, execution and delivery by the parties thereto other
than the Company) will constitute valid and legally binding agreements of the
Company, enforceable against the Company in accordance with their terms, except
that (i) the enforcement thereof may be subject to (A) bankruptcy, insolvency,
reorganization, fraudulent conveyance, moratorium or other similar laws now or
hereafter in effect relating to creditors' rights generally, (B) general
principles of equity and the discretion of the court before which any proceeding
therefor may be brought and (C) any rights to indemnity or contribution
thereunder may be limited by federal and state securities laws and public policy
considerations.
(e) The Company has all requisite corporate power and authority to
execute and deliver this Agreement, the Warrants and the Change in Control
Warrants, to issue the Warrant Shares and the Additional Warrant Shares and,
subsequent to the filing of the Certificate of Designation, to issue and deliver
the Preferred Stock and the Conversion Shares, and to consummate the
transactions contemplated hereby. This Agreement and each other Transaction
Document has been duly authorized, and this Agreement has been, and each other
Transaction Document has been or as of the Initial Closing will be, duly
executed and delivered by the Company. No consent, approval, authorization or
order of any foreign or domestic national, state, provincial or local
government, or any instrumentality, subdivision, court or governmental agency or
body thereof, or any arbitral body (each, a "Governmental Authority") having
jurisdiction over the Company or the Subsidiaries or their respective businesses
(including, without limitation, the Federal Communications Commission (the
"FCC")) is required for the performance of
4
<PAGE> 5
this Agreement and the other Transaction Documents by the Company or the
consummation by the Company of the transactions contemplated hereby or thereby,
except for (x) such consents as have been obtained, (y) such consents as may be
required under state securities or "Blue Sky" laws in connection with the
purchase and resale of the Securities and the Additional Securities by the
Purchasers and (z) any notification as may be required under the
Hart-Scott-Rodino Antitrust Improvements Act of 1976, as amended (the "HSR
Act"), or any consent as may be required by the FCC or any state
telecommunications regulatory authorities or commissions ("State
Telecommunications Authorities"), in each such case, as a result of Purchaser's
conversion of Preferred Stock or exercise of Warrants or Additional Warrants.
Neither the Company nor any of the Subsidiaries nor their operations is (i) in
violation of its certificate of incorporation or by-laws (or similar
organizational document), (ii) in violation of any statute, judgment, decree,
order, rule or regulation applicable to the Company or the Subsidiaries, which
violation would, individually or in the aggregate, be reasonably likely to have
a Material Adverse Effect or (iii) other than as disclosed in the Company's SEC
Reports or as otherwise disclosed on Schedule 2(e), in default in the
performance or observance of any obligation, agreement, covenant or condition
contained in any indenture, mortgage, deed of trust, loan agreement, note,
lease, license, franchise agreement, permit, certificate, contract or other
agreement or instrument to which the Company or the Subsidiaries is a party or
to which the Company or the Subsidiaries or their respective assets is subject,
which default would, individually or in the aggregate, be reasonably likely to
have a Material Adverse Effect.
(f) Neither the issuance and sale of the Securities or the Change in
Control Warrants and the Additional Securities nor the execution, delivery and
performance by the Company of this Agreement, the Warrant Agreement or the
Registration Rights Agreement or the consummation of the transactions
contemplated hereby and thereby, will (i) conflict with the certificate of
incorporation or by-laws of the Company, as the same will be in effect as of
each Closing, (ii) constitute or result in a breach, default or violation of
(with or without the giving of notice, passage of time or both), or result in
the creation or imposition of a lien, charge or encumbrance on any properties or
assets of the Company or the Subsidiaries under any of the terms or provisions
of, any indenture, mortgage, deed of trust, loan agreement, note, lease,
license, franchise agreement, or other agreement or instrument to which the
Company is a party or to which the Company or its respective properties is
subject, (iii) require the consent of any third party or Governmental Authority
(including without limitation as of the Initial Closing, The NASDAQ Stock Market
and any related body ("NASDAQ")), other than (A) required consents under the
Credit Agreement dated as of August 11, 1999 among the Company, e.spire Finance
Corporation, the Lenders, Goldman Sachs Credit Partners L.P., the Bank of New
York, First Union National Bank and Newcourt Commercial Finance Corporation (the
"Credit Agreement"), (B) solely with respect to the Securities to be issued and
sold at the Final Closing, the Stockholder Approval (hereinafter defined) and
(C) any required consents of the FCC or any State Telecommunications Authority
as a result of the Purchasers' conversion of Preferred Stock or exercise of
Warrants; or (iv) (assuming compliance with all applicable state securities and
"Blue Sky" laws, all applicable rules
5
<PAGE> 6
and regulations of the FCC and State Telecommunications Authorities, and the HSR
Act, and assuming the receipt by the Company of the Stockholder Approval and
assuming the accuracy of the representations and warranties of the Purchasers in
Section 7 hereof) contravene any statute, judgment, decree, order, rule or
regulation of any Governmental Authority applicable to the Company or any of its
respective properties, except for any conflict, breach, violation, default,
lien, charge, contravention or encumbrance referred to in clauses (ii) and (iii)
of this Section 2(f) which would not, individually or in the aggregate, be
reasonably likely to have a Material Adverse Effect. For purposes of this
Agreement, "Stockholder Approval" shall mean the affirmative vote of the holders
of a majority of the shares of the Company's Common Stock present in person or
by proxy at a meeting of stockholders of the Company duly called and held (and
at which meeting a quorum is present) approving the issuance of the Preferred
Stock and the Conversion Shares hereunder and to Huff and to Honeywell (as each
term is hereinafter defined), as well as the Preferred Stock included in the
Subsequent Securities referred to in Section 13 (and Conversion Shares related
thereto), as and to the extent all such Preferred Stock and Conversion Shares
taken together may result in the issuance of a number of shares of Common Stock
which exceeds 20% of the total outstanding Common Stock immediately prior to the
Initial Closing. The issuance and sale of the Initial Preferred Stock at the
Initial Closing, any issuance of Change in Control Warrants, and the issuance of
any Additional Securities with respect to such Initial Preferred Stock and
Change in Control Warrants pursuant to the conversion or exercise thereof (at an
adjusted conversion or exercise price, as the case may be), without in any case
obtaining Stockholder Approval, is not and at the time of issuance of such
Additional Securities will not be in violation, breach or contravention of any
rule or other requirement or any criteria for listing or continued trading
through NASDAQ (a "NASDAQ Rule") and does not and will not require any consent
of NASDAQ. Subject to obtaining Stockholder Approval, the Remaining Preferred
Stock (hereinafter defined) may be issued and sold at the Final Closing and any
Additional Securities may be issued and sold with respect thereto without
violation, breach or contravention of any NASDAQ Rule and will not require any
consent of NASDAQ.
(g) Except as described in the Company's SEC Reports, there is neither
pending nor, to the best knowledge of the Company after due inquiry, threatened,
any action, suit, proceeding, inquiry or investigation to which the Company or
any of the Subsidiaries is a party, or to which any of their respective
properties or assets are or would be subject, before or brought by any
Governmental Authority (including, without limitation, the FCC) that would,
individually or in the aggregate, be reasonably likely to have a Material
Adverse Effect or that seeks to restrain, enjoin, prevent the consummation of or
otherwise challenge or relate to the issuance or sale of the Securities or
Additional Securities to be sold hereunder or the consummation of the other
transactions contemplated herein or in the other Transaction Documents.
(h) Except as disclosed on Schedule 2(h), each of the Company and the
Subsidiaries owns or possesses adequate licenses or other rights to use all
patents, trademarks, service marks, trade names, copyrights and know-how, and as
of each
6
<PAGE> 7
Closing (hereinafter defined) will continue to own or possess such licenses,
rights and know-how and other intellectual property necessary to conduct the
businesses currently operated by it, or as proposed to be conducted by it as
described in the Company's SEC Reports, except for any which would not,
individually or in the aggregate, be reasonably likely to have a Material
Adverse Effect, and neither the Company nor the Subsidiaries has received any
notice of infringement of, or conflict with (or knows of any such infringement
of or conflict with) asserted rights of others with respect to any patents,
trademarks, service marks, trade names, copyrights or know-how necessary to
conduct the businesses operated by it that, if such assertion of infringement or
conflict were sustained, would, individually or in the aggregate, have a
Material Adverse Effect.
(i) Each of the Company and the Subsidiaries has obtained, or has
applied for, all consents, approvals, authorizations, orders, registrations,
filings, qualifications, licenses (including, without limitation, all licenses
from the FCC and state, local or other governmental authorities), permits,
franchises and other governmental authorizations necessary to conduct its
businesses (or proposed businesses) as described in the Company's SEC Reports,
except for any which, individually or in the aggregate, would not be reasonably
likely to have a Material Adverse Effect. Neither the Company nor any of the
Subsidiaries has received any notice of proceedings related to the revocation or
materially adverse modification of any such consent, approval, authorization,
order, registration, filing, qualification, license or permit, except for any
which would not, individually or in the aggregate, be reasonably likely to have
a Material Adverse Effect.
(j) Except as disclosed in the SEC Reports, subsequent to September 30,
1999, (i) neither the Company nor any of the Subsidiaries has incurred any
liabilities or obligations, direct or contingent, or entered into any material
transactions not in the ordinary course of business that would, individually or
in the aggregate, be reasonably likely to have a Material Adverse Effect; and
(ii) the Company has not purchased any of its outstanding capital stock or
(except for regularly scheduled pay-in-kind dividends on shares of preferred
stock described under Section 2(r) below) declared, paid or otherwise made any
dividend or distribution of any kind on its capital stock.
(k) There are no legal or governmental proceedings involving or
affecting the Company or any of the Subsidiaries or any of their respective
properties or assets (other than proceedings, individually or in the aggregate,
which would not, if the subject of an unfavorable decision, ruling or finding,
result in a Material Adverse Effect) that are not described in the SEC Reports.
Except as described in the SEC Reports and Schedule 2(e), neither the Company
nor any of the Subsidiaries is in default under any contract, has received a
notice or claim of any such default or has knowledge of any breach of any such
contract by the other party or parties thereto, except such defaults or breaches
which would not, individually or in the aggregate, be reasonably likely to have
a Material Adverse Effect.
(l) Each of the Company and the Subsidiaries has filed all necessary
federal, state, local and foreign income, franchise and property tax returns,
except where the failure to so file such returns would not, individually or in
the aggregate, be reasonably
7
<PAGE> 8
likely to have a Material Adverse Effect, and each of the Company and the
Subsidiaries has paid all taxes shown as due when due; and other than tax
deficiencies that the Company or any of the Subsidiaries is contesting in good
faith and for which adequate reserves have been provided, there is no tax
deficiency that has been asserted against the Company or any of the Subsidiaries
that would, individually or in the aggregate, be reasonably likely to have a
Material Adverse Effect. The charges, accruals and reserves on the consolidated
books of the Company in respect of any tax liability for any years not finally
determined are adequate to meet any assessments or re-assessments for additional
tax for any years not finally determined, except to the extent of any inadequacy
that would not, individually or in the aggregate, be reasonably likely to have a
Material Adverse Effect.
(m) Except as disclosed in the SEC Reports, each of the Company and the
Subsidiaries has good and marketable title to all real property and good title
to all personal property owned or claimed to be owned by it and good and valid
title to all leasehold interests in the real and personal property leased by it
(except for those leases of real property in which the Company has good title
and that would be marketable but for the requirement that the landlord consent
to an assignment or sublease of the lease), free and clear of all liens,
charges, encumbrances or restrictions, except to the extent the failure to have
such title or the existence of such liens, charges, encumbrances or restrictions
would not, individually or in the aggregate, be reasonably likely to have a
Material Adverse Effect. All leases, contracts and agreements to which the
Company or any of the Subsidiaries is a party or by which any of them is bound
are valid and enforceable against the Company or such Subsidiaries and are valid
and enforceable against the other party or parties thereto and are in full force
and effect with only such exceptions as would not, individually or in the
aggregate, be reasonably likely to have a Material Adverse Effect. No real or
personal property, rights-of-way, conduits, pole attachments or fiber leased,
licensed or used by the Company or any of the Subsidiaries lies in an area that
is, or to the best knowledge of the Company will be, subject to zoning, use, or
building code restrictions that would prohibit, and no state of facts relating
to the actions or inaction of another person or entity or his, her or its
ownership, leasing, licensing or use of any such real or personal property,
rights-of-way, conduits, pole attachments or fiber exists that would prevent the
continued effective leasing, licensing or use of such real or personal property,
rights-of-way, conduits, pole attachments or fiber in the business of the
Company or any of the Subsidiaries as presently conducted, subject in each case
to such exceptions as, individually or in the aggregate, do not have and are not
reasonably likely to have a Material Adverse Effect.
(n) None of the Company or any of the Subsidiaries is and, after giving
effect to the offering and sale of the Securities and the Additional Securities
and the application of the proceeds therefrom as described herein, none will be,
an "investment company" as such term is defined in the Investment Company Act of
1940, as amended, and the rules and regulations thereunder.
(o) Neither the Company nor any of its directors, officers or
controlling persons (provided that The Huff Alternative Income Fund, L.P.
("Huff") is excluded from the
8
<PAGE> 9
warranty in this Section 2(o)) has taken, directly or indirectly, any action
designed, or that might reasonably be expected, to cause or result, under the
Securities Act or otherwise, in, or that has constituted, stabilization or
manipulation of the price of any security of the Company to facilitate the sale
or resale of any of the Securities or the Additional Securities.
(p) Each of the Company and the Subsidiaries (i) makes and keeps
accurate books and records and (ii) maintains internal accounting controls that
provide reasonable assurance that (A) transactions are executed in accordance
with management's authorization, (B) transactions are recorded as necessary to
permit preparation of its financial statements and to maintain accountability
for its assets, (C) access to its assets is permitted only in accordance with
management's authorization and (D) the reported accountability for its assets is
compared with existing assets at reasonable intervals.
(q) None of the Company, any of the Subsidiaries or any of their
respective Affiliates (as defined in Rule 501(b) of Regulation D under the
Securities Act) (provided that Huff is excluded from the warranty in this
Section 2(q)) has directly, or through any agent, (i) sold, offered for sale,
solicited offers to buy or otherwise negotiated in respect of, any "security"
(as defined in the Securities Act) that is or could be integrated with the sale
of the Securities or the Additional Securities in a manner that would require
the registration under the Securities Act of the Securities or the Additional
Securities or (ii) engaged in any form of general solicitation or general
advertising (as those terms are used in Regulation D under the Securities Act)
in connection with the offering of the Securities or the Additional Securities
or in any manner involving a public offering within the meaning of Section 4(2)
of the Securities Act. Assuming the accuracy of the representations and
warranties of the Purchasers in Section 7 hereof, it is not necessary in
connection with the offer, sale and delivery of the Securities or the Additional
Securities to the Purchasers in the manner contemplated by this Agreement to
register any of the Securities or the Additional Securities under the Securities
Act.
(r) As of the date of this Agreement, the authorized capital of the
Company consists of (i) 125,000,000 shares of Common Stock, of which 54,827,337
shares were issued and outstanding at January 31, 2000 and 43,981,263 are
reserved for issuance and (ii) 3,000,000 shares of preferred stock, par value
$1.00 per share, of which (x) 400,000 shares have been designated 14.75%
Redeemable Preferred Stock due 2008 (the "14.75% Preferred Stock"), of which
107,235.94 shares are issued and outstanding, (y) 200,000 shares have been
designated Series A 12.75% Junior Redeemable Preferred Stock due 2009, of which
18.25 shares are issued and outstanding and (z) 700,000 shares have been
designated Series B 12.75% Junior Redeemable Preferred Stock ("12.75% Preferred
Stock"), of which 198,843 shares are issued and outstanding. Except for: (A)
489,405 shares of Common Stock reserved for issuance under the Company's 1996
Employee Stock Purchase Plan; (B) 20,000 shares of Common Stock reserved for
issuance under the Company's 1998 Restricted Stock Plan; (C) 5,646,355 shares of
Common Stock reserved for issuance upon exercise of the warrants issued by the
Company in connection with the sale of the 14.75% Preferred Stock; (D) 2,330,757
shares of Common Stock reserved for issuance upon exercise of the warrants
issued by the Company in connection
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<PAGE> 10
with the sale of the Company's 13% Senior Discount Notes due 2005; (E) 5,259,294
shares of Common Stock reserved for issuance in connection with the Company's
non-plan employee stock options; (F) 9,471,992 shares of Common Stock reserved
for issuance under the Company's 1994 Employee Stock Option Plan; (G) 560,800
shares of Common Stock reserved for issuance under the Company's Annual
Performance Plan; (H) 480,000 shares of Common Stock reserved for issuance in
connection with stock options granted to the Company's outside directors; (I)
305,614 shares of Common Stock reserved for issuance upon exercise of warrants
issued by the Company in connection with certain preferred provider and local
services agreements entered into by the Company; (J) 421,726 shares of Common
Stock reserved for issuance upon the exercise of warrants registered pursuant to
Form S-3, Commission File No. 333-40337; (K) shares of Common Stock in an amount
up to $600,000 reserved for issuance in connection with a settlement entered
into between the Company and a third party; and (L) 29,841,394 shares of Common
Stock reserved to be issued in connection with this Purchase Agreement and the
Purchase Agreements being concurrently entered into with Huff and Honeywell,
there are not outstanding (and, except as contemplated by this Agreement, the
Company does not have any plan to issue, grant or enter into) any options,
warrants, rights (including conversion or preemptive rights), subscriptions or
agreements for the purchase or acquisition from or by the Company of any shares
of its or any of its Subsidiaries' capital stock or any other securities
convertible into or exercisable for any shares of its or any of its
Subsidiaries' capital stock. There are no voting agreements, voting trust
agreements, stockholder agreements or other agreements relating to the capital
stock of the Company or any of its Subsidiaries' or any other securities
convertible into or exercisable for any shares of its or any of its
Subsidiaries' capital stock. Except as disclosed on Schedule 2(r), no
outstanding options, warrants or other securities exercisable for or convertible
into Common Stock require anti-dilution adjustments by reason of the
consummation of the transactions contemplated hereby.
(s) Other than as described in the SEC Reports or on Schedule 2(e),
since September 30,1999 (i) there has not been any change in the capital stock
or long-term indebtedness of the Company or any of the Subsidiaries which could,
individually or in the aggregate, be reasonably expected to have a Material
Adverse Effect and (ii) there has not occurred, nor has information become known
nor has any state of facts arisen that could, individually or in the aggregate,
reasonably be expected to have such a Material Adverse Effect whether or not
arising in the ordinary course of business.
(t) Other than routine individual grievances or disputes in an
individual amount less than $50,000 and in the aggregate less than $250,000,
there is no strike, labor dispute, slowdown or work stoppage with the employees
of the Company or any of the Subsidiaries that is pending or, to the knowledge
of the Company or any of the Subsidiaries, threatened. Neither the Company nor
any Subsidiary is a party to any collective bargaining agreement. The Company
does not know of any activities or proceedings of any labor organization (or
representative thereof) to organize any employees of the Company or any
Subsidiary.
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(u) Each of the Company and the Subsidiaries carries insurance in such
amounts and covering such risks as is adequate for the conduct of its business
and the value of its properties.
(v) The Company maintains, sponsors, contributes to, or has or has had
an obligation with respect to "employee benefit plans," within the meaning of
Section 3(3) of ERISA, and may or has had obligations with respect to other
bonus, profit sharing, compensation, pension, severance, deferred compensation,
fringe benefit, insurance, welfare, post-retirement, health, life, stock option,
stock purchase, restricted stock, tuition refund, service award, company car,
scholarship, relocation, disability, accident, sick, vacation, holiday,
termination, unemployment, individual employment, consulting, executive
compensation, incentive, commission, payroll practices, retention, change in
control, noncompetition, collective bargaining and other plans, agreements,
policies, trust funds, or arrangements (whether written or unwritten, insured or
self-insured) on behalf of employees, directors, or shareholders of the Company
(whether current, former, or retired) or their beneficiaries (each a "Plan" and,
collectively, the "Plans"). Neither the Company nor any ERISA Affiliate has any
liability, direct or indirect, or actual or contingent (but excluding any
contributions due in the ordinary course) with respect to any plan subject to
Section 412 of the Code, Section 302 of ERISA or Title IV of ERISA that has or
could reasonably be expected to have a Material Adverse Effect. The consummation
of the transactions contemplated by this Agreement will not give rise to any
liability with respect to any Plan that could reasonably be expected to have a
Material Adverse Effect, including, without limitation, liability for severance
pay, unemployment compensation, termination pay or withdrawal liability, or
accelerate the time of payment or vesting or increase the amount of compensation
or benefits due to any employee, director, or shareholder of the Company
(whether current, former, or retired) or their beneficiaries solely by reason of
such transactions. Except as would not individually or in the aggregate have, or
could not reasonably be expected to have, a Material Adverse Effect: (i) neither
the Company nor any ERISA Affiliate has made any promises or commitments to
create any additional plan, agreement, or arrangement; (ii) no event, condition,
or circumstance exists that could result in an increase of the benefits provided
under any Plan or the expense of maintaining any Plan from the level of benefits
or expense incurred for the most recent fiscal year ended before Closing; and
(iii) neither the Company nor any ERISA Affiliate has or could be expected to
have any liability for any prohibited transaction as defined in Section 406 of
ERISA or Section 4975 of the Code. With respect to each of the Plans: (i) each
Plan intended to qualify under Section 401(a) of the Code has been qualified
since its inception and has received a determination letter under Revenue
Procedure 93-39 from the IRS to the effect that the Plan is qualified under
Section 401 of the Code and any trust maintained pursuant thereto is exempt from
federal income taxation under Section 501 of the Code and nothing has occurred
or is expected to occur at or before Closing that caused or could cause the loss
of such qualification or exemption or the imposition of any penalty or tax
liability that has or could reasonably be expected to have a Material Adverse
Effect; (ii) no claim, lawsuit, arbitration, audit or investigation or other
action has been threatened, asserted, instituted, or anticipated against the
Plans (other than non-material routine claims for benefits, and appeals of such
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<PAGE> 12
claims), any trustee or fiduciaries thereof, the Company, any ERISA Affiliate,
any director, officer, or employee thereof, or any of the assets of any trust of
the Plans that would have or could reasonably be expected to have a Material
Adverse Effect; (iii) the Plan complies in all material respects and has been
maintained and operated in all material respects in accordance with its terms
and applicable law, including, without limitation, ERISA and the Code; and (iv)
with respect to each Plan that is funded mostly or partially through an
insurance policy, the Company has no liability in the nature of retroactive rate
adjustment, loss sharing arrangement or other actual or contingent liability
arising wholly or partially out of events occurring on or before Closing that
has or could reasonably be expected to have a Material Adverse Effect.
(w) Except for matters which would not in the aggregate have a Material
Adverse Effect,
(i) (A) the Company and each Subsidiary is in compliance with all
applicable Environmental Laws (as defined below); (B) all permits and other
authorizations of any Governmental Authority currently held by the Company and
each Subsidiary pursuant to the Environmental Laws are in full force and effect,
the Company and each Subsidiary is in compliance with all of the terms of such
permits and authorizations, and no other permits or authorizations are required
by the Company or any Subsidiary for the conduct of their respective businesses
on the date hereof; and (C) the management, handling, storage, transportation,
treatment, and disposal by the Company and each Subsidiary of any Hazardous
Materials (as defined below) has been in compliance with all applicable
Environmental Laws. Neither the Company nor any Subsidiary has received any
written communication that alleges that the Company or any Subsidiary is not in
compliance in all material respects with all applicable Environmental Laws.
(ii) there is no Environmental Claim (hereinafter defined)
pending or, to the knowledge of the Company, threatened against or involving the
Company or any of the Subsidiaries or against any person or entity whose
liability for any Environmental Claim the Company or any of the Subsidiaries has
or may have retained or assumed either contractually or by operation of law.
(iii) to the knowledge of the Company, there are no past or
present actions or activities by the Company or any Subsidiary including the
storage, treatment, release, emission, discharge, disposal or arrangement for
disposal of any Hazardous Materials, that could reasonably form the basis of any
Environmental Claim against the Company or any of the Subsidiaries or against
any person or entity whose liability for any Environmental Claim the Company or
any Subsidiary may have retained or assumed either contractually or by operation
of law.
(iv) As used herein, these terms shall have the following
meanings:
(A) "Environmental Claim" means any and all administrative,
regulatory or judicial actions, suits, demands, demand letters, directives,
claims, liens,
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investigations, proceedings or notices of noncompliance or violation (written or
oral) by any person or governmental authority alleging potential liability
arising out of based on or resulting from the presence, or release or threatened
release into the environment, of any Hazardous Materials at any location owned
or leased by the Company or any Subsidiary or other circumstances forming the
basis of any violation or alleged violation of any Environmental Law.
(B) "Environmental Laws" means all applicable foreign,
federal, state and local laws (including the common law), rules, requirements
and regulations relating to pollution, the environment (including, without
limitation, ambient air, surface water, groundwater, land surface or subsurface
strata) or protection of human health as it relates to the environment
including, without limitation, laws and regulations relating to releases of
Hazardous Materials, or otherwise relating to the manufacture, processing,
distribution, use, treatment, storage, disposal, transport or handling of
Hazardous Materials or relating to management of asbestos in buildings.
(C) "Hazardous Materials" means wastes, substances, or
materials (whether solids, liquids or gases) that are deemed hazardous, toxic,
pollutants, or contaminants, including without limitation, substances defined as
"hazardous substances", "toxic substances", "radioactive materials", or other
similar designations in, or otherwise subject to regulation under, any
Environmental Laws.
(x) At the Initial Closing, the Company will deliver to the Trustees
under each of the indentures with respect to the Company's Existing Notes (as
such term is defined in the Certificate of Designation): (i) a resolution of the
Company's Board of Directors certifying that (A) the transactions contemplated
by this Agreement and the other Transaction Documents are on terms no less
favorable to the Company than those that would have been obtained in a
comparable arms-length transaction by the Company with a person or entity that
is not an Affiliate (as such term is defined in the respective Indentures), and
(B) the transactions contemplated by this Agreement have been unanimously
approved by the Independent Directors (as such term is defined in the respective
Indentures) on the Company's Board of Directors, who have determined that such
transactions are in the best interests of the Company, (ii) opinions of Houlihan
Lokey Howard & Zukin that such transactions are fair to the Company from a
financial point of view, and (iii) copies of the officers' certificates
delivered to the Trustees to the effect that such opinions comply with the
Indentures, all of the foregoing in conformity with the requirements of the
Indentures. None of such resolutions, opinions or certificates has been
withdrawn or modified in any material respect.
(y) Except for (i) commitment fees paid to Huff and to the Purchasers
and to Honeywell and (ii) payment of commissions to Marvin Saffian pursuant to
the terms of the Consulting Agreement, dated October 19, 1994 between Marvin
Saffian and the Company (which is the Company's obligation), no broker, finder
or investment banker is entitled to any brokerage, finder's or other fee or
commission in connection with the transactions contemplated by this Agreement or
the other Transaction Documents based upon arrangement made by or on behalf of
the Company.
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<PAGE> 14
Any certificate signed by any officer of the Company or any
Subsidiary and delivered to the Purchasers or to counsel for the Purchasers
shall be deemed a representation and warranty by the Company and each of its
Subsidiaries to the Purchasers as to the matters covered thereby.
No representation or warranty of the Company contained herein
shall be affected by any knowledge of or attributable to any employee or other
representative of the Purchasers including without limitation any present or
former representative on or observer to the Company's or its Subsidiaries'
boards of directors who is an employee, designee, or affiliate of the
Purchasers.
3. Purchase, Sale and Delivery of the Securities.
(a) Subject to the terms and conditions of this Agreement, (i) at the
Initial Closing, subject to possible reduction in the number of shares of
Securities to be purchased by the Purchasers at the Initial Closing in
accordance with Section 3(d) below, the Purchasers shall purchase and the
Company shall sell and issue to the Purchasers (A) all of the Warrants and (B)
that number of shares of Preferred Stock (the "Initial Preferred Stock") as
would result (if the shares of Preferred Stock included in the Initial Preferred
Stock were then converted) in the issuance of shares of Common Stock equal to
19.9% of the shares of Common Stock of the Company outstanding immediately prior
to the Initial Closing and (ii) at the Final Closing (hereinafter defined) the
Purchasers shall purchase and the Company shall sell and issue to the Purchasers
that number of additional shares of Preferred Stock (the "Remaining Preferred
Stock") equal to the difference between (x) 25,000 and (y) the number of shares
of Initial Preferred Stock sold and issued to the Purchasers at the Initial
Closing. The Company shall deliver to the Purchasers at the Initial Closing a
schedule, certified by the Company's Chief Financial Officer, setting forth in
such reasonable detail as may be requested by the Purchasers, the calculations
called for by this Section 3(a).
(b) The purchase and sale of the Warrants and the Initial Preferred
Stock shall take place at the offices of Proskauer Rose LLP, 1585 Broadway, New
York, New York 10036, within two (2) days following the satisfaction of the
conditions set forth in this Agreement required to be satisfied prior to the
consummation of the purchase and sale of the Warrants and the Initial Preferred
Stock hereunder, but in no event later than March 6, 2000, or at such other time
and place as the Company and the Purchasers mutually agree upon in writing
(which time and place are designated as the "Initial Closing"). At the Initial
Closing, the Company shall deliver to the Purchasers one or more certificates
representing the Preferred Stock included in the Initial Preferred Stock then
being sold and issued, and an executed Warrant representing all of the Warrants,
in such denomination or denominations and registered in such name or names as
the Purchasers shall request upon notice to the Company against payment by or on
behalf of the Purchasers of the purchase price therefor by wire transfer payable
to or upon the order of the Company in immediately available funds.
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<PAGE> 15
(c) The purchase and sale of the Remaining Preferred Stock shall take
place at the offices of Proskauer Rose LLP, 1585 Broadway, New York, New York
10036, within two (2) days following the satisfaction of the conditions set
forth in this Agreement required to be satisfied prior to consummation of the
purchase and sale of the Remaining Preferred Stock, but in no event later than
100 days following the Initial Closing, or at such other time and place as the
Company and the Purchasers mutually agree upon orally or in writing (which time
and place are designated as the "Final Closing"). At the Final Closing, the
Company shall deliver to the Purchasers one or more certificates representing
the Preferred Stock included in the Remaining Preferred Stock being sold and
issued, in such denomination or denominations and registered in such name or
names as the Purchasers shall request upon notice to the Company, against
payment by or on behalf of the Purchasers of the purchase price therefor by wire
transfer payable to or upon the order of the Company in immediately available
funds.
(d) In the event that Huff and The Honeywell International Inc. Master
Retirement Trust or any affiliate thereof ("Honeywell") agree to purchase
Securities at the Initial Closing, then (i) the full number of Warrants provided
under Section 3(a)(i) above to be issued and sold by the Company to the
Purchasers at the Initial Closing shall be issued and sold to the Purchasers at
the Initial Closing; and (ii) the number of shares of Initial Preferred Stock
provided under Section 3(a)(i) above to be issued and sold to the Purchasers at
the Initial Closing shall be allocated 14.28572% to the Purchasers, 57.14285% to
Huff and 28.57143% to Honeywell.
(e) Notwithstanding anything to the contrary elsewhere in this
Agreement, in the event that the per share closing price of the Common Stock on
the day immediately preceding the Initial Closing is less than $6.27, then (A)
notwithstanding anything to the contrary contained herein (including without
limitation Section 6(c)(i) below), no Stockholder Approval shall be required in
connection with the transactions contemplated by this Agreement and (B) the
Final Closing shall occur as soon as reasonably practicable after the Initial
Closing.
The Initial Closing and the Final Closing are sometimes
referred to collectively in this Agreement as the "Closings" and each as a
"Closing".
4. Covenants of the Company. The Company covenants and agrees
with each Purchaser that (and in the case of the last sentence of Section 4(f),
each Purchaser agrees that):
(a) The Company will cooperate at its expense with the Purchasers in
arranging for the qualification of the Securities and the Additional Securities
for offering and sale under the securities or "Blue Sky" laws of such
jurisdictions as the Purchasers may designate and will continue such
qualifications in effect for as long as may be necessary to complete the resale
of the Securities and the Additional Securities by the Purchasers; provided,
however, that in connection therewith the Company shall not be required to
qualify as a foreign corporation or to execute a general consent to service of
process in any jurisdiction or subject the Company to any tax in any such
jurisdiction where it is not
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then so subject. The Company will cooperate with the Purchasers to (i) if
requested, permit the Warrants and the Change in Control Warrants, to the extent
eligible for resale pursuant to Rule 144A, to be designated PORTAL securities in
accordance with the rules and regulations adopted by the NASD relating to
trading in the Private Offerings, Resales and Trading through Automated Linkages
Market (the "PORTAL Market"), (ii) if requested, permit the Securities upon
issuance and registration under the Securities Act to be eligible for clearance
and settlement through The Depository Trust Company and (iii) permit the
Additional Securities upon issuance and registration under the Securities Act to
be listed for quotation through the Nasdaq National Market or listed on any
national securities exchange on which the Company's Common Stock is then listed.
(b) Approximately two-thirds of the aggregate net proceeds from the
issuance and sale of the Units will be used by the Company for general corporate
purposes; the remaining one-third of the aggregate net proceeds will be
contributed by the Company to its subsidiary, ACSI Network Technologies, Inc.,
for its general corporate purposes.
(c) From time to time, and as soon as reasonably practicable upon
demand, the Company will provide to the Purchasers such additional information
regarding results of operations, financial condition, business or prospects of
the Company or the Subsidiaries, including without limitation, cash flow
analyses, financial statements, budgets, business plans, projections and other
financial information and minutes of any meetings of the Board of Directors of
the Company or the Subsidiaries, as may be reasonably requested by the
Purchasers. The Company shall also afford to the Purchasers (and its
representatives) access, at reasonable times and on reasonable prior notice, to
the books, records and properties of the Company and the Subsidiaries, and shall
permit the Purchasers (and its representatives) to make copies of such books and
records and also shall afford such access to meet and consult with management
and the advisors of the Company and its Subsidiaries with respect to the
business of the Company and its Subsidiaries.
(d) Neither the Company nor any of its Affiliates (provided that Huff
shall be excluded from the Company's obligations under this Section 4(d)) will
sell, offer for sale or solicit offers to buy or otherwise negotiate in respect
of any "security" (as defined in the Securities Act) that could be integrated
with the sale of the Securities or the Additional Securities in a manner that
would require the registration under the Securities Act of the Securities or the
Additional Securities.
(e) The Company will not, and will not permit any of the Subsidiaries
to, engage in any form of general solicitation or general advertising (as those
terms are used in Regulation D under the Securities Act) in connection with the
offering of the Securities or the Additional Securities or in any manner
involving a public offering within the meaning of Section 4(2) of the Securities
Act.
(f) The Company will take all action necessary in accordance with
applicable law and its Certificate of Incorporation and By-laws to convene a
special meeting of its stockholders as promptly as practicable to obtain the
Stockholder Approval. The Board
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<PAGE> 17
of Directors of the Company shall, subject to its fiduciary duties, recommend
such approval to the stockholders of the Company and the Company shall take all
lawful actions and use its best efforts to solicit and obtain such approval. The
Company and the Purchasers hereby acknowledge and agree that neither any
Conversion Shares nor any Warrant Shares may be voted at such meeting or
otherwise to obtain Stockholder Approval.
(g) As soon as practicable, (but not later than March 7, 2000), the
Company shall file a proxy statement in preliminary form with the Commission in
connection with the special meeting of the Company's stockholders to consider
and vote upon the Stockholder Approval. Such proxy statement (or the next annual
meeting proxy statement) shall include a proposal seeking stockholder approval
of an increase in the authorized Common Stock of the Company for the reservation
for issuance of a sufficient number of shares of Common Stock issuable upon
conversion, exercise or the payment of dividends with respect to the Securities.
The Company shall make drafts of the proxy statement available to the Purchasers
for its review reasonably in advance of filing. The Purchasers agrees to
reasonably cooperate with the Company in the preparation of the proxy statement.
The definitive proxy statement ("Proxy Statement") for the stockholders meeting
shall be mailed to stockholders as soon as practicable. The Company shall cause
the Proxy Statement to comply in all material respects with the requirements of
the Exchange Act, and the applicable rules and regulations thereunder, and to
contain no untrue statement of any material fact or omit to state any material
fact required to be stated therein or necessary to make the statements therein,
in light of the circumstances in which they were made, not misleading.
(h) At all times prior to the earlier to occur of the Final Closing or
termination of this Agreement (including any termination of this Agreement with
respect to the Remaining Preferred Stock pursuant to Section 10(a)(iv)), the
Company will amend or supplement each SEC Report to the extent required to
correct any untrue statement of a material fact contained therein or any
omission of a material fact required to be stated therein to make the statements
in such SEC Report, in light of the circumstances under which they were made,
not misleading. From and after the date of this Agreement and at all times prior
to the earlier to occur of the Final Closing or termination of this Agreement
(including any termination of this Agreement with respect to the Remaining
Preferred Stock pursuant to Section 10(a)(iv)), the Company shall timely file
with the Commission true, accurate and complete copies of all reports,
schedules, forms, statements and other documents required to be filed by the
Company ("Required Filings"). All of such Required Filings shall comply in all
material respects with the requirements of the Securities Act, or the Exchange
Act, as the case may be, and the rules and regulations of the Commission
promulgated thereunder applicable to the Required Filings.
(i) The Company hereby covenants and agrees that, prior to the earlier
to occur of the Final Closing or the termination of this Agreement, unless
otherwise expressly contemplated by this Agreement or consented to beforehand in
writing by Huff, the
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Company shall, and shall cause each Subsidiary to, operate its business only in
the usual and ordinary course consistent with past practices.
(j) The Company hereby covenants and agrees that, prior to the Initial
Closing it shall file or cause to be filed with the Secretary of State of
Delaware the Certificate of Designation.
(k) The Company hereby covenants and agrees that, prior to the earlier
to occur of the Final Closing or termination of this Agreement, unless consented
to in writing beforehand by Purchasers and except for pay-in-kind dividends in
respect of the 14.75% Preferred Stock and the 12.75% Preferred Stock, the
Company will not issue or take any action to issue any capital stock or
securities convertible into or exercisable for any capital stock having rights,
privileges or preferences, including, without limitation, with respect to the
payment of dividends or payment upon liquidation of the Company (bankruptcy or
otherwise), that are on a par or senior to any payment on the Preferred Stock in
any respect, or that are redeemable for cash, or that provide for the payment of
dividends in cash ahead of any payment on the Preferred Stock, whether at the
option or right of the holder or the Company or its affiliates.
(l) During the period from and after the Initial Closing and for so
long as any of the Purchasers shall hold any Preferred Stock or Warrants (or any
Common Stock issuable in connection therewith), Greenwich Street Capital
Partners II, L.P. shall be entitled to designate one representative for all of
the Purchasers to receive notice of and attend as an observer any and all
regular or special meetings of the Board of Directors of the Company. The
Company hereby covenants and agrees that it will take or cause to be taken all
actions necessary or appropriate to ensure the foregoing.
(m) The Company shall timely file any and all statements or reports
required to be filed by it with the Commission under and in accordance with the
Securities Act and the Exchange Act.
(n) As soon as practicable after the Purchasers' request therefor, the
Company shall file any notices, requests, registrations or approvals required to
be filed with the Federal Communications Commission or any applicable state
regulatory agency or commission in connection with the sale of the Securities
and the Additional Securities under the Purchase Agreements and the sale of any
Subsequent Securities and shall use its reasonable best efforts to cause such
notices, requests, registrations or approvals to be processed successfully or
approved, as the case may be.
(o) As soon as practicable after the Purchasers' request therefor, the
Company shall file any notifications under the HSR Act as may be required as a
result of the conversion or exercise of the Securities and shall use its
reasonable best efforts and shall cooperate with Purchasers to cause the early
termination or expiration of the waiting period for any such notifications.
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(p) The Company shall comply with all of its obligations in respect of
the MCI Preemptive Right (hereinafter defined).
5. Expenses. The Company agrees to pay the following costs and
expenses and all other costs and expenses incident to the performance of its
obligations under this Agreement and the other Transaction Documents, whether or
not the transactions contemplated herein or therein are consummated or this
Agreement is terminated pursuant to Section 10 hereof: (i) the reasonable fees
and disbursements of counsel, accountants and any other experts or advisors
retained by the Company and/or the Purchasers, (ii) the preparation (including
printing), issuance and delivery to the Purchasers of certificates evidencing
the Securities and the Additional Securities, including transfer agent's fees,
(iii) the qualification of the Securities and the Additional Securities under
state securities and "Blue Sky" laws, including filing fees and reasonable fees
and disbursements of counsel relating thereto, (iv) the fees and expenses of the
transfer agent and registrar of the Company, including fees and expenses of its
counsel, (v) any fees and expenses incurred by the Purchasers in connection with
any filing required to be made pursuant to the HSR Act, including filing fees
and reasonable fees and disbursements of their respective counsel whenever such
filings are made, (vi) Purchasers' appraisal costs not to exceed $10,000
annually, (vii) all expenses and listing fees incurred in connection with the
application, if requested, for quotation of the Warrants and the Change of
Control Warrants on the PORTAL Market, to the extent eligible for resale
pursuant to Rule 144A, and (viii) all other ongoing costs of holding or
converting or exercising the Securities, but excluding ordinary custodial
expenses, brokerage and/or underwriting commissions and taxes. Without limiting
the provisions of this Section 5 above, if the issuance and sale of the
Securities provided for herein are not consummated because any condition to the
obligations of the Purchasers set forth in Section 6 hereof is not satisfied or
because of any failure, refusal or inability on the part of the Company to
perform all obligations and satisfy all conditions on its part to be performed
or satisfied hereunder (other than solely by reason of a default by the
Purchasers of its obligations hereunder after all conditions hereunder have been
satisfied in accordance herewith), the Company will reimburse the Purchasers
upon demand for all reasonable out-of-pocket expenses (including reasonable
counsel fees and disbursements) that shall have been incurred by the Purchasers
in connection with the proposed purchase and sale of the Securities.
6. Conditions of the Obligations of the Purchasers.
(a) Conditions to the Purchasers' Obligations at Each Closing.
The obligations of each Purchaser with respect to each Closing under
this Agreement are subject to the fulfillment at or before each Closing of each
of the following conditions:
(i) Each Purchaser shall have received opinions, dated as of each
Closing, of (i) the opinion of Riley M. Murphy, Esq., General Counsel for the
Company; (ii) the opinion of Kelly Drye & Warren LLP, special regulatory counsel
for the
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Company; and (iii) the opinion of Davis Polk & Wardwell, special counsel for the
Company, all in form and substance consistent with the Company's opinions in
prior private placements as may be reasonably agreed upon by the parties.
(ii) The representations and warranties of the Company contained
in this Agreement shall be true and correct when made and true and correct at
each Closing as if made on and as of each Closing (other than to the extent any
such representation or warranty is expressly made as to a certain date); the
Company shall have performed all covenants and agreements in all material
respects and satisfied all conditions on its part to be performed or satisfied
hereunder at or prior to the Closing; and subsequent to September 30, 1999 no
event shall have occurred which has had, or in the judgment of the Purchasers,
is reasonably likely to have a Material Adverse Effect, other than as described
in the SEC Reports or as disclosed in Schedule 2(e).
(iii) The issuance and sale of the Securities and Change in
Control Warrants pursuant to this Agreement shall not be enjoined (temporarily
or permanently) and no restraining order or other injunctive order shall have
been issued or any action, suit or proceeding shall have been commenced with
respect to this Agreement or other Transaction Document before any court or
Governmental Authority (including, without limitation, the FCC).
(iv) The Purchasers shall have received certificates, dated as of
each Closing, signed on behalf of the Company by its Chief Operating Officer and
its Chief Financial Officer to the effect that:
(A) The representations and warranties of the Company
contained in this Agreement shall be true and correct when made and true and
correct at each Closing as if made on and as of each Closing (other than to the
extent any such representation or warranty is expressly made as to a certain
date); the Company shall have performed all covenants and agreements in all
material respects and satisfied all conditions on its part to be performed or
satisfied hereunder at or prior to the Closing;
(B) Subsequent to September 30, 1999, no event has occurred
that has had, or is reasonably likely to have, a Material Adverse Effect, other
than as described in the SEC Reports or as disclosed in Schedule 2(e);
(C) The issuance and sale of the Securities and the Change
in Control Warrants hereunder by the Company has not been enjoined (temporarily
or permanently); and
(D) As at December 31, 1999 (and after giving effect to all
financial results, events and other circumstances through the close of business
on such date), the Company and e.spire Finance Corporation shall have been in
compliance with each of the covenants and obligations of the Company and e.spire
Finance Corporation set forth in Sections 6.5 and 6.6 of the Credit Agreement.
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(v) All authorizations, approvals or permits, if any, of any
Governmental Authority that are required in connection with the lawful issuance
and sale of the Securities or the Change in Control Warrants pursuant to this
Agreement or the Additional Securities pursuant to the terms thereof shall have
been duly obtained.
(vi) Other than the Stockholder Approval in the case of the Final
Closing and other than any notification under the HSR Act and any consent of the
FCC or any State Telecommunications Authority, in each case, as may be required
as a result of the conversion or exercise of the Securities, all consents and
waivers, if any, of third parties that are required in connection with such
Closing under this Agreement, and the consummation of the transactions
contemplated hereby, shall be duly obtained and effective as of the Closing.
(vii) All corporate and other proceedings required in connection
with the transactions contemplated at such Closing and all documents incident
thereto shall be satisfactory in form and substance to the Purchasers and its
counsel and the Purchasers and such counsel shall have received such counterpart
originals and certified or other copies of such documents as they may reasonably
request.
(viii) On or before the Closing Date, the Purchasers (and its
counsel) shall have received such further documents, certificates and schedules
or instruments relating to the business, corporate, legal and financial affairs
of the Company as they shall have heretofore reasonably requested from the
Company.
(ix) The Company and the Purchasers shall have entered into the
Registration Rights Agreement and the Warrant Agreement.
(x) The Company shall have received the written confirmation of
NASDAQ, in form and substance satisfactory to the Purchasers and its counsel,
that other than obtaining Stockholder Approval as contemplated by Section 2(f)
above, the Securities, Additional Securities and Change in Control Warrants may
be issued and sold, and the transactions contemplated by this Agreement and the
other Transaction Documents may be consummated, without breach, violation or
contravention of any NASDAQ Rule ("NASDAQ Approval").
(xi) The Company shall have filed the Certificate of Designation
with the Secretary of State of Delaware and the same shall have become effective
and be in full force and effect.
(xii) Since January 18, 2000, there shall not have been any
material adverse change in the price of the Common Stock.
(xiii) As at December 31, 1999 (and after giving effect to all
financial results, events and other circumstances through the close of business
on such date), the Company and e.spire Finance Corporation shall have been in
compliance with each of the
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covenants and obligations of the Company and e.spire Finance Corporation set
forth in Sections 6.5 and 6.6 of the Credit Agreement.
(xiv) Either the Purchasers shall have received confirmation from
the Company's independent certified public accountants reasonably satisfactory
to the Purchasers that no "going concern" or similar exception will be taken in
connection with the Company's financial statements for the year ended December
31, 1999, or the Purchasers shall have received a waiver reasonably acceptable
to Purchasers from the lenders under the Credit Agreement of any default under
the Credit Agreement relating to any such "going concern" or similar exception.
(b) Additional Conditions to the Purchasers' Obligations at the Initial
Closing.
In addition to the conditions set forth in Section 6(a) above,
the obligations of the Purchasers to the Company under this Agreement are
subject to the fulfillment on or before the Initial Closing of the following
additional conditions:
(i) Approval of Budget. The Company shall have prepared and
submitted to the Purchasers its final budget for the fiscal year ended December
31, 2000 and Huff shall have approved such budget (together with any updates or
revisions thereof) or shall have waived in writing such approval.
(ii) Issuance of Warrants. The Warrants included in the Initial
Units (and if a Change in Control shall have occurred, the Change in Control
Warrants) shall have been issued at the Initial Closing.
(iii) Issuance of Stock Certificates. The certificates
representing the shares of Preferred Stock included in the Initial Preferred
Stock shall have been executed and delivered by the Company to the Purchasers at
the Initial Closing according to the percentages set forth opposite their names
on the signature pages hereto.
(iv) Completion of Capital Calls by Purchasers. Each Purchaser
shall have received the funds necessary to pay the purchase price for the
Warrants and the Initial Preferred Stock being purchased by such Purchaser at
the Initial Closing in accordance with the capital call procedures applicable to
such Purchaser under such Purchaser's capital call instruments, but in no event
later than five business days after the Purchasers receive written notice from
the Company that all conditions to the Initial Closing set forth in Sections
6(a) and (b) have been satisfied.
(c) Additional Conditions to the Purchaser's Obligations at the Final
Closing.
In addition to the conditions set forth in Section 6(a) above,
the obligations of the Purchasers to the Company under this Agreement are
subject to the fulfillment on or before the Final Closing of the following
additional condition:
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<PAGE> 23
(i) Stockholder Approval. The Company shall have obtained the
Stockholder Approval or it shall have been determined that such approval is not
required as provided in Section 3(e).
(ii) Issuance of any Change in Control Warrants. If a Change in
Control shall have occurred, the Change in Control Warrants shall have been
issued.
(iii) Issuance of Stock Certificates. The certificates
representing the shares of Preferred Stock included in the Remaining Preferred
Stock shall have been executed and delivered by the Company to the Purchasers at
the Final Closing.
(iv) Completion of Capital Calls by Purchasers. Each Purchaser
shall have received the funds necessary to pay the purchase price for the
Remaining Preferred Stock being purchased by such Purchaser at the Final Closing
in accordance with the capital call procedures applicable to such Purchaser
under such Purchaser's capital call instruments, but in no event later than five
business days after the Purchasers receive written notice from the Company that
all conditions to the Final Closing set forth in Sections 6(a) and (c) have been
satisfied.
(d) Failure of Certain Conditions To Be Met.
(i) If on the trading day immediately preceding the Initial
Closing the closing price of the Common Stock as reported in the New York
edition of the Wall Street Journal is less than $6.26145 per share (subject to
appropriate adjustment for stock dividends, stock splits and similar events) (a
"Stock Decline"), then in such event the exercise price of all Warrants
(including, without limitation, the Change in Control Warrants) shall be reset
to equal $7.25 per share (subject to adjustment in accordance with the
provisions of the Warrant Agreement in connection with events other than the
Stock Decline).
(ii) In the event that there shall be a Change in Control of the
Company, then the Purchasers shall receive simultaneously with the occurrence of
the Change in Control or as soon thereafter as shall be practicable 6,250
additional Warrants (the "Change in Control Warrants"), each of which Change in
Control Warrants being exercisable for the same number of shares of Common Stock
and at the same exercise price as are than in effect under the Warrants (or, if
no Warrants are then outstanding, as would have been in effect had Warrants then
been outstanding) and otherwise having the same terms and subject to the same
conditions as the Warrants. As used herein, the term "Change in Control" means
(A) the sale, conveyance, transfer or lease of all or substantially all of the
assets of the Company (which, for purposes of this sentence, shall include any
successor to the Company) to any "person" or "group" (within the meaning of
Section 13(d)(3) and 14(d)(2) of the Exchange Act or any successor provision to
either of the foregoing, including any group acting for the purpose of
acquiring, holding or disposing of securities within the meaning of Rule
13d-5(b)(i) under the Exchange Act), other than to the Purchasers, 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
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<PAGE> 24
(including any affiliate of any of the foregoing other than the Company or any
Restricted Subsidiary of the Company (as defined in the Indenture, dated July
24, 1998 with respect to the Company's 10.625% Senior Discount Notes Due July 1,
2008)) (the "Permitted Holders"), shall have occurred; or (B) any "person" or
"group" (within the meaning of Sections 13(d)(3) and 14(d)(2) of the Exchange
Act or any successor provision to either of the foregoing, including any group
acting for the purpose of acquiring, holding or disposing of securities within
the meaning of Rule 13d-5(b)(i) under the Exchange Act), other than any
Permitted Holder, becomes the "beneficial owner" (as defined under the Exchange
Act) of more than 35 percent of the total voting power of all classes of the
voting capital stock of the Company (including any warrants, options or rights
to acquire such voting capital stock), calculated on fully diluted basis, and
such voting power percentage is greater than or equal to the total voting power
percentage then beneficially owned by the Permitted Holders in the aggregate; or
(C) during any period of two consecutive years, individuals who at the beginning
of such period constituted the Board of Directors of the Company (together with
any new directors whose election or appointment by such board or whose
nomination for election by the stockholders of the Company was approved by a
vote a majority of the directors then still in office who were either directors
at the beginning of such period or whose election or nomination for election was
previously so approved) cease for any reason to constitute a majority of the
Board of Directors then in office. Notwithstanding anything to the contrary
herein or in any other Transaction Document, the parties hereby agree that the
provisions of this Section 6(e) (and any other provisions hereof or any other
Transaction Document relating to the Change in Control Warrants or any
Additional Securities issuable in connection therewith) may be amended by the
Company and the holders of a majority of the outstanding shares of Preferred
Stock (including any shares of Preferred Stock issued to Purchasers hereunder,
to Huff, to Honeywell and to any Additional Purchasers (hereinafter defined)
(the "Majority Holders"), and any waiver relating to such Change in Control
Warrants and/or Additional Securities may be given on behalf of the Purchaser by
such Majority Holders; provided, however, that any such amendment or waiver
treats all holders of Preferred Stock in the same fashion.
7. Restrictions on Transfer. Each Purchaser hereby severally
and not jointly represents and warrants to the Company that:
(a) The Securities to be purchased by such Purchaser will be acquired
for investment for its own account, and, except as contemplated by the Warrant
Agreement and the Registration Rights Agreement or otherwise in accordance with
applicable securities laws, not with a view to the resale or distribution of any
part thereof and without the present intention of selling, granting any
participation in, or otherwise distributing the same.
(b) Such Purchaser is an "accredited investor" within the meaning of
Rule 501(a) under the Securities Act and can bear the economic risk of its
investment and has such knowledge and experience in financial or business
matters that it is capable of evaluating the merits and risks of the investment
in the Securities and has received all information from the Company that it has
requested with respect to the Company and the Securities.
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<PAGE> 25
(c) Such Purchaser understands that the Securities it is purchasing are
characterized as "restricted securities" under the federal securities laws
inasmuch as they are being acquired from the Company in a transaction not
involving a public offering and that under such laws and applicable regulations
such securities may be resold without registration under the Securities Act,
only in certain limited circumstances. In this connection, such Purchaser
represents that it is familiar with Rule 144 of the Commission, as presently in
effect, and understands the resale limitations imposed hereby by the Securities
Act.
(d) Such Purchaser understands that the certificates evidencing the
Securities will bear a legend evidencing the foregoing restrictions on transfer.
The Securities shall not be required to bear a restrictive
legend if a registration statement under the Securities Act is effective with
respect to the transfer of such securities or an opinion of counsel reasonably
satisfactory to the Company is delivered to the Company to the effect that
neither the legend nor the restrictions on transfer described in this Agreement
are required to ensure compliance with the Securities Act. Whenever, pursuant to
the preceding sentence, any certificate for any of the Securities is no longer
required to bear a restrictive legend, the Company may and if requested by the
holder thereof, shall, issue to the holder, at the Company's expense any new
certificate not bearing a restrictive legend.
8. Indemnification.
(a) The Company agrees to indemnify each Purchaser, each of its
affiliates and each officer, director, employee, member, partner (whether
general or limited) and agent of each Purchaser and of each of its affiliates
(collectively, the "Indemnified Parties") for, and to hold each Indemnified
Party harmless from and against any and all damages, losses, claims and other
liabilities of any and every kind, including, without limitation, judgments and
costs of settlement (or actions or other proceedings commenced or threatened in
respect thereof) and reasonable expenses that arise out of, result from or in
any way relate to this Agreement or any other Transaction Document, or in
connection with any of the transactions contemplated hereby or thereby,
including, without limitation, in connection with the preparation, filing with
the Commission and mailing to the Company's stockholders of the proxy statement
for the Stockholder Approval and any other proxy statement for the increase in
the authorized Common Stock referred to in Section 4(g) (other than ordinary
investment losses to the extent not arising in connection with (A) any actual or
alleged misrepresentation or breach of covenant, warranty duty or obligation by
the Company or (B) any actual or threatened action or proceeding arising out of,
resulting from or in any way relating to this Agreement or any other Transaction
Document, or any of the transactions contemplated hereby or thereby), and to
reimburse each Indemnified Party, upon its demand, for any reasonable legal or
other expenses incurred in connection with investigating, defending or
participating in any such loss, claim, damage, liability or action or other
proceeding (whether or not such person is a party to any action or proceeding
out of which such expenses arise). The Indemnified Parties shall have the right
to select counsel, subject to the prior consent of the Company,
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<PAGE> 26
which consent shall not be unreasonably withheld or delayed, to defend the
Indemnified Parties at the Company's expense in any action or proceeding that is
the subject of indemnification hereunder, provided, that the Company shall not
be liable for the fees and expenses of more than one counsel (plus any local
counsel) for all Indemnified Parties (unless any Indemnified Party shall have
reasonably determined that an actual or potential conflict of interest makes
such common representation inappropriate) in connection with any such action or
proceeding. The Company will not be required to indemnify any Indemnified Party
for any amount paid in settlement of any action or proceeding which is the
subject of indemnification hereunder unless the Company shall have consented in
writing to such settlement, such consent not to be unreasonably withheld or
delayed. The Company shall not, without the prior written consent of the
Indemnified Party, effect any settlement or compromise of any pending or
threatened proceeding in respect of which any Indemnified Party is or could have
been a party, or indemnity could have been sought hereunder by such Indemnified
party, unless such settlement (A) includes an unconditional written release of
such Indemnified Party, in form and substance reasonably satisfactory to such
Indemnified party, from all liability on claims that are the subject matter of
such proceeding and (B) does not include any statement as to an admission of
fault, culpability or failure to act by or on behalf of any Indemnified party.
(b) If the indemnification provided for in Section 8(a) above is for
any reason unavailable to, or insufficient to hold harmless, an Indemnified
Party in respect of any losses, claims, damages or liabilities referred to
therein, then the Company, in lieu of indemnifying such Indemnified Party
thereunder and in order to provide for just and equitable contribution, shall
contribute to the amount paid or payable by such Indemnified Party as a result
of such losses, claims, damages or liabilities in such proportion as is
appropriate to reflect (i) the relative benefits received by the Indemnified
Party or Parties on the one hand and the Company on the other from the offering
of the Units or the Change in Control Warrants or (ii) if the allocation
provided by the foregoing clause (i) is not permitted by applicable law, not
only such relative benefits but also the relative fault of the Company on the
one hand and the Indemnified Party or Parties on the other in connection with
any statements or omissions or alleged statements or omissions or other matters
that resulted in such losses, claims, damages or liabilities (or actions in
respect thereof) as well as any other relevant equitable considerations. The
relative fault of the parties shall be determined by reference to, among other
things, whether any untrue or alleged untrue statement of a material fact or the
omission or alleged omission to state a material fact relates to information
supplied by the Company on the one hand or such Indemnified Party, on the other,
the parties' relative intent, knowledge, access to information and opportunity
to correct or prevent such statement or omission, and any other equitable
considerations appropriate in the circumstances.
(c) The parties agree that it would not be just and equitable if
contribution pursuant to this Section 8 were determined by pro rata allocation
(even if the Indemnified Parties were treated as one entity for such purpose) or
by any other method of allocation that does not take account of the equitable
considerations referred to in Section 8(b)
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above. The amount paid or payable by the Company as a result of the losses,
claims, damages and liabilities referred to in Section 8(b) above shall be
deemed to include, subject to the limitations set forth above, any reasonable
legal or other expenses actually incurred by such Indemnified Party in
connection with investigating or defending any such action or claim.
9. Survival Clause. The respective representations,
warranties, agreements, covenants, indemnities and other statements of the
Company or its officers and of the Purchasers set forth in this Agreement or
made by or on behalf of them, respectively, pursuant to this Agreement shall
remain in full force and effect, regardless of (i) any investigation made by or
on behalf of the Company or the Purchasers and (ii) delivery of and payment for
the Securities. The respective agreements, covenants, indemnities and other
statements set forth in Sections 5 and 8 hereof shall remain in full force and
effect, regardless of any termination or cancellation of this Agreement.
10. Termination.
(a) This Agreement may be terminated prior to the Initial Closing or
the Final Closing, as the case may be, under the following circumstances and by
the following persons:
(i) by the Purchasers, if subsequent to September 30, 1999, any
event shall have occurred which, in the sole judgment of the Purchasers, has
had, individually or in the aggregate, a Material Adverse Effect, or there shall
have been, in the sole judgment of the Purchasers, any events or developments
that, individually or in the aggregate, have or could be reasonably likely to
have a Material Adverse Effect (except for the events disclosed in the SEC
Reports or in Schedule 2(e));
(ii) by the mutual consent of the Purchasers and the Company;
(iii) by the Purchasers at any time after March 6, 2000, or such
later date as shall have been agreed to in writing by the parties hereto, if at
the time notice of such termination is given, the Initial Closing shall not have
been consummated;
(iv) solely with respect to the Remaining Preferred Stock, by the
Purchasers at any time after the expiration of 100 days following the Initial
Closing (or such later date as shall have been agreed to in writing by the
parties hereto), if at the time notice of such termination is given the Final
Closing shall not have been consummated;
(v) by the Purchasers or the Company if any court of competent
jurisdiction in the United States or other United States Governmental Authority
has issued an order, decree or ruling or taken any other action restraining,
enjoining or otherwise prohibiting the transactions contemplated by this
Agreement or the other Transaction Documents and such order, decree, ruling or
other action shall have become final and nonappealable provided, that the
provisions of this clause (v) shall not be available to any party whose failure
to fulfill its obligations pursuant to this Agreement
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shall have been the cause of, or shall have resulted in, such order, decree,
ruling or other action;
(vi) by the Purchasers, if there has been a material
misrepresentation or omission or material breach on the part of the Company in
any of the representations, warranties, covenants or agreements of the Company
set forth herein or in any other Transaction Document, or if there has been any
material failure on the part of the Company to comply with its obligations and
satisfy all conditions on its part to be performed or satisfied hereunder at or
prior to Closing including, without limitation, and solely with respect to the
Final Closing, obtaining the Stockholder Approval within 100 days after the
Initial Closing (unless not required as provided in Section 3(e));
(vii) by the Purchasers, if there has been a suspension in
trading in securities of the Company or in securities generally on the New York
Stock Exchange, American Stock Exchange or The Nasdaq Stock Market or if minimum
or maximum prices shall have been established on any such exchange or market;
(viii) by the Purchaser, if a banking moratorium shall have been
declared by New York or United States authorities;
(ix) by the Purchasers, if there has been (A) an outbreak or
escalation of hostilities between the United States and any foreign power, or
(B) an outbreak or escalation of any other insurrection or armed conflict
involving the United States or any other national or international calamity or
emergency, or (C) any material adverse change in (1) the capital markets
generally, (2) the capital markets for equity securities or (3) the capital
markets for telecommunication company equity securities which, in the case of
(A), (B) or (C) above and in the sole judgment of the Purchasers, makes it
impracticable or inadvisable to proceed with the purchase and sale of the
Securities as contemplated by this Agreement; or
(x) by the Purchasers, if third parties, the approvals of which
are necessary to consummate the transactions contemplated hereby or by the other
Transaction Documents, require changes to the terms of this Agreement or any
other Transaction Document that are adverse to the Purchasers, as determined by
the Purchasers in its sole judgment.
(b) Termination of this Agreement pursuant to this Section 10 shall be
without liability of any party to any other party except as provided in Sections
5, 8 and 9.
11. Notices. All communications hereunder shall be in writing
and, if sent to the Purchasers, shall be mailed or delivered or telecopied and
confirmed in writing to the Purchasers as follows:
Greenwich Street Capital Partners II, L.P.
GSCP Offshore Fund, L.P.
Greenwich Fund, L.P.
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Greenwich Street Employees Fund, L.P.
TRV Executive Fund, L.P.
c/o Greenwich Street Investments II, L.L.C.,
General Partner
388 Greenwich Street
New York, NY 10010
Facsimile No.:(212) 816-0166
Attention: Matthew Kaufman
with a copy to:
Weil, Gotshal & Manges LLP
767 Fifth Avenue
New York, NY 10153
Facsimile No.: (212) 310-8007
Attention: Michael Nissan
All such notices and communications shall be deemed to have
been duly given: when delivered by hand, if personally delivered; five business
days after being deposited in the mail, postage prepaid, if mailed; and one
business day after being timely delivered to a next-day air courier; and when
receipt is acknowledged by the addressee, if telecopied.
12. Successors. This Agreement shall inure to the benefit of
and be binding upon the parties hereto and their respective successors and legal
representatives, and nothing expressed or mentioned in this Agreement is
intended or shall be construed to give any other person any legal or equitable
right, remedy or claim under or in respect of this Agreement, or any provisions
herein contained; this Agreement and all conditions and provisions hereof being
intended to be and being for the sole and exclusive benefit of such persons and
for the benefit of no other person except that the indemnities of the Company
contained in Section 8 of this Agreement shall also be for the benefit of any
Indemnified Party and any person or persons who control the Purchasers within
the meaning of Section 15 of the Securities Act or Section 20 of the Exchange
Act.
13. Subsequent Securities. In addition to the issuance and
sale of the Securities hereunder and any purchase of Securities by Greenwich,
the Company shall use reasonable efforts to sell to other investors (which
investors shall exclude the Purchasers) acceptable to the Company's Board of
Directors (the "Additional Investors") up to $75,000,000 of additional Preferred
Stock and Warrants (the "Subsequent Securities"), of which up to $25,000,000 of
such Subsequent Securities shall be on the same terms and conditions (including
initial conversion price and initial warrant exercise price) as the Preferred
Stock and Warrants included in the Securities and up to $50,000,000 of such
Subsequent Securities may, if so determined by the Company's Board of Directors,
be on terms and conditions more favorable to the Company. Such purchases will
occur at the Final Closing (or in the event there is no Final Closing, at one
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or more closings on mutually convenient dates, times and places, no later than
100 days after the Initial Closing). Such purchases shall be conditioned in
addition to the conditions to the Closings set forth above, upon (i) Stockholder
Approval, and (ii) the execution and delivery by the Additional Purchasers of
definitive commitment letters to the Company covering their investments no later
than March 6, 2000 (with a copy to be delivered by the Company to Purchasers
promptly thereafter).
14. Equitable Adjustments. In the event that at any time after
the date hereof but prior to the issuance of any Securities or Change in Control
Warrants there shall occur any event which would trigger antidilution
adjustments in connection with such Securities or Change in Control Warrants had
they been previously issued, the number of shares of Common Stock issuable upon
the conversion or exercise thereof, and the conversion or exercise price
applicable thereto, shall be equitably adjusted to reflect such events.
15. Counterparts. This Agreement may be executed in two or
more counterparts, each of which shall be deemed an original, but all of which
together shall constitute one and the same instrument.
16. Entire Agreement. This Agreement, together with the
Exhibits and Schedules hereto, the Warrant Agreement and the Registration Rights
Agreement, is intended by the parties as a final and exclusive statement of the
agreement and understanding of the parties hereto in respect of the subject
matter contained herein and therein and any and all prior oral or written
agreements, representations, warranties, contracts, understandings,
correspondence, conversations and memoranda between the Purchasers, on one hand,
and the Company, on the other, or between or among any agents, representatives,
parents, subsidiaries, affiliates, predecessors in interest or successors in
interest, with respect to the subject matter hereof and thereof are merged
herein and replaced hereby.
17. APPLICABLE LAW. THE VALIDITY AND INTERPRETATION OF THIS
AGREEMENT, AND THE TERMS AND CONDITIONS SET FORTH HEREIN, SHALL BE GOVERNED BY
AND CONSTRUED IN ACCORDANCE WITH THE LAWS OF THE STATE OF NEW YORK, WITHOUT
GIVING EFFECT TO ANY PROVISIONS RELATING TO CONFLICTS OF LAW.
18. VCOC Requirement. The rights granted to Purchaser under
Sections 4(c) and 4(l) are intended to satisfy the requirement of management
rights for purposes of qualifying Greenwich's ownership of the Securities and
the Additional Securities as a venture capital investment for purposes of the
Department of Labor "plan asset" regulations, 29 C.F.R. Section 2510.3-101, and
in the event such rights are not satisfactory for such purpose, the Company and
Greenwich shall reasonably cooperate in good faith to agree upon mutually
satisfactory management rights which satisfy such regulations.
30
<PAGE> 31
If the foregoing correctly sets forth our understanding,
please indicate your acceptance thereof in the space provided below for that
purpose, whereupon this letter shall constitute a binding agreement between the
Company and the Purchasers.
Very truly yours,
e.spire COMMUNICATIONS, INC.
By: /s/ RILEY M. MURPHY
-----------------------------------
Name: Riley M. Murphy
Title: Executive Vice President-Secretary
The foregoing Agreement is hereby
confirmed and accepted as of the
date first above written.
GREENWICH STREET CAPITAL PARTNERS II, L.P. (89.3378%)
By: Greenwich Street Investments II, L.L.C.,
General Partner
By: [SIG]
----------------------------------------
Name:
----------------------------------
Title:
---------------------------------
GSCP OFFSHORE FUND, L.P. (1.8625%)
By: Greenwich Street Investments II, L.L.C.,
General Partner
By: [SIG]
----------------------------------------
Name:
----------------------------------
Title:
---------------------------------
31
<PAGE> 32
GREENWICH FUND, L.P. (3.0262%)
By: Greenwich Street Investments II, L.L.C.,
General Partner
By: [SIG]
----------------------------------------
Name:
----------------------------------
Title:
---------------------------------
GREENWICH STREET EMPLOYEES FUND, L.P. (5.3332%)
By: Greenwich Street Investments II, L.L.C.,
General Partner
By: [SIG]
----------------------------------------
Name:
----------------------------------
Title:
---------------------------------
TRV EXECUTIVE FUND, L.P. (0.4403%)
By: Greenwich Street Investments II, L.L.C.,
General Partner
By: [SIG]
----------------------------------------
Name:
----------------------------------
Title:
---------------------------------
32
<PAGE> 33
EXHIBIT A
THE SECURITIES REPRESENTED BY THIS CERTIFICATE HAVE NOT BEEN REGISTERED UNDER
THE SECURITIES ACT OF 1933, AS AMENDED (THE "ACT"), OR ANY STATE SECURITIES LAWS
OR THE SECURITIES LAWS OF ANY COUNTRY OR OTHER JURISDICTION AND MAY NOT BE
OFFERED, SOLD, TRANSFERRED OR OTHERWISE DISPOSED OF OR PLEDGED OR HYPOTHECATED
UNLESS REGISTERED UNDER THE ACT AND ANY APPLICABLE SECURITIES LAWS OR UNLESS AN
EXEMPTION FROM REGISTRATION UNDER THE ACT AND ANY SUCH LAWS IS AVAILABLE (AND,
IN SUCH CASE, AN OPINION OF COUNSEL REASONABLY ACCEPTABLE TO E.SPIRE
COMMUNICATIONS, INC. ("COMPANY")), IN FORM AND SUBSTANCE REASONABLY SATISFACTORY
TO THE COMPANY, SHALL HAVE BEEN DELIVERED TO THE COMPANY TO THE EFFECT THAT THE
OFFER, SALE, TRANSFER, DISPOSITION, PLEDGE OR HYPOTHECATION THEREOF IS EXEMPT
FROM REGISTRATION UNDER THE ACT AND ANY SUCH LAWS.
THE SECURITIES REPRESENTED BY THIS CERTIFICATE HAVE THE BENEFITS OF A WARRANT
AGREEMENT DATED AS OF MARCH 3, 2000 AMONG THE COMPANY, 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., TRV
EXECUTIVE FUND, L.P. AND SUCH OTHER PARTIES WHO MAY BE MADE A SIGNATORY THERETO
FROM TIME TO TIME, A COPY OF WHICH IS ON FILE WITH THE SECRETARY OF THE
COMPANY. NO TRANSFER, SALE, ASSIGNMENT, PLEDGE, HYPOTHECATION OR OTHER
DISPOSITION OF THE SECURITIES REPRESENTED BY THIS CERTIFICATE MAY BE MADE
EXCEPT IN ACCORDANCE WITH THE PROVISIONS OF SUCH AGREEMENT.
E.SPIRE COMMUNICATIONS, INC.
No.______ _____Warrants
Date: March___, 2000
WARRANTS TO PURCHASE SHARES OF COMMON STOCK
This certifies that__________, or its registered assigns, is the owner of
the number of Warrants set forth above, each of which initially represents the
right to purchase 44.1 shares of Common Stock (each a "Warrant Share"), par
value $.01 per share (the "Common Stock"), of E.SPIRE COMMUNICATIONS, INC., a
Delaware corporation ("the Company"), at the purchase price equal to the
Exercise Price (as defined in the Warrant Agreement) per share of Common Stock
(subject to adjustment as set forth in the Warrant Agreement)(as defined
herein), upon surrender hereof at the offices of the Company, with the
Subscription Form on the reverse hereof duty executed, with signature
guaranteed as therein specified and simultaneous payment in full (by Fedwire or
by certified or official bank or bank cashier's check payable to the order of
the Company, or by a Cashless Exercise (as defined in the Warrant Agreement)
equal to the Exercise Price of the Warrants being exercised) of the purchase
price for the share(s) as to which the Warrant(s) represented by this Warrant
Certificate are exercised, all subject to the terms and conditions hereof and
of the Warrant Agreement.
This Warrant Certificate is issued under and in a accordance with a
Warrant Agreement dated as of March____, 2000 (the "Warrant Agreement"), among
e.spire Communications, Inc., a Delaware corporation, 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 such other parties who may be made a signatory hereto
from time to time and is subject to the terms and provisions
<PAGE> 34
contained therein, to all of which terms and provisions the Holder of this
Warrant Certificate consents by acceptance hereof. The Warrant Agreement is
hereby incorporated herein by reference and made a part thereof. Reference is
hereby made to the Warrant Agreement for a full description of the rights,
limitations of rights, obligations, duties and immunities thereunder of the
Company and the Holders of the Warrants. The summary of the terms of the Warrant
Agreement contained in this Warrant Certificate is qualified in its entirety by
express reference to the Warrant Agreement. All terms used in this Warrant
Certificate that are defined in the Warrant Agreement shall have the meanings
assigned to them in the Warrant Agreement.
Copies of the Warrant Agreement are on file at the offices of the Company
at the following address:
e.spire Communications, Inc.
12975 Worldgate Drive
Herndon, VA 21070
Facsimile No: (703) 639-6023
Attention: Riley M. Murphy, Esq.
All shares of Common Stock or other securities issuable by the Company
upon the exercise of Warrants shall be validly issued, fully paid and
nonassesable, and the Company shall pay all taxes and other governmental
charges that may be imposed under the laws of the United States of America or
any political subdivision or taxing authority thereof or therein in respect of
the issue or delivery of such shares or of other securities deliverable upon
exercise of Warrants. The Company shall not be required, however, to pay any
tax or other charge imposed in connection with any transfer involved in the
issue of any certificate for Common Stock, and in such case the Company shall
not be required to issue or deliver any stock certificate until such tax or
other charge has been paid or it has been established to the Warrant Agent's
and the Company's satisfaction that no tax or other charge is due.
Subject to the restrictions on transfer set forth in Article VII of the
Warrant Agreement, this Warrant Certificate and all rights hereunder are
transferable by the registered Holder hereof, in whole or in part, on the
register of the Company maintained by the Warrant Agent for such purpose at its
office in New York, New York, upon surrender of this Warrant Certificate duly
endorsed, or accompanied by a written instrument of transfer in form
satisfactory to the Company duly executed, with signatures guaranteed as
specified in the attached Form of Assignment, by the registered Holder hereof
or his attorney duly authorized in writing and upon payment of any necessary
transfer tax or other governmental charge imposed upon such transfer. Upon any
partial transfer, the
2
<PAGE> 35
Company will issue and will deliver to such Holder a new Warrant Certificate or
Certificates with respect to any portion not so transferred. Each taker and
Holder of this Warrant Certificate, by taking and holding the same, consents
and agrees that prior to the registration of transfer as provided in the
Warrant Agreement, the Company and the Warrant Agent may treat the person in
whose name the Warrants are registered as the absolute owner hereof for any
purpose and as the person entitled to exercise the rights represented hereby,
any notice to the contrary notwithstanding.
This Warrant Certificate may be exchanged at the office of the Company for
Warrant Certificates representing the same aggregate number of Warrants, each
new Warrant Certificate to represent such number of Warrants as the Holder
hereof shall designate at the time of such exchange.
Prior to the exercise of the Warrants represents hereby, the Holder of
this Warrant Certificate, as such, shall not be entitled to any rights of a
stockholder of the Company, including, without limitation, the right to vote or
to consent to any action of the stockholders, to receive dividends or other
distributions, to exersise any preemptive right or to receive any notice of
meetings of stockholders, and shall not be entitled to receive any notice of any
proceedings of the Company except as provided in the Warrant Agreement.
This Warrant shall be void and all rights evidenced hereby shall cease at
5:00 p.m., New York time, on March 3, 2010, unless sooner terminated by the
liquidation, dissolution or winding-up of the Company.
This Warrant Certificate shall not be valid for any purpose until it shall
have been countersigned by the Warrant Agent.
Dated:
E. SPIRE COMMUNICATIONS, INC.
By:
----------------------------------
Name:
Title:
3
<PAGE> 36
SUBSCRIPTION FORM
(To be executed only upon exercise of Warrant)
To:
The undersigned irrevocably exercise [_________] of the Warrants
represented by the Warrant Certificate for the purchase of ____ (subject to
adjustment) shares of Common Stock, par value $.01 per share, of E. SPIRE
COMMUNICATIONS, INC. and herewith makes payment of $[______] (such payment being
by Fedwire or by certified or official bank or bank cashier's check payable to
the order or at the direction of E. Spire Communications, Inc., or by a
Cashless Exercise (as defined in the Warrant Certificate) equal to the Exercise
Price per share of the date of exercise of the Warrants being exercised), all
at the exercise price and on the terms and conditions specified in the within
Warrant Certificate therein referred to, surrenders this Warrant Certificate
and all right, title and interest therein to and directs that the shares of
Common Stock deliverable upon the exercise of such Warrants be registered or
placed in the name and at the address specified below and delivered thereto.
Dated:
-----------------------------------
(Signature of Owner)
-----------------------------------
(Street Address)
-----------------------------------
(City)(State)(Zip Code)
Signature Guaranteed By:
-----------------------------------
Securities and/or check to be issued to:
Please insert social security or identifying number:
Name:
Street Address:
City, State and Zip Code:
4
<PAGE> 37
FOR VALUE RECEIVED the undersigned registered holder of the within Warrant
Certificate hereby sells, assigns, and transfers unto the Assignee(s) named
below (including the undersigned with respect to any Warrants constituting a
part of the Warrants evidenced by the within Warrant Certificate not being
assigned hereby) all of the right of the undersigned under the within Warrant
Certificate, with respect to the number of Warrants set forth below:
Name(s) of Assignee(s):
-------------------------------
Address:
----------------------------------------------
No. of Warrants:
--------------------------------------
Please insert social security or other identifying number of assignee(s):
and does hereby irrevocably constitute and appoint ___________ the
undersigned's attorney to make such transfer on the books of ____________
maintained for the purpose, with full power of substitution in the premises.
Dated:
-------------------------------
(Signature of Owner)
-------------------------------
(Street Address)
-------------------------------
(City)(State)(Zip Code)
Signature Guaranteed By:
-------------------------------
5
<PAGE> 38
EXHIBIT B
<PAGE> 39
EXHIBIT B
CERTIFICATE OF DESIGNATION
SERIES A CONVERTIBLE PREFERRED STOCK
OF
E.SPIRE COMMUNICATIONS, INC.
THE UNDERSIGNED, Dennis J. Kern, Chief Operating Officer of
E.SPIRE COMMUNICATIONS, INC., a corporation organized and existing under the
laws of the State of Delaware (the "Corporation"), HEREBY CERTIFIES:
That pursuant to the authority conferred upon the Board of
Directors of the Corporation by the Corporation's Third Amended and Restated
Certificate of Incorporation (the "Certificate of Incorporation") and in
accordance with the provisions of Section 151 of the General Corporation Law of
the State of Delaware, said Board of Directors, acting at a meeting of the board
held on February 25, 2000, duly approved and adopted the following resolution
(hereinafter, this "Certificate of Designation"):
RESOLVED, that pursuant to the authority vested in the Board
of Directors by the Certificate of Incorporation, the Board of Directors does
hereby designate, create, authorize and provide for the issue by the
Corporation, out of the authorized but unissued shares of Preferred Stock, par
value $1.00 per share, 250,000 shares of Series A Convertible Preferred Stock
(the "Series A Convertible Preferred Stock") with a stated value (the "Stated
Value") of $ 1,000 per share. The Series A Convertible Preferred Stock shall
have the powers, preferences and relative, participating, optional and other
special rights, and the qualifications, limitations and restrictions that are
set forth in the Certificate of Incorporation and in this resolution as follows:
1. Certain Definitions
Unless the context otherwise requires, each of the terms
defined in this Section 1 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):
"Accrued Dividends" has the meaning set forth in Section 4
below.
1
<PAGE> 40
"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.
"Additional Dividends" has the meaning set forth in Section
3(j)(i) below.
"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)
2
<PAGE> 41
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).
"Board of Directors" means the Board of Directors of the
Corporation.
"Business Day" means any day other than a Saturday, a Sunday
or any day on which banking institutions in New York, New York, are required or
authorized by law or other governmental action to be closed.
"Capital Lease Obligation" of any Person means the obligation
to pay rent or other payment amounts under a lease of (or other Indebtedness
arrangement conveying the right to use) real or personal property of such Person
which is required to be classified and accounted for as a capital lease or a
liability on the face of a balance sheet of such Person in accordance with GAAP
and the stated maturity thereof shall be the date of the last payment of rent or
any amount due under such lease prior to the first date upon which such lease
may be terminated by the lessee without payment of a penalty.
"Capital Stock" in any Person means any and all shares,
interests, participations or other equivalents in the equity interest (however
designated) in such Person and any rights (other than Indebtedness convertible
into an equity interest), warrants or 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
3
<PAGE> 42
$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).
"Change of Control" means (i) the sale, conveyance, transfer
or lease of all or substantially all of the assets of the Corporation (which for
all purposes of this definition shall include any Successor) to any "Person" or
"group" (within the meaning of Section 13(d)(3) and 14(d)(2) of the Exchange Act
or any successor provision to either of the foregoing, including any group
acting for the purpose of acquiring, holding or disposing of securities within
the meaning of Rule 13d-5(b)(i) under the Exchange Act), other than to The Huff
Alternative Income Fund, L.P., 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 (including any Affiliate of any of the foregoing other than
the Corporation or any Restricted Subsidiary) (the "Permitted Holders"), shall
have occurred; or (ii) any "Person" or "group" (within the meaning of Sections
13(d)(3) and 14(d)(2) of the Exchange Act or any successor provision to either
of the forgoing, including any group acting for the purpose of acquiring,
holding or disposing of securities within the meaning of Rule 13d-5(b)(i) under
the Exchange Act), other than any Permitted Holder, becomes the "beneficial
owner" (as defined under the Exchange Act) of more than 35 percent of the total
voting power of all classes of the voting capital stock of the Corporation
(including any warrants, options or rights to acquire such voting capital
stock), calculated on fully diluted basis, and such voting power percentage is
greater than or equal to the total voting power percentage then beneficially
owned by the Permitted Holders in the aggregate; or (iii) during any period of
two consecutive years, individuals who at the beginning of such period
constituted the Board of Directors (together with any new directors whose
election or appointment by such board or whose nomination for election by the
stockholders of the Corporation was approved by a vote a majority of the
directors then still in office who were either directors at the beginning of
such period or whose election or nomination for election was previously so
approved) cease for any reason to constitute a majority of the Board of
Directors then in office.
"Commission" means the Securities and Exchange Commission.
"Common Stock" means the Common Stock, par value $.01 per
share, of the Corporation.
"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
4
<PAGE> 43
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
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
5
<PAGE> 44
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.
"Conversion Date" has the meaning set forth in Section 5(d)
below.
"Conversion Price" has the meaning set forth in Section
5(a)(ii) below.
"Conversion Shares" has the meaning set forth in Section 5(a)
below.
"Conversion Trigger Date" has the meaning set forth in Section
5(b) below.
"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.
"Current Market Value" has the meaning set forth in Section
5(e) below.
"DGCL" shall mean the Delaware General Corporation Law, as
amended.
"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.
"Dividend Shares" has the meaning set forth in Section 5(c)
below.
"EBIT" means the amount calculated in the same manner as
EBITDA, but not including clauses (iii) and (iv) of the definition thereof.
6
<PAGE> 45
"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.
"Effectiveness Date" means the 90th day following the Filing
Date.
"Exchange Act" means the Securities Exchange Act of 1934, as
amended, and the rules and regulations promulgated thereunder.
"Exchange Rate Obligation" means, with respect to any Person,
any currency swap agreements, forward exchange rate 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").
"Fair Market Value" means, with respect to any asset or
property, the sale value that would be obtained in an arm's-length transaction
between an informed and willing seller under no compulsion to sell and an
informed and willing buyer under no compulsion to buy, as determined in good
faith by the Board of Directors.
"Fiber Network" means a digital fiber optic telecommunications
network wholly owned by the Corporation that serves a Metropolitan Area.
"Filing Date" means the later of (i) the 60th day after the
Issue Date and (ii) if Additional Preferred Stock (as such term is defined in
the Registration Rights Agreement) is being sold by the Corporation, the 15th
day after the Final Closing (as such term is defined in the Purchase
Agreements).
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"Financial Advisor" means a nationally recognized investment
banking firm.
"14.75% Preferred Stock" means the Corporation's 14.75%
Redeemable Preferred Stock due 2008.
"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).
"Holder" means the record holder of one or more shares of
Series A Convertible Preferred Stock, as shown on the books and records of the
Transfer Agent.
"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
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<PAGE> 47
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.
"Independent Financial Advisor" means, as of any date of
determination, a Financial Advisor that has not been retained by the
Corporation, other than to perform an equity valuation, within the preceding
twelve months of such date of determination. The Independent Financial Advisor
may be compensated and indemnified by the Corporation as may be customary for
opinions or services it provides as an Independent Financial Advisor.
"Initial Shares" means the shares of Series A Convertible
Preferred Stock issued by the Corporation on the Issue Date.
"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.
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<PAGE> 48
"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.
"Issue Date" means the date of initial issuance of the Series
A Convertible Preferred Stock.
"Junior Stock" has the meaning set forth in Section 2 below.
"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).
"Liquidation Preference" has the meaning set forth in Section
4 below.
"Mandatory Conversion Date" has the meaning set forth in
Section 5(b) below.
"Mandatory Conversion Notice" has the meaning set forth in
Section 5(b) below.
"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.
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"National Securities Exchange" means any national securities
exchange and shall include The NASDAQ Stock Market or any successor market
thereto.
"NASDAQ" means The NASDAQ Stock Market and any related body.
"NASDAQ Rule" means any rule or other requirement or any
criteria for listing or continued trading of NASDAQ.
"Optional Conversion Date" has the meaning set forth in
Section 5(a).
"Optional Conversion Notice" has the meaning set forth in
Section 5(a) below.
"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.
"Parity Stock" has the meaning set forth in Section 2 below.
"Payment Default" has the meaning set forth in Section
8(b)(ii) below.
"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
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<PAGE> 50
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 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
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<PAGE> 51
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.
"Purchase Agreements" means the Purchase Agreement dated
February 18, 2000 between the Corporation and The Huff Alternative Income Fund,
L.P. ("Huff"), the Purchase Agreement dated February 18, 2000 among the
Corporation, 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. (collectively, "Greenwich"), and the Purchase Agreement
dated February 18, 2000 between the Corporation and The Honeywell International
Inc. Master Retirement Trust ("Honeywell").
"Qualified Stock" of any Person means a class of Capital Stock
other than Disqualified Stock.
"Record Date" has the meaning set forth in Section 3(a) below.
"Refinancing Indebtedness" means Indebtedness issued in
exchange for, or the proceeds of which are used to refinance, repurchase,
replace, refund or defease other Indebtedness.
"Registration Rights Agreement" means the Registration Rights
Agreement dated as of the Issue Date among the Corporation, 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 such other parties as become signatories thereto.
"Registration Statement" means a registration statement under
the Securities Act filed by the Corporation with the Commission pursuant to the
provisions of the Registration Rights Agreement.
"Restricted Subsidiary" means any Subsidiary of the
Corporation that has not been classified as an "Unrestricted Subsidiary".
"Rights" means rights, options or warrants for the purchase
of, or securities convertible into or exchangeable for, common stock.
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"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.
"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.
"Securities Act" means the Securities Act of 1933, as amended,
and the rules and regulations promulgated thereunder.
"Senior Stock" has the meaning set forth in Section 2 below.
"Shelf Registration Statement" means a Registration Statement
with respect to the offer and sale of shares of Series A Convertible Preferred
Stock (and the shares of Common Stock issuable upon conversion of, or payable as
dividends on, such shares of Series A Convertible Preferred Stock) by the
holders thereof.
"Stated Value" has the meaning set forth above.
"Stockholder Approval" means the affirmative vote of the
holders of a majority of the shares of the Corporation's Common Stock present in
person or by proxy at a meeting of the stockholders of the Corporation duly
called and held (and at which a quorum is present).
"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
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<PAGE> 53
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.
"Successor" has the meaning set forth in Section 8(b) below.
"Surviving Entity" has the meaning set forth in Section
8(b)(i) below.
"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.
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"Transfer Agent" means the entity designated from time to time
by the Corporation to act as the registrar and transfer agent for the Series A
Convertible Preferred Stock.
"12.75% Preferred Stock" has the meaning set forth in Section
2 below.
"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 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.
"Warrants" means the warrants exercisable to purchase shares
of Common Stock issued by the Corporation pursuant to the Purchase Agreements,
including, without limitation, the Change in Control Warrants (as defined in the
Purchase Agreements).
2. Ranking
The Series A Convertible Preferred Stock shall, with respect
to dividend rights and rights on the liquidation, winding-up and dissolution of
the Corporation (as provided in Sections 3 and 4 below), rank (i) to the extent
described below, senior to all classes of common stock and to each other class
of Capital Stock or series of Preferred Stock established hereafter by the Board
of Directors other than the Parity Stock and the Senior Stock (collectively
referred to as "Junior Stock"), (ii) to the extent described below, on a parity
with the Series A and Series B 12.75% Junior Redeemable Preferred Stock (the
"12.75% Preferred Stock") and each other class of Capital Stock or series of
Preferred Stock established hereafter by the Board of Directors with the
affirmative vote or consent of the Holders of at least a majority of the
outstanding shares of the Series A Convertible Preferred Stock, voting or
consenting as a single class, the terms of which expressly provide that such
class or series ranks on a parity with the Series A Convertible Preferred Stock
as to dividend rights and rights on the liquidation, winding-up and dissolution
of the Corporation (collectively referred to as "Parity Stock")
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and (iii) junior to the 14.75% Redeemable Preferred Stock (the "14.75% Preferred
Stock") and any future class of Preferred Stock established hereafter by the
Board of Directors with the affirmative vote or consent of the Holders of at
least a majority of the outstanding shares of the Series A Convertible Preferred
Stock, voting or consenting as a single class, the terms of which expressly
provide that such class ranks senior to the Series A Convertible Preferred Stock
as to dividend rights and rights on liquidation, winding-up and dissolution of
the Corporation (collectively referred to as the "Senior Stock").
3. Dividends
(a) Beginning on the date of issuance of any shares of Series
A Preferred Stock, the Holders of such shares of the Series A Convertible
Preferred Stock shall be entitled to receive prior and in preference to (except
as set forth below in Section 3(k)) declaration or payment of any dividend or
distribution to the holders of any Junior Stock, and in addition to and not in
limitation of the dividend rights provided in Section 3(g) below, dividends
which shall accrue cumulatively on each share of Series A Convertible Preferred
Stock at the rate and in the manner prescribed in this Section 3 from and
including the date of issuance of such shares of Series A Preferred Stock
through the earliest of (i) the date on which the conversion of such share of
Series A Convertible Preferred Stock is effected or (ii) the date on which the
Liquidation Preference in respect of the shares of Series A Convertible
Preferred Stock is paid to the Holder of such shares in connection with the
liquidation of the Corporation. The date on which the Corporation initially
issues any share of Series A Convertible Preferred Stock shall be deemed to be
its "date of issuance" regardless of the number of times a transfer of such
share of Series A Convertible Preferred Stock is made on the stock records
maintained by or for the Corporation and regardless of the number of
certificates which may be issued to evidence such share of Series A Convertible
Preferred Stock.
(b) Dividends shall accrue on a daily basis from the date of
issue on each share of Series A Convertible Preferred Stock 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
the Stated Value thereof plus 7.0% of the amount of the accrued but unpaid
dividends thereon (such rate being subject to adjustment as provided in Sections
3(f), 3(h) and 3(j) below). Such dividends shall be paid in Common Stock (with
the number of shares of Common Stock being calculated for such purpose in the
same fashion as is set forth under Section 5(c) below).
(c) Dividends on the Series A Convertible Preferred Stock
shall accrue whether or not the Corporation 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. The Corporation shall take all actions
required or permitted under the DGCL
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to permit the payment of dividends on the Series A Convertible Preferred Stock,
including, without limitation, through the revaluation of its assets in
accordance with the DGCL, to make or keep funds legally available for the
payment of dividends.
(d) Except as provided in Section 5(c) below, nothing herein
contained shall in any way or under any circumstances be construed or deemed to
require the Board of Directors to declare, or the Corporation to pay or set
apart for payment, any dividends on shares of the Series A Convertible Preferred
Stock at any time.
(e) 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 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.
(f) In the event of a Change of Control, and commencing as of
the date such Change of Control is effective, cumulative dividends on the Series
A 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 thereof, plus accrued but
unpaid dividends thereon.
(g) In addition to and not in limitation of the dividends
provided for in Sections 3(a), 3(f) and 3(h) herein, the Holders of Series A
Convertible Preferred Stock shall be entitled to receive dividends and other
distributions equivalent to those declared or paid on Common Stock (including
dividends and distributions of cash, property, assets, debt securities or
Rights, but excluding any Rights covered by Sections 6(a), 6(b) or 6(c) below),
determined as if the Series A Convertible Preferred Stock has been converted
into Common Stock at the then effective Conversion Price and Dividend Shares
have been distributed as contemplated by Section 5(c) below, and payable when,
as and if declared by the Board of Directors on such Common Stock.
(h) Notwithstanding the provisions of Section 3(b) above, if
the Corporation fails to obtain the Stockholder Approval prior to the expiration
of 100 days following the Issue Date (to the extent such approval is required to
permit, without contravention of any NASDAQ Rule, the issuance of shares of
Series A Convertible Preferred Stock and Warrants which, in the aggregate, are
convertible into or exchangeable for, or with respect to which dividends are
payable in, Common Stock that exceeds 20% of the total outstanding Common Stock
immediately prior to the Issue Date) then (i) the dividend rate of the Series A
Convertible Preferred Stock shall 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
thereof plus accrued but unpaid dividends thereon and (ii) other than the
Initial Shares, no other shares of Series A Convertible Stock shall be issued by
the Corporation.
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(i) Notwithstanding any other provision of this Section 3, if
at any time both the provisions of Section 3(f) and Section 3(h) apply,
dividends on the Series A Convertible Preferred Stock shall accrue at the rate
prescribed in Section 3(f) from and after the date a Change of Control is
effective.
(j) Subject to the terms and provisions of the Registration
Rights Agreement:
(i) If the Corporation fails to file a Shelf
Registration Statement prior to the Filing Date or the Shelf
Registration Statement is not declared effective prior to the
Effectiveness Date, or the Shelf Registration Statement is
filed and declared effective prior to the Effectiveness Date
but shall thereafter cease to be effective (at any time that
the Corporation is obligated to maintain the effectiveness
thereof) without being succeeded within 45 days by an
additional Shelf Registration Statement, filed and declared
effective, then, in recognition that the limited liquidity of
the Series A Convertible Preferred Stock has deleteriously
affected its value, additional dividends (the "Additional
Dividends") shall accrue and cumulate on the Series A
Convertible Preferred Stock as set forth in paragraphs (ii),
(iii) and (iv) below, respectively.
(ii) if the Shelf Registration Statement is not filed
prior to the Filing Date, Additional Dividends shall accrue
and cumulate on the Series A Convertible Preferred Stock over
and above the stated dividend at a rate of 0.50% per annum.
(iii) If the Shelf Registration Statement is not
declared effective prior to the Effectiveness Date, Additional
Dividends shall accrue and cumulate on the Series A
Convertible Preferred Stock over and above the stated dividend
at a rate of 0.50% per annum.
(iv) If the Shelf Registration Statement has been
declared effective and ceases to be effective at any time that
the Corporation is obligated to maintain the effectiveness
thereof, unless an additional Shelf Registration Statement has
been filed and declared effective within 45 days of the date
on which the Shelf Registration Statement ceases to be
effective, then Additional Dividends shall accrue on the
Series A Convertible Preferred Stock over and above the stated
dividend rate of 0.50% per annum commencing on the 45th day
following the day such Shelf Registration Statement ceases to
be effective.
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(v) Notwithstanding paragraphs (i)-(iv) of this
Section 3(j), the Additional Dividends payable hereunder shall
not exceed in the aggregate 0.50% per annum. In addition, (1)
upon the filing of the Shelf Registration Statement (in the
case of Section 3(j)(ii) above), (2) upon the effectiveness of
the Shelf Registration Statement (in the case of Section 3(j)
(iii) above) or (3) upon the effectiveness of the Shelf
Registration Statement that had ceased to remain effective (in
the case of Section 3(j)(iv) above), the dividend rate on the
Series A Convertible Preferred Stock shall revert to the
dividend rate set forth in Section 3(a), 3(f) or 3(h), as
applicable, and Additional Dividends on the Series A
Convertible Preferred Stock shall cease to accrue and
cumulate.
(k) Notwithstanding anything to the contrary herein, but
subject to Section 8(e) below, and provided that all dividends which are then
required to be paid under Section 3(g) above and Section 5(c) below have been
paid in full (i) the Corporation 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 Corporation may
pay cash dividends and make other cash distributions on Parity Stock or Junior
Stock to the extent such payments are permitted by the Corporation's outstanding
debt instruments.
4. Liquidation Preference
Upon any voluntary or involuntary liquidation, dissolution or
winding-up of the Corporation, each Holder of shares of the Series A Convertible
Preferred Stock shall be entitled to be paid out of the assets of the
Corporation available for distribution to its stockholders, after payment to the
holders of any then outstanding Senior Stock (including, without limitation, the
14.75% Preferred Stock), but before any distribution is made on any Junior Stock
(including, without limitation, Common Stock), an amount (such amount the
"Liquidation Preference") equal to the greater of (i) the Stated Value per share
of Series A Convertible Preferred Stock held by such Holder 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 ("Accrued Dividends") and
(ii) the liquidation value attributable to the shares of Common Stock into which
such shares of Series A Convertible Preferred Stock are then convertible on an
as-if-converted basis plus Accrued Dividends. If, upon any voluntary or
involuntary liquidation, dissolution or winding-up of the Corporation, the
assets of the Corporation available for distribution to its stockholders, after
payment of all amounts required to be paid to the holders of any then
outstanding Senior Stock, are not sufficient to pay in full all amounts payable
to the holders of outstanding shares of Series A Convertible Preferred Stock and
all other Parity Stock, the Holders of the Series A Convertible Preferred Stock
and the Parity Stock shall share equally and ratably in any distribution of
assets of the Corporation in proportion to the full liquidation preference and
accrued and unpaid dividends to which each is entitled. After payment of the
full amount of the Liquidation Preference, the
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Holders of the Series A Convertible Preferred Stock will not be entitled to any
further participation in any distribution of assets of the Corporation. However,
neither the voluntary sale, conveyance, exchange or transfer (for cash, shares
of stock securities or other consideration) of all or substantially all of the
property or assets of the Corporation nor the consolidation or merger of the
Corporation with or into one or more other entities, shall be deemed to be a
voluntary or involuntary liquidation, dissolution or winding-up of the
Corporation unless such sale, conveyance, exchange or transfer shall be in
connection with a liquidation, dissolution or winding up of the business of the
Corporation.
5. Conversion.
(a) Optional Conversion. Subject to the terms and conditions
of this Section 5, the Holder of any share or shares of Series A Convertible
Preferred Stock shall have the right, at such Holder's option at any time or
from time to time, to convert all or any such shares of Series A Convertible
Preferred Stock into such number of fully paid and non-assessable shares of
Common Stock (the "Conversion Shares") as is obtained by dividing:
(i)(x) the number of shares of Series A Convertible
Preferred Stock so to be converted, multiplied by (y) the
Stated Value of such shares; by
(ii) the conversion price of $7.91 per share of
Series A Convertible Preferred Stock (as adjusted upon the
occurrence of any event described in Section 6 hereof, the
"Conversion Price").
Such rights of conversion shall be exercised by the Holder
thereof by giving written notice (the "Optional Conversion Notice") to the
Corporation that the Holder elects to convert a stated number of shares of
Series A Convertible Preferred Stock into Conversion Shares and by surrender of
a certificate or certificates representing such shares of Series A Convertible
Preferred Stock to the Corporation, duly endorsed (or otherwise in proper form
for transfer, as determined by the Corporation), at the office of the Transfer
Agent at any time during its usual business hours, together with a statement of
the name or names (with address), subject to compliance with applicable laws to
the extent such designation shall involve a transfer, in which the certificate
or certificates for shares of Common Stock shall be issued. The date with
respect to any optional conversion of Series A Convertible Preferred Stock is
effective (the "Optional Conversion Date") shall be the date on which the
Optional Conversion Notice, together with the shares of Series A Convertible
Preferred Stock to be converted pursuant to such notice, have been delivered and
received in accordance with this Section 5.
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(b) Mandatory Conversion. If not converted by the Holders
thereof on or prior to the third anniversary of the Issue Date (the "Conversion
Trigger Date"), the Series A Convertible Preferred Stock may be converted by the
Corporation into Conversion Shares at the Conversion Price 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 on each of such trading days. In the event the Corporation determines to
effect such mandatory conversion of the Series A Convertible Preferred Stock,
the Corporation shall, within 30 days after the expiration of the 30 day trading
period described above, send written notice (the "Mandatory Conversion Notice")
by first class mail, postage prepaid, to each Holder of record of the Series A
Convertible Preferred Stock at such Holder's address as it appears on the stock
books of the Corporation, provided that no failure to give such notice nor any
deficiency therein shall affect the validity of the procedure for conversion of
any shares of Series A Convertible Preferred Stock, except as to the Holder or
Holders to whom the Corporation has failed to give said notice or except as to
the Holder or Holders whose notice was finally judicially determined by a court
of competent jurisdiction to be defective. The Mandatory Conversion Notice shall
state :
(A) the date fixed, which shall in no event
be later than 30 days after the date of the Mandatory
Conversion Notice, for mandatory conversion of the
Series A Convertible Preferred Stock (the "Mandatory
Conversion Date");
(B) the Conversion Price;
(C) that the Holder is to surrender to the
Corporation, at the offices of the Transfer Agent and
in the manner designated, his certificate or
certificates representing the shares of Series A
Convertible Preferred Stock to be converted;
(D) that dividends of the shares of Series A
Convertible Preferred Stock converted shall cease to
accumulate on such Mandatory Conversion Date; and
(E) that the Holder shall receive a number
of Conversion Shares equal to (i) (x) the number of
shares of Series A Convertible Preferred Stock held
by such Holder, multiplied by (y) the stated value of
such shares; divided by (ii) the Conversion Price
Following receipt of the Mandatory Conversion Notice, each
Holder of shares of Series A Convertible Preferred Stock shall surrender the
certificate or certificates representing such shares of Series A Convertible
Preferred Stock to the Corporation, duly endorsed (or otherwise in proper form
for transfer, as determined by the Corporation), at the office of the Transfer
Agent at any time during its usual business hours in the manner designated in
the Mandatory Conversion Notice, together
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with a statement of the name or names (with address), subject to compliance with
applicable laws to the extent such designation shall involve a transfer, in
which the certificate or certificates for Conversion Shares shall be issued.
(c) Treatment of Accrued Dividends Upon Conversion. Upon any
conversion of shares of Series A Convertible Preferred Stock, all accrued but
unpaid dividends thereon (including accrued but unpaid dividends on such
dividends) through the Conversion Date shall be automatically converted into
shares of Common Stock. The number of shares of Common Stock payable to such
Holder pursuant to this Section 5(c) (such shares, together with any shares
payable as dividends under Section 3(b), the "Dividend Shares") shall be
determined as follows:
(i) in the event that the Stockholder Approval either
(A) is not required in order to permit the issuance of shares
of Series A Convertible Preferred Stock which, in the
aggregate, are convertible into Common Stock that exceeds 20%
of the total outstanding Common Stock immediately prior to the
Issue Date without the violation, breach or contravention of a
NASDAQ Rule or (B) has been obtained, by dividing (x) the
aggregate amount of accrued but unpaid dividends payable with
respect to the shares of Series A Convertible Preferred Stock
being converted by (y) the Conversion Price; or
(ii) in the event that the Stockholder Approval (A)
is required in order to permit the issuance of shares of
Series A Convertible Preferred Stock which, in the aggregate
are convertible into Common Stock that exceeds 20% of the
total outstanding Common Stock immediately prior to the Issue
Date without the violation, breach or contravention of any
NASDAQ Rule and (B) has not been obtained, by dividing (x) the
aggregate amount of accrued but unpaid dividends payable with
respect to the shares of Series A Convertible Preferred Stock
being converted by (y) the closing price of the Common Stock
on the trading day immediately preceding the Issue Date (with
such closing price being adjusted in accordance with the
provisions of Section 6(f) upon the occurrence of any event
specified in Section 6(a) or 6(b) below, as if such closing
price were the Conversion Price).
(d) Procedures for Conversion. Promptly after the receipt by
the Corporation of the surrendered certificate or certificates for the share or
shares of Series A Convertible Preferred Stock being converted, the Corporation
shall issue and deliver, or cause to be issued and delivered, to the Holder,
registered in such name or names as such Holder may direct, subject to
compliance with applicable laws to the extent such designation shall involve a
transfer, a certificate or certificates for the number of whole Conversion
Shares issuable upon conversion of such share or shares of Series A Convertible
Preferred Stock plus, the number of whole Dividend Shares issuable in respect of
accumulated dividends pursuant to Section 5(c) above. With
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respect to each conversion of Series A Convertible Preferred Stock, to the
extent permitted by law, such conversion shall be deemed to have been effected
and the applicable Conversion Price shall be determined as of the close of
business on the applicable Conversion Date, and at such time the rights of the
Holder of such share or shares of shall cease and (i) with respect to any
conversion pursuant to Section 5(a) above, the person or persons in whose name
or names any certificate or certificates representing Conversion Shares and
Dividend Shares shall be issuable upon such conversion shall be deemed to have
become the holder or holders of record of the shares represented thereby or (ii)
with respect to any conversion pursuant to Section 5(b) above, each certificate
representing the share or shares of Series A Preferred Stock shall represent
only the right of the Holder to receive a certificate or certificates
representing the Conversion Shares and Dividend Shares to which he is entitled
upon surrender of such certificate or certificates. As used herein, the term
"Conversion Date" shall mean the Optional Conversion Date or the Mandatory
Conversion Date, as applicable.
In the event that, in connection with a conversion pursuant to
Section 5(a) above, less than all of the shares represented by any surrendered
certificate or certificates are converted into Conversion Shares, a new
certificate representing the shares of Series A Convertible Preferred Stock not
so converted shall be issued in the name or names or the persons designated by
the Holder to receive such shares, subject to compliance with applicable laws to
the extent such designation shall involve a transfer.
No fractional shares of Common Stock shall be issued upon
conversion of the Series A Convertible Preferred Stock or upon issuance of
Dividend Shares and the number of Conversion Shares and Dividend Shares to be
issued shall be rounded to the nearest whole share. If any fractional interest
in a share of Common Stock would, except for the provisions of the first
sentence of this paragraph, be delivered upon any such conversion or upon
issuance of Dividend Shares, the Corporation, in lieu of delivering the
fractional share thereof, shall pay to the Holder surrendering the Series A
Convertible Preferred Stock for conversion an amount in cash equal to the
Current Market Value of such fractional interest.
In addition, no shares of Series A Convertible Preferred Stock
may be converted unless, prior to such conversion, any (i) applicable
Hart-Scott-Rodino Act waiting period 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 of 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 affect on the
Corporation.
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(e) Current Market Value. For the purposes of any computation
under this Certificate of Designation, the Current Market Value per share of
Common Stock or of any other security (such share of Common Stock or other
security herein referred to as a "security") at any date herein specified shall
equal:
(i) if the security is not registered under the
Exchange Act, the value of the security determined as of such
date by an Independent Financial Advisor selected by the
Holders of a majority of the outstanding shares of Series A
Convertible Preferred Stock, subject to the approval of the
Corporation, such approval not to be unreasonably withheld,
for the purpose of making such determination; or
(ii) if the security is registered under the Exchange
Act, the average of the daily market prices of the security
for the 20 consecutive trading days immediately preceding such
date or, if the security has been registered under the
Exchange Act for less than 20 consecutive trading days before
such date, the average of the daily market prices for all
trading days preceding such date for which daily market prices
are available. The daily market price for each such trading
day shall be: (A) in the case of a security listed or admitted
to trading on any National Securities Exchange, the closing
sales price, regular way, on such day, or if no sale takes
place on such day, the average of the closing bid and asked
prices on such day, on the principal National Securities
Exchange on which such security is listed or admitted, (B) in
the case of a security not then listed or admitted to trading
on any National Securities Exchange, the last reported sale
price on such day, or if no sale takes place on such day, the
average of the closing bid and asked prices on such day, as
reported by a reputable quotation source designated by the
Corporation, (C) in the case of a security not then listed or
admitted to trading on any National Securities Exchange and as
to which no such reported sale price or bid and asked prices
are available, the average of the reported high bid and low
asked prices on such day, as reported by a reputable quotation
source or a newspaper of general circulation in The City of
New York customarily published on each Business Day,
designated by the Corporation, or, if there shall be no bid
and asked prices on such day, the average of the high bid and
low asked prices, as so reported on the most recent day (not
more than 10 days prior to the date in question) for which
prices have been so reported or (D) if the prices specified in
clause (A), (B) or (C) are not available, the Current Market
Value of a security shall be determined as if such security
were not registered under the Exchange Act.
(f) Value Determination. If required pursuant to Section
5(e)(i), the Current Market Value shall be deemed to be equal to the value
determined by an Independent Financial Advisor and set forth in a written report
by such Independent
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Financial Advisor (a "Value Report"). In making any determination of Current
Market Value, such Independent Financial Advisor shall (i) use one or more
valuation methods that, in its best professional judgment, it determines to be
most appropriate and (ii) not take into account any discount for minority
interests or lack of liquidity of the relevant security. The Corporation shall
cause such Independent Financial Advisor to deliver the Value Report to the
Board of Directors and Corporation, within 25 days of the appointment of such
Independent Financial Advisor. The Value Report shall state the Current Market
Value of the Common Stock and/or any other securities being valued, as of the
date of determination, and shall contain a brief statement as to the nature and
scope of the examination or investigation upon which the determination of value
was made. The Corporation shall make the Value Report available for inspection
by the Holders of Series A Convertible Preferred Stock. Any determination of
Current Market Value in accordance with the provisions of this Section 5(f)
shall be conclusive as to all Persons absent manifest error.
6. Adjustments. The Conversion Price and the number of
Conversion Shares issuable upon conversion of the Series A Convertible Preferred
Stock shall be subject to adjustment from time to time as follows:
(a) Adjustments for Change in Common Stock. If the Corporation
at any time after the date of this Agreement:
(i) pays a dividend or makes any other distribution
with respect to shares of its Common Stock in shares of any
class or series of its capital stock, or other securities;
(ii) subdivides its outstanding shares of Common
Stock into a greater number of shares;
(iii) combines its outstanding shares of Common Stock
into a smaller number of shares; or
(iv) issues any shares of its capital stock in a
reclassification of the shares of its Common Stock (other than
a reclassification in connection with a merger, consolidation
or other business combination governed by Section 6(h)
hereof);
The number of shares of Common Stock issuable upon conversion
of the Series A Convertible Preferred Stock, at the time of the record date for
such dividend or of the effective date of such subdivision, combination or
reclassification, shall be proportionately adjusted so that the Holder of any
share or shares of Series A Convertible Preferred Stock converted after such
time shall be entitled to receive the aggregate number of Conversion Shares
and/or shares of other capital stock or other securities of the Corporation
which, if such share or shares had been converted
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immediately prior to such date, such Holder would have owned upon such exercise
and been entitled to receive by virtue of such dividend, subdivision,
combination or reclassification. An adjustment made pursuant to this Section
6(a) shall become effective immediately after the record date in the case of a
dividend or distribution and immediately after the effective date in the case of
a subdivision, combination or reclassification. Such adjustment shall be made
successively whenever any event listed above shall occur.
If at any time, as a result of an adjustment made pursuant to
this Section 6(a), the Holder of any share or shares of Series A Convertible
Preferred Stock thereafter converted becomes entitled to receive any securities
other than Conversion Shares, the number of such other securities so receivable
upon exercise of such share or shares of Series A Convertible Preferred Stock
shall be subject to adjustment from time to time in a manner and on terms as
nearly equivalent as practicable to the provisions with respect to the
Conversion Shares issuable upon conversion of the Series A Convertible Preferred
Stock contained in this Section 6(a).
(b) Rights; Options; Warrants. If, at any time after the Issue
Date, the Corporation shall issue or sell Rights (other than in an issuance
subject to Section 6(a) hereof and any Rights referred to in Section 6(c)(iv)
below) to all holders of shares of Common Stock, which Rights entitle the
holders thereof to acquire shares of Common Stock at a price per share of Common
Stock (determined by dividing (x) the sum of (A) the total amount receivable or
received by the Corporation in consideration of the sale and issuance of such
Rights, plus (B) the total consideration payable to the Corporation upon
exercise, conversion or exchange thereof, by (y) the total number of shares of
Common Stock covered by such Rights) that is lower than the Current Market Value
price per share of Common Stock as of the record date for such issuance, the
number of Conversion Shares thereafter shall be determined by multiplying the
number of shares of Conversion Shares theretofore issuable upon the conversion
of each share of Series A Convertible Preferred Stock by a fraction, the
numerator of which shall be the sum of (A) the number of shares of Common Stock
outstanding immediately prior to the issuance of such Rights, plus (B) the
number of shares of Common Stock offered for subscription or purchase pursuant
to such Rights, and the denominator of which shall be the sum of (A) the number
of shares of Common Stock outstanding immediately prior to the issuance of such
Rights, plus (B) the number of shares which the aggregate offering price of the
total number of shares of Common Stock offered pursuant to such Rights would
purchase at the then Current Market Value per share of Common Stock, as of the
record date for such issuance. Such adjustment shall be made successively
whenever such Rights are issued or sold and shall become effective on the date
of issuance or sale retroactive to the record date for the determination of
stockholders entitled to receive such Rights.
(c) Issuance of Shares of Common Stock at Lower Values. If, at
any time after the Issue Date, the Corporation shall issue or sell any share of
Common Stock or Right (excluding (i) any Right issued or sold in any transaction
covered by
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Section 6(a) or Section 6(b) hereof, (ii) any share of Common Stock issued or
sold pursuant to a Right outstanding on the date of the Issue Date, (iii) any
Right issued pursuant to the terms and conditions of a Purchase Agreement,
including the Change In Control Warrants, (iv) any share of Common Stock issued
or sold pursuant to a Right, if on the date such Right was issued, the exercise,
conversion or exchange price per share of Common Stock with respect thereto was
at least equal to the Current Market Value per share of Common Stock, (v) any
share of Common Stock or Right issued or sold as consideration when any
corporation or business is acquired, merged into or becomes part of the
Corporation or a subsidiary of the Corporation in an arm's-length transaction
between the Corporation and a Person other than an Affiliate of the Corporation,
(vi) any Rights which may be issued under a "shareholders' rights" plan and
which trade with the Common Stock, (vii) any share of Common Stock or Right
issued by the Corporation to its directors, officers or employees or any
director, officer or employee of any of its Subsidiaries in the ordinary course
of business in connection with any bona fide equity compensation plan, including
any stock grant plan, stock option plan, stock purchase plan or pension or
profit-sharing plan, and (viii) any shares of Common Stock sold at the
then-current market price thereof in a registered underwritten offering) at a
price per share of Common Stock (determined in the case of Rights, by dividing
(x) the sum of (A) the total amount receivable or received by the Corporation in
consideration of the sale and issuance of such Rights, plus (B) the total
consideration payable to the Corporation upon exercise, conversion or exchange
thereof, by (y) the total number of shares of Common Stock covered by such
Rights) that is lower than the Current Market Value per share of Common Stock
immediately prior to such sale or issuance, the number of Conversion Shares
thereafter issuable upon the conversion of each share of Series A Convertible
Preferred Stock shall be determined by multiplying the number of Conversion
Shares theretofore issuable upon the conversion of each share of Series A
Convertible Preferred Stock by a fraction, the numerator of which shall be the
number of shares of Common Stock outstanding immediately after such sale or
issuance (determined as provided below), and the denominator of which shall be
the sum of (A) the number of shares of Common Stock outstanding immediately
prior to such sale or issuance, plus (B) the number of shares of Common Stock
which the aggregate consideration received by the Corporation (determined as
provided below) for such sale or issuance would purchase at such Current Market
Value per share of Common Stock. Such adjustment shall be made successively
whenever such Rights are issued or sold and shall be effective immediately after
such issuance or sale.
For purposes of any adjustments made pursuant to this Section
6(c), the shares of Common Stock which the holder of any such Right shall be
entitled to subscribe for or purchase pursuant to such Right shall be deemed to
be issued and outstanding as of the date of the sale or issuance of such Right,
and the consideration received by the Corporation therefor shall be deemed to be
the consideration receivable or received by the Corporation for such Right, plus
the consideration or premiums stated in such Right to be paid for the shares of
Common Stock covered thereby. In case the Corporation shall sell and issue any
share of Common Stock or
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any Right, for consideration consisting, in whole or in part, of property other
than cash or cash equivalents, then in determining the "price per share of
Common Stock" and the "consideration received by the Corporation" for purposes
of the first sentence of this Section 6(c), the fair value of said property
shall be determined by an Independent Financial Advisor selected by the Holders
of a majority of the outstanding shares of Series A Convertible Preferred Stock,
subject to the approval of the Corporation, such approval not to be unreasonably
withheld, and notice of such determination shall promptly be distributed by the
Corporation to each Holder of Series A Convertible Preferred Stock. In case the
Corporation shall sell or issue any Right together with one or more other
securities as part of a unit at a price per unit, then in determining the "price
per share of Common Stock" and the "consideration received by the Corporation"
for purposes of the first sentence of this Section 6(c), the fair value of such
Right then being sold as part of such unit shall be determined by an Independent
Financial Advisor selected by the Holders of a majority of the outstanding
shares of Series A Convertible Preferred Stock, subject to the approval of the
Corporation, such approval not to be unreasonably withheld, and notice of such
determination shall promptly be distributed by the Corporation to each Holder of
Series A Convertible Preferred Stock.
(d) Expiration of Rights, Options and Conversion Privileges.
Upon the expiration of any unexercised Rights the issuance of which previously
resulted in an adjustment hereunder, the Conversion Price and the number of
Conversion Shares and Dividend Shares issuable upon conversion of each share of
Series A Convertible Preferred Stock shall, upon such expiration, be readjusted
so that thereafter the Conversion Price and the number of Conversion Shares and
Dividend Shares issuable upon conversion of each share of Series A Preferred
Stock shall be such as they would have been had they originally been adjusted as
if (i) the only shares of Common Stock considered in the adjustment made with
respect to such Rights were the shares of Common Stock, if any, actually issued
or sold upon the exercise of such Rights and (ii) such shares of Common Stock,
if any, were issued or sold for the consideration actually received by the
Corporation upon such exercise plus the consideration, if any, actually received
by the Corporation for issuance, sale or grant of all such Rights, whether or
not exercised; provided that no such readjustment shall have the effect of
increasing the Conversion Price by an amount, or decreasing the number of shares
of Common Stock issuable upon conversion of each share of Series A Convertible
Preferred Stock by a number, in excess of the amount or number, as the case may
be, of the adjustment initially made with respect to the issuance or sale of
such Rights.
(e) De Minimis Adjustments. No adjustment in the Conversion
Price or number of Conversion Shares or Dividend Shares issuable upon conversion
of any share of Series A 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 Conversion Shares and Dividend Shares issuable
upon conversion of any share of Series A 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. All calculations shall be made to the
nearest one-thousandth of a share or nearest $.0001, as the case may be.
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(f) Adjustment of Conversion Price. Whenever the number of
Conversion Shares issuable upon conversion of any share of Series A Convertible
Preferred Stock is adjusted, as herein provided, the Conversion Price per share
of Common Stock payable upon conversion of each share of Series A Convertible
Preferred Stock shall be adjusted (calculated to the nearest $.0001) so that it
shall equal the price determined by multiplying such Conversion Price
immediately prior to such adjustment by a fraction, the numerator of which shall
be the number of Conversion Shares issuable upon conversion of any share of
Series A Convertible Preferred Stock immediately prior to such adjustment, and
the denominator of which shall be the number of shares of Common Stock so
purchasable immediately thereafter.
(g) Adjustments by Board. In addition to the foregoing
adjustments, the Board of Directors may (but shall have no obligation to) make
any other adjustment, as evidenced by a board resolution delivered to the
Holders, to increase the number of Conversion Shares purchasable upon conversion
of Series A Convertible Preferred Stock, (and/or the number of Dividends Shares
issuable hereunder) or to decrease the Conversion Price (and/or the amount
referred to in Section 5(c) (ii) (y) above) as it may, in good faith, deem
desirable to protect the rights and benefits of Holders hereunder. Any
adjustments made by the Board of Directors pursuant to this Section 6(g) shall
be conclusive absent manifest error.
(h) Consolidation, Merger or Sale of Assets; Liquidation.
Without limiting the provisions of Section 8(b) below, in the event that, at any
time after the Issue Date, the Corporation 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 Series A Convertible Preferred Stock is
then convertible), each share of Series A Convertible Preferred Stock shall,
after 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 Corporation, 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 Series A Convertible
Preferred Stock) had such Holder's shares of Series A Convertible Preferred
Stock been converted (and Dividend Shares distributed) immediately prior to such
merger, consolidation or sale (or, if applicable, any record date therefor); and
in any such case, the provisions of this Certificate of Designation with respect
to the rights and interests thereafter of the Holders of shares of Series A
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
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<PAGE> 69
applicable, as nearly as reasonably possible, to any shares of Capital Stock or
other securities or any property thereafter deliverable upon conversion of the
Series A Convertible Preferred Stock. As a condition precedent to the
consummation of any merger, consolidation or sale of assets described in this
Section 8(h), 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 Section 8(h) and otherwise take such
actions as may be reasonably requested by the holder of a majority of the
outstanding shares of Series A Convertible Preferred Stock to ensure such
compliance.
(i) Limitation on Adjustments. Notwithstanding anything to the
contrary contained herein, in the event that Stockholder Approval is necessary
in order to permit the implementation of the provisions of Sections 6(b) or
6(c),as applicable (or any adjustment to the Conversion Price under Section 6(f)
above triggered by an adjustment under Section 6(b) or 6(c)) without
contravention of a NASDAQ Rule, (A) Sections 6(b) and 6(c) (and any adjustment
to the Conversion Price under Section 6(f) triggered by an adjustment under
Section 6(b) or 6(c)) shall not be effective until such Stockholder Approval is
obtained, and (B) the Corporation shall not (without the affirmative vote of
Holders of a majority of the then outstanding shares of Series A Convertible
Preferred Stock, voting or consenting as a single class) engage in any
transaction which would trigger an adjustment under Section 6(b) or 6(c) until
such Stockholder Approval has been obtained.
7. Voting Rights; Amendment; Waiver
(a) The Holders of record of shares of the Series A
Convertible Preferred Stock, except as otherwise required under Delaware law or
as set forth in this Certificate of Designation (including without limitation in
Sections 7(b), (c) and (d) below), shall not be entitled or permitted to vote on
any matter required or permitted to be voted on by the stockholders of the
Corporation.
(b) The Holders of a majority of the then outstanding shares
of Series A Convertible Preferred Stock may, by affirmative vote or consent of
such Holders, voting or consenting as a single class, (i) waive compliance by
the Corporation with any provisions of this Certificate of Designation; and/or
(ii) waive any default by the Corporation of its obligations set forth in
Section 8 hereunder; provided that no such waiver may be granted without the
consent of each Holder of the then outstanding shares of Series A Convertible
Preferred Stock affected thereby if such waiver adversely affects (i) the
Conversion Price; (ii) the Conversion Date; (iii) the Liquidation Preference;
(iv) the dividend rates hereunder or the form or timing of the payment of
dividends hereunder for the Series A Convertible Preferred Stock; or (v) the
voting rights of the Series A Convertible Preferred Stock, including, without
limitation, under this Section 7(b).
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(c) The Corporation may not, without the affirmative vote or
consent of the Holders of a majority of the then outstanding shares of Series A
Convertible Preferred Stock, voting or consenting as a single class, (i) modify
or amend any obligation or covenant of the Corporation hereunder; (ii)
authorize, create (by reclassification or otherwise) or issue any Senior Stock
(other than shares of 14.75% Preferred Stock outstanding on the Issue Date and
additional shares of 14.75% Preferred Stock issuable as dividends on shares of
14.75% Preferred Stock, including as additional dividends (as defined in the
certificate of designation with respect to the 14.75% Preferred Stock) or Parity
Stock (other than shares of 12.75% Preferred Stock outstanding on the Issue Date
and additional shares of 12.75 Preferred Stock issuable as dividends on shares
of 12.75% Preferred Stock, including as additional dividends (as defined in the
certificate of designation with respect to the 12.75% Preferred Stock)), or any
security convertible into, exchangeable for or evidencing the right to purchase
any Senior Stock or Parity Stock; (iii) the Corporation shall not 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 merger
or consolidation to which the Corporation is a party, the sale, lease or
exchange of all or substantially all of the Corporation's property and assets,
or the dissolution of the Corporation, 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 to prior six months after the Final Closing (as such
term is defined in the Purchase Agreements) or, if there is no Final Closing, on
or prior to six months after the Issue Date; or (iv) amend or otherwise alter or
modify its by-laws or its Certificate of Incorporation or this Certificate of
Designation so as to affect adversely the powers, rights or privileges of the
Holders of the Series A Convertible Preferred Stock or reduce the time for any
notice to which such Holders may be entitled, including without limitation any
such amendment, modification or alteration of its bylaws, Certificate of
Incorporation or this Certificate of Designation in connection with or as a
result of any merger or consolidation of the Corporation; provided that no such
modification, amendment, alteration or other change pursuant to the preceding
clauses (i) and (iii) of this Section 7(c) may be made without the consent of
each Holder of the then outstanding shares of Series A Convertible Preferred
Stock affected thereby if it would adversely affect (A) the Conversion Price;
(B) the Conversion Date; (C) the Liquidation Preference; (D) the dividend rates
hereunder or the form or timing of the payment of dividends hereunder for the
Series A Convertible Preferred Stock; or (E) the voting rights of the Series A
Convertible Preferred Stock, including, without limitation, under this
Section 7. Any amendment or modification to this Certificate of Designation
which is favorable to Huff and does not treat all Holders uniformly shall apply
equally to Greenwich.
(d) In any case in which the Holders of Series A Convertible
Preferred Stock shall be entitled to vote, give a consent, make a determination
or take any similar action under this Certificate of Designation or pursuant to
Delaware law, each Holder of Series A Convertible Preferred Stock entitled to
vote with respect to each such matter
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<PAGE> 71
shall be entitled to one vote for each share of Series A Convertible Preferred
Stock held. For all purposes of voting, giving a consent, making a determination
or taking any similar actions are aforesaid, shares of Series A Convertible
Preferred Stock held by the Corporation or any of its Subsidiaries shall not be
deemed outstanding or entitled to vote.
(e) The Corporation in its sole discretion may, without the
vote or consent of any Holders of the Series A Convertible Preferred Stock,
amend or supplement this Certificate of Designation:
(i) to provide for uncertificated Series A
Convertible Preferred Stock in addition to or in place of
certificated Series A Convertible Preferred Stock; or
(ii) to make any change that would provide any
additional rights or benefits to the Holders of the Series A
Convertible Preferred Stock.
8. Certain 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:
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<PAGE> 72
(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 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)
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<PAGE> 73
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
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<PAGE> 74
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 related transactions on a pro forma
basis (including, without limitation, any Indebtedness
incurred or anticipated to be incurred in connection with or
in respect of such transaction or series of related
transactions) 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 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.
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<PAGE> 75
(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;
(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;
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<PAGE> 76
(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 manner set forth in Section
7(b), 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
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<PAGE> 77
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% 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.
9. Payment
(a) All amounts payable in cash with respect to the Series A
Convertible Preferred Stock shall be payable in United States dollars at the
office or agency of the Corporation maintained for such purpose within the City
and State of New York or, at the option of the Corporation, payment of dividends
(if any) may be made by check mailed to the Holders of the Series A Convertible
Preferred Stock at their respective addresses set forth in the register of
Holders of Series A Convertible Preferred Stock maintained by the Transfer
Agent.
(b) Any payment on the Series A Convertible Preferred Stock
due on any day that is not a Business Day need not be made on such day, but may
be made on the next succeeding Business Day with the same force and effect as if
made on such due date, provided that dividends shall continue to accrue until
such next succeeding Business Day.
(c) The Corporation will initially act as the "Transfer Agent"
and the "Paying Agent." The Corporation may at any time terminate the
appointment of any Paying Agent and appoint additional or other Paying Agents;
provided that until the Series A Convertible Preferred Stock has been delivered
to the Corporation for cancellation, or moneys sufficient to pay the Liquidation
Preference of the Series A Convertible Preferred Stock plus, without
duplication, accumulated and unpaid dividends (including an amount in cash equal
to a prorated dividend for any partial dividend period) thereon shall have been
made available for payment and either paid or returned to the Corporation as
provided in this Certificate of Designation, the Corporation shall maintain an
office or agency in the Borough of Manhattan, The City of New York for surrender
of shares of Series A Convertible Preferred Stock for payment and exchange.
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<PAGE> 78
(d) All moneys and shares of Series A Convertible Preferred
Stock deposited by the Corporation with any Paying Agent or held by the
Corporation in trust for the payment of the Liquidation Preference and
accumulated and unpaid dividends on the Series A Convertible Preferred Stock,
which moneys and shares remain unclaimed at the end of two years after such
payment has become due and payable shall be repaid to the Corporation, and the
Holder of the shares of Series A Convertible Preferred Stock in respect of which
such moneys and shares were so deposited or held in trust shall thereafter look
only to Corporation for payment thereof.
10. Reissuance of Shares of Series A Convertible Preferred
Stock
Shares of Series A Convertible Preferred Stock that have been
issued and reacquired in any manner, including shares purchased or redeemed or
exchanged, shall (upon compliance with any applicable provisions of the laws of
Delaware) have the status of authorized but unissued shares of Preferred Stock
of the Corporation undesignated as to series and may be redesignated and
reissued as part of any series of Preferred Stock of the Corporation, including
the Series A Convertible Preferred Stock, provided that any issuance or
reissuance of such shares as Series A Convertible Preferred Stock must be in
compliance with the terms thereof.
11. Headings of Subdivisions
The headings of the various subdivisions hereof are for
convenience of reference only and shall not affect the interpretation of any of
the provisions hereof.
12. Severability of Provisions
If any powers, preferences and relative, participating,
optional and other special rights of the Series A Convertible Preferred Stock
and the qualifications, limitations and restrictions thereof set forth in this
Certificate of Designation (as it may be amended from time to time) is invalid,
unlawful or incapable of being enforced by reason of any rule or law or public
policy, all other powers, preferences and relative, participating, optional and
other special rights of the Series A Convertible Preferred Stock and the
qualifications, limitations and restrictions thereof set forth in this
Certificate of Designation (as so amended) which can be given effect without the
invalid, unlawful or unenforceable powers, preferences and relative,
participating, optional and other special rights of the Series A Convertible
Preferred Stock and the qualifications, limitations and restrictions thereof
shall, nevertheless, remain in full force and effect, and no powers, preferences
and relative, participating, optional or other special rights of the Series A
Convertible Preferred Stock and the qualifications, limitations and restrictions
thereof herein set forth shall be deemed dependent upon any other such powers,
preferences and relative, participating, optional or other special rights of
Series A Convertible Preferred Stock and qualifications, limitations and
restrictions thereof unless so expressed herein.
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EXHIBIT C
<PAGE> 80
EXHIBIT C
================================================================================
REGISTRATION RIGHTS AGREEMENT
Dated as of March 1, 2000
among
E. SPIRE COMMUNICATIONS, INC.,
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.,
TRV EXECUTIVE FUND, L.P. and
such other Parties as may become Signatories hereto
Series A Convertible Preferred Stock
================================================================================
<PAGE> 81
TABLE OF CONTENTS
<TABLE>
<CAPTION>
Page
<S> <C>
ARTICLE I
CERTAIN DEFINITIONS............................................................ 2
Section 1.1. Certain Definitions.............................................. 2
ARTICLE II
ORIGINAL ISSUE OF WARRANTS..................................................... 8
Section 2.1. Form of Warrant Certificates and Dating.......................... 8
Section 2.2. Legends.......................................................... 8
ARTICLE III
EXERCISE OF WARRANTS........................................................... 9
Section 3.1. Exercise Price................................................... 9
Section 3.2. Exercise; Restrictions on Exercise; Expiration................... 9
Section 3.3. Method of Exercise; Payment of Exercise Price.................... 10
ARTICLE IV
ADJUSTMENTS.................................................................... 12
Section 4.1. Adjustments...................................................... 12
Section 4.2. Notice of Adjustment............................................. 18
Section 4.3. Statement on Warrants............................................ 18
Section 4.4. Notice of Consolidation, Merger or Sale of Assets................ 18
Section 4.5. Fractional Interests............................................. 19
Section 4.6. No Dilution or Impairment........................................ 19
Section 4.7. No Adjustments for Certain Issuances............................. 19
ARTICLE V
DECREASE IN EXERCISE PRICE..................................................... 19
Section 5.1. Exercise Price................................................... 19
ARTICLE VI
RESERVATION AND AUTHORIZATION OF COMMON SHARES................................. 20
Section 6.1. Reservation and Authorization.................................... 20
Section 6.2. Covenant Regarding Securities.................................... 20
Section 6.3. Registration..................................................... 20
ARTICLE VII
WARRANT TRANSFER BOOKS; RESTRICTIONS ON TRANSFER............................... 21
Section 7.1. Transfer and Exchange............................................ 21
Section 7.2. Special Transfer Provisions...................................... 22
Section 7.3. Surrender of Warrant Certificates................................ 22
Section 7.4. Rule 144 and Rule 144A Information............................... 23
</TABLE>
i
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<TABLE>
<S> <C>
ARTICLE VIII
HOLDERS........................................................................ 23
Section 8.1. Holder Not Deemed a Stockholder.................................. 23
Section 8.2. Right of Action.................................................. 23
ARTICLE IX
REGISTRATION RIGHTS............................................................ 23
Section 9.1. Intentionally omitted............................................ 23
Section 9.2. Warrant Shelf Registration Statement............................. 24
(b) Subsequent Shelf Registrations................................................. 24
(d) Suspension of Shelf Registration............................................... 25
(e) Deferral Period................................................................ 25
ARTICLE X
MISCELLANEOUS.................................................................. 35
Section 10.1. Loss or Mutilation.............................................. 35
Section 10.2. Payment of Taxes................................................ 35
Section 10.3. No Merger, Consolidation or Sale of Assets or the Company....... 35
Section 10.4. Reports to Holders.............................................. 36
Section 10.5. Notices......................................................... 36
Section 10.6. Subsequent Purchaser............................................ 37
Section 10.7. Governing Law................................................... 38
Section 10.8. Headings........................................................ 38
Section 10.9. Severability.................................................... 38
Section 10.10. Amendment; Waiver.............................................. 38
Section 10.11. No Inconsistent Agreements..................................... 38
Section 10.12. Counterparts................................................... 38
EXHIBIT A
FORM OF WARRANT................................................................ A-1
WARRANTS TO PURCHASE SHARES OF COMMON STOCK............................................. A-1
FORM OF REVERSE OF WARRANT.............................................................. A-4
FORM OF ASSIGNMENT...................................................................... A-5
</TABLE>
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REGISTRATION RIGHTS AGREEMENT
This Registration Rights Agreement (the "Agreement") is dated
as of March 1, 2000, among e.spire Communications, Inc., a Delaware corporation
(the "Company"), The Huff Alternative Income Fund, L.P. ("Huff"), 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.
(collectively, "Greenwich", and collectively with Huff, the "Initial
Purchasers") and such other parties who may be made a signatory hereto from time
to time (the "Subsequent Purchasers," and, collectively with the Initial
Purchasers, the "Purchasers").
WHEREAS, concurrently herewith, the Company has entered into
the (i) Purchase Agreement, dated the date hereof with Huff (the "Huff Purchase
Agreement"), pursuant to which the Company has agreed to issue and sell to Huff
an aggregate of 100,000 Units (as defined herein), and (ii) Purchase Agreement,
dated the date hereof with Greenwich (the "Greenwich Purchase Agreement," and,
collectively with the Huff Purchase Agreement, the "Purchase Agreements"),
pursuant to which the Company has agreed to issue and sell to Greenwich an
aggregate of 25,000 Units.
WHEREAS, each Unit consists of (i) one (1) share of Series A
Convertible Preferred Stock, par value $1.00 per share (the "Initial Preferred
Stock"), initially convertible into 126.42225 shares of Common Stock (as defined
herein) at a conversion price of $7.91 per share (subject to adjustment) and
(ii) one (1) warrant (the "Warrant") initially exercisable to purchase 44.1
shares of Common Stock at an exercise price of $9.89 per share (subject to
adjustment).
WHEREAS, in addition to the sale of the Units to the Initial
Purchasers, the Company has agreed to use its reasonable efforts to sell to
other purchasers (which purchasers will exclude the Initial Purchasers)
acceptable to the Company's Board of Directors up to $125 million of additional
Units consisting of preferred stock (the "Additional Preferred Stock" and
collectively, with the Initial Preferred Stock, the "Preferred Stock") and
warrants on the same (or, as provided in the Purchase Agreements, more favorable
to the Company) terms and conditions set forth in the Purchase Agreements.
WHEREAS, the execution and delivery of this Agreement is a
condition to the Initial Purchasers' obligations to purchase the Units pursuant
to the Purchase Agreements.
In consideration of the foregoing and of the agreements
entered into in connection with the Purchase Agreements, the Company and the
Purchasers hereby agree as follows:
1. Definitions
As used in this Agreement, the following terms shall have the
following meanings:
Additional Dividends: See Section 4 hereof.
<PAGE> 84
Additional Preferred Stock: See recitals hereto.
Advice: See Section 5 hereof.
Agreement: See the introductory paragraphs hereto.
Certificate of Designation: The Certificate of Designation
governing the Preferred Stock, as filed with the Secretary of State of the State
of Delaware, as amended from time to time.
Closing Date: The date of each Closing (as defined in each of
the Purchase Agreements).
Common Stock: Common stock, par value $.01 per share of the
Company.
Company: See the introductory paragraphs hereto.
Deferral Period: See Section 3(e) hereof.
Effectiveness Date: The 90th day after the Filing Date.
Effectiveness Period: See Section 3(a) hereof.
Exchange Act: The Securities Exchange Act of 1934, as amended,
and the rules and regulations of the SEC promulgated thereunder.
Filing Date: The later of (i) the 60th day after the Issue
Date and (ii) if Additional Preferred Stock is being sold by the Company, the
15th day after the Final Closing (as such term is defined in the Purchase
Agreements).
Greenwich: See introductory paragraph hereto.
Greenwich Purchase Agreement: See recitals hereto.
Holder: Any registered holder of Registrable Securities.
Huff: See introductory paragraph hereto.
Huff Purchase Agreement: See recitals hereto.
Indemnified Person: See Section 7(c) hereof.
Indemnifying Person: See Section 7(c) hereof.
Initial Preferred Stock: See recitals hereto.
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<PAGE> 85
Initial Purchasers: See introductory paragraph hereto.
Initial Shelf Registration: See Section 3(a) hereof.
Inspectors: See Section 5(n) hereof.
Issue Date: The date on which the Preferred Stock was first
issued and sold to the Initial Purchasers.
Losses: See Section 7(a) hereof.
Majority Holders: See Section 5 hereof.
NASD: See Section 5(r) hereof.
Participant: See Section 7(a) hereof.
Person: An individual, partnership, corporation, limited
liability company, unincorporated association, trust or joint venture, or a
governmental agency or political subdivision thereof.
Preferred Stock: See the recitals hereto.
Prospectus: The prospectus included in any Registration
Statement (including, without limitation, any prospectus subject to completion
and a prospectus that includes any information previously omitted from a
prospectus filed as part of an effective registration statement in reliance upon
Rule 430A promulgated under the Securities Act), as amended or supplemented by
any prospectus supplement, and all other amendments and supplements to the
Prospectus, including post-effective amendments, and all material incorporated
by reference or deemed to be incorporated by reference in such Prospectus.
Purchase Agreements: See the recitals hereto.
Purchasers: See the introductory paragraph hereto.
Records: See Section 5(n) hereof.
Registrable Securities: The (A) shares of Preferred Stock, the
shares of Common Stock issuable upon conversion thereof and as dividends thereon
and (B) any other securities issued by the Company in exchange for, as a
dividend on or in connection with a split of or other adjustment to the terms of
any such security in the foregoing clause (A); such securities shall cease to be
Registrable Securities on the date that is the earliest to occur of: (i) the
date on which any such security has been effectively registered under the
Securities Act and disposed of in accordance with a Registration Statement, (ii)
the date on which such security is distributed to the public pursuant to Rule
144 or is eligible for sale pursuant to Rule 144(k) under the Securities
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<PAGE> 86
Act (provided, however, that, for so long as (but only for so long as) a
Registration Statement remains in effect hereunder for Registrable Securities of
a Holder, no Registrable Securities of any other Holder shall cease to be
Registrable Securities solely because they are eligible for sale pursuant to
Rule 144(k)) and (iii) the date on which such security ceases to be outstanding.
Registration Statement: Any registration statement of the
Company filed with the SEC pursuant to the provisions of this Agreement,
including the Prospectus, amendments and supplements to such registration
statement, including post-effective amendments, all exhibits, and all material
incorporated by reference or deemed to be incorporated by reference in such
registration statement.
Rule 144: 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 SEC 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 415: Rule 415 promulgated under the Securities Act, as
such Rule may be amended from time to time, or any similar rule or regulation
hereafter adopted by the SEC.
SEC: The Securities and Exchange Commission.
Securities Act: The Securities Act of 1933, as amended, and
the rules and regulations of the SEC promulgated thereunder.
Shelf Registration: See Section 3(b) hereof.
Subsequent Purchaser: See introductory paragraph hereto.
Subsequent Shelf Registration: See Section 3(b) hereof.
Suspension Notice: See Section 3(d) hereof.
Suspension Period: See Section 3(d) hereof.
Transfer Agent: The Transfer Agent for the Preferred Stock or
Common Stock.
Underwritten registration or underwritten offering: A
registration in which securities of the Company are sold to an underwriter for
reoffering to the public.
2. Intentionally Omitted.
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<PAGE> 87
3. Shelf Registration
(a) Shelf Registration. Subject to Section 3(e), the Company
shall as promptly as reasonably practicable (but in any event prior to the
Filing Date) file with the SEC a Registration Statement for an offering to be
made on a continuous basis pursuant to Rule 415 covering all of the Registrable
Securities (the "Initial Shelf Registration"). The Initial Shelf Registration
shall be on an appropriate form permitting registration of such Registrable
Securities for resale by Holders.
The Company shall use its reasonable best efforts to cause the
Initial Shelf Registration to be declared effective under the Securities Act on
or prior to the Effectiveness Date and to keep the Initial Shelf Registration
continuously effective under the Securities Act (the "Effectiveness Period") or
such shorter period ending when (i) all Registrable Securities have been sold in
the manner set forth and as contemplated in the Initial Shelf Registration or
(ii) a Subsequent Shelf Registration covering all of the Registrable Securities
has been declared effective under the Securities Act or (iii) there are no
longer any Registrable Securities outstanding.
(b) Subsequent Shelf Registrations. If the Initial Shelf
Registration or any Subsequent Shelf Registration ceases to be effective for any
reason at any time during the Effectiveness Period (other than because of the
sale thereunder of all of the securities registered thereunder or there are no
longer any Registrable Securities outstanding), the Company shall use its
reasonable best efforts to obtain the prompt withdrawal of any order suspending
the effectiveness thereof, and in any event shall within 45 days of such
cessation of effectiveness amend the Initial Shelf Registration in a manner to
obtain the withdrawal of the order suspending the effectiveness thereof, or file
an additional "shelf" Registration Statement pursuant to Rule 415 covering all
of the Registrable Securities (a "Subsequent Shelf Registration"). If a
Subsequent Shelf Registration is filed, the Company shall use its reasonable
best efforts to cause the Subsequent Shelf Registration to be declared effective
under the Securities Act as soon as practicable after such filing and to keep
such Registration Statement continuously effective until the end of the
Effectiveness Period or such shorter period ending when (i) all Registrable
Securities have been sold in the manner set forth and as contemplated in the
Subsequent Shelf Registration or (ii) there are no longer any Registrable
Securities outstanding. As used herein the term "Shelf Registration" means the
Initial Shelf Registration and any Subsequent Shelf Registration.
(c) Supplements and Amendments. The Company shall use its
reasonable best efforts to supplement and amend the Shelf Registration if
required by the rules, regulations or instructions applicable to the
registration form used for such Shelf Registration, if required by the
Securities Act, or if reasonably requested by the Holders of a majority of the
shares of the Registrable Securities covered by such Registration Statement (on
an as converted basis and taken together as a single class) or if reasonably
requested by an underwriter, if any, of such Registrable Securities.
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<PAGE> 88
(d) Suspension of Shelf Registration. The Company's obligation
to keep the Shelf Registration effective and usable for offers and sales of the
Registrable Securities may be suspended by the Company if the Company, in good
faith and for valid business reasons, determines that, without such suspension,
the Company will suffer interference with any material financing, acquisition,
corporate reorganization or other material transaction or development involving
the Company. Any such period during which the Company fails to keep the Shelf
Registration effective and usable for offers and sales of Registrable Securities
is referred to as a "Suspension Period." A Suspension Period shall commence on
and include the date that the Company gives written notice (the "Suspension
Notice") to the Holders of Registrable Securities covered by the Shelf
Registration that the Shelf Registration is no longer effective or the
prospectus included therein is no longer usable for offers and sales of the
Registrable Securities shall end on the earliest of (A) 90 days from the
effective date of the Suspension Period or (B) the date the Holders of
Registrable Securities covered by such registration are advised in writing by
the Company that use of the prospectus may be resumed. Each Holder agrees that,
upon receipt of any Suspension Notice, such Holder will forthwith discontinue
(during the pendency of such Suspension Period) disposition of Registrable
Securities pursuant to the Shelf Registration. During the pendency of any
Suspension Period, the Company may not issue any securities, whether or not in a
public offering, except for (i) issuances of Common Stock pursuant to an
acquisition or other business combination transaction or upon exercise of
options or warrants outstanding prior to such Suspension Period or (ii)
pay-in-kind dividends, to the extent permitted, in respect of preferred stock
outstanding prior to such Suspension Period. Notwithstanding anything to the
contrary in this Section 3(d), the Company may only suspend the effectiveness of
the Shelf Registration pursuant to this Section 3(d) if the Company suspends the
effectiveness of any and all other registration statements maintained by the
Company covering the Company's securities pursuant to Rule 415 or otherwise.
(e) Deferral Period. Notwithstanding anything to the contrary
herein, the Company shall have the right to defer the filing of the Initial
Shelf Registration pursuant to this Agreement for a period not to exceed 90 days
after the Filing Date (the "Deferral Period") if, in the good faith
determination of the Board of Directors of the Company, the filing of such
Initial Shelf Registration would interfere with any material financing,
acquisition, corporate reorganization or other material transaction or
development involving the Company; provided, that during the pendency of any
such Deferral Period, the Company may not issue any securities, whether or not
in a public offering, except for (i) issuances of Common Stock pursuant to an
acquisition or other business combination transaction or upon exercise of
options or warrants outstanding prior to such Deferral Period or (ii)
pay-in-kind dividends, to the extent permitted, in respect of preferred stock
outstanding prior to such Deferral Period. In the event that the Company
exercises its deferral rights pursuant to this Section 3(e), the Effectiveness
Date shall be tolled for a period equal to the Deferral Period.
4. Additional Dividends
The Company and the Purchasers agree that the Holders of
Registrable Securities will suffer damages if the Company fails to fulfill its
obligations under Section 3 hereof and that it would not be feasible to
ascertain the extent of such damages with precision. Accordingly,
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<PAGE> 89
without limiting any other rights or remedies the Holders may possess pursuant
to this Agreement or under applicable law, the Company agrees to pay, as
liquidated damages, additional dividends on the Preferred Stock (in either case,
"Additional Dividends") under the circumstances and to the extent set forth in
the Certificate of Designation and agrees that the Holders are entitled to
injunctive and equitable relief without bond or security in the event of the
Company's breach of any term or provision under Section 3.
5. Registration Procedures
In connection with the filing of any Registration Statement
pursuant to Section 3 hereof, the Company shall effect such registrations to
permit the sale of the securities covered thereby in accordance with the
intended method or methods of disposition thereof, and pursuant thereto and in
connection with any Registration Statement filed by the Company hereunder the
Company shall:
(a) Prepare and file with the SEC on or prior to the Filing
Date, a Registration Statement as prescribed by Section 3 hereof, and use its
reasonable best efforts to cause such Registration Statement to become effective
and remain effective as provided herein; provided, however, that, before filing
any Registration Statement or Prospectus or any amendments or supplements
thereto, the Company shall furnish to and afford the Holders of the Registrable
Securities covered by such Registration Statement, their counsel and the
managing underwriters, if any, a reasonable opportunity to review copies of all
such documents (including, if requested in writing, copies of any documents to
be incorporated by reference therein and all exhibits thereto) proposed to be
filed (in each case at least five business days prior to such filing). The
Company shall not file any Registration Statement or Prospectus or any
amendments or supplements thereto if the Holders of a majority of the
Registrable Securities (on an as-converted basis and taken together as a single
class) covered by such Registration Statement, their counsel, or the managing
underwriters, if any, shall reasonably object within two business days after the
receipt thereof.
(b) Prepare and file with the SEC such amendments and
post-effective amendments to each Shelf Registration as may be necessary to keep
such Registration Statement continuously effective for the Effectiveness Period
(or such shorter period as may be specified in Section 3(a) or 3(b)); cause the
related Prospectus to be supplemented by any Prospectus supplement required by
applicable law, and as so supplemented to be filed pursuant to Rule 424 (or any
similar provisions then in force) promulgated under the Securities Act; and
comply with the provisions of the Securities Act and the Exchange Act applicable
to it with respect to the disposition of all securities covered by such
Registration Statement as so amended or in such Prospectus as so supplemented.
(c) Notify the selling Holders of Registrable Securities,
their counsel and the managing underwriters, if any, reasonably promptly (but in
any event within five business days), and confirm such notice in writing, (i)
when a Prospectus or any Prospectus supplement or post-effective amendment has
been filed, and, with respect to a Registration Statement or any post-effective
amendment, when the same has become effective under the Securities Act, (ii) of
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the issuance by the SEC of any stop order suspending the effectiveness of a
Registration Statement or of any order preventing or suspending the use of any
preliminary prospectus or the initiation of any proceedings for that purpose,
(iii) if at any time when a prospectus is required by the Securities Act to be
delivered in connection with sales of the Registrable Securities the
representations and warranties of the Company contained in any agreement,
including an underwriting agreement, if any, contemplated by Section 5(m) hereof
cease to be true and correct, (iv) of the receipt by the Company of any
notification with respect to the suspension of the qualification or exemption
from qualification of a Registration Statement or any of the Registrable
Securities for offer or sale in any jurisdiction, or the initiation or
threatening of any proceeding for such purpose, (v) of the happening of any
event, the existence of any condition or any information becoming known that
makes any statement made in such Registration Statement or related Prospectus or
any document incorporated or deemed to be incorporated therein by reference
untrue in any material respect or that requires the making of any changes in or
amendments or supplements to such Registration Statement, Prospectus or
documents so that, in the case of the Registration Statement, it will not
contain any untrue statement of a material fact or omit to state any material
fact required to be stated therein or necessary to make the statements therein
not misleading, and that in the case of the Prospectus, it will not contain any
untrue statement of a material fact or omit to state any material fact required
to be stated therein or necessary to make the statements therein, in the light
of the circumstances under which they were made, not misleading and (vi) of the
Company's determination that a post-effective amendment to a Registration
Statement would be appropriate.
(d) Use its reasonable best efforts to prevent the issuance of
any order suspending the effectiveness of a Registration Statement or of any
order preventing or suspending the use of a Prospectus or suspending the
qualification (or exemption from qualification) of any of the Registrable
Securities for sale in any jurisdiction, and, if any such order is issued, to
use its reasonable best efforts to obtain the withdrawal of any such order at
the earliest possible moment.
(e) If requested by the managing underwriter or underwriters
(if any), or the Holders of a majority of shares of Registrable Securities (on
an as-converted basis and taken together as a single class) being sold in
connection with an underwritten offering, if any, (i) promptly incorporate in a
prospectus supplement or post-effective amendment such information as the
managing underwriter or underwriters (if any), such Holders, or its counsel
determine is reasonably necessary to be included therein and (ii) make all
required filings of such prospectus supplement or such post-effective amendment
as soon as practicable after the Company has received notification of the
matters to be incorporated in such prospectus supplement or post-effective
amendment.
(f) Furnish to each selling Holder of Registrable Securities
who so requests in writing and to counsel and each managing underwriter, if any,
at the sole expense of the Company, one conformed copy of the Registration
Statement or Registration Statements and each post-effective amendment thereto,
including financial statements and schedules, and, if requested in writing, all
documents incorporated or deemed to be incorporated therein by reference and all
exhibits.
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(g) Deliver to each selling Holder of Registrable Securities,
its respective counsel, and the underwriters, if any, at the sole expense of the
Company, as many copies of the Prospectus (including each form of preliminary
prospectus) and each amendment or supplement thereto and any documents
incorporated by reference therein as such Persons may reasonably request in
writing; and, subject to the last paragraph of this Section 5, the Company
hereby consents to the use of such Prospectus and each amendment or supplement
thereto by each of the selling Holders of Securities and the underwriters or
agents, if any, and dealers (if any), in connection with the offering and sale
of the Registrable Securities covered by, such Prospectus and any amendment or
supplement thereto.
(h) Prior to any public offering of Registrable Securities, to
use its reasonable best efforts to register or qualify, and to cooperate with
the selling Holders of Registrable Securities, the managing underwriter or
underwriters, if any, and their respective counsel in connection with the
registration or qualification (or exemption from such registration or
qualification) of such Registrable Securities for offer and sale under the
securities or Blue Sky laws of such jurisdictions within the United States as
any selling Holder, or the managing underwriter shall reasonably request;
provided, however, that where Registrable Securities are offered other than
through an underwritten offering, the Company agrees to cause the Company's
counsel to perform Blue Sky investigations, if necessary, and file registrations
and qualifications required to be filed pursuant to this Section 5(h); keep each
such registration or qualification (or exemption therefrom) effective during the
period such Registration Statement is required to be kept effective and do any
and all other acts or things reasonably necessary or advisable to enable the
disposition in such jurisdictions of the Registrable Securities covered by the
Registration Statement; provided, however, that the Company shall not be
required to qualify as a foreign corporation or to execute a general consent to
service of process in any jurisdiction or be subject to taxation in any
jurisdiction in which it is not so subject.
(i) Cooperate with the selling Holders of Registrable
Securities and the managing underwriter or underwriters, if any, to facilitate
the timely preparation and delivery of certificates representing Registrable
Securities to be sold, which certificates shall not bear any restrictive legends
and shall be in a form eligible for deposit with The Depository Trust Company;
and enable such Registrable Securities to be in such denominations and
registered in such names as the managing underwriter or underwriters, if any, or
Holders may reasonably request.
(j) Use its reasonable best efforts to cause the Registrable
Securities covered by the Registration Statement to be registered with or
approved by such other governmental agencies or authorities as may be necessary
to enable the seller or sellers thereof or the underwriter or underwriters, if
any, to consummate the disposition of such Registrable Securities in the United
States except as may be required solely as a consequence of the nature of such
selling Holder's business, in which case the Company will cooperate in all
reasonable respects with the filing of such Registration Statement and the
granting of such approvals.
(k) Upon the occurrence of any event contemplated by paragraph
5(c)(v) or 5(c)(vi) hereof, as promptly as practicable prepare and (subject to
Sections 3(d) and 5(a) hereof)
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<PAGE> 92
file with the SEC, at the sole expense of the Company, a supplement or
post-effective amendment to the Registration Statement or a supplement to the
related Prospectus or any document incorporated or deemed to be incorporated
therein by reference, or file any other required document so that, as thereafter
delivered to the purchasers of the Registrable Securities being sold thereunder,
any such Prospectus will not contain an untrue statement of a material fact or
omit to state a material fact required to be stated therein or necessary to make
the statements therein, in the light of the circumstances under which they were
made, not misleading.
(l) Prior to the effective date of the first Registration
Statement relating to the Registrable Securities, (i) provide the Transfer Agent
with certificates for the Registrable Securities (if any) in a form eligible for
deposit with The Depository Trust Company and (ii) provide CUSIP numbers for the
Registrable Securities.
(m) In connection with an underwritten offering, if any, of
Registrable Securities pursuant to a Shelf Registration, enter into an
underwriting agreement as is customary for the managing underwriter or
underwriters in underwritten offerings of securities similar to the Preferred
Stock and Common Stock and take all such other actions as are reasonably
requested by the managing underwriter or underwriters in order to expedite or
facilitate the registration or the disposition of such Registrable Securities
and, in such connection, (i) make such representations and warranties to, and
covenants with, the underwriters with respect to the business of the Company and
its subsidiaries (including any acquired business, properties or entity, if
applicable) and the Registration Statement, Prospectus and documents, if any,
incorporated or deemed to be incorporated by reference therein, in each case, as
are customarily requested by the managing underwriter or underwriters to be made
by issuers to underwriters in underwritten offerings of securities similar to
the Preferred Stock and Common Stock, and confirm the same in writing if and
when requested; (ii) obtain the written opinion of counsel to the Company and
written updates thereof in form, scope and substance reasonably satisfactory to
the managing underwriter or underwriters, addressed to the underwriters covering
the matters customarily covered in opinions requested in underwritten offerings
of securities similar to the Preferred Stock and Common Stock and such other
matters as may be reasonably requested by the managing underwriter or
underwriters; (iii) if entitled, obtain "cold comfort" letters and updates
thereof in form, scope and substance reasonably satisfactory to the managing
underwriter or underwriters from the independent certified public accountants of
the Company (and, if necessary, any other independent certified public
accountants of any subsidiary of the Company or of any business acquired by the
Company for which financial statements and financial data are, or are required
to be, included or incorporated by reference in the Registration Statement),
addressed to each of the underwriters, such letters to be in customary form and
covering matters of the type customarily covered in "cold comfort" letters in
connection with underwritten offerings of securities similar to the Preferred
Stock and Common Stock and such other matters as reasonably requested by the
managing underwriter or underwriters; and (iv) if an underwriting agreement is
entered into, the same shall contain indemnification provisions and procedures
in customary form and covering matters customarily covered in connection with
underwritten offerings of securities similar to the Preferred Stock and Common
Stock with respect to all parties to be indemnified pursuant to said Section.
The above shall be done at each closing under such underwriting agreement, or as
and to the extent required thereunder.
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(n) Make available for inspection by any selling Holder of the
Registrable Securities being sold, the underwriter, if any, participating in any
such disposition of Registrable Securities, and any attorney, accountant or
other agent retained by any such selling Holder or underwriter (collectively,
the "Inspectors"), at the offices where normally kept, during reasonable
business hours, all financial and other records, pertinent corporate documents
and instruments of the Company and its subsidiaries (collectively, the
"Records") as shall be reasonably necessary to enable them to exercise any
applicable due diligence responsibilities, and cause the officers, directors and
employees of the Company and its subsidiaries to supply all information
reasonably requested by any such Inspector in connection with such Registration
Statement; provided, however, that Records that the Company determines, in good
faith, to be confidential and which Records the Company notifies the Inspectors
are confidential shall not be disclosed by the Inspectors unless (A) the
Inspector provides prior written notice to the Company of such disclosure and
(B)(i) the disclosure of such Records is necessary to avoid or correct a
misstatement or omission in such Registration Statement, (ii) the release of
such Records is ordered pursuant to a subpoena or other order from a court of
competent jurisdiction, (iii) disclosure of such information is, in the
reasonable opinion of counsel for any Inspector, necessary or advisable in
connection with any action, claim, suit or proceeding, directly or indirectly,
involving or potentially involving such Inspector and arising out of, based
upon, relating to, or involving this Agreement or any transactions contemplated
hereby or arising hereunder or (iv) the information in such Records has been
made generally available to the public (other than as a result of an
impermissible disclosure or failure to safeguard by the Inspectors). Each
selling holder of Registrable Securities will be required to agree that
information obtained by it as a result of such inspections shall be deemed
confidential and shall not be used by it as the basis for any market
transactions in the securities of the Company unless and until such information
is generally available to the public (other than as a result of an impermissible
disclosure or failure to safeguard by such person). Each selling Holder of
Registrable Securities will be required to further agree that it will, upon
learning that disclosure of such Records is sought in a court of competent
jurisdiction, give notice to the Company and allow the Company to undertake
appropriate action to prevent disclosure of the Records deemed confidential at
the Company's sole expense.
(o) Comply with all applicable rules and regulations of the
SEC and make generally available to its securityholders earning statements
satisfying the provisions of Section 11(a) of the Securities Act and Rule 158
thereunder (or any similar rule promulgated under the Securities Act) no later
than 45 days after the end of any 12-month period (or 90-days after the end of
any 12-month period if such period is a fiscal year) commencing on the first day
of the first fiscal quarter of the Company after the effective date of a
Registration Statement, which statements shall cover said 12-month periods.
(p) Cooperate with each seller of Registrable Securities
covered by any Registration Statement and each underwriter, if any,
participating in the disposition of such Registrable Securities and their
respective counsel in connection with the filings, if any, required to be made
with the National Association of Securities Dealers, Inc. (the "NASD").
11
<PAGE> 94
(q) Use its reasonable best efforts to take all other steps
necessary or advisable to effect the registration of the Registrable Securities
covered by a Registration Statement contemplated hereby.
(r) Use its reasonable best efforts to have the shares of
Common Stock issued upon conversion of the Preferred Stock listed on any
national securities exchange or quotation system on or through which the
Company's Common Stock is then listed or admitted to trading.
In any underwritten public offering, the underwriters that
will administer the offering will be selected by Huff (if it is participating in
such offering) or (if Huff is not so participating) by the Holders of a majority
of the Registrable Securities (on an as-converted basis and taken together as a
single class) participating in such offering (Huff or such other Holders, the
"Majority Holders") with the prior written consent of the Company which consent
shall not be unreasonably withheld. No Holder of Registrable Securities may
participate in an underwritten public offering hereunder unless such Holder (a)
agrees to sell such Holder's Registrable Securities on the basis provided in any
underwriting agreements approved by the Majority Holders included in such
offering and (b) completes and executes all customary and appropriate
questionnaires, powers of attorney, indemnities, underwriting agreements and
other documents required under the terms of such underwriting agreements.
The Company may require each seller of Registrable Securities
as to which any registration is being effected to furnish to the Company such
information regarding such seller and the distribution of such Registrable
Securities as the Company may, from time to time, reasonably request. The
Company may exclude from such registration the Registrable Securities of any
seller who fails to furnish such information within 20 business days after
receiving such request. Each seller as to which any Shelf Registration is being
effected agrees to furnish promptly to the Company all information required to
be disclosed in order to make the information previously furnished to the
Company by such seller not materially misleading.
Each Holder of Registrable Securities agrees by acquisition of
such Registrable Securities, that, upon actual receipt of any notice from the
Company of the happening of any event of the kind described in Section 5(c)(ii),
5(c)(iv), 5(c)(v), or 5(c)(vi) hereof, such Holder will forthwith discontinue
disposition of such Registrable Securities covered by such Registration
Statement or Prospectus to be sold by such Holder until such Holder's receipt of
the copies of the supplemented or amended Prospectus contemplated by Section
5(k) hereof, or until it is advised in writing (the "Advice") by the Company
that the use of the applicable Prospectus may be resumed, and has received
copies of any amendments or supplements thereto.
6. Registration Expenses
(a) All fees and expenses incident to the performance of or
compliance with this Agreement by the Company shall be borne by the Company
whether or not a Shelf Registration is filed or becomes effective.
Notwithstanding the foregoing, the Holders of any shares of Registrable
Securities being registered shall pay all underwriting discounts, commissions
and placement agent fees attributable to the sale of their securities.
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<PAGE> 95
(b) The Company shall reimburse the Holders of the Registrable
Securities being registered in a Shelf Registration for the reasonable fees and
disbursements for one counsel (in addition to appropriate local counsel) chosen
by the Holders of a majority of the Registrable Securities (on an as-converted
basis and taken together as a single class), all such reasonable fees and
expenses not to exceed $50,000 in the aggregate.
7. Indemnification
(a) The Company agrees to indemnify and hold harmless each
Holder of shares of Registrable Securities and its affiliates, the officers,
directors, employees, members, partners (whether general or limited) and agents
of each such Person, and each Person, if any, who controls any such Person
within the meaning of either Section 15 of the Securities Act or Section 20 of
the Exchange Act and the officers, directors, employees, members, partners
(whether general or limited) and agents of each such control Person (each, a
"Participant"), from and against any and all losses, claims, damages, expenses,
penalties, costs of investigation and other liabilities (including, without
limitation, the reasonable legal fees and other expenses actually incurred in
connection with any suit, action or proceeding or any claim asserted and whether
or not such Participant is a party to any action or proceeding out of which such
expenses arise) (collectively, "Losses") caused by, arising out of or based upon
the Company's breach of any material obligation or covenant in this Agreement,
any untrue statement or alleged untrue statement of a material fact contained in
any Registration Statement (or any amendment thereto) or Prospectus (as amended
or supplemented if the Company shall have furnished any amendments or
supplements thereto) or any preliminary prospectus, or caused by, arising out of
or based upon any omission or alleged omission to state therein a material fact
required to be stated therein or necessary to make the statements therein, in
the light of the circumstances under which they were made, not misleading,
except insofar as such Losses are caused by any untrue statement or omission or
alleged untrue statement or omission made in reliance upon and in conformity
with information relating to any Participant furnished to the Company in writing
by such Participant expressly for use therein; provided, however, that the
Company will not be required to indemnify a Participant (A) if such untrue
statement or omission or alleged untrue statement or omission was contained or
made in any preliminary prospectus and corrected in the Prospectus or any
amendment or supplement thereto and it is established in the related proceeding
that such Participant failed to deliver or provide a copy of the Prospectus (as
amended or supplemented) to such Person with or prior to the confirmation of the
sale of such Registrable Securities sold to such Person if required by
applicable law, unless such failure to deliver or provide a copy of the
Prospectus (as amended or supplemented) shall have been determined by a court of
competent jurisdiction by final and non-appealable judgment (or stipulated in a
settlement agreement reached by all parties involved in any action or proceeding
related to such claim) to have been the result of noncompliance by the Company
with this Agreement or (B) if (i) such Participant disposed of Registrable
Securities to the Person asserting a claim (based on an untrue statement or
alleged untrue statement or omission or alleged omission) pursuant to a Shelf
Registration and sent or delivered, or was required by law to send or deliver, a
Prospectus to such Person in connection with such disposition, and (ii) such
Participant actually received a Suspension Notice or other notice referred to in
the penultimate paragraph of Section 5 prior to the date of such disposition and
(iii) such untrue statement or
13
<PAGE> 96
alleged untrue statement or omission or alleged omission was the reason for the
Suspension Notice or other notice referred in such penultimate paragraph of
Section 5.
(b) Each Participant agrees, severally and not jointly, to
indemnify and hold harmless the Company, its directors and officers who sign the
Registration Statement and each Person who controls the Company within the
meaning of Section 15 of the Securities Act or Section 20 of the Exchange Act to
the same extent as the foregoing indemnity from the Company to each Participant,
but only (i) for Losses actually incurred by such Persons to the extent such
Losses are based on information relating to such Participant furnished to the
Company in writing by such Participant expressly for use in any Registration
Statement or Prospectus, any amendment or supplement thereto or any preliminary
prospectus or (ii) with respect to any untrue statement or representation made
by such Participant in writing to the Company. The liability of any Participant
under this paragraph shall in no event exceed the proceeds received by such
Participant from sales of its Registrable Securities under the relevant
Registration Statement or Prospectus.
(c) If any suit, action, proceeding (including any
governmental or regulatory investigation), claim or demand shall be brought or
asserted against any Person in respect of which indemnity may be sought pursuant
to either of the two preceding paragraphs, such Person (the "Indemnified
Person") shall promptly notify the Person against whom such indemnity may be
sought (the "Indemnifying Person") in writing, and the Indemnifying Person, upon
request of the Indemnified Person, shall retain counsel reasonably satisfactory
to the Indemnified Person to represent the Indemnified Person and any others the
Indemnifying Person may reasonably designate in such proceeding and shall pay
the reasonable fees and expenses actually incurred by such counsel related to
such proceeding; provided, however, that the failure to so notify the
Indemnifying Person shall not relieve it of any obligation or liability which it
may have hereunder or otherwise (unless and to the extent such Indemnifying
Person has been materially prejudiced by such failure, including, without
limitation, that such failure results in the forfeiture by the Indemnifying
Person of substantial rights and defenses). In any such proceeding, any
Indemnified Person shall have the right to retain its own counsel, but the fees
and expenses of such counsel shall be at the expense of such Indemnified Person
unless (i) the Indemnifying Person and the Indemnified Person shall have
mutually agreed in writing to the contrary, (ii) the Indemnifying Person has
failed to retain counsel reasonably satisfactory to the Indemnified Person and
has assumed the Indemnified Person's defense in a timely fashion or (iii) the
named parties in any such proceeding (including any impleaded parties) include
both the Indemnifying Person and the Indemnified Person and the Indemnified
Person shall have been advised by counsel that the Indemnified Person may have
available to it different defenses that those available to the Indemnifying
Person or that representation of both parties by the same counsel would be
inappropriate under applicable standards of professional conduct due to
differing interests between them. It is understood that, unless there exists a
conflict among Indemnified Persons as described in the immediately preceding
sentence, the Indemnifying Person shall not, in connection with any one such
proceeding or separate but substantially similar related proceeding in the same
jurisdiction arising out of the same general allegations or circumstances, be
liable for the fees and expenses of more than one separate firm (in addition to
any local counsel) for all Indemnified Persons, and that all such fees and
expenses shall be advanced or
14
<PAGE> 97
reimbursed promptly as they are incurred. Any such separate firm for the
Participants shall be designated in writing by the Holders of a majority of the
Registrable Securities (on an as-converted basis and taken together as a single
class) and any such separate firm for the Company, its directors, its officers
and such control Persons of the Company shall be designated in writing by the
Company. The Indemnifying Person shall not be liable for any settlement of any
proceeding effected without its prior written consent (which consent shall not
be unreasonably withheld or delayed), but if settled with such consent or if
there be a final non-appealable judgment for the plaintiff for which the
Indemnified Person is entitled to indemnification pursuant to this Agreement,
the Indemnifying Person agrees to indemnify and hold harmless each Indemnified
Person from and against any loss or liability by reason of such settlement or
judgment. No Indemnifying Person shall, without the prior written consent of the
Indemnified Person, effect any settlement or compromise of any pending or
threatened proceeding in respect of which any Indemnified Person is or could
have been a party, or indemnity could have been sought hereunder by such
Indemnified Person, unless such settlement (A) includes an unconditional written
release of such Indemnified Person, in form and substance reasonably
satisfactory to such Indemnified Person, from all liability on claims that are
the subject matter of such proceeding and (B) does not include any statement as
to an admission of fault, culpability or failure to act by or on behalf of any
Indemnified Person.
(d) If the indemnification provided for in the first and
second paragraphs of this Section 7 is for any reason unavailable to, or
insufficient to hold harmless, an Indemnified Person in respect of any Losses
referred to therein, then each Indemnifying Person under such paragraphs, in
lieu of indemnifying such Indemnified Person thereunder and in order to provide
for just and equitable contribution, shall contribute to the amount paid or
payable by such Indemnified Person as a result of such Losses in such proportion
as is appropriate to reflect (i) the relative benefits received by the
Indemnifying Person or Persons on the one hand and the Indemnified Person or
Persons on the other from the offering of the Registrable Securities or (ii) if
the allocation provided by the foregoing clause (i) is not permitted by
applicable law, not only such relative benefits but also the relative fault of
the Indemnifying Person or Persons on the one hand and the Indemnified Person or
Persons on the other in connection with the statements or omissions or alleged
statements or omissions that resulted in such losses, claims, damages or
liabilities (or actions in respect thereof) as well as any other relevant
equitable considerations. The relative fault of the parties shall be determined
by reference to, among other things, whether the untrue or alleged untrue
statement of a material fact or the omission or alleged omission to state a
material fact relates to information supplied by the Company on the one hand or
such Participant or such other Indemnified Person in writing expressly for use
in the relevant Registration Statement, as the case may be, on the other, the
parties' relative intent, knowledge, access to information and opportunity to
correct or prevent such statement or omission, and any other equitable
considerations appropriate in the circumstances. The liability of any
Participant under this paragraph shall in no event exceed the proceeds received
by such Participant from sales of its Registrable Securities under the relevant
Registration Statement or Prospectus.
(e) The parties agree that it would not be just and equitable
if contribution pursuant to this Section 7 were determined by pro rata
allocation (even if the Participants were treated as one entity for such
purpose) or by any other method of allocation that does not take
15
<PAGE> 98
account of the equitable considerations referred to in the immediately preceding
paragraph. The amount paid or payable by an Indemnified Person as a result of
the losses, claims, damages and liabilities referred to in the immediately
preceding paragraph shall be deemed to include, subject to the limitations set
forth above, any reasonable legal or other expenses actually incurred by such
Indemnified Person in connection with investigating or defending any such action
or claim. Notwithstanding the provisions of this Section 7, in no event shall a
Participant be required to contribute any amount in excess of the amount by
which proceeds received by such Participant from sales of Registrable Securities
exceeds the amount of any Losses that such Participant has otherwise been
required to pay or has paid by reason of such untrue or alleged untrue statement
or omission or alleged omission. No Person guilty of fraudulent
misrepresentation (within the meaning of Section 11(f) of the Securities Act)
shall be entitled to contribution from any Person who was not guilty of such
fraudulent misrepresentation.
(f) The indemnity and contribution agreements contained in
this Section 7 will be in addition to any liability that the Indemnifying
Persons may otherwise have to the Indemnified Persons referred to above.
8. Rule 144
So long as any shares of Registrable Securities are
outstanding, the Company will provide to holders of the Registrable Securities
and file with the SEC copies of the annual reports and any of the information,
documents and other reports that the Company would have been required to file
with the SEC pursuant to Sections 13 or 15(d) of the Exchange Act regardless of
whether the Company is obligated to file such reports. The Company further
covenants for so long as any Registrable Securities remain outstanding, to make
available to any Holder or beneficial owner of Registrable Securities in
connection with any sale thereof and any prospective purchaser of such
Registrable Securities from such Holder or beneficial owner, the information
required by Rule 144(c) under the Securities Act in order to permit resales of
such Registrable Securities pursuant to Rule 144.
9. Miscellaneous
(a) Subsequent Purchaser. Each party who enters into a
purchase agreement from time to time with the Company as an additional purchaser
of the Additional Preferred Stock shall execute a counterpart to this Agreement
and shall be deemed a Subsequent Purchaser. Such party shall be bound by all
relevant terms and provisions contained herein pertaining to a Subsequent
Purchaser and shall have all the rights and privileges contained herein granted
to a Subsequent Purchaser; notwithstanding the foregoing, such party may also be
a Holder bound by all relevant terms and provisions pertaining hereto and having
all the rights and privileges pertaining hereto.
(b) No Inconsistent Agreements. The Company shall not, after
the date of this Agreement, enter into any agreement with respect to any of its
securities that conflicts with the provisions hereof.
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<PAGE> 99
(c) Amendments and Waivers. The provisions of this Agreement
may not be amended, modified or supplemented, and waivers or consents to
departures from the provisions hereof may not be given, otherwise than with the
prior written consent of the Holders of not less than a majority of the then
outstanding shares of Registrable Securities (on an as-converted basis and taken
together as a single class); provided, however, that the definition of
Registrable Securities, Sections 7 and 8 and this Section 9(c) may not be
amended, modified or supplemented without the prior written consent of each
Holder (including, for purposes of Section 7 only, any person who was a Holder
of Registrable Securities disposed of pursuant to any Registration Statement).
Notwithstanding the foregoing, a waiver or consent to depart from the provisions
of this Agreement (other than the definition of Registrable Securities, Sections
7 and 8 and this Section 9(c)) with respect to a matter that relates exclusively
to the rights of Holders of Registrable Securities whose securities are being
sold pursuant to a Registration Statement and that does not directly or
indirectly affect, impair, limit or compromise the rights of other Holders of
Registrable Securities may be given by Holders of at least a majority of shares
of the Registrable Securities (on an as-converted basis and taken together as a
single class) being sold by such Holders pursuant to such Registration
Statement. Any amendment, modification or supplement to this Agreement which is
favorable to Huff and does not treat all Holders uniformly shall apply equally
to Greenwich.
(d) Notices. All notices and other communications provided for
or permitted hereunder shall be made in writing by hand-delivery, registered
first-class mail, next-day air courier or facsimile:
1. if to a Holder of Registrable Securities, at the most
current address of such Holder on the stock books of the Company with a
copy in like manner to the Initial Purchasers as follows:
The Huff Alternative Income Fund L.P.
1776 On the Green
67 Park Place
Morristown, NJ 07960
Facsimile No: (973) 984-5818
Attention: Joseph Thornton, Esq.
with a copy to:
Proskauer Rose LLP
1585 Broadway
New York, NY 10036
Facsimile No: (212) 969-2900
Attention: Peter G. Samuels, Esq.
- and -
17
<PAGE> 100
Greenwich Street Capital Partners II, L.P.
GSCP Offshore Fund, L.P.
Greenwich Fund, L.P.
Greenwich Street Employees Fund, L.P.
TRV Executive Fund, L.P.
c/o Greenwich Street Investments II, L.L.C.,
General Partner
388 Greenwich Street
New York, NY 10010
Facsimile No.: (212) 816-0166
Attention: Matthew Kaufman
with a copy to:
Weil, Gotshal & Manges LLP
767 Fifth Avenue
New York, NY 10153
Facsimile No.: (212) 310-8007
Attention: Michael Nissan, Esq.
2. if to the Company, at the address as follows:
e.spire Communications, Inc.
12975 Worldgate Drive
Herndon, VA 21070
Facsimile No: (703) 639-6023
Attention: Riley M. Murphy, Esq.
with a copy to:
Davis, Polk & Wardwell
450 Lexington Avenue
New York, NY 10017
Facsimile No.: (212) 450-4300
Attention: Richard Drucker, Esq.
All such notices and communications shall be deemed to have
been duly given: when delivered by hand, if personally delivered; five business
days after being deposited in the mail, postage prepaid, if mailed; one business
day after being timely delivered to a next-day air courier; and when receipt is
acknowledged by the addressee, if sent by facsimile.
(e) Successors and Assigns. This Agreement shall inure to the
benefit of and be binding upon the successors and assigns of each of the parties
hereto, including the Holders; provided, however, that this Agreement shall not
inure to the benefit of or be binding upon a
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<PAGE> 101
successor or assign of a Holder unless and to the extent such successor or
assign holds Registrable Securities.
(f) Counterparts. This Agreement may be executed in any number
of counterparts and by the parties hereto in separate counterparts, each of
which when so executed shall be deemed to be an original and all of which taken
together shall constitute one and the same agreement. Any counterpart executed
by a Subsequent Purchaser shall, when so executed, be deemed to be an original
and, taken together with all other counterparts executed in connection with this
Agreement, shall constitute one and the same agreement.
(g) Headings. The headings in this Agreement are for
convenience of reference only and shall not limit or otherwise affect the
meaning hereof.
(h) Governing Law. THIS AGREEMENT SHALL BE GOVERNED BY AND
CONSTRUED IN ACCORDANCE WITH THE LAWS OF THE STATE OF NEW YORK, AS APPLIED TO
CONTRACTS MADE AND PERFORMED WHOLLY WITHIN THE STATE OF NEW YORK, WITHOUT REGARD
TO PRINCIPLES OF CONFLICTS OF LAW. EACH OF THE PARTIES HERETO AGREES TO SUBMIT
TO THE JURISDICTION OF THE COURTS OF THE STATE OF NEW YORK IN ANY ACTION OR
PROCEEDING ARISING OUT OF OR RELATING TO THIS AGREEMENT.
(i) Severability. If any term, provision, covenant or
restriction of this Agreement is held by a court of competent jurisdiction to be
invalid, illegal, void or unenforceable, the remainder of the terms, provisions,
covenants and restrictions set forth herein shall remain in full force and
effect and shall in no way be affected, impaired or invalidated, and the parties
hereto shall use their reasonable best efforts to find and employ an alternative
means to achieve the same or substantially the same result as that contemplated
by such term, provision, covenant or restriction. It is hereby stipulated and
declared to be the intention of the parties that they would have executed the
remaining terms, provisions, covenants and restrictions without including any of
such that may be hereafter declared invalid, illegal, void or unenforceable.
(j) Securities Held by the Company. Whenever the consent or
approval of Holders of a specified percentage of shares of Registrable
Securities is required hereunder, Registrable Securities held by the Company or
its subsidiaries shall not be counted in determining whether such consent or
approval was given by the Holders of such required percentage.
(k) Third Party Beneficiaries. Holders of Registrable
Securities and Participants are intended third party beneficiaries of this
Agreement and this Agreement may be enforced by such Persons.
(l) Entire Agreement. This Agreement, together with the
Purchase Agreements and any purchase agreement entered into between the
Subsequent Purchasers and the Company in connection with the issuance and sale
of Additional Preferred Stock, are intended by the parties as a final and
exclusive statement of the agreement and understanding of the parties
19
<PAGE> 102
hereto in respect of the subject matter contained herein and therein and any and
all prior oral or written agreements, representations, or warranties, contracts,
understandings, correspondence, conversations and memoranda between the
Purchasers on the one hand and the Company on the other, or between or among any
agents, representatives, parents, subsidiaries, affiliates, predecessors in
interest or successors in interest with respect to the subject matter hereof and
thereof are merged herein and replaced hereby.
20
<PAGE> 103
IN WITNESS WHEREOF, the parties have executed this Agreement
as of the date first written above.
E.SPIRE COMMUNICATIONS, INC.
By:
--------------------------------------
Name:
Title:
THE HUFF ALTERNATIVE INCOME FUND, L.P.
By:
--------------------------------------
Name:
Title:
GREENWICH STREET CAPITAL PARTNERS II,
L.P.
By: Greenwich Street Investors II, L.L.C.,
general partner
By:
--------------------------------------
Name:
Title:
GSCP OFFSHORE FUND L.P.
By: Greenwich Street Investors II, L.L.C.,
general partner
By:
--------------------------------------
Name:
Title:
GREENWICH FUND, L.P.
By: Greenwich Street Investors II, L.L.C.,
general partner
By:
--------------------------------------
Name:
Title:
<PAGE> 104
GREENWICH STREET EMPLOYEES FUND, L.P.
By: Greenwich Street Investors II, L.L.C.,
general partner
By:
--------------------------------------
Name:
Title:
TRV EXECUTIVE FUND, L.P.
By: Greenwich Street Investors II, L.L.C.,
general partner
By:
--------------------------------------
Name:
Title:
<PAGE> 105
Subsequent Purchaser: THE HONEYWELL INTERNATIONAL INC.
MASTER RETIREMENT TRUST
By: Northern Trust Company,
as trustee
By:
--------------------------------------
Name:
Title:
23
<PAGE> 106
EXHIBIT D
<PAGE> 107
EXHIBIT D
WARRANT AGREEMENT
AMONG
E. SPIRE COMMUNICATIONS, INC.,
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.,
TRV EXECUTIVE FUND, L.P. AND
SUCH OTHER PARTIES AS MAY BECOME SIGNATORIES HERETO
DATED AS OF MARCH 1, 2000
<PAGE> 108
WARRANT AGREEMENT
This WARRANT AGREEMENT (the "Agreement") is dated as of March
1, 2000, among e.spire Communications, Inc., a Delaware corporation (the
"Company"), The Huff Alternative Income Fund, L.P. ("Huff"), 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.
(collectively, "Greenwich", and collectively with Huff, the "Initial
Purchasers") and such other parties who may be made a signatory hereto from time
to time (the "Subsequent Purchasers," and, collectively with the Initial
Purchasers, the "Purchasers").
WHEREAS, concurrently herewith, the Company has entered into
the (i) Purchase Agreement, dated the date hereof with Huff (the "Huff Purchase
Agreement"), pursuant to which the Company has agreed to issue and sell to Huff
an aggregate of 100,000 Units (as defined herein), and (ii) Purchase Agreement,
dated the date hereof with Greenwich (the "Greenwich Purchase Agreement," and,
collectively with the Huff Purchase Agreement, the "Purchase Agreements"),
pursuant to which the Company has agreed to issue and sell to Greenwich an
aggregate of 25,000 Units.
WHEREAS, each Unit consisting of (i) one (1) share of Series A
Convertible Preferred Stock, par value $1.00 per share (the "Initial Preferred
Stock"), initially convertible into 126.42225 shares of Common Stock (as defined
herein) at an initial conversion price of $7.91 per share, subject to
adjustments as set forth herein, and (ii) one (1) warrant (the "Initial
Warrant"), initially exercisable to purchase an aggregate of 44.1 shares of
Common Stock (the "Initial Warrant Shares"), at the Initial Warrant Exercise
Price (as defined herein) per Initial Warrant Share, subject to adjustment as
set forth herein. The Preferred Stock and the Initial Warrants will trade
separately at all times.
WHEREAS, in addition to the sale of the Units to the Initial
Purchasers, the Company has agreed to use its reasonable efforts to sell to
other purchasers (which purchasers will exclude the Initial Purchasers)
acceptable to the Company's Board of Directors up to $125 million of additional
Units consisting of preferred stock (the "Additional Preferred Stock, and,
collectively with the Initial Preferred Stock, the "Preferred Stock") and
warrants (the "Additional Warrants") on the same (or, as provided in the
Purchase Agreements, more favorable to the Company) terms and conditions set
forth in the Purchase Agreements.
WHEREAS, pursuant to Section 6 (d)(iv) of each of the Purchase
Agreements, Huff and Greenwich may also be entitled to receive, without further
consideration, 25,000 and 6,250 additional warrants, respectively (collectively,
the "Change of Control Warrants"), upon the occurrence of certain conditions set
forth in each of the Purchase Agreements.
In consideration of the foregoing and of the agreements
entered into in connection with the Purchase Agreements, and for the purpose of
defining the term and provisions of the Warrants and the respective rights and
obligations thereunder of the Company and the Purchasers, the Company and the
Purchasers hereby agree as follows:
<PAGE> 109
ARTICLE I
CERTAIN DEFINITIONS
Section 1.1. Certain Definitions. For all purposes of this
Agreement, except as otherwise expressly provided:
(1) the terms defined in this Article have the meanings
assigned to them in this Article, and include the plural as well as the
singular;
(2) the words "herein," "hereof" and "hereunder" and other
words of similar import refer to this Agreement as a whole and not to any
particular Article, Section or other subdivision;
(3) "or" is not exclusive; and
(4) "including" means including without limitation.
"Additional Preferred Stock" has the meaning set forth in the
recitals hereto.
"Additional Warrants" has the meaning set forth in the
recitals hereto.
"Additional Warrant Exercise Price" means the exercise price
equal to the Initial Warrant Exercise Price, subject to adjustment as set forth
herein.
"Additional Warrant Shares" means 44.1 shares of Common Stock
which a holder of one (1) Additional Warrant is entitled to purchase upon
exercise thereof, subject to adjustment as set forth herein.
"Advice" has the meaning set forth in Section 9.3 herein.
"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. 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.
"Board of Directors" means the Board of Directors of the
Company or any committee thereof duly authorized to act on behalf of such Board.
2
<PAGE> 110
"Board Resolution" means a duly adopted resolution of the
Board of Directors in full force and effect at the time of determination and
certified as such by the Secretary or any Assistant Secretary of the Company.
"Business Day" means each Monday, Tuesday, Wednesday, Thursday
or Friday that is not a day on which banking institutions in The City of New
York are authorized or obligated by law, executive order or regulation to close.
"Cashless Exercise" has the meaning set forth in Section
3.3(a) herein.
"Change of Control Warrants" has the meaning set forth in the
recitals hereto.
"Change of Control Warrant Exercise Price" means the exercise
price equal to the Initial Warrant Exercise Price, subject to adjustment as set
forth herein.
"Change of Control Warrant Shares" means 44.1 shares of Common
Stock which a holder of one (1) Change of Control Warrant is entitled to
purchase upon exercise thereof, subject to adjustment as set forth herein.
"Clearing Agency" has the meaning set forth in Section
3(a)(23) of the Exchange Act.
"Commission" means the Securities and Exchange Commission.
"Common Stock" means the common stock, par value $.01 per
share, of the Company and any other capital stock into which shares of such
common stock may be converted or reclassified or that may be issued in respect
of, in exchange for, or in substitution of, such common stock by reason of any
stock splits, stock dividends, distributions, mergers, consolidations or other
like events.
"Company" means the party named as such in the preamble hereto
until a successor replaces it pursuant to the applicable provisions hereof and,
thereafter, means such successor.
"Current Market Value" has the meaning set forth in Section
4.1(f) herein.
"Effectiveness Date" means the 90th day after the Filing Date.
"Effectiveness Period" has the meaning set forth in Section
9.2(a) herein.
"Exchange Act" means the Securities Exchange Act of 1934, as
amended, and the rules and regulations of the Commission promulgated thereunder.
"Exercise Price" means, (i) in the case of the Initial
Warrants, the Initial Warrant Exercise Price, subject to adjustment as set forth
herein, (ii) in the case of the Additional
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Warrants, the Additional Warrant Exercise Price, subject to adjustment as set
forth herein, (iii) in the case of the Change of Control Warrants, the Change of
Control Warrant Exercise Price, subject to adjustment as set forth herein.
"Expiration Date" means the earlier of (i) the tenth
anniversary of the Issue Date or (ii) the occurrence of an event which causes
the termination of the terms under this Agreement.
"Deferral Period" has meaning set forth in Section 9.2(e)
herein.
"Fair Value" has the meaning set forth in Section 4.1(d)
herein.
"Filing Date" means the later of (i) the 60th day after the
Issue Date and (ii) if Additional Preferred Stock is being sold by the Company,
the 15th day after the Final Closing (as such term is defined in the Purchase
Agreements).
"Financial Expert" means a nationally recognized investment
banking firm.
"Greenwich" has the meaning set forth in the preamble herein.
"Greenwich Purchase Agreement" has the meaning set forth in
the recitals herein.
"Holder" means the Person in whose name a Warrant Certificate
is registered in the Warrant Register or, in the case of the Registrable
Securities in Article IX of this Agreement, the holder of a Warrant and/or
Warrant Shares.
"Huff" has the meaning set forth in the preamble herein.
"Huff Purchase Agreement" has the meaning set forth in the
recitals herein.
"Indemnified Person" has the meaning set forth in Section
9.5(c) herein.
"Indemnifying Person" has the meaning set forth in Section
9.5(c) herein.
"Independent Financial Expert" means, as of any date of
determination, a Financial Expert that has not been retained by the Company,
other than to perform an equity valuation, within the preceding twelve months of
such date of determination. The Independent Financial Expert may be compensated
and indemnified by the Company as customary for opinions or services it provides
as an Independent Financial Expert. The Company shall bear all of the fees and
expenses of the Independent Financial Expert.
"Initial Preferred Stock" has the meaning set forth in the
recitals herein.
"Initial Purchasers" has the meaning set forth in the preamble
herein.
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"Initial Shelf Registration" has the meaning set forth in
Section 9.2(a) herein.
"Inspectors" has the meaning set forth in Section 9.3(n).
"Initial Warrant" has the meaning set forth in the recitals
herein.
"Initial Warrant Exercise Price" means the exercise price of
$9.89, subject to adjustment as set forth herein.
"Initial Warrant Shares" has the meaning set forth in the
preamble herein.
"Initial Sale" has the meaning set forth in Section 9.5(d)
herein.
"Issue Date" means the date of the original issuance of the
Warrants as set forth on the face of the Warrant Certificate.
"Majority Holders" means, as of any date of determination, the
holders holding a majority of the Warrants (on an as-converted basis) and
Warrant Shares then outstanding, taken together as one class.
"Managing Underwriters" means the investment banker or
investment bankers and manager or managers that shall administer an underwritten
offering under a Registration Statement.
"NASD" means the National Association of Securities Dealers,
Inc.
"National Securities Exchange" shall mean any national
securities exchange and shall include The Nasdaq Stock Market System or any
successor market thereto.
"Participant" has the meaning set forth in Section 9.5(a)
herein.
"Person" means any individual, corporation, partnership, joint
venture, trust, limited liability company, unincorporated organization or
government or any agency or political subdivision thereof.
"Preferred Stock" has the meaning set forth in the preamble
herein.
"Private Placement Legend" means the legend in the form set
forth in Section 2.2(a) herein.
"Prospectus" means the prospectus included in any Registration
Statement (including, without limitation, a prospectus that discloses
information previously omitted from a prospectus filed as part of an effective
registration statement in reliance upon Rule 430A under the Securities Act), as
amended or supplemented by any prospectus supplement, with respect to the terms
of the offering of any portion of the Warrants or the Warrant Shares covered by
such
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Registration Statement, and all amendments and supplements to the Prospectus,
including post-effective amendments.
"Purchase Agreements" has the meaning set forth in the
recitals herein.
"Purchasers" has the meaning set forth in the preamble herein.
"Records" has the meaning set forth in Section 9.3(n) herein.
"Registrable Securities" means the (A) Warrants and the
Warrant Shares and (B) any other securities issued by the Company in exchange
for, as a dividend on or in connection with a split of or other adjustment to
the terms of any such security in the foregoing clause (A); such securities
shall cease to be Registrable Securities on the date that is the earliest to
occur of: (i) the date on which any such security has been effectively
registered under the Securities Act and disposed of in accordance with a
Registration Statement, (ii) the date on which such security is distributed to
the public pursuant to Rule 144 or is eligible for sale pursuant to Rule 144(k)
under the Securities Act (provided, however, that, for so long as (but only for
so long as) a Registration Statement remains in effect hereunder for Registrable
Securities of a Holder, no Registrable Securities of any other Holder shall
cease to be Registrable Securities solely because they are eligible for sale
pursuant to Rule 144(k)) and (iii) the date on which such security ceases to be
outstanding.
"Registration Statement" means the Warrant Shelf Registration
Statement (or a successor registration statement thereto), amendments and
supplements to such registration statement, including post-effective amendments,
in each case including the Prospectus contained therein, all exhibits thereto,
and all material incorporated by reference therein.
"Rights" means rights, options or warrants for the purchase
of, or securities convertible into or exchangeable for, Common Stock.
"Rule 144" means Rule 144 under the Securities Act.
"Rule 144A" means Rule 144A under the Securities Act.
"Rule 415" means Rule 415 promulgated under the Securities
Act, as amended from time to time, or any similar rule adopted by the
Commission.
"Securities Act" means the Securities Act of 1933, as amended,
and the rules and regulations of the Commission promulgated thereunder.
"Shelf Registration" has the meaning set forth in Section
9.2(b) herein.
"Stock Decline" has the meaning set forth in Section 6(d)(ii)
of each of the Purchase Agreements.
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"Stockholder Approval" has the meaning set forth in the
Purchase Agreements.
"Subsequent Purchasers" has the meaning set forth in the
preamble herein.
"Subsequent Shelf Registration" has the meaning set forth in
Section 9.2(b) herein.
"Suspension Notice" has the meaning set forth in Section
9.2(d).
"Suspension Period" has the meaning set forth in Section
9.2(d) herein.
"Transfer Agent" means the Transfer Agent for the Warrants and
Warrant Shares.
"Units" means the units of Preferred Stock and Initial
Warrants issued and sold in connection with the Purchase Agreements.
"Valuation Date" means a date specified herein as of which the
Current Market Value of a security or property must be determined by an
Independent Financial Expert.
"Value Report" means a report prepared by an Independent
Financial Expert and delivered to the Board of Directors in accordance with
Section 4.l(k) hereof.
"Warrant Certificate" has the meaning set forth in Section 2.1
herein.
"Warrant Register" has the meaning set forth in Section 7.l(a)
herein.
"Warrant Shares" means, collectively, (i) the shares of Common
Stock issued upon the exercise of the Initial Warrants, (ii) the shares of
Common Stock issued upon the exercise of the Additional Warrants, if any, and
(iii) the shares of Common Stock issued upon the exercise of the Change of
Control Warrants, if any.
"Warrant Shelf Registration Period" has the meaning set forth
in Section 9.1(b) herein.
"Warrant Shelf Registration Statement" means a shelf
registration statement (or any successor registration statement thereto)
relating to the offer and sale of the Warrants and Warrant Shares by the holders
thereof from time to time in accordance with the methods of distribution elected
by such holders and set forth in such registration statement and Rule 415 under
the Securities Act.
"Warrants" means, collectively, (i) the Initial Warrants, (ii)
the Additional Warrants, if any, and (iii) the Change of Control Warrants, if
any and, more particularly, means any warrant(s) represented by a Warrant
Certificate and issued and delivered in connection with the Purchase Agreements
and this Agreement.
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ARTICLE II
ORIGINAL ISSUE OF WARRANTS
Section 2.1. Form of Warrant Certificates and Dating. Any
certificate representing Warrants (each a "Warrant Certificate") shall have such
insertions as are appropriate or required or permitted by this Agreement and may
have such letters, numbers or other marks of identification and such legends and
endorsements stamped, printed, lithographed or engraved thereon, (i) as the
Company may deem appropriate and as are not inconsistent with the provisions of
this Agreement, (ii) such as may be required to comply with this Agreement, any
law or with any rule of any securities exchange on which the Warrants may be
listed, and (iii) such as may be necessary to conform to customary usage.
The Warrants shall be issued initially in the form of Warrant
Certificates in definitive, fully registered form, substantially in the form set
forth in Exhibit A hereto, which exhibit is hereby incorporated in and expressly
made a part of this Agreement. Upon issuance, all such Warrant Certificates
shall be duly executed by the Company and delivered, all as hereinafter
provided.
Definitive Warrant Certificates shall be typed, printed,
lithographed or engraved or produced by any combination of such methods or
produced in any other manner permitted by the rules of any securities exchange
on which the Warrants may be listed, all as determined by the officers of the
Company executing such Warrant Certificates, as evidenced by their execution
thereof.
Section 2.2. Legends. (1) Except as provided in Section 7.2(c)
hereof, each Warrant Certificate shall bear the following legend (the "Private
Placement Legend") on the face thereof:
THE SECURITIES REPRESENTED BY THIS CERTIFICATE HAVE NOT BEEN
REGISTERED UNDER THE SECURITIES ACT OF 1933, AS AMENDED (THE
"ACT"), OR ANY STATE SECURITIES LAWS OR THE SECURITIES LAWS OF
ANY COUNTRY OR OTHER JURISDICTION AND MAY NOT BE OFFERED,
SOLD, TRANSFERRED OR OTHERWISE DISPOSED OF OR PLEDGED OR
HYPOTHECATED UNLESS REGISTERED UNDER THE ACT AND ANY
APPLICABLE SECURITIES LAWS OR UNLESS AN EXEMPTION FROM
REGISTRATION UNDER THE ACT AND ANY SUCH LAWS IS AVAILABLE
(AND, IN SUCH CASE, AN OPINION OF COUNSEL REASONABLY
ACCEPTABLE TO E.SPIRE COMMUNICATIONS, INC. ("COMPANY"), IN
FORM AND SUBSTANCE REASONABLY SATISFACTORY TO THE COMPANY,
SHALL HAVE BEEN DELIVERED TO THE COMPANY TO THE EFFECT THAT
THE OFFER, SALE,
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TRANSFER, DISPOSITION, PLEDGE OR HYPOTHECATION THEREOF IS
EXEMPT FROM REGISTRATION UNDER THE ACT AND ANY SUCH LAWS.
THE SECURITIES REPRESENTED BY THIS CERTIFICATE HAVE THE
BENEFITS OF A WARRANT AGREEMENT DATED AS OF MARCH 1, 2000
AMONG THE COMPANY, 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., TRV EXECUTIVE FUND, L.P. AND THE SUCH OTHER
PARTIES WHO MAY BE MADE A SIGNATORY THERETO FROM TIME TO TIME,
A COPY OF WHICH IS ON FILE WITH THE SECRETARY OF THE COMPANY.
NO TRANSFER, SALE, ASSIGNMENT, PLEDGE, HYPOTHECATION OR OTHER
DISPOSITION OF THE SECURITIES REPRESENTED BY THIS CERTIFICATE
MAY BE MADE EXCEPT IN ACCORDANCE WITH THE PROVISIONS OF SUCH
AGREEMENT.
ARTICLE III
EXERCISE OF WARRANTS
Section 3.1. Exercise Price. Each Warrant shall, when the
Warrant Certificate representing such Warrant is signed by the Company, entitle
the Holder thereof, subject to the provisions of this Agreement to purchase
Warrant Shares at a purchase price per share equal to the Exercise Price,
subject to adjustment as provided in Article IV and Article V hereof.
Section 3.2. Exercise; Restrictions on Exercise; Expiration.
At any time after the Issue Date and on or before the Expiration Date, Warrants
may be exercised on any Business Day; provided that Warrants may not be
exercised if the Warrant Shelf Registration Statement is not effective under the
Securities Act unless such exercise is a Cashless Exercise or the Company
receives evidence reasonably satisfactory to it that such exercise is exempt
from the registration and prospectus delivery requirements of the Securities
Act. In addition, Warrants may not be exercised unless, prior to such exercise
(i) any applicable Hart-Scott-Rodino Act waiting period shall have been expired;
(ii) any consent, approval, authorization or order of the United States Federal
Communications Commission necessary to allow such exercise shall have been
obtained; and (iii) any consent, approval, authorization or order of any U.S.
state telecommunications regulatory authority or commission necessary to allow
such exercise shall have been obtained, except where the absence of such state
telecommunications regulatory authority or commission consent, approval,
authorization or order would not be reasonably likely to have a material adverse
affect on the Company. Any Warrants not exercised by the Expiration Date shall
expire
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and all rights of the Holders of such Warrants hereunder and thereunder shall
terminate unless otherwise provided herein or therein.
Section 3.3. Method of Exercise; Payment of Exercise Price.
(a) In order to exercise all or any of the Warrants represented by a Warrant
Certificate, the Holder thereof is required to surrender to the Company the
Warrant Certificate with the Subscription Form duly filled in and signed, and
payment in full of the Exercise Price for each Warrant Share or other securities
or property issuable upon exercise of the Warrants as to which a Warrant is
exercised. The Exercise Price may be paid (i) by certified or official bank
check or by wire transfer to an account designated by the Company for such
purpose, (ii) by the surrender of shares of Preferred Stock (which surrender
shall be evidenced by cancellation of such shares) having an aggregate Current
Market Value (as defined herein) on the date of exercise equal to the product of
(1) Exercise Price per share as of the date of exercise and (2) the number of
Warrant Shares subscribed for, without the payment of the Exercise Price in
cash, together with a specification as to the number of Warrants to be
exercised, (iii) by surrender of publicly traded debt securities of the Company
(which surrender shall be evidenced by cancellation of such publicly traded debt
securities) having an aggregate Current Market Value (as defined herein) on the
date of exercise equal to the product of (1) Exercise Price per share as of the
date of exercise and (2) the number of Warrant Shares subscribed for, without
the payment of the Exercise Price in cash, together with a specification as to
the number of Warrants to be exercised or (iv) by the surrender (which surrender
shall be evidenced by cancellation of the number of Warrants represented by the
Warrant Certificate presented in connection with a Cashless Exercise) of a
Warrant or Warrants (represented by one or more relevant Warrant Certificates),
and without the payment of the Exercise Price in cash, for such number of
Warrant Shares equal to the product of (1) the number of Warrant Shares for
which such Warrant is exercisable as of the date of exercise (if the Exercise
Price were being paid in cash) and (2) the Cashless Exercise Ratio. An exercise
referred to in clauses (ii), (iii) or (iv) of the preceding sentence shall be
referred to as a "Cashless Exercise." For purposes of this Agreement, the
"Cashless Exercise Ratio" shall equal a fraction, the numerator of which is the
excess of the Current Market Value (as defined herein) per share of Common Stock
on the date of exercise over the Exercise Price per share as of the date of
exercise and the denominator of which is the Current Market Value per share of
Common Stock on the date of exercise (calculated as set forth herein).
Upon surrender of a Warrant Certificate representing more than
one Warrant in connection with the Holder's option to elect a Cashless Exercise,
the number of Warrant Shares deliverable upon a Cashless Exercise shall be equal
to the number of Warrant Shares issuable upon the exercise of Warrants that the
Holder specifies are to be exercised pursuant to a Cashless Exercise multiplied
by the Cashless Exercise Ratio. All provisions of this Agreement shall be
applicable with respect to an exercise of a Warrant Certificate pursuant to a
Cashless Exercise for less than the full number of Warrants represented thereby.
Upon the exercise of any Warrants in accordance with this Agreement, the Company
will transfer promptly to or upon the written order of the Holder of such
Warrant Certificate appropriate evidence of ownership of any Warrant Shares or
other securities or property to which it is entitled, registered or otherwise,
to the Person or Persons entitled to receive the same. All Warrant Shares or
other securities issuable by the Company upon the exercise of the Warrants shall
be validly issued, fully paid and nonassessable.
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(b) Upon exercise of any Warrant in conformity with the
foregoing provisions, the Company shall, (i) transfer promptly to, or upon the
written order of the Holder of such Warrant, appropriate evidence of ownership
of any Warrant Shares or other securities or property (including money) to which
it is entitled, registered or otherwise placed in such name or names as may be
directed in writing by the Holder, and (ii) deliver such evidence of ownership
and any other securities or property (including money) to the Person or Persons
entitled to receive the same, together with an amount in cash in lieu of any
fraction of a share as provided in Section 4.5 hereof, provided, however, that
the Holder of such Warrant shall be responsible for the payment of any transfer
taxes required as the result of any transfer of such Warrant, or the issuance of
such Warrant Shares or other securities or property, to a Person other than the
registered owner of such Warrant. Upon exercise of a Warrant and, in the case of
a Cashless Exercise, written direction of the Company as to the number of
Warrant Shares as to which the Holder is entitled, the Company shall requisition
from any transfer agent of the Warrant Shares or any other securities issuable
upon exercise of a Warrant (and all such transfer agents are hereby irrevocably
authorized to comply with all such requests) certificates for the necessary
number of Warrant Shares or other securities to which the Holder of such Warrant
may be entitled. A Warrant shall be deemed to have been exercised immediately
prior to the close of business on the date of the surrender for exercise of the
Warrant Certificate representing such Warrant and, for all purposes of this
Agreement, the Person entitled to receive any Warrant Shares or other securities
or property deliverable upon such exercise shall, as between such Person and the
Company, be deemed to be the holder of such Warrant Shares or other securities
or property of record as of the close of business on such date and shall be
entitled to receive, and the Company shall deliver to such Person, any Warrant
Shares or other securities or property (including money) to which such Person
would have been entitled had such Person been the record holder of such Warrant
Shares or other securities or property on such date.
(c) If less than all the Warrants represented by a Warrant
Certificate are exercised, such Warrant Certificate shall be surrendered and a
new warrant certificate of the same tenor and for the number of Warrants which
were not exercised, registered in such name or names as may be directed in
writing by the Holder, shall be executed by the Company and the Company shall
deliver such new Warrant Certificate to the Person or Persons entitled to
receive the same.
(d) Without limiting the foregoing, if, at the date referred
to above, the transfer books for the Warrant Shares or other securities
purchasable upon the exercise of the Warrants shall be closed, the certificates
for the Warrant Shares or securities in respect of which such Warrants are then
exercised shall be issuable as of the date on which such books shall next be
opened, and until such date the Company shall be under no duty to deliver any
certificate for such Warrant Shares or other securities; provided, however, that
such transfer books, unless required by law, shall not be closed at any one time
for a period longer than 5 days.
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ARTICLE IV
ADJUSTMENTS
Section 4.1. Adjustments. The Exercise Price and the number of
Warrant Shares purchasable upon exercise of each Warrant shall be subject to
adjustment from time to time as follows:
(a) Adjustments for Change in Common Stock. If the Company at
any time after the date of this Agreement:
(i) pays a dividend or makes any other distribution with
respect to shares of its Common Stock in shares of any class or series
of its capital stock, or other securities;
(ii) subdivides its outstanding shares of Common Stock into a
greater number of shares;
(iii) combines its outstanding shares of Common Stock into a
smaller number of shares; or
(iv) issues any shares of its capital stock in a
reclassification of the shares of its Common Stock (other than a
reclassification in connection with a merger, consolidation or other
business combination governed by Section 4.1(i) hereof);
the number and kind of Warrant Shares issuable upon exercise of each Warrant, at
the time of the record date for such dividend or of the effective date of such
subdivision, combination or reclassification, shall be proportionately adjusted
so that the Holder of any Warrant exercised after such time shall be entitled to
receive the aggregate number and kind of shares of Common Stock and/or shares of
other capital stock or other securities of the Company which, if such Warrant
had been exercised immediately prior to such date, such Holder would have owned
upon such exercise and been entitled to receive by virtue of such dividend,
subdivision, combination or reclassification. An adjustment made pursuant to
this Section 4.1 (a) shall become effective immediately after the record date in
the case of a dividend or distribution and immediately after the effective date
in the case of a subdivision, combination or reclassification. Such adjustment
shall be made successively whenever any event listed above shall occur.
If at any time, as a result of an adjustment made pursuant to
this Section 4.1(a), the Holder of any Warrant thereafter exercised becomes
entitled to receive any securities other than shares of Common Stock, the number
of such other securities so receivable upon exercise of such Warrant shall be
subject to adjustment from time to time in a manner and on terms as nearly
equivalent as practicable to the provisions with respect to the Warrant Shares
contained in this Section 4.1, and the provisions of this Agreement with respect
to the Warrant Shares shall apply on like terms to any such other securities.
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(b) Rights; Options; Warrants. If, at any time after the date
of this Agreement, the Company shall issue or sell Rights (other than in an
issuance subject to Section 4.1(a) hereof and any Right referred to in Section
4.1(c)(v) below) to all holders of shares of Common Stock, which Rights entitle
the holders thereof to acquire shares of Common Stock at a price per share of
Common Stock (determined by dividing (x) the sum of (A) the total amount
receivable or received by the Company in consideration of the sale and issuance
of such Rights, plus (B) the total consideration payable to the Company upon
exercise, conversion or exchange thereof, by (y) the total number of shares of
Common Stock covered by such Rights) that is lower than the Current Market Value
per share of Common Stock as of the record date for such issuance, the number of
Warrant Shares thereafter purchasable upon the exercise of each Warrant shall be
determined by multiplying the number of Warrant Shares theretofore purchasable
upon the exercise of each Warrant by a fraction, the numerator of which shall be
the sum of (A) the number of shares of Common Stock outstanding immediately
prior to the issuance of such Rights, plus (B) the number of shares of Common
Stock offered for subscription or purchase pursuant to such Rights, and the
denominator of which shall be the sum of (A) the number of shares of Common
Stock outstanding immediately prior to the issuance of such Rights, plus (B) the
number of shares which the aggregate offering price of the total number of
shares of Common Stock offered pursuant to such Rights would purchase at the
then Current Market Value per share of Common Stock, as of the record date for
such issuance. Such adjustment shall be made successively whenever such Rights
are issued or sold and shall become effective on the date of issuance or sale
retroactive to the record date for the determination of shareholders entitled to
receive such Rights.
(c) Issuance of Shares of Common Stock at Lower Values. If, at
any time after the date of this Agreement, the Company shall issue or sell any
share of Common Stock or Right (excluding (i) any Right issued or sold in any
transaction covered by Section 4.1 (a) or Section 4.1(b) hereof, (ii) any share
of Common Stock issued or sold pursuant to a Right outstanding on the date of
the Issue Date, (iii) any share of Common Stock issued or sold pursuant to a
Right, if on the date such Right was issued, the exercise, conversion or
exchange price per share of Common Stock with respect thereto was at least equal
to the Current Market Value per share of Common Stock, (iv) any shares of Common
Stock or Right issued or sold as consideration when any corporation or business
is acquired, merged into or becomes part of the Company or a subsidiary of the
Company in an arm's-length transaction between the Company and a Person other
than an Affiliate of the Company, (v) any Rights which may be issued under a
"shareholders' rights" plan and which trade with the Common Stock, (vi) any
share of Common Stock or Right issued by the Company to its directors, officers
or employees or any director, officer or employee of any of its subsidiaries in
the ordinary course of business in connection with any bona fide equity
compensation plan, including any stock grant plan, stock option plan, stock
purchase plan or pension or profit-sharing plan and (vii) any share of Common
Stock sold at the then-current market price thereof in a registered underwritten
offering), at a price per share of Common Stock (determined in the case of
Rights, by dividing (x) the sum of (A) the total amount receivable or received
by the Company in consideration of the sale and issuance of such Rights, plus
(B) the total consideration payable to the Company upon exercise, conversion or
exchange thereof, by (y) the total number of shares of Common Stock covered by
such Rights) that is lower than the Current Market Value per share of Common
Stock in effect immediately
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prior to such sale or issuance, the number of Warrant Shares thereafter
purchasable upon the exercise of each Warrant shall be determined by multiplying
the number of Warrant Shares theretofore purchasable upon the exercise of each
Warrant by a fraction, the numerator of which shall be the number of shares of
Common Stock outstanding immediately after such sale or issuance (determined as
provided below in this Section 4.1(c)), and the denominator of which shall be
the sum of (A) the number of shares of Common Stock outstanding immediately
prior to such sale or issuance, plus (B) the number of shares of Common Stock
which the aggregate consideration received by the Company (determined as
provided below in this Section 4.1(c)) for such sale or issuance would purchase
at such Current Market Value per share of Common Stock. Such adjustment shall be
made successively whenever such Rights are issued or sold and shall be effective
immediately after such issuance or sale.
For purposes of any adjustment made pursuant to this Section
4.1(c), the shares of Common Stock which the holder of any such Right shall be
entitled to subscribe for or purchase pursuant to such Right shall be deemed to
be issued and outstanding as of the date of the sale or issuance of such Right,
and the consideration received by the Company therefor shall be deemed to be the
consideration receivable or received by the Company for such Right, plus the
consideration or premiums stated in such Right to be paid for the shares of
Common Stock covered thereby. In case the Company shall sell and issue any share
of Common Stock or any Right for consideration consisting, in whole or in part,
of property other than cash or cash equivalents, then in determining the "price
per share of Common Stock" and the "consideration received by the Company" for
purposes of the first sentence of this Section 4.1(c), the Board of Directors
shall determine, in good faith, the fair value of said property, which
determination shall be determined by an Independent Financial Expert selected by
the Majority Holders, subject to the approval of the Company, such approval not
to be unreasonably withheld, and notice of such determination shall promptly be
distributed by the Company to each Holder. In case the Company shall sell or
issue any Right together with one or more other securities as part of a unit at
a price per unit, then in determining the "price per share of Common Stock" and
the "consideration received by the Company" for purposes of the first sentence
of this Section 4.1(c), the fair value of such Right then being sold as part of
such unit shall be determined by an Independent Financial Expert selected by the
Majority Holders, subject to the approval of the Company, such approval not to
be unreasonably withheld, and notice of such determination shall be promptly
distributed by the Company to each Holder.
(d) Adjustment for Extraordinary Dividends or Distributions.
If at any time after the Issue Date, the Company declares, orders, pays or makes
a dividend or other distribution (excluding dividends or distributions covered
by Section 4.1(a) hereof, cash dividends or distributions from current or
retained earnings, and distributions pursuant to Section 4.1(i)(B) hereof) of
property, assets, debt securities or Rights (excluding any Right issued in a
transaction covered by Section 4.1(a), Section 4.1(b) or Section 4.1(c) hereof)
to all holders of shares of Common Stock, the number of Warrant Shares
purchasable upon the exercise of each Warrant after the record date of such
dividend or distribution shall be determined by multiplying the number of
Warrant Shares purchasable upon the exercise of such Warrant immediately prior
to such record date by a fraction, the numerator of which shall be the Current
Market Value per share of Common Stock immediately prior to the record date for
such distribution, and the
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denominator of which shall be the difference between (A) the Current Market
Value per share of Common Stock immediately prior to the record date for such
distribution, minus (B) the then fair value (the "Fair Value") of the portion of
the property, assets, evidence of indebtedness, cash dividends, distributions or
securities so distributed applicable to one share of Common Stock. Such
adjustment shall be made successively whenever any such distribution is made,
and shall become effective on the date of distribution retroactive to the record
date for the determination of shareholders entitled to receive such
distribution. Fair Value shall be determined by the Board of Directors, in good
faith, and evidenced by a Board Resolution delivered to the Holders and, in the
case of a dividend in the form of property or assets, shall be supported by a
written opinion of an expert in valuing such type of property or assets.
(e) Expiration of Rights, Options and Conversion Privileges.
Upon the expiration of any unexercised Rights the issuance of which previously
resulted in an adjustment hereunder, the Exercise Price and the number of
Warrant Shares purchasable upon the exercise of each Warrant shall, upon such
expiration, be readjusted so that thereafter the Exercise Price and the number
of Warrant Shares purchasable upon exercise of each Warrant shall be such as
they would have been had they originally been adjusted as if (i) the only shares
of Common Stock considered in the adjustment made with respect to such Rights
were the shares of Common Stock, if any, actually issued or sold upon the
exercise of such Rights and (ii) such shares of Common Stock, if any, were
issued or sold for the consideration actually received by the Company upon such
exercise plus the consideration, if any, actually received by the Company for
issuance, sale or grant of all such Rights, whether or not exercised; provided
that no such readjustment shall have the effect of increasing the Exercise Price
by an amount, or decreasing the number of Warrant Shares purchasable upon
exercise of each Warrant by a number, in excess of the amount or number, as the
case may be, of the adjustment initially made with respect to the issuance or
sale of such Rights.
(f) Current Market Value. For the purposes of any computation
under this Agreement, the Current Market Value per share of Common Stock or of
any other security (such share of Common Stock or other security herein referred
to as a "security") at any date herein specified shall equal:
(i) if the security is not registered under the
Exchange Act, the value of the security determined as of such
date by an Independent Financial Expert selected by the
Majority Holders, subject to the approval of the Company, such
approval not to be unreasonably withheld, for the purpose of
making such determination; or
(ii) if the security is registered under the Exchange
Act, the average of the daily market prices of the security
for the 20 consecutive trading days immediately preceding such
date or, if the security has been registered under the
Exchange Act for less than 20 consecutive trading days before
such date, the average of the daily market prices for all
trading days preceding such date for which daily market prices
are available. The daily market price for each such trading
day shall be: (A) in the case of a security listed or admitted
to trading on
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any National Securities Exchange, the closing sales price,
regular way, on such day, or if no sale takes place on such
day, the average of the closing bid and asked prices on such
day, on the principal National Securities Exchange on which
such security is listed or admitted, (B) in the case of a
security not then listed or admitted to trading on any
National Securities Exchange, the last reported sale price on
such day, or if no sale takes place on such day, the average
of the closing bid and asked prices on such day, as reported
by a reputable quotation source designated by the Company, (C)
in the case of a security not then listed or admitted to
trading on any National Securities Exchange and as to which no
such reported sale price or bid and asked prices are
available, the average of the reported high bid and low asked
prices on such day, as reported by a reputable quotation
source or a newspaper of general circulation in The City of
New York customarily published on each Business Day,
designated by the Company, or, if there shall be no bid and
asked prices on such day, the average of the high bid and low
asked prices, as so reported on the most recent day (not more
than 10 days prior to the date in question) for which prices
have been so reported or (D) if the prices specified in clause
(A), (B) or (C) are not available, the Current Market Value of
a security shall be determined as if such security were not
registered under the Exchange Act.
(g) De Minimis Adjustments. No adjustment in the Exercise
Price or number of Warrant Shares 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 Warrant Shares
purchasable upon the exercise of each Warrant, as the case may be; provided
however, that any adjustments which by reason of this Section 4.1(g) are not
required to be made shall be carried forward and taken into account in any
subsequent adjustment. All calculations shall be made to the nearest
one-thousandth of a share or nearest $.0001, as the case may be.
(h) Adjustment of Exercise Price. Whenever the number of
Warrant Shares purchasable upon the exercise of each Warrant is adjusted, as
herein provided, the Exercise Price per Warrant Share payable upon exercise of
each Warrant shall be adjusted (calculated to the nearest $.0001) so that it
shall equal the price determined by multiplying such Exercise Price immediately
prior to such adjustment by a fraction, the numerator of which shall be the
number of Warrant Shares purchasable upon the exercise of each Warrant
immediately prior to such adjustment, and the denominator of which shall be the
number of Warrant Shares so purchasable immediately thereafter.
(i) Consolidation, Merger or Sale of Assets; Liquidation. (A)
Subject to the provisions of subsection (B) of this Section 4.1(i), in the event
that, at any time after the Issue Date, 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 this Agreement and
each Warrant shall, after such consolidation,
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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
this 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, as evidenced by a Board Resolution delivered to the Holder, 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.
(B) Notwithstanding the foregoing clause (A), (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.
(j) Adjustments by Board. In addition to the foregoing
adjustments, and subject to Article V hereof, the Board of Directors may make
any other adjustment, as evidenced by a Board Resolution delivered to the
Holders, to increase the number of Warrant Shares purchasable upon exercise of
Warrants or to decrease the Exercise Price as it may, in good faith, deem
desirable to protect the rights and benefits of Holders hereunder. Any
adjustments made by the Board of Directors pursuant to this Article IV shall be
conclusive absent manifest error.
(k) Value Determination. If required pursuant to Section
4.1(f), the Current Market Value shall be deemed to be equal to the value
determined by an Independent Financial Expert and set forth in a Value Report by
such Independent Financial Expert. In making any determination of Current Market
Value, such Independent Financial Expert shall (A) use one or more valuation
methods that, in its best professional judgment, it determines to be most
appropriate and (B) not take into account any discount for minority interests or
lack of liquidity of the relevant security. The Company shall cause such
Independent Financial Expert to deliver to the Company, within 25 days of the
appointment of such Independent Financial Expert, the
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Value Report which shall state the Current Market Value of the Common Stock
and/or any other securities being valued, as of the Valuation Date, and shall
contain a brief statement as to the nature and scope of the examination or
investigation upon which the determination of value was made. The Company shall
make available such Value Report for inspection by the Holders. Any
determination of Current Market Value in accordance with the provisions of this
Section 4.1(k) shall be conclusive as to all Persons.
(l) Adjustments Pursuant to Purchase Agreements. Without
limiting the foregoing, the Exercise Price of the Warrants shall also be
adjusted in accordance with Section 6(d) of each of the Purchase Agreements in
the event of a Stock Decline.
(m) Shareholder Approval. Notwithstanding anything to the
contrary contained herein, in the event that Stockholder Approval is necessary
in order to permit the implementation of the provisions of this Sections 4.1(b),
4.1(c) or 4.1(d), as applicable (or any adjustment to the Exercise Price under
Section 4.1(h) above triggered by an adjustment under Section 4.1(b), 4.1(c) or
4.1(d)) without contravention of a NASDAQ Rule, (A) Sections 4.1(b), 4.1(c) and
4.1(d) (and any adjustment to the Exercise Price under Section 4.1(h) triggered
by an adjustment under Section 4.1(b), 4.1(c) or 4.1(d)) shall not be effective
until such Stockholder Approval is obtained, and (B) the Company shall not
(without the affirmative vote of the Majority Holders) engage in any transaction
which would trigger an adjustment under Section 4.1(b), 4.1(c) or 4.1(d) until
such Stockholder Approval has been obtained.
Section 4.2. Notice of Adjustment. Whenever the number of
Warrant Shares or other securities or property purchasable upon the exercise of
each Warrant or the Exercise Price is adjusted or determined, as herein
provided, the Company shall promptly mail, at the expense of the Company, to
each Holder, a notice of such adjustment or adjustments, and shall deliver to
each Holder a certificate of a firm of independent public accountants selected
by the Board of Directors (who may be the regular accountants employed by the
Company) setting forth (i) the number of Warrant Shares or other securities or
property purchasable upon the exercise of each Warrant and the Exercise Price
after such adjustment, (ii) a brief statement of the facts requiring such
adjustment and (iii) the computation by which such adjustment was made.
Section 4.3. Statement on Warrants. Irrespective of any
adjustment in the Exercise Price or the number or kind of Warrant Shares
purchasable upon the exercise of the Warrants, Warrant Certificates theretofore
or thereafter issued may continue to express the same price and number and kind
of shares as are stated in the Warrant Certificate initially issued pursuant to
this Agreement.
Section 4.4. Notice of Consolidation, Merger or Sale of
Assets. In the event that, at any time after the Issue Date, and prior to the
Expiration Date, there shall be any (i) consolidation or merger involving the
Company, or sale, transfer or other disposition of all or substantially all of
the Company's property and assets (except a merger or other reorganization in
which the Company shall be the surviving corporation and holders of shares of
Common Stock (or other securities or property purchasable upon exercise of the
Warrants) receive no consideration in respect of their shares or property) or
(ii) any other transaction contemplated by
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Section 4.1(i)(B) above, then in any such case, the Company shall cause to be
mailed to each Holder, at the earliest practicable time (and, in any event, not
less than 25 days before any date set for definitive action), notice of the date
on which such reorganization, sale, consolidation, merger, dissolution,
liquidation or winding up or other such transaction shall take place, as the
case may be. Such notice shall also set forth such facts as shall indicate the
effect of such action (to the extent such effect may be known at the date of
such notice) on the Exercise Price and the kind and amount of securities and
property purchasable upon exercise of the Warrants. Such notice shall also
specify the date as of which the holders of record of the shares of Common Stock
or other securities or property purchasable upon exercise of the Warrants shall
be entitled to exchange their shares or other securities or property for
securities, money or other property deliverable upon such reorganization, sale,
consolidation, merger, dissolution, liquidation or winding up or other such
transaction, as the case may be. The delivery of any notice pursuant to this
Section 4.4 shall not in itself relieve the Company from any obligation under
Section 4.2 hereof.
Section 4.5. Fractional Interests. If more than one Warrant is
presented for exercise at the same time by the same Holder, the number of
Warrant Shares which shall be purchasable upon such exercise shall be computed
on the basis of the aggregate number of Warrant Shares purchasable on exercise
of all Warrants so presented. If any fraction of a Warrant Share would, except
for the provisions of this Section 4.5, be issued on the exercise of any Warrant
(or specified portion thereof), the Company, in lieu of issuing any such
fractional share, shall pay an amount in cash calculated by it to be equal to
the Current Market Value per Warrant Share on the date of exercise multiplied by
such fraction, computed to the nearest whole cent.
Section 4.6. No Dilution or Impairment. The Company shall not
amend its Certificate of Incorporation or participate in any reorganization,
transfer of assets, consolidation, merger, dissolution, issue or sale of
securities or any other voluntary action, for the purpose of avoiding or seeking
to avoid the observance or performance of any of the terms to be observed or
performed hereunder by the Company, but will at all times, in good faith, assist
in carrying out all such actions as may be reasonably necessary or appropriate
in order to protect the rights of the Holders of the Warrants against dilution
or other impairment.
Section 4.7. No Adjustments for Certain Issuances. The
provisions of Section 4.1(b) and Section 4.1(c) hereof shall not apply to the
issuance of any securities pursuant to this Agreement or the Preferred Stock.
ARTICLE V
DECREASE IN EXERCISE PRICE
Section 5.1. Exercise Price. Notwithstanding the provisions of
Section 4.1(j) hereof, the Board of Directors, in its sole discretion, shall
have the right at any time the Warrants are exercisable under Section 3.2
hereof, and from time to time during such period, to decrease
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the Exercise Price of the Warrants, provided, such reduction of the Exercise
Price is effective for a period of not less than 30 days. Any exercise by the
Board of Directors of any rights granted in this Section 5.1 must be preceded by
a written notice from the Company to the Holders of Warrants setting forth the
reduction in the Exercise Price, which notice shall be mailed at least 30 days
prior to the effective date of such decrease in the Exercise Price. Any
reduction of the Exercise Price pursuant to provisions of this Article V shall
not in itself result in an adjustment of the number of Warrant Shares or other
securities or property purchasable upon the exercise of the Warrants.
ARTICLE VI
RESERVATION AND AUTHORIZATION OF COMMON SHARES
Section 6.1. Reservation and Authorization. The Company shall
at all times reserve and keep available for issuance upon exercise of the
Warrants such number of its duly authorized but unissued shares of Common Stock
or other securities of the Company purchasable upon exercise of the Warrants as
will be sufficient to permit the exercise in full of all outstanding Warrants
and will cause appropriate evidence of ownership of such shares of Common Stock
or other securities to be delivered to the Holder upon its request for delivery
of such, and all such shares of Common Stock or other securities shall,
reasonably promptly after the date hereof and at all times thereafter, be duly
approved for listing, subject to official notice of issuance, on each securities
exchange, if any, on which such shares of Common Stock or other securities are
then listed.
Section 6.2. Covenant Regarding Securities. The Company
covenants that all shares of Common Stock or other securities of the Company
that may be issued upon the exercise of the Warrants will, upon issuance, be (i)
duly authorized, validly issued, fully paid and nonassessable, (ii) free from
preemptive and any other similar rights, (iii) free from any taxes, liens,
charges or security interests with respect thereto and (iv) included for trading
on each securities exchange, if any, on which such shares of Common Stock or
other securities are then listed.
Section 6.3. Registration. If the Warrant Shares or other
securities of the Company purchasable upon the exercise of the Warrants require
registration with, or approval of, any governmental authority (in addition to
such as the Company is required to obtain pursuant to Article IX hereof), or the
taking of any other action (in addition to such as the Company is required to
take pursuant to Article IX hereof), under the laws of the United States of
America or any state or political subdivision thereof, before such securities
may be validly offered or sold in compliance with such laws, then the Company
covenants that it will, in good faith and as expeditiously as practicable, at
its expense, endeavor to secure and maintain such registration or approval or to
take such other action, as the case may be; provided that the Company will not
be required to qualify generally to do business in any jurisdiction where it is
not then so qualified or to take any action that would subject it to general
service of process or to taxation in any such jurisdiction where it is not then
so subject.
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ARTICLE VII
WARRANT TRANSFER BOOKS; RESTRICTIONS ON TRANSFER
Section 7.1. Transfer and Exchange. (a) The Warrant
Certificates shall be issued in registered form only. The Company shall cause to
be kept at its office a register (the "Warrant Register") in which, subject to
such reasonable regulations as it may prescribe, the Company shall provide for
the registration of Warrants and transfers or exchanges of Warrants as herein
provided. All Warrants issued upon any registration of transfer or exchange of
Warrants shall be the valid obligations of the Company, evidencing the same
obligations, and entitled to the same benefits under this Agreement, as the
Warrants surrendered for such registration of transfer or exchange.
(b) The Warrants and Preferred Stock shall at all times after
the Issue Date be separately transferable, as will the Warrant Shares and any
shares of Common Stock issuable in connection with the Preferred Stock.
(c) Prior to the registration of any transfer of a Warrant
Certificate by a Holder as provided herein, the Company and any agent of the
Company may treat the Person in whose name the Warrants represented thereby are
registered as the owner thereof for all purposes and as the Person entitled to
exercise the rights represented thereby, any notice to the contrary
notwithstanding.
(d) Every Warrant presented or surrendered for registration of
transfer or for exchange shall (if so required by the Company) be duly endorsed,
or be accompanied by a duly executed instrument of transfer in form satisfactory
to the Company, by the Holder or such Holder's attorney duly authorized in
writing.
(e) When Warrant Certificates are presented to the Company
with a request to register the transfer or to exchange the Warrant Certificate
for other Warrant Certificates representing an equal number of Warrants, the
Company shall register the transfer or make the exchange as requested if its
requirements for such transactions and any applicable requirements hereunder are
satisfied. To permit registrations of transfers and exchanges, the Company shall
execute Warrant Certificates and deliver such Warrant Certificates in accordance
with the provisions hereof. No service charge shall be made for any registration
of transfer or exchange of Warrants, but the Company may require payment of a
sum sufficient to cover any tax or other governmental charge that may be imposed
in connection with any registration of transfer of Warrants.
(f) Any Warrant Certificate when duly endorsed in blank shall
be deemed negotiable. The Holder of any Warrant Certificate duly endorsed in
blank may be treated by the Company and all other Persons dealing therewith as
the absolute owner thereof for any purpose and as the Person entitled to
exercise the rights represented hereby, or to the transfer thereof on the
Warrant Register maintained by the Company, any notice to the contrary
notwithstanding;
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but, until such transfer on such Warrant Register, the Company may treat the
registered Holder thereof as the owner for all purposes.
(g) If less than all the Warrants represented by a Warrant
Certificate are transferred or exchanged in accordance with this Agreement, the
Warrant Certificate shall be surrendered to the Company and a new Warrant
Certificate of the same tenor and for the number of Warrants which were not
transferred or exchanged, registered in such name or names as may be directed in
writing by the surrendering Holder, shall be executed by the Company and
delivered to the Person or Persons entitled to receive the same.
Section 7.2. Special Transfer Provisions.
(a) Limitations on Transfer. By its acceptance of any Warrant
represented by a Warrant Certificate bearing the Private Placement Legend, each
Holder of, and beneficial owner of an interest in, such Warrant acknowledges the
restrictions on transfer of such Warrant set forth in the Private Placement
Legend and agrees that it will transfer such Warrant only in accordance with the
Private Placement Legend.
(b) Transfer of Restricted Warrants. In connection with any
transfer of a Warrant Certificate bearing the Private Placement Legend, each
Holder agrees to deliver to the Company, upon its request, such satisfactory
evidence, which may include an opinion of counsel licensed to practice law in
the State of New York, as reasonably may be requested by the Company to confirm
that such transfer is being made in accordance with the limitations set forth in
the Private Placement Legend.
(c) Private Placement Legend. Upon the registration of
transfer, exchange or replacement of this Warrant Certificate bearing the
Private Placement Legend, the Company shall deliver a Warrant Certificate
bearing the Private Placement Legend, unless such legend may be removed from
such Warrant Certificate as provided in the next sentence. The Private Placement
Legend may be removed from a Warrant Certificate if there is delivered to the
Company such satisfactory evidence, which may include an opinion of counsel
licensed to practice law in the State of New York, as reasonably may be
requested by the Company to confirm that neither such legend nor the
restrictions on transfer set forth therein are required to ensure that transfers
of such security will not violate the registration and prospectus delivery
requirements of the Securities Act or if the Warrant represented by such Warrant
Certificate has been registered under the Securities Act pursuant to Article 9
herein. Upon provision of such evidence, the Company shall sign and deliver in
exchange for such Warrant Certificate, a Warrant Certificate or Warrant
Certificates (representing, in the aggregate, the same number of Warrants) that
do not bear such legend. If the Private Placement Legend has been removed from
the Warrant Certificate, as provided above, no other Warrant Certificate issued
in exchange for all or any part of such Warrant Certificate shall bear such
legend, unless the Company has reasonable cause to believe that such other
Warrant Certificate is a "restricted security" within the meaning of Rule 144.
Section 7.3. Surrender of Warrant Certificates. Any Warrant
Certificate surrendered for registration of transfer, exchange or exercise of
the Warrants represented thereby
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shall be delivered to the Company and shall be promptly canceled by the Company
and shall not be reissued by the Company and, except as provided in this Article
VII in case of an exchange or transfer, Article III hereof in case of the
exercise of less than all the Warrants represented thereby or Section 10.1 in
case of mutilation, no Warrant Certificate shall be issued hereunder in lieu
thereof. The Company shall dispose of such canceled Warrant Certificates in
accordance with its customary procedures.
Section 7.4. Rule 144 and Rule 144A Information. Prior to the
effectiveness under the Securities Act of the Warrant Shelf Registration
Statement, or at any time during the suspension or following the termination
thereof, Holders of Warrants (or holders of interests therein) and prospective
purchasers designated by such Holders of Warrants (or such holders of interests
therein) shall have the right to obtain from the Company upon request by such
Holders (or such holders of interests) or prospective purchasers, during any
period in which the Company is not subject to Section 13 or 15(d) of the
Exchange Act, or exempt from reporting pursuant to 12g3-2(b) under the Exchange
Act, the information required by paragraph (c) of Rule 144 and paragraph
(d)(4)(i) of Rule 144A in connection with any transfer or proposed transfer of
such Warrants or interests.
ARTICLE VIII
HOLDERS
Section 8.1. Holder Not Deemed a Stockholder. Prior to the
exercise of a Warrant, the Holder thereof shall not be entitled, as such, to any
rights of a stockholder of the Company, including, without limitation, the right
to vote or to consent to any action of the stockholders of the Company, to
receive dividends or other distributions, to exercise any preemptive right or to
receive any notice of meetings of stockholders of the Company and, except as
otherwise provided in this Agreement, shall not be entitled to receive any
notice of any proceedings of the Company.
Section 8.2. Right of Action. All rights of action with
respect to this Agreement are vested in the Holders of the Warrants, and any
Holder of any Warrant may, in the Holder's own behalf and for the Holder's own
benefit, enforce, and may institute and maintain any suit, action or proceeding
against the Company suitable to enforce, or otherwise in respect of, the
Holder's right to exercise the Holder's Warrants in the manner provided in the
Warrant Certificate representing his Warrants.
ARTICLE IX
REGISTRATION RIGHTS
Section 9.1. Intentionally omitted..
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Section 9.2. Warrant Shelf Registration Statement.
(a) Shelf Registration. Subject to Section 9.2(e), the Company
shall as promptly as reasonably practicable (but in any event prior to the
Filing Date) file with the Commission a Registration Statement for an offering
to be made on a continuous basis pursuant to Rule 415 covering all of the
Registrable Securities (the "Initial Shelf Registration"). The Initial Shelf
Registration shall be on an appropriate form permitting registration of such
Registrable Securities for resale by Holders.
The Company shall use its reasonable best efforts to cause the
Initial Shelf Registration to be declared effective under the Securities Act on
or prior to the Effectiveness Date and to keep the Initial Shelf Registration
continuously effective under the Securities Act (the "Effectiveness Period") or
such shorter period ending when (i) all Registrable Securities have been sold in
the manner set forth and as contemplated in the Initial Shelf Registration or
(ii) a Subsequent Shelf Registration covering all of the Registrable Securities
has been declared effective under the Securities Act or (iii) there are no
longer any Registrable Securities outstanding.
(b) Subsequent Shelf Registrations. If the Initial Shelf
Registration or any Subsequent Shelf Registration ceases to be effective for any
reason at any time during the Effectiveness Period (other than because of the
sale thereunder of all of the securities registered thereunder or there are no
longer any Registrable Securities outstanding), the Company shall use its
reasonable best efforts to obtain the prompt withdrawal of any order suspending
the effectiveness thereof, and in any event shall within 45 days of such
cessation of effectiveness amend the Initial Shelf Registration in a manner to
obtain the withdrawal of the order suspending the effectiveness thereof, or file
an additional "shelf" Registration Statement pursuant to Rule 415 covering all
of the Registrable Securities (a "Subsequent Shelf Registration"). If a
Subsequent Shelf Registration is filed, the Company shall use its reasonable
best efforts to cause the Subsequent Shelf Registration to be declared effective
under the Securities Act as soon as practicable after such filing and to keep
such Registration Statement continuously effective until the end of the
Effectiveness Period or such shorter period ending when (i) all Registrable
Securities have been sold in the manner set forth and as contemplated in the
Subsequent Shelf Registration or (ii) there are no longer any Registrable
Securities outstanding. As used herein the term "Shelf Registration" means the
Initial Shelf Registration and any Subsequent Shelf Registration.
(c) Supplements and Amendments. The Company shall use its
reasonable best efforts to supplement and amend the Shelf Registration if
required by the rules, regulations or instructions applicable to the
registration form used for such Shelf Registration, if required by the
Securities Act, or if reasonably requested by the Holders of a majority of the
shares of Registrable Securities covered by such Registration Statement (on an
as-exercised basis and taken together as a single class) or if reasonably
requested by an underwriter, if any, of such Registrable Securities.
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(d) Suspension of Shelf Registration. The Company's obligation
to keep the Shelf Registration effective and usable for offers and sales of the
Registrable Securities may be suspended by the Company if the Company, in good
faith and for valid business reasons, determines that, without such suspension,
the Company will suffer interference with any material financing, acquisition,
corporate reorganization or other material transaction or development involving
the Company. Any such period during which the Company fails to keep the Shelf
Registration effective and usable for offers and sales of Registrable Securities
is referred to as a "Suspension Period." A Suspension Period shall commence on
and include the date that the Company gives written notice (the "Suspension
Notice") to the Holders of Registrable Securities covered by the Shelf
Registration that the Shelf Registration is no longer effective or the
prospectus included therein is no longer usable for offers and sales of the
Registrable Securities shall end on the earliest of (A) 90 days from the
effective date of the Suspension Period or (B) the date the Holders of
Registrable Securities covered by such registration are advised in writing by
the Company that use of the prospectus may be resumed. During the pendency of
any Suspension Period, the Company may not issue any securities, whether or not
in a public offering, except for (i) issuances of Common Stock pursuant to an
acquisition or other business combination transaction or upon exercise of
options or warrants outstanding prior to such Suspension Period or (ii)
pay-in-kind dividends, to the extent permitted, in respect of preferred stock
outstanding prior to such Suspension Period. Each Holder agrees that, upon
receipt of any Suspension Notice, such Holder will forthwith discontinue during
the pendency of the Suspension Period disposition of the Registrable Securities
pursuant to the Shelf Registration. Notwithstanding anything to the contrary in
this Section 9.2(d), the Company may only suspend the effectiveness of the Shelf
Registration pursuant to this Section 9.2(d) if the Company suspends the
effectiveness of any and all other registration statements maintained by the
Company covering the Company's securities pursuant to Rule 415 or otherwise.
(e) Deferral Period. Notwithstanding anything to the contrary
herein, the Company shall have the right to defer the filing of the Initial
Shelf Registration pursuant to this Agreement for a period not to exceed 90 days
after the Filing Date (the "Deferral Period") if, in the good faith
determination of the Board of Directors of the Company, the filing of such
Initial Shelf Registration would interfere with any material financing,
acquisition, corporate reorganization or other material transaction or
development involving the Company; provided, that during the pendency of such
Deferral Period, the Company may not issue any securities, whether or not in a
public offering, except for (i) issuances of Common Stock pursuant to an
acquisition or other business combination transaction or upon exercise of
options or warranties outstanding prior to such Deferral Period or (ii)
pay-in-kind dividends, to the extent permitted, in respect of preferred stock
outstanding prior to such Deferral Period. In the event that the Company
exercises its deferral rights pursuant to this Section 9.2(e), the Effectiveness
Date shall be tolled for a period equal to the Deferral Period.
Section 9.3. Registration Procedures. In connection with the
filing of any Registration Statement pursuant to Article IX hereof, the Company
shall effect such registrations to permit the sale of the securities covered
thereby in accordance with the intended method or methods of disposition
thereof, and pursuant thereto and in connection with any Registration Statement
filed by the Company hereunder the Company shall:
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(a) Prepare and file with the Commission on or prior to the
Filing Date, a Registration Statement as prescribed by Article IX hereof, and
use its reasonable best efforts to cause such Registration Statement to become
effective and remain effective as provided herein; provided, however, that,
before filing any Registration Statement or Prospectus or any amendments or
supplements thereto, the Company shall furnish to and afford the Holders of the
Registrable Securities covered by such Registration Statement, their counsel and
the managing underwriters, if any, a reasonable opportunity to review copies of
all such documents (including, if requested in writing, copies of any documents
to be incorporated by reference therein and all exhibits thereto) proposed to be
filed (in each case at least five business days prior to such filing). The
Company shall not file any Registration Statement or Prospectus or any
amendments or supplements thereto if the Holders of a majority of the
Registrable Securities (on an as-converted basis and taken together as a single
class) covered by such Registration Statement, their counsel, or the managing
underwriters, if any, shall reasonably object within two business days after the
receipt thereof. Notwithstanding anything to the contrary contained in this
Agreement, the Company shall not be required to engage in more than one
underwritten offering, if any, pursuant to this Agreement.
(b) Prepare and file with the Commission such amendments and
post-effective amendments to each Shelf Registration as may be necessary to keep
such Registration Statement continuously effective for the Effectiveness Period
(or such shorter period as may be specified in Section 9.2(a) or 9.2(b)); cause
the related Prospectus to be supplemented by any Prospectus supplement required
by applicable law, and as so supplemented to be filed pursuant to Rule 424 (or
any similar provisions then in force) promulgated under the Securities Act; and
comply with the provisions of the Securities Act and the Exchange Act applicable
to it with respect to the disposition of all securities covered by such
Registration Statement as so amended or in such Prospectus as so supplemented.
(c) Notify the selling Holders of Registrable Securities,
their counsel and the managing underwriters, if any, reasonably promptly (but in
any event within five business days), and confirm such notice in writing, (i)
when a Prospectus or any Prospectus supplement or post-effective amendment has
been filed, and, with respect to a Registration Statement or any post-effective
amendment, when the same has become effective under the Securities Act, (ii) of
the issuance by the Commission of any stop order suspending the effectiveness of
a Registration Statement or of any order preventing or suspending the use of any
preliminary prospectus or the initiation of any proceedings for that purpose,
(iii) if at any time when a prospectus is required by the Securities Act to be
delivered in connection with sales of the Registrable Securities the
representations and warranties of the Company contained in any agreement,
including an underwriting agreement, if any, contemplated by 9.3(m) hereof cease
to be true and correct, (iv) of the receipt by the Company of any notification
with respect to the suspension of the qualification or exemption from
qualification of a Registration Statement or any of the Registrable Securities
for offer or sale in any jurisdiction, or the initiation or threatening of any
proceeding for such purpose, (v) of the happening of any event, the existence of
any condition or any information becoming known that makes any statement made in
such Registration Statement or related Prospectus or any document incorporated
or deemed to be incorporated therein by reference untrue in any material respect
or that requires the making of any changes in or
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amendments or supplements to such Registration Statement, Prospectus or
documents so that, in the case of the Registration Statement, it will not
contain any untrue statement of a material fact or omit to state any material
fact required to be stated therein or necessary to make the statements therein
not misleading, and that in the case of the Prospectus, it will not contain any
untrue statement of a material fact or omit to state any material fact required
to be stated therein or necessary to make the statements therein, in the light
of the circumstances under which they were made, not misleading and (vi) of the
Company's determination that a post-effective amendment to a Registration
Statement would be appropriate.
(d) Use its reasonable best efforts to prevent the issuance of
any order suspending the effectiveness of a Registration Statement or of any
order preventing or suspending the use of a Prospectus or suspending the
qualification (or exemption from qualification) of any of the Registrable
Securities for sale in any jurisdiction, and, if any such order is issued, to
use its reasonable best efforts to obtain the withdrawal of any such order at
the earliest possible moment.
(e) If requested by the managing underwriter or underwriters
(if any), or the Holders of a majority of shares of Registrable Securities (on
an as-converted basis and taken together as a single class) being sold in
connection with an underwritten offering, if any, (i) promptly incorporate in a
prospectus supplement or post-effective amendment such information as the
managing underwriter or underwriters (if any), such holders, or its counsel
determine is reasonably necessary to be included therein and (ii) make all
required filings of such prospectus supplement or such post-effective amendment
as soon as practicable after the Company has received notification of the
matters to be incorporated in such prospectus supplement or post-effective
amendment.
(f) Furnish to each selling Holder of Registrable Securities
who so requests in writing and to counsel and each managing underwriter, if any,
at the sole expense of the Company, one conformed copy of the Registration
Statement or Registration Statements and each post-effective amendment thereto,
including financial statements and schedules, and, if requested in writing, all
documents incorporated or deemed to be incorporated therein by reference and all
exhibits.
(g) Deliver to each selling Holder of Registrable Securities,
its respective counsel, and the underwriters, if any, at the sole expense of the
Company, as many copies of the Prospectus (including each form of preliminary
prospectus) and each amendment or supplement thereto and any documents
incorporated by reference therein as such Persons may reasonably request in
writing; and, subject to the last paragraph of this Section 9.3, the Company
hereby consents to the use of such Prospectus and each amendment or supplement
thereto by each of the selling Holders of Securities and the underwriters or
agents, if any, and dealers (if any), in connection with the offering and sale
of the Registrable Securities covered by, such Prospectus and any amendment or
supplement thereto.
(h) Prior to any public offering of Registrable Securities, to
use its reasonable best efforts to register or qualify, and to cooperate with
the selling Holders of Registrable
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Securities, the managing underwriter or underwriters, if any, and their
respective counsel in connection with the registration or qualification (or
exemption from such registration or qualification) of such Registrable
Securities for offer and sale under the securities or Blue Sky laws of such
jurisdictions within the United States as any selling Holder, or the managing
underwriter shall reasonably request; provided, however, that where Registrable
Securities are offered other than through an underwritten offering, the Company
agrees to cause the Company's counsel to perform Blue Sky investigations, if
necessary, and file registrations and qualifications required to be filed
pursuant to this Section 9.3(h); keep each such registration or qualification
(or exemption therefrom) effective during the period such Registration Statement
is required to be kept effective and do any and all other acts or things
reasonably necessary or advisable to enable the disposition in such
jurisdictions of the Registrable Securities covered by the Registration
Statement; provided, however, that the Company shall not be required to qualify
as a foreign corporation or to execute a general consent to service of process
in any jurisdiction or be subject to taxation in any jurisdiction in which it is
not so subject.
(i) Cooperate with the selling Holders of Registrable
Securities and the managing underwriter or underwriters, if any, to facilitate
the timely preparation and delivery of certificates representing Registrable
Securities to be sold, which certificates shall not bear any restrictive legends
and shall be in a form eligible for deposit with The Depository Trust Company;
and enable such Registrable Securities to be in such denominations and
registered in such names as the managing underwriter or underwriters, if any, or
Holders may reasonably request.
(j) Use its reasonable best efforts to cause the Registrable
Securities covered by the Registration Statement to be registered with or
approved by such other governmental agencies or authorities as may be necessary
to enable the seller or sellers thereof or the underwriter or underwriters, if
any, to consummate the disposition of such Registrable Securities in the United
States except as may be required solely as a consequence of the nature of such
selling Holder's business, in which case the Company will cooperate in all
reasonable respects with the filing of such Registration Statement and the
granting of such approvals.
(k) Upon the occurrence of any event contemplated by paragraph
9.3(c)(v) or 9.3(c)(vi) hereof, as promptly as practicable prepare and (subject
to Sections 9.3(d) and 9.3(a) hereof) file with the Commission, at the sole
expense of the Company, a supplement or post-effective amendment to the
Registration Statement or a supplement to the related Prospectus or any document
incorporated or deemed to be incorporated therein by reference, or file any
other required document so that, as thereafter delivered to the purchasers of
the Registrable Securities being sold thereunder, any such Prospectus will not
contain an untrue statement of a material fact or omit to state a material fact
required to be stated therein or necessary to make the statements therein, in
the light of the circumstances under which they were made, not misleading.
(l) Prior to the effective date of the first Registration
Statement relating to the Registrable Securities, (i) provide the Transfer Agent
(if any) with certificates for the Registrable Securities in a form eligible for
deposit with The Depository Trust Company and (ii) provide a CUSIP number for
the Warrants.
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(m) In connection with an underwritten offering, if any, of
Registrable Securities pursuant to a Shelf Registration, enter into an
underwriting agreement as is customary for the managing underwriter or
underwriters in underwritten offerings of securities similar to the Warrant and
Warrant Shares and take all such other actions as are reasonably requested by
the managing underwriter or underwriters in order to expedite or facilitate the
registration or the disposition of such Registrable Securities and, in such
connection, (i) make such representations and warranties to, and covenants with,
the underwriters with respect to the business of the Company and its
subsidiaries (including any acquired business, properties or entity, if
applicable) and the Registration Statement, Prospectus and documents, if any,
incorporated or deemed to be incorporated by reference therein, in each case, as
are customarily requested by the managing underwriter or underwriters to be made
by issuers to underwriters in underwritten offerings of securities similar to
the Warrant and Warrant Shares, and confirm the same in writing if and when
requested; (ii) obtain the written opinion of counsel to the Company and written
updates thereof in form, scope and substance reasonably satisfactory to the
managing underwriter or underwriters, addressed to the underwriters covering the
matters customarily covered in opinions requested in underwritten offerings of
securities similar to the Warrant and Warrant Shares and such other matters as
may be reasonably requested by the managing underwriter or underwriters; (iii)
if entitled, obtain "cold comfort" letters and updates thereof in form, scope
and substance reasonably satisfactory to the managing underwriter or
underwriters from the independent certified public accountants of the Company
(and, if necessary, any other independent certified public accountants of any
subsidiary of the Company or of any business acquired by the Company for which
financial statements and financial data are, or are required to be, included or
incorporated by reference in the Registration Statement), addressed to each of
the underwriters, such letters to be in such underwriter's customary form and
covering matters of the type customarily covered in "cold comfort" letters in
connection with underwritten offerings of securities similar to the Warrant and
Warrant Shares and such other matters as reasonably requested by the managing
underwriter or underwriters; and (iv) if an underwriting agreement is entered
into, the same shall contain indemnification provisions and procedures in
customary form and covering matters customarily covered in connection with
underwritten offerings of securities similar to the Warrant and Warrant Shares
with respect to all parties to be indemnified pursuant to said Section. The
above shall be done at each closing under such underwriting agreement, or as and
to the extent required thereunder.
(n) Make available for inspection by any selling Holder of the
Registrable Securities being sold, an underwriter, if any, participating in any
such disposition of Registrable Securities, and any attorney, accountant or
other agent retained by any such selling Holder or underwriter (collectively,
the "Inspectors"), at the offices where normally kept, during reasonable
business hours, all financial and other records, pertinent corporate documents
and instruments of the Company and its subsidiaries (collectively, the
"Records") as shall be reasonably necessary to enable them to exercise any
applicable due diligence responsibilities, and cause the officers, directors and
employees of the Company and its subsidiaries to supply all information
reasonably requested by any such Inspector in connection with such Registration
Statement; provided, however, that Records that the Company determines, in good
faith, to be confidential and which Records the Company notifies the Inspectors
are confidential shall not be disclosed by the Inspectors unless (A) the
Inspector provides five business days' prior written notice to the
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<PAGE> 137
Company of such disclosure and (B)(i) the disclosure of such Records is
necessary to avoid or correct a misstatement or omission in such Registration
Statement, (ii) the release of such Records is ordered pursuant to a subpoena or
other order from a court of competent jurisdiction, (iii) disclosure of such
information is, in the reasonable opinion of counsel for any Inspector,
necessary or advisable in connection with any action, claim, suit or proceeding,
directly or indirectly, involving or potentially involving such Inspector and
arising out of, based upon, relating to, or involving this Agreement or any
transactions contemplated hereby or arising hereunder or (iv) the information in
such Records has been made generally available to the public (other than as a
result of an impermissible disclosure or failure to safeguard by the
Inspectors). Each selling holder of Registrable Securities will be required to
agree that information obtained by it as a result of such inspections shall be
deemed confidential and shall not be used by it as the basis for any market
transactions in the securities of the Company unless and until such information
is generally available to the public (other than as a result of an impermissible
disclosure or failure to safeguard by such person). Each selling Holder of
Registrable Securities will be required to further agree that it will, upon
learning that disclosure of such Records is sought in a court of competent
jurisdiction, give notice to the Company and allow the Company to undertake
appropriate action to prevent disclosure of the Records deemed confidential at
the Company's sole expense.
(o) Comply with all applicable rules and regulations of the
Commission and make generally available to its securityholders earning
statements satisfying the provisions of Section 11(a) of the Securities Act and
Rule 158 thereunder (or any similar rule promulgated under the Securities Act)
no later than 45 days after the end of any 12-month period (or 90-days after the
end of any 12-month period if such period is a fiscal year) commencing on the
first day of the first fiscal quarter of the Company after the effective date of
a Registration Statement, which statements shall cover said 12-month periods.
(p) Cooperate with each seller of Registrable Securities
covered by any Registration Statement and each underwriter, if any,
participating in the disposition of such Registrable Securities and their
respective counsel in connection with the filings, if any, required to be made
with the National Association of Securities Dealers, Inc. (the "NASD").
(q) Use its reasonable best efforts to take all other steps
necessary or advisable to effect the registration of the Registrable Securities
covered by a Registration Statement contemplated hereby.
(r) Use its reasonable best efforts to have the shares of
Common Stock issued upon exercise of the Warrants listed on any national
securities exchange or quotation system on or through which the Company's Common
Stock is then listed or admitted to trading.
In any underwritten public offering, the underwriters that
will administer the offering will be selected by Huff (if it is participating in
such offering) or the Majority Holders participating in such offering (if Huff
is not so participating in the offering) with the prior written consent of the
Company which consent shall not be unreasonably withheld. No Holder of
Registrable Securities may participate in an underwritten public offering
hereunder unless such
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Holder (a) agrees to sell such Holder's Registrable Securities on the basis
provided in any underwriting agreements approved by Huff or the Majority Holders
participating in such offering, as applicable, included in such offering and (b)
completes and executes all customary and appropriate questionnaires, powers of
attorney, indemnities, underwriting agreements and other documents required
under the terms of such underwriting agreements.
The Company may require each seller of Registrable Securities
as to which any registration is being effected to furnish to the Company such
information regarding such seller and the distribution of such Registrable
Securities as the Company may, from time to time, reasonably request. The
Company may exclude from such registration the Registrable Securities of any
seller who fails to furnish such information within 20 business days after
receiving such request. Each seller as to which any Shelf Registration is being
effected agrees to furnish promptly to the Company all information required to
be disclosed in order to make the information previously furnished to the
Company by such seller not materially misleading.
Each Holder of Registrable Securities agrees by acquisition of
such Registrable Securities, that, upon actual receipt of any notice from the
Company of the happening of any event of the kind described in Section
9.3(c)(ii), 9.3(c)(iv), 9.3(c)(v), or 9.3(c)(vi) hereof, such Holder will
forthwith discontinue disposition of such Registrable Securities covered by such
Registration Statement or Prospectus to be sold by such Holder until such
Holder's receipt of the copies of the supplemented or amended Prospectus
contemplated by Section 9.3(k) hereof, or until it is advised in writing (the
"Advice") by the Company that the use of the applicable Prospectus may be
resumed, and has received copies of any amendments or supplements thereto.
Section 9.4. Registration Expenses (a) All fees and expenses
incident to the performance of or compliance with this Article IX by the Company
shall be borne by the Company whether or not a Shelf Registration is filed or
becomes effective. Notwithstanding the foregoing, the Holders of any shares of
Registrable Securities being registered shall pay all underwriting discounts,
commissions and placement agent fees attributable to the sale of their
securities.
(b) The Company shall reimburse the Holders of the Registrable
Securities being registered in a Shelf Registration for the reasonable fees and
disbursements for one counsel (in addition to appropriate local counsel) chosen
by holders of a majority of the Registrable Securities (on an as-converted basis
and taken together as a single class), all such reasonable fees and expenses not
to exceed $50,000 in the aggregate.
Section 9.5. Indemnification
(a) The Company agrees to indemnify and hold harmless each
Holder of shares of Registrable Securities and its affiliates, the officers,
directors, employees, members, partners (whether general or limited) and agents
of each such Person, and each Person, if any, who controls any such Person
within the meaning of either Section 15 of the Securities Act or Section 20 of
the Exchange Act and the officers, directors, employees, members and
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representatives of each such control Person (each, a "Participant"), from and
against any and all losses, claims, damages, expenses, penalties, costs of
investigation and other liabilities (including, without limitation, the
reasonable legal fees and other expenses actually incurred in connection with
any suit, action or proceeding or any claim asserted and whether or not such
Participant is a party to any action or proceeding out of which such expenses
arise) (collectively, "Losses") caused by, arising out of or based upon the
Company's breach of any material obligation or covenant in this Article IX, any
untrue statement or alleged untrue statement of a material fact contained in any
Registration Statement (or any amendment thereto) or Prospectus (as amended or
supplemented if the Company shall have furnished any amendments or supplements
thereto) or any preliminary prospectus, or caused by, arising out of or based
upon any omission or alleged omission to state therein a material fact required
to be stated therein or necessary to make the statements therein, in the light
of the circumstances under which they were made, not misleading, except insofar
as such Losses are caused by any untrue statement or omission or alleged untrue
statement or omission made in reliance upon and in conformity with information
relating to any Participant furnished to the Company in writing by such
Participant expressly for use therein; provided, however, that the Company will
not be required to indemnify a Participant (A) if such untrue statement or
omission or alleged untrue statement or omission was contained or made in any
preliminary prospectus and corrected in the Prospectus or any amendment or
supplement thereto and it is established in the related proceeding that such
Participant failed to deliver or provide a copy of the Prospectus (as amended or
supplemented) to such Person with or prior to the confirmation of the sale of
such Registrable Securities sold to such Person if required by applicable law,
unless such failure to deliver or provide a copy of the Prospectus (as amended
or supplemented) shall have been determined by a court of competent jurisdiction
by final and non-appealable judgment (or stipulated in a settlement agreement
reached by all parties involved in any action or proceeding related to such
claim) to have been the result of noncompliance by the Company with Section 9.3
of this Agreement or (B) if (i) such Participant disposed of Registrable
Securities to the Person asserting a claim (based on an untrue statement or
alleged untrue statement or omission or alleged omission) pursuant to a Shelf
Registration and sent or delivered, or was required by law to send or deliver, a
Prospectus to such Person in connection with such disposition, and (ii) such
Participant actually received a Suspension Notice or other notice referred to in
the penultimate paragraph of Section 9.3 prior to the date of such disposition
and (iii) such untrue statement or alleged untrue statement or omission or
alleged omission was the reason for the Suspension Notice or other notice
referred in such penultimate paragraph of Section 9.3.
(b) Each Participant agrees, severally and not jointly, to
indemnify and hold harmless the Company, its directors and officers who sign the
Registration Statement and each Person who controls the Company within the
meaning of Section 15 of the Securities Act or Section 20 of the Exchange Act to
the same extent as the foregoing indemnity from the Company to each Participant,
but only (i) for Losses actually incurred by such Persons to the extent such
Losses are based on information relating to such Participant furnished to the
Company in writing by such Participant expressly for use in any Registration
Statement or Prospectus, any amendment or supplement thereto or any preliminary
prospectus or (ii) with respect to any untrue statement or representation made
by such Participant in writing to the Company. The liability of any Participant
under this paragraph shall in no event exceed the proceeds received by such
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Participant from sales of its Registrable Securities under the relevant
Registration Statement or Prospectus.
(c) If any suit, action, proceeding (including any
governmental or regulatory investigation), claim or demand shall be brought or
asserted against any Person in respect of which indemnity may be sought pursuant
to either of the two preceding paragraphs, such Person (the "Indemnified
Person") shall promptly notify the Person against whom such indemnity may be
sought (the "Indemnifying Person") in writing, and the Indemnifying Person, upon
request of the Indemnified Person, shall retain counsel reasonably satisfactory
to the Indemnified Person to represent the Indemnified Person and any others the
Indemnifying Person may reasonably designate in such proceeding and shall pay
the reasonable fees and expenses actually incurred by such counsel related to
such proceeding; provided, however, that the failure to so notify the
Indemnifying Person shall not relieve it of any obligation or liability which it
may have hereunder or otherwise (unless and to the extent such Indemnifying
Person has been materially prejudiced by such failure, including, without
limitation, that such failure results in the forfeiture by the Indemnifying
Person of substantial rights and defenses). In any such proceeding, any
Indemnified Person shall have the right to retain its own counsel, but the fees
and expenses of such counsel shall be at the expense of such Indemnified Person
unless (i) the Indemnifying Person and the Indemnified Person shall have
mutually agreed in writing to the contrary, (ii) the Indemnifying Person has
failed to retain counsel reasonably satisfactory to the Indemnified Person and
has assumed the Indemnified Person's defense in a timely fashion or (iii) the
named parties in any such proceeding (including any impleaded parties) include
both the Indemnifying Person and the Indemnified Person and the Indemnified
Person shall have been advised by counsel that the Indemnified Person may have
available to it different defenses that those available to the Indemnifying
Person or that representation of both parties by the same counsel would be
inappropriate under applicable standards of professional conduct due to
differing interests between them. It is understood that, unless there exists a
conflict among Indemnified Persons as described in the immediately preceding
sentence, the Indemnifying Person shall not, in connection with any one such
proceeding or separate but substantially similar related proceeding in the same
jurisdiction arising out of the same general allegations or circumstances, be
liable for the fees and expenses of more than one separate firm (in addition to
any local counsel) for all Indemnified Persons, and that all such fees and
expenses shall be advanced or reimbursed promptly as they are incurred. Any such
separate firm for the Participants shall be designated in writing by Holders of
a majority of the Registrable Securities (on an as-converted basis and taken
together as a single class) and any such separate firm for the Company, its
directors, its officers and such control Persons of the Company shall be
designated in writing by the Company. The Indemnifying Person shall not be
liable for any settlement of any proceeding effected without its prior written
consent (which consent shall not be unreasonably withheld or delayed), but if
settled with such consent or if there be a final non-appealable judgment for the
plaintiff for which the Indemnified Person is entitled to indemnification
pursuant to this Article IX, the Indemnifying Person agrees to indemnify and
hold harmless each Indemnified Person from and against any loss or liability by
reason of such settlement or judgment. No Indemnifying Person shall, without the
prior written consent of the Indemnified Person, effect any settlement or
compromise of any pending or threatened proceeding in respect of which any
Indemnified Person is or could have been a party, or indemnity could have been
sought hereunder by such
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Indemnified Person, unless such settlement (A) includes an unconditional written
release of such Indemnified Person, in form and substance reasonably
satisfactory to such Indemnified Person, from all liability on claims that are
the subject matter of such proceeding and (B) does not include any statement as
to an admission of fault, culpability or failure to act by or on behalf of any
Indemnified Person.
(d) If the indemnification provided for in the first and
second paragraphs of this Section 9.5 is for any reason unavailable to, or
insufficient to hold harmless, an Indemnified Person in respect of any Losses
referred to therein, then each Indemnifying Person under such paragraphs, in
lieu of indemnifying such Indemnified Person thereunder and in order to provide
for just and equitable contribution, shall contribute to the amount paid or
payable by such Indemnified Person as a result of such Losses in such proportion
as is appropriate to reflect (i) the relative benefits received by the
Indemnifying Person or Persons on the one hand and the Indemnified Person or
Persons on the other from the offering of the Registrable Securities or (ii) if
the allocation provided by the foregoing clause (i) is not permitted by
applicable law, not only such relative benefits but also the relative fault of
the Indemnifying Person or Persons on the one hand and the Indemnified Person or
Persons on the other in connection with the statements or omissions or alleged
statements or omissions that resulted in such losses, claims, damages or
liabilities (or actions in respect thereof) as well as any other relevant
equitable considerations. The relative fault of the parties shall be determined
by reference to, among other things, whether the untrue or alleged untrue
statement of a material fact or the omission or alleged omission to state a
material fact relates to information supplied by the Company on the one hand or
such Participant or such other Indemnified Person in writing expressly for use
in the relevant Registration Statement, as the case may be, on the other, the
parties' relative intent, knowledge, access to information and opportunity to
correct or prevent such statement or omission, and any other equitable
considerations appropriate in the circumstances. The liability of any
Participant under this paragraph shall in no event exceed the proceeds received
by such Participant from sales of its Registrable Securities under the relevant
Registration Statement or Prospectus.
(e) The parties agree that it would not be just and equitable
if contribution pursuant to this Section 9.5 were determined by pro rata
allocation (even if the Participants were treated as one entity for such
purpose) or by any other method of allocation that does not take account of the
equitable considerations referred to in the immediately preceding paragraph. The
amount paid or payable by an Indemnified Person as a result of the losses,
claims, damages and liabilities referred to in the immediately preceding
paragraph shall be deemed to include, subject to the limitations set forth
above, any reasonable legal or other expenses actually incurred by such
Indemnified Person in connection with investigating or defending any such action
or claim. Notwithstanding the provisions of this Section 9.5, in no event shall
a Participant be required to contribute any amount in excess of the amount by
which proceeds received by such Participant from sales of Registrable Securities
exceeds the amount of any Losses that such Participant has otherwise been
required to pay or has paid by reason of such untrue or alleged untrue statement
or omission or alleged omission. No Person guilty of fraudulent
misrepresentation (within the meaning of Section 11(f) of the Securities Act)
shall be entitled to contribution from any Person who was not guilty of such
fraudulent misrepresentation.
34
<PAGE> 142
(f) The indemnity and contribution agreements contained in
this Section 9.5 will be in addition to any liability that the Indemnifying
Persons may otherwise have to the Indemnified Persons referred to above.
ARTICLE X
MISCELLANEOUS
Section 10.1. Loss or Mutilation. Upon receipt by the Company
of (i) evidence satisfactory to them of the ownership, and the loss, theft,
destruction or mutilation, of the Warrant Certificate and (ii) of indemnity
satisfactory to it or, in the case of mutilation, upon surrender and
cancellation of the mutilated Warrant Certificate, then, in the absence of
notice to the Company that the Warrant or Warrants represented thereby have been
acquired by a bona fide purchaser, the Company shall execute and deliver to the
registered Holder of the lost, stolen, destroyed or mutilated Warrant
Certificate, in exchange for or in lieu thereof, a new Warrant Certificate of
the same tenor and for a like aggregate number of Warrants. Upon the issuance of
any new Warrant Certificate under this Section 10.1, the Company may require the
payment of a sum sufficient to cover any tax or other governmental charge that
may be imposed in relation thereto and other expenses in connection therewith.
Every new Warrant Certificate executed and delivered pursuant to this Section
10.1 in lieu of any lost, stolen or destroyed Warrant Certificate shall
constitute a contractual obligation of the Company, whether or not the allegedly
lost, stolen or destroyed Warrant Certificate shall be at any time enforceable
by anyone, and shall be entitled to the benefits of this Agreement equally and
proportionately with any and all other Warrant Certificates duly executed and
delivered hereunder. The provisions of this Section 10.1 are exclusive and shall
preclude (to the extent lawful) all other rights or remedies with respect to the
replacement of the mutilated, lost, stolen, or destroyed Warrant Certificate.
Section 10.2. Payment of Taxes. The Company shall pay any
taxes and other governmental charges that may be imposed under the laws of the
United States of America or any political subdivision or taxing authority
thereof or therein in respect of the issue or delivery of the Warrant or Warrant
Shares or of other securities or property deliverable upon exercise of Warrants
(other than income taxes imposed on the Holders). The Company shall not be
required, however, to pay any tax or other charge imposed in connection with any
transfer involved in the issue of any certificate for Warrant Shares or other
securities or property issuable upon the exercise of the Warrants or payment of
cash to any person other than the Holder of the Warrant Certificate surrendered
upon exercise of a Warrant and in case of such transfer or payment, the Company
shall not be required to issue any stock certificate or pay any cash until such
tax or charge has been paid or it has been established to the Company's
satisfaction that no such tax or charge is due.
Section 10.3. No Merger, Consolidation or Sale of Assets or
the Company. Except as otherwise provided herein, the Company will not merge
into or consolidate with any other Person, or sell or otherwise transfer its
property, assets and business substantially as an entirety to a successor of the
Company, unless the Person resulting from such merger or consolidation, or such
successor of the Company, shall expressly assume, the due and punctual
35
<PAGE> 143
performance and observance of each and every covenant and condition of this
Agreement to be performed and observed by the Company.
Section 10.4. Reports to Holders. The Company shall file with
the Commission the annual, quarterly and other reports required by Section
13(a), 13(c) or 15(d) of the Exchange Act, regardless of whether such sections
of the Exchange Act are applicable to the Company, and shall provide copies of
such reports to each Holder, without cost to such Holder, within 30 days after
the date it would have been required to file such reports or other information
with the Commission had it been subject to such sections.
Section 10.5. Notices. All notices and other communications
provided for or permitted hereunder shall be made in writing by hand-delivery,
registered first-class mail, next-day air courier or facsimile:
1. if to a holder of Warrant and Warrant Shares, at the most
current address of such holder on the stock books of the Company with a
copy in like manner to the Initial Purchaser as follows:
The Huff Alternative Income Fund L.P.
1776 On the Green
67 Park Place
Morristown, NJ 07960
Facsimile No: (973) 984-5818
Attention: Joseph Thornton, Esq.
with a copy to:
Proskauer Rose LLP
1585 Broadway
New York, NY 10036
Facsimile No: (212) 969-2900
Attention: Peter G. Samuels, Esq.
- and -
Greenwich Street Capital Partners II, L.P.
GSCP Offshore Fund, L.P.
Greenwich Fund, L.P.
Greenwich Street Employees Fund, L.P.
TRV Executive Fund, L.P.
c/o Greenwich Street Investments II, L.L.C.,
General Partner
388 Greenwich Street
New York, NY 10010
Facsimile No.: (212) 816-0166
36
<PAGE> 144
Attention: Matthew Kaufman
with a copy to:
Weil, Gotshal & Manges LLP
767 Fifth Avenue
New York, NY 10153
Facsimile No.: (212) 310-8007
Attention: Michael Nissan, Esq.
2. if to the Company, at the address as follows:
e.spire Communications, Inc.
12975 Worldgate Drive
Herndon, VA 21070
Facsimile No: (703) 639-6023
Attention: Riley M. Murphy, Esq.
with a copy to:
Davis, Polk & Wardwell
450 Lexington Avenue
New York, NY 10017
Facsimile No.: (212) 450-4300
Attention: Richard Drucker, Esq.
All such notices and communications shall be deemed to have
been duly given: when delivered by hand, if personally delivered; five business
days after being deposited in the mail, postage prepaid, if mailed; one business
day after being timely delivered to a next-day air courier; and when receipt is
acknowledged by the addressee, if sent by facsimile.
Section 10.6. Subsequent Purchaser. Each party who enters into
a purchase agreement from time to time with the Company as an additional
purchaser of Preferred Stock and Additional Warrants shall execute a counterpart
to this Agreement and shall be deemed a Subsequent Purchaser. Such party shall
be bound by all relevant terms and provisions contained herein pertaining to a
Subsequent Purchaser and shall have all the rights and privileges contained
herein granted to a Subsequent Purchaser; notwithstanding the foregoing, such
party may also be a Holder bound by all relevant terms and provisions pertaining
hereto and having all the rights and privileges pertaining hereto.
37
<PAGE> 145
Section 10.7. Governing Law. THIS AGREEMENT SHALL BE GOVERNED
BY AND CONSTRUED IN ACCORDANCE WITH THE LAWS OF THE STATE OF NEW YORK WITHOUT
GIVING EFFECT TO ANY CONFLICTS OF LAW PROVISIONS.
Section 10.8. Headings. The descriptive headings of the
several Sections of this Agreement are inserted for convenience only and shall
not control or affect the meaning or construction of any of the provisions
hereof.
Section 10.9. Severability. In the event that any one or more
of the provisions contained herein, or the application thereof in any
circumstances is held invalid, illegal or unenforceable in any respect for any
reason, the validity, legality and enforceability of any such provision in every
other respect and of the remaining provisions hereof shall not be in any way
impaired or affected thereby, it being intended that all of the rights and
privileges of the parties shall be enforceable to the fullest extent permitted
by law.
Section 10.10. Amendment; Waiver. Any provision of this
Agreement may be amended only with the written consent of the Company and the
Majority Holders. The observance of any provision of this Agreement may be
waived (either generally or in a particular instance and either retroactively or
prospectively) only with the written consent of the party to be charged,
provided that the Majority Holders may act on behalf of all such Holders.
Notwithstanding anything to the contrary contained herein, no modification,
amendment or supplement may be made to this Agreement without the consent of
each Holder of the then outstanding Warrants affected thereby if such
modification, amendment or supplement adversely affects the Exercise Price or
the Expiration Date. No modification, amendment or supplement of the preceding
sentence may be made without the consent of each Holder of the then outstanding
Warrants. Any amendment or waiver effected in accordance with this Section 10.10
shall be binding upon each Holder of a Warrant at the time outstanding, each
future holder of all such securities, and the Company. Any amendment,
modification or supplement to this Agreement which is favorable to Huff and does
not treat all Holders uniformly shall apply equally to Greenwich.
Section 10.11. No Inconsistent Agreements. The Company has
not, as of the date hereof, entered into, nor shall it, on or after the date
hereof, enter into, any agreement that is inconsistent with the rights granted
to the Holders herein or that otherwise conflicts with the provisions hereof.
Section 10.12. Counterparts. This Agreement may be executed in
any number of counterparts and by the parties hereto in separate counterparts,
each of which when so executed shall be deemed to be an original and all of
which taken together shall constitute one and the same agreement. Any
counterpart executed by a Subsequent Purchaser shall, when so executed, be
deemed to be an original and, taken together with all other counterparts
executed in connection with this Agreement, shall constitute one and the same
agreement.
38
<PAGE> 146
IN WITNESS WHEREOF, the undersigned parties have caused this
Agreement to be duly executed, their respective corporate seals to be hereunto
affixed, all as of the date on the face hereto.
E.SPIRE COMMUNICATIONS, INC.
By:
--------------------------------------
Name:
Title:
THE HUFF ALTERNATIVE INCOME FUND, L.P.
By:
--------------------------------------
Name:
Title:
GREENWICH STREET CAPITAL PARTNERS II,
L.P.
By: Greenwich Street Investors II, L.L.C.,
general partner
By:
--------------------------------------
Name:
Title:
GSCP OFFSHORE FUND L.P.
By: Greenwich Street Investors II, L.L.C.,
general partner
By:
--------------------------------------
Name:
Title:
GREENWICH FUND, L.P.
By: Greenwich Street Investors II, L.L.C.,
general partner
By:
--------------------------------------
Name:
Title:
<PAGE> 147
GREENWICH STREET EMPLOYEES FUND, L.P.
By: Greenwich Street Investors II, L.L.C.,
general partner
By:
--------------------------------------
Name:
Title:
TRV EXECUTIVE FUND, L.P.
By: Greenwich Street Investors II, L.L.C.,
general partner
By:
--------------------------------------
Name:
Title:
<PAGE> 148
Subsequent Purchaser: THE HONEYWELL INTERNATIONAL INC.
MASTER RETIREMENT TRUST
By: Northern Trust Company,
as trustee
By:
--------------------------------------
Name:
Title:
41
<PAGE> 149
EXHIBIT A
FORM OF WARRANT
E. SPIRE COMMUNICATIONS, INC.
[CUSIP] [CINS] No.____
No. ___________ ___________Warrants
Date: ___________________
WARRANTS TO PURCHASE SHARES OF COMMON STOCK
This certifies that __________________, or its registered
assigns, is the owner of the number of Warrants set forth above, each of which
initially represents the right to purchase, E. SPIRE COMMUNICATIONS, INC., a
Delaware corporation ("the Company"), _______ shares of Common Stock (each a
"Warrant Share"), par value $.01 per share, of the Company (the "Common Stock"),
at the purchase price equal to the Exercise Price (as defined in the Warrant
Agreement) per share of Common Stock (subject to adjustment as set forth in the
Warrant Agreement) (as defined herein), upon surrender hereof at the offices of
the Company, with the Subscription Form on the reverse hereof duly executed,
with signature guaranteed as therein specified and simultaneous payment in full
(by Fedwire or by certified or official bank or bank cashier's check payable to
the order of the Company, or by a Cashless Exercise (as defined in the Warrant
Agreement) equal to the Exercise Price of the Warrants being exercised) of the
purchase price for the share(s) as to which the Warrant(s) represented by this
Warrant Certificate are exercised, all subject to the terms and conditions
hereof and of the Warrant Agreement.
This Warrant Certificate is issued under and in accordance
with a Warrant Agreement dated as of March 1, 2000 (the "Warrant Agreement"),
among e.spire Communications, Inc., a Delaware corporation, 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 such other parties who may be made a signatory hereto
from time to time and is subject to the terms and provisions contained therein,
to all of which terms and provisions the Holder of this Warrant Certificate
consents by acceptance hereof. The Warrant Agreement is hereby incorporated
herein by reference and made a part thereof. Reference is hereby made to the
Warrant Agreement for a full description of the rights, limitations of rights,
obligations, duties and immunities thereunder of the Company and the Holders of
the Warrants. The summary of the terms of the Warrant Agreement contained in
this Warrant Certificate is qualified in its entirety by express reference to
the Warrant Agreement. All terms used in this Warrant Certificate that are
defined in the Warrant Agreement shall have the meanings assigned to them in the
Warrant Agreement.
Copies of the Warrant Agreement are on file at the offices of
the Company at the following address:
<PAGE> 150
A-2
e.spire Communications, Inc.
12975 Worldgate Drive
Herndon, VA 21070
Facsimile No: (703) 639-6023
Attention: Riley M. Murphy, Esq.
All shares of Common Stock or other securities issuable by the
Company upon the exercise of Warrants shall be validly issued, fully paid and
nonassessable, and the Company shall pay all taxes and other governmental
charges that may be imposed under the laws of the United States of America or
any political subdivision or taxing authority thereof or therein in respect of
the issue or delivery of such shares or of other securities deliverable upon
exercise of Warrants. The Company shall not be required, however, to pay any tax
or other charge imposed in connection with any transfer involved in the issue of
any certificate for Common Stock, and in such case the Company shall not be
required to issue or deliver any stock certificate until such tax or other
charge has been paid or it has been established to the Warrant Agent's and the
Company's satisfaction that no tax or other charge is due.
Subject to the restrictions on transfer set forth in Article
VII of the Warrant Agreement, this Warrant Certificate and all rights hereunder
are transferable by the registered Holder hereof, in whole or in part, on the
register of the Company maintained by the Warrant Agent for such purpose at its
office in New York, New York, upon surrender of this Warrant Certificate duly
endorsed, or accompanied by a written instrument of transfer in form
satisfactory to the Company duly executed, with signatures guaranteed as
specified in the attached Form of Assignment, by the registered Holder hereof or
his attorney duly authorized in writing and upon payment of any necessary
transfer tax or other governmental charge imposed upon such transfer. Upon any
partial transfer, the Company will issue and will deliver to such Holder a new
Warrant Certificate or Certificates with respect to any portion not so
transferred. Each taker and Holder of this Warrant Certificate, by taking and
holding the same, consents and agrees that prior to the registration of transfer
as provided in the Warrant Agreement, the Company and the Warrant Agent may
treat the person in whose name the Warrants are registered as the absolute owner
hereof for any purpose and as the person entitled to exercise the rights
represented hereby, any notice to the contrary notwithstanding.
This Warrant Certificate may be exchanged at the office of the
Company for Warrant Certificates representing the same aggregate number of
Warrants, each new Warrant Certificate to represent such number of Warrants as
the Holder hereof shall designate at the time of such exchange.
Prior to the exercise of the Warrants represents hereby, the
Holder of this Warrant Certificate, as such, shall not be entitled to any rights
of a stockholder of the Company, including, without limitation, the right to
vote or to consent to any action of the stockholders, to receive dividends or
other distributions, to exercise any preemptive right or to receive any notice
<PAGE> 151
A-3
of meetings of stockholders, and shall not be entitled to receive any notice of
any proceedings of the Company except as provided in the Warrant Agreement.
This Warrant shall be void and all rights evidenced hereby
shall cease at 5:00 p.m., New York time, on March 1, 2010, unless sooner
terminated by the liquidation, dissolution or winding-up of the Company.
This Warrant Certificate shall not be valid for any purpose
until it shall have been countersigned by the Warrant Agent.
Dated:
E. SPIRE COMMUNICATIONS, INC.
By:_________________________________________
Name:
Title:
<PAGE> 152
A-4
FORM OF REVERSE OF WARRANT
SUBSCRIPTION FORM
(To be executed only upon exercise of Warrant)
To:
The undersigned irrevocably exercise [________________] of the
Warrants represented by the Warrant Certificate for the purchase of _____
(subject to adjustment) shares of Common Stock, par value $.01 per share, of E.
SPIRE COMMUNICATIONS, INC. and herewith makes payment of $[__________] (such
payment being by Fedwire or by certified or official bank or bank cashier's
check payable to the order or at the direction of E. Spire Communications, Inc.,
or by a Cashless Exercise (as defined in the Warrant Certificate) equal to the
Exercise Price per share of the date of exercise of the Warrants being
exercised), all at the exercise price and on the terms and conditions specified
in the within Warrant Certificate therein referred to, surrenders this Warrant
Certificate and all right, title and interest therein to and directs that the
shares of Common Stock deliverable upon the exercise of such Warrants be
registered or placed in the name and at the address specified below and
delivered thereto.
Dated:
-------------------------
(Signature of Owner)
-------------------------
(Street Address)
-------------------------
(City) (State) (Zip Code)
Signature Guaranteed By:
-------------------------
Securities and/or check to be issued to:
Please insert social security or identifying number:
Name:
Street Address:
City, State and Zip Code:
<PAGE> 153
A-5
FORM OF ASSIGNMENT
FOR VALUE RECEIVED the undersigned registered holder of the
within Warrant Certificate hereby sells, assigns, and transfers unto the
Assignee(s) named below (including the undersigned with respect to any Warrants
constituting a part of the Warrants evidenced by the within Warrant Certificate
not being assigned hereby) all of the right of the undersigned under the within
Warrant Certificate, with respect to the number of Warrants set forth below:
Name(s) of Assignee(s): ____________________________
Address: ____________________________________________
No. of Warrants: ___________________________________
Please insert social security or other identifying number of assignee(s):
and does hereby irrevocably constitute and appoint ____________________ the
undersigned's attorney to make such transfer on the books of
_____________________ maintained for the purpose, with full power of
substitution in the premises.
Dated:
--------------------------
(Signature of Owner)
--------------------------
(Street Address)
--------------------------
(City) (State) (Zip Code)
Signature Guaranteed By:
--------------------------
<PAGE> 1
EXHIBIT 10.51
================================================================================
REGISTRATION RIGHTS AGREEMENT
Dated as of March 1, 2000
among
E. SPIRE COMMUNICATIONS, INC.,
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.,
TRV EXECUTIVE FUND, L.P. and
such other Parties as may become Signatories hereto
Series A Convertible Preferred Stock
================================================================================
<PAGE> 2
TABLE OF CONTENTS
<TABLE>
<CAPTION>
Page
<S> <C>
ARTICLE I
CERTAIN DEFINITIONS............................................................ 2
Section 1.1. Certain Definitions.............................................. 2
ARTICLE II
ORIGINAL ISSUE OF WARRANTS..................................................... 8
Section 2.1. Form of Warrant Certificates and Dating.......................... 8
Section 2.2. Legends.......................................................... 8
ARTICLE III
EXERCISE OF WARRANTS........................................................... 9
Section 3.1. Exercise Price................................................... 9
Section 3.2. Exercise; Restrictions on Exercise; Expiration................... 9
Section 3.3. Method of Exercise; Payment of Exercise Price.................... 10
ARTICLE IV
ADJUSTMENTS.................................................................... 12
Section 4.1. Adjustments...................................................... 12
Section 4.2. Notice of Adjustment............................................. 18
Section 4.3. Statement on Warrants............................................ 18
Section 4.4. Notice of Consolidation, Merger or Sale of Assets................ 18
Section 4.5. Fractional Interests............................................. 19
Section 4.6. No Dilution or Impairment........................................ 19
Section 4.7. No Adjustments for Certain Issuances............................. 19
ARTICLE V
DECREASE IN EXERCISE PRICE..................................................... 19
Section 5.1. Exercise Price................................................... 19
ARTICLE VI
RESERVATION AND AUTHORIZATION OF COMMON SHARES................................. 20
Section 6.1. Reservation and Authorization.................................... 20
Section 6.2. Covenant Regarding Securities.................................... 20
Section 6.3. Registration..................................................... 20
ARTICLE VII
WARRANT TRANSFER BOOKS; RESTRICTIONS ON TRANSFER............................... 21
Section 7.1. Transfer and Exchange............................................ 21
Section 7.2. Special Transfer Provisions...................................... 22
Section 7.3. Surrender of Warrant Certificates................................ 22
Section 7.4. Rule 144 and Rule 144A Information............................... 23
</TABLE>
i
<PAGE> 3
<TABLE>
<S> <C>
ARTICLE VIII
HOLDERS........................................................................ 23
Section 8.1. Holder Not Deemed a Stockholder.................................. 23
Section 8.2. Right of Action.................................................. 23
ARTICLE IX
REGISTRATION RIGHTS............................................................ 23
Section 9.1. Intentionally omitted............................................ 23
Section 9.2. Warrant Shelf Registration Statement............................. 24
(b) Subsequent Shelf Registrations................................................. 24
(d) Suspension of Shelf Registration............................................... 25
(e) Deferral Period................................................................ 25
ARTICLE X
MISCELLANEOUS.................................................................. 35
Section 10.1. Loss or Mutilation.............................................. 35
Section 10.2. Payment of Taxes................................................ 35
Section 10.3. No Merger, Consolidation or Sale of Assets or the Company....... 35
Section 10.4. Reports to Holders.............................................. 36
Section 10.5. Notices......................................................... 36
Section 10.6. Subsequent Purchaser............................................ 37
Section 10.7. Governing Law................................................... 38
Section 10.8. Headings........................................................ 38
Section 10.9. Severability.................................................... 38
Section 10.10. Amendment; Waiver.............................................. 38
Section 10.11. No Inconsistent Agreements..................................... 38
Section 10.12. Counterparts................................................... 38
EXHIBIT A
FORM OF WARRANT................................................................ A-1
WARRANTS TO PURCHASE SHARES OF COMMON STOCK............................................. A-1
FORM OF REVERSE OF WARRANT.............................................................. A-4
FORM OF ASSIGNMENT...................................................................... A-5
</TABLE>
ii
<PAGE> 4
REGISTRATION RIGHTS AGREEMENT
This Registration Rights Agreement (the "Agreement") is dated
as of March 1, 2000, among e.spire Communications, Inc., a Delaware corporation
(the "Company"), The Huff Alternative Income Fund, L.P. ("Huff"), 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.
(collectively, "Greenwich", and collectively with Huff, the "Initial
Purchasers") and such other parties who may be made a signatory hereto from time
to time (the "Subsequent Purchasers," and, collectively with the Initial
Purchasers, the "Purchasers").
WHEREAS, concurrently herewith, the Company has entered into
the (i) Purchase Agreement, dated the date hereof with Huff (the "Huff Purchase
Agreement"), pursuant to which the Company has agreed to issue and sell to Huff
an aggregate of 100,000 Units (as defined herein), and (ii) Purchase Agreement,
dated the date hereof with Greenwich (the "Greenwich Purchase Agreement," and,
collectively with the Huff Purchase Agreement, the "Purchase Agreements"),
pursuant to which the Company has agreed to issue and sell to Greenwich an
aggregate of 25,000 Units.
WHEREAS, each Unit consists of (i) one (1) share of Series A
Convertible Preferred Stock, par value $1.00 per share (the "Initial Preferred
Stock"), initially convertible into 126.42225 shares of Common Stock (as defined
herein) at a conversion price of $7.91 per share (subject to adjustment) and
(ii) one (1) warrant (the "Warrant") initially exercisable to purchase 44.1
shares of Common Stock at an exercise price of $9.89 per share (subject to
adjustment).
WHEREAS, in addition to the sale of the Units to the Initial
Purchasers, the Company has agreed to use its reasonable efforts to sell to
other purchasers (which purchasers will exclude the Initial Purchasers)
acceptable to the Company's Board of Directors up to $125 million of additional
Units consisting of preferred stock (the "Additional Preferred Stock" and
collectively, with the Initial Preferred Stock, the "Preferred Stock") and
warrants on the same (or, as provided in the Purchase Agreements, more favorable
to the Company) terms and conditions set forth in the Purchase Agreements.
WHEREAS, the execution and delivery of this Agreement is a
condition to the Initial Purchasers' obligations to purchase the Units pursuant
to the Purchase Agreements.
In consideration of the foregoing and of the agreements
entered into in connection with the Purchase Agreements, the Company and the
Purchasers hereby agree as follows:
1. Definitions
As used in this Agreement, the following terms shall have the
following meanings:
Additional Dividends: See Section 4 hereof.
<PAGE> 5
Additional Preferred Stock: See recitals hereto.
Advice: See Section 5 hereof.
Agreement: See the introductory paragraphs hereto.
Certificate of Designation: The Certificate of Designation
governing the Preferred Stock, as filed with the Secretary of State of the State
of Delaware, as amended from time to time.
Closing Date: The date of each Closing (as defined in each of
the Purchase Agreements).
Common Stock: Common stock, par value $.01 per share of the
Company.
Company: See the introductory paragraphs hereto.
Deferral Period: See Section 3(e) hereof.
Effectiveness Date: The 90th day after the Filing Date.
Effectiveness Period: See Section 3(a) hereof.
Exchange Act: The Securities Exchange Act of 1934, as amended,
and the rules and regulations of the SEC promulgated thereunder.
Filing Date: The later of (i) the 60th day after the Issue
Date and (ii) if Additional Preferred Stock is being sold by the Company, the
15th day after the Final Closing (as such term is defined in the Purchase
Agreements).
Greenwich: See introductory paragraph hereto.
Greenwich Purchase Agreement: See recitals hereto.
Holder: Any registered holder of Registrable Securities.
Huff: See introductory paragraph hereto.
Huff Purchase Agreement: See recitals hereto.
Indemnified Person: See Section 7(c) hereof.
Indemnifying Person: See Section 7(c) hereof.
Initial Preferred Stock: See recitals hereto.
2
<PAGE> 6
Initial Purchasers: See introductory paragraph hereto.
Initial Shelf Registration: See Section 3(a) hereof.
Inspectors: See Section 5(n) hereof.
Issue Date: The date on which the Preferred Stock was first
issued and sold to the Initial Purchasers.
Losses: See Section 7(a) hereof.
Majority Holders: See Section 5 hereof.
NASD: See Section 5(r) hereof.
Participant: See Section 7(a) hereof.
Person: An individual, partnership, corporation, limited
liability company, unincorporated association, trust or joint venture, or a
governmental agency or political subdivision thereof.
Preferred Stock: See the recitals hereto.
Prospectus: The prospectus included in any Registration
Statement (including, without limitation, any prospectus subject to completion
and a prospectus that includes any information previously omitted from a
prospectus filed as part of an effective registration statement in reliance upon
Rule 430A promulgated under the Securities Act), as amended or supplemented by
any prospectus supplement, and all other amendments and supplements to the
Prospectus, including post-effective amendments, and all material incorporated
by reference or deemed to be incorporated by reference in such Prospectus.
Purchase Agreements: See the recitals hereto.
Purchasers: See the introductory paragraph hereto.
Records: See Section 5(n) hereof.
Registrable Securities: The (A) shares of Preferred Stock, the
shares of Common Stock issuable upon conversion thereof and as dividends thereon
and (B) any other securities issued by the Company in exchange for, as a
dividend on or in connection with a split of or other adjustment to the terms of
any such security in the foregoing clause (A); such securities shall cease to be
Registrable Securities on the date that is the earliest to occur of: (i) the
date on which any such security has been effectively registered under the
Securities Act and disposed of in accordance with a Registration Statement, (ii)
the date on which such security is distributed to the public pursuant to Rule
144 or is eligible for sale pursuant to Rule 144(k) under the Securities
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<PAGE> 7
Act (provided, however, that, for so long as (but only for so long as) a
Registration Statement remains in effect hereunder for Registrable Securities of
a Holder, no Registrable Securities of any other Holder shall cease to be
Registrable Securities solely because they are eligible for sale pursuant to
Rule 144(k)) and (iii) the date on which such security ceases to be outstanding.
Registration Statement: Any registration statement of the
Company filed with the SEC pursuant to the provisions of this Agreement,
including the Prospectus, amendments and supplements to such registration
statement, including post-effective amendments, all exhibits, and all material
incorporated by reference or deemed to be incorporated by reference in such
registration statement.
Rule 144: 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 SEC 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 415: Rule 415 promulgated under the Securities Act, as
such Rule may be amended from time to time, or any similar rule or regulation
hereafter adopted by the SEC.
SEC: The Securities and Exchange Commission.
Securities Act: The Securities Act of 1933, as amended, and
the rules and regulations of the SEC promulgated thereunder.
Shelf Registration: See Section 3(b) hereof.
Subsequent Purchaser: See introductory paragraph hereto.
Subsequent Shelf Registration: See Section 3(b) hereof.
Suspension Notice: See Section 3(d) hereof.
Suspension Period: See Section 3(d) hereof.
Transfer Agent: The Transfer Agent for the Preferred Stock or
Common Stock.
Underwritten registration or underwritten offering: A
registration in which securities of the Company are sold to an underwriter for
reoffering to the public.
2. Intentionally Omitted.
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3. Shelf Registration
(a) Shelf Registration. Subject to Section 3(e), the Company
shall as promptly as reasonably practicable (but in any event prior to the
Filing Date) file with the SEC a Registration Statement for an offering to be
made on a continuous basis pursuant to Rule 415 covering all of the Registrable
Securities (the "Initial Shelf Registration"). The Initial Shelf Registration
shall be on an appropriate form permitting registration of such Registrable
Securities for resale by Holders.
The Company shall use its reasonable best efforts to cause the
Initial Shelf Registration to be declared effective under the Securities Act on
or prior to the Effectiveness Date and to keep the Initial Shelf Registration
continuously effective under the Securities Act (the "Effectiveness Period") or
such shorter period ending when (i) all Registrable Securities have been sold in
the manner set forth and as contemplated in the Initial Shelf Registration or
(ii) a Subsequent Shelf Registration covering all of the Registrable Securities
has been declared effective under the Securities Act or (iii) there are no
longer any Registrable Securities outstanding.
(b) Subsequent Shelf Registrations. If the Initial Shelf
Registration or any Subsequent Shelf Registration ceases to be effective for any
reason at any time during the Effectiveness Period (other than because of the
sale thereunder of all of the securities registered thereunder or there are no
longer any Registrable Securities outstanding), the Company shall use its
reasonable best efforts to obtain the prompt withdrawal of any order suspending
the effectiveness thereof, and in any event shall within 45 days of such
cessation of effectiveness amend the Initial Shelf Registration in a manner to
obtain the withdrawal of the order suspending the effectiveness thereof, or file
an additional "shelf" Registration Statement pursuant to Rule 415 covering all
of the Registrable Securities (a "Subsequent Shelf Registration"). If a
Subsequent Shelf Registration is filed, the Company shall use its reasonable
best efforts to cause the Subsequent Shelf Registration to be declared effective
under the Securities Act as soon as practicable after such filing and to keep
such Registration Statement continuously effective until the end of the
Effectiveness Period or such shorter period ending when (i) all Registrable
Securities have been sold in the manner set forth and as contemplated in the
Subsequent Shelf Registration or (ii) there are no longer any Registrable
Securities outstanding. As used herein the term "Shelf Registration" means the
Initial Shelf Registration and any Subsequent Shelf Registration.
(c) Supplements and Amendments. The Company shall use its
reasonable best efforts to supplement and amend the Shelf Registration if
required by the rules, regulations or instructions applicable to the
registration form used for such Shelf Registration, if required by the
Securities Act, or if reasonably requested by the Holders of a majority of the
shares of the Registrable Securities covered by such Registration Statement (on
an as converted basis and taken together as a single class) or if reasonably
requested by an underwriter, if any, of such Registrable Securities.
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<PAGE> 9
(d) Suspension of Shelf Registration. The Company's obligation
to keep the Shelf Registration effective and usable for offers and sales of the
Registrable Securities may be suspended by the Company if the Company, in good
faith and for valid business reasons, determines that, without such suspension,
the Company will suffer interference with any material financing, acquisition,
corporate reorganization or other material transaction or development involving
the Company. Any such period during which the Company fails to keep the Shelf
Registration effective and usable for offers and sales of Registrable Securities
is referred to as a "Suspension Period." A Suspension Period shall commence on
and include the date that the Company gives written notice (the "Suspension
Notice") to the Holders of Registrable Securities covered by the Shelf
Registration that the Shelf Registration is no longer effective or the
prospectus included therein is no longer usable for offers and sales of the
Registrable Securities shall end on the earliest of (A) 90 days from the
effective date of the Suspension Period or (B) the date the Holders of
Registrable Securities covered by such registration are advised in writing by
the Company that use of the prospectus may be resumed. Each Holder agrees that,
upon receipt of any Suspension Notice, such Holder will forthwith discontinue
(during the pendency of such Suspension Period) disposition of Registrable
Securities pursuant to the Shelf Registration. During the pendency of any
Suspension Period, the Company may not issue any securities, whether or not in a
public offering, except for (i) issuances of Common Stock pursuant to an
acquisition or other business combination transaction or upon exercise of
options or warrants outstanding prior to such Suspension Period or (ii)
pay-in-kind dividends, to the extent permitted, in respect of preferred stock
outstanding prior to such Suspension Period. Notwithstanding anything to the
contrary in this Section 3(d), the Company may only suspend the effectiveness of
the Shelf Registration pursuant to this Section 3(d) if the Company suspends the
effectiveness of any and all other registration statements maintained by the
Company covering the Company's securities pursuant to Rule 415 or otherwise.
(e) Deferral Period. Notwithstanding anything to the contrary
herein, the Company shall have the right to defer the filing of the Initial
Shelf Registration pursuant to this Agreement for a period not to exceed 90 days
after the Filing Date (the "Deferral Period") if, in the good faith
determination of the Board of Directors of the Company, the filing of such
Initial Shelf Registration would interfere with any material financing,
acquisition, corporate reorganization or other material transaction or
development involving the Company; provided, that during the pendency of any
such Deferral Period, the Company may not issue any securities, whether or not
in a public offering, except for (i) issuances of Common Stock pursuant to an
acquisition or other business combination transaction or upon exercise of
options or warrants outstanding prior to such Deferral Period or (ii)
pay-in-kind dividends, to the extent permitted, in respect of preferred stock
outstanding prior to such Deferral Period. In the event that the Company
exercises its deferral rights pursuant to this Section 3(e), the Effectiveness
Date shall be tolled for a period equal to the Deferral Period.
4. Additional Dividends
The Company and the Purchasers agree that the Holders of
Registrable Securities will suffer damages if the Company fails to fulfill its
obligations under Section 3 hereof and that it would not be feasible to
ascertain the extent of such damages with precision. Accordingly,
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<PAGE> 10
without limiting any other rights or remedies the Holders may possess pursuant
to this Agreement or under applicable law, the Company agrees to pay, as
liquidated damages, additional dividends on the Preferred Stock (in either case,
"Additional Dividends") under the circumstances and to the extent set forth in
the Certificate of Designation and agrees that the Holders are entitled to
injunctive and equitable relief without bond or security in the event of the
Company's breach of any term or provision under Section 3.
5. Registration Procedures
In connection with the filing of any Registration Statement
pursuant to Section 3 hereof, the Company shall effect such registrations to
permit the sale of the securities covered thereby in accordance with the
intended method or methods of disposition thereof, and pursuant thereto and in
connection with any Registration Statement filed by the Company hereunder the
Company shall:
(a) Prepare and file with the SEC on or prior to the Filing
Date, a Registration Statement as prescribed by Section 3 hereof, and use its
reasonable best efforts to cause such Registration Statement to become effective
and remain effective as provided herein; provided, however, that, before filing
any Registration Statement or Prospectus or any amendments or supplements
thereto, the Company shall furnish to and afford the Holders of the Registrable
Securities covered by such Registration Statement, their counsel and the
managing underwriters, if any, a reasonable opportunity to review copies of all
such documents (including, if requested in writing, copies of any documents to
be incorporated by reference therein and all exhibits thereto) proposed to be
filed (in each case at least five business days prior to such filing). The
Company shall not file any Registration Statement or Prospectus or any
amendments or supplements thereto if the Holders of a majority of the
Registrable Securities (on an as-converted basis and taken together as a single
class) covered by such Registration Statement, their counsel, or the managing
underwriters, if any, shall reasonably object within two business days after the
receipt thereof.
(b) Prepare and file with the SEC such amendments and
post-effective amendments to each Shelf Registration as may be necessary to keep
such Registration Statement continuously effective for the Effectiveness Period
(or such shorter period as may be specified in Section 3(a) or 3(b)); cause the
related Prospectus to be supplemented by any Prospectus supplement required by
applicable law, and as so supplemented to be filed pursuant to Rule 424 (or any
similar provisions then in force) promulgated under the Securities Act; and
comply with the provisions of the Securities Act and the Exchange Act applicable
to it with respect to the disposition of all securities covered by such
Registration Statement as so amended or in such Prospectus as so supplemented.
(c) Notify the selling Holders of Registrable Securities,
their counsel and the managing underwriters, if any, reasonably promptly (but in
any event within five business days), and confirm such notice in writing, (i)
when a Prospectus or any Prospectus supplement or post-effective amendment has
been filed, and, with respect to a Registration Statement or any post-effective
amendment, when the same has become effective under the Securities Act, (ii) of
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<PAGE> 11
the issuance by the SEC of any stop order suspending the effectiveness of a
Registration Statement or of any order preventing or suspending the use of any
preliminary prospectus or the initiation of any proceedings for that purpose,
(iii) if at any time when a prospectus is required by the Securities Act to be
delivered in connection with sales of the Registrable Securities the
representations and warranties of the Company contained in any agreement,
including an underwriting agreement, if any, contemplated by Section 5(m) hereof
cease to be true and correct, (iv) of the receipt by the Company of any
notification with respect to the suspension of the qualification or exemption
from qualification of a Registration Statement or any of the Registrable
Securities for offer or sale in any jurisdiction, or the initiation or
threatening of any proceeding for such purpose, (v) of the happening of any
event, the existence of any condition or any information becoming known that
makes any statement made in such Registration Statement or related Prospectus or
any document incorporated or deemed to be incorporated therein by reference
untrue in any material respect or that requires the making of any changes in or
amendments or supplements to such Registration Statement, Prospectus or
documents so that, in the case of the Registration Statement, it will not
contain any untrue statement of a material fact or omit to state any material
fact required to be stated therein or necessary to make the statements therein
not misleading, and that in the case of the Prospectus, it will not contain any
untrue statement of a material fact or omit to state any material fact required
to be stated therein or necessary to make the statements therein, in the light
of the circumstances under which they were made, not misleading and (vi) of the
Company's determination that a post-effective amendment to a Registration
Statement would be appropriate.
(d) Use its reasonable best efforts to prevent the issuance of
any order suspending the effectiveness of a Registration Statement or of any
order preventing or suspending the use of a Prospectus or suspending the
qualification (or exemption from qualification) of any of the Registrable
Securities for sale in any jurisdiction, and, if any such order is issued, to
use its reasonable best efforts to obtain the withdrawal of any such order at
the earliest possible moment.
(e) If requested by the managing underwriter or underwriters
(if any), or the Holders of a majority of shares of Registrable Securities (on
an as-converted basis and taken together as a single class) being sold in
connection with an underwritten offering, if any, (i) promptly incorporate in a
prospectus supplement or post-effective amendment such information as the
managing underwriter or underwriters (if any), such Holders, or its counsel
determine is reasonably necessary to be included therein and (ii) make all
required filings of such prospectus supplement or such post-effective amendment
as soon as practicable after the Company has received notification of the
matters to be incorporated in such prospectus supplement or post-effective
amendment.
(f) Furnish to each selling Holder of Registrable Securities
who so requests in writing and to counsel and each managing underwriter, if any,
at the sole expense of the Company, one conformed copy of the Registration
Statement or Registration Statements and each post-effective amendment thereto,
including financial statements and schedules, and, if requested in writing, all
documents incorporated or deemed to be incorporated therein by reference and all
exhibits.
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(g) Deliver to each selling Holder of Registrable Securities,
its respective counsel, and the underwriters, if any, at the sole expense of the
Company, as many copies of the Prospectus (including each form of preliminary
prospectus) and each amendment or supplement thereto and any documents
incorporated by reference therein as such Persons may reasonably request in
writing; and, subject to the last paragraph of this Section 5, the Company
hereby consents to the use of such Prospectus and each amendment or supplement
thereto by each of the selling Holders of Securities and the underwriters or
agents, if any, and dealers (if any), in connection with the offering and sale
of the Registrable Securities covered by, such Prospectus and any amendment or
supplement thereto.
(h) Prior to any public offering of Registrable Securities, to
use its reasonable best efforts to register or qualify, and to cooperate with
the selling Holders of Registrable Securities, the managing underwriter or
underwriters, if any, and their respective counsel in connection with the
registration or qualification (or exemption from such registration or
qualification) of such Registrable Securities for offer and sale under the
securities or Blue Sky laws of such jurisdictions within the United States as
any selling Holder, or the managing underwriter shall reasonably request;
provided, however, that where Registrable Securities are offered other than
through an underwritten offering, the Company agrees to cause the Company's
counsel to perform Blue Sky investigations, if necessary, and file registrations
and qualifications required to be filed pursuant to this Section 5(h); keep each
such registration or qualification (or exemption therefrom) effective during the
period such Registration Statement is required to be kept effective and do any
and all other acts or things reasonably necessary or advisable to enable the
disposition in such jurisdictions of the Registrable Securities covered by the
Registration Statement; provided, however, that the Company shall not be
required to qualify as a foreign corporation or to execute a general consent to
service of process in any jurisdiction or be subject to taxation in any
jurisdiction in which it is not so subject.
(i) Cooperate with the selling Holders of Registrable
Securities and the managing underwriter or underwriters, if any, to facilitate
the timely preparation and delivery of certificates representing Registrable
Securities to be sold, which certificates shall not bear any restrictive legends
and shall be in a form eligible for deposit with The Depository Trust Company;
and enable such Registrable Securities to be in such denominations and
registered in such names as the managing underwriter or underwriters, if any, or
Holders may reasonably request.
(j) Use its reasonable best efforts to cause the Registrable
Securities covered by the Registration Statement to be registered with or
approved by such other governmental agencies or authorities as may be necessary
to enable the seller or sellers thereof or the underwriter or underwriters, if
any, to consummate the disposition of such Registrable Securities in the United
States except as may be required solely as a consequence of the nature of such
selling Holder's business, in which case the Company will cooperate in all
reasonable respects with the filing of such Registration Statement and the
granting of such approvals.
(k) Upon the occurrence of any event contemplated by paragraph
5(c)(v) or 5(c)(vi) hereof, as promptly as practicable prepare and (subject to
Sections 3(d) and 5(a) hereof)
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file with the SEC, at the sole expense of the Company, a supplement or
post-effective amendment to the Registration Statement or a supplement to the
related Prospectus or any document incorporated or deemed to be incorporated
therein by reference, or file any other required document so that, as thereafter
delivered to the purchasers of the Registrable Securities being sold thereunder,
any such Prospectus will not contain an untrue statement of a material fact or
omit to state a material fact required to be stated therein or necessary to make
the statements therein, in the light of the circumstances under which they were
made, not misleading.
(l) Prior to the effective date of the first Registration
Statement relating to the Registrable Securities, (i) provide the Transfer Agent
with certificates for the Registrable Securities (if any) in a form eligible for
deposit with The Depository Trust Company and (ii) provide CUSIP numbers for the
Registrable Securities.
(m) In connection with an underwritten offering, if any, of
Registrable Securities pursuant to a Shelf Registration, enter into an
underwriting agreement as is customary for the managing underwriter or
underwriters in underwritten offerings of securities similar to the Preferred
Stock and Common Stock and take all such other actions as are reasonably
requested by the managing underwriter or underwriters in order to expedite or
facilitate the registration or the disposition of such Registrable Securities
and, in such connection, (i) make such representations and warranties to, and
covenants with, the underwriters with respect to the business of the Company and
its subsidiaries (including any acquired business, properties or entity, if
applicable) and the Registration Statement, Prospectus and documents, if any,
incorporated or deemed to be incorporated by reference therein, in each case, as
are customarily requested by the managing underwriter or underwriters to be made
by issuers to underwriters in underwritten offerings of securities similar to
the Preferred Stock and Common Stock, and confirm the same in writing if and
when requested; (ii) obtain the written opinion of counsel to the Company and
written updates thereof in form, scope and substance reasonably satisfactory to
the managing underwriter or underwriters, addressed to the underwriters covering
the matters customarily covered in opinions requested in underwritten offerings
of securities similar to the Preferred Stock and Common Stock and such other
matters as may be reasonably requested by the managing underwriter or
underwriters; (iii) if entitled, obtain "cold comfort" letters and updates
thereof in form, scope and substance reasonably satisfactory to the managing
underwriter or underwriters from the independent certified public accountants of
the Company (and, if necessary, any other independent certified public
accountants of any subsidiary of the Company or of any business acquired by the
Company for which financial statements and financial data are, or are required
to be, included or incorporated by reference in the Registration Statement),
addressed to each of the underwriters, such letters to be in customary form and
covering matters of the type customarily covered in "cold comfort" letters in
connection with underwritten offerings of securities similar to the Preferred
Stock and Common Stock and such other matters as reasonably requested by the
managing underwriter or underwriters; and (iv) if an underwriting agreement is
entered into, the same shall contain indemnification provisions and procedures
in customary form and covering matters customarily covered in connection with
underwritten offerings of securities similar to the Preferred Stock and Common
Stock with respect to all parties to be indemnified pursuant to said Section.
The above shall be done at each closing under such underwriting agreement, or as
and to the extent required thereunder.
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(n) Make available for inspection by any selling Holder of the
Registrable Securities being sold, the underwriter, if any, participating in any
such disposition of Registrable Securities, and any attorney, accountant or
other agent retained by any such selling Holder or underwriter (collectively,
the "Inspectors"), at the offices where normally kept, during reasonable
business hours, all financial and other records, pertinent corporate documents
and instruments of the Company and its subsidiaries (collectively, the
"Records") as shall be reasonably necessary to enable them to exercise any
applicable due diligence responsibilities, and cause the officers, directors and
employees of the Company and its subsidiaries to supply all information
reasonably requested by any such Inspector in connection with such Registration
Statement; provided, however, that Records that the Company determines, in good
faith, to be confidential and which Records the Company notifies the Inspectors
are confidential shall not be disclosed by the Inspectors unless (A) the
Inspector provides prior written notice to the Company of such disclosure and
(B)(i) the disclosure of such Records is necessary to avoid or correct a
misstatement or omission in such Registration Statement, (ii) the release of
such Records is ordered pursuant to a subpoena or other order from a court of
competent jurisdiction, (iii) disclosure of such information is, in the
reasonable opinion of counsel for any Inspector, necessary or advisable in
connection with any action, claim, suit or proceeding, directly or indirectly,
involving or potentially involving such Inspector and arising out of, based
upon, relating to, or involving this Agreement or any transactions contemplated
hereby or arising hereunder or (iv) the information in such Records has been
made generally available to the public (other than as a result of an
impermissible disclosure or failure to safeguard by the Inspectors). Each
selling holder of Registrable Securities will be required to agree that
information obtained by it as a result of such inspections shall be deemed
confidential and shall not be used by it as the basis for any market
transactions in the securities of the Company unless and until such information
is generally available to the public (other than as a result of an impermissible
disclosure or failure to safeguard by such person). Each selling Holder of
Registrable Securities will be required to further agree that it will, upon
learning that disclosure of such Records is sought in a court of competent
jurisdiction, give notice to the Company and allow the Company to undertake
appropriate action to prevent disclosure of the Records deemed confidential at
the Company's sole expense.
(o) Comply with all applicable rules and regulations of the
SEC and make generally available to its securityholders earning statements
satisfying the provisions of Section 11(a) of the Securities Act and Rule 158
thereunder (or any similar rule promulgated under the Securities Act) no later
than 45 days after the end of any 12-month period (or 90-days after the end of
any 12-month period if such period is a fiscal year) commencing on the first day
of the first fiscal quarter of the Company after the effective date of a
Registration Statement, which statements shall cover said 12-month periods.
(p) Cooperate with each seller of Registrable Securities
covered by any Registration Statement and each underwriter, if any,
participating in the disposition of such Registrable Securities and their
respective counsel in connection with the filings, if any, required to be made
with the National Association of Securities Dealers, Inc. (the "NASD").
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(q) Use its reasonable best efforts to take all other steps
necessary or advisable to effect the registration of the Registrable Securities
covered by a Registration Statement contemplated hereby.
(r) Use its reasonable best efforts to have the shares of
Common Stock issued upon conversion of the Preferred Stock listed on any
national securities exchange or quotation system on or through which the
Company's Common Stock is then listed or admitted to trading.
In any underwritten public offering, the underwriters that
will administer the offering will be selected by Huff (if it is participating in
such offering) or (if Huff is not so participating) by the Holders of a majority
of the Registrable Securities (on an as-converted basis and taken together as a
single class) participating in such offering (Huff or such other Holders, the
"Majority Holders") with the prior written consent of the Company which consent
shall not be unreasonably withheld. No Holder of Registrable Securities may
participate in an underwritten public offering hereunder unless such Holder (a)
agrees to sell such Holder's Registrable Securities on the basis provided in any
underwriting agreements approved by the Majority Holders included in such
offering and (b) completes and executes all customary and appropriate
questionnaires, powers of attorney, indemnities, underwriting agreements and
other documents required under the terms of such underwriting agreements.
The Company may require each seller of Registrable Securities
as to which any registration is being effected to furnish to the Company such
information regarding such seller and the distribution of such Registrable
Securities as the Company may, from time to time, reasonably request. The
Company may exclude from such registration the Registrable Securities of any
seller who fails to furnish such information within 20 business days after
receiving such request. Each seller as to which any Shelf Registration is being
effected agrees to furnish promptly to the Company all information required to
be disclosed in order to make the information previously furnished to the
Company by such seller not materially misleading.
Each Holder of Registrable Securities agrees by acquisition of
such Registrable Securities, that, upon actual receipt of any notice from the
Company of the happening of any event of the kind described in Section 5(c)(ii),
5(c)(iv), 5(c)(v), or 5(c)(vi) hereof, such Holder will forthwith discontinue
disposition of such Registrable Securities covered by such Registration
Statement or Prospectus to be sold by such Holder until such Holder's receipt of
the copies of the supplemented or amended Prospectus contemplated by Section
5(k) hereof, or until it is advised in writing (the "Advice") by the Company
that the use of the applicable Prospectus may be resumed, and has received
copies of any amendments or supplements thereto.
6. Registration Expenses
(a) All fees and expenses incident to the performance of or
compliance with this Agreement by the Company shall be borne by the Company
whether or not a Shelf Registration is filed or becomes effective.
Notwithstanding the foregoing, the Holders of any shares of Registrable
Securities being registered shall pay all underwriting discounts, commissions
and placement agent fees attributable to the sale of their securities.
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(b) The Company shall reimburse the Holders of the Registrable
Securities being registered in a Shelf Registration for the reasonable fees and
disbursements for one counsel (in addition to appropriate local counsel) chosen
by the Holders of a majority of the Registrable Securities (on an as-converted
basis and taken together as a single class), all such reasonable fees and
expenses not to exceed $50,000 in the aggregate.
7. Indemnification
(a) The Company agrees to indemnify and hold harmless each
Holder of shares of Registrable Securities and its affiliates, the officers,
directors, employees, members, partners (whether general or limited) and agents
of each such Person, and each Person, if any, who controls any such Person
within the meaning of either Section 15 of the Securities Act or Section 20 of
the Exchange Act and the officers, directors, employees, members, partners
(whether general or limited) and agents of each such control Person (each, a
"Participant"), from and against any and all losses, claims, damages, expenses,
penalties, costs of investigation and other liabilities (including, without
limitation, the reasonable legal fees and other expenses actually incurred in
connection with any suit, action or proceeding or any claim asserted and whether
or not such Participant is a party to any action or proceeding out of which such
expenses arise) (collectively, "Losses") caused by, arising out of or based upon
the Company's breach of any material obligation or covenant in this Agreement,
any untrue statement or alleged untrue statement of a material fact contained in
any Registration Statement (or any amendment thereto) or Prospectus (as amended
or supplemented if the Company shall have furnished any amendments or
supplements thereto) or any preliminary prospectus, or caused by, arising out of
or based upon any omission or alleged omission to state therein a material fact
required to be stated therein or necessary to make the statements therein, in
the light of the circumstances under which they were made, not misleading,
except insofar as such Losses are caused by any untrue statement or omission or
alleged untrue statement or omission made in reliance upon and in conformity
with information relating to any Participant furnished to the Company in writing
by such Participant expressly for use therein; provided, however, that the
Company will not be required to indemnify a Participant (A) if such untrue
statement or omission or alleged untrue statement or omission was contained or
made in any preliminary prospectus and corrected in the Prospectus or any
amendment or supplement thereto and it is established in the related proceeding
that such Participant failed to deliver or provide a copy of the Prospectus (as
amended or supplemented) to such Person with or prior to the confirmation of the
sale of such Registrable Securities sold to such Person if required by
applicable law, unless such failure to deliver or provide a copy of the
Prospectus (as amended or supplemented) shall have been determined by a court of
competent jurisdiction by final and non-appealable judgment (or stipulated in a
settlement agreement reached by all parties involved in any action or proceeding
related to such claim) to have been the result of noncompliance by the Company
with this Agreement or (B) if (i) such Participant disposed of Registrable
Securities to the Person asserting a claim (based on an untrue statement or
alleged untrue statement or omission or alleged omission) pursuant to a Shelf
Registration and sent or delivered, or was required by law to send or deliver, a
Prospectus to such Person in connection with such disposition, and (ii) such
Participant actually received a Suspension Notice or other notice referred to in
the penultimate paragraph of Section 5 prior to the date of such disposition and
(iii) such untrue statement or
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alleged untrue statement or omission or alleged omission was the reason for the
Suspension Notice or other notice referred in such penultimate paragraph of
Section 5.
(b) Each Participant agrees, severally and not jointly, to
indemnify and hold harmless the Company, its directors and officers who sign the
Registration Statement and each Person who controls the Company within the
meaning of Section 15 of the Securities Act or Section 20 of the Exchange Act to
the same extent as the foregoing indemnity from the Company to each Participant,
but only (i) for Losses actually incurred by such Persons to the extent such
Losses are based on information relating to such Participant furnished to the
Company in writing by such Participant expressly for use in any Registration
Statement or Prospectus, any amendment or supplement thereto or any preliminary
prospectus or (ii) with respect to any untrue statement or representation made
by such Participant in writing to the Company. The liability of any Participant
under this paragraph shall in no event exceed the proceeds received by such
Participant from sales of its Registrable Securities under the relevant
Registration Statement or Prospectus.
(c) If any suit, action, proceeding (including any
governmental or regulatory investigation), claim or demand shall be brought or
asserted against any Person in respect of which indemnity may be sought pursuant
to either of the two preceding paragraphs, such Person (the "Indemnified
Person") shall promptly notify the Person against whom such indemnity may be
sought (the "Indemnifying Person") in writing, and the Indemnifying Person, upon
request of the Indemnified Person, shall retain counsel reasonably satisfactory
to the Indemnified Person to represent the Indemnified Person and any others the
Indemnifying Person may reasonably designate in such proceeding and shall pay
the reasonable fees and expenses actually incurred by such counsel related to
such proceeding; provided, however, that the failure to so notify the
Indemnifying Person shall not relieve it of any obligation or liability which it
may have hereunder or otherwise (unless and to the extent such Indemnifying
Person has been materially prejudiced by such failure, including, without
limitation, that such failure results in the forfeiture by the Indemnifying
Person of substantial rights and defenses). In any such proceeding, any
Indemnified Person shall have the right to retain its own counsel, but the fees
and expenses of such counsel shall be at the expense of such Indemnified Person
unless (i) the Indemnifying Person and the Indemnified Person shall have
mutually agreed in writing to the contrary, (ii) the Indemnifying Person has
failed to retain counsel reasonably satisfactory to the Indemnified Person and
has assumed the Indemnified Person's defense in a timely fashion or (iii) the
named parties in any such proceeding (including any impleaded parties) include
both the Indemnifying Person and the Indemnified Person and the Indemnified
Person shall have been advised by counsel that the Indemnified Person may have
available to it different defenses that those available to the Indemnifying
Person or that representation of both parties by the same counsel would be
inappropriate under applicable standards of professional conduct due to
differing interests between them. It is understood that, unless there exists a
conflict among Indemnified Persons as described in the immediately preceding
sentence, the Indemnifying Person shall not, in connection with any one such
proceeding or separate but substantially similar related proceeding in the same
jurisdiction arising out of the same general allegations or circumstances, be
liable for the fees and expenses of more than one separate firm (in addition to
any local counsel) for all Indemnified Persons, and that all such fees and
expenses shall be advanced or
14
<PAGE> 18
reimbursed promptly as they are incurred. Any such separate firm for the
Participants shall be designated in writing by the Holders of a majority of the
Registrable Securities (on an as-converted basis and taken together as a single
class) and any such separate firm for the Company, its directors, its officers
and such control Persons of the Company shall be designated in writing by the
Company. The Indemnifying Person shall not be liable for any settlement of any
proceeding effected without its prior written consent (which consent shall not
be unreasonably withheld or delayed), but if settled with such consent or if
there be a final non-appealable judgment for the plaintiff for which the
Indemnified Person is entitled to indemnification pursuant to this Agreement,
the Indemnifying Person agrees to indemnify and hold harmless each Indemnified
Person from and against any loss or liability by reason of such settlement or
judgment. No Indemnifying Person shall, without the prior written consent of the
Indemnified Person, effect any settlement or compromise of any pending or
threatened proceeding in respect of which any Indemnified Person is or could
have been a party, or indemnity could have been sought hereunder by such
Indemnified Person, unless such settlement (A) includes an unconditional written
release of such Indemnified Person, in form and substance reasonably
satisfactory to such Indemnified Person, from all liability on claims that are
the subject matter of such proceeding and (B) does not include any statement as
to an admission of fault, culpability or failure to act by or on behalf of any
Indemnified Person.
(d) If the indemnification provided for in the first and
second paragraphs of this Section 7 is for any reason unavailable to, or
insufficient to hold harmless, an Indemnified Person in respect of any Losses
referred to therein, then each Indemnifying Person under such paragraphs, in
lieu of indemnifying such Indemnified Person thereunder and in order to provide
for just and equitable contribution, shall contribute to the amount paid or
payable by such Indemnified Person as a result of such Losses in such proportion
as is appropriate to reflect (i) the relative benefits received by the
Indemnifying Person or Persons on the one hand and the Indemnified Person or
Persons on the other from the offering of the Registrable Securities or (ii) if
the allocation provided by the foregoing clause (i) is not permitted by
applicable law, not only such relative benefits but also the relative fault of
the Indemnifying Person or Persons on the one hand and the Indemnified Person or
Persons on the other in connection with the statements or omissions or alleged
statements or omissions that resulted in such losses, claims, damages or
liabilities (or actions in respect thereof) as well as any other relevant
equitable considerations. The relative fault of the parties shall be determined
by reference to, among other things, whether the untrue or alleged untrue
statement of a material fact or the omission or alleged omission to state a
material fact relates to information supplied by the Company on the one hand or
such Participant or such other Indemnified Person in writing expressly for use
in the relevant Registration Statement, as the case may be, on the other, the
parties' relative intent, knowledge, access to information and opportunity to
correct or prevent such statement or omission, and any other equitable
considerations appropriate in the circumstances. The liability of any
Participant under this paragraph shall in no event exceed the proceeds received
by such Participant from sales of its Registrable Securities under the relevant
Registration Statement or Prospectus.
(e) The parties agree that it would not be just and equitable
if contribution pursuant to this Section 7 were determined by pro rata
allocation (even if the Participants were treated as one entity for such
purpose) or by any other method of allocation that does not take
15
<PAGE> 19
account of the equitable considerations referred to in the immediately preceding
paragraph. The amount paid or payable by an Indemnified Person as a result of
the losses, claims, damages and liabilities referred to in the immediately
preceding paragraph shall be deemed to include, subject to the limitations set
forth above, any reasonable legal or other expenses actually incurred by such
Indemnified Person in connection with investigating or defending any such action
or claim. Notwithstanding the provisions of this Section 7, in no event shall a
Participant be required to contribute any amount in excess of the amount by
which proceeds received by such Participant from sales of Registrable Securities
exceeds the amount of any Losses that such Participant has otherwise been
required to pay or has paid by reason of such untrue or alleged untrue statement
or omission or alleged omission. No Person guilty of fraudulent
misrepresentation (within the meaning of Section 11(f) of the Securities Act)
shall be entitled to contribution from any Person who was not guilty of such
fraudulent misrepresentation.
(f) The indemnity and contribution agreements contained in
this Section 7 will be in addition to any liability that the Indemnifying
Persons may otherwise have to the Indemnified Persons referred to above.
8. Rule 144
So long as any shares of Registrable Securities are
outstanding, the Company will provide to holders of the Registrable Securities
and file with the SEC copies of the annual reports and any of the information,
documents and other reports that the Company would have been required to file
with the SEC pursuant to Sections 13 or 15(d) of the Exchange Act regardless of
whether the Company is obligated to file such reports. The Company further
covenants for so long as any Registrable Securities remain outstanding, to make
available to any Holder or beneficial owner of Registrable Securities in
connection with any sale thereof and any prospective purchaser of such
Registrable Securities from such Holder or beneficial owner, the information
required by Rule 144(c) under the Securities Act in order to permit resales of
such Registrable Securities pursuant to Rule 144.
9. Miscellaneous
(a) Subsequent Purchaser. Each party who enters into a
purchase agreement from time to time with the Company as an additional purchaser
of the Additional Preferred Stock shall execute a counterpart to this Agreement
and shall be deemed a Subsequent Purchaser. Such party shall be bound by all
relevant terms and provisions contained herein pertaining to a Subsequent
Purchaser and shall have all the rights and privileges contained herein granted
to a Subsequent Purchaser; notwithstanding the foregoing, such party may also be
a Holder bound by all relevant terms and provisions pertaining hereto and having
all the rights and privileges pertaining hereto.
(b) No Inconsistent Agreements. The Company shall not, after
the date of this Agreement, enter into any agreement with respect to any of its
securities that conflicts with the provisions hereof.
16
<PAGE> 20
(c) Amendments and Waivers. The provisions of this Agreement
may not be amended, modified or supplemented, and waivers or consents to
departures from the provisions hereof may not be given, otherwise than with the
prior written consent of the Holders of not less than a majority of the then
outstanding shares of Registrable Securities (on an as-converted basis and taken
together as a single class); provided, however, that the definition of
Registrable Securities, Sections 7 and 8 and this Section 9(c) may not be
amended, modified or supplemented without the prior written consent of each
Holder (including, for purposes of Section 7 only, any person who was a Holder
of Registrable Securities disposed of pursuant to any Registration Statement).
Notwithstanding the foregoing, a waiver or consent to depart from the provisions
of this Agreement (other than the definition of Registrable Securities, Sections
7 and 8 and this Section 9(c)) with respect to a matter that relates exclusively
to the rights of Holders of Registrable Securities whose securities are being
sold pursuant to a Registration Statement and that does not directly or
indirectly affect, impair, limit or compromise the rights of other Holders of
Registrable Securities may be given by Holders of at least a majority of shares
of the Registrable Securities (on an as-converted basis and taken together as a
single class) being sold by such Holders pursuant to such Registration
Statement. Any amendment, modification or supplement to this Agreement which is
favorable to Huff and does not treat all Holders uniformly shall apply equally
to Greenwich.
(d) Notices. All notices and other communications provided for
or permitted hereunder shall be made in writing by hand-delivery, registered
first-class mail, next-day air courier or facsimile:
1. if to a Holder of Registrable Securities, at the most
current address of such Holder on the stock books of the Company with a
copy in like manner to the Initial Purchasers as follows:
The Huff Alternative Income Fund L.P.
1776 On the Green
67 Park Place
Morristown, NJ 07960
Facsimile No: (973) 984-5818
Attention: Joseph Thornton, Esq.
with a copy to:
Proskauer Rose LLP
1585 Broadway
New York, NY 10036
Facsimile No: (212) 969-2900
Attention: Peter G. Samuels, Esq.
- and -
17
<PAGE> 21
Greenwich Street Capital Partners II, L.P.
GSCP Offshore Fund, L.P.
Greenwich Fund, L.P.
Greenwich Street Employees Fund, L.P.
TRV Executive Fund, L.P.
c/o Greenwich Street Investments II, L.L.C.,
General Partner
388 Greenwich Street
New York, NY 10010
Facsimile No.: (212) 816-0166
Attention: Matthew Kaufman
with a copy to:
Weil, Gotshal & Manges LLP
767 Fifth Avenue
New York, NY 10153
Facsimile No.: (212) 310-8007
Attention: Michael Nissan, Esq.
2. if to the Company, at the address as follows:
e.spire Communications, Inc.
12975 Worldgate Drive
Herndon, VA 21070
Facsimile No: (703) 639-6023
Attention: Riley M. Murphy, Esq.
with a copy to:
Davis, Polk & Wardwell
450 Lexington Avenue
New York, NY 10017
Facsimile No.: (212) 450-4300
Attention: Richard Drucker, Esq.
All such notices and communications shall be deemed to have
been duly given: when delivered by hand, if personally delivered; five business
days after being deposited in the mail, postage prepaid, if mailed; one business
day after being timely delivered to a next-day air courier; and when receipt is
acknowledged by the addressee, if sent by facsimile.
(e) Successors and Assigns. This Agreement shall inure to the
benefit of and be binding upon the successors and assigns of each of the parties
hereto, including the Holders; provided, however, that this Agreement shall not
inure to the benefit of or be binding upon a
18
<PAGE> 22
successor or assign of a Holder unless and to the extent such successor or
assign holds Registrable Securities.
(f) Counterparts. This Agreement may be executed in any number
of counterparts and by the parties hereto in separate counterparts, each of
which when so executed shall be deemed to be an original and all of which taken
together shall constitute one and the same agreement. Any counterpart executed
by a Subsequent Purchaser shall, when so executed, be deemed to be an original
and, taken together with all other counterparts executed in connection with this
Agreement, shall constitute one and the same agreement.
(g) Headings. The headings in this Agreement are for
convenience of reference only and shall not limit or otherwise affect the
meaning hereof.
(h) Governing Law. THIS AGREEMENT SHALL BE GOVERNED BY AND
CONSTRUED IN ACCORDANCE WITH THE LAWS OF THE STATE OF NEW YORK, AS APPLIED TO
CONTRACTS MADE AND PERFORMED WHOLLY WITHIN THE STATE OF NEW YORK, WITHOUT REGARD
TO PRINCIPLES OF CONFLICTS OF LAW. EACH OF THE PARTIES HERETO AGREES TO SUBMIT
TO THE JURISDICTION OF THE COURTS OF THE STATE OF NEW YORK IN ANY ACTION OR
PROCEEDING ARISING OUT OF OR RELATING TO THIS AGREEMENT.
(i) Severability. If any term, provision, covenant or
restriction of this Agreement is held by a court of competent jurisdiction to be
invalid, illegal, void or unenforceable, the remainder of the terms, provisions,
covenants and restrictions set forth herein shall remain in full force and
effect and shall in no way be affected, impaired or invalidated, and the parties
hereto shall use their reasonable best efforts to find and employ an alternative
means to achieve the same or substantially the same result as that contemplated
by such term, provision, covenant or restriction. It is hereby stipulated and
declared to be the intention of the parties that they would have executed the
remaining terms, provisions, covenants and restrictions without including any of
such that may be hereafter declared invalid, illegal, void or unenforceable.
(j) Securities Held by the Company. Whenever the consent or
approval of Holders of a specified percentage of shares of Registrable
Securities is required hereunder, Registrable Securities held by the Company or
its subsidiaries shall not be counted in determining whether such consent or
approval was given by the Holders of such required percentage.
(k) Third Party Beneficiaries. Holders of Registrable
Securities and Participants are intended third party beneficiaries of this
Agreement and this Agreement may be enforced by such Persons.
(l) Entire Agreement. This Agreement, together with the
Purchase Agreements and any purchase agreement entered into between the
Subsequent Purchasers and the Company in connection with the issuance and sale
of Additional Preferred Stock, are intended by the parties as a final and
exclusive statement of the agreement and understanding of the parties
19
<PAGE> 23
hereto in respect of the subject matter contained herein and therein and any and
all prior oral or written agreements, representations, or warranties, contracts,
understandings, correspondence, conversations and memoranda between the
Purchasers on the one hand and the Company on the other, or between or among any
agents, representatives, parents, subsidiaries, affiliates, predecessors in
interest or successors in interest with respect to the subject matter hereof and
thereof are merged herein and replaced hereby.
20
<PAGE> 24
IN WITNESS WHEREOF, the parties have executed this Agreement
as of the date first written above.
E.SPIRE COMMUNICATIONS, INC.
By:
--------------------------------------
Name:
Title:
THE HUFF ALTERNATIVE INCOME FUND, L.P.
By:
--------------------------------------
Name:
Title:
GREENWICH STREET CAPITAL PARTNERS II,
L.P.
By: Greenwich Street Investors II, L.L.C.,
general partner
By:
--------------------------------------
Name:
Title:
GSCP OFFSHORE FUND L.P.
By: Greenwich Street Investors II, L.L.C.,
general partner
By:
--------------------------------------
Name:
Title:
GREENWICH FUND, L.P.
By: Greenwich Street Investors II, L.L.C.,
general partner
By:
--------------------------------------
Name:
Title:
<PAGE> 25
GREENWICH STREET EMPLOYEES FUND, L.P.
By: Greenwich Street Investors II, L.L.C.,
general partner
By:
--------------------------------------
Name:
Title:
TRV EXECUTIVE FUND, L.P.
By: Greenwich Street Investors II, L.L.C.,
general partner
By:
--------------------------------------
Name:
Title:
<PAGE> 26
Subsequent Purchaser: THE HONEYWELL INTERNATIONAL INC.
MASTER RETIREMENT TRUST
By: Northern Trust Company,
as trustee
By:
--------------------------------------
Name:
Title:
23
<PAGE> 1
EXHIBIT 10.52
WARRANT AGREEMENT
AMONG
E.SPIRE COMMUNICATIONS, INC.,
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.,
TRV EXECUTIVE FUND, L.P. AND
SUCH OTHER PARTIES AS MAY BECOME SIGNATORIES HERETO
DATED AS OF MARCH 1, 2000
<PAGE> 2
TABLE OF CONTENTS
<TABLE>
<CAPTION>
Page
<S> <C>
ARTICLE I
CERTAIN DEFINITIONS......................................................................................2
Section 1.1. Certain Definitions.................................................................................2
ARTICLE II
ORIGINAL ISSUE OF WARRANTS...............................................................................8
Section 2.1. Form of Warrant Certificates and Dating.............................................................8
Section 2.2. Legends.............................................................................................8
ARTICLE III
EXERCISE OF WARRANTS.....................................................................................9
Section 3.1. Exercise Price......................................................................................9
Section 3.2. Exercise; Restrictions on Exercise; Expiration......................................................9
Section 3.3. Method of Exercise; Payment of Exercise Price......................................................10
ARTICLE IV
ADJUSTMENTS.............................................................................................12
Section 4.1 Adjustments........................................................................................12
Section 4.2. Notice of Adjustment...............................................................................18
Section 4.3. Statement on Warrants..............................................................................18
Section 4.4. Notice of Consolidation, Merger or Sale of Assets..................................................18
Section 4.5. Fractional Interests...............................................................................19
Section 4.6. No Dilution or Impairment..........................................................................19
Section 4.7. No Adjustments for Certain Issuances...............................................................19
ARTICLE V
DECREASE IN EXERCISE PRICE..............................................................................19
Section 5.1. Exercise Price.....................................................................................19
ARTICLE VI
RESERVATION AND AUTHORIZATION OF COMMON SHARES..........................................................20
Section 6.1. Reservation and Authorization......................................................................20
Section 6.2. Covenant Regarding Securities......................................................................20
Section 6.3. Registration.......................................................................................20
ARTICLE VII
WARRANT TRANSFER BOOKS; RESTRICTIONS ON TRANSFER........................................................21
Section 7.1. Transfer and Exchange..............................................................................21
Section 7.2. Special Transfer Provisions........................................................................22
</TABLE>
i
<PAGE> 3
<TABLE>
<S> <C>
Section 7.3. Surrender of Warrant Certificates..................................................................22
Section 7.4. Rule 144 and Rule 144A Information.................................................................23
ARTICLE VIII
HOLDERS.................................................................................................23
Section 8.1. Holder Not Deemed a Stockholder....................................................................23
Section 8.2. Right of Action....................................................................................23
ARTICLE IX
REGISTRATION RIGHTS.....................................................................................23
Section 9.1. Intentionally omitted..............................................................................23
Section 9.2. Warrant Shelf Registration Statement...............................................................24
(b) Subsequent Shelf Registrations........................................................................24
(d) Suspension of Shelf Registration......................................................................25
(e) Deferral Period.......................................................................................25
ARTICLE X
MISCELLANEOUS...........................................................................................35
Section 10.1. Loss or Mutilation................................................................................35
Section 10.2. Payment of Taxes..................................................................................35
Section 10.3. No Merger, Consolidation or Sale of Assets or the Company.........................................35
Section 10.4. Reports to Holders................................................................................36
Section 10.5. Notices...........................................................................................36
Section 10.6. Subsequent Purchaser..............................................................................37
Section 10.7. Governing Law.....................................................................................38
Section 10.8. Headings..........................................................................................38
Section 10.9. Severability......................................................................................38
Section 10.10. Amendment; Waiver................................................................................38
Section 10.11. No Inconsistent Agreements.......................................................................38
Section 10.12. Counterparts.....................................................................................38
EXHIBIT A
FORM OF WARRANT........................................................................................A-1
WARRANTS TO PURCHASE SHARES OF COMMON STOCK.....................................................................A-1
FORM OF REVERSE OF WARRANT......................................................................................A-4
FORM OF ASSIGNMENT..............................................................................................A-5
</TABLE>
ii
<PAGE> 4
WARRANT AGREEMENT
This WARRANT AGREEMENT (the "Agreement") is dated as of March 1,
2000, among e.spire Communications, Inc., a Delaware corporation (the
"Company"), The Huff Alternative Income Fund, L.P. ("Huff"), 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.
(collectively, "Greenwich", and collectively with Huff, the "Initial
Purchasers") and such other parties who may be made a signatory hereto from time
to time (the "Subsequent Purchasers," and, collectively with the Initial
Purchasers, the "Purchasers").
WHEREAS, concurrently herewith, the Company has entered into the
(i) Purchase Agreement, dated the date hereof with Huff (the "Huff Purchase
Agreement"), pursuant to which the Company has agreed to issue and sell to Huff
an aggregate of 100,000 Units (as defined herein), and (ii) Purchase Agreement,
dated the date hereof with Greenwich (the "Greenwich Purchase Agreement," and,
collectively with the Huff Purchase Agreement, the "Purchase Agreements"),
pursuant to which the Company has agreed to issue and sell to Greenwich an
aggregate of 25,000 Units.
WHEREAS, each Unit consisting of (i) one (1) share of Series A
Convertible Preferred Stock, par value $1.00 per share (the "Initial Preferred
Stock"), initially convertible into 126.42225 shares of Common Stock (as defined
herein) at an initial conversion price of $7.91 per share, subject to
adjustments as set forth herein, and (ii) one (1) warrant (the "Initial
Warrant"), initially exercisable to purchase an aggregate of 44.1 shares of
Common Stock (the "Initial Warrant Shares"), at the Initial Warrant Exercise
Price (as defined herein) per Initial Warrant Share, subject to adjustment as
set forth herein. The Preferred Stock and the Initial Warrants will trade
separately at all times.
WHEREAS, in addition to the sale of the Units to the Initial
Purchasers, the Company has agreed to use its reasonable efforts to sell to
other purchasers (which purchasers will exclude the Initial Purchasers)
acceptable to the Company's Board of Directors up to $125 million of additional
Units consisting of preferred stock (the "Additional Preferred Stock, and,
collectively with the Initial Preferred Stock, the "Preferred Stock") and
warrants (the "Additional Warrants") on the same (or, as provided in the
Purchase Agreements, more favorable to the Company) terms and conditions set
forth in the Purchase Agreements.
WHEREAS, pursuant to Section 6 (d)(iv) of each of the Purchase
Agreements, Huff and Greenwich may also be entitled to receive, without further
consideration, 25,000 and 6,250 additional warrants, respectively (collectively,
the "Change of Control Warrants"), upon the occurrence of certain conditions set
forth in each of the Purchase Agreements.
In consideration of the foregoing and of the agreements entered
into in connection with the Purchase Agreements, and for the purpose of defining
the term and provisions of the
<PAGE> 5
Warrants and the respective rights and obligations thereunder of the Company and
the Purchasers, the Company and the Purchasers hereby agree as follows:
ARTICLE I
CERTAIN DEFINITIONS
Section 1.1. Certain Definitions. For all purposes of this
Agreement, except as otherwise expressly provided:
(1) the terms defined in this Article have the meanings
assigned to them in this Article, and include the plural as well as the
singular;
(2) the words "herein," "hereof" and "hereunder" and other
words of similar import refer to this Agreement as a whole and not to any
particular Article, Section or other subdivision;
(3) "or" is not exclusive; and
(4) "including" means including without limitation.
"Additional Preferred Stock" has the meaning set forth in the
recitals hereto.
"Additional Warrants" has the meaning set forth in the recitals
hereto.
"Additional Warrant Exercise Price" means the exercise price equal
to the Initial Warrant Exercise Price, subject to adjustment as set forth
herein.
"Additional Warrant Shares" means 44.1 shares of Common Stock
which a holder of one (1) Additional Warrant is entitled to purchase upon
exercise thereof, subject to adjustment as set forth herein.
"Advice" has the meaning set forth in Section 9.3 herein.
"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. 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.
2
<PAGE> 6
"Board of Directors" means the Board of Directors of the Company
or any committee thereof duly authorized to act on behalf of such Board.
"Board Resolution" means a duly adopted resolution of the Board of
Directors in full force and effect at the time of determination and certified as
such by the Secretary or any Assistant Secretary of the Company.
"Business Day" means each Monday, Tuesday, Wednesday, Thursday or
Friday that is not a day on which banking institutions in The City of New York
are authorized or obligated by law, executive order or regulation to close.
"Cashless Exercise" has the meaning set forth in Section 3.3(a)
herein.
"Change of Control Warrants" has the meaning set forth in the
recitals hereto.
"Change of Control Warrant Exercise Price" means the exercise
price equal to the Initial Warrant Exercise Price, subject to adjustment as set
forth herein.
"Change of Control Warrant Shares" means 44.1 shares of Common
Stock which a holder of one (1) Change of Control Warrant is entitled to
purchase upon exercise thereof, subject to adjustment as set forth herein.
"Clearing Agency" has the meaning set forth in Section 3(a)(23) of
the Exchange Act.
"Commission" means the Securities and Exchange Commission.
"Common Stock" means the common stock, par value $.01 per share,
of the Company and any other capital stock into which shares of such common
stock may be converted or reclassified or that may be issued in respect of, in
exchange for, or in substitution of, such common stock by reason of any stock
splits, stock dividends, distributions, mergers, consolidations or other like
events.
"Company" means the party named as such in the preamble hereto
until a successor replaces it pursuant to the applicable provisions hereof and,
thereafter, means such successor.
"Current Market Value" has the meaning set forth in Section 4.1(f)
herein.
"Effectiveness Date" means the 90th day after the Filing Date.
"Effectiveness Period" has the meaning set forth in Section 9.2(a)
herein.
3
<PAGE> 7
"Exchange Act" means the Securities Exchange Act of 1934, as
amended, and the rules and regulations of the Commission promulgated thereunder.
"Exercise Price" means, (i) in the case of the Initial Warrants,
the Initial Warrant Exercise Price, subject to adjustment as set forth herein,
(ii) in the case of the Additional Warrants, the Additional Warrant Exercise
Price, subject to adjustment as set forth herein, (iii) in the case of the
Change of Control Warrants, the Change of Control Warrant Exercise Price,
subject to adjustment as set forth herein.
"Expiration Date" means the earlier of (i) the tenth anniversary
of the Issue Date or (ii) the occurrence of an event which causes the
termination of the terms under this Agreement.
"Deferral Period" has meaning set forth in Section 9.2(e) herein.
"Fair Value" has the meaning set forth in Section 4.1(d) herein.
"Filing Date" means the later of (i) the 60th day after the Issue
Date and (ii) if Additional Preferred Stock is being sold by the Company, the
15th day after the Final Closing (as such term is defined in the Purchase
Agreements).
"Financial Expert" means a nationally recognized investment
banking firm.
"Greenwich" has the meaning set forth in the preamble herein.
"Greenwich Purchase Agreement" has the meaning set forth in the
recitals herein.
"Holder" means the Person in whose name a Warrant Certificate is
registered in the Warrant Register or, in the case of the Registrable Securities
in Article IX of this Agreement, the holder of a Warrant and/or Warrant Shares.
"Huff" has the meaning set forth in the preamble herein.
"Huff Purchase Agreement" has the meaning set forth in the
recitals herein.
"Indemnified Person" has the meaning set forth in Section 9.5(c)
herein.
"Indemnifying Person" has the meaning set forth in Section 9.5(c)
herein.
"Independent Financial Expert" means, as of any date of
determination, a Financial Expert that has not been retained by the Company,
other than to perform an equity valuation, within the preceding twelve months of
such date of determination. The Independent Financial Expert may be compensated
and indemnified by the Company as customary for
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<PAGE> 8
opinions or services it provides as an Independent Financial Expert. The Company
shall bear all of the fees and expenses of the Independent Financial Expert.
"Initial Preferred Stock" has the meaning set forth in the
recitals herein.
"Initial Purchasers" has the meaning set forth in the preamble
herein.
"Initial Shelf Registration" has the meaning set forth in Section
9.2(a) herein.
"Inspectors" has the meaning set forth in Section 9.3(n).
"Initial Warrant" has the meaning set forth in the recitals
herein.
"Initial Warrant Exercise Price" means the exercise price of
$9.89, subject to adjustment as set forth herein.
"Initial Warrant Shares" has the meaning set forth in the preamble
herein.
"Initial Sale" has the meaning set forth in Section 9.5(d) herein.
"Issue Date" means the date of the original issuance of the
Warrants as set forth on the face of the Warrant Certificate.
"Majority Holders" means, as of any date of determination, the
holders holding a majority of the Warrants (on an as-converted basis) and
Warrant Shares then outstanding, taken together as one class.
"Managing Underwriters" means the investment banker or investment
bankers and manager or managers that shall administer an underwritten offering
under a Registration Statement.
"NASD" means the National Association of Securities Dealers, Inc.
"National Securities Exchange" shall mean any national securities
exchange and shall include The Nasdaq Stock Market System or any successor
market thereto.
"Participant" has the meaning set forth in Section 9.5(a) herein.
"Person" means any individual, corporation, partnership, joint
venture, trust, limited liability company, unincorporated organization or
government or any agency or political subdivision thereof.
"Preferred Stock" has the meaning set forth in the preamble
herein.
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<PAGE> 9
"Private Placement Legend" means the legend in the form set forth
in Section 2.2(a) herein.
"Prospectus" means the prospectus included in any Registration
Statement (including, without limitation, a prospectus that discloses
information previously omitted from a prospectus filed as part of an effective
registration statement in reliance upon Rule 430A under the Securities Act), as
amended or supplemented by any prospectus supplement, with respect to the terms
of the offering of any portion of the Warrants or the Warrant Shares covered by
such Registration Statement, and all amendments and supplements to the
Prospectus, including post-effective amendments.
"Purchase Agreements" has the meaning set forth in the recitals
herein.
"Purchasers" has the meaning set forth in the preamble herein.
"Records" has the meaning set forth in Section 9.3(n) herein.
"Registrable Securities" means the (A) Warrants and the Warrant
Shares and (B) any other securities issued by the Company in exchange for, as a
dividend on or in connection with a split of or other adjustment to the terms of
any such security in the foregoing clause (A); such securities shall cease to be
Registrable Securities on the date that is the earliest to occur of: (i) the
date on which any such security has been effectively registered under the
Securities Act and disposed of in accordance with a Registration Statement, (ii)
the date on which such security is distributed to the public pursuant to Rule
144 or is eligible for sale pursuant to Rule 144(k) under the Securities Act
(provided, however, that, for so long as (but only for so long as) a
Registration Statement remains in effect hereunder for Registrable Securities of
a Holder, no Registrable Securities of any other Holder shall cease to be
Registrable Securities solely because they are eligible for sale pursuant to
Rule 144(k)) and (iii) the date on which such security ceases to be outstanding.
"Registration Statement" means the Warrant Shelf Registration
Statement (or a successor registration statement thereto), amendments and
supplements to such registration statement, including post-effective amendments,
in each case including the Prospectus contained therein, all exhibits thereto,
and all material incorporated by reference therein.
"Rights" means rights, options or warrants for the purchase of, or
securities convertible into or exchangeable for, Common Stock.
"Rule 144" means Rule 144 under the Securities Act.
"Rule 144A" means Rule 144A under the Securities Act.
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<PAGE> 10
"Rule 415" means Rule 415 promulgated under the Securities Act, as
amended from time to time, or any similar rule adopted by the Commission.
"Securities Act" means the Securities Act of 1933, as amended, and
the rules and regulations of the Commission promulgated thereunder.
"Shelf Registration" has the meaning set forth in Section 9.2(b)
herein.
"Stock Decline" has the meaning set forth in Section 6(d)(ii) of
each of the Purchase Agreements.
"Stockholder Approval" has the meaning set forth in the Purchase
Agreements.
"Subsequent Purchasers" has the meaning set forth in the preamble
herein.
"Subsequent Shelf Registration" has the meaning set forth in
Section 9.2(b) herein.
"Suspension Notice" has the meaning set forth in Section 9.2(d).
"Suspension Period" has the meaning set forth in Section 9.2(d)
herein.
"Transfer Agent" means the Transfer Agent for the Warrants and
Warrant Shares.
"Units" means the units of Preferred Stock and Initial Warrants
issued and sold in connection with the Purchase Agreements.
"Valuation Date" means a date specified herein as of which the
Current Market Value of a security or property must be determined by an
Independent Financial Expert.
"Value Report" means a report prepared by an Independent Financial
Expert and delivered to the Board of Directors in accordance with Section 4.l(k)
hereof.
"Warrant Certificate" has the meaning set forth in Section 2.1
herein.
"Warrant Register" has the meaning set forth in Section 7.l(a)
herein.
"Warrant Shares" means, collectively, (i) the shares of Common
Stock issued upon the exercise of the Initial Warrants, (ii) the shares of
Common Stock issued upon the exercise of the Additional Warrants, if any, and
(iii) the shares of Common Stock issued upon the exercise of the Change of
Control Warrants, if any.
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<PAGE> 11
"Warrant Shelf Registration Period" has the meaning set forth in
Section 9.1(b) herein.
"Warrant Shelf Registration Statement" means a shelf registration
statement (or any successor registration statement thereto) relating to the
offer and sale of the Warrants and Warrant Shares by the holders thereof from
time to time in accordance with the methods of distribution elected by such
holders and set forth in such registration statement and Rule 415 under the
Securities Act.
"Warrants" means, collectively, (i) the Initial Warrants, (ii) the
Additional Warrants, if any, and (iii) the Change of Control Warrants, if any
and, more particularly, means any warrant(s) represented by a Warrant
Certificate and issued and delivered in connection with the Purchase Agreements
and this Agreement.
ARTICLE II
ORIGINAL ISSUE OF WARRANTS
Section 2.1. Form of Warrant Certificates and Dating. Any
certificate representing Warrants (each a "Warrant Certificate") shall have such
insertions as are appropriate or required or permitted by this Agreement and may
have such letters, numbers or other marks of identification and such legends and
endorsements stamped, printed, lithographed or engraved thereon, (i) as the
Company may deem appropriate and as are not inconsistent with the provisions of
this Agreement, (ii) such as may be required to comply with this Agreement, any
law or with any rule of any securities exchange on which the Warrants may be
listed, and (iii) such as may be necessary to conform to customary usage.
The Warrants shall be issued initially in the form of Warrant
Certificates in definitive, fully registered form, substantially in the form set
forth in Exhibit A hereto, which exhibit is hereby incorporated in and expressly
made a part of this Agreement. Upon issuance, all such Warrant Certificates
shall be duly executed by the Company and delivered, all as hereinafter
provided.
Definitive Warrant Certificates shall be typed, printed,
lithographed or engraved or produced by any combination of such methods or
produced in any other manner permitted by the rules of any securities exchange
on which the Warrants may be listed, all as determined by the officers of the
Company executing such Warrant Certificates, as evidenced by their execution
thereof.
Section 2.2. Legends. (1) Except as provided in Section 7.2(c)
hereof, each Warrant Certificate shall bear the following legend (the "Private
Placement Legend") on the face thereof:
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<PAGE> 12
THE SECURITIES REPRESENTED BY THIS CERTIFICATE HAVE NOT BEEN
REGISTERED UNDER THE SECURITIES ACT OF 1933, AS AMENDED (THE
"ACT"), OR ANY STATE SECURITIES LAWS OR THE SECURITIES LAWS OF ANY
COUNTRY OR OTHER JURISDICTION AND MAY NOT BE OFFERED, SOLD,
TRANSFERRED OR OTHERWISE DISPOSED OF OR PLEDGED OR HYPOTHECATED
UNLESS REGISTERED UNDER THE ACT AND ANY APPLICABLE SECURITIES LAWS
OR UNLESS AN EXEMPTION FROM REGISTRATION UNDER THE ACT AND ANY
SUCH LAWS IS AVAILABLE (AND, IN SUCH CASE, AN OPINION OF COUNSEL
REASONABLY ACCEPTABLE TO e.spire COMMUNICATIONS, INC. ("COMPANY"),
IN FORM AND SUBSTANCE REASONABLY SATISFACTORY TO THE COMPANY,
SHALL HAVE BEEN DELIVERED TO THE COMPANY TO THE EFFECT THAT THE
OFFER, SALE, TRANSFER, DISPOSITION, PLEDGE OR HYPOTHECATION
THEREOF IS EXEMPT FROM REGISTRATION UNDER THE ACT AND ANY SUCH
LAWS.
THE SECURITIES REPRESENTED BY THIS CERTIFICATE HAVE THE BENEFITS
OF A WARRANT AGREEMENT DATED AS OF MARCH 1, 2000 AMONG THE
COMPANY, 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., TRV EXECUTIVE
FUND, L.P. AND THE SUCH OTHER PARTIES WHO MAY BE MADE A SIGNATORY
THERETO FROM TIME TO TIME, A COPY OF WHICH IS ON FILE WITH THE
SECRETARY OF THE COMPANY. NO TRANSFER, SALE, ASSIGNMENT, PLEDGE,
HYPOTHECATION OR OTHER DISPOSITION OF THE SECURITIES REPRESENTED
BY THIS CERTIFICATE MAY BE MADE EXCEPT IN ACCORDANCE WITH THE
PROVISIONS OF SUCH AGREEMENT.
ARTICLE III
EXERCISE OF WARRANTS
Section 3.1. Exercise Price. Each Warrant shall, when the Warrant
Certificate representing such Warrant is signed by the Company, entitle the
Holder thereof, subject to the
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<PAGE> 13
provisions of this Agreement to purchase Warrant Shares at a purchase price per
share equal to the Exercise Price, subject to adjustment as provided in Article
IV and Article V hereof.
Section 3.2. Exercise; Restrictions on Exercise; Expiration. At
any time after the Issue Date and on or before the Expiration Date, Warrants may
be exercised on any Business Day; provided that Warrants may not be exercised if
the Warrant Shelf Registration Statement is not effective under the Securities
Act unless such exercise is a Cashless Exercise or the Company receives evidence
reasonably satisfactory to it that such exercise is exempt from the registration
and prospectus delivery requirements of the Securities Act. In addition,
Warrants may not be exercised unless, prior to such exercise (i) any applicable
Hart-Scott-Rodino Act waiting period shall have been expired; (ii) any consent,
approval, authorization or order of the United States Federal Communications
Commission necessary to allow such exercise shall have been obtained; and (iii)
any consent, approval, authorization or order of any U.S. state
telecommunications regulatory authority or commission necessary to allow such
exercise shall have been obtained, except where the absence of such state
telecommunications regulatory authority or commission consent, approval,
authorization or order would not be reasonably likely to have a material adverse
affect on the Company. Any Warrants not exercised by the Expiration Date shall
expire and all rights of the Holders of such Warrants hereunder and thereunder
shall terminate unless otherwise provided herein or therein.
Section 3.3. Method of Exercise; Payment of Exercise Price. (a) In
order to exercise all or any of the Warrants represented by a Warrant
Certificate, the Holder thereof is required to surrender to the Company the
Warrant Certificate with the Subscription Form duly filled in and signed, and
payment in full of the Exercise Price for each Warrant Share or other securities
or property issuable upon exercise of the Warrants as to which a Warrant is
exercised. The Exercise Price may be paid (i) by certified or official bank
check or by wire transfer to an account designated by the Company for such
purpose, (ii) by the surrender of shares of Preferred Stock (which surrender
shall be evidenced by cancellation of such shares) having an aggregate Current
Market Value (as defined herein) on the date of exercise equal to the product of
(1) Exercise Price per share as of the date of exercise and (2) the number of
Warrant Shares subscribed for, without the payment of the Exercise Price in
cash, together with a specification as to the number of Warrants to be
exercised, (iii) by surrender of publicly traded debt securities of the Company
(which surrender shall be evidenced by cancellation of such publicly traded debt
securities) having an aggregate Current Market Value (as defined herein) on the
date of exercise equal to the product of (1) Exercise Price per share as of the
date of exercise and (2) the number of Warrant Shares subscribed for, without
the payment of the Exercise Price in cash, together with a specification as to
the number of Warrants to be exercised or (iv) by the surrender (which surrender
shall be evidenced by cancellation of the number of Warrants represented by the
Warrant Certificate presented in connection with a Cashless Exercise) of a
Warrant or Warrants (represented by one or more relevant Warrant Certificates),
and without the payment of the Exercise Price in cash, for such number of
Warrant Shares equal to the product of (1) the number of Warrant Shares for
which such Warrant is exercisable as of the date of exercise (if the Exercise
Price were being paid in cash) and (2) the Cashless Exercise Ratio. An exercise
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<PAGE> 14
referred to in clauses (ii), (iii) or (iv) of the preceding sentence shall be
referred to as a "Cashless Exercise." For purposes of this Agreement, the
"Cashless Exercise Ratio" shall equal a fraction, the numerator of which is the
excess of the Current Market Value (as defined herein) per share of Common Stock
on the date of exercise over the Exercise Price per share as of the date of
exercise and the denominator of which is the Current Market Value per share of
Common Stock on the date of exercise (calculated as set forth herein).
Upon surrender of a Warrant Certificate representing more than one
Warrant in connection with the Holder's option to elect a Cashless Exercise, the
number of Warrant Shares deliverable upon a Cashless Exercise shall be equal to
the number of Warrant Shares issuable upon the exercise of Warrants that the
Holder specifies are to be exercised pursuant to a Cashless Exercise multiplied
by the Cashless Exercise Ratio. All provisions of this Agreement shall be
applicable with respect to an exercise of a Warrant Certificate pursuant to a
Cashless Exercise for less than the full number of Warrants represented thereby.
Upon the exercise of any Warrants in accordance with this Agreement, the Company
will transfer promptly to or upon the written order of the Holder of such
Warrant Certificate appropriate evidence of ownership of any Warrant Shares or
other securities or property to which it is entitled, registered or otherwise,
to the Person or Persons entitled to receive the same. All Warrant Shares or
other securities issuable by the Company upon the exercise of the Warrants shall
be validly issued, fully paid and nonassessable.
(b) Upon exercise of any Warrant in conformity with the
foregoing provisions, the Company shall, (i) transfer promptly to, or upon the
written order of the Holder of such Warrant, appropriate evidence of ownership
of any Warrant Shares or other securities or property (including money) to which
it is entitled, registered or otherwise placed in such name or names as may be
directed in writing by the Holder, and (ii) deliver such evidence of ownership
and any other securities or property (including money) to the Person or Persons
entitled to receive the same, together with an amount in cash in lieu of any
fraction of a share as provided in Section 4.5 hereof, provided, however, that
the Holder of such Warrant shall be responsible for the payment of any transfer
taxes required as the result of any transfer of such Warrant, or the issuance of
such Warrant Shares or other securities or property, to a Person other than the
registered owner of such Warrant. Upon exercise of a Warrant and, in the case of
a Cashless Exercise, written direction of the Company as to the number of
Warrant Shares as to which the Holder is entitled, the Company shall requisition
from any transfer agent of the Warrant Shares or any other securities issuable
upon exercise of a Warrant (and all such transfer agents are hereby irrevocably
authorized to comply with all such requests) certificates for the necessary
number of Warrant Shares or other securities to which the Holder of such Warrant
may be entitled. A Warrant shall be deemed to have been exercised immediately
prior to the close of business on the date of the surrender for exercise of the
Warrant Certificate representing such Warrant and, for all purposes of this
Agreement, the Person entitled to receive any Warrant Shares or other securities
or property deliverable upon such exercise shall, as between such Person and the
Company, be deemed to be the holder of such Warrant Shares or other securities
or property of record as of the close of business on such date and shall be
entitled to receive, and the Company shall deliver to such Person, any Warrant
Shares or other securities or property (including money) to which such
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<PAGE> 15
Person would have been entitled had such Person been the record holder of such
Warrant Shares or other securities or property on such date.
(c) If less than all the Warrants represented by a Warrant
Certificate are exercised, such Warrant Certificate shall be surrendered and a
new warrant certificate of the same tenor and for the number of Warrants which
were not exercised, registered in such name or names as may be directed in
writing by the Holder, shall be executed by the Company and the Company shall
deliver such new Warrant Certificate to the Person or Persons entitled to
receive the same.
(d) Without limiting the foregoing, if, at the date referred to
above, the transfer books for the Warrant Shares or other securities purchasable
upon the exercise of the Warrants shall be closed, the certificates for the
Warrant Shares or securities in respect of which such Warrants are then
exercised shall be issuable as of the date on which such books shall next be
opened, and until such date the Company shall be under no duty to deliver any
certificate for such Warrant Shares or other securities; provided, however, that
such transfer books, unless required by law, shall not be closed at any one time
for a period longer than 5 days.
ARTICLE IV
ADJUSTMENTS
Section 4.1. Adjustments. The Exercise Price and the number of
Warrant Shares purchasable upon exercise of each Warrant shall be subject to
adjustment from time to time as follows:
(a) Adjustments for Change in Common Stock. If the Company at
any time after the date of this Agreement:
(i) pays a dividend or makes any other distribution with
respect to shares of its Common Stock in shares of any class or series of
its capital stock, or other securities;
(ii) subdivides its outstanding shares of Common Stock into a
greater number of shares;
(iii) combines its outstanding shares of Common Stock into a
smaller number of shares; or
(iv) issues any shares of its capital stock in a
reclassification of the shares of its Common Stock (other than a
reclassification in connection with a merger, consolidation or other
business combination governed by Section 4.1(i) hereof);
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the number and kind of Warrant Shares issuable upon exercise of each Warrant, at
the time of the record date for such dividend or of the effective date of such
subdivision, combination or reclassification, shall be proportionately adjusted
so that the Holder of any Warrant exercised after such time shall be entitled to
receive the aggregate number and kind of shares of Common Stock and/or shares of
other capital stock or other securities of the Company which, if such Warrant
had been exercised immediately prior to such date, such Holder would have owned
upon such exercise and been entitled to receive by virtue of such dividend,
subdivision, combination or reclassification. An adjustment made pursuant to
this Section 4.1 (a) shall become effective immediately after the record date in
the case of a dividend or distribution and immediately after the effective date
in the case of a subdivision, combination or reclassification. Such adjustment
shall be made successively whenever any event listed above shall occur.
If at any time, as a result of an adjustment made pursuant to this
Section 4.1(a), the Holder of any Warrant thereafter exercised becomes entitled
to receive any securities other than shares of Common Stock, the number of such
other securities so receivable upon exercise of such Warrant shall be subject to
adjustment from time to time in a manner and on terms as nearly equivalent as
practicable to the provisions with respect to the Warrant Shares contained in
this Section 4.1, and the provisions of this Agreement with respect to the
Warrant Shares shall apply on like terms to any such other securities.
(b) Rights; Options; Warrants. If, at any time after the date
of this Agreement, the Company shall issue or sell Rights (other than in an
issuance subject to Section 4.1(a) hereof and any Right referred to in Section
4.1(c)(v) below) to all holders of shares of Common Stock, which Rights entitle
the holders thereof to acquire shares of Common Stock at a price per share of
Common Stock (determined by dividing (x) the sum of (A) the total amount
receivable or received by the Company in consideration of the sale and issuance
of such Rights, plus (B) the total consideration payable to the Company upon
exercise, conversion or exchange thereof, by (y) the total number of shares of
Common Stock covered by such Rights) that is lower than the Current Market Value
per share of Common Stock as of the record date for such issuance, the number of
Warrant Shares thereafter purchasable upon the exercise of each Warrant shall be
determined by multiplying the number of Warrant Shares theretofore purchasable
upon the exercise of each Warrant by a fraction, the numerator of which shall be
the sum of (A) the number of shares of Common Stock outstanding immediately
prior to the issuance of such Rights, plus (B) the number of shares of Common
Stock offered for subscription or purchase pursuant to such Rights, and the
denominator of which shall be the sum of (A) the number of shares of Common
Stock outstanding immediately prior to the issuance of such Rights, plus (B) the
number of shares which the aggregate offering price of the total number of
shares of Common Stock offered pursuant to such Rights would purchase at the
then Current Market Value per share of Common Stock, as of the record date for
such issuance. Such adjustment shall be made successively whenever such Rights
are issued or sold and shall become effective on the date of issuance or sale
retroactive to the record date for the determination of shareholders entitled to
receive such Rights.
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<PAGE> 17
(c) Issuance of Shares of Common Stock at Lower Values. If, at
any time after the date of this Agreement, the Company shall issue or sell any
share of Common Stock or Right (excluding (i) any Right issued or sold in any
transaction covered by Section 4.1 (a) or Section 4.1(b) hereof, (ii) any share
of Common Stock issued or sold pursuant to a Right outstanding on the date of
the Issue Date, (iii) any share of Common Stock issued or sold pursuant to a
Right, if on the date such Right was issued, the exercise, conversion or
exchange price per share of Common Stock with respect thereto was at least equal
to the Current Market Value per share of Common Stock, (iv) any shares of Common
Stock or Right issued or sold as consideration when any corporation or business
is acquired, merged into or becomes part of the Company or a subsidiary of the
Company in an arm's-length transaction between the Company and a Person other
than an Affiliate of the Company, (v) any Rights which may be issued under a
"shareholders' rights" plan and which trade with the Common Stock, (vi) any
share of Common Stock or Right issued by the Company to its directors, officers
or employees or any director, officer or employee of any of its subsidiaries in
the ordinary course of business in connection with any bona fide equity
compensation plan, including any stock grant plan, stock option plan, stock
purchase plan or pension or profit-sharing plan and (vii) any share of Common
Stock sold at the then-current market price thereof in a registered underwritten
offering), at a price per share of Common Stock (determined in the case of
Rights, by dividing (x) the sum of (A) the total amount receivable or received
by the Company in consideration of the sale and issuance of such Rights, plus
(B) the total consideration payable to the Company upon exercise, conversion or
exchange thereof, by (y) the total number of shares of Common Stock covered by
such Rights) that is lower than the Current Market Value per share of Common
Stock in effect immediately prior to such sale or issuance, the number of
Warrant Shares thereafter purchasable upon the exercise of each Warrant shall be
determined by multiplying the number of Warrant Shares theretofore purchasable
upon the exercise of each Warrant by a fraction, the numerator of which shall be
the number of shares of Common Stock outstanding immediately after such sale or
issuance (determined as provided below in this Section 4.1(c)), and the
denominator of which shall be the sum of (A) the number of shares of Common
Stock outstanding immediately prior to such sale or issuance, plus (B) the
number of shares of Common Stock which the aggregate consideration received by
the Company (determined as provided below in this Section 4.1(c)) for such sale
or issuance would purchase at such Current Market Value per share of Common
Stock. Such adjustment shall be made successively whenever such Rights are
issued or sold and shall be effective immediately after such issuance or sale.
For purposes of any adjustment made pursuant to this Section
4.1(c), the shares of Common Stock which the holder of any such Right shall be
entitled to subscribe for or purchase pursuant to such Right shall be deemed to
be issued and outstanding as of the date of the sale or issuance of such Right,
and the consideration received by the Company therefor shall be deemed to be the
consideration receivable or received by the Company for such Right, plus the
consideration or premiums stated in such Right to be paid for the shares of
Common Stock covered thereby. In case the Company shall sell and issue any share
of Common Stock or any Right for consideration consisting, in whole or in part,
of property other than cash or cash equivalents, then in determining the "price
per share of Common Stock" and the "consideration
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<PAGE> 18
received by the Company" for purposes of the first sentence of this Section
4.1(c), the Board of Directors shall determine, in good faith, the fair value of
said property, which determination shall be determined by an Independent
Financial Expert selected by the Majority Holders, subject to the approval of
the Company, such approval not to be unreasonably withheld, and notice of such
determination shall promptly be distributed by the Company to each Holder. In
case the Company shall sell or issue any Right together with one or more other
securities as part of a unit at a price per unit, then in determining the "price
per share of Common Stock" and the "consideration received by the Company" for
purposes of the first sentence of this Section 4.1(c), the fair value of such
Right then being sold as part of such unit shall be determined by an Independent
Financial Expert selected by the Majority Holders, subject to the approval of
the Company, such approval not to be unreasonably withheld, and notice of such
determination shall be promptly distributed by the Company to each Holder.
(d) Adjustment for Extraordinary Dividends or Distributions. If
at any time after the Issue Date, the Company declares, orders, pays or makes a
dividend or other distribution (excluding dividends or distributions covered by
Section 4.1(a) hereof, cash dividends or distributions from current or retained
earnings, and distributions pursuant to Section 4.1(i)(B) hereof) of property,
assets, debt securities or Rights (excluding any Right issued in a transaction
covered by Section 4.1(a), Section 4.1(b) or Section 4.1(c) hereof) to all
holders of shares of Common Stock, the number of Warrant Shares purchasable upon
the exercise of each Warrant after the record date of such dividend or
distribution shall be determined by multiplying the number of Warrant Shares
purchasable upon the exercise of such Warrant immediately prior to such record
date by a fraction, the numerator of which shall be the Current Market Value per
share of Common Stock immediately prior to the record date for such
distribution, and the denominator of which shall be the difference between (A)
the Current Market Value per share of Common Stock immediately prior to the
record date for such distribution, minus (B) the then fair value (the "Fair
Value") of the portion of the property, assets, evidence of indebtedness, cash
dividends, distributions or securities so distributed applicable to one share of
Common Stock. Such adjustment shall be made successively whenever any such
distribution is made, and shall become effective on the date of distribution
retroactive to the record date for the determination of shareholders entitled to
receive such distribution. Fair Value shall be determined by the Board of
Directors, in good faith, and evidenced by a Board Resolution delivered to the
Holders and, in the case of a dividend in the form of property or assets, shall
be supported by a written opinion of an expert in valuing such type of property
or assets.
(e) Expiration of Rights, Options and Conversion Privileges.
Upon the expiration of any unexercised Rights the issuance of which previously
resulted in an adjustment hereunder, the Exercise Price and the number of
Warrant Shares purchasable upon the exercise of each Warrant shall, upon such
expiration, be readjusted so that thereafter the Exercise Price and the number
of Warrant Shares purchasable upon exercise of each Warrant shall be such as
they would have been had they originally been adjusted as if (i) the only shares
of Common Stock considered in the adjustment made with respect to such Rights
were the shares of Common Stock, if any, actually issued or sold upon the
exercise of such Rights and (ii) such shares of
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<PAGE> 19
Common Stock, if any, were issued or sold for the consideration actually
received by the Company upon such exercise plus the consideration, if any,
actually received by the Company for issuance, sale or grant of all such Rights,
whether or not exercised; provided that no such readjustment shall have the
effect of increasing the Exercise Price by an amount, or decreasing the number
of Warrant Shares purchasable upon exercise of each Warrant by a number, in
excess of the amount or number, as the case may be, of the adjustment initially
made with respect to the issuance or sale of such Rights.
(f) Current Market Value. For the purposes of any computation
under this Agreement, the Current Market Value per share of Common Stock or of
any other security (such share of Common Stock or other security herein referred
to as a "security") at any date herein specified shall equal:
(i) if the security is not registered under the Exchange
Act, the value of the security determined as of such date by an
Independent Financial Expert selected by the Majority Holders,
subject to the approval of the Company, such approval not to be
unreasonably withheld, for the purpose of making such
determination; or
(ii) if the security is registered under the Exchange
Act, the average of the daily market prices of the security for
the 20 consecutive trading days immediately preceding such date
or, if the security has been registered under the Exchange Act
for less than 20 consecutive trading days before such date, the
average of the daily market prices for all trading days preceding
such date for which daily market prices are available. The daily
market price for each such trading day shall be: (A) in the case
of a security listed or admitted to trading on any National
Securities Exchange, the closing sales price, regular way, on
such day, or if no sale takes place on such day, the average of
the closing bid and asked prices on such day, on the principal
National Securities Exchange on which such security is listed or
admitted, (B) in the case of a security not then listed or
admitted to trading on any National Securities Exchange, the last
reported sale price on such day, or if no sale takes place on
such day, the average of the closing bid and asked prices on such
day, as reported by a reputable quotation source designated by
the Company, (C) in the case of a security not then listed or
admitted to trading on any National Securities Exchange and as to
which no such reported sale price or bid and asked prices are
available, the average of the reported high bid and low asked
prices on such day, as reported by a reputable quotation source
or a newspaper of general circulation in The City of New York
customarily published on each Business Day, designated by the
Company, or, if there shall be no bid and asked prices on such
day, the average of the high bid and low asked prices, as so
reported on the most recent day (not more than 10 days prior to
the date in question) for which prices have been so reported or
(D) if the prices specified in clause (A), (B) or (C) are not
available, the Current Market
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Value of a security shall be determined as if such security were
not registered under the Exchange Act.
(g) De Minimis Adjustments. No adjustment in the Exercise Price
or number of Warrant Shares 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 Warrant Shares
purchasable upon the exercise of each Warrant, as the case may be; provided
however, that any adjustments which by reason of this Section 4.1(g) are not
required to be made shall be carried forward and taken into account in any
subsequent adjustment. All calculations shall be made to the nearest
one-thousandth of a share or nearest $.0001, as the case may be.
(h) Adjustment of Exercise Price. Whenever the number of Warrant
Shares purchasable upon the exercise of each Warrant is adjusted, as herein
provided, the Exercise Price per Warrant Share payable upon exercise of each
Warrant shall be adjusted (calculated to the nearest $.0001) so that it shall
equal the price determined by multiplying such Exercise Price immediately prior
to such adjustment by a fraction, the numerator of which shall be the number of
Warrant Shares purchasable upon the exercise of each Warrant immediately prior
to such adjustment, and the denominator of which shall be the number of Warrant
Shares so purchasable immediately thereafter.
(i) Consolidation, Merger or Sale of Assets; Liquidation. (A)
Subject to the provisions of subsection (B) of this Section 4.1(i), in the event
that, at any time after the Issue Date, 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 this 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 this 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, as evidenced by a Board Resolution
delivered to the Holder, 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.
(B) Notwithstanding the foregoing clause (A), (x) if the
Company consolidates with, merges with or into, or sells, transfers or otherwise
disposes of all or substantially all of its
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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.
(j) Adjustments by Board. In addition to the foregoing
adjustments, and subject to Article V hereof, the Board of Directors may make
any other adjustment, as evidenced by a Board Resolution delivered to the
Holders, to increase the number of Warrant Shares purchasable upon exercise of
Warrants or to decrease the Exercise Price as it may, in good faith, deem
desirable to protect the rights and benefits of Holders hereunder. Any
adjustments made by the Board of Directors pursuant to this Article IV shall be
conclusive absent manifest error.
(k) Value Determination. If required pursuant to Section
4.1(f), the Current Market Value shall be deemed to be equal to the value
determined by an Independent Financial Expert and set forth in a Value Report by
such Independent Financial Expert. In making any determination of Current Market
Value, such Independent Financial Expert shall (A) use one or more valuation
methods that, in its best professional judgment, it determines to be most
appropriate and (B) not take into account any discount for minority interests or
lack of liquidity of the relevant security. The Company shall cause such
Independent Financial Expert to deliver to the Company, within 25 days of the
appointment of such Independent Financial Expert, the Value Report which shall
state the Current Market Value of the Common Stock and/or any other securities
being valued, as of the Valuation Date, and shall contain a brief statement as
to the nature and scope of the examination or investigation upon which the
determination of value was made. The Company shall make available such Value
Report for inspection by the Holders. Any determination of Current Market Value
in accordance with the provisions of this Section 4.1(k) shall be conclusive as
to all Persons.
(l) Adjustments Pursuant to Purchase Agreements. Without
limiting the foregoing, the Exercise Price of the Warrants shall also be
adjusted in accordance with Section 6(d) of each of the Purchase Agreements in
the event of a Stock Decline.
(m) Shareholder Approval. Notwithstanding anything to the
contrary contained herein, in the event that Stockholder Approval is necessary
in order to permit the
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implementation of the provisions of this Sections 4.1(b), 4.1(c) or 4.1(d), as
applicable (or any adjustment to the Exercise Price under Section 4.1(h) above
triggered by an adjustment under Section 4.1(b), 4.1(c) or 4.1(d)) without
contravention of a NASDAQ Rule, (A) Sections 4.1(b), 4.1(c) and 4.1(d) (and any
adjustment to the Exercise Price under Section 4.1(h) triggered by an adjustment
under Section 4.1(b), 4.1(c) or 4.1(d)) shall not be effective until such
Stockholder Approval is obtained, and (B) the Company shall not (without the
affirmative vote of the Majority Holders) engage in any transaction which would
trigger an adjustment under Section 4.1(b), 4.1(c) or 4.1(d) until such
Stockholder Approval has been obtained.
Section 4.2. Notice of Adjustment. Whenever the number of Warrant
Shares or other securities or property purchasable upon the exercise of each
Warrant or the Exercise Price is adjusted or determined, as herein provided, the
Company shall promptly mail, at the expense of the Company, to each Holder, a
notice of such adjustment or adjustments, and shall deliver to each Holder a
certificate of a firm of independent public accountants selected by the Board of
Directors (who may be the regular accountants employed by the Company) setting
forth (i) the number of Warrant Shares or other securities or property
purchasable upon the exercise of each Warrant and the Exercise Price after such
adjustment, (ii) a brief statement of the facts requiring such adjustment and
(iii) the computation by which such adjustment was made.
Section 4.3. Statement on Warrants. Irrespective of any adjustment
in the Exercise Price or the number or kind of Warrant Shares purchasable upon
the exercise of the Warrants, Warrant Certificates theretofore or thereafter
issued may continue to express the same price and number and kind of shares as
are stated in the Warrant Certificate initially issued pursuant to this
Agreement.
Section 4.4. Notice of Consolidation, Merger or Sale of Assets. In
the event that, at any time after the Issue Date, and prior to the Expiration
Date, there shall be any (i) consolidation or merger involving the Company, or
sale, transfer or other disposition of all or substantially all of the Company's
property and assets (except a merger or other reorganization in which the
Company shall be the surviving corporation and holders of shares of Common Stock
(or other securities or property purchasable upon exercise of the Warrants)
receive no consideration in respect of their shares or property) or (ii) any
other transaction contemplated by Section 4.1(i)(B) above, then in any such
case, the Company shall cause to be mailed to each Holder, at the earliest
practicable time (and, in any event, not less than 25 days before any date set
for definitive action), notice of the date on which such reorganization, sale,
consolidation, merger, dissolution, liquidation or winding up or other such
transaction shall take place, as the case may be. Such notice shall also set
forth such facts as shall indicate the effect of such action (to the extent such
effect may be known at the date of such notice) on the Exercise Price and the
kind and amount of securities and property purchasable upon exercise of the
Warrants. Such notice shall also specify the date as of which the holders of
record of the shares of Common Stock or other securities or property purchasable
upon exercise of the Warrants shall be entitled to exchange their shares or
other securities or property for securities, money or other property deliverable
upon such reorganization, sale, consolidation, merger, dissolution, liquidation
or
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winding up or other such transaction, as the case may be. The delivery of any
notice pursuant to this Section 4.4 shall not in itself relieve the Company from
any obligation under Section 4.2 hereof.
Section 4.5. Fractional Interests. If more than one Warrant is
presented for exercise at the same time by the same Holder, the number of
Warrant Shares which shall be purchasable upon such exercise shall be computed
on the basis of the aggregate number of Warrant Shares purchasable on exercise
of all Warrants so presented. If any fraction of a Warrant Share would, except
for the provisions of this Section 4.5, be issued on the exercise of any Warrant
(or specified portion thereof), the Company, in lieu of issuing any such
fractional share, shall pay an amount in cash calculated by it to be equal to
the Current Market Value per Warrant Share on the date of exercise multiplied by
such fraction, computed to the nearest whole cent.
Section 4.6. No Dilution or Impairment. The Company shall not
amend its Certificate of Incorporation or participate in any reorganization,
transfer of assets, consolidation, merger, dissolution, issue or sale of
securities or any other voluntary action, for the purpose of avoiding or seeking
to avoid the observance or performance of any of the terms to be observed or
performed hereunder by the Company, but will at all times, in good faith, assist
in carrying out all such actions as may be reasonably necessary or appropriate
in order to protect the rights of the Holders of the Warrants against dilution
or other impairment.
Section 4.7. No Adjustments for Certain Issuances. The provisions
of Section 4.1(b) and Section 4.1(c) hereof shall not apply to the issuance of
any securities pursuant to this Agreement or the Preferred Stock.
ARTICLE V
DECREASE IN EXERCISE PRICE
Section 5.1. Exercise Price. Notwithstanding the provisions of
Section 4.1(j) hereof, the Board of Directors, in its sole discretion, shall
have the right at any time the Warrants are exercisable under Section 3.2
hereof, and from time to time during such period, to decrease the Exercise Price
of the Warrants, provided, such reduction of the Exercise Price is effective for
a period of not less than 30 days. Any exercise by the Board of Directors of any
rights granted in this Section 5.1 must be preceded by a written notice from the
Company to the Holders of Warrants setting forth the reduction in the Exercise
Price, which notice shall be mailed at least 30 days prior to the effective date
of such decrease in the Exercise Price. Any reduction of the Exercise Price
pursuant to provisions of this Article V shall not in itself result in an
adjustment of the number of Warrant Shares or other securities or property
purchasable upon the exercise of the Warrants.
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ARTICLE VI
RESERVATION AND AUTHORIZATION OF COMMON SHARES
Section 6.1. Reservation and Authorization. The Company shall at
all times reserve and keep available for issuance upon exercise of the Warrants
such number of its duly authorized but unissued shares of Common Stock or other
securities of the Company purchasable upon exercise of the Warrants as will be
sufficient to permit the exercise in full of all outstanding Warrants and will
cause appropriate evidence of ownership of such shares of Common Stock or other
securities to be delivered to the Holder upon its request for delivery of such,
and all such shares of Common Stock or other securities shall, reasonably
promptly after the date hereof and at all times thereafter, be duly approved for
listing, subject to official notice of issuance, on each securities exchange, if
any, on which such shares of Common Stock or other securities are then listed.
Section 6.2. Covenant Regarding Securities. The Company covenants
that all shares of Common Stock or other securities of the Company that may be
issued upon the exercise of the Warrants will, upon issuance, be (i) duly
authorized, validly issued, fully paid and nonassessable, (ii) free from
preemptive and any other similar rights, (iii) free from any taxes, liens,
charges or security interests with respect thereto and (iv) included for trading
on each securities exchange, if any, on which such shares of Common Stock or
other securities are then listed.
Section 6.3. Registration. If the Warrant Shares or other
securities of the Company purchasable upon the exercise of the Warrants require
registration with, or approval of, any governmental authority (in addition to
such as the Company is required to obtain pursuant to Article IX hereof), or the
taking of any other action (in addition to such as the Company is required to
take pursuant to Article IX hereof), under the laws of the United States of
America or any state or political subdivision thereof, before such securities
may be validly offered or sold in compliance with such laws, then the Company
covenants that it will, in good faith and as expeditiously as practicable, at
its expense, endeavor to secure and maintain such registration or approval or to
take such other action, as the case may be; provided that the Company will not
be required to qualify generally to do business in any jurisdiction where it is
not then so qualified or to take any action that would subject it to general
service of process or to taxation in any such jurisdiction where it is not then
so subject.
ARTICLE VII
WARRANT TRANSFER BOOKS; RESTRICTIONS ON TRANSFER
Section 7.1. Transfer and Exchange. (a) The Warrant Certificates
shall be issued in registered form only. The Company shall cause to be kept at
its office a register (the "Warrant Register") in which, subject to such
reasonable regulations as it may prescribe, the Company shall provide for the
registration of Warrants and transfers or exchanges of Warrants as herein
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provided. All Warrants issued upon any registration of transfer or exchange of
Warrants shall be the valid obligations of the Company, evidencing the same
obligations, and entitled to the same benefits under this Agreement, as the
Warrants surrendered for such registration of transfer or exchange.
(b) The Warrants and Preferred Stock shall at all times after
the Issue Date be separately transferable, as will the Warrant Shares and any
shares of Common Stock issuable in connection with the Preferred Stock.
(c) Prior to the registration of any transfer of a Warrant
Certificate by a Holder as provided herein, the Company and any agent of the
Company may treat the Person in whose name the Warrants represented thereby are
registered as the owner thereof for all purposes and as the Person entitled to
exercise the rights represented thereby, any notice to the contrary
notwithstanding.
(d) Every Warrant presented or surrendered for registration of
transfer or for exchange shall (if so required by the Company) be duly endorsed,
or be accompanied by a duly executed instrument of transfer in form satisfactory
to the Company, by the Holder or such Holder's attorney duly authorized in
writing.
(e) When Warrant Certificates are presented to the Company with
a request to register the transfer or to exchange the Warrant Certificate for
other Warrant Certificates representing an equal number of Warrants, the Company
shall register the transfer or make the exchange as requested if its
requirements for such transactions and any applicable requirements hereunder are
satisfied. To permit registrations of transfers and exchanges, the Company shall
execute Warrant Certificates and deliver such Warrant Certificates in accordance
with the provisions hereof. No service charge shall be made for any registration
of transfer or exchange of Warrants, but the Company may require payment of a
sum sufficient to cover any tax or other governmental charge that may be imposed
in connection with any registration of transfer of Warrants.
(f) Any Warrant Certificate when duly endorsed in blank shall
be deemed negotiable. The Holder of any Warrant Certificate duly endorsed in
blank may be treated by the Company and all other Persons dealing therewith as
the absolute owner thereof for any purpose and as the Person entitled to
exercise the rights represented hereby, or to the transfer thereof on the
Warrant Register maintained by the Company, any notice to the contrary
notwithstanding; but, until such transfer on such Warrant Register, the Company
may treat the registered Holder thereof as the owner for all purposes.
(g) If less than all the Warrants represented by a Warrant
Certificate are transferred or exchanged in accordance with this Agreement, the
Warrant Certificate shall be surrendered to the Company and a new Warrant
Certificate of the same tenor and for the number of Warrants which were not
transferred or exchanged, registered in such name or names as may
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be directed in writing by the surrendering Holder, shall be executed by the
Company and delivered to the Person or Persons entitled to receive the same.
Section 7.2. Special Transfer Provisions.
(a) Limitations on Transfer. By its acceptance of any Warrant
represented by a Warrant Certificate bearing the Private Placement Legend, each
Holder of, and beneficial owner of an interest in, such Warrant acknowledges the
restrictions on transfer of such Warrant set forth in the Private Placement
Legend and agrees that it will transfer such Warrant only in accordance with the
Private Placement Legend.
(b) Transfer of Restricted Warrants. In connection with any
transfer of a Warrant Certificate bearing the Private Placement Legend, each
Holder agrees to deliver to the Company, upon its request, such satisfactory
evidence, which may include an opinion of counsel licensed to practice law in
the State of New York, as reasonably may be requested by the Company to confirm
that such transfer is being made in accordance with the limitations set forth in
the Private Placement Legend.
(c) Private Placement Legend. Upon the registration of
transfer, exchange or replacement of this Warrant Certificate bearing the
Private Placement Legend, the Company shall deliver a Warrant Certificate
bearing the Private Placement Legend, unless such legend may be removed from
such Warrant Certificate as provided in the next sentence. The Private Placement
Legend may be removed from a Warrant Certificate if there is delivered to the
Company such satisfactory evidence, which may include an opinion of counsel
licensed to practice law in the State of New York, as reasonably may be
requested by the Company to confirm that neither such legend nor the
restrictions on transfer set forth therein are required to ensure that transfers
of such security will not violate the registration and prospectus delivery
requirements of the Securities Act or if the Warrant represented by such Warrant
Certificate has been registered under the Securities Act pursuant to Article 9
herein. Upon provision of such evidence, the Company shall sign and deliver in
exchange for such Warrant Certificate, a Warrant Certificate or Warrant
Certificates (representing, in the aggregate, the same number of Warrants) that
do not bear such legend. If the Private Placement Legend has been removed from
the Warrant Certificate, as provided above, no other Warrant Certificate issued
in exchange for all or any part of such Warrant Certificate shall bear such
legend, unless the Company has reasonable cause to believe that such other
Warrant Certificate is a "restricted security" within the meaning of Rule 144.
Section 7.3. Surrender of Warrant Certificates. Any Warrant
Certificate surrendered for registration of transfer, exchange or exercise of
the Warrants represented thereby shall be delivered to the Company and shall be
promptly canceled by the Company and shall not be reissued by the Company and,
except as provided in this Article VII in case of an exchange or transfer,
Article III hereof in case of the exercise of less than all the Warrants
represented thereby or Section 10.1 in case of mutilation, no Warrant
Certificate shall be issued hereunder in lieu
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thereof. The Company shall dispose of such canceled Warrant Certificates in
accordance with its customary procedures.
Section 7.4. Rule 144 and Rule 144A Information. Prior to the
effectiveness under the Securities Act of the Warrant Shelf Registration
Statement, or at any time during the suspension or following the termination
thereof, Holders of Warrants (or holders of interests therein) and prospective
purchasers designated by such Holders of Warrants (or such holders of interests
therein) shall have the right to obtain from the Company upon request by such
Holders (or such holders of interests) or prospective purchasers, during any
period in which the Company is not subject to Section 13 or 15(d) of the
Exchange Act, or exempt from reporting pursuant to 12g3-2(b) under the Exchange
Act, the information required by paragraph (c) of Rule 144 and paragraph
(d)(4)(i) of Rule 144A in connection with any transfer or proposed transfer of
such Warrants or interests.
ARTICLE VIII
HOLDERS
Section 8.1. Holder Not Deemed a Stockholder. Prior to the
exercise of a Warrant, the Holder thereof shall not be entitled, as such, to any
rights of a stockholder of the Company, including, without limitation, the right
to vote or to consent to any action of the stockholders of the Company, to
receive dividends or other distributions, to exercise any preemptive right or to
receive any notice of meetings of stockholders of the Company and, except as
otherwise provided in this Agreement, shall not be entitled to receive any
notice of any proceedings of the Company.
Section 8.2. Right of Action. All rights of action with respect to
this Agreement are vested in the Holders of the Warrants, and any Holder of any
Warrant may, in the Holder's own behalf and for the Holder's own benefit,
enforce, and may institute and maintain any suit, action or proceeding against
the Company suitable to enforce, or otherwise in respect of, the Holder's right
to exercise the Holder's Warrants in the manner provided in the Warrant
Certificate representing his Warrants.
ARTICLE IX
REGISTRATION RIGHTS
Section 9.1. Intentionally omitted..
Section 9.2. Warrant Shelf Registration Statement.
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(a) Shelf Registration. Subject to Section 9.2(e), the Company
shall as promptly as reasonably practicable (but in any event prior to the
Filing Date) file with the Commission a Registration Statement for an offering
to be made on a continuous basis pursuant to Rule 415 covering all of the
Registrable Securities (the "Initial Shelf Registration"). The Initial Shelf
Registration shall be on an appropriate form permitting registration of such
Registrable Securities for resale by Holders.
The Company shall use its reasonable best efforts to cause the
Initial Shelf Registration to be declared effective under the Securities Act on
or prior to the Effectiveness Date and to keep the Initial Shelf Registration
continuously effective under the Securities Act (the "Effectiveness Period") or
such shorter period ending when (i) all Registrable Securities have been sold in
the manner set forth and as contemplated in the Initial Shelf Registration or
(ii) a Subsequent Shelf Registration covering all of the Registrable Securities
has been declared effective under the Securities Act or (iii) there are no
longer any Registrable Securities outstanding.
(b) Subsequent Shelf Registrations. If the Initial Shelf
Registration or any Subsequent Shelf Registration ceases to be effective for any
reason at any time during the Effectiveness Period (other than because of the
sale thereunder of all of the securities registered thereunder or there are no
longer any Registrable Securities outstanding), the Company shall use its
reasonable best efforts to obtain the prompt withdrawal of any order suspending
the effectiveness thereof, and in any event shall within 45 days of such
cessation of effectiveness amend the Initial Shelf Registration in a manner to
obtain the withdrawal of the order suspending the effectiveness thereof, or file
an additional "shelf" Registration Statement pursuant to Rule 415 covering all
of the Registrable Securities (a "Subsequent Shelf Registration"). If a
Subsequent Shelf Registration is filed, the Company shall use its reasonable
best efforts to cause the Subsequent Shelf Registration to be declared effective
under the Securities Act as soon as practicable after such filing and to keep
such Registration Statement continuously effective until the end of the
Effectiveness Period or such shorter period ending when (i) all Registrable
Securities have been sold in the manner set forth and as contemplated in the
Subsequent Shelf Registration or (ii) there are no longer any Registrable
Securities outstanding. As used herein the term "Shelf Registration" means the
Initial Shelf Registration and any Subsequent Shelf Registration.
(c) Supplements and Amendments. The Company shall use its
reasonable best efforts to supplement and amend the Shelf Registration if
required by the rules, regulations or instructions applicable to the
registration form used for such Shelf Registration, if required by the
Securities Act, or if reasonably requested by the Holders of a majority of the
shares of Registrable Securities covered by such Registration Statement (on an
as-exercised basis and taken together as a single class) or if reasonably
requested by an underwriter, if any, of such Registrable Securities.
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(d) Suspension of Shelf Registration. The Company's obligation
to keep the Shelf Registration effective and usable for offers and sales of the
Registrable Securities may be suspended by the Company if the Company, in good
faith and for valid business reasons, determines that, without such suspension,
the Company will suffer interference with any material financing, acquisition,
corporate reorganization or other material transaction or development involving
the Company. Any such period during which the Company fails to keep the Shelf
Registration effective and usable for offers and sales of Registrable Securities
is referred to as a "Suspension Period." A Suspension Period shall commence on
and include the date that the Company gives written notice (the "Suspension
Notice") to the Holders of Registrable Securities covered by the Shelf
Registration that the Shelf Registration is no longer effective or the
prospectus included therein is no longer usable for offers and sales of the
Registrable Securities shall end on the earliest of (A) 90 days from the
effective date of the Suspension Period or (B) the date the Holders of
Registrable Securities covered by such registration are advised in writing by
the Company that use of the prospectus may be resumed. During the pendency of
any Suspension Period, the Company may not issue any securities, whether or not
in a public offering, except for (i) issuances of Common Stock pursuant to an
acquisition or other business combination transaction or upon exercise of
options or warrants outstanding prior to such Suspension Period or (ii)
pay-in-kind dividends, to the extent permitted, in respect of preferred stock
outstanding prior to such Suspension Period. Each Holder agrees that, upon
receipt of any Suspension Notice, such Holder will forthwith discontinue during
the pendency of the Suspension Period disposition of the Registrable Securities
pursuant to the Shelf Registration. Notwithstanding anything to the contrary in
this Section 9.2(d), the Company may only suspend the effectiveness of the Shelf
Registration pursuant to this Section 9.2(d) if the Company suspends the
effectiveness of any and all other registration statements maintained by the
Company covering the Company's securities pursuant to Rule 415 or otherwise.
(e) Deferral Period. Notwithstanding anything to the contrary
herein, the Company shall have the right to defer the filing of the Initial
Shelf Registration pursuant to this Agreement for a period not to exceed 90 days
after the Filing Date (the "Deferral Period") if, in the good faith
determination of the Board of Directors of the Company, the filing of such
Initial Shelf Registration would interfere with any material financing,
acquisition, corporate reorganization or other material transaction or
development involving the Company; provided, that during the pendency of such
Deferral Period, the Company may not issue any securities, whether or not in a
public offering, except for (i) issuances of Common Stock pursuant to an
acquisition or other business combination transaction or upon exercise of
options or warranties outstanding prior to such Deferral Period or (ii)
pay-in-kind dividends, to the extent permitted, in respect of preferred stock
outstanding prior to such Deferral Period. In the event that the Company
exercises its deferral rights pursuant to this Section 9.2(e), the Effectiveness
Date shall be tolled for a period equal to the Deferral Period.
Section 9.3. Registration Procedures. In connection with the
filing of any Registration Statement pursuant to Article IX hereof, the Company
shall effect such registrations to permit the sale of the securities covered
thereby in accordance with the intended method or
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methods of disposition thereof, and pursuant thereto and in connection with any
Registration Statement filed by the Company hereunder the Company shall:
(a) Prepare and file with the Commission on or prior to the Filing
Date, a Registration Statement as prescribed by Article IX hereof, and use its
reasonable best efforts to cause such Registration Statement to become effective
and remain effective as provided herein; provided, however, that, before filing
any Registration Statement or Prospectus or any amendments or supplements
thereto, the Company shall furnish to and afford the Holders of the Registrable
Securities covered by such Registration Statement, their counsel and the
managing underwriters, if any, a reasonable opportunity to review copies of all
such documents (including, if requested in writing, copies of any documents to
be incorporated by reference therein and all exhibits thereto) proposed to be
filed (in each case at least five business days prior to such filing). The
Company shall not file any Registration Statement or Prospectus or any
amendments or supplements thereto if the Holders of a majority of the
Registrable Securities (on an as-converted basis and taken together as a single
class) covered by such Registration Statement, their counsel, or the managing
underwriters, if any, shall reasonably object within two business days after the
receipt thereof. Notwithstanding anything to the contrary contained in this
Agreement, the Company shall not be required to engage in more than one
underwritten offering, if any, pursuant to this Agreement.
(b) Prepare and file with the Commission such amendments and
post-effective amendments to each Shelf Registration as may be necessary to keep
such Registration Statement continuously effective for the Effectiveness Period
(or such shorter period as may be specified in Section 9.2(a) or 9.2(b)); cause
the related Prospectus to be supplemented by any Prospectus supplement required
by applicable law, and as so supplemented to be filed pursuant to Rule 424 (or
any similar provisions then in force) promulgated under the Securities Act; and
comply with the provisions of the Securities Act and the Exchange Act applicable
to it with respect to the disposition of all securities covered by such
Registration Statement as so amended or in such Prospectus as so supplemented.
(c) Notify the selling Holders of Registrable Securities, their
counsel and the managing underwriters, if any, reasonably promptly (but in any
event within five business days), and confirm such notice in writing, (i) when a
Prospectus or any Prospectus supplement or post-effective amendment has been
filed, and, with respect to a Registration Statement or any post-effective
amendment, when the same has become effective under the Securities Act, (ii) of
the issuance by the Commission of any stop order suspending the effectiveness of
a Registration Statement or of any order preventing or suspending the use of any
preliminary prospectus or the initiation of any proceedings for that purpose,
(iii) if at any time when a prospectus is required by the Securities Act to be
delivered in connection with sales of the Registrable Securities the
representations and warranties of the Company contained in any agreement,
including an underwriting agreement, if any, contemplated by 9.3(m) hereof cease
to be true and correct, (iv) of the receipt by the Company of any notification
with respect to the suspension of the qualification or exemption from
qualification of a Registration Statement or any of the
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Registrable Securities for offer or sale in any jurisdiction, or the initiation
or threatening of any proceeding for such purpose, (v) of the happening of any
event, the existence of any condition or any information becoming known that
makes any statement made in such Registration Statement or related Prospectus or
any document incorporated or deemed to be incorporated therein by reference
untrue in any material respect or that requires the making of any changes in or
amendments or supplements to such Registration Statement, Prospectus or
documents so that, in the case of the Registration Statement, it will not
contain any untrue statement of a material fact or omit to state any material
fact required to be stated therein or necessary to make the statements therein
not misleading, and that in the case of the Prospectus, it will not contain any
untrue statement of a material fact or omit to state any material fact required
to be stated therein or necessary to make the statements therein, in the light
of the circumstances under which they were made, not misleading and (vi) of the
Company's determination that a post-effective amendment to a Registration
Statement would be appropriate.
(d) Use its reasonable best efforts to prevent the issuance of
any order suspending the effectiveness of a Registration Statement or of any
order preventing or suspending the use of a Prospectus or suspending the
qualification (or exemption from qualification) of any of the Registrable
Securities for sale in any jurisdiction, and, if any such order is issued, to
use its reasonable best efforts to obtain the withdrawal of any such order at
the earliest possible moment.
(e) If requested by the managing underwriter or underwriters
(if any), or the Holders of a majority of shares of Registrable Securities (on
an as-converted basis and taken together as a single class) being sold in
connection with an underwritten offering, if any, (i) promptly incorporate in a
prospectus supplement or post-effective amendment such information as the
managing underwriter or underwriters (if any), such holders, or its counsel
determine is reasonably necessary to be included therein and (ii) make all
required filings of such prospectus supplement or such post-effective amendment
as soon as practicable after the Company has received notification of the
matters to be incorporated in such prospectus supplement or post-effective
amendment.
(f) Furnish to each selling Holder of Registrable Securities
who so requests in writing and to counsel and each managing underwriter, if any,
at the sole expense of the Company, one conformed copy of the Registration
Statement or Registration Statements and each post-effective amendment thereto,
including financial statements and schedules, and, if requested in writing, all
documents incorporated or deemed to be incorporated therein by reference and all
exhibits.
(g) Deliver to each selling Holder of Registrable Securities,
its respective counsel, and the underwriters, if any, at the sole expense of the
Company, as many copies of the Prospectus (including each form of preliminary
prospectus) and each amendment or supplement thereto and any documents
incorporated by reference therein as such Persons may reasonably request in
writing; and, subject to the last paragraph of this Section 9.3, the Company
hereby
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<PAGE> 32
consents to the use of such Prospectus and each amendment or supplement thereto
by each of the selling Holders of Securities and the underwriters or agents, if
any, and dealers (if any), in connection with the offering and sale of the
Registrable Securities covered by, such Prospectus and any amendment or
supplement thereto.
(h) Prior to any public offering of Registrable Securities, to
use its reasonable best efforts to register or qualify, and to cooperate with
the selling Holders of Registrable Securities, the managing underwriter or
underwriters, if any, and their respective counsel in connection with the
registration or qualification (or exemption from such registration or
qualification) of such Registrable Securities for offer and sale under the
securities or Blue Sky laws of such jurisdictions within the United States as
any selling Holder, or the managing underwriter shall reasonably request;
provided, however, that where Registrable Securities are offered other than
through an underwritten offering, the Company agrees to cause the Company's
counsel to perform Blue Sky investigations, if necessary, and file registrations
and qualifications required to be filed pursuant to this Section 9.3(h); keep
each such registration or qualification (or exemption therefrom) effective
during the period such Registration Statement is required to be kept effective
and do any and all other acts or things reasonably necessary or advisable to
enable the disposition in such jurisdictions of the Registrable Securities
covered by the Registration Statement; provided, however, that the Company shall
not be required to qualify as a foreign corporation or to execute a general
consent to service of process in any jurisdiction or be subject to taxation in
any jurisdiction in which it is not so subject.
(i) Cooperate with the selling Holders of Registrable
Securities and the managing underwriter or underwriters, if any, to facilitate
the timely preparation and delivery of certificates representing Registrable
Securities to be sold, which certificates shall not bear any restrictive legends
and shall be in a form eligible for deposit with The Depository Trust Company;
and enable such Registrable Securities to be in such denominations and
registered in such names as the managing underwriter or underwriters, if any, or
Holders may reasonably request.
(j) Use its reasonable best efforts to cause the Registrable
Securities covered by the Registration Statement to be registered with or
approved by such other governmental agencies or authorities as may be necessary
to enable the seller or sellers thereof or the underwriter or underwriters, if
any, to consummate the disposition of such Registrable Securities in the United
States except as may be required solely as a consequence of the nature of such
selling Holder's business, in which case the Company will cooperate in all
reasonable respects with the filing of such Registration Statement and the
granting of such approvals.
(k) Upon the occurrence of any event contemplated by paragraph
9.3(c)(v) or 9.3(c)(vi) hereof, as promptly as practicable prepare and (subject
to Sections 9.3(d) and 9.3(a) hereof) file with the Commission, at the sole
expense of the Company, a supplement or post-effective amendment to the
Registration Statement or a supplement to the related Prospectus or any document
incorporated or deemed to be incorporated therein by reference, or file any
other
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<PAGE> 33
required document so that, as thereafter delivered to the purchasers of the
Registrable Securities being sold thereunder, any such Prospectus will not
contain an untrue statement of a material fact or omit to state a material fact
required to be stated therein or necessary to make the statements therein, in
the light of the circumstances under which they were made, not misleading.
(l) Prior to the effective date of the first Registration
Statement relating to the Registrable Securities, (i) provide the Transfer Agent
(if any) with certificates for the Registrable Securities in a form eligible for
deposit with The Depository Trust Company and (ii) provide a CUSIP number for
the Warrants.
(m) In connection with an underwritten offering, if any, of
Registrable Securities pursuant to a Shelf Registration, enter into an
underwriting agreement as is customary for the managing underwriter or
underwriters in underwritten offerings of securities similar to the Warrant and
Warrant Shares and take all such other actions as are reasonably requested by
the managing underwriter or underwriters in order to expedite or facilitate the
registration or the disposition of such Registrable Securities and, in such
connection, (i) make such representations and warranties to, and covenants with,
the underwriters with respect to the business of the Company and its
subsidiaries (including any acquired business, properties or entity, if
applicable) and the Registration Statement, Prospectus and documents, if any,
incorporated or deemed to be incorporated by reference therein, in each case, as
are customarily requested by the managing underwriter or underwriters to be made
by issuers to underwriters in underwritten offerings of securities similar to
the Warrant and Warrant Shares, and confirm the same in writing if and when
requested; (ii) obtain the written opinion of counsel to the Company and written
updates thereof in form, scope and substance reasonably satisfactory to the
managing underwriter or underwriters, addressed to the underwriters covering the
matters customarily covered in opinions requested in underwritten offerings of
securities similar to the Warrant and Warrant Shares and such other matters as
may be reasonably requested by the managing underwriter or underwriters; (iii)
if entitled, obtain "cold comfort" letters and updates thereof in form, scope
and substance reasonably satisfactory to the managing underwriter or
underwriters from the independent certified public accountants of the Company
(and, if necessary, any other independent certified public accountants of any
subsidiary of the Company or of any business acquired by the Company for which
financial statements and financial data are, or are required to be, included or
incorporated by reference in the Registration Statement), addressed to each of
the underwriters, such letters to be in such underwriter's customary form and
covering matters of the type customarily covered in "cold comfort" letters in
connection with underwritten offerings of securities similar to the Warrant and
Warrant Shares and such other matters as reasonably requested by the managing
underwriter or underwriters; and (iv) if an underwriting agreement is entered
into, the same shall contain indemnification provisions and procedures in
customary form and covering matters customarily covered in connection with
underwritten offerings of securities similar to the Warrant and Warrant Shares
with respect to all parties to be indemnified pursuant to said Section. The
above shall be done at each closing under such underwriting agreement, or as and
to the extent required thereunder.
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(n) Make available for inspection by any selling Holder of the
Registrable Securities being sold, an underwriter, if any, participating in any
such disposition of Registrable Securities, and any attorney, accountant or
other agent retained by any such selling Holder or underwriter (collectively,
the "Inspectors"), at the offices where normally kept, during reasonable
business hours, all financial and other records, pertinent corporate documents
and instruments of the Company and its subsidiaries (collectively, the
"Records") as shall be reasonably necessary to enable them to exercise any
applicable due diligence responsibilities, and cause the officers, directors and
employees of the Company and its subsidiaries to supply all information
reasonably requested by any such Inspector in connection with such Registration
Statement; provided, however, that Records that the Company determines, in good
faith, to be confidential and which Records the Company notifies the Inspectors
are confidential shall not be disclosed by the Inspectors unless (A) the
Inspector provides five business days' prior written notice to the Company of
such disclosure and (B)(i) the disclosure of such Records is necessary to avoid
or correct a misstatement or omission in such Registration Statement, (ii) the
release of such Records is ordered pursuant to a subpoena or other order from a
court of competent jurisdiction, (iii) disclosure of such information is, in the
reasonable opinion of counsel for any Inspector, necessary or advisable in
connection with any action, claim, suit or proceeding, directly or indirectly,
involving or potentially involving such Inspector and arising out of, based
upon, relating to, or involving this Agreement or any transactions contemplated
hereby or arising hereunder or (iv) the information in such Records has been
made generally available to the public (other than as a result of an
impermissible disclosure or failure to safeguard by the Inspectors). Each
selling holder of Registrable Securities will be required to agree that
information obtained by it as a result of such inspections shall be deemed
confidential and shall not be used by it as the basis for any market
transactions in the securities of the Company unless and until such information
is generally available to the public (other than as a result of an impermissible
disclosure or failure to safeguard by such person). Each selling Holder of
Registrable Securities will be required to further agree that it will, upon
learning that disclosure of such Records is sought in a court of competent
jurisdiction, give notice to the Company and allow the Company to undertake
appropriate action to prevent disclosure of the Records deemed confidential at
the Company's sole expense.
(o) Comply with all applicable rules and regulations of the
Commission and make generally available to its securityholders earning
statements satisfying the provisions of Section 11(a) of the Securities Act and
Rule 158 thereunder (or any similar rule promulgated under the Securities Act)
no later than 45 days after the end of any 12-month period (or 90-days after the
end of any 12-month period if such period is a fiscal year) commencing on the
first day of the first fiscal quarter of the Company after the effective date of
a Registration Statement, which statements shall cover said 12-month periods.
(p) Cooperate with each seller of Registrable Securities
covered by any Registration Statement and each underwriter, if any,
participating in the disposition of such Registrable Securities and their
respective counsel in connection with the filings, if any, required to be made
with the National Association of Securities Dealers, Inc. (the "NASD").
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(q) Use its reasonable best efforts to take all other steps
necessary or advisable to effect the registration of the Registrable Securities
covered by a Registration Statement contemplated hereby.
(r) Use its reasonable best efforts to have the shares of
Common Stock issued upon exercise of the Warrants listed on any national
securities exchange or quotation system on or through which the Company's Common
Stock is then listed or admitted to trading.
In any underwritten public offering, the underwriters that will
administer the offering will be selected by Huff (if it is participating in such
offering) or the Majority Holders participating in such offering (if Huff is not
so participating in the offering) with the prior written consent of the Company
which consent shall not be unreasonably withheld. No Holder of Registrable
Securities may participate in an underwritten public offering hereunder unless
such Holder (a) agrees to sell such Holder's Registrable Securities on the basis
provided in any underwriting agreements approved by Huff or the Majority Holders
participating in such offering, as applicable, included in such offering and (b)
completes and executes all customary and appropriate questionnaires, powers of
attorney, indemnities, underwriting agreements and other documents required
under the terms of such underwriting agreements.
The Company may require each seller of Registrable Securities as
to which any registration is being effected to furnish to the Company such
information regarding such seller and the distribution of such Registrable
Securities as the Company may, from time to time, reasonably request. The
Company may exclude from such registration the Registrable Securities of any
seller who fails to furnish such information within 20 business days after
receiving such request. Each seller as to which any Shelf Registration is being
effected agrees to furnish promptly to the Company all information required to
be disclosed in order to make the information previously furnished to the
Company by such seller not materially misleading.
Each Holder of Registrable Securities agrees by acquisition of
such Registrable Securities, that, upon actual receipt of any notice from the
Company of the happening of any event of the kind described in Section
9.3(c)(ii), 9.3(c)(iv), 9.3(c)(v), or 9.3(c)(vi) hereof, such Holder will
forthwith discontinue disposition of such Registrable Securities covered by such
Registration Statement or Prospectus to be sold by such Holder until such
Holder's receipt of the copies of the supplemented or amended Prospectus
contemplated by Section 9.3(k) hereof, or until it is advised in writing (the
"Advice") by the Company that the use of the applicable Prospectus may be
resumed, and has received copies of any amendments or supplements thereto.
Section 9.4. Registration Expenses (a) All fees and expenses
incident to the performance of or compliance with this Article IX by the Company
shall be borne by the Company whether or not a Shelf Registration is filed or
becomes effective. Notwithstanding the foregoing, the Holders of any shares of
Registrable Securities being registered shall pay all underwriting discounts,
commissions and placement agent fees attributable to the sale of their
securities.
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(b) The Company shall reimburse the Holders of the Registrable
Securities being registered in a Shelf Registration for the reasonable fees and
disbursements for one counsel (in addition to appropriate local counsel) chosen
by holders of a majority of the Registrable Securities (on an as-converted basis
and taken together as a single class), all such reasonable fees and expenses not
to exceed $50,000 in the aggregate.
Section 9.5. Indemnification
(a) The Company agrees to indemnify and hold harmless each
Holder of shares of Registrable Securities and its affiliates, the officers,
directors, employees, members, partners (whether general or limited) and agents
of each such Person, and each Person, if any, who controls any such Person
within the meaning of either Section 15 of the Securities Act or Section 20 of
the Exchange Act and the officers, directors, employees, members and
representatives of each such control Person (each, a "Participant"), from and
against any and all losses, claims, damages, expenses, penalties, costs of
investigation and other liabilities (including, without limitation, the
reasonable legal fees and other expenses actually incurred in connection with
any suit, action or proceeding or any claim asserted and whether or not such
Participant is a party to any action or proceeding out of which such expenses
arise) (collectively, "Losses") caused by, arising out of or based upon the
Company's breach of any material obligation or covenant in this Article IX, any
untrue statement or alleged untrue statement of a material fact contained in any
Registration Statement (or any amendment thereto) or Prospectus (as amended or
supplemented if the Company shall have furnished any amendments or supplements
thereto) or any preliminary prospectus, or caused by, arising out of or based
upon any omission or alleged omission to state therein a material fact required
to be stated therein or necessary to make the statements therein, in the light
of the circumstances under which they were made, not misleading, except insofar
as such Losses are caused by any untrue statement or omission or alleged untrue
statement or omission made in reliance upon and in conformity with information
relating to any Participant furnished to the Company in writing by such
Participant expressly for use therein; provided, however, that the Company will
not be required to indemnify a Participant (A) if such untrue statement or
omission or alleged untrue statement or omission was contained or made in any
preliminary prospectus and corrected in the Prospectus or any amendment or
supplement thereto and it is established in the related proceeding that such
Participant failed to deliver or provide a copy of the Prospectus (as amended or
supplemented) to such Person with or prior to the confirmation of the sale of
such Registrable Securities sold to such Person if required by applicable law,
unless such failure to deliver or provide a copy of the Prospectus (as amended
or supplemented) shall have been determined by a court of competent jurisdiction
by final and non-appealable judgment (or stipulated in a settlement agreement
reached by all parties involved in any action or proceeding related to such
claim) to have been the result of noncompliance by the Company with Section 9.3
of this Agreement or (B) if (i) such Participant disposed of Registrable
Securities to the Person asserting a claim (based on an untrue statement or
alleged untrue statement or omission or alleged omission) pursuant to a Shelf
Registration and sent or delivered, or was required by law to send or deliver, a
Prospectus to such
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Person in connection with such disposition, and (ii) such Participant actually
received a Suspension Notice or other notice referred to in the penultimate
paragraph of Section 9.3 prior to the date of such disposition and (iii) such
untrue statement or alleged untrue statement or omission or alleged omission was
the reason for the Suspension Notice or other notice referred in such
penultimate paragraph of Section 9.3.
(b) Each Participant agrees, severally and not jointly, to
indemnify and hold harmless the Company, its directors and officers who sign the
Registration Statement and each Person who controls the Company within the
meaning of Section 15 of the Securities Act or Section 20 of the Exchange Act to
the same extent as the foregoing indemnity from the Company to each Participant,
but only (i) for Losses actually incurred by such Persons to the extent such
Losses are based on information relating to such Participant furnished to the
Company in writing by such Participant expressly for use in any Registration
Statement or Prospectus, any amendment or supplement thereto or any preliminary
prospectus or (ii) with respect to any untrue statement or representation made
by such Participant in writing to the Company. The liability of any Participant
under this paragraph shall in no event exceed the proceeds received by such
Participant from sales of its Registrable Securities under the relevant
Registration Statement or Prospectus.
(c) If any suit, action, proceeding (including any governmental
or regulatory investigation), claim or demand shall be brought or asserted
against any Person in respect of which indemnity may be sought pursuant to
either of the two preceding paragraphs, such Person (the "Indemnified Person")
shall promptly notify the Person against whom such indemnity may be sought (the
"Indemnifying Person") in writing, and the Indemnifying Person, upon request of
the Indemnified Person, shall retain counsel reasonably satisfactory to the
Indemnified Person to represent the Indemnified Person and any others the
Indemnifying Person may reasonably designate in such proceeding and shall pay
the reasonable fees and expenses actually incurred by such counsel related to
such proceeding; provided, however, that the failure to so notify the
Indemnifying Person shall not relieve it of any obligation or liability which it
may have hereunder or otherwise (unless and to the extent such Indemnifying
Person has been materially prejudiced by such failure, including, without
limitation, that such failure results in the forfeiture by the Indemnifying
Person of substantial rights and defenses). In any such proceeding, any
Indemnified Person shall have the right to retain its own counsel, but the fees
and expenses of such counsel shall be at the expense of such Indemnified Person
unless (i) the Indemnifying Person and the Indemnified Person shall have
mutually agreed in writing to the contrary, (ii) the Indemnifying Person has
failed to retain counsel reasonably satisfactory to the Indemnified Person and
has assumed the Indemnified Person's defense in a timely fashion or (iii) the
named parties in any such proceeding (including any impleaded parties) include
both the Indemnifying Person and the Indemnified Person and the Indemnified
Person shall have been advised by counsel that the Indemnified Person may have
available to it different defenses that those available to the Indemnifying
Person or that representation of both parties by the same counsel would be
inappropriate under applicable standards of professional conduct due to
differing interests between them. It is understood that, unless there exists a
conflict among Indemnified
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Persons as described in the immediately preceding sentence, the Indemnifying
Person shall not, in connection with any one such proceeding or separate but
substantially similar related proceeding in the same jurisdiction arising out of
the same general allegations or circumstances, be liable for the fees and
expenses of more than one separate firm (in addition to any local counsel) for
all Indemnified Persons, and that all such fees and expenses shall be advanced
or reimbursed promptly as they are incurred. Any such separate firm for the
Participants shall be designated in writing by Holders of a majority of the
Registrable Securities (on an as-converted basis and taken together as a single
class) and any such separate firm for the Company, its directors, its officers
and such control Persons of the Company shall be designated in writing by the
Company. The Indemnifying Person shall not be liable for any settlement of any
proceeding effected without its prior written consent (which consent shall not
be unreasonably withheld or delayed), but if settled with such consent or if
there be a final non-appealable judgment for the plaintiff for which the
Indemnified Person is entitled to indemnification pursuant to this Article IX,
the Indemnifying Person agrees to indemnify and hold harmless each Indemnified
Person from and against any loss or liability by reason of such settlement or
judgment. No Indemnifying Person shall, without the prior written consent of the
Indemnified Person, effect any settlement or compromise of any pending or
threatened proceeding in respect of which any Indemnified Person is or could
have been a party, or indemnity could have been sought hereunder by such
Indemnified Person, unless such settlement (A) includes an unconditional written
release of such Indemnified Person, in form and substance reasonably
satisfactory to such Indemnified Person, from all liability on claims that are
the subject matter of such proceeding and (B) does not include any statement as
to an admission of fault, culpability or failure to act by or on behalf of any
Indemnified Person.
(d) If the indemnification provided for in the first and second
paragraphs of this Section 9.5 is for any reason unavailable to, or insufficient
to hold harmless, an Indemnified Person in respect of any Losses referred to
therein, then each Indemnifying Person under such paragraphs, in lieu of
indemnifying such Indemnified Person thereunder and in order to provide for just
and equitable contribution, shall contribute to the amount paid or payable by
such Indemnified Person as a result of such Losses in such proportion as is
appropriate to reflect (i) the relative benefits received by the Indemnifying
Person or Persons on the one hand and the Indemnified Person or Persons on the
other from the offering of the Registrable Securities or (ii) if the allocation
provided by the foregoing clause (i) is not permitted by applicable law, not
only such relative benefits but also the relative fault of the Indemnifying
Person or Persons on the one hand and the Indemnified Person or Persons on the
other in connection with the statements or omissions or alleged statements or
omissions that resulted in such losses, claims, damages or liabilities (or
actions in respect thereof) as well as any other relevant equitable
considerations. The relative fault of the parties shall be determined by
reference to, among other things, whether the untrue or alleged untrue statement
of a material fact or the omission or alleged omission to state a material fact
relates to information supplied by the Company on the one hand or such
Participant or such other Indemnified Person in writing expressly for use in the
relevant Registration Statement, as the case may be, on the other, the parties'
relative intent, knowledge, access to information and opportunity to correct or
prevent such statement or omission, and any
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other equitable considerations appropriate in the circumstances. The liability
of any Participant under this paragraph shall in no event exceed the proceeds
received by such Participant from sales of its Registrable Securities under the
relevant Registration Statement or Prospectus.
(e) The parties agree that it would not be just and equitable
if contribution pursuant to this Section 9.5 were determined by pro rata
allocation (even if the Participants were treated as one entity for such
purpose) or by any other method of allocation that does not take account of the
equitable considerations referred to in the immediately preceding paragraph. The
amount paid or payable by an Indemnified Person as a result of the losses,
claims, damages and liabilities referred to in the immediately preceding
paragraph shall be deemed to include, subject to the limitations set forth
above, any reasonable legal or other expenses actually incurred by such
Indemnified Person in connection with investigating or defending any such action
or claim. Notwithstanding the provisions of this Section 9.5, in no event shall
a Participant be required to contribute any amount in excess of the amount by
which proceeds received by such Participant from sales of Registrable Securities
exceeds the amount of any Losses that such Participant has otherwise been
required to pay or has paid by reason of such untrue or alleged untrue statement
or omission or alleged omission. No Person guilty of fraudulent
misrepresentation (within the meaning of Section 11(f) of the Securities Act)
shall be entitled to contribution from any Person who was not guilty of such
fraudulent misrepresentation.
(f) The indemnity and contribution agreements contained in this
Section 9.5 will be in addition to any liability that the Indemnifying Persons
may otherwise have to the Indemnified Persons referred to above.
ARTICLE X
MISCELLANEOUS
Section 10.1. Loss or Mutilation. Upon receipt by the Company of
(i) evidence satisfactory to them of the ownership, and the loss, theft,
destruction or mutilation, of the Warrant Certificate and (ii) of indemnity
satisfactory to it or, in the case of mutilation, upon surrender and
cancellation of the mutilated Warrant Certificate, then, in the absence of
notice to the Company that the Warrant or Warrants represented thereby have been
acquired by a bona fide purchaser, the Company shall execute and deliver to the
registered Holder of the lost, stolen, destroyed or mutilated Warrant
Certificate, in exchange for or in lieu thereof, a new Warrant Certificate of
the same tenor and for a like aggregate number of Warrants. Upon the issuance of
any new Warrant Certificate under this Section 10.1, the Company may require the
payment of a sum sufficient to cover any tax or other governmental charge that
may be imposed in relation thereto and other expenses in connection therewith.
Every new Warrant Certificate executed and delivered pursuant to this Section
10.1 in lieu of any lost, stolen or destroyed Warrant Certificate shall
constitute a contractual obligation of the Company, whether or not the allegedly
lost, stolen or destroyed Warrant Certificate shall be at any time enforceable
by anyone, and shall be entitled to the benefits of this Agreement equally and
proportionately with any and all other Warrant
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Certificates duly executed and delivered hereunder. The provisions of this
Section 10.1 are exclusive and shall preclude (to the extent lawful) all other
rights or remedies with respect to the replacement of the mutilated, lost,
stolen, or destroyed Warrant Certificate.
Section 10.2. Payment of Taxes. The Company shall pay any taxes
and other governmental charges that may be imposed under the laws of the United
States of America or any political subdivision or taxing authority thereof or
therein in respect of the issue or delivery of the Warrant or Warrant Shares or
of other securities or property deliverable upon exercise of Warrants (other
than income taxes imposed on the Holders). The Company shall not be required,
however, to pay any tax or other charge imposed in connection with any transfer
involved in the issue of any certificate for Warrant Shares or other securities
or property issuable upon the exercise of the Warrants or payment of cash to any
person other than the Holder of the Warrant Certificate surrendered upon
exercise of a Warrant and in case of such transfer or payment, the Company shall
not be required to issue any stock certificate or pay any cash until such tax or
charge has been paid or it has been established to the Company's satisfaction
that no such tax or charge is due.
Section 10.3. No Merger, Consolidation or Sale of Assets or the
Company. Except as otherwise provided herein, the Company will not merge into or
consolidate with any other Person, or sell or otherwise transfer its property,
assets and business substantially as an entirety to a successor of the Company,
unless the Person resulting from such merger or consolidation, or such successor
of the Company, shall expressly assume, the due and punctual performance and
observance of each and every covenant and condition of this Agreement to be
performed and observed by the Company.
Section 10.4. Reports to Holders. The Company shall file with the
Commission the annual, quarterly and other reports required by Section 13(a),
13(c) or 15(d) of the Exchange Act, regardless of whether such sections of the
Exchange Act are applicable to the Company, and shall provide copies of such
reports to each Holder, without cost to such Holder, within 30 days after the
date it would have been required to file such reports or other information with
the Commission had it been subject to such sections.
Section 10.5. Notices. All notices and other communications
provided for or permitted hereunder shall be made in writing by hand-delivery,
registered first-class mail, next-day air courier or facsimile:
1. if to a holder of Warrant and Warrant Shares, at the most
current address of such holder on the stock books of the Company with a
copy in like manner to the Initial Purchaser as follows:
The Huff Alternative Income Fund L.P.
1776 On the Green
67 Park Place
37
<PAGE> 41
Morristown, NJ 07960
Facsimile No: (973) 984-5818
Attention: Joseph Thornton, Esq.
with a copy to:
Proskauer Rose LLP
1585 Broadway
New York, NY 10036
Facsimile No: (212) 969-2900
Attention: Peter G. Samuels, Esq.
- and -
Greenwich Street Capital Partners II, L.P.
GSCP Offshore Fund, L.P.
Greenwich Fund, L.P.
Greenwich Street Employees Fund, L.P.
TRV Executive Fund, L.P.
c/o Greenwich Street Investments II, L.L.C.,
General Partner
388 Greenwich Street
New York, NY 10010
Facsimile No.: (212) 816-0166
Attention: Matthew Kaufman
with a copy to:
Weil, Gotshal & Manges LLP
767 Fifth Avenue
New York, NY 10153
Facsimile No.: (212) 310-8007
Attention: Michael Nissan, Esq.
2. if to the Company, at the address as follows:
e.spire Communications, Inc.
12975 Worldgate Drive
Herndon, VA 21070
Facsimile No: (703) 639-6023
Attention: Riley M. Murphy, Esq.
with a copy to:
38
<PAGE> 42
Davis, Polk & Wardwell
450 Lexington Avenue
New York, NY 10017
Facsimile No.: (212) 450-4300
Attention: Richard Drucker, Esq.
All such notices and communications shall be deemed to have been
duly given: when delivered by hand, if personally delivered; five business days
after being deposited in the mail, postage prepaid, if mailed; one business day
after being timely delivered to a next-day air courier; and when receipt is
acknowledged by the addressee, if sent by facsimile.
Section 10.6. Subsequent Purchaser. Each party who enters into a
purchase agreement from time to time with the Company as an additional purchaser
of Preferred Stock and Additional Warrants shall execute a counterpart to this
Agreement and shall be deemed a Subsequent Purchaser. Such party shall be bound
by all relevant terms and provisions contained herein pertaining to a Subsequent
Purchaser and shall have all the rights and privileges contained herein granted
to a Subsequent Purchaser; notwithstanding the foregoing, such party may also be
a Holder bound by all relevant terms and provisions pertaining hereto and having
all the rights and privileges pertaining hereto.
39
<PAGE> 43
Section 10.7. Governing Law. THIS AGREEMENT SHALL BE GOVERNED BY
AND CONSTRUED IN ACCORDANCE WITH THE LAWS OF THE STATE OF NEW YORK WITHOUT
GIVING EFFECT TO ANY CONFLICTS OF LAW PROVISIONS.
Section 10.8. Headings. The descriptive headings of the several
Sections of this Agreement are inserted for convenience only and shall not
control or affect the meaning or construction of any of the provisions hereof.
Section 10.9. Severability. In the event that any one or more of
the provisions contained herein, or the application thereof in any circumstances
is held invalid, illegal or unenforceable in any respect for any reason, the
validity, legality and enforceability of any such provision in every other
respect and of the remaining provisions hereof shall not be in any way impaired
or affected thereby, it being intended that all of the rights and privileges of
the parties shall be enforceable to the fullest extent permitted by law.
Section 10.10. Amendment; Waiver. Any provision of this Agreement
may be amended only with the written consent of the Company and the Majority
Holders. The observance of any provision of this Agreement may be waived (either
generally or in a particular instance and either retroactively or prospectively)
only with the written consent of the party to be charged, provided that the
Majority Holders may act on behalf of all such Holders. Notwithstanding anything
to the contrary contained herein, no modification, amendment or supplement may
be made to this Agreement without the consent of each Holder of the then
outstanding Warrants affected thereby if such modification, amendment or
supplement adversely affects the Exercise Price or the Expiration Date. No
modification, amendment or supplement of the preceding sentence may be made
without the consent of each Holder of the then outstanding Warrants. Any
amendment or waiver effected in accordance with this Section 10.10 shall be
binding upon each Holder of a Warrant at the time outstanding, each future
holder of all such securities, and the Company. Any amendment, modification or
supplement to this Agreement which is favorable to Huff and does not treat all
Holders uniformly shall apply equally to Greenwich.
Section 10.11. No Inconsistent Agreements. The Company has not, as
of the date hereof, entered into, nor shall it, on or after the date hereof,
enter into, any agreement that is inconsistent with the rights granted to the
Holders herein or that otherwise conflicts with the provisions hereof.
Section 10.12. Counterparts. This Agreement may be executed in any
number of counterparts and by the parties hereto in separate counterparts, each
of which when so executed shall be deemed to be an original and all of which
taken together shall constitute one and the same agreement. Any counterpart
executed by a Subsequent Purchaser shall, when so executed, be deemed to be an
original and, taken together with all other counterparts executed in connection
with this Agreement, shall constitute one and the same agreement.
40
<PAGE> 44
IN WITNESS WHEREOF, the undersigned parties have caused this
Agreement to be duly executed, their respective corporate seals to be hereunto
affixed, all as of the date on the face hereto.
E.SPIRE COMMUNICATIONS, INC.
By: [SIG]
---------------------------------------
Name:
Title:
THE HUFF ALTERNATIVE INCOME FUND, L.P.
By:
---------------------------------------
Name:
Title:
GREENWICH STREET CAPITAL PARTNERS II, L.P.
By: Greenwich Street Investors II, L.L.C.,
general partner
By:
---------------------------------------
Name:
Title:
GSCP OFFSHORE FUND L.P.
By: Greenwich Street Investors II, L.L.C.,
general partner
By:
---------------------------------------
Name:
Title:
GREENWICH FUND, L.P.
By: Greenwich Street Investors II, L.L.C.,
general partner
By:
---------------------------------------
Name:
Title:
<PAGE> 45
IN WITNESS WHEREOF, the undersigned parties have caused this
Agreement to be duly executed, their respective corporate seals to be hereunto
affixed, all as of the date on the face hereto.
E.SPIRE COMMUNICATIONS, INC.
By:
---------------------------------------
Name:
Title:
THE HUFF ALTERNATIVE INCOME FUND, L.P.
By: /s/ Ed Beaks
---------------------------------------
Name: ED BEAKS
Title: Investment Officer
GREENWICH STREET CAPITAL PARTNERS II, L.P.
By: Greenwich Street Investors II, L.L.C.,
general partner
By:
---------------------------------------
Name:
Title:
GSCP OFFSHORE FUND L.P.
By: Greenwich Street Investors II, L.L.C.,
general partner
By:
---------------------------------------
Name:
Title:
GREENWICH FUND, L.P.
By: Greenwich Street Investors II, L.L.C.,
general partner
By:
---------------------------------------
Name:
Title:
<PAGE> 46
IN WITNESS WHEREOF, the undersigned parties have caused this
Agreement to be duly executed, their respective corporate seals to be hereunto
affixed, all as of the date on the face hereto.
E.SPIRE COMMUNICATIONS, INC.
By:
---------------------------------------
Name:
Title:
THE HUFF ALTERNATIVE INCOME FUND, L.P.
By:
---------------------------------------
Name:
Title:
GREENWICH STREET CAPITAL PARTNERS II, L.P.
By: Greenwich Street Investors II, L.L.C.,
general partner
By: [SIG]
---------------------------------------
Name:
Title:
GSCP OFFSHORE FUND L.P.
By: Greenwich Street Investors II, L.L.C.,
general partner
By: [SIG]
---------------------------------------
Name:
Title:
GREENWICH FUND, L.P.
By: Greenwich Street Investors II, L.L.C.,
general partner
By: [SIG]
---------------------------------------
Name:
Title:
<PAGE> 47
GREENWICH STREET EMPLOYEES FUND, L.P.
By: Greenwich Street Investors II, L.L.C.,
general partner
By: [SIG]
---------------------------------------
Name:
Title:
TRV EXECUTIVE FUND, L.P.
By: Greenwich Street Investors II, L.L.C.,
general partner
By: [SIG]
---------------------------------------
Name:
Title:
Subsequent Purchaser:
By:
---------------------------------------
Name:
Title:
<PAGE> 48
Subsequent Purchaser: THE HONEYWELL INTERNATIONAL INC.
MASTER RETIREMENT TRUST
By: Northern Trust Company,
as trustee
By: /s/ Deborah D. Thomas
---------------------------------------
Name: DEBORAH D. THOMAS
Title: SENIOR VICE PRESIDENT
& DIVISION HEAD
THE NORTHERN TRUST COMPANY EXECUTES THIS
INSTRUMENT AS TRUSTEE OF AFORESAID, AND IS NOT
TO BE HELD LIABLE IN ITS INDIVIDUAL CAPACITY
IN ANY WAY BY REASON OF THIS INSTRUMENT
23
<PAGE> 49
EXHIBIT A
FORM OF WARRANT
E.SPIRE COMMUNICATIONS, INC.
[CUSIP] [CINS] No.____
No. ___________ ___________Warrants
Date:__________
WARRANTS TO PURCHASE SHARES OF COMMON STOCK
This certifies that __________________, or its registered assigns,
is the owner of the number of Warrants set forth above, each of which initially
represents the right to purchase, e.spire COMMUNICATIONS, INC., a Delaware
corporation ("the Company"), _______ shares of Common Stock (each a "Warrant
Share"), par value $.01 per share, of the Company (the "Common Stock"), at the
purchase price equal to the Exercise Price (as defined in the Warrant Agreement)
per share of Common Stock (subject to adjustment as set forth in the Warrant
Agreement) (as defined herein), upon surrender hereof at the offices of the
Company, with the Subscription Form on the reverse hereof duly executed, with
signature guaranteed as therein specified and simultaneous payment in full (by
Fedwire or by certified or official bank or bank cashier's check payable to the
order of the Company, or by a Cashless Exercise (as defined in the Warrant
Agreement) equal to the Exercise Price of the Warrants being exercised) of the
purchase price for the share(s) as to which the Warrant(s) represented by this
Warrant Certificate are exercised, all subject to the terms and conditions
hereof and of the Warrant Agreement.
This Warrant Certificate is issued under and in accordance with a
Warrant Agreement dated as of March 1, 2000 (the "Warrant Agreement"), among
e.spire Communications, Inc., a Delaware corporation, 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 such other parties who may be made a signatory hereto
from time to time and is subject to the terms and provisions contained therein,
to all of which terms and provisions the Holder of this Warrant Certificate
consents by acceptance hereof. The Warrant Agreement is hereby incorporated
herein by reference and made a part thereof. Reference is hereby made to the
Warrant Agreement for a full description of the rights, limitations of rights,
obligations, duties and immunities thereunder of the Company and the Holders of
the Warrants. The summary of the terms of the Warrant Agreement contained in
this Warrant Certificate is qualified in its entirety by express reference to
the Warrant Agreement. All terms used in this Warrant Certificate that are
defined in the Warrant Agreement shall have the meanings assigned to them in the
Warrant Agreement.
Copies of the Warrant Agreement are on file at the offices of the
Company at the following address:
<PAGE> 50
A-2
e.spire Communications, Inc.
12975 Worldgate Drive
Herndon, VA 21070
Facsimile No: (703) 639-6023
Attention: Riley M. Murphy, Esq.
All shares of Common Stock or other securities issuable by the
Company upon the exercise of Warrants shall be validly issued, fully paid and
nonassessable, and the Company shall pay all taxes and other governmental
charges that may be imposed under the laws of the United States of America or
any political subdivision or taxing authority thereof or therein in respect of
the issue or delivery of such shares or of other securities deliverable upon
exercise of Warrants. The Company shall not be required, however, to pay any tax
or other charge imposed in connection with any transfer involved in the issue of
any certificate for Common Stock, and in such case the Company shall not be
required to issue or deliver any stock certificate until such tax or other
charge has been paid or it has been established to the Warrant Agent's and the
Company's satisfaction that no tax or other charge is due.
Subject to the restrictions on transfer set forth in Article VII
of the Warrant Agreement, this Warrant Certificate and all rights hereunder are
transferable by the registered Holder hereof, in whole or in part, on the
register of the Company maintained by the Warrant Agent for such purpose at its
office in New York, New York, upon surrender of this Warrant Certificate duly
endorsed, or accompanied by a written instrument of transfer in form
satisfactory to the Company duly executed, with signatures guaranteed as
specified in the attached Form of Assignment, by the registered Holder hereof or
his attorney duly authorized in writing and upon payment of any necessary
transfer tax or other governmental charge imposed upon such transfer. Upon any
partial transfer, the Company will issue and will deliver to such Holder a new
Warrant Certificate or Certificates with respect to any portion not so
tramferred. Each taker and Holder of this Warrant Certificate, by taking and
holding the same, consents and agrees that prior to the registration of transfer
as provided in the Warrant Agreement, the Company and the Warrant Agent may
treat the person in whose name the Warrants are registered as the absolute owner
hereof for any purpose and as the person entitled to exercise the rights
represented hereby, any notice to the contrary notwithstanding.
This Warrant Certificate may be exchanged at the office of the
Company for Warrant Certificates representing the same aggregate number of
Warrants, each new Warrant Certificate to represent such number of Warrants as
the Holder hereof shall designate at the time of such exchange.
Prior to the exercise of the Warrants represents hereby, the
Holder of this Warrant Certificate, as such, shall not be entitled to any rights
of a stockholder of the Company,
<PAGE> 51
A-3
including, without limitation, the right to vote or to consent to any action of
the stockholders, to receive dividends or other distributions, to exercise any
preemptive right or to receive any notice of meetings of stockholders, and shall
not be entitled to receive any notice of any proceedings of the Company except
as provided in the Warrant Agreement.
This Warrant shall be void and all rights evidenced hereby shall
cease at 5:00 p.m., New York time, on March 1, 2010, unless sooner terminated by
the liquidation, dissolution or winding-up of the Company.
This Warrant Certificate shall not be valid for any purpose until
it shall have been countersigned by the Warrant Agent.
Dated:
E.SPIRE COMMUNICATIONS, INC.
By:
--------------------------------
Name:
Title:
<PAGE> 52
A-4
FORM OF REVERSE OF WARRANT
SUBSCRIPTION FORM
(To be executed only upon exercise of Warrant)
To:
The undersigned irrevocably exercise [________________] of the
Warrants represented by the Warrant Certificate for the purchase of _____
(subject to adjustment) shares of Common Stock, par value $.01 per share, of E.
SPIRE COMMUNICATIONS, INC. and herewith makes payment of $[__________] (such
payment being by Fedwire or by certified or official bank or bank cashier's
check payable to the order or at the direction of E. Spire Communications, Inc.,
or by a Cashless Exercise (as defined in the Warrant Certificate) equal to the
Exercise Price per share of the date of exercise of the Warrants being
exercised), all at the exercise price and on the terms and conditions specified
in the within Warrant Certificate therein referred to, surrenders this Warrant
Certificate and all right, title and interest therein to and directs that the
shares of Common Stock deliverable upon the exercise of such Warrants be
registered or placed in the name and at the address specified below and
delivered thereto.
Dated:
------------------------
(Signature of Owner)
------------------------
(Street Address)
------------------------
(City) (State) (Zip Code)
Signature Guaranteed By:
------------------------
Securities and/or check to be issued to:
Please insert social security or identifying number:
Name:
Street Address:
City, State and Zip Code:
<PAGE> 53
A-5
FORM OF ASSIGNMENT
FOR VALUE RECEIVED the undersigned registered holder of the within
Warrant Certificate hereby sells, assigns, and transfers unto the Assignee(s)
named below (including the undersigned with respect to any Warrants constituting
a part of the Warrants evidenced by the within Warrant Certificate not being
assigned hereby) all of the right of the undersigned under the within Warrant
Certificate, with respect to the number of Warrants set forth below:
Name(s) of Assignee(s):
------------------------------
Address:
---------------------------------------------
No. of Warrants:
------------------------------------
Please insert social security or other identifying number of assignee(s):
and does hereby irrevocably constitute and appoint ____________________ the
undersigned's attorney to make such transfer on the books of
_____________________ maintained for the purpose, with full power of
substitution in the premises.
Dated:
--------------------------
(Signature of Owner)
--------------------------
(Street Address)
--------------------------
(City) (State) (Zip Code)
Signature Guaranteed By:
--------------------------
<PAGE> 1
EXHIBIT 11
e.spire COMMUNICATIONS, INC.
STATEMENT RE COMPUTATION OF PER SHARE EARNINGS (LOSS)
($ IN THOUSANDS, EXCEPT PER SHARE DATA)
<TABLE>
<CAPTION>
For the years ended December 31,
-------------------------------------------------------
1999 1998 1997
------------ ------------ ------------
<S> <C> <C> <C>
Net Loss $ (277,748) $ (163,079) $ (115,016)
Less: Preferred Stock Accretion 40,646 36,080 11,630
------------ ------------ ------------
Net Loss to Common Stockholders (318,394) (199,159) (126,646)
Add: Convertible Preferred Dividends Saved 40,646 36,080 11,630
------------ ------------ ------------
Net Loss to Common Stockholders, Dilutive Basis $ (277,748) $ (163,079) $ (115,016)
============ ============ ============
AVERAGE SHARES OUTSTANDING
--------------------------
Weighted Average Number of
Common Shares Outstanding 49,891,910 44,751,690 27,233,642
Net additional shares assuming stock options and warrants
exercised and proceeds used to purchase treasury stock 3,679,665 10,040,034 7,147,462
------------ ------------ ------------
Weighted average number of common and
common equivalent shares outstanding 53,571,575 54,791,724 34,381,104
============ ============ ============
PER SHARE AMOUNTS
-----------------
Basic earnings per share $ (6.38) $ (4.45) $ (4.65)
============ ============ ============
Diluted earnings per share $ (5.18) $ (2.98) $ (3.35)
============ ============ ============
</TABLE>
<PAGE> 1
Exhibit 23.1
INDEPENDENT AUDITORS' CONSENT
The Board of Directors
e.spire Communications, Inc.:
We consent to incorporation by reference in the registration statements (No.
33-99964, 33-19089, 333-43069, 33-99964, 333-19089, 333-47869, 333-51511,
333-58457, 333-60003, 333-71387, 333-31008, 333-35925, 333-40037, 333-41653,
333-47155, 333-64079) on Forms S-3 and S-8 of e.spire Communications, Inc. of
our reports dated March 24, 2000, except as to notes 2, 8 and 19, which are as
of April 13, 2000, relating to the consolidated balance sheets of e.spire
Communications, Inc. as of December 31, 1998 and 1999, and the related
consolidated statements of operations, stockholders' deficit and cash flows for
each of the years in the three-year period ended December 31, 1999, and the
related schedule, which reports appear in the December 31, 1999, annual report
on Form 10-K of e.spire Communications, Inc.
Our report refers to a change in the Company's method of accounting for revenue
recognition associated with leasing its fiber-optic network.
/s/ KPMG LLP
McLean, Virginia
April 14, 2000
E-4
<TABLE> <S> <C>
<ARTICLE> 5
<LEGEND>
THIS SCHEDULE CONTAINS SUMMARY FINANCIAL INFORMATION EXTRACTED FROM e.spire
COMMUNICATIONS, INC. FORM 10-K FOR THE PERIOD ENDED 12/31/99 AND IS QUALIFIED IN
ITS ENTIRETY BY REFERENCE TO SUCH FINANCIAL STATEMENTS.
</LEGEND>
<MULTIPLIER> 1,000
<S> <C>
<PERIOD-TYPE> 12-MOS
<FISCAL-YEAR-END> DEC-31-1999
<PERIOD-END> DEC-31-1999
<CASH> 81,279
<SECURITIES> 0
<RECEIVABLES> 139,977
<ALLOWANCES> (28,707)
<INVENTORY> 9,435
<CURRENT-ASSETS> 201,984
<PP&E> 848,698
<DEPRECIATION> (166,224)
<TOTAL-ASSETS> 941,242
<CURRENT-LIABILITIES> 255,639
<BONDS> 749,406
0
281,596
<COMMON> 511
<OTHER-SE> (401,706)
<TOTAL-LIABILITY-AND-EQUITY> 941,242
<SALES> 0
<TOTAL-REVENUES> 244,009
<CGS> 159,368
<TOTAL-COSTS> 276,596
<OTHER-EXPENSES> (10,602)
<LOSS-PROVISION> 0
<INTEREST-EXPENSE> 96,395
<INCOME-PRETAX> (277,748)
<INCOME-TAX> 0
<INCOME-CONTINUING> (277,748)
<DISCONTINUED> 0
<EXTRAORDINARY> 0
<CHANGES> 0
<NET-INCOME> (277,748)
<EPS-BASIC> (6.38)
<EPS-DILUTED> (6.38)
</TABLE>
<PAGE> 1
EXHIBIT 99.1
E.SPIRE COMMUNICATIONS, INC.
SUPPLEMENTAL FINANCIAL INFORMATION
YEAR TO DATE - DECEMBER 31, 1999
($'S IN THOUSANDS)
<TABLE>
<CAPTION>
Networks Placed Networks Placed Networks Placed
in Service in Service in Service
Prior to 12/31/95 During 1996 During 1997
------------------------ ------------------------ -------------------------
<S> <C> <C> <C>
Property, Plant & Equipment $ 175,077 $ 145,130 $ 178,872
Revenues $ 58,203 $ 41,676 $ 41,092
EBITDA $ 10,866 $ 1,799 $ (8,800)
EBIT $ (2,861) $ (8,572) $ (22,968)
Network Statistics (cumulative)
- -------------------------------
Access Lines Installed 69,476 40,760 49,050
Fiber Miles 46,882 42,072 45,622
Route Miles 784 494 398
Buildings Connected 1,703 931 1,304
Voice Grade Equivalents 822,089 438,743 555,075
</TABLE>
<TABLE>
<CAPTION>
Networks Placed Networks Placed
in Service in Service
During 1998 During 1999 Total
---------------------- ----------------------- -------------------
<S> <C> <C> <C>
Property, Plant & Equipment $ 57,320 $ 132,397 $ 688,796
Revenues $ 7,267 $ 1,314 $ 149,552
EBITDA $ (14,086) $ (8,213) $ (18,433)
EBIT $ (18,641) $ (14,451) $ (67,492)
Network Statistics (cumulative)
- -------------------------------
Access Lines Installed 4,933 1,071 165,290
Fiber Miles 24,823 17,100 176,499
Route Miles 159 335 2,169
Buildings Connected 210 1 4,149
Voice Grade Equivalents 74,813 12,330 1,903,050
</TABLE>
<PAGE> 1
EXHIBIT 99.2
INDEPENDENT AUDITORS' REPORT
The Board of Directors
e.spire Communications, Inc.:
Under date of March 24, 2000, except as to notes 2, 8, and 19, which are as of
April 13, 2000, we reported on the consolidated balance sheets of e.spire
Communications, Inc. as of December 31, 1998 and 1999, and the related
consolidated statements of operations, stockholders' deficit, and cash flows for
each of the years in the three-year period ended December 31, 1999, which are
included in this Annual Report on Form 10-K. In connection with our audits of
the aforementioned financial statements, we also audited the related financial
statement schedule. This financial statement schedule is the responsibility of
the Company's management. Our responsibility is to express an opinion on this
financial statement schedule based on our audits.
In our opinion, such financial statement schedule, when considered in relation
to the basic consolidated financial statements taken as a whole, presents
fairly, in all material respects, the information set forth therein.
/s/ KPMG LLP
McLean, Virginia
April 14, 2000
