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As filed with the Securities and Exchange Commission on October 21, 1997
REGISTRATION NO. 333-
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SECURITIES AND EXCHANGE COMMISSION
WASHINGTON, D.C. 20549
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FORM S-4
REGISTRATION STATEMENT
UNDER THE SECURITIES ACT OF 1933
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HIGHWAYMASTER COMMUNICATIONS, INC.
HIGHWAYMASTER CORPORATION
(Exact names of registrants as specified in their charters)
<TABLE>
<S> <C> <C>
DELAWARE 4812 51-035289
DELAWARE 4812 51-0340340
(States or other jurisdictions of (Primary Standard Industrial (I.R.S. Employer Identification Nos.)
incorporation or organization) Classification Code Numbers)
</TABLE>
16479 DALLAS PARKWAY, SUITE 710
DALLAS, TEXAS 75248
(972) 732-2500
(Address, including zip code, and telephone number, including area code, of
registrants' principal executive offices)
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WESLEY E. SCHLENKER
16479 DALLAS PARKWAY, SUITE 710
DALLAS, TEXAS 75248
(972) 732-2500
(Name, address, including zip code, and telephone number, including area code,
of agent for service)
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COPY TO:
GEOFFREY L. NEWTON
BAKER & BOTTS, L.L.P.
2001 ROSS AVENUE
DALLAS, TEXAS 75201
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APPROXIMATE DATE OF COMMENCEMENT OF PROPOSED SALE OF THE SECURITIES TO THE
PUBLIC: As soon as practicable after this registration statement becomes
effective.
If the securities being registered on this form are being offered in
connection with the formation of a holding company and there is compliance with
General Instruction G, check the following box. [ ]
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CALCULATION OF REGISTRATION FEE
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TITLE OF EACH CLASS OF PROPOSED MAXIMUM PROPOSED MAXIMUM
SECURITIES TO BE AMOUNT TO BE OFFERING PRICE PER AGGREGATE OFFERING AMOUNT OF
REGISTERED REGISTERED NOTE(1) PRICE(1) REGISTRATION FEE
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<S> <C> <C> <C> <C>
Series B 13 3/4% Senior Notes due
September 15, 2005................... $125,000,000 100% $125,000,000 $37,879
- --------------------------------------------------------------------------------------------------------------------
Subsidiary Guarantee(2).............. N/A N/A N/A N/A
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</TABLE>
(1) Estimated solely for the purpose of calculating the registration fee
pursuant to Rule 457(f) under the Securities Act of 1933, as amended.
(2) HighwayMaster Corporation, a Delaware corporation, and a wholly owned
subsidiary of HighwayMaster Communications, Inc., is registering a
guarantee of the obligations of HighwayMaster Communications, Inc. in
respect of the Senior Notes being registered hereby. Pursuant to Rule
457(n) under the Securities Act of 1933, as amended, no registration fee is
required with respect to such guarantee.
THE REGISTRANT HEREBY AMENDS THIS REGISTRATION STATEMENT ON SUCH DATE OR
DATES AS MAY BE NECESSARY TO DELAY ITS EFFECTIVE DATE UNTIL THE REGISTRANT SHALL
FILE A FURTHER AMENDMENT WHICH SPECIFICALLY STATES THAT THIS REGISTRATION
STATEMENT SHALL THEREAFTER BECOME EFFECTIVE IN ACCORDANCE WITH SECTION 8(A) OF
THE SECURITIES ACT OF 1933 OR UNTIL THE REGISTRATION STATEMENT SHALL BECOME
EFFECTIVE ON SUCH DATE AS THE COMMISSION, ACTING PURSUANT TO SAID SECTION 8(A),
MAY DETERMINE.
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<PAGE> 2
INFORMATION CONTAINED HEREIN IS SUBJECT TO COMPLETION OR AMENDMENT. A
REGISTRATION STATEMENT RELATING TO THESE SECURITIES HAS BEEN FILED WITH THE
SECURITIES AND EXCHANGE COMMISSION. THESE SECURITIES MAY NOT BE SOLD NOR MAY
OFFERS TO BUY BE ACCEPTED PRIOR TO THE TIME THE REGISTRATION STATEMENT BECOMES
EFFECTIVE. THIS PROSPECTUS SHALL NOT CONSTITUTE AN OFFER TO SELL OR THE
SOLICITATION OF AN OFFER TO BUY NOR SHALL THERE BE ANY SALE OF THESE SECURITIES
IN ANY STATE IN WHICH SUCH OFFER, SOLICITATION OR SALE WOULD BE UNLAWFUL PRIOR
TO REGISTRATION OR QUALIFICATION UNDER THE SECURITIES LAWS OF ANY SUCH STATE.
SUBJECT TO COMPLETION, DATED OCTOBER 21, 1997
PROSPECTUS
HIGHWAYMASTER COMMUNICATIONS, INC.
OFFER TO EXCHANGE ITS SERIES B 13 3/4% SENIOR NOTES DUE 2005 FOR ANY AND
ALL OF ITS OUTSTANDING SERIES A 13 3/4% SENIOR NOTES DUE 2005
THE EXCHANGE OFFER WILL EXPIRE AT 5:00 P.M., NEW YORK CITY TIME, ON ,
1997, UNLESS EXTENDED.
HighwayMaster Communications, Inc., a Delaware corporation (the
"Company" or "HighwayMaster"), hereby offers (the "Exchange Offer"), upon the
terms and conditions set forth in this Prospectus (the "Prospectus") and the
accompanying Letter of Transmittal (the "Letter of Transmittal"), to exchange
$1,000 principal amount of its Series B 13 3/4% Senior Notes due 2005 (the
"Exchange Notes"), which have been registered under the Securities Act of 1933,
as amended (the "Securities Act"), pursuant to a Registration Statement of which
this prospectus is a part, for each $1,000 principal amount of its outstanding
Series A 13 3/4% Senior Notes due 2005 (the "Old Notes" and, together with the
Exchange Notes, the "Notes"), of which $125,000,000 principal amount is
outstanding as of the date hereof. The form and terms of the Exchange Notes are
the same as the form and terms of the Old Notes (which they are intended to
replace) except that the Exchange Notes will bear a Series B designation and
have been registered under the Securities Act and, therefore, will not bear
legends restricting their transfer. See "The Exchange Offer." The Exchange Notes
will evidence the same debt as the Old Notes (which they are intended to
replace) and will be issued under and be entitled to the benefits of the
Indenture (the "Indenture") dated September 23, 1997 between the Company,
HighwayMaster Corporation ("HMC") and Texas Commerce Bank National Association,
as Trustee (the "Trustee"), governing the Notes. See "The Exchange Offer" and
"Description of Exchange Notes."
Interest on the Exchange Notes will be payable semi-annually in arrears
on March 15 and September 15 of each year, commencing March 15, 1998. The
Exchange Notes will mature on September 15, 2005. The Company will not be
required to make any mandatory sinking fund or redemption payments with respect
to the Exchange Notes. The Exchange Notes will be redeemable at the option of
the Company at any time on or after September 15, 2001 at the redemption prices
set forth herein, plus accrued and unpaid interest and Liquidated Damages (as
defined herein), if any, to the redemption date. In addition, the Company will
be entitled, at any time on or before September 15, 2000, to redeem up to 35% of
the aggregate principal amount of the Exchange Notes with the proceeds of any
Equity Investment (as defined herein) at a redemption price equal to 113.75% of
the principal amount of the Exchange Notes, plus accrued and unpaid interest and
Liquidated Damages, if any, to the redemption date; provided, however, that at
least 65% of the aggregate principal amount of Notes initially issued remains
outstanding after giving effect to such redemption. See "Description of Exchange
Notes -- Optional Redemption."
Upon the occurrence of a Change of Control (as defined herein), the
Company will be required to make an offer to repurchase all or any part of the
Exchange Notes at a price equal to 101% of the aggregate principal amount
thereof, plus accrued and unpaid interest and Liquidated Damages, if any,
thereon to the date of repurchase. See "Description of Exchange Notes
- --Repurchase at the Option of Holders." (Cover text continued on next page.)
SEE "RISK FACTORS" ON PAGE 18 FOR A DESCRIPTION OF CERTAIN RISKS TO BE
CONSIDERED BY HOLDERS WHO TENDER THEIR NOTES IN THE EXCHANGE OFFER.
THESE SECURITIES HAVE NOT BEEN APPROVED OR DISAPPROVED BY THE SECURITIES
AND EXCHANGE COMMISSION OR ANY STATE SECURITIES COMMISSION NOR HAS
THE COMMISSION OR ANY STATE SECURITIES COMMISSION PASSED UPON THE
ACCURACY OR ADEQUACY OF THIS PROSPECTUS. ANY REPRESENTATION
TO THE CONTRARY IS A CRIMINAL OFFENSE.
The date of this Prospectus is , 1997
<PAGE> 3
The Old Notes were issued by the Company in an offering (the "Units
Offering") of 125,000 units (the "Units"), each consisting of $1,000 principal
amount of Old Notes and one warrant (a "Warrant") to purchase 6.566 shares of
common stock, par value $.01 per share ("Common Stock"), of the Company,
consummated on September 23, 1997. The Company used approximately $46.6 of the
proceeds from the sale of the Units in the Units Offering to purchase a
portfolio of U.S. government securities (the "Pledged Securities") which will
provide funds sufficient to pay in full when due the first six scheduled
interest payments on the Notes. The Pledged Securities have been pledged as
security for the repayment of principal of and interest on the Notes, liquidated
Damages, if any, and all other obligations under the Indenture.
The Company is a holding company and substantially all of its
operations are conducted through HMC, its operating subsidiary. The obligations
of the Company under the Exchange Notes will be guaranteed (the "Subsidiary
Guarantees") on a senior unsecured basis by HMC and certain future subsidiaries
of the Company (collectively, the "Restricted Subsidiaries"). See "Description
of Exchange Notes -- Subsidiary Guarantees."
The Exchange Notes and the Subsidiary Guarantees will be senior
obligations of the Company and the Restricted Subsidiaries, respectively, and
will rank pari passu in right of payment with all other senior indebtedness of
the Company and the Restricted Subsidiaries, as applicable, and will rank senior
in right of payment to any future subordinated indebtedness of the Company and
the Restricted Subsidiaries, as applicable. As of June 30, 1997, after giving
effect to the Units Offering, the Company on a consolidated basis had
outstanding indebtedness with a principal amount of $125.0 million ($120.8
million net of debt discount) and $9.2 million of other senior liabilities
(including trade payables). The Indenture permits the Company and its
subsidiaries to incur additional senior indebtedness, subject to certain
limitations. See "Description of Exchange Notes -- Ranking" and "-- Certain
Covenants."
The Company will accept for exchange any and all Old Notes validly
tendered and not withdrawn prior to 5:00 p.m., New York time, on ,
1997, unless extended by the Company in its sole discretion (the "Expiration
Date"). Tenders of Old Notes may be withdrawn at any time prior to 5:00 p.m. on
the Expiration Date. The Exchange Offer is subject to certain customary
conditions. The Old Notes were sold by the Company on September 23, 1997 to the
Initial Purchasers (as defined herein) in the Units Offering, which was a
transaction effected without registration under the Securities Act in reliance
upon an exemption under the Securities Act. The Initial Purchasers subsequently
placed the Old Notes with qualified institutional buyers in reliance upon Rule
144A under the Securities Act and pursuant to offers and sales that occurred
outside the United States within the meaning of Regulation S under the
Securities Act. Accordingly, the Old Notes may not be reoffered, resold or
otherwise transferred unless registered under the Securities Act or unless an
applicable exemption from the registration requirements of the Securities Act
is available. The Exchange Notes are being offered hereunder in order to
satisfy the obligations of the Company under the Registration Rights Agreement
(as defined herein) entered into by the Company in connection with the offering
of the Old Notes. See "The Exchange Offer."
Based on no-action letters issued by the staff of the Securities and
Exchange Commission (the "Commission") to third parties, the Company believes
the Exchange Notes issued pursuant to the Exchange Offer may be offered for
resale, resold and otherwise transferred by any holder thereof (other than any
such holder that is an "affiliate" of the Company within the meaning of Rule 405
under the Securities Act) without compliance with the registration and
prospectus delivery provisions of the Securities Act, provided that such
Exchange Notes are acquired in the ordinary course of such holder's business and
such holder has no arrangement or understanding with any person to participate
in the distribution of such Exchange Notes. See "The Exchange Offer -- Purpose
and Effect of the Exchange Offer" and "The Exchange Offer -- Resale of the
Exchange Notes." Each broker-dealer (a "Participating Broker-Dealer") that
receives Exchange Notes for its own account pursuant to the Exchange Offer must
acknowledge that it will deliver a prospectus in connection with any resale of
such Exchange Notes. The Letter of Transmittal states that by so acknowledging
and by delivering a prospectus, a Participating Broker-Dealer will not be deemed
to admit that it is an "underwriter" within the meaning of the Securities Act.
This Prospectus, as it may be amended or supplemented from time to time, may be
used by a Participating Broker-Dealer as a result of market-making activities or
other trading
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<PAGE> 4
activities. The Company has agreed that, for a period of 180 days after the
Expiration Date, it will make this Prospectus available to any Participating
Broker-Dealer for use in connection with any such resale. See "Plan of
Distribution."
There has not previously been any public market for the Old Notes or
the Exchange Notes. Although the Initial Purchasers have informed the Company
that they currently intend to make a market in the Exchange Notes, they are not
obligated to do so, and any such market-making activities with respect to the
Exchange Notes may be discontinued at any time without notice. The Company does
not intend to list the Exchange Notes on any securities exchange or to seek
approval for quotation through any automated quotation system.
Any Old Notes not tendered and accepted in the Exchange Offer will
remain outstanding and will be entitled to all the rights and will be subject to
the limitations applicable thereto under the Indenture. Following consummation
of the Exchange Offer, the holders of Old Notes will continue to be subject to
the existing restrictions upon transfer thereof and the Company will have no
further obligation to such holders to provide for registration under the
Securities Act of the Old Notes held by them. To the extent that Old Notes are
tendered and accepted in the Exchange Offer, a holder's ability to sell
untendered Old Notes could be adversely affected. See "Risk Factors -- Exchange
Offer Procedures" and "Exchange Offer -- Consequences of Failure to Exchange."
The Exchange Notes will be available initially only in book-entry form.
The Company expects that the Exchange Notes issued pursuant to this Exchange
Offer will be issued in the form of one or more Global Notes (as defined
herein), which will be deposited with, or on behalf of, The Depository Trust
Company (the "Depositary") and registered in its name or in the name of Cede &
Co., its nominee. Beneficial interests in a Global Note representing the
Exchange Notes will be shown on, and transfers thereof will be effected through,
records maintained by the Depositary and its participants. After the initial
issuance of the Global Notes, Exchange Notes in certificated form will be issued
in exchange for a Global Note only on the terms set forth in the Indenture. See
"Description of Exchange Notes -- Book Entry, Delivery and Form."
THIS PROSPECTUS AND THE RELATED LETTER OF TRANSMITTAL CONTAIN IMPORTANT
INFORMATION. HOLDERS OF OLD NOTES ARE URGED TO READ THIS PROSPECTUS AND THE
RELATED LETTER OF TRANSMITTAL CAREFULLY BEFORE DECIDING WHETHER TO TENDER
THEIR OLD NOTES PURSUANT TO THE EXCHANGE OFFER.
This Prospectus, together with the Letter of Transmittal, is being sent
to all registered holders of Old Notes as of , 1997.
The Company will not receive any cash proceeds from the issuance of the
Exchange Notes offered hereby. No dealer-manager is being used in connection
with this Exchange Offer. The Company will pay all expenses incurred by it
incident to the Exchange Offer. See "Use of Proceeds" and "Plan of
Distribution."
The Exchange Offer is not being made to, nor will tenders be accepted
from or on behalf of, holders of the Old Notes in any jurisdiction in which the
making of the Exchange Offer or acceptance thereof would not be in compliance
with the laws of such jurisdiction or would otherwise not be in compliance with
any provision of any applicable security law.
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AVAILABLE INFORMATION
The Company has filed with the Commission a Registration Statement on
Form S-4 (the "Exchange Offer Registration Statement," which term shall
encompass all amendments, exhibits and schedules thereto) pursuant to the
Securities Act, and the rules and regulations promulgated thereunder, covering
the Exchange Notes being offered hereby. This Prospectus does not contain all of
the information set forth in the Exchange Offer Registration Statement. For
further information with respect to the Company and the Exchange Offer,
reference is made to the Exchange Offer Registration Statement. Statements made
in this Prospectus as to the contents of any contract, agreement or other
document referred to are not necessarily complete. With respect to each such
contract, agreement or other document filed as an exhibit to the Exchange Offer
Registration Statement, reference is made to the exhibit for a more complete
description of the document or matter involved, and each such statement shall be
deemed qualified in its entirety by such reference.
The Company is subject to the informational requirements of the
Securities Exchange Act of 1934, as amended (the "Exchange Act"), and in
accordance therewith, files reports, proxy statements and other information with
the Commission. Such reports, proxy statements and other information can be
inspected and copied at the public reference facilities maintained by the
Commission at Judiciary Plaza, Room 1024, 450 Fifth Street, N.W., Washington,
D.C. 20549; the Chicago Regional Office, Suite 1400, 500 West Madison Street,
Northwest Atrium Center, Chicago, Illinois 60661; and the New York Regional
Office, Suite 1300, 7 World Trade Center, New York, New York 10048. Copies of
such material also can be obtained from the Public Reference Section of the
Commission at 450 Fifth Street, N.W., Washington, D.C. 20549, at prescribed
rates. The Commission maintains a Web site on the Internet that contains
reports, proxy and information statements and other information regarding
registrants that file electronically with the Commission. The address of this
site on the Internet is http://www.sec.gov.
The Indenture provides that, whether or not required by the rules and
regulations of the Commission, so long as any Notes are outstanding, the Company
will furnish to the holders thereof (i) all quarterly and annual financial
information that would be required to be contained in a filing with the
Commission on Forms 10-Q and 10-K if the Company were required to file such
forms, including a "Management's Discussion and Analysis of Financial Condition
and Results of Operations" that describes the financial condition and results of
operations of the Company and its subsidiaries and, with respect to the annual
information only, a report thereon by the Company's certified independent
accountants and (ii) all current reports that would be required to be filed with
the Commission on Form 8-K if the Company were required to file such reports. In
addition, whether or not required by the rules and regulations of the
Commission, the Company will file a copy of all such information and reports
with the Commission for public availability (unless the Commission will not
accept such a filing) and make such information available to securities analysts
and prospective investors upon request. In addition, the Company has agreed
that, for so long as any Notes remain outstanding, it will furnish to the
holders thereof and to securities analysts and prospective investors, upon their
request, the information required to be delivered pursuant to Rule 144A(d)(4)
under the Securities Act.
INCORPORATION OF CERTAIN DOCUMENTS BY REFERENCE
The Company hereby incorporates by reference in this Prospectus the
following documents, which have been filed with the Commission pursuant to the
Exchange Act: (i) the Company's Annual Report on Form 10-K for the year ended
December 31, 1996; (ii) the Company's Quarterly Report on Form 10-Q for the
quarter ended March 31, 1997; and (iii) the Company's Quarterly Report on Form
10-Q for the quarter ended June 30, 1997.
In addition, all documents filed by the Company with the Commission
pursuant to Sections 13(a), 13(c), 14 or 15(d) of the Exchange Act after the
date hereof and prior to the termination of the Exchange Offer shall be deemed
to be incorporated herein by reference and to be a part hereof from the
respective dates of the filing of such documents. Any statement contained in a
document incorporated or deemed to be incorporated by reference herein shall be
deemed to be modified or superseded for purposes of this Prospectus to the
extent that a statement contained herein or in any other subsequently filed
document which also is or is deemed to be incorporated by reference herein
modifies or
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<PAGE> 6
supersedes such statement. Any such statement so modified or superseded shall
not be deemed, except as so modified or superseded, to constitute a part of this
Prospectus.
The Company will provide without charge to each person, including any
beneficial owner, to whom a Prospectus is delivered, upon the written or oral
request of such person, a copy of any and all of the documents incorporated by
reference herein, other than certain exhibits to such documents (unless such
exhibits are specifically incorporated by reference into the documents that this
Prospectus incorporates). Such requests should be addressed to Wesley E.
Schlenker, General Counsel and Secretary, HighwayMaster Communications, Inc.,
16479 Dallas Parkway, Suite 710, Dallas, Texas 75248; telephone (972) 732-2500.
DISCLOSURE REGARDING FORWARD-LOOKING STATEMENTS: THIS PROSPECTUS
INCLUDES "FORWARD-LOOKING STATEMENTS" WITHIN THE MEANING OF SECTION 27A OF THE
SECURITIES ACT AND SECTION 21E OF THE EXCHANGE ACT. ALL STATEMENTS OTHER THAN
STATEMENTS OF HISTORICAL FACTS INCLUDED IN THIS PROSPECTUS, INCLUDING WITHOUT
LIMITATION, CERTAIN STATEMENTS UNDER THE "PROSPECTUS SUMMARY," "MANAGEMENT'S
DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS OF OPERATIONS" AND
"BUSINESS," MAY CONSTITUTE FORWARD-LOOKING STATEMENTS. ALTHOUGH THE COMPANY
BELIEVES THAT THE EXPECTATIONS REFLECTED IN SUCH FORWARD-LOOKING STATEMENTS ARE
REASONABLE, IT CAN GIVE NO ASSURANCE THAT SUCH EXPECTATIONS WILL PROVE TO BE
CORRECT. IMPORTANT FACTORS THAT COULD CAUSE ACTUAL RESULTS TO DIFFER MATERIALLY
FROM THE COMPANY'S EXPECTATIONS ("CAUTIONARY STATEMENTS") ARE DISCLOSED IN THIS
PROSPECTUS, INCLUDING WITHOUT LIMITATION IN CONJUNCTION WITH THE FORWARD-LOOKING
STATEMENTS INCLUDED IN THIS PROSPECTUS AND UNDER "RISK FACTORS." ALL SUBSEQUENT
WRITTEN AND ORAL FORWARD-LOOKING STATEMENTS ATTRIBUTABLE TO THE COMPANY OR
PERSONS ACTING ON ITS BEHALF ARE EXPRESSLY QUALIFIED IN THEIR ENTIRETY BY THE
CAUTIONARY STATEMENTS.
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PROSPECTUS SUMMARY
The following summary is qualified in its entirety by the more detailed
information and consolidated financial statements, including the notes thereto,
included elsewhere in this Prospectus. Unless the context otherwise requires,
and except as used in "Description of Exchange Notes," all references in this
Prospectus to the "Company" include HighwayMaster Communications, Inc. and its
operating subsidiary, HMC. Certain technical and other terms used in this
Prospectus are defined in the Glossary included herein.
THE COMPANY
HighwayMaster Communications, Inc. develops and implements mobile
communications solutions, including integrated voice, data and position location
services, to meet the needs of its customers. The initial application for the
Company's wireless enhanced services network has been developed for, and is
currently being marketed and sold to, companies which operate in the long-haul
trucking market. The Company provides long-haul trucking customers with a
comprehensive package of mobile communications and management control services
at low, fixed per minute rates, thereby enabling its trucking customers to
effectively monitor the operations and improve the performance of their fleets.
As of June 30, 1997, the Company had in service an installed base of 25,233
Series 5000 mobile communication units ("Series 5000 Mobile Units") in the
long-haul trucking market and had orders to install an additional 9,059 Series
5000 Mobile Units.
The Company is currently developing new applications for its wireless
enhanced services network to expand the range of trucking companies that utilize
its services and address the needs of the automotive and other markets. The
Company plans to introduce its Series 3000 mobile communication units ("Series
3000 Mobile Units"), which will be less expensive and will offer more limited
functionality than its current long-haul trucking product. The Company intends
to market the Series 3000 Mobile Units primarily to smaller trucking fleets and
owner-operators that can benefit from the Company's enhanced wireless services,
including primarily its nationwide voice communication capabilities, and for
whom protection from fraud, effective call delivery and low airtime charges are
critical requirements. The Company expects that preliminary versions of the
Series 3000 Mobile Unit will be introduced in early 1998, which the Company
believes will be supplanted by a more advanced version of this product by the
end of 1998. In addition, in January 1997, the Company entered into a strategic
business alliance with Prince Corporation ("Prince"), a subsidiary of Johnson
Controls, Inc. ("Johnson Controls") and a leading supplier of automotive
interior systems and components, pursuant to which the parties are developing
and marketing and will provide a wireless automobile safety and security
service, the AutoLink(R) service, to be offered to motorists in the United
States and Canada. The AutoLink service is expected to be offered on a
commercial basis beginning in late 1998. The Company is currently negotiating
with Motorola to supply a hardware component that will provide a common platform
for the AutoLink product, the Series 5000 Mobile Units and more advanced
versions of its Series 3000 Mobile Units, but no assurance can be given that
such an agreement will be reached or as to the terms thereof.
The Company provides its mobile communications services through its
wireless enhanced services network, which utilizes patented technology developed
by the Company to integrate various transmission, long-distance, switching,
tracking and other services provided through contracts with certain
telecommunications companies and more than 70 cellular carriers. Through its
agreements with cellular carriers, the Company is able to take advantage of the
more than $32 billion which cellular carriers have invested to establish and
expand cellular coverage in the United States. The Company's network covers 99%
of the available cellular service areas in the United States and 100% of the
available A-side coverage in Canada. Call processing and related functions for
the Company's network are provided through a switching complex (the "NSC") owned
by the Company and a separate switching complex (the "AT&T Complex") operated by
AT&T Corporation ("AT&T"). In September 1997, AT&T notified the Company that it
would discontinue offering services through the AT&T Complex as of December 31,
1997, and the Company intends to begin servicing all of its customers through
the NSC as of such date. The Company holds ten United States patents that cover
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<PAGE> 8
certain key features of its network which are used in locating and communicating
with vehicles using the cellular infrastructure.
Management believes that several significant factors differentiate the
services which the Company is able to provide through its wireless enhanced
services network from conventional cellular service, including the following:
o Immediate Nationwide Call Delivery. In order to
automatically (with no user intervention) provide immediate call
delivery to cellular subscribers who travel outside of their home
markets, a cellular carrier must install advanced switching equipment
(IS-41 capable), establish physical connectivity and establish the
appropriate roaming agreements with other cellular carriers. Primarily
as a result of the cost of this advanced switching equipment, the
Company believes that many cellular markets located outside of major
metropolitan areas have not yet implemented automatic call delivery
capabilities. HighwayMaster uses a patented technology which works
independently from cellular carriers' IS-41 protocol to automatically
provide immediate call delivery to its customers on essentially a
nationwide basis.
o Fraud Control. Conventional cellular service has
historically experienced relatively high levels of fraud. Industry
sources estimate that cellular fraud resulted in losses totaling
approximately $650 million in 1995. The Company has been able to
significantly limit fraud through the architecture of its network,
which requires that all calls originated by customers be routed to one
of the switching complexes operated by or for the Company and thereby
reduces or eliminates cellular cloning, fraud and call blocking for its
customers. To date, neither the Company nor the cellular carriers which
have properly implemented the Company's protocols have experienced any
significant levels of roamer fraud in connection with the mobile
communications services provided through the Company's network.
o Low Nationwide Fixed Airtime Charges. The Company believes
that basic cellular air time charges for cellular subscribers who
travel out of their home markets range from as much as $1.00 to $2.00
per day per market and from $0.45 to $1.25 per minute, in addition to
applicable long-distance charges. By comparison, the Company's
customers in the long-haul trucking market are charged a fixed rate of
$0.53 per minute for voice communications within the United States,
which includes long-distance charges.
o Additional Value-Added Services. The Company offers its
customers additional value-added services which are not offered by
cellular carriers who are unable to supplement the capabilities of the
existing cellular infrastructure with the features and capabilities of
the Company's network. The value-added services currently offered by
the Company include data transmission and fleet tracking, as well as a
number of other ancillary services, such as estimating times of
arrival, calculating fuel tax mileage and monitoring engine
performance.
BUSINESS STRATEGY
The Company's objective is to become a leading provider of mobile
communications services to customers in its targeted markets. To achieve this
objective, the Company will seek to take advantage of the commercial potential
of the HighwayMaster network in four separate ways. First, the Company intends
to achieve greater penetration of the long-haul trucking market by continuing to
increase its base of Series 5000 Mobile Units installed in customers' trucks.
Second, the Company intends to use the capabilities of its network to develop
and implement new applications for the automotive and other markets, including
the AutoLink service to be offered to motorists in the United States and Canada.
Third, the Company intends to develop a common hardware platform for the
AutoLink product, the Series 5000 Mobile Units and more advanced versions of its
Series 3000 Mobile Units, which should enable it to leverage any volume cost
savings that may be derived from offering the AutoLink application to reduce the
price of its long-haul trucking products, thereby enabling the Company to expand
the segments of the long-haul trucking market which it is
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<PAGE> 9
able to serve on an economical basis. Fourth, the Company intends to pursue
opportunities, either alone or in cooperation with international partners, to
export its technology and applications to selected foreign markets.
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<PAGE> 10
THE LONG-HAUL TRUCKING SOLUTION
The Company currently provides integrated mobile voice, data, tracking
and fleet management information services to trucking companies and other
private operators in the long-haul trucking market. These services are provided
by linking customers to the Company's network through the installation of Series
5000 Mobile Units in their trucks. The Series 5000 Mobile Unit enables a truck
driver to send and receive voice and data messages and utilize all of the other
features and capabilities of the Company's network. Management believes that the
system offered by the Company to trucking customers represents the most complete
and cost-effective package of mobile communications products and services
currently available to the long-haul trucking industry. A key feature of this
system is its ability to offer voice communication capabilities on essentially a
nationwide basis through the use of the existing cellular infrastructure.
Currently, the Company's primary competitor offers a satellite-based system that
provides data-only mobile communication services with no voice capabilities.
In addition to its voice communications capabilities, the Series 5000
Mobile Unit permits the transmission and receipt of data messages between a
truck and a dispatcher. The Series 5000 Mobile Unit also has navigational
tracking capabilities which allow trucking companies to map a truck's position,
typically within 100 yards, anywhere in the United States and Canada.
Furthermore, the Series 5000 Mobile Unit is capable of performing a number of
other functions such as calculating fuel tax mileage, estimating times of
arrival, storing data and monitoring on-board electronic engine and other
electronic functions. For small to mid-sized fleets, the Company also offers a
dispatch software package that enables a trucking dispatcher to optimize the use
of its fleet by processing data transmitted by the Series 5000 Mobile Units and
performing a variety of fleet management information functions.
The Company is continuing to expand its installed base of Series 5000
Mobile Units in the long-haul trucking market. In late 1996 and 1997, the
Company received orders for the installation of a total of 7,000 Series 5000
Mobile Units from Ameritruck Distribution Corporation ("Ameritruck"), Burlington
Motor Carriers, Inc. ("Burlington") and a subsidiary of Wal-Mart Stores, Inc.
("Wal-Mart"), of which it had installed a total of 2,724 units by June 30, 1997.
The Company expects that substantially all of the remaining units ordered by
these customers will be installed prior to December 31, 1997. As of June 30,
1997, the Company had an installed base of 25,233 Series 5000 Mobile Units and
had orders to install an additional 9,059 Series 5000 Mobile Units.
The Company is currently engaged in developing the Series 3000 Mobile
Units, which will be less expensive and will offer more limited functionality
than its current long-haul trucking product. The Series 3000 Mobile Unit will be
able to perform voice communication services and additional functions such as
the automated capture and transmission of engine data and other information as
well as vehicle tracking. Customers who utilize the Series 3000 Mobile Unit will
pay the same low, fixed per-minute rates for voice and data communications as
those who use the Series 5000 Mobile Unit, but will be assessed a reduced per
unit charge on a monthly basis. The Company believes that the Series 3000 Mobile
Units will allow it to serve a broader segment of the long-haul trucking market,
including smaller fleets and owner-operators who do not require all the features
of the Series 5000 Mobile Unit but can benefit from the advantages of the
Company's wireless enhanced services network. Additionally, the Company believes
that it will be able to serve fleets that currently utilize data- only mobile
communications services provided by the Company's competitors. The Company
expects that preliminary versions of the Series 3000 Mobile Unit will be
introduced in early 1998, which will be supplanted by a more advanced version of
this product by the end of 1998.
Based on the 1992 Department of Commerce census (the "Department of
Commerce Census"), management believes that there are currently approximately
2.2 million long-haul commercial trucks in the United States. Although the
Company expects to generate sales of Series 5000 Mobile Units in all sectors of
the long-haul trucking market, the Company's primary target market for this
product is operators of mid- and large-sized fleets (25 or more trucks)
consisting of larger-sized trucks (Class 6, 7 and 8 trucks) used for long-haul
transport (average distances in excess of 100 miles). Based on the Department of
Commerce Census, management estimates that there are currently
4
<PAGE> 11
approximately 530,000 trucks in the primary target market for the Series 5000
Mobile Unit. Management further estimates that approximately 30% of these trucks
are currently equipped with some form of integrated mobile communications
solution, but believes that substantially all operators in this market will
experience significant competitive pressures over the next five years to adopt
some form of integrated mobile communications solution. In addition, the Company
intends to introduce the Series 3000 Mobile Unit, and management believes that
this product is likely to appeal to small-sized fleets (24 or fewer trucks)
consisting of larger-sized trucks used for long-haul transport, as well as
fleets of smaller-sized trucks (Class 1-5 trucks) used for the same purposes.
Based on the Department of Commerce's Census, the Company believes that there
are currently approximately 1.7 million trucks in this extended market for the
Series 3000 Mobile Units.
THE AUTOLINK ALLIANCE
As a result of the demonstrated capabilities of the Company's long-haul
trucking application, Prince approached the Company in early 1996 and proposed
that the Company provide the mobile communications network for its new
automobile safety and security service. In January 1997, the Company entered
into a strategic business alliance with Prince pursuant to which the parties
will develop and provide the AutoLink service to motorists in the United States
and Canada. The basic AutoLink product will provide an intelligent
communications link from the car to a new switching complex (the "AutoLink
Complex") with connections to various vendors in order to provide emergency
assistance, roadside assistance and information services to motorists, including
remote tracking of stolen or missing vehicles. The principal components of the
AutoLink system are (i) the end-user interface, which will be designed and
manufactured by Prince, (ii) the in-vehicle communications and location
hardware, which the Company expects will be manufactured by Motorola to the
Company's specifications and will incorporate certain of the Company's patented
technology and (iii) the wireless enhanced services network, which will be
provided and managed by the Company. The Company currently expects that the
AutoLink service will be offered on a commercial basis in the after-market
(owners of existing vehicles) beginning in late 1998 and in the original
equipment manufacturers ("OEM") market beginning in the second half of 1999.
Under the terms of the strategic alliance between the Company and
Prince, the Company will be responsible for, among other things, managing the
network, providing software for the intelligent mobile unit and assisting in
managing various information service providers. In addition, the Company will
oversee distribution and marketing of the after-market product business. Prince,
which has extensive automotive industry expertise, will be responsible for
marketing and sales and contracting with equipment suppliers in the OEM market.
The AutoLink product will be offered to both the OEM market and the
after-market. The Company has entered into a memorandum of understanding with
CellStar Corporation ("CellStar") which contemplates that CellStar will act as
the exclusive distributor for the AutoLink product in the after-market. In
consideration for the services to be provided by it in connection with the
AutoLink service, it is expected that the Company will receive certain fees,
including an activation fee, a monthly per-user charge and service charges for
all calls placed by or for end users.
OTHER RECENT DEVELOPMENTS
SBC Transactions. In September 1996, a subsidiary of SBC Communications
Inc. ("SBC") made a strategic investment in the Company. In particular, SBC
purchased $20.0 million of preferred stock from the Company, which may under
certain circumstances be converted into common stock, and agreed to provide
certain technical services to the Company in connection with the operation and
improvement of its network. In addition, the Company issued to SBC warrants to
purchase an aggregate of 5,000,000 shares of the Company's common stock. The
securities issued to SBC in connection with these transactions would, if fully
converted or exercised by SBC, represent an aggregate ownership interest of
approximately 21.0% of the Company's common stock. The Company believes that its
alliance with SBC will allow it to accelerate the development and implementation
of various features of its network and mobile communications services.
5
<PAGE> 12
Wal-Mart Order. In April 1997, the Company entered into a contract with
Wal-Mart pursuant to which Wal-Mart ordered an aggregate of 3,000 additional
Series 5000 Mobile Units for installation in its private fleet of trucks. This
order followed an extensive product test conducted at two Wal-Mart distribution
centers in which Wal-Mart evaluated the performance of 354 Series 5000 Mobile
Units over a period of 12 months. The Company had installed a total of 1,074
Series 5000 Mobile Units (including 720 included in the recent 3,000 unit order)
in Wal-Mart's fleet by June 30, 1997, and it expects that substantially all of
the remaining units ordered by Wal-Mart will be installed by the end of 1997.
Burlington Order and Related Transactions. In early 1997, the Company
entered into an agreement with Burlington, which provides for the installation
of up to 2,000 Series 5000 Mobile Units in Burlington's fleet of long-haul
trucks. As part of the transaction, the Company purchased exclusive ownership
rights to Burlington's proprietary fleet operating and management information
software and has assumed the operation of its data center and computer systems.
The Company intends to add capacity to the Burlington data center in order to
provide a broad range of data processing services to other trucking companies,
which would essentially replace such companies' existing management information
systems departments with services, software and hardware to be provided by the
Company. The capacity to be added by the Company would enable it to use the
Burlington software and data center in conjunction with the HighwayMaster
network to offer its customers levels of integration which management believes
are not currently available in the trucking industry. Management currently
expects that the primary market for the data processing services to be offered
by the Company will consist of midsize fleets which have significant fleet
management and other logistical requirements but have not yet made substantial
investments in information technology. The Company expects to offer data
processing services to customers for a fixed, per mile charge, which will
provide a measure of consistency and predictability that management believes may
be appealing to a number of its trucking customers.
THE UNITS OFFERING
On September 23, 1997, the Company consummated the Units Offering,
pursuant to which it sold 125,000 Units, each consisting of $1,000 principal
amount of Old Notes and one Warrant to purchase 6.566 shares of Common Stock.
The Warrants are exercisable at a price of $9 5/8 per share, subject to certain
anti-dilution provisions. Warrant holders may exercise the Warrants at any time
on or after the earlier to occur of (i) September 23, 1998 and (ii) in the event
a Change of Control occurs, the date the Company mails notice thereof to the
holders of Notes and Warrants. Unless exercised, the Warrants will expire on
September 15, 2005. If all Warrants were exercised as of the date of issuance
thereof, the Warrants would represent approximately 3% of the Common Stock
outstanding on a fully-diluted basis after giving effect to the exercise of
certain outstanding options or rights issued by the Company. The Old Notes and
Warrants will become separable no later than upon the commencement of the
Exchange Offer.
The Company used approximately $46.6 million of the net proceeds from
the Units Offering to fund the purchase of the Pledged Securities, which will
provide funds sufficient to pay in full when due the first six scheduled
interest payments on the Notes. The Pledged Securities are pledged as security
for the repayment of principal of and interest on the Notes, Liquidated Damages,
if any, and all other obligations under the Indenture. See "Description of
Exchange Notes -- Security." All remaining proceeds from the Units Offering have
been contributed by the Company to HMC and will be used for general corporate
purposes, including (i) to fund working capital requirements and operating
losses expected to be incurred in connection with the continued growth and
development of the Company's existing long-haul trucking application, (ii) to
fund expenditures relating to the development of new mobile communications
applications to be provided through the Company's network, including the
proposed Series 3000 Mobile Unit and AutoLink service, and (iii) to fund capital
expenditures required to expand the capacity of the NSC to enable it to serve a
larger number of long-haul trucking customers and to construct the AutoLink
Complex through which the AutoLink service will be provided to motorists in the
United States and Canada.
6
<PAGE> 13
The Units were sold by the Company on September 23, 1997 to Bear,
Stearns & Co. Inc. and Smith Barney Inc. (the "Initial Purchasers") pursuant to
a Purchase Agreement dated September 18, 1997 (the "Purchase Agreement"). The
Initial Purchasers subsequently resold the Units to qualified institutional
buyers pursuant to Rule 144A under the Securities Act and pursuant to offers and
sales that occurred outside the United States within the meaning of Regulation S
under the Securities Act. Pursuant to the Purchase Agreement, the Company and
the Initial Purchasers entered into a Registration Rights Agreement dated
September 23, 1997 (the "Registration Rights Agreement"), which grants the
holders of the Old Notes certain exchange and registration rights. The Exchange
Offer is intended to satisfy certain obligations of the Company under the
Registration Rights Agreement.
THE EXCHANGE OFFER
Securities Offered......................... $125,000,000 aggregate principal
amount of Series B 13 3/4% Senior
Notes due 2005 (the "Exchange
Notes").
The Exchange Offer......................... $1,000 principal amount of the
Exchange Notes in exchange for each
$1,000 principal amount of Old
Notes. As of the date hereof,
$125,000,000 aggregate principal
amount of Old Notes are outstanding.
The Company will issue the Exchange
Notes to holders on or promptly
after the Expiration Date.
Based on an interpretation by the
staff of the Commission set forth in
no-action letters issued to third
parties, the Company believes that
Exchange Notes issued pursuant to
the Exchange Offer in exchange for
Old Notes may be offered for resale,
resold and otherwise transferred by
any holder thereof (other than any
such holder which is an "affiliate"
of the Company within the meaning of
Rule 405 under the Securities Act)
without compliance with the
registration and prospectus delivery
provisions of the Securities Act,
provided that such Exchange Notes
are acquired in the ordinary course
of such holder's business and that
such holder does not intend to
participate and has no arrangement
or understanding with any person to
participate in the distribution of
such Exchange Notes.
Each Participating Broker-Dealer
that receives Exchange Notes for its
own account pursuant to the Exchange
Offer must acknowledge that it will
deliver a prospectus in connection
with any resale of such Exchange
Notes. The Letter of Transmittal
states that by so acknowledging and
by delivering a prospectus, a
Participating Broker-Dealer will not
be deemed to admit that it is an
"underwriter" within the meaning of
the Securities Act. This Prospectus,
as it may be amended or supplemented
from time to time, may be used by a
7
<PAGE> 14
Participating Broker-Dealer in
connection with resales of Exchange
Notes received in exchange for Old
Notes where such Old Notes were
acquired by such Participating
Broker-Dealer as a result of
market-making activities or other
trading activities (other than a
resale of an unsold allotment from
the original sale of Old Notes). The
Company has agreed that, for a
period of 180 days after the
Exchange Offer Registration
Statement is declared effective, it
will make this Prospectus available
to any Participating Broker-Dealer
for use in connection with any such
resale. See "Plan of Distribution."
Any holder who tenders in the
Exchange Offer with the intention to
participate, or for the purpose of
participating, in a distribution of
the Exchange Notes could not rely on
the position of the staff of the
Commission enunciated in no-action
letters and, in the absence of an
exemption therefrom, must comply
with the registration and prospectus
delivery requirements of the
Securities Act in connection with
any resale transaction. Failure to
comply with such requirements in
such instance may result in such
holder incurring liability under the
Securities Act for which the holder
is not indemnified by the Company.
Expiration Date............................ 5:00 p.m., New York time, on
, 1997 unless the
Exchange Offer is extended, in
which case the term "Expiration
Date" means the latest date and
time to which the Exchange Offer is
extended.
Accrued Interest on the Exchange Notes
and the Old Notes.......................... Each Exchange Note will bear
interest from the most recent date
to which interest has been paid or
duly provided for on the Old Note
surrendered in exchange for such
Exchange Note or, if no interest
has been paid or duly provided for
on such Old Note, from September
23, 1997. Interest on the Exchange
Notes is payable semi-annually on
each March 15 and September 15,
commencing on March 15, 1998.
Holders of Old Notes whose Old Notes
are accepted for exchange will not
receive accrued interest on such Old
Notes for any period from and after
the last date to which interest has
been paid or duly provided for on
the Old Notes prior to the original
issue date of the Exchange Notes or,
if no such interest has been paid or
duly provided for, will not receive
any accrued interest on such Old
Notes, and will be deemed to have
waived, the right to receive any
interest on such Old Notes accrued
from and after September 23, 1997.
Conditions to the Exchange Offer........... The Exchange Offer is subject to
certain customary conditions, which
may be waived by the Company. See
"The Exchange Offer -- Conditions."
8
<PAGE> 15
Procedures for Tendering Old Notes......... Each holder of Old Notes wishing to
accept the Exchange Offer must
complete, sign and date the
accompanying Letter of Transmittal,
or a facsimile thereof, in
accordance with the instructions
contained herein and therein, and
mail or otherwise deliver such
Letter of Transmittal, or such
facsimile, together with the Old
Notes and any other required
documentation to the Exchange Agent
(as defined herein) at the address
set forth in the Letter of
Transmittal. By executing the Letter
of Transmittal, each holder will
represent to the Company that, among
other things, the Exchange Notes
acquired pursuant to the Exchange
Offer are being obtained in the
ordinary course of business of the
person receiving such Exchange
Notes, whether or not such person is
the holder, that neither the holder
nor any such other person has any
arrangement or understanding with
any person to participate in the
distribution of such Exchange Notes
and that neither the holder nor any
such other person is an "affiliate,"
as defined under Rule 405 of the
Securities Act. See "The Exchange
Offer -- Purpose and Effect of the
Exchange Offer" and "The Exchange
Offer -- Procedures for Tendering."
Untendered Old Notes....................... Following the consummation of the
Exchange Offer, holders of Old
Notes eligible to participate but
who do not tender their Old Notes
will not have any further exchange
rights and such Old Notes will
continue to be subject to certain
restrictions on transfer.
Accordingly, the liquidity of the
market for such Old Notes could be
adversely affected.
Consequences of Failure
to Exchange................................ The Old Notes that are not
exchanged pursuant to the Exchange
Offer will remain restricted
securities. Accordingly, such Old
Notes may be resold only (i) to the
Company, (ii) pursuant to an
effective registration statement
under the Securities Act, (iii)
pursuant to Rule 144A or Rule 144
under the Securities Act, (iv)
outside the United States to a
foreign person pursuant to the
requirements of Rule 904 under the
Securities Act, (v) to an
institutional "accredited investor"
as defined in Rule 501(a)(1), (2),
(3) or (7) under the Securities Act
who furnishes the Trustee with a
letter containing certain
representations and agreements and,
in the case of any transfer of
aggregate principal amount of Old
Notes of $100,000 or less an
opinion of counsel, if the Company
so requests, or (vi) pursuant to
some other exemption under the
Securities Act (and based on an
opinion of counsel, if the Company
so requests). See "The Exchange
Offer -- Consequences of Failure to
Exchange."
9
<PAGE> 16
Shelf Registration Statement............... In the event that (i) the Exchange
Offer is not available to any
holder or may not be consummated
because, in either case, it would
violate applicable securities laws
or because the applicable
interpretations of the staff of the
Commission would not permit the
Company to effect the Exchange
Offer, or (ii) in certain
circumstances the holder notifies
the Company that it is unable to
participate in the Exchange Offer
or is unable to use this
Prospectus, the Company will cause
to be filed with the Commission, no
later than 45 days after such
obligation arises, a shelf
registration statement (the "Shelf
Registration Statement"). The
Company will use its best efforts
to cause the Shelf Registration
Statement to be declared effective
on or before the 180th day after
the completion of the Old Notes
Offering. The Company has agreed to
maintain the effectiveness of the
Shelf Registration Statement, under
certain circumstances, for a
maximum of two years following the
date of the completion of the Old
Notes Offering.
Special Procedures for Beneficial
Owners..................................... Any beneficial owner whose Old
Notes are registered in the name of
a broker, dealer, commercial bank,
trust company or other nominee and
who wishes to tender should contact
such registered holder promptly and
instruct such registered holder to
tender on such beneficial owner's
behalf. If such beneficial owner
wishes to tender on such owner's
own behalf, such owner must, prior
to completing and executing the
Letter of Transmittal and
delivering its Old Notes, either
make appropriate arrangements to
register ownership of the Old Notes
in such owner's name or obtain a
properly completed bond power from
the registered holder. The transfer
of registered ownership may take
considerable time. The Company will
keep the Exchange Offer open for
not less than twenty days in order
to provide for the transfer of
registered ownership.
Guaranteed Delivery Procedures............. Holders of Old Notes who wish to
tender their Old Notes and whose
Old Notes are not immediately
available or who cannot deliver
their Old Notes, the Letter of
Transmittal or any other documents
required by the Letter of
Transmittal to the Exchange Agent
(or comply with the procedures for
book- entry transfer) prior to the
Expiration Date must tender their
Old Notes according to the
guaranteed delivery procedures set
forth in "The Exchange Offer --
Guaranteed Delivery Procedures."
Withdrawal Rights.......................... Tenders may be withdrawn at any
time prior to 5:00 p.m., New York
time, on the Expiration Date.
Acceptance of Notes and Delivery of
Exchange Notes............................. The Company will accept for
exchange, subject to the conditions
described under "The Exchange Offer
-- Conditions," any and all Old
Notes which are properly tendered
in the Exchange Offer prior to 5:00
p.m., New York time, on the
Expiration Date. The Exchange Notes
issued pursuant to the Exchange
Offer will be delivered promptly
following the Expiration Date. See
"The Exchange Offer -- Terms of the
Exchange Offer."
10
<PAGE> 17
Use of Proceeds............................ There will be no cash proceeds to
the Company from the exchange
pursuant to the Exchange Offer.
Exchange Agent............................. Texas Commerce Bank National
Association.
11
<PAGE> 18
THE EXCHANGE NOTES
General.................................... The form and terms of the Exchange
Notes are the same as the form and
terms of the Old Notes (which they
replace) except that (i) the
Exchange Notes bear a Series B
designation, (ii) the Exchange
Notes have been registered under
the Securities Act and, therefore,
will not bear legends restricting
the transfer thereof, and (iii) the
holders of Exchange Notes will not
be entitled to certain rights under
the Registration Rights Agreement,
including the provisions providing
for an increase in the interest
rate on the Old Notes in certain
circumstances relating to the
timing of the Exchange Offer, which
rights will terminate when the
Exchange Offer is consummated. See
"The Exchange Offer -- Purpose and
Effect of the Exchange Offer." The
Exchange Notes will evidence the
same debt as the Old Notes and will
be entitled to the benefits of the
Indenture. See "Description of
Exchange Notes." The Warrants
issued in connection with the
issuance of the Old Notes are not
subject to the Exchange Offer and
will continue to be subject to the
restrictions on transfer set forth
therein.
Securities Offered......................... $125,000,000 aggregate principal
amount of Series B 13 3/4% Senior
Notes due 2005 of the Company.
Maturity................................... September 15, 2005.
Interest................................... The Exchange Notes will bear
interest at a rate of 13 3/4% per
annum, payable semi-annually in
arrears on March 15 and September
15 of each year, commencing March
15, 1998.
Ranking.................................... The Exchange Notes will be senior
obligations of the Company, will
rank pari passu in right of payment
with all existing and future
unsecured senior Indebtedness of
the Company and will rank senior in
right of payment to any future
Subordinated Indebtedness (as
defined herein) of the Company. As
of June 30, 1997, after giving
effect to the Units Offering on a
consolidated basis the Company had
outstanding indebtedness with a
principal amount of $125.0 million
($120.8 million net of debt
discount) and $9.2 million of other
senior liabilities (including trade
payables). The Company is a holding
company and substantially all of
its operations are conducted
through HMC, its operating
subsidiary. Accordingly, except in
the case of Restricted Subsidiaries
(which will guarantee the
obligations of the Company under
the Exchange Notes), the Exchange
Notes will be effectively
subordinated to all Indebtedness
and other obligations of the
Company's subsidiaries.
Furthermore, the holders of the
Exchange Notes will not share in
the proceeds from the sale of or
other realization upon any assets
in which the Company has granted
security interests until the
repayment of the Indebtedness
secured thereby. The Indenture
permits the Company and its
subsidiaries to incur additional
Indebtedness, including senior
Indebtedness and secured
Indebtedness, subject to certain
limitations.
12
<PAGE> 19
Security................................... Approximately $46.6 million of the
net proceeds of the Units Offering
was used by the Company to purchase
and pledge to the Trustee, for the
benefit of the holders of the
Notes, the Pledged Securities,
which are in an amount
sufficient upon receipt of
scheduled interest and principal
payments, to provide for payment in
full when due of the first six
scheduled semi-annual interest
payments on the Notes. The Pledged
Securities are pledged as security
for the repayment of the principal
of and interest on the Notes,
Liquidated Damages, if any, and all
other obligations under the
Indenture. When an interest payment
is due, the Company may either
deposit sufficient funds to pay the
interest scheduled to be paid or
direct the Trustee to release from
the Pledge Account (as defined
herein) funds sufficient to pay the
interest scheduled. In the event
the Company exercises the former
option, the Pledge Agreement
provides the Company may direct the
Trustee to release proceeds or the
Pledged Securities from the Pledge
Account in a like amount. If the
Company makes the first six
scheduled interest payments on the
Notes in a timely manner and no
Default (as defined herein) or
Event of Default (as defined
herein) is then continuing, the
remaining Pledged Securities, if
any, will be released from the
Pledge Account and the Notes will
thereafter be unsecured obligations
of the Company. See "Description of
Exchange Notes -- Security."
Subsidiary Guarantees...................... The obligations of the Company
under the Exchange Notes will be
guaranteed on a senior unsecured
basis by all Restricted
Subsidiaries. HMC will be the
initial Restricted Subsidiary (the
"Initial Restricted Subsidiary"),
and future Restricted Subsidiaries
of the Company will be required to
issue Subsidiary Guarantees. Each
Subsidiary Guarantee will be a
senior unsecured obligation of the
applicable Restricted Subsidiary,
will rank pari passu in right of
payment with all existing and
future unsecured senior
Indebtedness of such Restricted
Subsidiary and will rank senior in
right of payment to any
Subordinated Indebtedness of such
Restricted Subsidiary. As of June
30, 1997, the aggregate amount of
outstanding senior Indebtedness and
other senior liabilities (including
trade payables) of the Initial
Restricted Subsidiary would,
without regard to the Subsidiary
Guarantee, have been approximately
$9.2 million. Furthermore, the
holders of the Exchange Notes will
not share in the proceeds from the
sale of or other realization upon
any assets of such Restricted
Subsidiary in which the Restricted
Subsidiary has granted security
interests until the repayment of
the indebtedness secured thereby.
13
<PAGE> 20
Optional Redemption........................ The Exchange Notes will be
redeemable, at the option of the
Company, in whole or in part, at
any time on or after September 15,
2001, at the redemption prices set
forth herein, plus accrued and
unpaid interest and Liquidated
Damages, if any, thereon to the
applicable redemption date.
Notwithstanding the foregoing, on
or prior to September 15, 2000, the
Company may redeem at any time or
from time to time up to 35% of the
aggregate principal amount of the
Exchange Notes at a redemption
price equal to 113.75% of the
principal amount thereof, plus
accrued and unpaid interest and
Liquidated Damages, if any, thereon
to the applicable redemption date,
with the net proceeds of an Equity
Investment; provided, that at least
65% of the aggregate principal
amount of the Exchange Notes
initially issued remains
outstanding after giving effect to
the redemption thereof. See
"Description of Exchange Notes --
Optional Redemption."
Change of Control.......................... Upon the occurrence of a Change of
Control, the Company will be
required to make an offer to
repurchase all of the outstanding
Exchange Notes at a price equal to
101% of the principal amount
thereof, plus accrued and unpaid
interest and Liquidated Damages, if
any, thereon to the repurchase
date. See "Description of Exchange
Notes -- Repurchase at the Option
of Holders -- Change of
Control."
Certain Covenants.......................... The Indenture contains certain
covenants that, among other things,
limit the ability of the Company
and its Restricted Subsidiaries to
incur additional Indebtedness, pay
dividends or make other
distributions, repurchase any
capital stock or Subordinated
Indebtedness, make certain
investments, create certain liens,
enter into certain transactions
with affiliates, sell assets, enter
into certain mergers and
consolidations, allow Restricted
Subsidiaries to create certain
dividend and other payment
restrictions, enter into sale and
leaseback transactions, and issue
or sell capital stock of Restricted
Subsidiaries. See "Description of
Exchange Notes -- Certain
Covenants."
14
<PAGE> 21
RISK FACTORS
For a discussion of certain factors that should be considered by
investors in connection with the Exchange Offer, see "Risk Factors."
15
<PAGE> 22
SUMMARY CONSOLIDATED FINANCIAL DATA
<TABLE>
<CAPTION>
SIX MONTHS ENDED
YEAR ENDED DECEMBER 31, JUNE 30,
-------------------------------- --------------------
1994 1995 1996 1996 1997
-------- -------- -------- -------- --------
(DOLLARS IN THOUSANDS, EXCEPT FOR PER SHARE AND
OPERATING DATA)
<S> <C> <C> <C> <C> <C>
CONSOLIDATED STATEMENT OF OPERATIONS DATA:
Revenues:
Product ............................................. $ 11,075 $ 16,946 $ 14,645 $ 6,423 $ 14,249
Service ............................................. 2,436 9,908 16,056 7,449 11,006
-------- -------- -------- -------- --------
Total revenues ................................ 13,511 26,854 30,701 13,872 25,255
Cost of Revenues:
Product ............................................. 11,867 17,730 15,099 6,403 12,148
Service ............................................. 2,099 9,172 11,489 5,415 8,671
Writedown of inventory .............................. 1,658 -- 1,943 -- --
-------- -------- -------- -------- --------
Total cost of revenues ........................ 15,624 26,902 28,531 11,818 20,819
-------- -------- -------- -------- --------
Gross profit (loss) ............................... (2,113) (48) 2,170 2,054 4,436
General and administrative expenses ................... 6,577 7,299 9,479 4,299 7,096
Sales and marketing expenses .......................... 3,890 6,273 9,139 4,710 4,055
Engineering expenses .................................. 1,900 2,868 4,094 1,736 2,212
Customer service expenses ............................. 4,587 5,727 8,089 3,930 5,538
-------- -------- -------- -------- --------
Operating loss .................................... (19,067) (22,215) (28,631) (12,621) (14,465)
Interest income ....................................... 279 1,041 809 444 448
Interest expense to related parties ................... (5,999) (5,106) (1,691) (1,088) --
Recapitalization costs ................................ (733) -- -- -- --
Other expense ......................................... (361) (117) (230) (3) --
-------- -------- -------- -------- --------
Loss before income taxes and extraordinary item ..... (25,881) (26,397) (29,743) (13,268) (14,017)
Income tax provision .................................. -- -- -- -- --
-------- -------- -------- -------- --------
Loss before extraordinary item ........................ (25,881) (26,397) (29,743) (13,268) (14,017)
Extraordinary item-- loss on extinguishment of debt ... -- (6,980) (317) -- --
-------- -------- -------- -------- --------
Net loss ............................................ $(25,881) $(33,377) $(30,060) $(13,268) $(14,017)
======== ======== ======== ======== ========
Net loss per share(1) ............................... $ (1.50) $ (1.73) $ (1.40) $ (0.66) $ (0.56)
======== ======== ======== ======== ========
OTHER FINANCIAL AND OPERATING DATA:
Installed base of Series 5000 Mobile Units(2) ......... 6,131 14,751 20,354 17,439 25,233
Average monthly Series 5000 Mobile Unit usage(3) ...... 135 136 130 130 126
Average monthly Series 5000 Mobile Unit service
revenue(4) .......................................... $ 66.22 $ 79.08 $ 76.23 $ 77.14 $ 80.48
Capital expenditures .................................. $ 1,613 $ 4,076 $ 5,139 $ 2,187 $ 3,253
Ratio of earnings to fixed charges(5) ................. -- -- -- -- --
</TABLE>
<TABLE>
<CAPTION>
JUNE 30, 1997
-----------------------
ACTUAL AS ADJUSTED(6)
-------- --------------
(DOLLARS IN THOUSANDS)
<S> <C> <C>
CONSOLIDATED BALANCE SHEET DATA:
Cash and cash equivalents ............................. $ 5,987 $ 78,924
Pledged securities .................................... -- 47,000
Working capital ....................................... 9,375 99,500
Property and equipment -- net ......................... 8,080 8,080
Total assets .......................................... 32,986 157,986
Notes ................................................. -- 120,814(7)
Common stock .......................................... 252 252
Additional paid-in capital ............................ 145,030 149,216(7)
Total stockholders' equity ............................ 20,849 25,035
</TABLE>
- --------------
(1) Per share data for 1994 reflects certain unaudited pro forma adjustments.
See Notes 1 and 4, "Recapitalization" and "Earnings per Share",
respectively, of the Notes to Consolidated Financial Statements as of
December 31, 1995 and 1996 and for the years ended December 31, 1994, 1995
and 1996.
(2) Represents the number of Series 5000 Mobile Units in service at the end of
the applicable period.
16
<PAGE> 23
(3) Represents the average number of minutes of service for a Series 5000
Mobile Unit during the applicable period.
(4) Represents the average service revenue per Series 5000 Mobile Unit
recognized by the Company during the applicable period. Service revenues
per Series 5000 Mobile Unit vary significantly depending upon whether the
unit is serviced through the AT&T Complex or the NSC. In general, service
revenues and related operating expenses are greater for units serviced
through the NSC than for those serviced through the AT&T Complex. For new
customers commencing service since july 1, 1996, all transmissions are
routed through the NSC. See "Management's Discussion and Analysis of
Financial Condition and Results of Operations -- General."
(5) For purposes of calculating the ratio of earnings to fixed charges,
earnings are defined as loss before income taxes and extraordinary item
plus fixed charges. Fixed charges consist of interest expense, amortization
of debt issuance costs, accretion of discount on preferred stock and a
reasonable approximation of the interest factor included in rental payments
on operating leases. Earnings were inadequate to cover fixed charges for
the years ended December 31, 1994, 1995 and 1996 by $25,881,000,
$26,397,000 and $29,743,000, respectively, and for the six months ended
june 30, 1996 and 1997 by $13,268,000 and $14,017,000, respectively.
(6) Adjusted to give effect to the Units Offering and the application of the
net proceeds therefrom. See "Use of Proceeds."
(7) The aggregate principal amount of the Notes is $125.0 million. The
estimated value of the Warrants, $4,186,000, is reflected both as a debt
discount and as an element of additional paid-in capital.
17
<PAGE> 24
RISK FACTORS
In addition to the other information contained in this Prospectus, the
following risk factors should be considered carefully in evaluating the Company
and its business in connection with the Exchange Offer.
LIMITED OPERATING HISTORY; SIGNIFICANT LOSSES
The Company commenced its operations in April 1992 and has a limited
operating history. The Company began offering its long-haul trucking application
on a commercial basis in September 1993. Since its inception, the Company has
experienced significant operating losses. In particular, the Company experienced
operating losses of $19.1 million, $22.2 million and $28.6 million in the years
ended December 31, 1994, 1995 and 1996, respectively, and an operating loss of
$14.5 million in the six months ended June 30, 1997. As of June 30, 1997, the
Company had an accumulated deficit of $123.9 million. In order to achieve a
profitable level of operations, the Company must significantly increase its
installed base of Series 5000 Mobile Units and generate substantially greater
service and airtime revenues. Although the Company's installed base of Series
5000 Mobile Units has increased significantly in each of the past three years,
the number of Series 5000 Mobile Units sold by the Company decreased from 9,322
in the year ended December 31, 1995 to 7,038 in the year ended December 31,
1996. This decrease was the result of various factors, including concerns on the
part of prospective customers relating to the Company's financial condition
during the first three quarters of 1996 and uncertainties related to the
termination effective June 29, 1996 of the Company's contract with AT&T relating
to the design and operation of the AT&T Complex. See "-- Availability of
Switching Complexes." Furthermore, the Company's results of operations have been
affected by its ongoing need for capital and perceptions on the part of certain
customers and prospective customers that this need for capital gives rise to
additional commercial risks in transacting business with the Company.
Historically, the Company's need for capital has been satisfied by sales of
equity securities and borrowings from certain major stockholders. There is no
assurance that the Company will be able to obtain capital in the future,
including from these sources, or that capital, if available, will be on terms
favorable to the Company. The Company expects to continue to incur losses and
negative cash flow from operations in the future and such losses may be greater
than those incurred in corresponding prior periods. There can be no assurance
that the Company's future operations will generate operating or net income or
positive cash flow from operations in any future period. The Company intends to
use a substantial portion of the proceeds from the Units Offering to fund future
operating losses. If the Company does not achieve significant operating and net
income and positive cash flow, it will not have the funds required to pay the
principal amount of the Notes at maturity or to make interest payments on the
Notes beyond the three-year period during which the payment of interest is
provided for through the Pledged Securities. The likelihood of the long-term
success of the Company must be considered in light of the expenses, difficulties
and delays frequently encountered in connection with the early stages of the
development and marketing of telecommunications products and services, as well
as the competitive environment in which the Company operates and the other risks
and uncertainties discussed in this Prospectus. See "Selected Financial Data,"
and "Management's Discussion and Analysis of Financial Condition and Results of
Operations."
SUBSTANTIAL LEVERAGE
The Company has indebtedness that is substantial in relation to its
stockholders' equity. As of June 30, 1997, after giving effect to the Units
Offering, the Company on a consolidated basis had outstanding indebtedness with
a principal amount of $125.0 million ($120.8 million net of debt discount),
consisting entirely of the Old Notes, and stockholders' equity of $25.0 million.
In addition, as of June 30, 1997, after giving effect to the Units Offering, the
Company had a debt-to-equity ratio of 5.0 to 1.0 (based on the principal
amount). The Indenture permits the Company to incur additional indebtedness
under certain conditions, and the Company expects that it may incur additional
indebtedness to the extent it is permitted to do so.
The Company is required to make semi-annual interest payments in
respect of the Notes of approximately $8.6 million. In all periods since its
inception, the Company has not generated sufficient earnings or cash flow from
operations to make such interest payments. Accordingly, the Company expects that
it will be necessary for its operating
18
<PAGE> 25
results to improve significantly in order to permit it to meet the debt service
obligations under the Notes beyond the period for which the payment of interest
on the Notes is provided for through the Pledged Securities. The ability of the
Company to improve its operating results will depend upon a variety of factors,
including economic, financial, competitive, regulatory and other factors beyond
its control. There can be no assurance that the Company will generate sufficient
earnings or cash flow from operations in the future to service the Notes and to
meet its working capital, capital expenditure and other requirements. If the
Company is unable to service the Notes using earnings or cash flow from
operations, it will have to examine alternate means of repayment that could
include restructuring or refinancing its indebtedness or seeking additional
sources of debt or equity financing. There can be no assurance either that the
Indenture would permit the Company to pursue alternative means of repayment or
that the Company would be able to effect such a restructuring or refinancing or
obtain such additional financing if permitted to do so.
The Indenture imposes significant operating and financial limitations
on the Company. Such limitations will affect, and in many respects significantly
restrict or prohibit, among other things, the ability of the Company to pay
dividends, make investments and incur additional indebtedness. These
restrictions, in combination with the Company's substantial leverage, could
limit the ability of the Company to effect future financings or otherwise
restrict the nature and scope of its activities. The degree to which the Company
is leveraged could have important consequences to holders of Notes, including:
(i) the impairment of the Company's ability to obtain additional financing in
the future, (ii) the reduction of funds available to the Company for its
operations or for capital expenditures as a result of the dedication of a
substantial portion of the Company's net cash flow from operations to the
payment of principal of and interest on the Notes, (iii) the possibility of an
event of default under covenants contained in the Indenture, which could have a
material adverse effect on the Company, (iv) the placement of the Company at a
relative competitive disadvantage as compared to competitors who are not as
highly leveraged as the Company, and (v) the inability to adjust to rapidly
changing market conditions and consequent vulnerability in the event of a
downturn in general economic conditions or its business because of the Company's
reduced financial flexibility. In addition, to the extent that the Company
enters into a Bank Credit Agreement (as defined herein) in the future as
permitted by the Indenture, such agreement is likely to impose additional
operating and financial restrictions on the Company, which may be more
restrictive than those provided for in the Indenture. See "Selected Financial
Data," "Management's Discussion and Analysis of Financial Condition and Results
of Operations," and "Description of Exchange Notes."
AVAILABILITY OF SWITCHING COMPLEXES
From 1993 through mid-1996, the Company and AT&T were parties to a
contract (the "AT&T Contract") pursuant to which AT&T provided enhanced call
processing and data management services and long-distance network transport for
the Company and its customers through the AT&T Complex. AT&T terminated the AT&T
Contract effective as of June 29, 1996. However, AT&T continues to provide
services for existing customers of the Company and AT&T without a formal
contract in fulfillment of AT&T's obligations under existing service agreements
entered into with each customer. At June 30, 1997, approximately 50% of the
Company's installed base of Series 5000 Mobile Units were receiving services
provided through the AT&T Complex. The Company is in the process of switching
over its customers from the AT&T Complex to the NSC. In September 1997, AT&T
notified the Company that it would discontinue offering services through the
AT&T Complex as of December 31, 1997. Until such time as all customers are being
serviced through the NSC, it will be necessary for the Company and AT&T to
cooperate with respect to a number of operational and other matters. There can
be no assurance that the Company and AT&T will cooperate with respect to these
matters or that AT&T will not attempt to alter the terms of the existing
arrangements under which the parties jointly provide their services to
customers. Any failure or refusal on the part of AT&T to cooperate with the
Company or any attempt on the part of AT&T to alter in any significant respect
the terms of its existing arrangements with the Company could have a material
adverse effect on the Company's business, financial condition or results of
operations. See "-- AT&T Litigation" below.
In the third quarter of 1996, the Company began commercial service with
the NSC, which was designed and constructed for the Company by IEX Corporation
("IEX"). For new customers commencing service since July 1, 1996, the NSC has
fully replaced the AT&T Complex. The future growth of the Company's business
will depend to a
19
<PAGE> 26
significant extent on its ability to continue to expand the capacity of the NSC
and to resolve technical and operational issues which may arise from time to
time in connection with the operation, management and expansion of a switching
complex of this complexity. The Company has already started this expansion
process. Increasing the capacity of the NSC will require capital expenditures of
several million dollars over the next few years. In addition, when AT&T ceases
to provide the services described above through the AT&T Complex, the NSC will
have to provide such services to the customers currently using the AT&T Complex.
Although the Company believes that the NSC as currently configured will be able
to handle such increased capacity, the NSC has not previously provided service
at such a level of use. See "Business -- Infrastructure and Operations."
NO REMOTE DISASTER RECOVERY SYSTEM
At the present time, the Company's disaster recovery systems focus on
internal redundancy and diverse routing within each of the complexes operated by
or for the Company. However, the Company does not currently have access to a
remote back-up complex that would enable it to continue to provide mobile
communications services to customers in the event of a natural disaster or other
occurrence that rendered unavailable either the AT&T Complex or the NSC.
Accordingly, the Company's business is subject to the risk that such a disaster
or other occurrence could hinder or prevent the Company from continuing to
provide services to some or all of its customers. See "Business --
Infrastructure and Operations."
SWITCHING COMPLEX OPERATIONAL DIFFICULTIES
Under the terms of the AT&T Contract, AT&T was obligated to maintain
the AT&T Complex in operational status. However, from inception of service, the
AT&T Complex experienced various service impairments, including occasional
"downtime" periods ranging from several minutes to several hours in duration. In
general, although in recent months AT&T has made modifications to the AT&T
Complex which are intended to improve its performance, there can be no assurance
that the AT&T Complex will not experience performance problems in the future.
The Company does not have access to maintain the AT&T Complex. Accordingly, when
operational problems arise concerning the AT&T Complex, the Company must rely on
AT&T to correct those problems in a timely fashion.
As noted above, the NSC began commercial service in the third quarter
of 1996. Other than the normal operational issues encountered in placing in
service a complex facility of this type, the addition of new customers to the
NSC has been progressing in an orderly fashion and the NSC has not experienced
unusual or severe service impairments. However, there also can be no assurance
that the NSC will not experience performance and other operational problems in
the future.
Any significant performance or other operational problems affecting
either the AT&T Complex or the NSC could have a material adverse effect on the
Company's business, financial condition and results of operations. See "Business
- -- Infrastructure and Operations."
AT&T LITIGATION
On February 16, 1996, the Company filed a lawsuit against AT&T in the
U.S. District Court, Northern District of Texas, Dallas Division. The Company is
seeking preliminary and permanent injunctive relief restraining AT&T from using
and disclosing the Company's trade secrets and proprietary information relating
to its mobile communications technology. In July 1996, AT&T filed counterclaims
essentially mirroring the Company's claims. Both the Company and AT&T claim
ownership of trade secrets and proprietary information related to the design and
function of the Company's mobile communications unit and dispatcher software and
certain methods developed to prevent fraudulent use of the system.
In September and October 1996, both the Company and AT&T amended their
pleadings and filed additional claims against each other related to breach of
contract and various tortious activities. AT&T seeks an injunction
20
<PAGE> 27
preventing the Company from using or disclosing AT&T's alleged trade secrets, a
declaratory judgment defining the parties' intellectual property rights, actual
and punitive damages and attorneys' fees in connection with its counterclaims.
The Company seeks a declaration that the patents issued to AT&T using the
Company's proprietary information are invalid or, alternatively, should be
transferred from AT&T to the Company, and that certain actual or threatened AT&T
conduct infringes the Company's patents. The Company also brought claims against
AT&T pursuant to the Texas Deceptive Trade Practices Act ("DTPA") and seeks
actual, punitive and treble damages and attorneys' fees in connection with its
claims. Additionally, the Company's amended complaint added another defendant,
Lucent Technologies, Inc. ("Lucent"), to which AT&T transferred certain of the
patents at issue in the lawsuit. Both the Company and AT&T seek substantial
monetary damages.
In November 1996, AT&T filed a partial motion to dismiss the Company's
DTPA claims, various tort claims and the patent invalidity charges.
Additionally, in November 1996, Lucent filed a motion to dismiss all of the
Company's claims against Lucent. In December 1996, the Company filed a response
to AT&T's partial motion to dismiss and a response to Lucent's motion to
dismiss. Supplemental briefing on the motions is anticipated and a decision is
expected in the near future.
The claims made by AT&T in its pending litigation with the Company, if
resolved in a manner adverse to the Company, could have a material adverse
effect on the Company and its business, financial condition and results of
operations. See "Business -- Legal Proceedings."
UNCERTAINTY REGARDING PATENTS AND PROPRIETARY RIGHTS
The Company's success depends upon its technology and the scope and
limitations of its proprietary rights therein. In order to protect its
technology, the Company relies on a combination of patents, copyrights and trade
secret laws, as well as certain customer licensing agreements, employee and
third-party confidentiality and non-disclosure agreements and other similar
arrangements. There can be no assurance that the means employed by the Company
to protect its proprietary rights will be adequate. If the Company's assertion
of proprietary rights is held to be invalid or if another person's use of the
Company's technology were to occur to any substantial degree, the Company's
business, financial condition and results of operations could be materially
adversely affected.
The Company holds ten domestic patents and has applied for several
additional domestic and foreign patents. In general, the Company's existing
patents relate to certain methods and apparatus of the HighwayMaster system for
locating and communicating with vehicles utilizing the cellular communications
network. The Company's software is also entitled to certain protections under
state trade secret law and federal copyright law.
The patents and other intellectual property rights of the Company
cannot prevent competitors from developing competing systems using other
land-based wireless communications systems or using the cellular system through
a different method. While the Company believes that the nature and scope of the
HighwayMaster communications system, including the Company's strategic business
and technological relationships, would be difficult for a competitor to
duplicate, there can be no assurance that a competitor would consider these
hindrances to be material in light of the market potential. A competitor could
invest time and resources in an attempt to duplicate certain key features of the
Company's products and services, which could result in increased competition and
have a material adverse effect on the Company's business.
Several of the Company's competitors have obtained and can be expected
to obtain patents that cover products or services directly or indirectly related
to those offered by the Company. There can be no assurance that the Company is
aware of all patents containing claims that may pose a risk of infringement by
its products or services. In addition, patent applications in the United States
are confidential until a patent is issued and, accordingly, the Company cannot
evaluate the extent to which its products or services may infringe on future
patent rights held by others. In general, if it were determined that any of the
Company's products, services or planned enhancements infringed valid patent
rights held by others, the Company would be required to cease marketing such
products or services or developing such
21
<PAGE> 28
enhancements, to obtain licenses (which might require the payment of royalties)
to develop and market such products, services or enhancements from the holders
of the patents or to redesign such products or services to avoid infringement.
In such event, the Company also might be required to pay past royalties or other
damages. There can be no assurance that the Company would be able to obtain
licenses on commercially reasonable terms, or that it would be able to design
and incorporate alternative technologies, without a material adverse effect on
its business.
AT&T has filed applications for patent protection with respect to
certain functions of the AT&T Complex and has obtained certain patents which
appear to overlap with patents issued to the Company, some of which have been
assigned by AT&T to Lucent. In addition, AT&T has asserted that it has certain
other proprietary rights relating to the AT&T Complex. In connection with the
pending litigation between the Company and AT&T, neither AT&T nor Lucent has
asserted any patent claims against the Company. However, there can be no
assurance that they will not attempt to do so in the future. In connection with
the operation of the NSC or other future activities of the Company, there can be
no assurance that the Company (if it were required to do so pursuant to patent
or other purported rights of AT&T) would be able to obtain licenses from AT&T on
commercially reasonable terms, or that it would be able to design and
incorporate alternative technologies, without a material adverse effect on its
business, financial condition and results of operations. The Company has filed a
lawsuit against AT&T and Lucent with respect to these proprietary rights and
AT&T has countersued the Company. See "-- AT&T Litigation."
LIMITED SIZE OF PRIMARY TARGET MARKET
The only product currently offered by the Company to customers in the
long-haul trucking market is the Series 5000 Mobile Unit. Although the Company
expects to generate sales of Series 5000 Mobile Units in all sectors of the
long-haul trucking market, the Company's primary target market for this product
is operators of mid- and large-sized fleets consisting of larger-sized trucks
used in long-haul transport. Based on the Department of Commerce Census,
management estimates that there are approximately 530,000 trucks in this primary
target market, of which approximately 30% are currently equipped with some form
of integrated mobile communications solution. Because of the limited size of the
primary target market for Series 5000 Mobile Units, management believes that, in
order to achieve a profitable level of operations in the long-haul trucking
market, it will be necessary for the Company to achieve significant levels of
penetration in its primary target market, as well as to effect substantial sales
of the Series 3000 Mobile Units in other sectors of the long-haul trucking
market.
EARLY STAGES OF PRODUCT DEVELOPMENT
The Series 3000 Mobile Unit and AutoLink product described in this
Prospectus are both in the early stages of product development. Development of
the hardware component for the Series 3000 Mobile Unit is at a very early stage,
although it is expected to benefit substantially from the ongoing development
work taking place in connection with launch of the AutoLink service. The
software component of the Series 3000 Mobile Unit is currently in the design
stage and has yet to be loaded onto and tested in conjunction with the product's
hardware component. The Company expects that the hardware component of the
Series 3000 Mobile Unit will be manufactured by a third-party hardware supplier
in accordance with the Company's specifications. The Company is currently
negotiating with Motorola to manufacture the hardware component for the Series
3000 Mobile Unit. However, at the present time, the Company has not obtained a
commitment from Motorola or any other supplier to manufacture this hardware
component. In general, there can be no assurance that the Company will be able
to make satisfactory arrangements with third-party hardware suppliers to
manufacture the Series 3000 Mobile Unit. The Company's strategy for the
marketing of the Series 3000 Mobile Unit has not yet been tested or implemented,
and there can be no assurance that the Company will be successful in achieving
substantial sales of the Series 3000 Mobile Unit at any time in the future if at
all. See "Business -- Products and Services -- Series 3000" and "-- AutoLink."
The AutoLink product is currently in the design stage. Prince is
currently engaged in designing the end-user interface for this product. In
addition, the Company and Prince are currently involved in negotiations with
Motorola, which would be responsible for manufacturing the in-vehicle
communications and location hardware for the AutoLink
22
<PAGE> 29
product in accordance with their specifications. There can be no assurance that
these negotiations will be successful or that the Company and Prince will be
able to make satisfactory arrangements with Motorola or any other third-party
hardware supplier. The software component to be loaded onto the AutoLink product
is still being designed and is yet to be tested in conjunction with the
hardware. Extensive testing of the AutoLink product will be required in
real-time conditions before it is ready for launch. Any delay in the development
or testing of either the hardware or software components for the AutoLink
product could significantly delay its projected launch dates. Moreover, in order
to launch the AutoLink product, it will be necessary for the Company to make
certain changes to the terms of its contracts with cellular carriers and other
third parties to enable the Company to utilize its network to provide emergency
and roadside assistance services to motorists in their home markets. The
proposed strategy for the marketing of the AutoLink product has not yet been
tested or implemented. Although the Company has entered into a memorandum of
understanding with CellStar which contemplates that CellStar will act as the
exclusive distributor for the AutoLink product in the after-market, the Company
has not entered into a definitive agreement that obligates CellStar or any other
cellular distributor or cellular carrier to assist the Company in distributing
the AutoLink product in the aftermarket and there is no assurance that it will
be able to do so. There can be no assurance that the Company and Prince will be
successful in achieving substantial sales of the AutoLink product in either the
OEM market or the after-market at any time in the future. See "-- Network
Enhancement; Need to Modify Contractual Relationships" and "Business -- Products
and Services -- AutoLink."
DEPENDENCE ON CELLULAR INFRASTRUCTURE
The Company utilizes the existing cellular telephone infrastructure,
with certain enhancements, as the wireless segment of the HighwayMaster network.
In most cases, current terms of contracts between the Company and each of its
cellular carriers are for one year, with automatic one-year successive renewal
terms, unless either party elects to terminate the contract upon 30-days' notice
prior to June 30 of each year. The Company has recently executed new contracts
with certain of its cellular carriers that are substantially similar to the
existing contracts, except that they provide for an initial three-year term. In
order to continue to provide mobile communications services to its customers,
the Company must continue to renew its agreements with individual cellular
carriers. If the Company is unable to renew or replace its contracts with
cellular carriers at competitive rates, the Company may be forced to absorb the
costs of increased cellular air time rates, or increase rates to customers where
allowed by individual contracts. In general, a failure on the part of the
Company to renew or replace its contracts with cellular carriers on favorable
terms could have a material adverse effect on its business, financial condition
and results of operations.
Under the terms of existing cellular contracts, a cellular carrier
generally agrees to provide cellular service to customers of the Company, on a
roaming basis, so long as such customers are (i) vehicles used in long-haul
trucking and (ii) certain recreational vehicles for which a specified portion of
cellular airtime usage occurs in multiple markets. As a result, in order to
begin offering the AutoLink service on a commercial basis, it will be necessary
for the Company to amend its contracts with cellular carriers to allow the
Company to utilize their cellular systems to provide emergency and roadside
assistance service to motorists in their home markets. The Company has begun to
seek amendments to its contracts with cellular carriers and to date has amended
the contracts with more than 35 carriers. However, there can be no assurance
that it will be able to obtain amendments covering all areas in which it
currently provides mobile communications services to long-haul trucks. The
Company's agreements with cellular carriers provide that the Company will not be
required to reimburse carriers for fraudulent usage unless the carriers have
fully implemented the Company's protocol. Although the Company's protocol has
been effective to prevent fraud to date, there is no assurance that this will be
the case in the future.
The HighwayMaster network relies on the continued interconnectivity of
its cellular service providers. Currently, cellular carriers utilize analog
technology, although an increasing number of carriers have upgraded or are in
the process of upgrading their service to digital technology. If in the future
cellular carriers do not continue to offer service to analog telephones, the
Company would be required to dedicate financial resources and engineering staff
to integrate a digital cellular telephone transceiver into its products.
Furthermore, if substantial changes to the methods of interconnection utilized
by cellular carriers occur, such as a discontinuance of the existing out-of-area
call clearing
23
<PAGE> 30
system or a decision by cellular carriers to eliminate analog service and employ
several diverse digital technologies rather than a common digital technology,
the Company may be required to undertake costly system redesign or may encounter
difficulty in providing nationwide coverage. See "Business -- Infrastructure and
Operations."
DEPENDENCE ON CLEARINGHOUSE SERVICES
GTE Telecommunications Services Incorporated ("GTE-TSI") performs
certain "clearinghouse" functions for the Company, which include, among other
things, validation and verification of roaming numbers and provision of certain
call delivery information. The Company's agreement with GTE-TSI is effective for
an initial term ending March 14, 1998, with certain renewal options by the
Company after that date. The agreement provides for mutual exclusivity in the
trucking industry for the initial term with respect to certain key call delivery
features. The agreement with GTE-TSI may be renewed by the Company for up to ten
additional one-year terms after expiration at a reasonable price to be
determined solely by GTE-TSI. There can be no assurance that the renewal price
determined by GTE-TSI after the initial three-year term will be acceptable to
the Company.
A subsidiary of Electronic Data Systems Corporation ("EDS") also
performs certain "clearinghouse" functions for the Company which include, among
other things, the validation of roaming numbers and routing of call delivery
information. The agreement with EDS expires on October 24, 1998 with successive
automatic one-year renewal terms thereafter, unless terminated at the option of
either party upon 60-days' notice prior to any expiration date. There can be no
assurance that the EDS agreement will be renewed upon expiration.
If the Company is unable to renew its agreement with GTE-TSI or, to a
lesser extent, EDS, the Company may be required to make substantial and costly
design changes to the HighwayMaster network in order to ensure continued
availability of the Company's services. Because of the unique position of
GTE-TSI and EDS as industry-wide clearinghouses and the difficulty associated
with their replacement, there can be no assurance that full functionality of the
system could be maintained if such a redesign were necessary.
A separate subsidiary of GTE, GTE Wireless, provides certain other
services to the Company, principally the direct payment of the Company's
cellular service providers for cellular airtime, under a contract scheduled to
expire in March 1999. The failure to renew this contract and continue existing
arrangements for payment to the Company's cellular service providers could
require the Company to post security deposits or provide other financial
assurances, which could have a material adverse effect on its business,
financial condition or results of operations. See "Business -- Infrastructure
and Operations."
COSTS RELATED TO BILLING DISCREPANCIES
The Company's ability to operate its business on a profitable basis
will depend in part upon whether it is able to monitor and control effectively
the direct costs of providing services to its customers, including cellular air
time charges. The Company periodically analyzes the charges billed to the
Company by GTE Wireless on behalf of cellular carriers in order to obtain the
appropriate amount of credit for any invalid air time usage charges billed to
the Company. Furthermore, the Company incurs certain valid airtime usage charges
that are not billable to customers under current billing practices. During the
three months ended June 30, 1997, the Company recorded an adjustment to increase
cellular airtime cost, a component of cost of service revenue, based on new
billing data received in July 1997. This new billing data indicated that the
portion of airtime usage not billable to customers is higher than previously
believed by the Company and used as the basis for recording accounting
estimates. The Company is currently in the process of evaluating the factors
underlying the increase in cellular airtime costs and will attempt to identify
technical adjustments and modifications that may enable it to improve its
service gross profit margin. At the present time, the Company's evaluation of
these factors is in its preliminary stages and there can be no assurance that
the Company's results of operations in future periods will not be impacted by
the same or similar factors. In addition, there can be no assurance that the
Company will not incur significant costs in the future in connection with
billing discrepancies or the reconciliation process or that the costs will not
have an adverse impact on the Company's ability to achieve and maintain
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satisfactory profit margins. See "Management's Discussion and Analysis of
Financial Condition and Results of Operations."
NETWORK ENHANCEMENT; NEED TO MODIFY CONTRACTUAL RELATIONSHIPS
The Company expects to utilize its existing network to provide the
AutoLink service to motorists in the United States and Canada and to pursue
additional business opportunities in the future. However, certain modifications
will need to be made to the Company's contracts with cellular carriers and other
third parties to enable the Company to utilize its network for such purposes.
For example, in order to provide the AutoLink service, the Company must amend
its contracts with cellular carriers to permit the use of their cellular systems
to provide emergency and roadside assistance to motorists in their home markets.
See "-- Dependence on Cellular Infrastructure." In addition, it will be
necessary for the Company to make certain changes to the terms of its contracts
with GTE-TSI and EDS to provide that such companies will perform the same
"clearinghouse" functions for the AutoLink service as they currently do in the
long-haul trucking market. Furthermore, GTE Wireless has advised the Company
that it intends to seek amendments to its current contracts with cellular
carriers relating to the direct payment of airtime charges in order to ensure
that they cover the AutoLink service. There can be no assurance that all
amendments will be obtained which are needed to enable the Company to provide
the AutoLink service on a nationwide basis or to pursue any additional business
opportunities described in this Prospectus. In order to provide the AutoLink
service, the Company will also need to construct a new switching complex as
contemplated in the existing joint development agreement between the Company and
Prince. See "Business -- Products and Services -- AutoLink," "Business --
Infrastructure and Operations" and "Business -- Additional Business
Opportunities."
NO LONG-TERM PRODUCT SUPPLY ARRANGEMENTS
The Company does not have the ability to manufacture or assemble the
Series 5000 Mobile Units. Sanmina Corporation ("Sanmina") has assembled Series
5000 Mobile Units for the Company in accordance with its specifications since
the fourth quarter of 1996, when Sanmina acquired certain assets of the
Company's previous supplier, which was in bankruptcy. To the extent that the
Company is dependent on a single supplier to manufacture and assemble the Series
5000 Mobile Units, the possibility exists that problems experienced by the
supplier could adversely affect the Company. The Company recently entered into
an agreement with K-Tec Electronics Corporation ("K-Tec") for the assembly of
the Series 5000 Mobile Units and the initial version of the Series 3000 Mobile
Units. In the future, the Company plans to order Series 5000 Mobile Units from
both Sanmina and K-Tec. Additionally, the Company subcontracts for the
manufacture of various components for the Series 5000 Mobile Units from various
suppliers. All transceivers for the Series 5000 Mobile Units are manufactured by
Motorola, and the Company believes that there is a limited number of suppliers
who are capable of manufacturing transceivers that meet the Company's
requirements. In general, the failure to maintain or establish satisfactory
arrangements for the production and assembly of Series 5000 Mobile Units could
have a material adverse effect on the Company's business, financial condition
and results of operations.
In connection with proposed launch of the advanced versions of the
Series 3000 Mobile Units and AutoLink products, it will be necessary for the
Company to make arrangements with one or more third-party hardware suppliers to
manufacture the hardware components of these products in accordance with the
Company's specifications. Although the Company is currently negotiating with
Motorola to manufacture the hardware component for these products, the Company
has not obtained a commitment from Motorola or any other hardware supplier with
respect to the manufacture of these products. In general, there can be no
assurance that the Company will be able to make arrangements with a third-party
hardware supplier or suppliers to manufacture the hardware components of the
advanced versions of the Series 3000 Mobile Units and AutoLink products or, if
it is successful in making such arrangements, as to the terms thereof.
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CONTROL OF THE COMPANY
The Company, SBC, the Erin Mills Stockholders (as defined herein), the
Carlyle Stockholders (as defined herein), the By-Word Stockholders (as defined
herein) and certain other persons are parties to an Amended and Restated
Stockholders' Agreement, dated as of September 27, 1996 (the "Amended
Stockholders' Agreement") which amends and restates in its entirety the
Stockholders' Agreement dated February 4, 1994. The parties to the Amended
Stockholders' Agreement beneficially own an aggregate of 19,625,129 shares of
Common Stock, representing approximately 79.0% of the shares outstanding as of
December 31, 1996.
The Amended Stockholders' Agreement contains provisions relating to,
among other things, the election of members of the Company's Board of Directors.
In particular, this agreement provides that the parties will take all action
(including the voting of shares of Common Stock owned by them) necessary to
ensure that the Board of Directors of the Company consists of (i) two directors
designated by the Erin Mills Stockholders, (ii) one director designated by the
Carlyle Stockholders, (iii) two directors designated by the By-Word Stockholders
and (iv) two independent directors. Each of the parties has designated the
number of directors specified in the Amended Stockholders' Agreement, except
that the Carlyle Stockholders have declined to exercise their right to designate
a director. In addition, the Company has not yet designated a second independent
director but intends to do so as promptly as practicable. Prior to the receipt
of regulatory relief ("Regulatory Relief") permitting SBC to provide landline,
interLATA long-distance service pursuant to the Communications Act of 1934, as
amended by the Telecommunications Act (as defined herein), SBC will not be
entitled to designate a director, but will have the right to designate a
non-voting delegate who will attend all meetings of the Board of Directors and
receive all materials distributed to directors of the Company. Upon the
conversion of Series D Preferred Stock (as defined herein) into Class B Common
Stock (as defined herein), which will occur upon receipt of Regulatory Relief,
SBC will be entitled to designate one member of the Board of Directors of the
Company. In addition, if SBC and its affiliates beneficially own 20% or more of
the outstanding Common Stock on a fully diluted basis (including shares issuable
upon conversion or exercise of outstanding options, warrants or rights, but
excluding shares issuable upon the conversion or exercise of the SBC Warrants
(as defined herein) or of options, warrants or rights issued by any person other
than the Company), SBC will under certain circumstances be entitled to designate
a second member of the Board of Directors.
As a result of the provisions of the Amended Stockholders' Agreement
and the number of shares of Common Stock owned by the stockholders who are
parties thereto, these stockholders, if they choose to act together, have the
ability to control the management and policies of the Company. See "Certain
Relationships and Related Party Transactions -- Amended Stockholders'
Agreement."
REPURCHASE OF EXCHANGE NOTES UPON CHANGE OF CONTROL
Upon the occurrence of a Change of Control, the Company will be
required to offer to repurchase all of the outstanding Notes at a price equal to
101% of the principal amount thereof, plus accrued and unpaid interest and
Liquidated Damages, if any, to the repurchase date. There can be no assurance
that the Company would have sufficient resources to repurchase the Notes upon
the occurrence of a Change of Control. The failure to repurchase all of the
Notes tendered to the Company would constitute an Event of Default under the
Indenture. Furthermore, the repurchase of the Notes by the Company upon a Change
of Control might result in a default on the part of the Company in respect of
other future indebtedness of the Company, as a result of the financial effect of
such repurchase on the Company or otherwise. The change of control repurchase
feature of the Notes may have anti-takeover effects and may delay, defer or
prevent a merger, tender offer or other takeover attempt. See "Description of
Exchange Notes."
FRAUDULENT CONVEYANCE CONSIDERATIONS
The obligations of the Company under the Old Notes are and under the
Exchange Notes will be guaranteed by HMC, the Initial Restricted Subsidiary, and
will be guaranteed by all future Restricted Subsidiaries of the Company. It is
possible that creditors of a Restricted Subsidiary may challenge the Subsidiary
Guarantee issued by it as a fraudulent
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<PAGE> 33
conveyance under applicable provisions of the United States Bankruptcy Code or
comparable provisions of federal and state statutes. The requirements for
establishing a fraudulent conveyance vary depending on the laws of the
applicable jurisdiction. If a court found, under relevant federal and state
fraudulent conveyance statutes in a bankruptcy, reorganization or rehabilitation
case or similar proceeding or lawsuit by or on behalf of unpaid creditors of the
Company or the Restricted Subsidiaries, that at the time a Subsidiary Guarantee
was issued that (i) the applicable Restricted Subsidiary issued its Subsidiary
Guarantee with the intent of hindering, delaying or defrauding current or future
creditors or (ii) the applicable Restricted Subsidiary received less than
reasonably equivalent value or fair consideration for issuing its Subsidiary
Guarantee and (A) was insolvent or was rendered insolvent by reason of the sale
of the Notes or issuance of the Subsidiary Guarantee, (B) was engaged, or about
to engage, in a business or transaction for which its assets constituted
unreasonably small capital or (C) intended to incur, or believed that it would
incur, debts beyond its ability to pay such debts as they matured (as all of the
foregoing terms are defined in or interpreted under such fraudulent conveyance
statutes), such court could void or rescind or reduce such Subsidiary Guarantee
or take other action detrimental to the rights of the holders of the Notes,
including invalidating such Subsidiary Guarantee and requiring the holders of
the Notes to return amounts previously paid in respect of the Notes to the
extent such payments were made by, or derived from the assets of, the Restricted
Subsidiary whose Subsidiary Guarantee was voided, rescinded or reduced. Among
other things, a legal challenge of a Subsidiary Guarantee on fraudulent
conveyance grounds may focus on the benefits, if any, realized by such
Restricted Subsidiary as a result of the issuance by the Company of the Notes.
To the extent a Subsidiary Guarantee is voided as a fraudulent conveyance or
held unenforceable for any other reason, the holders of the Notes would cease to
have any claim in respect of the assets of such Restricted Subsidiary. The
measure of insolvency under applicable law will vary depending upon the law
applied in such case. Generally, however, a Restricted Subsidiary would be
considered insolvent if at the time it issued its Subsidiary Guarantee or made
any payments in respect thereof, either (i) the fair market value (or fair
salable value) of its assets was less than the amount required to pay its total
existing debts and liabilities (including the probable liability on contingent
liabilities) as they become absolute and matured or (ii) it was incurring debts
beyond its ability to pay as such debts matured. See "Description of Exchange
Notes."
HOLDING COMPANY STRUCTURE
The Company is a holding company and substantially all of its
operations are conducted through HMC, to which the Company contributed most of
the proceeds that it received from the sale of the Units. If the Subsidiary
Guarantee of HMC were not enforced for any reason, the Company's cash flow and,
consequently, its ability to service its indebtedness, including the Notes,
would be dependent on its ability to gain access to the cash flow of HMC
(whether through loans, dividends, distributions or otherwise) and would be
subject to any legal, contractual or other restrictions that could hinder or
prevent the Company from doing so. HMC is a separate and distinct legal entity
from the Company and, except under the terms of its Subsidiary Guarantee, has no
obligation, contingent or otherwise, to pay any amounts due in respect of the
Notes or to make any amounts available for the payment thereof. In addition,
many jurisdictions recognize suretyship defenses available to a guarantor such
as HMC which could create an impediment to the enforcement of its Subsidiary
Guarantee. Although HMC will generally waive all such defenses, there can be no
assurance that such waivers will be enforceable. In general, if the Subsidiary
Guarantee issued by HMC were not enforced for any reason, the Notes would be
effectively subordinated to all indebtedness and other obligations of HMC to
other third parties.
With respect to any future subsidiary of the Company that is not a
Restricted Subsidiary, the holders of the Notes will have no direct claim
against the assets of such future subsidiary and such future subsidiary will
have no obligation in respect of the payment of the principal amount of or
interest on the Notes. Any claim that the Company might have by virtue of its
status as a stockholder of such subsidiary would be effectively subordinated to
the claims of every creditor of such subsidiary, including trade creditors and
the holders of subordinated indebtedness of such subsidiary. Any intercompany
obligations that such future subsidiary owed to the Company could also be
subordinated or treated as equity claims under the laws of the applicable
jurisdiction. See "--Fraudulent Conveyance Considerations" and "Description of
Exchange Notes."
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COMPETITION AND TECHNOLOGICAL CHANGE
The Company faces competition from various other suppliers of mobile
communications services. Currently, the Company's primary competitors in the
long-haul trucking market offer data- only, two-way communications via
satellite. Other companies that compete or are planning to compete with the
Company in its target market also offer or plan to offer satellite-based voice
and data communication systems. The primary advantage of satellite-based
communication over the Company's cellular-based system is that satellite
coverage is available in certain remote areas and foreign countries that have
not developed cellular networks, enabling data transmissions in areas not served
by cellular systems. In addition, satellite-based communication systems
generally utilize a less complicated infrastructure than the Company's network
and may be able to make updates and changes to their system more quickly than
the Company.
Certain technological advances and future product offerings could
substantially change the nature of the Company's competition. For example,
geo-stationary orbit, MEO and LEO satellite systems are expected to offer voice
and data communications that could compete directly with existing cellular-based
services, including the HighwayMaster system. One of the Company's current
competitors, American Mobile Satellite Corporation ("AMSC"), launched a
geo-stationary satellite in 1995 and offers both data and voice communications.
In addition, networks of MEO and LEO satellites are in the early implementation
stage, funded by consortiums of companies that intend to provide worldwide voice
communication capability. A useable portion of one or more of such networks is
projected to be in place by the year 2000. The addition of voice capability to
satellite systems may reduce the Company's competitive advantage over certain of
its competitors, and it is possible that satellite owners may, at least on a
temporary basis, offer rates at or below the Company's rates.
Certain conventional mobile radio and ESMR providers offer digital
services that are competitive with current cellular services, including the
HighwayMaster system. If ESMR providers expand coverage and establish a
significant degree of uniformity, through uniform use of proprietary digital
technology or otherwise, ESMR providers could eventually develop an integrated
network to allow nationwide roaming. ESMR operators also intend to offer
dispatching services, data transmission and other services through their
expanding networks that could compete with the Company's services. One
telecommunications company already has implemented a system of nationwide
roaming limited to densely populated urban areas where it has built out its
network. Several other cellular carriers are currently in various stages of
implementing similar systems.
Although current nationwide autonomous-registration incoming call
delivery systems offered by the cellular industry are costly and are unavailable
in some rural areas, the cellular industry may eventually develop a uniform
standard for incoming call delivery at a reduced cost. If inexpensive
autonomous-registration incoming call delivery systems for cellular roamers
become standard, this feature of the Company's services may provide less of a
competitive advantage. Moreover, if cellular carriers were to develop additional
standard protocol and hardware for inexpensive data transmission and fraud
control or if the cost of roaming services were to significantly decline, other
competitive advantages of the Company's system would be reduced. As the Company
begins to offer the Series 3000 Mobile Unit, it will increasingly face
competition from traditional cellular carriers.
In general, technology in the wireless communications industry is in a
rapid and continuing state of change as new technologies and enhancements to
existing technologies continue to be introduced. The Company believes that its
future success will depend upon its ability to develop and market products and
services that meet changing customer needs and which anticipate or respond to
technological changes on a timely and cost-effective basis. There can be no
assurance that the Company will be able to keep pace with technological
developments.
Other services are being proposed that could potentially compete with
the Company's products and services. The Federal Communications Commission
("FCC") currently is considering whether to allocate 75 megahertz of spectrum in
the 5.850-5.925 GHz band to establish dedicated short range communications
("DSRC") systems for the
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deployment of intelligent transportation systems to provide terrestrial wireless
communication links between vehicles traveling at highway speeds and roadside
systems. Current DSRC-based services include electronic toll payment and
commercial vehicle electronic clearance. Emerging DSRC services include en-route
driver information, freight mobility tracking, traffic control, and automated
roadside safety inspection, which may compete with the HighwayMaster system.
Certain of the Company's competitors, including Qualcomm, Inc.
("Qualcomm"), have significantly greater name recognition, financial and other
resources than the Company. Among other things, it appears that certain of these
resources have been or are being used by Qualcomm and other competitors of the
Company to subsidize initial hardware purchases and provide extended periods of
free services in an attempt to achieve rapid penetration of the Company's target
market. See "Business -- Competition."
BACKLOG; NO FIRM DELIVERY DATES
As of June 30, 1997, the Company had a backlog of 9,059 Series 5000
Mobile Units on order by its customers. The Company's order backlog is based
upon signed contracts pursuant to which customers have agreed to purchase the
applicable Series 5000 Mobile Units and install them in their fleets of
long-haul trucks (although in a limited number of cases the obligation to take
delivery of Series 5000 Mobile Units is subject to satisfactory completion of a
test program). Customer contracts generally do not specify delivery dates and,
as a result, the exact timing of delivery and installation of the Series 5000
Mobile Units ordered by customers is frequently the subject of further
discussions and negotiations between the Company and its customers.
Historically, not all Series 5000 Mobile Units included in the Company's backlog
have resulted in product sales, as a result of a variety of factors such as
financial difficulties and fleet downsizings experienced by customers, technical
difficulties arising with respect to the development of satisfactory interfaces
between the Series 5000 Mobile Units and customers' dispatch software and
certain operational and other disagreements arising from time to time between
the Company and its customers. Although the Company believes that the terms of
its customer agreements are binding, the Company generally attempts to work with
customers to reach a mutually satisfactory schedule for the delivery of the
Series 5000 Mobile Units and to resolve any operational or other issues that may
delay or impede the delivery or installation thereof. The Company makes periodic
adjustments to its order backlog to eliminate therefrom any Series 5000 Mobile
Units as to which substantial doubt exists regarding whether the customer
intends to take delivery thereof. In general, there can be no assurance that
customers will take delivery of all Series 5000 Mobile Units included in the
Company's order backlog.
UNCERTAINTY OF GOVERNMENT REGULATION
The Company believes that the nature of its services does not require
the Company to be classified as a common carrier for either wireless or
long-distance regulatory purposes. This conclusion is based on several
alternative regulatory interpretations, including the classification of the
HighwayMaster service as a private network whose service is not offered to the
public at large, but rather targeted to specific users such as the long-haul
trucking industry and other owners of commercial vehicles. In addition, each
customer arrangement is tailored to fit the communication needs of that
particular customer. Alternatively, the Company can be classified as an enhanced
services provider, and thus not subject to common carrier regulation, because
the HighwayMaster proprietary hardware and software processing applications act
on information transmitted by subscribers, who then receive information in
return from HighwayMaster regarding the status of their commercial vehicles. The
Company relies on its long-distance provider to comply with any long-distance
regulatory requirements.
The wireless telecommunications industry currently is experiencing
significant regulatory changes which may require a re-examination of laws and
regulations applicable to the Company's operations. For example, both the
present HighwayMaster service and the future AutoLink service may be considered
to be commercial mobile radio services ("CMRS"). CMRS providers are treated as
common carriers, except that the FCC has decided to forbear from most common
carrier regulation of the CMRS marketplace, including regulation of the rates
and terms of entry for interstate services offered by CMRS providers. In
addition, Congress has preempted state regulation of CMRS entry and rates.
Recent FCC decisions have enhanced the development of CMRS, including requiring
local telephone companies to offer
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interconnection and access to their networks to CMRS providers and to establish
reciprocal compensation arrangements with CMRS providers for the transportation
and termination of calls at prices that are cost-based and just and reasonable.
To the extent that services offered by the Company are determined to be
telecommunications services (which would not include enhanced services offered
by the Company), the Company would be required to contribute to the mechanisms
established by the FCC and various states to preserve and advance universal
service. At the federal level, the Company's universal service contribution
would be based on the end-user telecommunications revenues generated by those
services that are determined to be telecommunications services. The Company
cannot predict the impact of any requirement to contribute to state and federal
universal service mechanisms.
The Company's regulatory status also may change as a result of offering
the AutoLink service, which will be offered indiscriminately to the public at
large, with no individualized or customized contracts, and thus may be
considered a common carrier service. However, the Company believes that it will
nonetheless be regulated as a private carrier if, as currently contemplated, the
AutoLink service does not offer interconnection to the public switched network.
If the Company's interpretation of its regulatory status proves to be incorrect
and it is deemed to be a common carrier, the Company may be required to offer
its services upon reasonable request from any member of the public, it may be
required to offer its services on a basis that is not unreasonably
discriminatory, and, in certain states that regulate common carriers, it must
comply with various regulatory requirements established by state public utility
commissions, or their governing statutes, including procedures related to
customer deposits, the filing of registration or notification letters, and the
filing of tariffs. Changes in regulation of cellular common carriers also may
require equal access by customers to the long-distance provider of their choice.
Although regulations applicable to common carriers would add certain
administrative costs and possible complications to the Company's relationships
with its long-distance provider and cellular carriers, the Company believes that
common carrier status would not require the Company to make substantial changes
to its current services. Finally, certain public utility commissions could take
the position that approval would be needed prior to any transfer of control of
the Company. There can be no assurance that compliance with such regulations
would not have a material adverse effect on the Company's operations.
Long-distance providers face regulatory provisions similar to cellular
carriers, with greater state involvement in requiring the posting of bonds as
security against customer deposits and in other matters. The Company believes
current long-distance regulations apply to the companies providing long-distance
services directly to Company customers, without long-distance regulatory
involvement by the Company. There can be no assurance, however, that the Company
will not become subject to regulations as a long-distance carrier and that such
regulation would not have a material adverse effect on the Company's business.
In February 1996, The Telecommunications Act of 1996 (the
"Telecommunications Act") was signed into law. This is the most comprehensive
set of telecommunications laws to be enacted since the original Communications
Act of 1934 was passed. The Telecommunications Act encourages competition in
virtually every arena of communications and eliminates many regulatory barriers
to new competitors by, in some instances, preempting state and local
restrictions. The Telecommunications Act requires the FCC to extensively revise
many of the rules and regulations under which the telecommunications industry
has been operating. To that end, the FCC has completed approximately 80
different proceedings in connection with the Telecommunications Act. At this
time, it is unclear how the Telecommunications Act will affect the activities of
the Company, its strategic business relationships with other communications
companies, or its customers. There can be no assurance that the relaxing of
barriers to competition in the industry will not hinder the Company's growth and
viability in the marketplace.
The Company currently provides mobile communications services to
Canadian-based operators only if such operators provide a remote call forwarding
line (also known as a foreign exchange line) from their dispatcher PC to the
United States. This limits the Company's ability to provide such services in
Canada, especially to owner-operators and operators of small fleets that cannot
easily afford the expense of a remote call forwarding line. There can be no
assurance that the Company will be able to resolve the issues required to permit
it to expand the scope of its Canadian operations, including any expansion
required to provide the AutoLink service.
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DEPENDENCE ON KEY PERSONNEL
The Company is dependent on the efforts of William C. Kennedy, Jr.,
Chairman of the Board, William C. Saunders, President and Chief Executive
Officer, Gordon C. Quick, Chief Operating Officer, and a group of employees with
technical knowledge regarding the Company's systems. The loss of services of one
or more of these individuals could materially and adversely affect the business
of the Company and its future prospects. The Company has employment agreements
with Messrs. Kennedy, Saunders and Quick. Each of Messrs. Kennedy and Saunders
may terminate such agreements upon one-year's written notice. Mr. Quick may
terminate his agreement at any time upon 90-days' written notice. The Company
does not maintain key man life insurance on any of the Company's officers or
employees. The Company's future success will also depend on its ability to
attract and retain additional management and technical personnel required in
connection with the growth and development of its business. See "Management."
EXPANSION RISK
To the extent that the Company is successful in implementing its
business strategy, the Company may experience periods of rapid expansion in the
future. In order to manage growth effectively in the complex environment in
which it operates, the Company will need to maintain and improve its operating
and financial systems and expand, train and manage its employee base. In
addition, the Company must carefully manage production and inventory levels to
meet product demand and facilitate new product introductions. Inaccuracies in
demand forecasts could result in insufficient or excessive inventories and
disproportionate overhead expenses. The Company must also expand the capacity of
its sales, distribution and installation networks in order to achieve continued
growth in its existing and future markets. In general, the failure to manage
growth effectively could have a material adverse effect on the Company's
business, financial condition and results of operations.
CUSTOMER CONCENTRATION
Ameritruck, Burlington, Contract Freighters, Inc., Ryder Automotive
Carrier Division and Wal-Mart collectively accounted for approximately 26% of
the Company's installed base of Series 5000 Mobile Units as of June 30, 1997 and
60% of its backlog of Series 5000 Mobile Units on order as of the same date. The
loss of any of these customers, or any event, occurrence or development which
adversely affects the relationship between the Company and any of these
customers, could have a material adverse effect upon the Company's business,
financial condition and results of operations.
PRODUCT LIABILITY
Testing, manufacturing and use of the Company's products entail the
risk of product liability. Although management believes the Series 5000 Mobile
Unit offers safety advantages over conventional cellular telephones, it is
possible that operation of the product may give rise to product liability
claims. Product liability claims present a risk of protracted litigation,
substantial money damages, attorney's fees, costs and expenses, and diversion of
management attention. In addition, as the Company expands its business to
include the provision of automotive security and similar systems such as those
contemplated by the AutoLink business alliance, the larger number of consumers
utilizing the Company's products may expose the Company to an increased risk of
litigation regarding various safety, performance and other matters. Product
liability claims which exceed policy limits applicable to the Company's
liability insurance or which are excluded from the policy coverage could have a
material adverse effect on the business or financial condition of the Company.
ADVERSE ECONOMIC CONDITIONS
The purchase of Series 5000 Mobile Units represents discretionary
spending by trucking companies seeking to obtain a competitive advantage in
long-haul trucking market. An economic downturn affecting either the national
economy or the long-haul trucking industry could have an adverse effect on
existing and prospective customers by
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reducing the amount of funds available for discretionary spending. In the event
of such a downturn, customers might place fewer orders for Series 5000 Mobile
Units than they otherwise would do or might seek to cancel existing orders
placed with the Company.
CERTAIN TAX CONSIDERATIONS
The Old Notes were issued with original issue discount ("OID") for U.S.
federal income tax purposes in an amount equal to the excess of the principal
amount due at maturity on the Old Notes over their deemed "issue price" (as
described in "Certain U.S. Federal Tax Consequences -- U.S. Holders -- Original
Issue Discount"). This OID will carry over to, and be treated as OID on, the
Exchange Notes received in exchange for the Old Notes, and each U.S. holder of
an Exchange Note will be required to include in taxable income for any
particular taxable year a portion of such OID in advance of the receipt of the
cash to which such OID is attributable. For additional information regarding the
OID associated with the Notes, as well as certain other federal income tax
considerations relevant to the exchange of Old Notes for Exchange Notes and the
ownership and disposition of Exchange Notes, see "Certain U.S. Federal Tax
Consequences."
LACK OF PUBLIC MARKET
Prior to the Exchange Offer, there has not been any public market for
the Old Notes. The Old Notes have not been registered under the Securities Act
and will be subject to restrictions on transferability to the extent that they
are not exchanged for Exchange Notes by holders who are entitled to participate
in the Exchange Offer. The holders of Old Notes (other than any such holder that
is an "affiliate" of the Company within the meaning of Rule 405 under the
Securities Act) who are not eligible to participate in the Exchange Offer are
entitled to certain registration rights, and the Company is required to file a
Shelf Registration Statement with respect to such Old Notes. The Exchange Notes
will constitute a new issue of securities with no established trading market.
The Exchange Notes will not be listed on any securities exchange and the Company
will not seek the admission thereof to trading in the National Association of
Securities Dealers Automated Quotation System. The Company has been advised by
the Initial Purchasers that they intend to make a market in the Exchange Notes;
however, the Initial Purchasers are not obligated to do so, and any such market
making activities may be discontinued at any time without notice. In addition,
such market making activity may be subject to the limits imposed by the
Securities Act and the Exchange Act and may be limited during the Exchange Offer
and the pendency of the Shelf Registration Statement. Therefore, there can be no
assurance that an active market for the Exchange Notes will develop or as to
liquidity of a trading market for the Exchange Notes.
Depending on prevailing interest rates, the market for similar
securities and other factors, including the financial condition of the Company,
the Exchange Notes may trade at a discount from their principal amount.
EXCHANGE OFFER PROCEDURES
Issuance of the Exchange Notes in exchange for the Old Notes pursuant
to the Exchange Offer will be made only after a timely receipt by the Company of
such Old Notes, a properly completed and duly executed Letter of Transmittal and
all other required documents. Therefore, holders of the Old Notes desiring to
tender such Old Notes in exchange for Exchange Notes should allow sufficient
time to ensure timely delivery. The Company is under no duty to give
notification of defects or irregularities with respect to the tenders of Old
Notes for exchange. Old Notes that are not tendered or are tendered but not
accepted will, following the consummation of the Exchange Offer, continue to be
subject to the existing restrictions upon transfer thereof and, upon
consummation of the Exchange Offer, registration rights under the Registration
Rights Agreement generally will terminate. In addition, any holder of Old Notes
who tenders in the Exchange Offer for the purpose of participating in a
distribution of the Exchange Notes may be deemed to have received restricted
securities and, if so, will be required to comply with the registration and
prospectus delivery requirements of the Securities Act in connection with any
resale transactions. Each Participating Broker-Dealer that receives Exchange
Notes for its own account in exchange for Old Notes, where such Old Notes were
acquired by such Participating Broker-Dealer as a result of market-making
activities or other trading activities, must acknowledge that
32
<PAGE> 39
it will deliver a prospectus in connection with any resale of such Exchange
Notes. See "Plan of Distribution." To the extent that Old Notes are tendered and
accepted in the Exchange Offer, the trading market for untendered and tendered
but unaccepted Old Notes could be adversely affected. See "The Exchange Offer."
33
<PAGE> 40
USE OF PROCEEDS
The Company will not receive any cash proceeds from the issuance of the
Exchange Notes offered hereby. The Exchange Offer is intended to satisfy certain
of the Company's obligations under the Registration Rights Agreement.
The net proceeds from the Units Offering were approximately $119.9
million, after deducting the discount to the Initial Purchasers and estimated
offering expenses. The Company used approximately $46.6 million of such proceeds
to fund the purchase of the Pledged Securities. All remaining proceeds have been
contributed by the Company to HMC and will be used for general corporate
purposes, including, (i) to fund working capital requirements and operating
losses expected to be incurred in connection with the continued growth and
development of the Company's existing long-haul trucking application, (ii) to
fund expenditures relating to the development of new mobile communications
applications to be provided through the Company's network, including the
proposed Series 3000 Mobile Unit and AutoLink service, and (iii) to fund capital
expenditures required to expand the capacity of the NSC to enable it to serve a
larger number of long-haul trucking customers and to construct the AutoLink
Complex. Pending the use of the net proceeds for the purposes described above,
the Company has invested such proceeds in short-term, interest-bearing
investments.
34
<PAGE> 41
CAPITALIZATION
The following table sets forth the cash and cash equivalents, Pledged
Securities and capitalization of the Company at June 30, 1997 on a historical
basis and as adjusted to give effect to the Units Offering and the application
of the net proceeds therefrom. This table should be read in conjunction with
"Use of Proceeds," "Selected Financial Data," "Management's Discussion and
Analysis of Financial Condition and Results of Operations" and the consolidated
financial statements, including the notes thereto, included elsewhere in this
Offering Memorandum.
<TABLE>
<CAPTION>
JUNE 30, 1997
-----------------------
ACTUAL AS ADJUSTED
--------- -----------
(DOLLARS IN THOUSANDS)
<S> <C> <C>
Cash and cash equivalents .................................. $ 5,987 $ 78,924
Pledged Securities ......................................... -- 47,000(1)
--------- ---------
Total ................................................. $ 5,987 $ 125,924
========= =========
Long-term debt:
Notes .................................................... $ -- $ 120,814(2)
Other debt ............................................... -- --
Stockholders' equity:
Series D Participating Convertible Preferred Stock, par
value $.01; 1,000 shares authorized and issued ........ -- --
Common Stock, par value $.01; 50,000,000 shares
authorized; 25,176,983 shares issued (including
treasury stock); ...................................... 252 252
Additional paid-in capital ............................... 145,030 149,216(2)
Accumulated deficit ...................................... (123,886) (123,886)
Treasury stock ........................................... (547) (547)
--------- ---------
Total stockholders' equity ............................ $ 20,849 $ 25,035
--------- ---------
Total capitalization ............................. $ 20,849 $ 145,849
========= =========
</TABLE>
- ----------
(1) The Company used approximately $46.6 million of the net proceeds of the
Unit Offering to purchase Government Securities representing funds
sufficient to provide for payment in full when due of the first six
scheduled interest payments on the Notes.
(2) The aggregate principal amount of the Notes is $125.0 million. The
estimated value of the Warrants, $4,186,000, is reflected both as debt
discount and an element of additional paid-in capital.
35
<PAGE> 42
SELECTED FINANCIAL DATA
The selected consolidated financial data set forth below for the period
from inception (April 24, 1992) to December 31, 1992, and for each of the years
ended December 31, 1993, 1994, 1995 and 1996 have been derived from audited
consolidated financial statements of the Company and its predecessor. The
selected consolidated financial data set forth below for the six months ended
June 30, 1996 and 1997 have been derived from unaudited financial statements of
the Company, which in the opinion of management of the Company contain all
adjustments (consisting solely of normal recurring adjustments) necessary for a
fair presentation thereof. The results of operations for the six months ended
June 30, 1997 are not necessarily indicative of the results to be expected for
the full year. The data set forth in this table should be read in conjunction
with the "Management's Discussion and Analysis of Financial Condition and
Results of Operations" and the consolidated financial statements, including the
notes thereto, included elsewhere in this Prospectus.
<TABLE>
<CAPTION>
APRIL 24, 1992 SIX MONTHS ENDED
(INCEPTION) TO YEAR ENDED DECEMBER 31, JUNE 30,
DECEMBER 31, -------------------------------------------- --------------------
1992 1993 1994 1995 1996 1996 1997
-------------- -------- -------- -------- -------- -------- --------
(DOLLARS IN THOUSANDS, EXCEPT FOR PER SHARE AND OPERATING DATA)
<S> <C> <C> <C> <C> <C> <C> <C>
CONSOLIDATED STATEMENT OF OPERATIONS
DATA:
Revenues:
Product .................................... $ -- $ 1,665 $ 11,075 $ 16,946 $ 14,645 $ 6,423 $ 14,249
Service .................................... -- -- 2,436 9,908 16,056 7,449 11,006
-------- -------- -------- -------- -------- -------- --------
Total revenues ....................... -- 1,665 13,511 26,854 30,701 13,872 25,255
-------- -------- -------- -------- -------- -------- --------
Cost of revenues:
Product .................................... -- 1,792 11,867 17,730 15,099 6,403 12,148
Service .................................... -- -- 2,099 9,172 11,489 5,415 8,671
Writedown of inventory ..................... -- -- 1,658 -- 1,943 -- --
-------- -------- -------- -------- -------- -------- --------
Total cost of revenues ............... -- 1,792 15,624 26,902 28,531 11,818 20,819
-------- -------- -------- -------- -------- -------- --------
Gross profit (loss) ...................... -- (127) (2,113) (48) 2,170 2,054 4,436
General and administrative expenses .......... 1,554 2,981 6,577 7,299 9,479 4,299 7,096
Sales and marketing expenses ................. 838 3,222 3,890 6,273 9,139 4,710 4,055
Engineering expenses ......................... 520 1,274 1,900 2,868 4,094 1,736 2,212
Customer service expenses .................... -- 915 4,587 5,727 8,089 3,930 5,538
-------- -------- -------- -------- -------- -------- --------
Operating loss ........................... (2,912) (8,519) (19,067) (22,215) (28,631) (12,621) (14,465)
Interest income .............................. -- -- 279 1,041 809 444 448
Interest expense to related parties .......... (235) (547) (5,999) (5,106) (1,691) (1,088) --
Recapitalization costs ....................... -- -- (733) -- -- -- --
Other income (expense) ....................... 10 (9) (361) (117) (230) (3) --
-------- -------- -------- -------- -------- -------- --------
Loss before income taxes and extraordinary
item ....................................... (3,137) (9,075) (25,881) (26,397) (29,743) (13,268) (14,017)
Income tax provision ......................... -- -- -- -- -- -- --
-------- -------- -------- -------- -------- -------- --------
Loss before extraordinary item ............... (3,137) (9,075) (25,881) (26,397) (29,743) (13,268) (14,017)
Extraordinary item-- loss on
extinguishment of debt ..................... -- -- -- (6,980) (317) -- --
-------- -------- -------- -------- -------- -------- --------
Net loss ................................... $ (3,137) $ (9,075) $(25,881) $(33,377) $(30,060) $(13,268) $(14,017)
======== ======== ======== ======== ======== ======== ========
Per share data(1):
Loss before extraordinary item.............. $ (1.50) $ (1.39) $ (1.39) $ (0.66) $ (0.56)
Extraordinary item.......................... -- (0.34) (0.01) -- --
-------- -------- -------- -------- --------
Net loss per share.......................... $ (1.50) $ (1.73) $ (1.40) $ (0.66) $ (0.56)
======== ======== ======== ======== ========
Weighted average number of shares
outstanding................................. 18,259 20,407 22,763 22,029 24,843
======== ======== ======== ======== ========
OTHER FINANCIAL AND OPERATING DATA:
Installed base of Series 5000 Mobile
Units(2).................................... -- -- 6,131 14,751 20,354 17,439 25,233
Average monthly Series 5000 Mobile Unit
usage(3).................................... -- -- 135 136 130 130 126
Average monthly Series 5000 Mobile Unit
service revenue(4).......................... -- -- $ 66.22 $ 79.08 $ 76.23 $ 77.14 $ 80.48
Capital expenditures.......................... $ 162 $ 768 $ 1,613 $ 4,076 $ 5,139 $ 2,187 $ 3,253
Ratio of earnings to fixed charges(5)......... -- -- -- -- -- -- --
</TABLE>
36
<PAGE> 43
<TABLE>
<CAPTION>
AS OF DECEMBER 31, AS OF
------------------------------------------------------- JUNE 30,
1992 1993 1994 1995 1996 1997
-------- -------- -------- -------- -------- --------
(DOLLARS IN THOUSANDS)
<S> <C> <C> <C> <C> <C> <C>
CONSOLIDATED BALANCE DATA SHEET:
Working capital ........................ $ (4,614) $ (4,011) $ 4,223 $ 25,772 $ 24,605 $ 9,375
Property and equipment-- net ........... 166 593 1,386 3,927 7,756 8,080
Total assets ........................... 1,575 5,928 16,430 42,369 42,929 32,986
Notes .................................. 6,045 7,225 36,247 11,488 -- --
Redeemable preferred stock ............. -- -- 6,149 8,126 -- --
Common stock ........................... -- -- 178 223 251 252
Additional paid-in-capital ............. -- -- 7,377 90,560 144,829 145,030
Total stockholders' equity (deficit) ... (5,241) (3,816) (34,773) 13,101 34,664 20,849
</TABLE>
- ----------
(1) Per share data for 1994 reflects certain unaudited pro forma adjustments.
See Notes 1 and 4, "Recapitalization" and "Earnings per Share",
respectively, of the Notes to Consolidated Financial Statements as of
December 31, 1995 and 1996 and for the years ended December 31, 1994, 1995
and 1996.
(2) Represents the number of Series 5000 Mobile Units in service at the end of
the applicable period.
(3) Represents the average number of minutes of service for a Series 5000
Mobile Unit during the applicable period.
(4) Represents the average service revenue per Series 5000 Mobile Unit
recognized by the Company during the applicable period. Service revenues
per Series 5000 Mobile Unit vary significantly depending upon whether the
unit is serviced through the AT&T Complex or the NSC. In general, service
revenues and related operating expenses are greater for units serviced
through the NSC than for those serviced through the AT&T Complex. For new
customers commencing service since July 1, 1996, all transmissions are
routed through the NSC. See "Management's Discussion and Analysis of
Financial Condition and Results of Operations-- General."
(5) For purposes of calculating the ratio of earnings to fixed charges,
earnings are defined as loss before income taxes and extraordinary item
plus fixed charges. Fixed charges consist of interest expense, amortization
of debt issuance costs, accretion of discount on preferred stock and a
reasonable approximation of the interest factor included in rental payments
on operating leases. Earnings were inadequate to cover fixed charges for
the period from inception to December 31, 1992 and the years ended December
31, 1993, 1994, 1995 and 1996 by $3,137,000, $9,075,000, $25,881,000,
$26,397,000 and $29,743,000 respectively, and for the six months ended June
30, 1996 and 1997 by $13,268,000 and $14,017,000, respectively.
37
<PAGE> 44
MANAGEMENT'S DISCUSSION AND ANALYSIS OF
FINANCIAL CONDITION AND RESULTS OF OPERATIONS
GENERAL
The Company develops and implements mobile communications solutions,
including integrated voice, data and position location services, to meet the
needs of its customers. The initial application for the Company's wireless
enhanced services has been developed for, and is currently being marketed and
sold to, companies which operate in the long-haul trucking market. The Company
provides long-haul trucking companies with a comprehensive package of mobile
communications and management control services at low, fixed per minute rates,
thereby enabling its trucking customers to effectively monitor the operations
and improve the performance of their fleets. The Company is currently developing
additional applications for its network to expand the range of trucking
companies that utilize its services and to address the needs of the automotive
and other markets. Among other things, HighwayMaster recently entered into a
strategic business alliance with Prince, a subsidiary of Johnson Controls and a
leading supplier of automotive interior systems and components, to develop and
provide an automobile safety and security service, the AutoLink(R) service, to
motorists in the United States and Canada. The AutoLink service is expected to
be available on a commercial basis beginning in late 1998.
The Company commenced operations in April 1992 and has a limited
operating history. The Company began offering its long-haul trucking application
on a commercial basis in September 1993. In order to achieve a profitable level
of operations, the Company must significantly increase its installed product
base and generate substantially greater service revenues. The likelihood of the
long-term success of the Company must be considered in light of the expenses,
difficulties and delays frequently encountered in connection with the early
stages of the development and marketing of telecommunications products and
services, as well as the competitive environment in which the Company operates.
The Company expects to continue to incur losses and negative cash flow in the
future, and there can be no assurance that the Company's future operations will
generate operating or net income or positive cash flow in any future period. See
"Risk Factors -- Limited Operating History; Significant Losses."
At the present time, the Company derives all of its revenues from the
long-haul trucking market. Such revenues consist of payments generated by the
sales and installation of Series 5000 Mobile Units and charges for its services.
The Company currently offers its Series 5000 Mobile Units to customers at a
retail price of approximately $1,995 per Series 5000 Mobile Unit, with tiered
discounts for larger volume purchases. Customers operating Series 5000 Mobile
Units installed in their trucks are charged (i) a flat fee of $0.53 per minute
for all voice calls for communications within the United States and $0.64 per
minute for cross-border communications with Series 5000 Mobile Units in Canada
and (ii) a flat fee of $0.48 per minute for all data transmissions within the
United States and $0.59 per minute for cross-border data transmissions with
Series 5000 Mobile Units in Canada. Such flat per minute fees include all
cellular air time rates and long-distance charges. As described below, in the
case of customers of the Company served through the AT&T Complex, the Company
receives and recognizes as revenue only a portion of the foregoing service
charges. In addition, callers are charged a fee for each call billed to a
separate account, such as a credit card, calling card or HighwayMaster account.
The Company also assesses a fixed monthly service fee of $41 for each Series
5000 Mobile Unit installed.
From 1993 to 1996, the Company and AT&T were parties to the AT&T
Contract under which AT&T provided enhanced call processing, data management
services and long-distance network transport services through the AT&T Complex.
The AT&T Contract was terminated by AT&T effective June 29, 1996. However, AT&T
continues to provide services for certain Company customers without a formal
contract with the Company pursuant to AT&T's obligations with respect to its
existing service agreements with such customers. See "Risk Factors -- Status of
AT&T Contract; Network Services Center" and " -- AT&T Litigation."
In the third quarter of 1996, the Company placed into service the NSC.
The NSC provides enhanced call processing services that were previously provided
on an exclusive basis by AT&T. All new customers of the Company
38
<PAGE> 45
are provided services through the NSC. The Company performs customer billing,
credit and collection activities with respect to customers served through the
NSC. Certain existing customers who previously were served through the AT&T
Complex have recently elected to begin receiving service through the NSC.
Although no assurance can be given in this regard, the Company expects that
additional customers may elect to switch to the NSC during the remainder of
1997.
The amount of service revenues and related expenses recognized by the
Company varies significantly based upon whether a particular customer receives
service through the AT&T Complex or the NSC. In the case of customers served
through the AT&T Complex, service charges are collected by AT&T. The Company
receives payment from AT&T for the portion of these service charges recognized
by the Company as revenue and the remainder is retained by AT&T as compensation
for its cost of providing services. In the case of customers served by the NSC,
the entire amount of the service charge to customers is recognized by the
Company as revenue and additional operating and service expenses are borne by
the Company. The operating expenses associated with the NSC are reflected in the
Company's financial statements as general and administrative expenses (primarily
depreciation, allowance for bad debts and billing expenses) and customer service
expenses (other third party and internal operating expenses). Because of the
difference in economic arrangements described above, to the extent a greater
proportion of the Company's customers are served through the NSC, service
margins are expected to improve, reflecting the increased revenues recognized by
the Company which are expected to be partially offset by additional operating
and service expenses. Because the operating expenses associated with the NSC
include certain fixed costs, such operating expenses are not expected to
increase proportionately with the number of customers added.
The Company periodically analyzes the charges billed to the Company by
GTE Wireless on behalf of cellular carriers in order to obtain the appropriate
amount of credit for any invalid air time usage charges billed to the Company.
Furthermore, the Company incurs certain costs for valid air time usage that are
not billable to customers under current billing practices. There can be no
assurance that the Company will not incur significant costs in the future in
connection with billing discrepancies or the reconciliation process or that the
costs will not have an adverse impact on the Company's ability to achieve and
maintain satisfactory profit margins.
The Company generally recognizes revenue from the sale of Series 5000
Mobile Units at the time the Series 5000 Mobile Units are shipped to customers.
However, in some cases, the Company has installed Series 5000 Mobile Units in
customers' trucks on a trial basis, permitting customers to return such Series
5000 Mobile Units with limited or no penalty. In such cases, the Company does
not recognize revenue from the sale of the Series 5000 Mobile Units until the
trial period has expired.
The principal components of cost of product revenues are the cost of
Series 5000 Mobile Units, warranty and obsolescence provisions and cost of
installation of Series 5000 Mobile Units. The principal components of cost of
service revenues are charges for the cost of cellular air time used by the
Series 5000 Mobile Unit (which charges are paid by GTE Wireless to cellular
carriers and reimbursed by the Company), charges by GTE-TSI and EDS for the cost
of validation and call delivery information from the Series 5000 Mobile Unit and
long-distance charges.
As of June 30, 1997, the Company had installed 25,233 Series 5000
Mobile Units and had orders to install an additional 9,059 Series 5000 Mobile
Units. The Company's order backlog is based on signed contracts, which generally
do not specify delivery dates. Accordingly, in some cases the timing of
installation is uncertain, and the Company expects that not all of the Series
5000 Mobile Units on order at June 30, 1997 will be shipped and installed within
the next twelve months. See "Risk Factors -- Backlog; No Firm Delivery Dates"
and "Business -- Products and Services -- Series 5000 -- Current Installed
Base."
The Company leases its products to certain customers under contracts
that are accounted for as sales-type leases. As of December 31, 1996, the
Company's balance sheet reflected a total receivable balance of approximately
$1,468,000 related to such leases. In March 1997, a customer who represented
$1,239,000 of the total receivable balance notified the Company that it intended
to terminate its long-term lease commitment. Although the lease agreement
contains termination penalties, the amount due from this customer is in dispute.
Accordingly, the Company recorded
39
<PAGE> 46
a $1,000,000 charge to reduce the carrying value of the receivable at March 31,
1997. The Company is currently engaged in litigation with this customer
regarding the amount of the termination payments due to the Company, as well as
claims asserted by the customer with respect to certain purported breaches of
contract, breaches of express and implied warranties and other matters.
Six Months Ended June 30, 1997 Compared to Six Months Ended June 30, 1996
Revenues for the six months ended June 30, 1997 were $25.3 million
compared to $13.9 million for the six months ended June 30, 1996. Product
revenues for the six months ended June 30, 1997 were $14.2 million compared to
$6.4 million for the six months ended June 30, 1996. Service revenues for the
six months ended June 30, 1997 were $11.0 million compared to $7.4 million for
the six months ended June 30, 1996. The increase in product revenues from the
1996 period to the 1997 period is primarily attributable to a 151% increase in
Series 5000 Mobile Units sold. Series 5000 Mobile Units sold in the 1996 period
were abnormally low due to, among other things, inefficiencies in connection
with a restructuring of the Company's sales force, and adverse economic
conditions affecting the trucking industry. The increase in service revenues
from the 1996 period to the 1997 period is primarily attributable to the
increase in the number of Series 5000 Mobile Units in service.
Cost of revenues for the six months ended June 30, 1997 was $20.8
million compared to $11.8 million for the six months ended June 30, 1996. This
increase is primarily as a result of the increase in the number of Series 5000
Mobile Units sold and in service. Gross profit margin was 17.6% for the six
months ended June 30, 1997 compared to 14.8% for the six months ended June 30,
1996.
Product gross profit margin was 14.7% for the six months ended June 30,
1997 compared to 0.3% for the six months ended June 30, 1996. The improvement in
product gross profit margin from the 1996 period to the 1997 period is primarily
due to the leverage obtained on the fixed portion of the Company's installation
costs as a result of the significant increase from the 1996 period to the 1997
period in shipments and installations and a lower average cost per Series 5000
Mobile Unit sold. The lower average cost per Series 5000 Mobile Unit is
primarily attributable to manufacturing and procurement economies.
Service gross profit margin was 21.2% for the six months ended June 30,
1997 compared to 27.3% for the six months ended June 30, 1996. The Company
incurs certain costs for air time usage that are not billable to customers under
current billing practices. During the six months ended June 30, 1997, the
Company recorded an adjustment to increase cellular airtime cost, a component of
cost of service revenue, based on new billing data received in July 1997. This
new billing data indicates that the portion of airtime usage not billable to
customers is higher than previously believed by the Company and used as the
basis for recording accounting estimates. This changed relationship between cost
of cellular airtime paid for by the Company and airtime billable to customers is
the reason for the decrease in service gross profit margin. The Company is
currently in the process of evaluating the factors underlying the increase in
cellular airtime costs and will attempt to identify technical adjustments and
modifications that may enable it to improve its service gross profit margin. At
the present time, the Company's evaluation of these factors is in its
preliminary stages and there can be no assurance that the Company's results of
operations in future periods will not be impacted by the same or similar
factors.
General and administrative expenses for the six months ended June 30,
1997 were $7.1 million compared to $4.3 million for the six months ended June
30, 1996. The most significant increases in general and administrative expenses
from the 1996 period to the 1997 period were bad debt expense, NSC depreciation
expense, and professional fees. The Company records an allowance for doubtful
accounts based on a percentage of sales. Accordingly, bad debt expense increased
(i) because of the significant increase in revenues from the 1996 period to the
1997 period and (ii) because of a $1 million charge recorded to provide for loss
on the sales-type lease receivable due from a customer as a result of the
customer's early termination of the lease.
40
<PAGE> 47
Sales and marketing expenses for the six months ended June 30, 1997
were $4.1 million compared to $4.7 million for the six months ended June 30,
1996. The decrease from the 1996 period to the 1997 period is primarily related
to reduction in the number of sales and marketing employees. The 1996 period was
characterized by expansion of the sales force. Sales and marketing expenses for
the 1997 period reflects the results of a realignment of the sales force to
coincide with the Company's target markets.
Engineering expenses for the six months ended June 30, 1997 were $2.2
million compared to $1.7 million for the six months ended June 30, 1996. This
increase is primarily attributable to increases in payroll related costs as a
result of headcount additions.
Customer service expenses for the six months ended June 30, 1997 were
$5.5 million compared to $3.9 million for the six months ended June 30, 1996.
This increase is primarily attributable to (i) NSC operating expenses and (ii)
costs incurred as a result of the increased number of Series 5000 Mobile Units
shipped and in service.
The reduction in interest expense to related parties from the 1996
period to the 1997 period is due to the retirement of all outstanding
indebtedness to related parties.
Year Ended December 31, 1996 Compared to Year Ended December 31, 1995
Revenues for 1996 were $30.7 million compared to $26.9 million for
1995. Product revenues for 1996 were $14.6 million compared to $17.0 million for
1995. The principal reason for the decrease in product revenues from 1995 to
1996 is a 24.5% decrease in the number of Series 5000 Mobile Units sold. The
decrease in Series 5000 Mobile Units sold was due to, among other things, (i)
prospective customers postponing their decision to purchase until they were
comfortable that the Company could deliver service through the NSC, (ii)
prospective customers' concerns about the Company's financial condition and
(iii) adverse economic conditions affecting the trucking industry. Service
revenues for 1996 were $16.1 million compared to $9.9 million for 1995. The
increase in service revenues in 1996 is primarily attributable to the increase
in the number of Series 5000 Mobile Units in service.
Cost of revenues for 1996 was $28.5 million compared to $26.9 million
for 1995. This relationship reflects the decrease in the number of Series 5000
Mobile Units sold in 1996 compared to 1995 offset by increased cost of service
revenues in 1996 as a result of the increase in the number of Series 5000 Mobile
Units in service. Cost of revenues for 1996 was 92.9% (86.6% exclusive of the
inventory write-down) of revenues compared to 100.2% of revenues for 1995. Cost
of revenues for 1996 included a $1.9 million inventory write-down to adjust the
carrying value of used earlier generation mobile communication unit component
parts inventory to its estimated net realizable value. Cost of product revenues
for 1996 was 116.4% (103.1% exclusive of the inventory write down) of product
revenues compared to 104.6% of revenues for 1995. Excluding the effect of the
inventory write down, product margin improved as a result of higher average
selling prices and lower average cost per Series 5000 Mobile Unit in 1996 as
compared to 1995. However, this margin improvement was offset by costs incurred
on the earlier generation mobile communication units in order to make them
compatible with the NSC and costs of upgrading earlier generation mobile
communication units. Cost of service revenues for 1996 was 71.6% of service
revenues compared to 92.6% of service revenues in the 1995 period. The
improvement from 1995 to 1996 is primarily due to (i) the effect of lower costs
as a result of renegotiated rates with the Company's service providers that were
in effect during 1996 and (ii) improvement in the Company's ability to monitor
and control charges for air time usage.
General and administrative expenses for 1996 were $9.5 million compared
to $7.3 million for 1995. The increase from 1995 to 1996 is primarily
attributable to rent expense, depreciation expense, and professional fees. Rent
expense increased as a result of (i) additional office space and equipment under
lease due to the growth in the number of employees from 241 at the end of 1995
to 295 at the end of 1996 and (ii) increased cost per square foot in the lease
agreement for the Company's office space. Depreciation expense increased as a
result of additions to machinery and equipment, computers and office equipment,
and the NSC which was placed in service during the third quarter of 1996. The
increase in professional fees was primarily due to legal fees in connection with
the litigation with AT&T and a class
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<PAGE> 48
action shareholder lawsuit arising in connection with the Company's initial
public offering, which was dismissed in November 1996.
Sales and marketing expenses for 1996 were $9.1 million compared to
$6.2 million for 1995. The increase from 1995 to 1996 is primarily related to
growth in the number of employees.
Engineering expenses for 1996 were $4.1 million compared to $2.9
million for 1995. The increase is primarily attributable to increases in payroll
related costs, and operating expenses for the NSC.
Customer service expenses for 1996 were $8.1 million compared to $5.7
million for 1995. The increase from 1995 to 1996 is primarily attributable to
(i) payroll related costs as a result of growth in the number of employees, (ii)
customer support costs in response to the increased number of Series 5000 Mobile
Units in service, and (iii) concessions granted on amounts owed by a major
customer that was downsizing its fleet.
Interest income was $0.8 million in 1996 compared to $1.0 million in
1995. The decrease from 1995 to 1996 reflects the lower average cash balances
available for temporary investments.
Interest expense to related parties was $1.7 million in 1996 compared
to $5.1 million in 1995. The decrease from 1995 to 1996 reflects the lower
average outstanding indebtedness.
The 1996 and 1995 extraordinary item, loss on extinguishment of debt,
represents the write-off of the unamortized balances of debt discount and debt
issue costs associated with the early retirement of notes payable to related
parties. See notes 3 and 8 to the Consolidated Financial Statements.
Year Ended December 31, 1995 Compared to Year Ended December 31, 1994
Revenues for 1995 were $26.9 million compared to $13.5 million for
1994. Product revenues for 1995 were $17.0 million compared to $11.1 million for
1994. Service revenues for 1995 were $9.9 million compared to $2.4 million for
1994. The increase in product revenues and service revenues in the 1995 period
is primarily attributable to the increase in the number of Series 5000 Mobile
Units sold and in service, respectively.
Cost of revenues for 1995 was $26.9 million compared to $15.6 million
for 1994. This increase is consistent with the number of Series 5000 Mobile
Units sold and in service. Cost of revenues for 1995 was 100.2% of revenues
compared to 115.6% (103.4% exclusive of the inventory write-down) of revenues
for 1994. Cost of revenues for 1994 included a $1.7 million inventory write-down
for LORAN-C radio receivers reflecting the Company's decision to change to the
use of GPS satellite receivers in its Series 5000 Mobile Units. Cost of product
revenues for 1995 was 104.6% of product revenues compared to 122.1% (107.2%
exclusive of the inventory write down) of revenues for 1994. Cost of revenues
from products exceeded revenues from products during both years for several
reasons, including higher costs associated with manufacturing small quantities
and being unable to take advantage of economies of scale, initial implementation
of a product installation infrastructure with excess capacity to support
anticipated increases in sales, and equipment price discounts to certain early
customers. Although revenues from services exceeded cost of revenues from
services during both the 1995 and 1994 periods, results for both periods have
been affected by (i) technical difficulties with the AT&T Complex and (ii)
differences between the billing procedures of cellular carriers and the Company,
which resulted in the Company paying cellular carriers for more minutes of
cellular air time than were billed to the Company's customers.
General and administrative expenses for 1995 were $7.3 million compared
to $6.6 million for 1994. During 1995, the Company's general and administrative
functions were increased to meet the growth in revenues as well as for the
additional administrative requirements of a public company. Accordingly,
virtually all categories of expenses increased primarily as a result of the
growth in the number of employees from 188 at the end of 1994 to 241 at the end
of 1995. The most significant increases, aggregating approximately $2.0 million,
were payroll related costs, occupancy
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<PAGE> 49
costs and insurance. These increases were partially offset by decreases, in the
aggregate amount of $1.4 million, as a result of reductions from the 1994
amounts for amortization expense related to the deferred debt issue costs (see
Notes 3 and 8 of the Notes to the Consolidated Financial Statements), bad debt
expense (see Note 10 of the Notes to the Consolidated Financial Statements), and
professional fees.
Sales and marketing expenses for 1995 were $6.3 million compared to
$3.9 million for 1994. The increase from 1994 to 1995 period is related to
increases in advertising and promotion of the Series 5000 Mobile Units, the
creation of a distribution network for sales of Series 5000 Mobile Units and
growth in the number of employees.
Engineering expenses for 1995 were $2.9 million compared to $1.9
million for 1994. This increase is primarily attributable to payroll related
costs as a result of both growth in the number of employees and outside
contractors from 1994 to 1995 to enable the Company to design and develop the
second generation of the HighwayMaster Series 5000 Mobile Unit while maintaining
and enhancing its system software.
Customer service expenses for 1995 were $5.7 million compared to $4.6
million for 1994. This increase is primarily attributable to (i) payroll related
costs as a result of both growth in the number of employees and outside
contractors and (ii) customer support costs in response to the increased number
of Series 5000 Mobile Units sold and in service.
The changes in interest income and interest expense to related parties
between 1995 and 1994 reflects the income from temporary investments made with a
portion of the proceeds from the initial public offering and lower average
outstanding indebtedness in the 1995 period as a result of the debt repayments
made with a portion of the proceeds from the initial public offering.
Recapitalization costs in the amount of $0.7 million for the 1994
period were expended in connection with the Recapitalization.
LIQUIDITY AND CAPITAL RESOURCES
As more fully described elsewhere herein, on September 27, 1996, the
Company (i) issued 1,000 shares of Series D Preferred Stock to SBC in exchange
for a cash payment of $20.0 million and issued Warrants to purchase 5,000,000
shares of Common Stock to SBC, (ii) issued 800,000 shares of Common Stock to
certain existing stockholders in exchange for a cash payment of $10.0 million,
and (iii) issued an aggregate of 1,882,018 shares of Common Stock to related
parties in exchange for the cancellation of certain promissory notes payable by
the Company in the aggregate principal amount of $12,662,000 and cancellation of
all outstanding shares of Series B Preferred Stock of the Company. The effect of
these transactions was to increase cash by approximately $29.7 million (net of
offering costs), to eliminate all outstanding indebtedness of the Company and to
increase stockholders' equity by approximately $52.0 million. See "Certain
Relationships and Related Party Transactions" and notes 8 and 10 of the
consolidated financial statements.
The Company's business historically has not required substantial
capital expenditures. However, during 1996 the Company completed and placed into
service the new NSC at a cost of $4.8 million. In addition, in order to provide
the AutoLink service, the Company will need to construct a new switching complex
as contemplated by its joint development contract with Prince. Construction of
the AutoLink Complex is scheduled to take place in 1998 at a projected cost of
approximately $4.0 million. The Company will also need to expand the capacity of
the NSC during the next twelve months to meet the needs of the larger number of
customers expected to begin receiving services through such facility. The
projected cost of expanding the capacity of the NSC is estimated at $1.5
million.
The Company is currently negotiating with Motorola to supply a hardware
component that will provide a common platform for both the AutoLink product and
more advanced versions of its Series 3000 Mobile Units. If the Company enters
into such an agreement with Motorola, it could involve an obligation by the
Company to purchase up
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<PAGE> 50
to 100,000 units. Accordingly, such an agreement with Motorola would involve a
substantial capital commitment on the part of the Company.
Net cash used in operating activities for the year ended December 31,
1996 was $29.8 million due primarily to a net loss of $30.1 million. Net cash
used in operating activities during the six months ended June 30, 1997 was $10.7
million due primarily to a net loss from operations of $14.0 million.
The net proceeds from the Units Offering were approximately $119.9
million, after deducting the discount to the Initial Purchasers and estimated
offering expenses. The Company used approximately $46.6 million of such proceeds
to fund the purchase of the Pledged Securities. All remaining proceeds have been
contributed to HMC and will be used for general corporate purposes, including
(i) to fund working capital requirements and operating losses expected to be
incurred in connection with the continued growth and development of the
Company's long-haul trucking application, (ii) to fund expenditures relating to
the development of new mobile communications services to be provided through the
Company's network, including the proposed Series 3000 Mobile Unit and AutoLink
service, and (iii) to fund capital expenditures required to expand the capacity
of the NSC to enable it to serve a larger number of long-haul trucking customers
and to construct the AutoLink Complex. Pending the use of the net proceeds for
the purposes described above, the Company has invested such proceeds in
short-term, interest-bearing investments.
At June 30, 1997, the Company had cash on hand of $6.0 million and
working capital of $9.4 million. Based on the Company's projected operating
results, the Company believes that the net proceeds from the Units Offering,
together with the Company's existing capital resources, will be sufficient to
fund its currently anticipated operating needs and capital expenditure
requirements through at least December 31, 1998.
INFLATION
The Company believes that to date inflation has not had a material
effect on its results of operations. Although inflation may in the future affect
the cost of products sold by the Company, the Company expects that economies of
scale and engineering improvements are likely to offset any foreseeable cost
increases.
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BUSINESS
THE COMPANY
The Company develops and implements mobile communications solutions,
including integrated voice, data and position location services, to meet the
needs of its customers. The initial application for the Company's wireless
enhanced services network has been developed for, and is currently being
marketed and sold to, companies which operate in the long-haul trucking market.
The Company provides long-haul trucking customers with a comprehensive package
of mobile communications and management control services at low, fixed per
minute rates, thereby enabling its trucking customers to effectively monitor the
operations and improve the performance of their fleets. As of June 30, 1997, the
Company had in service an installed base of 25,233 Series 5000 Mobile Units in
service in the long-haul trucking market and had orders to install an additional
9,059 Series 5000 Mobile Units.
The Company is currently developing new applications for its wireless
enhanced services network to expand the range of trucking companies that utilize
its services and address the needs of the automotive and other markets. The
Company plans to introduce its Series 3000 Mobile Unit, which will be less
expensive and will offer more limited functionality than its current long-haul
trucking product. The Company intends to market the Series 3000 Mobile Units
primarily to smaller trucking fleets and owner-operators that can benefit from
the Company's enhanced wireless services, including primarily its nationwide
voice communication capabilities, and for whom protection from fraud, effective
call delivery and low airtime charges are critical requirements. The Company
expects that preliminary versions of the Series 3000 Mobile Unit will be
introduced in early 1998, which the Company believes will be supplanted by a
more advanced version of this product by the end of 1998. In addition, in
January 1997, the Company entered into a strategic business alliance with
Prince, a subsidiary of Johnson Controls and a leading supplier of automotive
interior systems and components, pursuant to which the parties are developing
and marketing and will provide a wireless automobile safety and security
service, the AutoLink(R) service, to be offered to motorists in the United
States and Canada. The AutoLink service is expected to be offered on a
commercial basis beginning in late 1998. The Company is currently negotiating
with Motorola to supply a hardware component that will provide a common platform
for the AutoLink product, the Series 5000 Mobile Units and more advanced
versions of its Series 3000 Mobile Units, but no assurance can be given that
such an agreement will be reached or as to the terms thereof.
The Company provides its mobile communications services through its
wireless enhanced services network, which utilizes patented technology developed
by the Company to integrate various transmission, long-distance, switching,
tracking and other services provided through contracts with certain
telecommunications companies and more than 70 cellular carriers. Through its
agreements with cellular carriers, the Company is able to take advantage of the
more than $32 billion which cellular carriers have invested to establish and
expand cellular coverage in the United States. The Company's network covers 99%
of the available cellular service areas in the United States and 100% of the
available A-side coverage in Canada. Call processing and related functions for
the Company's network are provided through the AT&T Complex and the NSC. The
Company holds ten United States patents that cover certain key features of its
network which are used in locating and communicating with vehicles using the
cellular infrastructure.
Management believes that several significant factors differentiate the
services which the Company is able to provide through its wireless enhanced
services network from conventional cellular service, including the following:
o Immediate Nationwide Call Delivery. In order to
automatically (with no user intervention) provide immediate call
delivery to cellular subscribers who travel outside of their home
markets, a cellular carrier must install advanced switching equipment
(IS-41 capable), establish physical connectivity and establish the
appropriate roaming agreements with other cellular carriers. Primarily
as a result of the cost of this advanced switching equipment, the
Company believes that many cellular markets located outside of major
metropolitan areas have not yet implemented automatic call delivery
capabilities. HighwayMaster uses a patented
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technology which works independently from cellular carriers' IS-41
protocol to automatically provide immediate call delivery to its
customers on essentially a nationwide basis.
o Fraud Control. Conventional cellular service has
historically experienced relatively high levels of fraud. Industry
sources estimate that cellular fraud resulted in losses totaling
approximately $650 million in 1995. The Company has been able to
significantly limit fraud through the architecture of its network,
which requires that all calls originated by customers be routed to one
of the switching complexes operated by or for the Company and thereby
reduces or eliminates cellular cloning, fraud and call blocking for its
customers. To date, neither the Company nor the cellular carriers which
have properly implemented the Company's protocols have experienced any
significant levels of roamer fraud in connection with the mobile
communications services provided through the Company's network.
o Low Nationwide Fixed Airtime Charges. The Company believes
that basic cellular air time charges for cellular subscribers who
travel out of their home markets range from as much as $1.00 to $2.00
per day per market and from $0.45 to $1.25 per minute, in addition to
applicable long-distance charges. By comparison, the Company's
customers in the long- haul trucking market are charged a fixed rate of
$0.53 per minute for voice communications within the United States,
which includes long-distance charges.
o Additional Value-Added Services. The Company offers its
customers additional value-added services which are not offered by
cellular carriers who are unable to supplement the capabilities of the
existing cellular infrastructure with the features and capabilities of
the Company's network. The value-added services currently offered by
the Company include data transmission and fleet tracking, as well as a
number of other ancillary services, such as estimating times of
arrival, calculating fuel tax mileage and engine monitoring engine
performance.
The Company's principal executive offices are located at 16479 Dallas
Parkway, Suite 710, Dallas, Texas 75248, and its telephone number is (972)
732-2500.
BUSINESS STRATEGY
The Company's objective is to become a leading provider of mobile
communications services to customers in its targeted markets. To achieve this
objective, the Company will seek to take advantage of the commercial potential
of the HighwayMaster network in four separate ways. First, the Company intends
to achieve greater penetration of the long-haul trucking market by continuing to
increase its base of Series 5000 Mobile Units installed in customers' trucks.
Second, the Company intends to use the capabilities of its network to develop
and implement new applications for the automotive and other markets, including
the AutoLink service to be offered to motorists in the United States and Canada.
Third, the Company intends to develop a common hardware platform for the
AutoLink product, the Series 5000 Mobile Units and more advanced versions of its
Series 3000 Mobile Units, which should enable it to leverage any volume cost
savings that may be derived from offering the AutoLink application to reduce the
price of its long-haul trucking products, thereby enabling the Company to expand
the segments of the long-haul trucking market which it is able to serve on an
economical basis. Fourth, the Company intends to pursue opportunities, either
alone or in cooperation with international partners, to export its technology
and applications to selected foreign markets.
THE LONG-HAUL TRUCKING SOLUTION
General
The Company currently provides integrated mobile voice, data, tracking
and fleet management information services to trucking companies and other
private operators in the long-haul trucking market. These services are provided
by linking customers to the Company's network through the installation of Series
5000 Mobile Units in their trucks. The Series 5000 Mobile Unit enables a truck
driver to send and receive voice and data messages and utilize all of the other
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<PAGE> 53
features and capabilities of the Company's network. Management believes that the
system offered by the Company to trucking customers represents the most complete
and cost-effective package of mobile communications products and services
currently available to the long-haul trucking industry. A key feature of this
system is its ability to offer voice communication capabilities on essentially a
nationwide basis through the use of the existing cellular infrastructure.
Currently, the Company's primary competitor offers a satellite-based system that
provides data-only mobile communication services with no voice capabilities.
In addition to its voice communications capabilities, the Series 5000
Mobile Unit permits the transmission and receipt of data messages between a
truck and a dispatcher. The Series 5000 Mobile Unit also has navigational
tracking capabilities which allow trucking companies to map a truck's position,
typically within 100 yards, anywhere in the United States and Canada.
Furthermore, the Series 5000 Mobile Unit is capable of performing a number of
other functions such as calculating fuel tax mileage, estimating times of
arrival, storing data and monitoring on-board electronic engine and other
electronic functions. For small to mid-sized fleets, the Company also offers a
dispatch software package that enables a trucking dispatcher to optimize the use
of its fleet by processing data transmitted by the Series 5000 Mobile Units and
performing a variety of fleet management information functions.
The Company is currently engaged in developing the Series 3000 Mobile
Units, which will be less expensive and will offer more limited functionality
than its current long-haul trucking product. The Series 3000 Mobile Unit will be
able to perform voice communication services and additional functions such as
the automated capture and transmission of engine data and other information, as
well as vehicle tracking. The Company believes that the Series 3000 Mobile Units
will allow it to serve a broader segment of the long-haul trucking market,
including smaller fleets and owner- operators who do not require all the
features of the Series 5000 Mobile Unit but can benefit from the advantages of
the Company's wireless enhanced services network, as well as fleets who
currently utilize data-only mobile communications services provided by the
Company's competitors. The Company expects that preliminary versions of the
Series 3000 Mobile Unit will be introduced in early 1998, which will be
supplanted by a more advanced version of this product by the end of 1998.
The Trucking Industry
Based on the Department of Commerce Census, management believes that
there are currently approximately 2.2 million long-haul commercial trucks in the
United States. Although the Company expects to generate sales of Series 5000
Mobile Units in all sectors of the long-haul trucking market, the Company's
primary target market for this product is operators of mid- and large-sized
fleets (25 or more trucks) consisting of larger-sized trucks (Class 6, 7 and 8
trucks) used for long-haul transport (average distances in excess of 100 miles).
Based on the Department of Commerce Census, management estimates that there are
currently approximately 530,000 trucks in the primary target market for the
Series 5000 Mobile Unit. Management further estimates that approximately 30% of
these trucks are currently equipped with some form of integrated mobile
communications solution, but believes that substantially all operators in this
market will experience significant competitive pressures over the next five
years to adopt some form of integrated mobile communications solution. In
addition, the Company intends to introduce the Series 3000 Mobile Unit, and
management believes that these products are likely to appeal to small-sized
fleets (24 or fewer trucks) consisting of larger- sized trucks used for
long-haul transport, as well as fleets of smaller-sized trucks (Class 1-5
trucks) used for the same purposes. Based on the Department of Commerce's
Census, the Company believes that there are currently approximately 1.7 million
trucks in this extended market for the Series 3000 Mobile Unit.
The following table summarizes certain information regarding the
segments of the long-haul trucking market discussed above:
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<TABLE>
<CAPTION>
AVERAGE PRIMARY ESTIMATED
PRIMARY BENEFITS LENGTH TRUCK MARKET MARKET
PRODUCT TO CUSTOMERS OF HAUL CLASSES(1) FLEET SIZES SIZE(2)
------- ---------------- ------- ---------- ----------- ---------
<S> <C> <C> <C> <C> <C>
Series 5000 Fleet management, > 100 miles Classes 6-8 25 and greater 530,000
Mobile Unit including integrated
voice, data and
position/location
solution
Series 3000 Lower priced mobile > 100 miles Classes 6-8 1-24 270,000
Mobile Unit voice communications Classes 1-5 All 1,400,000
and limited
additional
functionality
</TABLE>
- ----------
(1) Truck classes 1 to 5 represent trucks weighing up to 19,500 pounds and
truck classes 6 to 8 represent trucks weighing over 19,500 pounds.
(2) Some portion of this market is already equipped with a form of
integrated mobile communications system.
The types of companies that make up the Company's primary target market
are private and for-hire fleet operators, owner-operators and other operators of
larger-size trucks for long-haul transport. For-hire carriers are companies
whose primary business is trucking and whose revenues are from transporting
goods on a for-hire basis. Private fleets are operated by non-trucking firms
that haul their own freight. Owner/operators are individuals who own and operate
their own trucks. Some owner-operators work for a single company under a lease
agreement, while others work with transportation brokers to find loads or
operate their own small transportation businesses.
Mobile Communications Needs in the Trucking Industry
The Company believes that demand for the Company's long-haul trucking
application will continue to grow as trucking companies experience increased
industry competition and face mounting internal and external pressures to adopt
mobile communications systems.
External pressures include competition from the increasing number of
trucking companies that are installing mobile communications systems, demands
placed on the long-haul trucking industry to meet just-in-time inventory
demands, and regulatory and environmental requirements. The Company estimates
that at the present time there is an installed base of approximately 160,000
integrated mobile communications systems (including those sold by the Company)
in trucking fleets operating in the United States. As just-in-time delivery
inventory control becomes more prevalent, manufacturers increasingly will
require that materials arrive immediately before incorporation into the
manufacturing process. The resulting pressure on trucking companies has
stimulated demand for more efficient two-way communications systems to assure
on-time pick-up and delivery, improved load matching within a widely dispersed
fleet and current tracking of shipment location. In fact, certain large shippers
require all new contracting trucking companies to be equipped with on-board
communications and tracking equipment. Additionally, trucking companies must
maintain detailed records relating to miles driven by state, hours driven by
each driver and other information. Some hazardous substances may only be
transported over certain routes.
Internal pressures include containing costs through improved operating
efficiency, improving driver quality of life thereby reducing critical turnover
rates, and increasing the safety of drivers, capital equipment and cargo by
reducing the likelihood of accidents. The Company's long-haul trucking
application assists trucking companies in improving efficiency by increasing the
utilization of equipment and reducing the number of empty miles and out-of-route
miles. Because of the features and capabilities of the Company's system, it is
not necessary for truck drivers to
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<PAGE> 55
make frequent stops to place telephone calls to dispatchers. In addition, the
Company's system allows swift and efficient matching of drivers with shipments,
thereby reducing layovers and fuel costs associated with empty miles.
With driver turnover approaching 100% in the trucking industry today,
the Company believes that trucking companies can increase driver satisfaction
and be more successful in attracting and retaining competent drivers by giving a
driver the ability to contact or be contacted by family and friends while on the
road. Furthermore, since driver bonuses are often calculated based on loaded
miles driven and overall efficiency, drivers benefit from a system that allows
them to be more efficient and avoid unnecessary stops.
Finally, by allowing a driver to communicate using "hands free"
voice-activated equipment while traveling, the Company's system minimizes the
distractions and hazards of placing or receiving a call while on the road. Voice
commands spoken into a microphone clipped to the visor and synthesized voice
responses from the Series 5000 Mobile Units provide a safety advantage over
traditional cellular telephones, which must be grasped with one hand during
operation, and over full keyboard typing necessary to operate competing
satellite-based systems, which drivers are not permitted to use while the
vehicle is in motion. Further, by enabling the driver to communicate while
traveling in his vehicle, the HighwayMaster system reduces stops to make
telephone calls at truck stops, where management believes a large percentage of
all trucking accidents occur. The HighwayMaster system also automatically
reports time, speed and routes driven by each truck to the dispatcher, which can
be used to enhance safety troubleshooting and driver safety counseling, and the
tracking service enables the trucking company to locate stolen trucks or trucks
involved in a roadside emergency.
PRODUCTS AND SERVICES
The Company has developed, or is in the process of developing, three
mobile communications applications: (i) the Series 5000 Mobile Unit, (ii) the
Series 3000 Mobile Unit and (iii) the AutoLink product.
SERIES 5000
The Company currently provides mobile communications services to its
customers in the long-haul trucking market by linking them to the Company's
network through the installation of Series 5000 Mobile Units in their trucks.
The Series 5000 Mobile Unit enables a truck driver to send and receive voice and
data messages and utilize all of the other features and capabilities of the
Company's network. Management believes that the Series 5000 Mobile Unit
represents the most complete and cost-effective package of mobile communications
products and services currently available to the long-haul trucking industry.
Series 5000 Mobile Unit. The Series 5000 Mobile Unit includes the
following: (i) a menu-driven display module which provides two large lines of
scrollable text on the dashboard, (ii) a microphone which clips on the sun visor
for "hands free" communication utilizing voice-recognition and voice-synthesis
technologies, (iii) a modified cellular telephone handset and cradle, (iv) a
cellular antenna, (v) a GPS navigational antenna, and (vi) a computerized system
module in the vehicle which contains the positional reporting device, the
cellular transceiver and the on-board computer. The system module also houses
voice-activation and voice-synthesis software, data storage capability and
unique technology that significantly reduces the risk of cellular roaming fraud.
The module provides ports to allow for incorporation of current and future
peripheral equipment, such as a fax machine, scanner, printer, engine monitoring
equipment and trailer temperature monitoring. The Series 5000 Mobile Unit was
designed to be "user-friendly," to have installation times that are shorter than
competing satellite unit installations, and to limit driver training to an
average of one hour. The system module is remotely programmable from the host
computer by the trucking company and by HighwayMaster.
Pricing. The Company's Series 5000 products and services are
economically priced to appeal to a wide range of participants in the long-haul
trucking industry. The Company offers the Series 5000 Mobile Unit at a retail
price of $1,995, with tiered discounts for larger volume purchases. The
Company's customers are charged a flat fee of $0.53 per
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<PAGE> 56
minute for voice communication within the United States and $0.64 per minute for
cross-border communication in Canada, which includes all cellular air time and
long-distance charges, $0.48 per minute for data transmission within the United
States and $0.59 for cross-border data transmissions and $41 per month per
installed Series 5000 Mobile Unit to utilize the system. When the parties
sending and receiving voice communications are both located in Canada, customers
are generally charged amounts which are higher than the flat fees described
above. In addition, callers are charged a fee for each call billed to a separate
account, such as a credit card, calling card or HighwayMaster account. The
Series 5000 Mobile Unit is installed in the customer's trucks, and the
dispatcher is equipped with mapping and management software at no additional
charge. This software can be integrated into the host computer systems operated
by the Company's customers or can be installed and operated on a personal
computer equipped with a hard disk and a modem.
Voice Communications. The Company provides nationwide voice
communications services at a rate of $0.53 per minute for calls within the
United States. By comparison, management believes that currently available
cellular call delivery systems for subscribers who travel out of their home
markets require the payment of rates that are higher than those charged by the
Company. The driver controls the functions of the Series 5000 Mobile Unit by an
enhanced cellular telephone handset. A microphone clipped to the truck's visor
and voice-recognition capability also allow the system to be controlled by the
driver's voice commands. While in a cellular region covered by HighwayMaster, a
driver may initiate telephone calls to any phone number pre-approved by the
dispatcher, and the dispatcher may initiate telephone calls to the driver.
Drivers may be issued calling card accounts by HighwayMaster or use selected
credit cards, for units operating under the NSC, or may be issued calling cards
by AT&T, for units operating under the AT&T Complex, that allow them to place
personal telephone calls to any telephone number. Such calls are billed
separately to the drivers' home addresses. See "-- Infrastructure and Operations
- -- Enhanced Service Complexes." The nationwide call delivery feature, combined
with calling-party payment for calls, sets the Company's product apart from
conventional cellular service.
Data Transmission. The Series 5000 Mobile Unit permits the transmission
and receipt of data between a truck and a dispatcher. The $0.48 per minute
charge for data transmissions within the United States translates into costs as
low as $0.0007 per character for a typical dispatch message of between 600 and
700 characters. The dispatcher may type free form data messages, which appear on
the driver's data display screen on the dashboard and can be stored for future
reference. The driver may send up to 99 pre-programmed status messages with
accompanying numerical data such as "At Dock Loading" or "Trailer Number 21"
that automatically update the trucking company's host computer, eliminating the
data entry function a dispatcher must perform at the trucking company. The
driver also may enter status messages by voice command or through the telephone
handset keypad. Certain options allow the Series 5000 Mobile Unit to monitor
engine speed and temperature, automatically transmitting the data to the
trucking company. Future enhancements may allow for trailer temperature
monitoring and other features.
Facsimile Transmission. The Company provides nationwide facsimile
communications services at a rate of $0.53 per minute for either local or
long-distance fax transmissions. Fax Interface is a recent product advancement
which assists customers in transmission and receipt of documents such as bills
of lading, permits and detailed instructions that a truck driver might need on
an immediate basis.
Fleet Tracking. Precise position and historical route reports are
automatically provided to the dispatcher's computer with each call to or from
the truck. For the cost of $0.48 per minute of data transmission time within the
United States and $0.59 per minute for cross-border data transmissions, the
dispatcher can obtain a real-time position report from a specific truck by
keyboard request. Reports are generally accurate to within 100 yards. These
reports include position logs, which are stored internally, providing historical
route information even if the truck travels out of cellular coverage. A trucking
company's use of these tracking capabilities can improve management and
facilitate better customer service. The navigational tracking capabilities of
the Series 5000 product reduce the number of out-of-route miles and facilitate
efficient matching of drivers with loads, thereby reducing expenses and empty
miles driven.
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Fleet Management Software and Information Services. The Company's
dispatch software package is used primarily by mid- to small-sized fleets and
enables a trucking dispatcher to optimize the use of its fleet by processing
data transmitted by its Series 5000 Mobile Units, managing dispatch records,
driver logs, state fuel tax calculations, route planning and other functions.
The dispatch software can be loaded on to a personal computer equipped with a
modem, or the system can be interfaced directly to be networked with a midrange
or a mainframe computer for access by the dispatcher or a shipper. The software
performs essentially three functions: (i) order entry, (ii) dispatch and
tracking, and (iii) truck reconciliation and mapping. The order entry function
stores and manages the ordering information related to each shipment, including
the assignment of loads to specific trucks, required delivery times and bills of
lading. The dispatch and tracking function utilizes GPS location information
along with data entered by the driver, to provide information for any truck
within the fleet, including destination, load, drivers' identification and
mileage driven. The truck reconciliation and mapping application provides
historical information such as percentage of on-time deliveries and miles driven
per state for fuel tax calculation. An online interstate highway map can be used
to graphically plot the routes traveled by each truck. The system can highlight
trucks that are running behind schedule or are available for load pick-ups.
The principal software suppliers that currently market full feature
software application programs to trucking companies offer interfaces to the
HighwayMaster system (which allow data communication directly between the
trucking company's existing mainframe computer and Series 5000 Mobile Units
installed in their trucks). This allows the larger fleet customers who have
their own dispatch software on a mainframe system to continue to use their
existing dispatch software and interface with the HighwayMaster system. These
third party software suppliers generally offer the customized HighwayMaster
interface at reasonable cost directly to their customers. HighwayMaster provides
some custom interface development to very large customers.
In April 1997, the Company entered into an agreement with Burlington
which provides for the installation of up to 2,000 Series 5000 Mobile Units in
Burlington's fleet of long-haul trucks. As part of the transaction, the Company
purchased exclusive ownership rights to Burlington's proprietary fleet operating
and management information software and has assumed the operation of its data
center and computer systems. The Company intends to add capacity to the
Burlington data center in order to provide a broad range of data processing
services to other trucking companies, which would essentially replace such
companies' existing management information systems departments with services,
software and hardware to be provided by the Company. Added capacity would enable
the Company to use the Burlington software and data center in conjunction with
the HighwayMaster network to offer its customers levels of integration not
previously available in the trucking industry. Management currently expects that
the primary market for the data processing services to be offered by the Company
will consist of mid-size fleets which have significant fleet management and
other logistical requirements but have not yet made substantial investments in
information technology. The Company is not currently providing these services,
and there can be no assurance that it will be successful in marketing its
information management solutions to other trucking companies.
Rolling ETA. Rolling ETA(TM) is an enhancement to the Company's Series
5000 Mobile Unit which instructs the microprocessor mounted inside the truck to
calculate the estimated arrival time based upon average speed, hours per day and
delivery parameters and alerts the driver and dispatcher automatically if the
truck is going to miss an arrival time.
Fuel Tax Calculation. The Company is using a software program known as
MileMaster to help customers automate their fuel tax calculations. MileMaster is
an enhancement to the Company's Series 5000 Mobile Unit and the accompanying
host software which allows the Company to provide an automatic, paperless log of
the actual mileage driven in each state as well as state-line crossings for each
truck. This allows the Company's customers to implement an automated fuel tax
calculation system that eliminates the need for drivers to hand-log their
mileage, dates and times as they cross state lines and eliminates the
possibility of human data entry errors.
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Current Installed Base
The number of Series 5000 Mobile Units installed in customer vehicles
has grown at a relatively steady rate since commercial operations began in
September 1993. As of June 30, 1997, the Company had installed approximately
25,233 Series 5000 Mobile Units, and had orders to install an additional 9,059
Series 5000 Mobile Units.
In late 1996 and 1997, the Company received substantial new orders for
Series 5000 Mobile Units from new customers. For example, in September 1996 the
Company received orders for a total of 2,000 Series 5000 Mobile Units from
Ameritruck and in April 1997, the Company received an order from Wal-Mart for an
aggregate of 3,000 Series 5000 Mobile Units to be installed in its private fleet
of trucks. Likewise, in early 1997, the Company received an order from
Burlington for the installation of up to 2,000 Series 5000 Mobile Units in
Burlington's trucking fleet. As part of the transaction with Burlington, the
Company purchased exclusive ownership rights to Burlington's proprietary fleet
operating and management information software and is assuming the operation of
its data center and computer systems. The Company expects that substantially all
of the Series 5000 Mobile Units ordered by Wal-Mart and Burlington will be
installed prior to December 31, 1997.
The Company's order backlog is based upon signed contracts pursuant to
which customers have agreed to purchase the applicable Series 5000 Mobile Units
and install them in their fleets of long-haul trucks (although in a limited
number of cases the obligation to take delivery of Series 5000 Mobile Units is
subject to satisfactory completion of a test program). Customer contracts
generally do not specify delivery dates and, as a result, the exact timing of
delivery and installation of the Series 5000 Mobile Units ordered by customers
is frequently the subject of further discussions and negotiations between the
Company and its customers. Historically, not all Series 5000 Mobile Units
included in the Company's backlog have resulted in product sales. See "Risk
Factors -- Backlog; No Firm Delivery Dates."
For customers commencing service prior to June 29, 1996, the Company
and AT&T offer mobile communications services under joint service contracts,
signed by the Company, AT&T and their joint customers. Customer contracts
generally commit the Company and AT&T to provide services for a one-year term,
but in some cases contracts entered into before July 1994 commit the Company and
AT&T to provide services for a five-year term. Customers typically may terminate
their contracts during the initial term only in the event of a material breach
by either the Company or AT&T. At the expiration of the initial term, the
contracts continue in effect on a month-to-month basis unless terminated upon 30
days' notice by either party. AT&T invoices customers directly for all enhanced
telecommunications and cellular services, and the Company and AT&T generally may
raise their rates upon 30 days' notice.
Customers who are receiving service through the NSC sign a service
contract which generally commits the Company to provide services for a one-year
term. At the expiration of the initial term, the contracts continue in effect on
a month-to-month basis unless terminated upon 30 days' written notice by either
party. The Company directly invoices customers served by the NSC for all
enhanced telecommunications services and cellular services, and contract terms
generally permit the Company to increase its service charges to customers upon
30 days' written notice.
Marketing and Distribution
The Company sells its long-haul trucking application to fleet buyers
primarily through its direct sales force located throughout the nation. As of
June 30, 1997, the Company's direct sales force consisted of 17 persons. This
sales force focuses its efforts on fleets ranging in size from 20 to 3,000
trucks. Accordingly, to increase sales productivity and efficiency and to
decrease sales expenses, the Company has reduced overlaps in sales territories
and made certain related organizational changes. In addition, the Company
intends to intensify its efforts to reach accounts with over 1,000 trucks in
their fleet. Sales to these major accounts generally require a sustained
marketing effort over a period of at least several months. In some cases, major
accounts insist on competitive evaluations or in-the-field test programs prior
to making a commitment to purchase Series 5000 Mobile Units. To target these
major accounts, the Company has
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created a national account group that is dedicated to these strategic prospects.
National marketing support for the sales teams includes print advertising in
industry journals, direct mail, radio networks popular with truckers, industry
trade shows and on-site marketing promotions.
Product Manufacturing and Supply
Comptronix Corporation assembled the Series 5000 Mobile Units until the
third quarter of 1996, when it sold substantially all of its assets and assigned
its customer purchase orders to Sanmina. After the sale, Sanmina has continued
production of Series 5000 Mobile Units for the Company under the same prices and
terms as its prior arrangement with Comptronix Corporation. The Company recently
entered into an agreement with K-Tec for the assembly of Series 5000 Mobile
Units. In the future, the Company plans to order Series 5000 Mobile Units from
both Sanmina and K-Tec. The various components used by Sanmina in the assembly
of the Series 5000 Mobile Units (including GPS components and cellular
transceivers) are obtained from certain other manufacturers. All transceivers
for the Series 5000 Mobile Units are manufactured by Motorola, and the Company
believes that there are a limited number of suppliers that are capable of
manufacturing transceivers that meet the Company's requirements. See "Risk
Factors -- No Long-Term Product Supply Arrangements."
Customer Service and Warranty
HighwayMaster operates a 24-hour, seven days a week customer support
service center to handle customer questions and requests. Regional installation
and customer service offices have been established in Atlanta, Chicago, Dallas,
Philadelphia and Salt Lake City. In addition, HighwayMaster assigns account
service representatives to each account of 20 or more trucks to give
personalized training and to assist in configuring the system to provide the
greatest possible economic impact. A one-year limited warranty is provided to
all purchasers of Series 5000 Mobile Units, inclusive of parts, labor and
diagnostic work.
The Company has trained personnel in authorized service centers to
perform installations and warranty of Series 5000 Mobile Units at locations
nationwide, with additional locations to be activated pending training.
Independent contractors in strategic locations throughout the United States have
also been trained to perform installations, charging a fixed rate for each
Series 5000 Mobile Unit installed. In addition, each account of 25 or more
trucks receives two days installation services for which the customer can elect
to have a HighwayMaster representative install Series 5000 Mobile Units or train
personnel of the customer to perform their own installations.
SERIES 3000
The Company is currently engaged in developing the Series 3000 Mobile
Units, which will be less expensive and will offer more limited functionality
than its current long-haul trucking product. The Series 3000 Mobile Unit will be
able to perform voice communication services and additional functions such as
the automated capture and transmission of engine data and other information as
well as vehicle tracking. The Company believes that the Series 3000 Mobile Units
will allow it to serve a broader segment of the long-haul trucking market,
including smaller fleets and owner-operators who do not require all the features
of the Series 5000 Mobile Unit but can benefit from the advantages of the
Company's wireless enhanced services network, as well as fleets who currently
utilize data-only mobile communications services provided by the Company's
competitors. The Company expects that preliminary versions of the Series 3000
Mobile Unit will be introduced in early 1998, which will be supplanted by a more
advanced version of this product by the end of 1998.
The preliminary version of the Series 3000 Mobile Unit will consist of
(i) a cellular telephone handset and cradle, (ii) a cellular antenna and (iii) a
computerized system module. The advanced version of the Series 3000 Mobile Unit
will add a GPS navigational antenna and a more sophisticated computerized system
module. The advanced version of the Series 3000 Mobile Unit will be based upon
the hardware platform currently being developed by the Company in connection
with the AutoLink service. See "-- AutoLink." This version will be capable of
interfacing with the
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vehicle's engine and allow the customer to add optional software enhancements to
enable the unit to perform additional services such as estimating times of
arrival and performing fuel tax calculations.
The Series 3000 Mobile Unit will be attractively priced in order to
achieve as high as possible a level of penetration in the targeted segments of
the long-haul trucking industry. The Company expects that the Series 3000 Mobile
Unit will be sold at a retail price of approximately $500. Customers who utilize
the Series 3000 Mobile Unit will pay the same low, fixed per-minute rates for
voice and data communications as those who utilize the Series 5000 Mobile Unit,
but will be assessed a reduced per unit charge on a monthly basis.
Target Market
The Company expects that its primary target market for the Series 3000
Mobile Unit will consist of small and mid-sized fleets and owner-operators who
operate larger-sized trucks (Class 6, 7 and 8 trucks) used for long-haul
transport (average haul in excess of 100 miles). Based on the Department of
Commerce Census, the Company estimates that there are approximately 270,000
trucks in this target market. Furthermore, the Company believes that the Series
3000 Mobile Unit will appeal to a significant portion of fleets who operate
smaller-sized trucks (Class 1-5 trucks) for long- haul transport, which include
an estimated 1.4 million trucks. The Company believes that the lower cost of the
Series 3000 Mobile Unit should enable it to achieve significant penetration in
these segments of the long-haul trucking industry given the strong demand for
lower-cost voice communications services.
Marketing and Distribution
In order to market the Series 3000 Mobile Unit, the Company intends to
use a sales strategy that combines direct mail, targeted telemarketing and print
advertisements. The Company will use direct mailings and targeted telemarketing
to contact potential long-haul trucking customers and inform them of the
features and benefits of the Series 3000 Mobile Unit. This approach will be
supplemented by print advertisements in trade journals and other publications to
introduce and increase awareness of this product in the trucking industry.
Product Manufacturing and Supply
The Company recently entered into an agreement with K-Tec to assemble a
preliminary version of the Series 3000 Mobile Unit which the Company plans to
introduce in early 1998. The Company is also negotiating with Motorola to supply
a hardware component that will provide a common platform for both the more
advanced version of the Series 3000 Mobile Unit and the AutoLink product. There
can be no assurance that the Company will be able to make arrangements with
Motorola or with any other third party hardware supplier or suppliers to
manufacture the hardware components of the advanced versions of the Series 3000
Mobile Units or, if successful in making such arrangements, as to the terms
thereof.
AUTOLINK
In January 1997, HighwayMaster entered into a strategic business
alliance with Prince pursuant to which the parties will develop and provide the
AutoLink service to motorists in the United States and Canada. Prince is a
subsidiary of Johnson Controls and a leading supplier of automotive interior
systems and components. In the fiscal year ended September 30, 1996, Prince had
consolidated net sales of $867 million. The basic AutoLink service will provide
an intelligent communications link from the vehicle to the AutoLink Complex with
connections to various emergency, roadside assistance and information services
suppliers in order to provide emergency assistance, roadside assistance and
information services to motorists, including remote tracking of stolen or
missing vehicles. The principal components of the AutoLink system are (i) the
end-user interface, which will be designed and manufactured by Prince, (ii) the
in-vehicle communications and location hardware, which will be manufactured by
Motorola to the Company's specifications and will incorporate certain of the
Company's patented technology, and (iii) the wireless enhanced services network,
which will be provided and managed by the Company.
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The AutoLink product will be offered to both the OEM market (original
equipment manufacturers) and the after-market (owners of existing vehicles). The
Company currently expects that the AutoLink service will be offered on a
commercial basis in the after-market beginning in late 1998 and in the OEM
market beginning in the second half of 1999.
Joint Development Agreement
The Company and Prince are parties to an agreement (the "Joint
Development Agreement") which defines their respective roles and
responsibilities in connection with the development and marketing of the
AutoLink service. The Joint Development Agreement provides that the Company will
(i) be responsible for providing access to the Company's network for the
AutoLink service, (ii) provide general assistance in connection with the design
and development of the AutoLink service, including with respect to network
functionality, product functionality and cellular carrier activation, (iii)
coordinate and negotiate agreements to ensure the availability of emergency,
roadside assistance and information services and (iv) have overall program
responsibility for offering the AutoLink service to the after-market. Prince
will (i) have overall program responsibility for offering the AutoLink service
to OEM customers, (ii) be responsible for the marketing and sale of the AutoLink
system to OEM customers, (iii) coordinate the development of various information
services by one or more suppliers for the OEM customer market and (iv) develop
the end user interface for the AutoLink system, as well as an electronic
interface to the automobile's in-vehicle communications and location hardware.
The name "AutoLink" is a registered trademark of Prince and, under the terms of
the Joint Development Agreement, may be used by the Company only with respect to
the integrated package of services jointly offered by the parties. The term of
the Joint Development Agreement will expire on January 23, 2002, unless earlier
terminated upon the occurrence of specified events.
Under the Joint Development Agreement, the Company expects to receive
from Prince a one-time design fee and reimbursement for certain development
costs. In addition, in consideration of the services provided in the OEM market,
the Company will receive certain fees, including an activation fee, a monthly
per-user charge and service charges for calls placed by or for end-users. The
risk of collection from end-users in the OEM market will generally be borne by
Prince. With respect to the provision of services to the after-market, the
Company will determine the nature and amount of the charges to end-users. Any
fees or charges related to after-market services which exceed the amount of the
fees which the Company would receive for such services in the OEM market will be
equally divided between the Company and Prince. The risk of collection from end-
users in the after-market will generally be borne by the Company. All amounts
received by the Company in connection with the AutoLink business alliance will
be in consideration of network management and other services, and the Company
does not expect to generate any revenues or profits from the sale of the
AutoLink hardware in either the OEM market or the after-market.
The AutoLink project is in its preliminary stages. Accordingly, the
Joint Development Agreement may need to be modified and amended to reflect
developments and understandings reached by the parties as the AutoLink project
matures.
AutoLink Product
The AutoLink product will consist of (i) an end-user interface, into
which there will be integrated a small display module, (ii) a cellular
transceiver, (iii) a computerized system module, (iv) a cellular speaker, (v) a
cellular antenna and (vi) a GPS navigational antenna and receiver. The Company
currently expects that the end-user interface will be located in the vehicle's
rearview mirror or in an overhead console within easy reach of the driver. The
other components of the AutoLink product will be located apart from the end-user
interface in order to improve performance and enhance the security features of
the system.
The design of the AutoLink product has required that the Company, in
conjunction with Prince and its hardware suppliers, develop miniaturized
versions of the principal components included in its Series 5000 Mobile Unit and
reduce hardware costs so that the AutoLink product may be offered at a
relatively low price level. The Company intends to take
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advantage of the AutoLink design process by incorporating the key technical
features of the AutoLink product into future versions of its Series 5000 Mobile
Unit and Series 3000 Mobile Unit. In addition, the Company will seek to leverage
any volume cost savings that may be derived from the purchase of the AutoLink
product to reduce the price of its long-haul trucking products, thus expanding
the segments of the long-haul trucking market which it is able to serve on an
economical basis.
The AutoLink service will be an in-vehicle communication, location and
information service which will offer a variety of safety, security and
convenience features to end users. These services include the following:
Emergency Assistance. By pushing a button on the user
interface, a driver will be connected with an AutoLink service
representative and request emergency assistance. If requested by the
driver or automatically in the event of certain emergencies, the
AutoLink service representative will arrange for the dispatch of local
emergency services to the precise location of the vehicle, which will
be pinpointed using the GPS location capabilities of the AutoLink
product.
Roadside Assistance. By pushing a different button on the user
interface, a driver will be connected with an AutoLink service
representative and request roadside assistance in the event of an
accident, break down or similar occurrence. The AutoLink service
representative will have access to a network of participating roadside
assistance providers to be assembled by the Company in the case of the
after-market and by the OEM in conjunction with their vehicle warranty
program in the case of the OEM market. Based on the location of the
vehicle and the nature of the service required, the representative will
select and dispatch an appropriate roadside assistance provider.
Furthermore, since the AutoLink product can be connected to the engine
and other electronics on the car, the service representative will have
the ability to do certain things for car owners, such as unlock car
doors when keys have been accidentally locked inside, track stolen
vehicles, and even allow automotive service centers to directly access
engine functions and diagnose a problem before the car is brought in
for service.
Information Services. The AutoLink product will eventually
provide drivers with a wide range of information services. For example,
because the AutoLink service can automatically pinpoint the location of
a vehicle, the AutoLink service representative will be able to provide
a lost driver with directions to his destination. Other information
services that may be provided through the AutoLink product include
traffic, weather, news, vehicle location and short message services.
Target Markets
There are currently 198.3 million vehicles on the roads in the United
States. In addition, the number of new vehicles sold in the United States in
1996 totaled approximately 15.4 million.
The OEM customer market consists of new manufactured vehicles in which
the AutoLink product is installed by the manufacturer, at the point of import or
by an authorized dealer for whom the manufacturer has placed an order. In most
cases, it is expected that the automotive end-user will secure the AutoLink
services (i) as a part of a vehicle option package, in which case the price of
the services may be included in purchase price for the vehicle or (ii) through
the payment of a monthly service fee by the end user.
The after-market consists of all markets other than the OEM market. In
most cases, aftermarket sales will consist of sales to the owners of existing
vehicles. Vehicle owners electing to receive the AutoLink service will pay for
the AutoLink product and the installation thereof, as well as a monthly service
fee.
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Marketing and Distribution
Prince will be responsible for marketing, sales and distribution of the
AutoLink product in the OEM market. It is expected that Prince will leverage its
experience in the automotive industry and relationships with automobile
manufacturers to obtain orders for the AutoLink product beginning with the 2000
model year, which will be introduced by automobile manufacturers in the second
half of 1999, although there is no assurance that this will be the case. To
date, no orders have been placed for the AutoLink product, although Prince is
currently engaged in discussions and negotiations with various automobile
manufacturers. Prince will also assume lead responsibility for sales of the
AutoLink product in the recreational vehicle and automobile dealer distribution
channels of the aftermarket business.
HighwayMaster will be responsible for marketing, sales and distribution
of the AutoLink product in the after-market. At the present time, the Company
intends to establish distribution arrangements with one or more cellular
distributors and resell the product to cellular carriers who are included in the
Company's enhanced wireless network. It is expected that these cellular carriers
would offer the AutoLink product to consumers in conjunction with or as an
enhancement to local cellular service. The Company has entered into a memorandum
of understanding with CellStar which contemplates that CellStar will act as the
exclusive distributor for the AutoLink product in the aftermarket. The Company
expects that its arrangements with CellStar will be governed by a definitive
distribution contract which will provide for an initial two-year term commencing
from the initial date of factory production. There can be no assurance that the
Company and CellStar will in fact enter into such a distribution contract or as
to the terms thereof, which are expected to be the subject of further
negotiations between the parties. Assuming that satisfactory arrangements can be
made for distribution of the AutoLink product, the Company expects to begin
offering the AutoLink service in the after-market beginning in late 1998.
Product Manufacturing and Supply
Prince and the Company are currently in negotiations with Motorola to
manufacture the in- vehicle communications and location hardware included in the
AutoLink product but no assurance can be given that such an agreement will be
reached or as to the terms thereof. In the case of products to be sold in the
OEM market, orders will be placed with the hardware supplier either by Prince or
directly by automobile manufacturers who elect to incorporate the AutoLink
product into their vehicles. In the case of products to be sold in the
after-market, the Company expects that, in order to accelerate the launch of the
AutoLink service, it may be necessary for it to place an order with the hardware
supplier for up to 100,000 units. Under the terms of any such order, the Company
would be directly responsible for payment of the purchase price for these units.
Although no assurances can be given in this regard, the Company believes that it
should be able to make satisfactory arrangements with potential distributors and
cellular carriers pursuant to which they would undertake to purchase and resell
all or substantially all of these units in the after-market.
Network Management Services
Under the Joint Development Agreement, the Company will be responsible
for managing and monitoring network services and ensuring that the AutoLink
service has access to a nationwide, proprietary cellular network. In addition,
it will be required to identify and engage a third party to conduct network
system performance and design reviews to ensure that the network operates in
accordance with the agreed specifications. In order to fulfill its network
management obligations, the Company is currently planning to construct the
AutoLink Complex in 1998 at a projected cost of approximately $4 million. In
addition, in order to begin offering the AutoLink service on a commercial basis,
it will be necessary for the Company to amend its contracts with cellular
carriers to allow the Company to utilize their cellular systems to provide
emergency and roadside assistance service to motorists in their home markets.
The Company has begun to seek amendments to its contracts with cellular carriers
and to date has amended the contracts with more than 35 carriers. There can be
no assurance that it will be able to obtain amendments covering all areas in
which it currently provides mobile communications services to long-haul trucks.
See "Risk Factors -- Dependence on Cellular Infrastructure" and "Management's
Discussion and Analysis of Financial Condition and Results of Operations."
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INFRASTRUCTURE AND OPERATIONS
Network Configuration
The diagram set forth below depicts the configuration of the
HighwayMaster network, as it is currently utilized to provide services through
the Series 5000 Mobile Units and is expected to be utilized to provide services
through the Series 3000 Mobile Units and the AutoLink product:
[Diagram of HighwayMaster network, which illustrates the connections
among (1) the mobile communications unit, (2) the cellular carrier, (3) GTE-TSI,
(4) EDS, (5) a switching complex, (6) long distance and local exchange carriers,
(7) the dispatcher PC, (8) all other telephones, (9) GPS satellites, (10) the
AutoLink emergency response center (in the case of the AutoLink product only)
and (11) roadside assistance, emergency response and information services
providers (in the case of the AutoLink product only).]
Series 5000 and 3000 Mobile Units. The processes illustrated above are
fully automated, allowing communication with drivers from any telephone in the
United States and Canada. As the driver enters a new cellular coverage area, the
HighwayMaster unit (1) automatically sends an identifying signal to the cellular
carrier (2). This cellular carrier information is sent via specialized hardware
and software provided by GTE-TSI (3) and occasionally EDS (4) to a switching
complex owned by AT&T or HighwayMaster (5) so such switching complex will be
able to direct future incoming calls for that driver to the appropriate cellular
carrier. In the third quarter of 1996, the Company began commercial service with
its own switching complex, the NSC. For new customers commencing service since
July 1, 1996, all transmissions are routed through the NSC. For most customers
commencing service prior to such time, transmissions continue to be routed
through the AT&T Complex. See "-- Enhanced Service Complexes."
When the driver makes a phone call, the HighwayMaster unit (1) is
connected to a switching complex (5) via the cellular carrier (2) and existing
long distance lines (6), and such switching complex switches the call to the
appropriate destination, which may be the Dispatcher PC for data (7) or any
other telephone for voice (8). The Company's NSC requires entry of a personal
billing account or selected credit card number, and the AT&T Complex requires
entry of an AT&T Calling Card number, for separate billing of personal calls.
See "-- Enhanced Service Complexes."
When dispatchers or outside callers desire to call a driver, their
calls are switched by the switching complex (5) directly over existing long
distance lines and local exchange carriers (6) to the appropriate cellular
carrier (2), which completes the call to the driver (1). Data messages are first
stored in the switching complex (5) and then passed to or from the Dispatcher PC
(7) and the HighwayMaster unit (1).
The HighwayMaster unit (1) automatically records a precise position
report obtained from GPS satellites (9) on a continuous basis. This log of
reports and any other stored data is uploaded to the appropriate switching
complex with every business voice or data call made to or from the HighwayMaster
unit. Additionally, the Dispatcher PC (7) can initiate a call at any time to
obtain an immediate position report from any truck.
AutoLink Product. By pushing a button on the user interface (1) or
automatically in certain circumstances (such as in the event of airbag
deployment), the AutoLink product is connected to a switching complex (5) via
the cellular carrier (2) and existing long distance lines (6). The switching
complex routes the call to the appropriate AutoLink response center (10) and the
driver of the vehicle is connected with an AutoLink service representative. The
AutoLink product (1) automatically records a precise position report obtained
from GPS satellites (9) on a continuous basis, which is uploaded to the AutoLink
response center whenever a telephone link is established. The AutoLink service
representative can then dispatch roadside assistance or emergency response
services to the precise location of the vehicle or provide certain information
services (11). The AutoLink service representative (10) is also able to initiate
a call to the AutoLink product (1) via the switching center (5) without driver
involvement. This enables the service representative to perform services such as
unlocking doors and tracking stolen vehicles.
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Wireless Telephony. Cellular communication is the primary medium for
wireless voice communication currently in use in the United States. The cellular
infrastructure utilized by the Company is already in place. By contrast, the
Company's satellite, ESMR and personal communications services ("PCS")
competitors must expend substantial amounts of capital and several years of
development time to construct networks capable of transmitting and receiving
voice messages from customers nationwide.
The Federal Communications Commission (the "FCC") has provided for a
two-operator duopoly in each cellular market. Only two licenses are awarded to
provide cellular service in any specific cellular MSA or RSA. One of the two
licenses in each market is initially awarded to a company or group that is
affiliated with a local landline telephone carrier in the market (the "Wireline"
or "B-Side" license) and the other license in each market is initially awarded
to a company, individual or group not affiliated with any landline telephone
carrier (the "Non-Wireline" or "A-Side" license). The HighwayMaster system
utilizes both the A-Side and B-Side carriers in its coverage areas, and has
agreements with both carriers in approximately 30% of its markets, allowing
system redundancy and greater flexibility. In addition to cellular licenses, the
FCC has issued up to six licenses in each market to PCS providers. At the
present time, PCS is generally available only in certain metropolitan markets
but is expected to create increased competition for cellular operators where
available.
Increased demand for cellular service is driving investment in cellular
networks and improving service coverage. Cumulative capital investment within
the cellular industry has reached $32 billion as of December 1996, up from $6.3
billion in December 1990. Total number of cell sites increased to 30,045 in
December 1996 up from 10,307 in December 1992. Total cellular customers reached
more than 44.0 million in December 1996.
Management believes that ordinary cellular subscribers utilizing
services outside of their home market will continue to be assessed roamer and
long-distance surcharges, although roaming rates are expected to decline.
Another shortcoming in current roamer usage of cellular services is that the
cellular industry has failed to provide an effective and universal incoming call
delivery system to subscribers on a nationwide basis. Current
autonomous-registration call delivery systems are generally available in urban
areas and are becoming more prevalent in rural markets. These shortcomings in
nationwide cellular coverage have been overcome in the HighwayMaster system,
because it offers nationwide call delivery in coverage areas which include
approximately 95% of the United States interstate highway system, and air time
rates that are free of roamer and variable long-distance surcharges.
Management believes that due to the large number of existing cellular
subscribers, consumer ownership of many cellular telephones and the extensive
capital investment by cellular carriers in the existing cellular infrastructure,
it is unlikely that the existing cellular network will be abandoned or replaced
by ESMR or other competing technologies. A number of cellular carriers are in
the process of upgrading from existing analog cellular systems to enhanced
systems utilizing digital technology. However, management believes that the
large number of analog telephones already owned by cellular subscribers will
ensure that cellular telephone operators continue to offer services to existing
analog users concurrently with digital users, over an extended or indefinite
phase-in period that exceeds the expected useful life of the Series 5000 Mobile
Units.
Enhanced Service Complexes. Call processing, data management and other
switching services for the Company's network are provided through the AT&T
Complex and the NSC. From 1993 through 1996, all such services were provided to
the Company and its customers through the AT&T Complex. AT&T terminated the AT&T
Contract effective as of June 29, 1996. In the third quarter of 1996, the
Company began commercial service with its own switching complex, the NSC, which
was designed and constructed for the Company by IEX. For new customers
commencing service after June 29, 1996, the NSC has fully replaced the AT&T
Complex. At the present time, AT&T continues to provide services through the
AT&T Complex without a formal contract with the Company. However, in September
1997, AT&T notified the Company that it would discontinue offering services
through the AT&T Complex as of December 31, 1997, and the Company intends to
begin servicing all of its customers through the NSC as of such date.
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Both the NSC and the AT&T Complex provide switching services among each
Series 5000 Mobile Unit, the HighwayMaster nationwide enhanced services network,
the dispatcher PC and the nationwide landline telephone network. Each switching
complex is capable of processing, storing and transmitting voice and data
transmissions. Voice communications are routed from each Series 5000 Mobile Unit
through the HighwayMaster nationwide enhanced services network to the
appropriate switching complex. The switching complex automatically completes the
call through the public telephone network to the end user. Voice communications
from the dispatcher or personal calls for the driver are routed through a
toll-free telephone number to the appropriate switching complex, which completes
the call through the appropriate wireless cellular system for the region in
which the truck is operating. Data packets from the host or a Series 5000 Mobile
Unit are stored in the switching complex, then transmitted in cost-effective
batches. Time critical information, as determined by the trucking company, is
immediately transmitted to the receiving party. The switching complex records
data from each transmission, generates a call record and processes the
information into customer billing records. HighwayMaster can increase capacity
of the NSC as needed to meet growing caller demands by increasing the line
capacity and number of modems and controllers.
The Company believes that the NSC has certain advantages over the AT&T
Complex. This facility generally incorporates more advanced architecture and
offers additional functions not available through the AT&T Complex. In addition,
the NSC gives HighwayMaster increased flexibility to add new features and
services without having to negotiate contract modifications with AT&T and also
enhances the Company's ability to monitor operations and perform diagnostic
functions to identify problems.
Call Routing. Each time a Series 5000 Mobile Unit travels into a new
MSA or RSA, it automatically registers with the cellular carrier under contract
with the Company. The cellular carrier routes the message to GTE-TSI or EDS,
which are also under contract with the Company and provides the switching
complex with call delivery information necessary for the switching complex to
deliver calls to the Series 5000 Mobile Unit as it travels through the new MSA
or RSA. Subsequent telephone calls or data transmissions originating from the
Series 5000 Mobile Unit are recognized by the local cellular carrier and
screened to allow call routing only through the switching complex, where
additional screening is conducted.
Before a call originating from a Series 5000 Mobile Unit is received by
the switching complex, the Series 5000 Mobile Unit must establish an encoded
electronic "handshake" with the switching complex. The effective elimination of
roamer fraud is a factor in the Company's ability to contract with local
cellular carriers throughout the country.
Navigation Technology. GPS allows users to identify the location of any
truck at any time via satellite. GPS is operated by the United States government
and broadcasts navigational information from a network of dedicated satellites
orbiting the earth. GPS navigational receivers interpret signals from multiple
satellites to determine the receiver's geographical coordinates, elevation and
velocity. GPS units available for civilian use are generally accurate within 100
yards. GPS navigational signals can be received worldwide, without adaptation of
the receiver unit to foreign standards. Management believes that the network of
GPS navigational satellites will be maintained by the United States Defense
Department in an operational status for the foreseeable future. Although
stand-alone GPS units are available for purchase by any consumer at relatively
low cost, raw navigational information is of little use to trucking companies
unless the GPS receiver is integrated with a computer system, such as the Series
5000 Mobile Unit, to record routes traveled relative to mapped roadways or to
transmit position reports to a central dispatcher.
The Company's use of government-operated GPS satellites differs
substantially from competitors' use of satellites for two-way communications.
GPS satellites send one-way signals to mobile receivers, allowing the Series
5000 Mobile Unit to plot its geographical coordinates. GPS satellites are not
capable of two-way communication, and no charges are assessed to users of the
GPS services. For two-way mobile communications, the Company relies exclusively
on earth-based cellular systems. The Company's primary competitors utilize
leased or owned communications satellites for two-way data communications,
incurring costs associated with ownership or leasing of satellite communication
capacity.
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STRATEGIC SERVICE ALLIANCES OF THE COMPANY
Local Cellular Carriers. HighwayMaster has established a network for
United States-based trucking operators that offers mobile communication coverage
in 99% of the available cellular service areas in the United States (which
covers approximately 95% of the United States interstate highway system) and
100% of the A-Side coverage in Canada. The Company has agreements in place with
more than 70 cellular carriers, including all the regional Bell operating
companies, GTE, and Rogers Cantel, Inc., in more than 715 markets in the United
States and Canada. The Company has entered into contracts with both A-side and
B-side carriers in approximately 30% of United States cellular coverage regions.
Management expects its back-up coverage to continue to increase as more
relationships are established. Management believes that local cellular carriers
are motivated to make capacity available to the Company for various reasons,
including (i) increases in volume of air time usage, (ii) no customer service
expense, (iii) the inability of customers using the HighwayMaster system to
switch to another cellular carrier, (iv) no customer acquisition costs, (v)
access to a national customer base not otherwise available to local cellular
carriers, (vi) use of the HighwayMaster system by long-haul truckers who
typically travel through less dense cellular coverage areas, (vii) use of the
HighwayMaster system by truckers typically during off-peak time periods and
(viii) no expenses associated with fraudulent usage as a result of the security
protection afforded by the HighwayMaster system. Current terms of contracts
between the Company and each of its cellular carriers are generally for one
year, with automatic one-year successive renewal terms unless either party
elects to terminate the contract upon 30-days' notice prior to June 30 of each
year. The Company has recently executed new contracts with certain of its
cellular carriers that are substantially similar to the existing contracts
except that they provide for an initial three-year term. The Company's
agreements with cellular carriers provide that the Company will not be required
to reimburse carriers for fraudulent usage unless the carriers have fully
implemented the Company's protocol. Although the Company's protocol has been
effective to prevent fraud to date, there is no assurance that this will be the
case in the future.
The Company's current contracts with cellular carriers permit the
Company to utilize their cellular networks to provide mobile communications
services to vehicles engaged in long-haul trucking and certain recreational uses
so long as such vehicles travel outside of their home areas for specified
periods of time. In order to begin offering the AutoLink service on a commercial
basis, it will be necessary for the Company to amend its contracts with cellular
carriers to allow the Company to utilize their cellular systems to provide
emergency and roadside assistance service to motorists in their home markets.
The Company has begun the process of amending its contracts with cellular
carriers, and to date has amended the contracts with more than 35 carriers.
However, there can be no assurance that it will be able to obtain amendments
covering all areas in which it currently provides mobile communications services
to long-haul trucks.
GTE-TSI and EDS. GTE-TSI and EDS provide clearinghouse functions to the
cellular industry, creating the data link between a foreign network and a
roamer's home cellular service area, performing credit checking functions and
facilitating roamer incoming call delivery functions. The Company's contract
with GTE-TSI covers certain functions that are critical to the Company's ability
to instantly deliver calls nationwide. It covers an initial term of three years
ending March 14, 1998. The Company is guaranteed the right to renew the contract
for up to 10 one-year periods beyond the initial term, at a reasonable rate to
be determined by GTE-TSI. The agreement provides for mutual exclusivity by the
Company and GTE-TSI with respect to the provision and use of certain critical
call delivery features to provide service to the trucking industry. The
agreement between the Company and EDS involves the provision by EDS of certain
clearinghouse functions in connection with EDS' cellular carrier customers.
Fewer data processing functions are conducted by EDS due to the Company's
consolidation of certain common data processing functions with GTE-TSI. The
agreement with EDS expires on October 24, 1998 and is renewable for subsequent
one-year terms unless 60-days' notice is provided prior to the termination date
of the agreement. See "Risk Factors -- Dependence on Clearinghouse Services."
AT&T. From 1993 to mid-1996, the Company and AT&T were parties to the
AT&T Contract pursuant to which they offered certain combined telecommunications
services to their joint customers in the long-haul trucking industry. Under the
AT&T Contract, AT&T agreed to provide certain enhanced call processing, data
management services and
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long-distance network transport to the joint customers of the Company and AT&T.
The call processing and data management functions performed by AT&T are housed
in the AT&T Complex, which was developed by AT&T specifically for this
application utilizing the Company's confidential trade secrets. The AT&T
Contract was scheduled to expire on June 29, 1998, unless terminated as of June
29, 1996 or June 29, 1997 at the option of AT&T upon 180 days' prior written
notice to the Company.
In March 1996, the Company learned that AT&T intended to terminate its
exclusive agreement with HighwayMaster and offer use of the AT&T Complex and
confidential HighwayMaster trade secrets to one or more of the Company's
competitors. The Company has filed suit in Federal District Court against AT&T
seeking, among other things, preliminary and permanent injunctive relief
restraining AT&T from using and disclosing HighwayMaster's trade secrets and
proprietary information relating to its mobile communications technology, and
AT&T has sought similar relief claiming ownership of such trade secrets and
proprietary information. See "-- Legal Proceedings." On March 12, 1996, AT&T
notified the Company that it was terminating the AT&T contract as of June 29,
1996. At the present time, AT&T continues to provide services through the AT&T
Complex without a formal contract with the Company. However, in September 1997,
AT&T notified the Company that it would discontinue offering services through
the AT&T Complex as of December 31, 1997. See "Risk Factors -- Availability of
Switching Complexes."
IEX Corp. IEX designed, tested, constructed and serves as facility
manager for the NSC. The NSC constitutes a critical link in providing certain
enhanced call processing, data management services and is necessary for the
Company to receive, store and route voice and data transmissions to and from its
customers. See "-- Infrastructure and Operations -- Configuration of the
HighwayMaster System," "-- Infrastructure and Operations -- Enhanced Service
Complexes."
GTE Wireless. GTE Wireless indirectly provides a significant amount of
cellular coverage for the HighwayMaster network and pays all cellular carriers
for HighwayMaster, billing the Company on a monthly basis. The term of the
current agreement with GTE Wireless expires in March 1999.
SBC. In connection with its strategic investment in the Company in
September 1996, SBC entered into a Technical Services Agreement with the Company
pursuant to which SBC or one or more of its affiliates will provide the Company
with certain technical and advisory services relating to the operation and
improvement of its network. The Company believes that the availability of these
services from SBC has the potential of allowing it to accelerate the development
and implementation of various features of its network and mobile communications
services.
ADDITIONAL BUSINESS OPPORTUNITIES
Burlington Contract
In 1997, HighwayMaster entered into an agreement with Burlington, one
of the largest truckload carriers and logistics providers in North America,
which provides for the installation of up to 2,000 Series 5000 Mobile Units in
Burlington's fleet of long-haul trucks. As part of the transaction, the Company
purchased exclusive ownership rights to Burlington's proprietary fleet operating
and management information software and has assumed the operation of its data
center and computer systems. HighwayMaster intends to add capacity to the
Burlington data center in order to provide a broad range of data processing
services to other trucking companies which would essentially replace such
companies' existing management information systems departments with services,
software and hardware to be provided by HighwayMaster. Added capacity would
enable HighwayMaster to use the Burlington software and data center in
conjunction with the HighwayMaster mobile communications system to offer its
customers levels of integration not previously available in the trucking
industry. HighwayMaster is not currently providing these services, and there can
be no assurance that it will be successful in marketing its information
management solutions to other trucking companies.
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Other Opportunities
The Company believes that substantial expansion opportunities exist
within international markets that are served by cellular service. The Company
currently provides certain mobile communications services to Canadian-based
operators who provide a remote call forwarding line (also known as a foreign
exchange line) from their dispatcher PC to the United States. The Company's
ability to provide such services to owner-operators and operators of small
fleets in Canada is limited given that they cannot easily afford the expense of
a remote call forwarding line. There are approximately 200,000 larger-size
trucks operating in Canada, many of which travel extensively in the United
States. Mexico offers another avenue for expansion if agreements with cellular
carriers and installation of necessary infrastructure interfaces can be
established. According to one industry source, in 1993, there were approximately
250,000 medium and larger sized trucks and buses operating in Mexico. Management
believes that expansion into Europe may prove to be viable for the Company
because trucking companies in Europe face many of the same demands as companies
in the United States and the European cellular infrastructure is highly
developed. However, engineering changes would be necessary to build a
HighwayMaster system adapted to European cellular technology and multiple
languages. A data-only satellite-based competitor of the Company currently is
operating in Europe, Japan and certain other developed countries.
The most recent Truck Inventory and Use Survey published by the United
States Census Bureau indicated that in 1992 there were 2.6 million medium and
heavy commercial trucks in the United States. Future refinements, which may
eventually provide city street map detail, should allow the HighwayMaster system
to be used by intra-city courier services, local bus companies and police, fire
and ambulance services. In addition to these software enhancements, it will be
necessary for the Company to revise its working relationships with the affected
local cellular carriers before the Company attempts to expand its customer base
to include localized intra-city users and to provide certain changes to its
Company Complex to service a more localized market. See "-- Infrastructure and
Operations -- Enhanced Service Complexes".
In addition, the Company is developing and intends to market additional
wireless voice and data solutions, network services, logistics software and
wireless computer communications devices to other freight and field service
operations on a local and national basis (some of which may require
modifications to equipment and existing contracts with cellular carriers and
other parties). Management has identified several potential markets, some of
which would require modification to the Series 5000 Mobile Unit or HighwayMaster
system's infrastructure. For example, management believes the Company could
develop an additional market opportunity in the tracking and dispatching of
commercial trailers, which numbered 2.4 million in the United States in 1992.
Trailers would not require two-way voice communication, so a lower cost version
of the Series 5000 Mobile Unit could be developed.
Management also believes interstate bus companies could benefit from
the HighwayMaster system in its present configuration in order to contact
drivers to bypass small town bus stops with no passengers for pickup. The
Company also intends to market the HighwayMaster system to railroads for use in
locomotives and railcars. In addition, management believes that the more than 2
million recreational vehicles in the United States constitute a potential market
for the Company's services.
COMPETITION
In each of the markets currently targeted by the Company, there are a
number of other companies that offer or plan to offer some form of two-way
mobile communication using a variety of different technologies which compete or
could eventually be used to compete with the Company. These companies primarily
utilize satellite-based communications technologies, SMR, enhanced specialized
mobile radio (ESMR), and wireless technologies, including paging systems and
terrestrial links for dedicated short range communications systems.
Conventional Satellite Communications. Satellite communication is
accomplished through transmission of a signal from an earth-based transmitter to
a satellite, which automatically retransmits the signal to an earth-based
receiver.
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Many communication satellites are geo-stationary, and remain over a single point
over the equator by orbiting the earth in the same direction and at the same
speed as the rotation of the earth. Mobile equipment designed for satellite
communication is equipped with highly specialized rotating antennae which are
continuously directed toward the satellite, and utilize highly complex data or
voice compression systems to minimize demands on satellite capacity. This type
of mobile communication equipment broadcasts over the radio frequency spectrum,
and domestically the FCC regulates and controls the number of satellite
communications systems that may be placed in service.
Satellite communication available to the transportation industry
generally utilizes a single earth station to transmit and receive data via
satellite to and from satellite communication units installed in trucks.
Messages created by truck drivers on an onboard keyboard can be stored,
compressed and transmitted in short bursts. Although voice communication is
theoretically possible for mobile communication systems that utilize satellite
transmissions, the current limited capacity and current high cost of satellite
communication have tended to limit offerings to data-only services.
Satellite systems currently cover 100% of the continental United
States, and their comprehensive coverage may be perceived by truckers and
trucking companies as an advantage over the cellular system. The Company
believes that any marketing or operational advantage derived from satellite
coverage, as compared to the HighwayMaster system (which covers approximately
95% of the United States interstate highway system), is mitigated by the fact
that satellite systems require more costly equipment and do not currently offer
voice communication on an economical basis and by the fact that users of the
satellite system can experience queuing delays during peak periods between
transmission and receipt of messages. In addition, because geo-stationary
satellites stay over the equator, transmission and receipt of data in North
America is sometimes interrupted or rendered impossible by obstacles on the
southern horizon, such as nearby tall buildings or mountains.
At the present time, the Company's primary satellite competitor in the
long-haul trucking market is Qualcomm, which markets its products and services
primarily to large fleets, offers two international satellite-based
communication systems: (i) OmniTRACS, which provides two-way data messaging and
tracking services, and (ii) TrailerTRACS, which provides trailer monitoring.
Drivers access and utilize the system through an onboard keyboard and data
display screen. Qualcomm offers or plans to offer its products and services in
certain of the international markets targeted by the Company, including Canada,
Mexico and Europe. Qualcomm reported that as of January 1997 it had delivered
over 200,000 OmniTRACS systems worldwide. The Company believes that the
satellite- based communication products and services offered by Qualcomm are
generally more expensive than the Company's products and services. However,
Qualcomm has recently offered lower prices for quantity purchases and
reduced-cost trial periods in an effort to improve its competitiveness.
At least one other entity offers or plans to offer satellite-based data
communication and tracking services to the long-haul trucking industry. AMSC, a
geo-stationary system which is owned by a consortium of satellite and
communications companies offers a satellite-based system that is similar to the
Qualcomm system in that the mobile communications equipment consists of a
keyboard and data screen mounted in each truck. Recent enhancements allow dual
SMR or satellite communication in a single unit. The AMSC system offers both
voice and data communications.
Middle and Low Earth Orbit Satellites. In order to maintain a
stationary position over the earth, communication satellites currently in use
must maintain a very high orbit, which requires earth stations to generate
relatively high powered transmissions for communication with the satellite.
Certain entities, including Qualcomm, are participating in the development of
MEO and LEO satellite networks, which are designed to employ multiple satellites
in relatively lower earth orbits, rapidly circling the earth. The lower earth
orbits should facilitate both voice and data communication services and will be
accessible through relatively lower powered transmitters and receivers, allowing
them to be installed in portable communication equipment. In terms of product
and service offerings, MEO and LEO systems can be expected to compete directly
with cellular services, including the HighwayMaster products and services, and
will offer coverage in remote areas and foreign countries currently unserved by
cellular carriers. However, due to the substantial
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capital investment required to place these systems in service, the Company
believes that the MEO and LEO- based voice call rates are expected to be higher
than the $0.53 per minute rate charged to HighwayMaster's customers.
Specialized Mobile Radio. SMR has traditionally been used to serve the
needs of local dispatch services such as taxis and couriers, which typically
broadcast short messages to a large number of units. SMR wireless communication
systems rely on high-powered voice or data transmissions among widely-spaced
receiver/ transmitter sites within a discrete local or regional area. These
systems generally have lower capacity to support simultaneous transmissions in a
given area than do cellular systems, which transmit and receive radio
communications from numerous closely- spaced cell sites. The radio hardware
currently used to operate the various SMR systems varies widely, making it
impossible for a customer to "roam" into a neighboring region that is served by
a carrier with a different hardware configuration.
Enhanced Specialized Mobile Radio. ESMR operators are currently
developing and implementing ESMR digital technology to offer relatively low-cost
mobile telephone services, with construction expected to be completed in several
years. One operator, Nextel, Inc., is developing a nationwide digital ESMR
network to provide mobile telephone service and has begun providing service in
dozens of major metropolitan areas. Nextel is developing its ESMR network using
uniform standards and a coordinated infrastructure to provide mobile telephone
services with no roaming charges anywhere in the U.S. Other local and regional
ESMR operators in addition to Nextel may eventually be able to offer
region-to-region calling and call delivery services which will compete with the
Company's services.
Paging Services. At considerably less cost than full two-way mobile
communication, several long-haul truckers and fleet operators have purchased or
leased paging systems that allow a dispatcher to send a message to a driver.
Management believes that pagers are used by trucking companies as a "temporary
fix," since pagers do not offer full-function two-way communications services
and cannot track vehicle locations. Some paging companies have begun to offer
limited time- delayed two-way messaging capabilities, although initial
shortcomings in coverage, voice service and tracking capabilities are likely to
limit their use in the long-haul trucking market.
Other Services. Other services are being proposed that could
potentially compete with the HighwayMaster system. For example, the FCC
currently is considering whether to allocate 75 megahertz of spectrum in the
5.850-5.925 GHz band to establish DSRC systems for the deployment of intelligent
transportation systems to provide terrestrial wireless communication links
between vehicles traveling at highway speeds and roadside systems. Current
DSRC-based services include en- route driver information, freight mobility
tracking, traffic control and automated roadside safety inspection. If these
services can be provided inexpensively, they may compete with the Company's
services.
Telecommunications Act of 1996. The Telecommunications Act is intended
to increase competition in virtually every arena of communications and eliminate
many regulatory barriers to new competitors. It is unknown at this time what
effect this legislation will have on the Company's ability to compete in the
marketplace. See "Risk Factors -- Uncertainty of Government Regulation."
PATENTS AND PROPRIETARY TECHNOLOGY
The Company has obtained ten domestic patents and has applied for
additional domestic and foreign patents. In general, the Company's existing
patents relate to certain features and capabilities of the HighwayMaster used in
locating and communicating with vehicles through the cellular infrastructure.
The Company's software is also entitled to certain protections under state trade
secret law and federal copyright law. See "Risk Factors -- Uncertainty Regarding
Patents and Proprietary Rights."
REGULATION
The Company's products and services are subject to various regulations
promulgated by the FCC which apply to the wireless communications industry
generally. The Company's Series 5000 Mobile Units must meet certain radio
frequency emission standards and not cause unallowable interference to other
services. The Company has relied on the
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manufacturer of the cellular transceiver component of the Series 5000 Mobile
Units, which is currently Motorola, to carry out appropriate testing and
regulatory compliance procedures regarding the radio emissions of the cellular
transceiver component.
The FCC also controls several other aspects of the wireless industry
that affect the Company's ability to provide services. The FCC controls the
amount of radio spectrum available to cellular carriers, which could eventually
limit growth in cellular carrier capacity. Management expects the FCC to expand
capacity available to the cellular industry as it becomes necessary in order to
maintain current levels of service, although there is no assurance that such
expansion will occur.
The Company believes that the nature of its services does not require
the Company to be classified as a common carrier for either wireless or
long-distance regulatory purposes. This conclusion is based on several
alternative regulatory interpretations, including the classification of the
HighwayMaster service as a private network whose service is not offered to the
public at large, but rather targeted to specific users such as the long-haul
trucking industry and other owners of commercial vehicles. In addition, each
customer arrangement is tailored to fit the communication needs of that
particular customer. Alternatively, the Company can be classified as an enhanced
services provider, and thus not subject to common carrier regulation, because
the HighwayMaster proprietary hardware and software processing applications act
on information transmitted by subscribers, who then receive information in
return from HighwayMaster regarding the status of their commercial vehicles. The
Company relies on its long-distance provider to comply with any long-distance
regulatory requirements.
The wireless telecommunications industry currently is experiencing
significant regulatory changes which may require a re-examination of laws and
regulations applicable to the Company's operations. For example, both the
present HighwayMaster service and the future AutoLink service may be considered
to be CMRS. CMRS providers are treated as common carriers, except that the FCC
has decided to forbear from most common carrier regulation of the CMRS
marketplace, including regulation of the rates and terms of entry for interstate
services offered by CMRS providers. In addition, Congress has preempted state
regulation of CMRS entry and rates. Recent FCC decisions have enhanced the
development of CMRS, including requiring local telephone companies to offer
interconnection and access to their networks to CMRS providers and to establish
reciprocal compensation arrangements with CMRS providers for the transportation
and termination of calls at prices that are cost-based and just and reasonable.
To the extent that services offered by the Company are determined to be
telecommunications services (which would not include enhanced services offered
by the Company), the Company would be required to contribute to the mechanisms
established by the FCC and various states to preserve and advance universal
service. At the federal level, the Company's universal service contribution
would be based on the end-user telecommunications revenues generated by those
services that are determined to be telecommunications services. The Company
cannot predict the impact of any requirement to contribute to state and federal
universal service mechanisms.
The Company's regulatory status also may change as a result of offering
the AutoLink service, which will be offered indiscriminately to the public at
large, with no individualized or customized contracts, and thus may be
considered a common carrier service. However, the Company believes that it will
nonetheless be regulated as a private carrier if, as currently contemplated, the
AutoLink service does not offer interconnection to the public switched network.
If the Company's interpretation of its regulatory status proves to be incorrect
and it is deemed to be a common carrier, the Company may be required to offer
its services upon reasonable request from any member of the public, it may be
required to offer its services on a basis that is not unreasonably
discriminatory, and, in certain states that regulate common carriers, it must
comply with various regulatory requirements established by state public utility
commissions, or their governing statutes, including procedures related to
customer deposits, the filing of registration or notification letters, and the
filing of tariffs. Changes in regulation of cellular common carriers also may
require equal access by customers to the long-distance provider of their choice.
Although regulations applicable to common carriers would add certain
administrative costs and possible complications to the Company's relationships
with its long-distance provider and cellular carriers, the Company believes that
common carrier status would not require the Company to make substantial changes
to its current services. Finally, certain public utility commissions could take
the position that
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approval would be needed prior to any transfer of control of the Company. There
can be no assurance that compliance with such regulations would not have a
material adverse effect on the Company's operations.
Long-distance providers face regulatory schemes similar to cellular
carriers, with greater state involvement in requiring posting of bonds as
security against customer deposits and in other matters. The Company believes
current long-distance regulations apply to the companies providing long-distance
services directly to Company customers, without long-distance regulatory
involvement by the Company.
The Company currently provides mobile communications services to
Canadian-based operators only if such operators provide a remote call forwarding
line (also known as a foreign exchange line) from their dispatcher PC to the
United States. This limits the Company's ability to provide such services in
Canada, especially to owner-operators and operators of small fleets that cannot
easily afford the expense of a remote call forwarding line. There can be no
assurance that the Company will be able to resolve the issues required to permit
it to expand the scope of its Canadian operations, including the provision of
the AutoLink service.
EMPLOYEES
As of December 31, 1996 the Company employed approximately 295
individuals, of whom 47 are engaged in engineering and product development, 119
in customer service, 59 in sales and marketing and 70 in administrative or
executive functions. None of the Company's employees are represented by a labor
union and management considers its relationship with its employees to be
generally good.
PROPERTIES
The Company does not own any real property. The Company leases
approximately 55,687 square feet of office space for its corporate headquarters
in Dallas, Texas, at an average price of $14.70 per square foot per year,
pursuant to a short-term lease agreement. The Company leases a small amount of
commercial office space for each of its five regional customer service offices,
including the Dallas regional customer service office.
LEGAL PROCEEDINGS
AT&T Litigation. On February 16, 1996, the Company filed a lawsuit
against AT&T in the U.S. District Court, Northern District of Texas, Dallas
Division. The Company is seeking preliminary and permanent injunctive relief
restraining AT&T from using and disclosing the Company's trade secrets and
proprietary information relating to its mobile communications technology. In
July 1996, AT&T filed counterclaims essentially mirroring the Company's claims.
Both the Company and AT&T claim ownership of trade secrets and proprietary
information related to the design and function of the Company's mobile
communications unit and dispatcher software and certain methods developed to
prevent fraudulent use of the system.
In September and October 1996, both the Company and AT&T amended their
pleadings and filed additional claims against each other related to breach of
contract and various tortious activities. AT&T seeks an injunction preventing
the Company from using or disclosing AT&T's alleged trade secrets, a declaratory
judgment defining the parties' intellectual property rights, actual and punitive
damages and attorneys' fees in connection with its counterclaims. The Company
seeks a declaration that the patents issued to AT&T using the Company's
proprietary information are invalid or, alternatively, should be transferred
from AT&T to the Company, and that certain actual or threatened AT&T conduct
infringes the Company's patents. The Company also brought claims against AT&T
pursuant to the Texas DTPA and seeks actual, punitive and treble damages and
attorneys' fees in connection with its claims. Additionally, the Company's
amended complaint added another defendant, Lucent, to which AT&T transferred
certain of the patents at issue in the lawsuit. Both the Company and AT&T seek
substantial monetary damages.
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<PAGE> 74
In November 1996, AT&T filed a partial motion to dismiss the Company's
DTPA claims, various tort claims and the patent invalidity charges.
Additionally, in November 1996, Lucent filed a motion to dismiss all of the
Company's claims against Lucent. In December 1996, the Company filed a response
to AT&T's partial motion to dismiss and a response to Lucent's motion to
dismiss. Supplemental briefing on the motions is anticipated and a decision is
expected in the near future.
Other. The Company is also involved in various other claims and
lawsuits incidental to its business, including claims and lawsuits alleging
breaches of warranty, product defects in certain Series 5000 Mobile Units or
breaches of contractual obligations under service agreements with customers
using the HighwayMaster system. Such claims include claims by a former
significant customer that terminated its agreement with the Company resulting in
a $1,000,000 charge to reduce the carrying value of the amount of a receivable
due from such customer and pending litigation in which the Company and such
former customer have each asserted claims for damages against the other in
connection therewith. See "Management's Discussion and Analysis of Financial
Condition and Results of Operations -- General." The Company does not believe
that these claims and lawsuits will have a material adverse affect on the
Company's business, financial condition and results of operations.
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<PAGE> 75
MANAGEMENT
DIRECTORS AND EXECUTIVE OFFICERS
The following table sets forth certain information regarding the
directors and executive officers of the Company.
<TABLE>
<CAPTION>
NAME AGE POSITION
- ---- --- --------
<S> <C> <C>
William C. Kennedy, Jr. 57 Chairman of the Board
William C. Saunders 50 President, Chief Executive Officer and Director
Stephen L. Greaves 38 Director
Terry S. Parker 52 Director
Gerry C. Quinn 48 Director
Gordon D. Quick 49 Executive Vice President and Chief Operating
Officer
J. Philip McCormick 55 Executive Vice President and Chief Financial
Officer
G. Tracy Griffin 52 Treasurer and Senior Vice President of
HighwayMaster
Corporation
William H. McCausland 36 Senior Vice President, Network Operations
Brad E. Popoff 43 Senior Vice President, Customer Service
Operations
Thomas D. Russell 38 Senior Vice President, Strategic Business
Development
Wesley E. Schlenker 35 General Counsel and Secretary
Stephen P. Tacke 50 Vice President and Controller
Kenneth R. Westerlage 36 Senior Vice President, Engineering & Technology
Development
Jeffrey G. Wisocki 41 Senior Vice President, Customer Development
</TABLE>
Set forth below are descriptions of the backgrounds and principal
occupations of each of the Company's executive officers and directors.
WILLIAM C. KENNEDY, JR., age 57, has served as Chairman of the Board of
Directors of the Company since its inception in 1992, and as Chief Executive
Officer of the Company from its inception until December 1994. Mr. Kennedy
founded Instacom, Inc., serving as its Chairman and President from 1970 until
its merger with Comdata Network, Inc. in 1983. Instacom and Comdata provide
computerized money transfer services for trucking companies and their drivers.
Mr. Kennedy served as the Chairman of Comdata Network, Inc. from 1983 to 1985.
He also served as the Chairman, President and Chief Executive Officer of By-Word
from 1988 to 1994, a company which was engaged in the engineering and
development of voice recognition and communication products until it became a
partner in the predecessor partnership to the Company in 1992. By-Word was
dissolved in 1994. Mr. Kennedy has served as a Director of Pittencrieff
Communications, Inc., a specialized mobile radio provider, since 1993.
WILLIAM C. SAUNDERS, age 50, has served as President and a Director of
the Company since its inception in 1992, and as Chief Executive Officer since
December 1994. Mr. Saunders served for more than 20 years as President and
Chairman of the Board of Saunders, Lubinski & White, Inc., an advertising and
marketing firm, where his background included significant experience in
advertising and marketing targeted at the trucking industry. Mr. Saunders
provided advertising and marketing services to Instacom and Comdata in the 1970s
and 1980s. From 1991 to 1994, Mr. Saunders served as a Director of By-Word.
STEPHEN L. GREAVES, age 38, has served as a Director of the Company
since June 1994. He has served as President of Erin Mills International
Investment Corporation, a private venture capital fund and a stockholder of the
Company, since February 1997 and General Manager from April
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<PAGE> 76
1993 to February 1997. From January 1992 until April 1993, Mr. Greaves worked as
a private marketing consultant. From January 1989 to December 1991, Mr. Greaves
served as Marketing Planner for Esso Standard Petroleum Oil.
TERRY S. PARKER, age 52, has served as a Director of the Company since
April 1995. Mr. Parker served as President and Chief Operating Officer of
CellStar Corporation, a cellular distributor, from March 1995 to July 1996. From
October 1993 until March 1995, Mr. Parker served as President of GTE Mobile
Comm, a cellular service provider. From January 1989 until October 1993, Mr.
Parker served as President of GTE-TP&S, a telecommunications company. Mr. Parker
also serves as a Director of Equalnet Corporation.
GERRY C. QUINN, age 48, has served as a Director of the Company
(including its former affiliates, Eighteen Wheeler Corporation and The F.B.R.
Eighteen Corporation) since its inception in 1992, and served as President of
The Eighteen Wheeler Corporation and The F.B.R. Eighteen Corporation from April
1992 until February 1994. Mr. Quinn has served as President of The Erin Mills
Investment Corporation, a private venture capital fund and stockholder of the
Company, since July 1989, and as Executive Vice President of The Erin Mills
Development Corporation, a private venture capital fund and a stockholder of the
Company, since September 1989.
GORDON D. QUICK, age 49, has served as Executive Vice President and
Chief Operating Officer of the Company since January 1995. Prior to joining the
Company, Mr. Quick served for more than 20 years in various positions with GTE
Corporation ("GTE"), where, among other things, he held a variety of marketing,
planning and general management positions with the Telephone Operations Group
and the Information Services Group. In 1990, he was named Vice President of
Marketing and Business Development, and in January 1992 he was named Vice
President and General Manager of GTE-TSI, a principal business unit of GTE. Mr.
Quick was involved in developing the initial services provided to the Company
under contract with GTE-TSI.
J. PHILIP MCCORMICK, age 55, joined the Company in August 1997 as
Executive Vice President and Chief Financial Officer. Prior to joining the
Company, Mr. McCormick was a senior officer with units of ENSERCH Corporation
from 1991 to 1997, most recently senior vice president and chief financial
officer of Enserch Exploration, Inc. from 1995 to 1997. Prior to joining ENSERCH
Corporation he practiced public accounting for 26 years and was a partner of
KPMG Peat Marwick and KMG Main Hurdman, serving in management positions and on
the Boards of each firm.
G. TRACY GRIFFIN, age 52, has served as Treasurer of the Company since
June 1992 and was named Senior Vice President of HMC, the Company's operating
subsidiary, in January 1995. From 1982 until June 1992, Mr. Griffin served as
Controller and Vice President of Saunders, Lubinski & White, an advertising and
marketing company with expertise in the trucking industry and a former affiliate
of the Company. Mr. Griffin is the first cousin of Mr. Saunders.
WILLIAM H. MCCAUSLAND, age 36, has served as Senior Vice President,
Network Operations since September 1996. Mr. McCausland served the Company as
Vice President, Business Alliances from January 1996 to September 1996. From May
1993 to January 1996, Mr. McCausland was employed by GTE-TSI initially as
Director of Industry Relations and was an Assistant Vice President and General
Manager when he left to join the Company. Prior to his employment at GTE-TSI,
Mr. McCausland worked for CommNet Cellular, Inc. (formerly known as Cellular,
Inc.) from May 1987 to May 1993, where he was employed in a variety of positions
with his most recent being that of Vice President of Customer Support Services.
From May 1984 to May 1987, Mr. McCausland worked in a variety of management
positions for a cellular reseller acquired by Southwestern Bell Mobile Systems.
BRAD E. POPOFF, age 43, has served as Senior Vice President, Customer
Service Operations since September 1996. Mr. Popoff served the Company as Senior
Vice President, Marketing from November 1993 to September 1996, as Vice
President, Operations and Engineering from December 1992 until November 1993, as
Vice President, Operations, from September 1992 until December 1992, and as
Director of Marketing from April 1992 until September 1992. From 1986 until
April 1992, Mr. Popoff was employed as Vice President of Sales and Marketing of
Burlington, a trucking company, where he was responsible for the 22 western
states in the United States and Mexico. Mr. Popoff
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<PAGE> 77
held various operations, sales and sales management positions with Schneider
National, Inc. ("Schneider"), a trucking company, from 1980 until 1986, and
served as Manager of Operations of Mead Paper Corporation's private fleet, where
he was employed from 1974 until 1980.
THOMAS D. RUSSELL, age 38, has served as Senior Vice President,
Strategic Business Development since September 1996. Mr. Russell served the
Company as Senior Vice President, Engineering and Information Technology from
November 1993 to September 1996. Mr. Russell has over 12 years of experience in
engineering and information technology. From June 1990 to November 1993, Mr.
Russell served as Director in the areas of Asia Logistics and Systems Planning
and Development for Sea Land Service, Inc., a global steamship and container
service company. From September 1985 through June 1990, Mr. Russell served in
various capacities, including Director, Marketing and Telecommunications,
Manager of Management Services and as Quantitative Business Analyst for
Burlington. Prior to his employment at Burlington, Mr. Russell also served as
Management Analyst at the University of Missouri and Application Engineer at
National Supply Company.
WESLEY E. SCHLENKER, age 35, has served as General Counsel of the
Company since June 1994 and as Secretary of the Company since April 1995. Mr.
Schlenker was an associate attorney in the Dallas, Texas and Brussels, Belgium
offices of Akin, Gump, Strauss, Hauer & Feld, L.L.P. between March 1991 and June
1994. Prior to his formal legal training, Mr. Schlenker was employed by
Electronic Data Systems Corporation as a Systems Engineer, primarily developing
systems for Saturn Corporation.
STEPHEN P. TACKE, age 50, has served as Vice President and Controller
of the Company since August 1995. From August 1996 to August 1997, Mr. Tacke
also served as acting Chief Financial Officer of the Company. From July 1991
through August 1995, Mr. Tacke performed financial consulting services and
managed his personal investments. Prior to July 1991, Mr. Tacke was employed by
Price Waterhouse for 22 years, last serving as an audit partner.
KENNETH R. WESTERLAGE, age 36, has served as Senior Vice President,
Engineering & Technology Development of the Company since September 1996. Mr.
Westerlage served the Company as Vice President of Software Development from
November 1995 to September 1996 and as Director of Software Development from
September 1991 to November 1995. Prior to Mr. Westerlage's employment at the
Company, he was employed for over eight years in the aerospace industry at
General Dynamics working in a variety of systems design and development
capacities.
JEFFREY G. WISOCKI, age 41, has served as Senior Vice President,
Customer Development since September 1996. Mr. Wisocki served the Company as
Senior Vice President, Operations/Customer Service from November 1993 to
September 1996. Mr. Wisocki has 15 years experience in various positions in the
trucking industry. Mr. Wisocki was employed by Burlington or its affiliates from
April 1987 to November 1993, serving in several capacities, including Vice
President of Customer Service and Senior Vice President, Operations of
Burlington. Mr. Wisocki held various management positions with Schneider from
1982 to 1987.
Except as described above, there are no family relationships among the
directors and executive officers of the Company.
ORGANIZATION OF THE BOARD OF DIRECTORS AND MEETINGS
General. The entire Board of Directors is currently comprised of five
directors, four of whom are employees of the Company or representatives of
certain of the principal beneficial owners of Common Stock of the Company. See
"Security Ownership" and "Certain Relationships and Related Party Transactions
- -- Amended Stockholders' Agreement -- Election of Directors." All directors
serve until the next annual meeting of the stockholders or until their
respective successors are duly elected and qualified.
During the fiscal year ended December 31, 1996, the Board of Directors
held eight meetings. The standing committees of the Board consist of a
Compensation Committee, an Audit Committee and an Executive Committee.
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<PAGE> 78
The Compensation Committee has been delegated the task of the
administration of, and the determination of strategy and policy matters related
to, the Amended and Restated 1994 Stock Option Plan (the "Stock Option Plan")
and is composed of William C. Saunders, Gerry C. Quinn, Terry S. Parker and
Stephen L. Greaves. The Compensation Committee met one time during the 1996
fiscal year. A subcommittee of the Compensation Committee, composed of Stephen
Greaves and Gerry Quinn, was formed to make awards under the Stock Option Plan
and to review the future compensation of Terry S. Parker, William C. Kennedy,
Jr. and William C. Saunders. Neither of the subcommittee members is an officer
or employee of the Company or holds options granted under the Company's Stock
Option Plan.
The Audit Committee meets with management and the Company's independent
accountants to determine the adequacy of internal controls and other financial
reporting matters. The Audit Committee, composed of William C. Kennedy, Jr.,
Terry S. Parker and Gerry C. Quinn, met two times during the 1996 fiscal year.
The Executive Committee provides certain oversight and review functions
not practical in a larger, more formal Board setting. The Executive Committee,
composed of Gerry C. Quinn and Terry S. Parker, held no meetings during the 1996
fiscal year.
During the fiscal year ended December 31, 1996, each Board member
attended at least 75% of the aggregate of the meetings of the Board and of the
committees on which he served.
Indemnification. The Company's Certificate of Incorporation and Bylaws
require the Company to indemnify each person who is or was a director, officer,
employee or agent of the Company, or is or was serving at the Company's request
as a director, officer, employee or agent of another corporation, partnership,
joint venture, trust or other enterprise against expenses, judgments, fines and
amounts incurred in such capacity if such person acted in good faith and in a
manner he or she reasonably believed to be in or not opposed to the best
interests of the Company or, with respect to criminal proceedings, not unlawful.
The Company will also advance to such persons payments incurred in defending a
proceeding to which indemnification might apply provided the recipient provides
an undertaking agreeing to repay all such advanced amounts if it is ultimately
determined that such person is not entitled to be indemnified. In addition, the
Bylaws specifically provide that the indemnification rights granted thereunder
are nonexclusive. In accordance with the Bylaws and the Amended Stockholders'
Agreement (as defined below), the Company has purchased insurance on behalf of
its directors and officers in amounts it believes to be reasonable.
COMPENSATION OF DIRECTORS
Pursuant to the Bylaws of the Company, the Board of Directors has the
authority to fix the compensation of directors. The Bylaws and the Amended
Stockholders' Agreement provide that directors may be reimbursed for their
reasonable expenses, if any, for their services to the Company, including
attendance at each Board meeting, and may be paid either a fixed sum for
attendance at each Board meeting or a stated salary as director. The Company
currently reimburses its Board members for travel expenses. Additionally, during
part of 1996, the Company compensated Terry Parker in an amount of $1,000 for
each meeting attended. However, the Company currently does not pay a fee for
attendance at meetings of the Board of Directors. In addition, the Company has
granted him an option to purchase 3,798 shares of Common Stock at an exercise
price of $7.58 per share. This option was not granted pursuant to the Company's
Stock Option Plan.
In addition to his services as a director, Mr. Parker performs
consulting services for the Company in connection with the AutoLink venture and
related cellular communications matters. Pursuant to this consulting
arrangement, Mr. Parker received $41,666.65 in fees during 1996. Mr. Parker will
receive approximately $20,833 per month in fees during 1997 for continuing
consulting services he is providing to the Company.
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<PAGE> 79
COMPENSATION OF CERTAIN EXECUTIVE OFFICERS
General. The following table sets forth, for each of the last three
fiscal years, compensation awarded, paid to or earned by the Company's Chief
Executive Officer and its other four most highly compensated executive officers
(the "Named Executive Officers").
SUMMARY COMPENSATION TABLE
<TABLE>
<CAPTION>
LONG TERM
COMPENSATION
ANNUAL COMPENSATION(2) AWARDS
-------------------------- ------------
SECURITIES
UNDERLYING
NAME AND OPTIONS/ ALL OTHER
PRINCIPAL POSITION(1) YEAR SALARY BONUS SARS (SHARES) COMPENSATION
- --------------------------- ----- ------------ ------------ ------------- ------------
<S> <C> <C> <C> <C> <C>
William C. Kennedy, Jr.(3) . . . . . . 1996 $399,300.00 $ 0 0 $ 0
Chairman of the Board 1995 $363,000.00 $ 0 0 $ 0
1994 $341,250.00 $ 0 593,478 $ 0
William C. Saunders(3) . . . . . . . . 1996 $399,300.00 $ 0 0 $ 0
President and Chief Executive 1995 $363,000.00 $ 0 0 $ 0
Officer 1994 $341,250.00 $ 0 593,478 $ 0
Gordon D. Quick(3) . . . . . . . . . . 1996 $301,354.25 $ 0 40,000 $ 0
Executive Vice President and 1995 $263,541.82 $6,400.00 0 $148,378.00(4)
Chief Operating Officer 1994 -- -- 141,305 --
Jeffrey G. Wisocki . . . . . . . . . . 1996 $119,166.78 $ 0 10,000 $ 0
Senior Vice President, 1995 $107,500.08 $ 0 0 $ 0
Customer Development 1994 $104,166.75 $ 0 56,974 $ 0
Brad E. Popoff . . . . . . . . . . . . 1996 $118,333.44 $ 0 10,000 $ 0
Senior Vice President, 1995 $105,000.00 $ 0 0 $ 0
Customer Service Operations 1994 $109,375.00 $ 0 56,974 $ 0
</TABLE>
___________
(1) Certain Named Executive Officers included in this table are employees
of the Company's operating subsidiary, HMC.
(2) The Named Executive Officers did not receive any annual compensation
not properly categorized as salary or bonus, except for certain
perquisites and other personal benefits which are not shown because
the aggregate amount of such compensation, if any, for each of the
Named Executive Officers during the fiscal year did not exceed the
lesser of $50,000 or 10% of his total reported salary and bonus.
(3) For information regarding the annual base salaries and bonuses
received by certain Named Executive Officers pursuant to employment
contracts with the Company, see "-- Employment Contracts with
Executive Officers."
(4) Represents relocation expenses, including $43,684 paid to Mr. Quick
related to taxes on moving expenses paid on his behalf by the Company.
Stock Options. The Company grants options to certain of its executive
officers under the Stock Option Plan. As of December 31, 1996, options to
purchase a total of 2,043,298 shares had been granted and were outstanding
under the Stock Option Plan and options to purchase 296,217 shares remained
available for grant thereunder.
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<PAGE> 80
The following table sets forth the number of options granted to the
Named Executive Officers during the year ended December 31, 1996 and certain
other information relating to such options.
OPTION GRANTS IN LAST FISCAL YEAR
<TABLE>
<CAPTION>
POTENTIAL REALIZABLE
VALUE AT ASSUMED
ANNUAL RATES OF
STOCK PRICE
APPRECIATION
INDIVIDUAL GRANTS FOR OPTION TERM
----------------------------------------------------------- ----------------------
PERCENT OF
TOTAL OPTIONS
NUMBER OF SECURITIES GRANTED TO
UNDERLYING EMPLOYEES EXERCISE OR
OPTIONS IN FISCAL BASE PRICE EXPIRATION
NAME GRANTED(1) YEAR (PER SHARE) DATE 5% 10%
- ------------------ ------------------- --------------- ----------- ---------- ---------- ----------
<S> <C> <C> <C> <C> <C> <C>
William C. Kennedy, Jr. . 0 -- -- -- -- --
William C. Saunders. . . . 0 -- -- -- -- --
Gordon D. Quick. . . . . . 40,000 15.04% $7.75 04/22/02 105,429 $239,184
Jeffrey G. Wisocki . . . . 10,000 3.76% $7.75 04/22/02 $26,357 $ 59,796
Brad E. Popoff . . . . . . 10,000 3.76% $7.75 04/22/02 $26,357 $ 59,796
</TABLE>
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<PAGE> 81
(1) 20% of the options vested on the date of the grant. The remaining
options vest in 20% increments on each of the first, second, third and
fourth anniversaries of the date of the grant. In the event the
optionee's position as an employee of the Company or a subsidiary
terminates for any reason, the optionee (or upon the optionee's death,
an executor, administrator or any person who acquired the option by
bequest or inheritance) may exercise the option during the 60-day
period following such termination to the extent that the option was
exercisable on the date of termination and all options that were not
exercisable on the date of termination will be forfeited.
The following table sets forth the number of options exercised by the
Named Executive Officers during the year ended December 31, 1996 and the number
of options and the value of unexercised and exercised options held by them as
of December 31, 1996.
AGGREGATED OPTION EXERCISES AND YEAR END OPTION VALUES
<TABLE>
<CAPTION>
NUMBER OF
SECURITIES UNDERLYING VALUE OF UNEXERCISED
OPTION EXERCISES UNEXERCISED OPTIONS IN-THE-MONEY OPTIONS
DURING 1996 AT DECEMBER 31, 1996 AT DECEMBER 31, 1996(1)
---------------------------- --------------------------- ---------------------------
NUMBER OF
SHARES
ACQUIRED VALUE
NAME ON EXERCISE REALIZED EXERCISABLE UNEXERCISABLE EXERCISABLE UNEXERCISABLE
- -------------------- ------------ ------------- ------------ ------------- ------------ --------------
<S> <C> <C> <C> <C> <C> <C>
William C. Kennedy, Jr -- -- 593,478 0 $6,258,224.80 $ 0
William C. Saunders . -- -- 593,478 0 $6,258,224.80 $ 0
Gordon D. Quick . . . -- -- 92,783 88,522 $ 977,036.70 $928,024.50
Jeffrey G. Wisocki . 10,000 $122,950.00 26,184 30,790 $ 275,770.28 $323,320.55
Brad E. Popoff . . . 35,000 $473,936.28 1,184 30,790 $ 12,284.00 $323,320.55
- ---------------------
</TABLE>
(1) Represents the closing price per share of the Common Stock on the last
day of the fiscal year less the option exercise price multiplied by
the number of shares. The closing value per share was $18 1/8 on the
last trading day of the fiscal year as reported on the Nasdaq National
Market.
Savings Plan. The Company has established a 401(k) Retirement
Investment Profit-Sharing Plan (the "Savings Plan") covering all of its
employees when they become eligible to participate. Pursuant to the Savings
Plan, employees
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<PAGE> 82
may elect to contribute up to 20% of their pre-tax earnings. The maximum amount
of contributions and forfeitures which may be added to the account of a
particular employee each year is $9,500. The Company is not required to make
any contributions to the Savings Plan and, did not make any such contributions
during the year ended December 31, 1996.
EMPLOYMENT CONTRACTS WITH EXECUTIVE OFFICERS
Each of William C. Kennedy, Jr. and William C. Saunders has entered
into an employment contract with HMC (the Company's operating subsidiary)
effective February 4, 1994 and continuing through the fifth anniversary of the
consummation of the Initial Public Offering, unless terminated earlier in the
event of death, permanent disability, for "cause" or, under certain conditions,
voluntarily. The terms of Messrs. Kennedy's and Saunders' contracts provide for
an annual base salary of $330,000 for each officer, with annual increases each
year during the term of such contracts, commencing with the first month of the
second year of such term, in an amount equal to 10% of the salary paid to each
officer during the immediately preceding employment year. Each officer shall
also receive annual bonuses during the term of his contract of .75 of one
percent of an amount which is equal to the first $1,000,000 of the pre-tax
consolidated taxable income of HMC, if any, for the preceding taxable year
ended December 31 (the "Income Base") and one percent of pre-tax consolidated
taxable income above such Income Base. In addition, Messrs. Kennedy and
Saunders may receive additional discretionary bonuses during the terms of their
contracts, at the sole discretion of the board of directors of HMC. If HMC
terminates either of Messrs. Kennedy or Saunders with notice other than for
"cause," such terminated officer will be entitled to a severance payment that
is equal to the lesser of (i) the remaining amount of salary payable under the
contract or (ii) the salary the officer would have received for one year. The
employment contracts also provide that each of Messrs. Kennedy and Saunders is
subject to a covenant not to compete during the period that compensation is
paid under his employment agreement and for 24 months thereafter.
Gordon D. Quick entered into an employment contract with HMC effective
November 23, 1994 and continuing through the fifth anniversary of the
consummation of the Initial Public Offering, unless terminated earlier in the
event of death, permanent disability, for "cause" or, under certain conditions,
voluntarily. Pursuant to the employment contract, Mr. Quick receives an annual
base salary of $275,000, with annual increases, annual bonuses and
discretionary bonuses set on substantially similar terms as those of Messrs.
Kennedy and Saunders. The employment contract also provides for a signing bonus
in the amount of $6,400 and payment of reasonable expenses in connection with
Mr. Quick's relocation at the time he joined the Company. In the event of a
termination by the Company with notice or by Mr. Quick due to the Company's
breach, Mr. Quick will be entitled to the remaining amount of salary and the
minimum bonus that would be payable under the employment contract absent the
termination. In the event of a termination by Mr. Quick of the contract with 90
days notice (other than as set forth in the preceding sentence), Mr. Quick will
be entitled to the salary payable for the remaining term of the contract or the
90-day notice period, whichever is less. Other than in the case of a
termination by Mr. Quick due to a breach by the Company, or a termination by
the Company with notice, the contract provides that Mr. Quick is subject to a
covenant not to compete for a period of 12 months after the termination of his
employment.
COMPENSATION COMMITTEE INTERLOCKS AND INSIDER PARTICIPATION
William C. Saunders, the President and Chief Executive Officer and
member of the Board of Directors, and Gordon D. Quick, the Executive Vice
President and Chief Operating Officer, annually review and adjust the salary
structures of executive officers who are not subject to employment agreements
and such decisions are subject to review by the Board of Directors. William C.
Kennedy, Jr., the Chairman of the Board of Directors and former Chief Executive
Officer of the Company, participated in such Board deliberations concerning
executive compensation.
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<PAGE> 83
SECURITY OWNERSHIP
The following table sets forth certain information, as of December 31,
1996, regarding beneficial ownership of the Common Stock and the percentage of
total voting power held by (i) each stockholder who is known by the Company to
own more than five percent of the outstanding Common Stock, (ii) each director,
(iii) each Named Executive Officer and (iv) all directors and executive
officers as a group. Unless otherwise noted, the persons named below have sole
voting and investment power with respect to such shares.
<TABLE>
<CAPTION>
NUMBER OF SHARES
OF COMMON STOCK PERCENT OF CLASS
NAME OF HOLDER BENEFICIALLY OWNED BENEFICIALLY OWNED
- ------------------------------------------ ------------------ ------------------
<S> <C> <C>
Erin Mills Stockholders(1) . . . . . . . . . . . . . . . . . . 9,833,206 39.6%
7501 Keele Street
Suite 500
Concord, Ontario L4K1YZ, Canada
Southwestern Bell Wireless Holdings, Inc.(2) . . . . . . . . .
17330 Preston Road
Suite 100A
Dallas, Texas 75252
Carlyle Stockholders(3) . . . . . . . . . . . . . . . . . . . .
1001 Pennsylvania Avenue, N.W.
Suite 220 South
Washington, D.C. 20004-2505
The Clipper Stockholders(4) . . . . . . . . . . . . . . . . . .
Tower 49
12 East 49th Street
New York, New York 10017
William C. Kennedy, Jr.(5) . . . . . . . . . . . . . . . . . .
William C. Saunders(6) . . . . . . . . . . . . . . . . . . . . 1,485,493 5.8%
Gerry C. Quinn(7) . . . . . . . . . . . . . . . . . . . . . . . -- --
Stephen Greaves(7) . . . . . . . . . . . . . . . . . . . . . . -- --
Terry S. Parker(8) . . . . . . . . . . . . . . . . . . . . . . 3,798 *
Gordon D. Quick(9) . . . . . . . . . . . . . . . . . . . . . . 92,783 *
Jeffrey G. Wisocki(10) . . . . . . . . . . . . . . . . . . . . 29,184 *
Brad E. Popoff(11) . . . . . . . . . . . . . . . . . . . . . . 1,184 *
All directors and executive officers as a group (15
persons)(12) . . . . . . . . . . . . . . . . . . . . . . . . 4,368,147 16.6%
</TABLE>
________________________________________________________________________________
* Less than 1%
(1) Represents (i) 9,061,310 shares of Common Stock owned of record by
Erin Mills International Investment Corporation, (ii) 527,680 shares
owned of record by The Erin Mills Development Corporation, and (iii)
244,216 shares owned of record by The Erin Mills Investment
Corporation. This beneficial ownership information is based on the
most recent Schedule 13D filed with the Commission by the beneficial
owners named above, which reflected ownership of Common Stock as of
December 31, 1996.
(2) Represents (i) 1,600,000 shares of Common Stock issuable to SBC upon
the conversion of shares of Series D Preferred Stock and (ii)
5,000,000 shares of Common Stock issuable to SBC upon the exercise of
the Warrants. SBC Communications Inc., the parent of SBC, may be
deemed to share voting and dispositive power with respect to the
foregoing shares of Common Stock with SBC. Information regarding
beneficial ownership of shares of Common Stock by SBC Communications
Inc. and SBC is based on the most recent Schedule 13D filed with the
Commission by the beneficial owners named above, which reflected
ownership of Common Stock as of December 31, 1996.
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(3) Represents (i) 2,222,799 shares owned of record by
Carlyle-HighwayMaster Investors, L.P., (ii) 209,354 shares owned of
record by Carlyle-HighwayMaster Investors II, L.P. and (iii) 291,315
shares of record owned by TC Group, L.L.C. Carlyle-HighwayMaster
Investors, L.P., TC Group, L.L.C. and TCG Holdings, L.L.C., the
managing member of TC Group, L.L.C., are deemed to share beneficial
ownership of the shares owned of record by Carlyle- HighwayMaster
Investors, L.P. Carlyle-HighwayMaster Investors II, L.P., TC Group,
L.L.C. and TCG Holdings, L.L.C. are deemed to share beneficial
ownership of the shares owned of record by Carlyle-HighwayMaster
Investors II, L.P. TC Group, Inc., L.L.C., TCG Holdings, L.L.C., and
TC Group Investment Holdings, L.L.C., an affiliate of TC Group, L.L.C.
and TCG Holdings, L.L.C., are deemed to share beneficial ownership of
the shares owned of record by TC Group, L.L.C. TC Group, L.L.C. is a
party to an agreement with Chase Manhattan Investment Holdings, Inc.
("Chase") and Archery Partners ("Archery"), pursuant to which Chase
and Archery have agreed to vote their shares of Common Stock as
directed by TC Group, L.L.C. As a result off such agreement, TC Group,
L.L.C. may be deemed to share beneficial ownership of such shares. TC
Group, L.L.C. disclaims beneficial ownership of such shares. This
beneficial ownership information is based on the most recent Schedule
13D filed with the Commission by the beneficial owners named above,
which reflected ownership of Common Stock as of December 31, 1996.
(4) Represents (i) 666,322 shares beneficially owned by Clipper/Merban,
L.P., (ii) 657,889 shares beneficially owned by Clipper/ Merchant
Partners, L.P. and (iii) 11,805 shares are beneficially owned by
Clipper Capital Associates, L.P. Clipper Capital Associates, L.P. is
the sole general partner of Clipper/Merchant Partners, L.P. Pursuant
to certain limited partnership agreements between Clipper Capital
Associates, L.P., Clipper Curacao Inc. and Clipper/Merban, L.P.,
Clipper Capital Associates, L.P. is the investment general partner of
Clipper/Merban, L.P., with sole investment authority and power to vote
or direct the vote. Clipper Capital Associates, Inc. is the sole
general partner of Clipper Capital Associates, L.P. This beneficial
ownership information is based on the most recent Schedule 13G filed
with the Commission by the beneficial owners named above, which
reflected ownership of Common Stock as of December 31, 1996.
(5) Includes 593,478 shares of Common Stock that may be acquired by Mr.
Kennedy upon exercise of currently exercisable options granted under
the Stock Option Plan.
(6) Includes 593,478 of such shares that may be acquired by Mr. Saunders
upon exercise of currently exercisable options granted under the Stock
Option Plan.
(7) Messrs. Quinn and Greaves of the Erin Mills Stockholders. Pursuant to
an agreement entered into with the Erin Mills Stockholders, Mr. Quinn
has a right to acquire up to 3% of the interest in the Company held by
such stockholders.
(8) Represents vested Common Stock Options totaling 3,798 shares.
(9) Includes 92,783 of such shares that may be acquired by Mr. Quick upon
exercise of currently exercisable options granted under the Stock
Option Plan.
(10) Includes 26,184 of such shares that may be acquired by Mr. Wisocki
upon exercise of currently exercisable options granted under the Stock
Option Plan.
(11) Includes 1,184 of such shares that may be acquired by Mr. Popoff upon
exercise of currently exercisable options granted under the Stock
Option Plan.
(12) Includes 1,435,457 shares subject to options granted under the Stock
Option Plan or otherwise that are exercisable within 60 days of
December 31, 1996 by a total of 15 directors and executive officers.
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The Company is a party to the Amended Stockholders' Agreement by and
among the Carlyle Stockholders, the Clipper Stockholders, the Erin Mills
Stockholders, William C. Kennedy, Jr., William C. Saunders, Robert T. Hayes and
Robert S. Folsom. The parties to the Amended Stockholders' Agreement have
agreed to vote the shares of Common Stock held by them with respect to certain
matters as specified therein, and accordingly, may be deemed to beneficially
own all the shares of Common Stock subject to the terms of the Amended
Stockholders' Agreement. In total, 19,625,129 shares of Common Stock,
representing 78.98% of the outstanding shares of Common Stock at December 31,
1996, are subject to the Amended Stockholders' Agreement. All of the parties to
the Amended Stockholders' Agreement who have filed Schedule 13Ds or Schedule
13Gs with the Commission have disclaimed beneficial ownership to any shares of
Common Stock held by any other party to the Amended Stockholders' Agreement as
a result of such agreement.
CERTAIN RELATIONSHIPS AND RELATED PARTY TRANSACTIONS
CARLYLE NOTES
General. Prior to January 1, 1996, the Company issued certain
promissory notes (the "Carlyle Notes") to the Carlyle Stockholders. The Carlyle
Notes bore interest at 8% per annum and were originally scheduled to mature on
December 31, 1996. Interest on the Carlyle Notes was payable quarterly in
arrears. On each interest payment date, 75% of any interest payment was
required to be paid in cash, with the remaining balance to be paid, at the
option of the Company, either in cash or by adding to the principal balance of
the Carlyle Notes. As of January 1, 1996, there were outstanding Carlyle Notes
in the aggregate principal amount of approximately $12.7 million.
Note Extension. On March 29, 1996, the Company and the holders of the
Carlyle Notes entered into a Note Extension Option Agreement (the "Extension
Option"). Under the Extension Option, the Company obtained the unilateral right
to elect to extend the maturity date of the Carlyle Notes to June 30, 1997. As
consideration for the granting of the Extension Option, HMC, the Company's
operating subsidiary, guaranteed the repayment of the Carlyle Notes. In the
event the Company chose to exercise its right to extend the maturity date, the
Extension Option required that the Company grant to the holders of the Carlyle
Notes certain warrants to purchase 100,000 shares of Common Stock at the lower
of the closing market price per share on March 27, 1996 or December 31, 1996.
In addition, if the Company exercised the Extension Option, the interest rate
on the Carlyle Notes would increase by 2% effective January 1, 1997 and would
again increase by 2% effective April 1, 1997 and repayment of the Carlyle Notes
would be guaranteed by a pledge of the stock of HMC.
Note Exchange. On September 27, 1996, all outstanding Carlyle Notes
were surrendered to the Company for cancellation in exchange for shares of
Common Stock. See "-- Recapitalization Transactions" below.
SBC TRANSACTIONS
Sale of Series D Preferred Stock. On September 27, 1996, the Company
and SBC entered into a purchase agreement (the "SBC Purchase Agreement"),
pursuant to which the Company sold 1,000 shares of a new series of its
preferred stock, par value $.01 per share, designated as Series D Participating
Convertible Preferred Stock ("Series D Preferred Stock") to SBC in
consideration of a cash payment in the amount of $20.0 million.
Authorization of Class B Common Stock. As required under the terms of
the SBC Purchase Agreement, the Company amended its Certificate of
Incorporation in January 1997 to authorize the creation of Class B Common
Stock, which is a new class of common stock into which shares of Series D
Preferred Stock are convertible.
Issuance of SBC Warrants. On September 27, 1996, the Company issued
certain warrants (the "SBC Warrants") to SBC. The SBC Warrants entitle SBC to
purchase from the Company (i) 3,000,000 shares of Common Stock at an exercise
price of $14.00 per share and (ii) 2,000,000 shares of Common Stock at an
exercise price of $18.00 per share, in each case subject to adjustment to
prevent dilution.
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<PAGE> 86
Other Agreements. On September 27, 1996, HMC entered into a Technical
Services Agreement with SBC pursuant to which SBC or one or more of its
affiliates will provide HMC with certain technical and advisory services in
connection with, among other things, the operation and improvement of its
communications transmission system.
In addition, under the terms of the SBC Purchase Agreement, promptly
after Regulatory Relief is obtained, the Company will cause HMC to enter into a
Voice and Data Services Agreement (the "Voice and Data Services Agreement")
with an affiliate of SBC. The Voice and Data Services Agreement, if entered
into by the parties, will provide that HMC will purchase long distance and
other voice and data services from such affiliate of SBC.
AMENDED STOCKHOLDERS' AGREEMENT
General. As of February 4, 1994, the Company, the Erin Mills
Stockholders, the Carlyle Stockholders, the By- Word Stockholders, and certain
other parties entered into a Stockholders' Agreement. In connection with the
transactions with SBC consummated on September 27, 1996, such agreement was
amended and restated in order, among other things to add SBC as a party
thereto. The Amended Stockholders' Agreement contains provisions relating to,
among other things, (i) the transfer of shares of Common Stock by certain of
the stockholders who are parties thereto, (ii) the grant of registration rights
by the Company to the stockholders who are parties thereto and (iii) the
election of members of the Company's Board of Directors. As used herein, (a)
the term "Erin Mills Stockholders" means Erin Mills International Investment
Corporation, The Erin Mills Development Corporation and The Erin Mills
Investment Corporation, (b) the term "Carlyle Stockholders" means the Clipper
Stockholders (as defined below), Carlyle-HighwayMaster Investors, L.P.,
Carlyle-HighwayMaster Investors II, L.P., TC Group, L.L.C., Mark D. Ein, Chase
Manhattan Investment Holdings, Inc., H.M. Rana Investments Limited and Archery
Partners, (c) the term "Clipper Stockholders" means Clipper Capital Associates,
L.P., Clipper/Merban, L.P. and Clipper/Merchant Partners, L.P. and (d) the term
"By-Word Stockholders" means William C. Kennedy, Jr., Donald M. Kennedy,
William C. Saunders, Robert S. Folsom and Robert T. Hayes.
Election of Directors. The Amended Stockholders' Agreement provides
that the parties will take all action (including the voting of shares of Common
Stock owned by them) necessary to ensure that the Board of Directors of the
Company consists of (i) two directors designated by the Erin Mills
Stockholders, (ii) one director designated by the Carlyle Stockholders (other
than the Clipper Stockholders), (iii) two directors designated by the By-Word
Stockholders (one of which will be the chief executive officer of the Company)
and (iv) two independent directors (except that the addition of a second
independent director to the Board of Directors is not required to occur until
the date of the next annual meeting of the stockholders of the Company after
September 27, 1996). The Carlyle Stockholders have declined to exercise their
right to designate a director. Terry S. Parker serves as an independent
director. The Company has not yet identified a second independent director but
intends to do so as promptly as practicable. The Erin Mills Stockholders have
designated Gerry C. Quinn and Stephen Greaves and the By-Word Stockholders have
designated William C. Kennedy, Jr. and William C. Saunders to serve as
directors. Prior to the receipt of Regulatory Relief, SBC will not be entitled
to designate a director, but will have the right to designate a non-voting
delegate who will attend all meetings of the Board of Directors and receive all
materials distributed to directors of the Company. Upon the conversion of
Series D Preferred Stock into Class B Common Stock (which will occur upon
receipt of Regulatory Relief), SBC will be entitled to designate one member of
the Board of Directors of the Company. In addition, if at any time after the
conversion of Series D Preferred Stock into Class B Common Stock SBC and its
affiliates beneficially own 20% or more of the outstanding Common Stock
(including shares issuable upon conversion of Series D Preferred Stock or Class
B Common Stock or other convertible securities or upon the exercise of
outstanding options, warrants or rights, but excluding shares issuable upon the
exercise of the SBC Warrants or any Excluded Options) on a fully diluted basis,
SBC will be entitled to designate a second member of the Board of Directors. No
stockholder or group of stockholders will be entitled to designate any director
if the percentage of the outstanding Common Stock (including shares issuable
upon conversion of outstanding securities or upon the exercise of outstanding
options, warrants or rights, but excluding shares issuable upon the exercise of
the SBC Warrants or any Excluded Options) beneficially owned by such
stockholder or group of stockholders falls below 5% (or with respect to the
Erin Mills Stockholders and By-Word Stockholders, 20% for the right to
designate two directors and 5% for the right to designate one director) on a
fully diluted basis.
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Right of First Refusal. Under the terms of the Amended Stockholders'
Agreement, the Carlyle Stockholders (other than the Clipper Stockholders), the
Erin Mills Stockholders, William C. Kennedy, Jr. and William C. Saunders (the
"First Refusal Stockholders") granted a right of first refusal to SBC with
respect to all shares of Common Stock owned by them. Subject to certain
exceptions, such right of first refusal requires that, prior to selling any
shares of Common Stock, a First Refusal Stockholder must offer such shares for
sale to SBC in accordance with the terms of the Amended Stockholders'
Agreement.
Registration Rights. The Amended Stockholders' Agreement also provides
for the grant of certain demand, piggyback or other registration rights to the
stockholders who are parties thereto. In particular, such agreement provides
that, with respect to an aggregate of 1,818,018 shares of Common Stock issued
to the Erin Mills Stockholders and certain of the Carlyle Stockholders in
connection with the Recapitalization Transactions, the Company will register
one-half of such shares under the Securities Act, for sale on or after March
31, 1997 and will register the remainder of such shares under the Securities
Act for sale on or after September 27, 1997. The Erin Mills Stockholders and
the Carlyle Stockholders waived the right to cause the Company to register
one-half of such shares for sale on or after March 31, 1997, although they have
reserved the right to revoke such waiver at any time. The Company expects to
register all of such shares for sale in the near future.
In addition, under the Amended Stockholders' Agreement, a majority of
certain stockholders have the right to demand that the shares of Common Stock
held by them be registered under the Securities Act on up to two separate
occasions. However, if the Board of Directors of the Company reasonably
determines that, due to a pending or contemplated acquisition or disposition,
such a demand registration would have a material adverse effect on the Company,
the Company may defer such registration for a period not to exceed 180 days.
Furthermore, if the managing underwriter or underwriters or the holders of a
majority of the registerable securities held by the stockholders demanding the
registration determine that the number of shares of Common Stock proposed to be
sold pursuant to the demand registration provisions exceeds the amount that can
be sold without having a material adverse effect on the proposed offering, the
Company may exclude certain shares from the offering.
The Amended Stockholders' Agreement also grants piggyback registration
rights to certain stockholders. Accordingly, whenever the Company proposes to
register any shares of Common Stock (or securities convertible into or
exchangeable for, or options, warrants or other rights to acquire, Common
Stock) under the Securities Act (other than registrations on Form S-4 or Form
S-8), the holder of shares of Common Stock have the right to include the shares
of Common Stock held by them in any such registration, including the shelf
registration statement to be filed pursuant to the Warrant Registration Rights
Agreement. However, if the inclusion of shares of Common Stock pursuant to the
piggyback registration provisions is reasonably determined by the managing
underwriter or underwriters to materially adversely affect the success of the
proposed offering, the Company may exclude certain shares from the offering.
RECAPITALIZATION TRANSACTIONS
On September 27, 1996, the Company, the Erin Mills Stockholders,
certain of the Carlyle Stockholders and certain other holders of outstanding
securities of the Company entered into the Recapitalization Agreement and
consummated the transactions contemplated thereby. In particular, upon the
terms and conditions set forth in the Recapitalization Agreement, (i) the
Company repaid in full the principal amount of and interest accrued on certain
promissory notes in the aggregate principal amount of $5.0 million executed in
favor of an Erin Mills Stockholder in order to evidence the Company's
obligation to repay certain advances made by such Erin Mills Stockholder in
August and September 1996 to enable the Company to meet its short-term working
capital and other requirements, (ii) the Company issued an aggregate of 800,000
shares of Common Stock to two Erin Mills Stockholders in exchange for aggregate
cash payments in the amount of $10.0 million, (iii) the Company issued an
aggregate of 864,000 shares of Common Stock to three Erin Mills Stockholders
and two other persons in exchange for the surrender to the Company for
cancellation of all outstanding shares of Series B Preferred Stock, par value
$.01 per share, of the Company, (iv) the Company paid to certain of the Carlyle
Stockholders a portion of the accrued and unpaid interest on the Carlyle Notes
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<PAGE> 88
and (v) the Company issued an aggregate of 1,018,018 shares of Common Stock in
exchange for the surrender of the Carlyle Notes for cancellation.
OTHER AGREEMENTS
The Company has entered into a lease involving 55,687 square feet of
office space in Dallas, Texas, at an average price of $14.70 per square foot
per year, which the Company uses for its headquarters. The lessor of such
property is Folsom Investments, Inc., a Texas corporation which is wholly-owned
by Robert S. Folsom, a stockholder of the Company.
The Company has assumed the rights and obligations of a certain Agency
Agreement, dated as of February 1, 1993 (the "Agency Agreement"), by and
between a predecessor partnership to the Company and Saunders, Lubinski &
White, Inc., now known as Saunders Ream (the "Agency"). The Agency Agreement
provides that in consideration for its advertising services, the Agency will
receive a 5% profit on all services provided to the Company, subject to future
negotiation, in addition to media, production and other reasonable expenses.
The Agency Agreement may be terminated, with or without cause, at any time by
either party, with 90 days notice. William C. Saunders, President and Chief
Executive Officer and a director of the Company, was a principal stockholder
and officer of the Agency until January 1997. Mr. Saunders will continue to
receive deferred payments based upon a portion of the gross income of the
Agency with respect to new clients over the next five years. During 1993, 1994,
1995 and 1996, the Company paid $0.8 million, $1.2 million, $1.4 million and
$0.4 million, respectively, under the Agency Agreement.
In 1997, an affiliate of SBC provided a limited guarantee of certain
contractual obligations of the Company in order to ensure that the Company
would receive payment of certain funds owing to it as of an earlier date than
such funds would otherwise become available. This guarantee terminated upon the
consummation of the Units Offering, and it is not expected that SBC will
provide similar guarantees in the future.
In early August 1997, the Company entered into an agreement with the
Erin Mills Stockholders pursuant to which the Erin Mills Stockholders agreed to
fund the Company's short-term working capital requirements up to a maximum of
$5.0 million. This agreement terminated upon the consummation of the Units
Offering.
FUTURE TRANSACTIONS
From time to time, the Company may enter into other transactions and
agreements with its affiliates. Although the Company intends that the terms of
any such future transactions and agreements will be at least as favorable to
the Company as could be obtained from unaffiliated third parties, there can be
no assurance that this will be the case. Any such future transactions that are
material to the Company will be approved by a majority of the Company's
independent directors.
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THE EXCHANGE OFFER
PURPOSE AND EFFECT OF THE EXCHANGE OFFER
The Old Notes were originally sold by the Company on September 23,
1997 to the Initial Purchasers pursuant to the Purchase Agreement. The Initial
Purchasers subsequently resold the Old Notes to qualified institutional buyers
in reliance on Rule 144A under the Securities Act and pursuant to offers and
sales that occurred outside the United States within the meaning of Regulation
S under the Securities Act. As a condition to the completion of the Units
Offering, the Company entered into the Registration Rights Agreement with the
Initial Purchasers pursuant to which the Company agreed to file with the
Commission the Exchange Offer Registration Statement on the appropriate form
under the Securities Act with respect to an offer to exchange the Old Notes for
Exchange Notes. The Exchange Notes will be substantially identical to the Old
Notes, except that the Exchange Notes will bear a Series B designation and will
have been registered under the Securities Act and, therefore will not contain
terms with respect to transfer restrictions (other than those that might be
imposed by state securities laws). If (i) the Company is not required to file
the Exchange Offer Registration Statement or permitted to commence or accept
tenders pursuant to the Exchange Offer because the Exchange Offer is not
permitted by applicable law or Commission policy or (ii) any Holder of Transfer
Restricted Securities (as defined herein) notifies the Company within 20
business days after the consummation of the Exchange Offer that (a) it is
prohibited by law or Commission policy from participating in the Exchange Offer
or (b) it may not resell the Exchange Notes acquired by it in the Exchange
Offer to the public without delivering a prospectus and the prospectus
contained in the Exchange Offer Registration Statement is not appropriate or
available for such resales or (c) it is a broker-dealer and owns Old Notes
acquired directly from the Company or an affiliate of the Company, the Company
will file with the Commission the Shelf Registration Statement. For purposes
of the Exchange Offer, "Transfer Restricted Securities" means each Old Note
until (i) the date on which such Old Note has been exchanged by a person other
than a broker-dealer for an Exchange Note in the Exchange Offer, (ii) following
the exchange by a broker-dealer in the Exchange Offer of a Old Note for an
Exchange Note, the date on which such Exchange Note is sold to a purchaser who
receives from such broker-dealer on or prior to the date of such sale a copy of
this Prospectus if it is permissible under applicable law and Commission policy
to use this Prospectus for such purpose, (iii) the date on which such Old Note
has been effectively registered under the Securities Act and disposed of in
accordance with the Shelf Registration Statement or (iv) the date on which such
Old Note is distributed (and not merely eligible for distribution) to the
public pursuant to Rule 144 under the Securities Act.
Under existing interpretations of the staff of the Commission, the
Exchange Notes would, in general, be freely transferable after the Exchange
Offer without further registration under the Securities Act. However, any
purchaser of Old Notes who is an "affiliate" of the Company or intends to
participate in the Exchange Offer for the purpose of distributing the Exchange
Notes (i) will not be able to rely on the interpretations of the staff of the
Commission, (ii) will not be able to tender its Old Notes in the Exchange Offer
and (iii) must comply with the registration and prospectus delivery
requirements of the Securities Act in connection with any sale or transfer of
the Old Notes, unless such sale or transfer is made pursuant to an exemption
from such requirements.
Each holder who wishes to exchange such Old Notes for Exchange Notes
in the Exchange Offer will be required to make certain representations,
including representations that (i) it is not an affiliate of the Company, (ii)
it is not engaged in, and does not intend to engage in, and has no arrangement
or understanding with any person to participate in, a distribution of the
Exchange Notes and (iii) it is acquiring the Exchange Notes in its ordinary
course of business. In addition, broker-dealers receiving Exchange Notes in
the Exchange Offer will have a prospectus delivery requirement with respect to
resales of Exchange Notes. The Commission has taken the position that such
broker-dealers may fulfill their prospectus delivery requirements with respect
to the Exchange Notes (other than a resale of an unsold allotment from the
original sale of Old Notes) with the prospectus contained in the Exchange Offer
Registration Statement. Under the Registration Rights Agreement, the Company
is required to allow such broker-dealers to use the prospectus contained in the
Exchange Offer Registration Statement in connection with the resale of such
Exchange Notes for a period of 180 days after the Exchange Offer Registration
Statement is declared effective.
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The Registration Rights Agreement provides that, to the extent not
prohibited by any applicable law or applicable interpretation of the staff of
the Commission, (i) the Company will file an Exchange Offer Registration
Statement with the Commission on or prior to 45 days after the completion of
the Units Offering, (ii) the Company will use its best efforts to have the
Exchange Offer Registration Statement declared effective by the Commission on
or prior to 135 days after the completion of the Units Offering, (iii) the
Company will commence the Exchange Offer and use its best efforts to issue on
or prior to 180 days after the completion of the Units Offering, Exchange Notes
in exchange for all Old Notes tendered prior thereto in the Exchange Offer, and
(iv) if obligated to file the Shelf Registration Statement, the Company will
file the Shelf Registration Statement with the Commission on or prior to 45
days after such filing obligation arises, use its best efforts to cause the
Shelf Registration Statement to be declared effective by the Commission on or
prior to 180 days after the completion of the Units Offering, and keep the
Shelf Registration Statement effective until the earlier of (A) the date two
years after the effective date thereof, (B) the consummation of the Exchange
Offer with respect to all Transfer Restricted Securities and the expiration of
20 business days after the consummation thereof if during such 20 day period no
notice from a broker-dealer shall have been delivered to the Company, and (C)
the date when all securities covered by the Shelf Registration Statement have
been sold pursuant to the Shelf Registration Statement.
If (i) the Company fails to file any of the registration statements
required by the Registration Rights Agreement on or before the date specified
for such filing, (ii) any of such registration statements are not declared
effective by the Commission on or prior to the date specified for such
effectiveness (the "Effectiveness Target Date"), (iii) the Company fails to
commence, accept tenders and, in the case of accepted tenders, issue Exchange
Notes in respect of accepted tenders under the Exchange Offer within 30
business days of the Effectiveness Target Date with respect to the Exchange
Offer Registration Statement or (iv) the Shelf Registration Statement or the
Exchange Offer Registration Statement is declared effective but thereafter
ceases to be effective or usable in connection with resales of Transfer
Restricted Securities during the periods specified in the Registration Rights
Agreement (each such event referred to in clauses (i) through (iv) above a
"Registration Default"), then the Company will pay Liquidated Damages to each
Holder of Notes in an amount equal to 0.25% per annum of the outstanding
principal amount of the Notes for the first 90 days after such Registration
Default. The amount of the Liquidated Damages will increase, up to a maximum
rate of 1.0% per annum, by an additional 0.25% per annum with respect to each
subsequent 90-day period. Following the cure of all Registration Defaults, the
accrual of Liquidated Damages will cease.
The summary herein of certain provisions of the Registration Rights
Agreement does not purport to be complete and is subject to, and is qualified
in its entirety by, all the provisions of the Registration Rights Agreement, a
copy of which is filed as an exhibit to the Exchange Offer Registration
Statement of which this Prospectus is a part.
Following the consummation of the Exchange Offer, holders of the Old
Notes who were eligible to participate in the Exchange Offer but who did not
tender their Old Notes will not have any further registration rights and such
Old
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Notes will continue to be subject to certain restrictions on transfer.
Accordingly, the liquidity of the market for such Old Notes could be adversely
affected.
TERMS OF THE EXCHANGE OFFER
Upon the terms and subject to the conditions set forth in this
Prospectus and in the Letter of Transmittal, the Company will accept any and
all Old Notes validly tendered and not withdrawn prior to 5:00 p.m., New York
time, on the Expiration Date. The Company will issue $1,000 principal amount
of Exchange Notes in exchange for each $1,000 principal amount of outstanding
Old Notes accepted in the Exchange Offer. Holders may tender some or all of
their Old Notes pursuant to the Exchange Offer. However, Old Notes may be
tendered only in integral multiples of $1,000.
The form and terms of the Exchange Notes are the same as the form and
terms of the Old Notes except that (i) the Exchange Notes bear a Series B
designation and a different CUSIP Number from the Old Notes, (ii) the Exchange
Notes have been registered under the Securities Act and hence will not bear
legends restricting the transfer thereof and (iii) the holders of the Exchange
Notes will not be entitled to certain rights under the Registration Rights
Agreement, including the provisions providing for an increase in the interest
rate on the Old Notes in certain circumstances relating to the timing of the
Exchange Offer, all of which rights generally will terminate when the Exchange
Offer is terminated. The Exchange Notes will evidence the same debt as the Old
Notes and will be entitled to the benefits of the Indenture.
The Exchange Offer is not conditioned upon any minimum number of Old
Notes being tendered. As of the date of this Prospectus, $125,000,000
aggregate principal amount of Old Notes were outstanding.
Holders of Old Notes do not have any appraisal or dissenters rights
under the General Corporation Law of Delaware or the Indenture in connection
with the Exchange Offer. The Company intends to conduct the Exchange Offer in
accordance with the applicable requirements of the Exchange Act and the rules
and regulations of the Commission thereunder.
The Company shall be deemed to have accepted validly tendered Old
Notes when, as and if the Company has given oral or written notice thereof to
the Exchange Agent. The Exchange Agent will act as agent for the tendering
holders for the purpose of receiving the Exchange Notes from the Company.
If any tendered Old Notes are not accepted for exchange because of an
invalid tender, the occurrence of certain other events set forth herein or
otherwise, the certificates for any such unaccepted Old Notes will be returned,
without expense, to the tendering holder thereof as promptly as practicable
after the Expiration Date.
Holders who tender Old Notes in the Exchange Offer will not be
required to pay brokerage commissions or fees or, subject to the instructions
in the Letter of Transmittal, transfer taxes with respect to the exchange of
Old Notes pursuant to the Exchange Offer. The Company will pay all charges and
expenses, other than transfer taxes in certain circumstances, in connection
with the Exchange Offer. See " -- Fees and Expenses."
EXPIRATION DATE; EXTENSIONS; AMENDMENTS
The term "Expiration Date" shall mean 5:00 p.m., New York time, on
,1997, unless the Company, in its sole discretion, extends the Exchange Offer,
in which case the term "Expiration Date" shall mean the latest date and time to
which the Exchange offer is extended.
In order to extend the Exchange Offer, the Company will notify the
Exchange Agent of any extension by oral or written notice and will mail to the
registered holders an announcement thereof, each prior to 9:00 a.m., New York
time, on the next business day after the previously scheduled expiration date.
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The Company reserves the right, in its sole discretion, (i) to delay
accepting any Old Notes, to extend the Exchange Offer or to terminate the
Exchange Offer if any of the conditions set forth below under " -- Conditions"
shall not have been satisfied, by giving oral or written notice of such delay,
extension or termination to the Exchange Agent or (ii) to amend the terms of
the Exchange Offer in any manner. Any such delay in acceptance, extension,
termination or amendment will be followed as promptly as practicable by oral or
written notice thereof to the registered holders.
INTEREST ON THE EXCHANGE NOTES
The Exchange Note will bear interest from the most recent date to
which interest has been paid or duly provided for on the Old Note surrendered
in exchange for such Exchange Note or, if no interest has been paid or duly
provided for on such Old Note, from September 23, 1997. Interest on the
Exchange Notes is payable semi-annually on each March 15 and September 15,
commencing on March 15, 1998.
Holders of Old Notes whose Old Notes are accepted for exchange will
not receive accrued interest on such Old Notes for any period from and after
the last date to which interest has been paid or duly provided for on the Old
Notes prior to the original issue date of the Exchange Notes or, if no such
interest has been paid or duly provided for will not receive any accrued
interest on such Old Notes, and will be deemed to have waived, the right to
receive any interest on such Old Notes accrued from and after September 23,
1997.
PROCEDURES FOR TENDERING
For a holder of Old Notes to tender Old Notes validly pursuant to the
Exchange Offer, a properly completed and duly executed Letter of Transmittal
(or facsimile thereof), with any required signature guarantee, or (in the case
of a book-entry transfer), an Agent's Message in lieu of the Letter of
Transmittal, and any other required documents, must be received by the Exchange
Agent at the address set forth in the Letter of Transmittal prior to 5:00 p.m.,
New York time, on the Expiration Date. In addition, prior to 5:00 p.m., New
York time, on the Expiration Date, either (a) certificates for tendered Old
Notes must be received by the Exchange Agent at such address or (b) such Old
Notes must be transferred pursuant to the procedures for book-entry transfer
described below (and a confirmation of such tender received by the Exchange
Agent, including an Agent's Message if the tendering holder has not delivered a
Letter of Transmittal).
The term "Agent's Message" means a message transmitted by the
Depository, received by the Exchange Agent and forming part of the confirmation
of a book-entry transfer, which states that the Depository has received an
express acknowledgment from the participant in the Depository tendering Old
Notes which are the subject of such book-entry confirmation that such
participant has received and agrees to be bound by the terms of the Letter of
Transmittal and that the Company may enforce such agreement against such
participant. In the case of an Agent's Message relating to guaranteed
delivery, the term means a message transmitted by the Depository and received
by the Exchange Agent, which states that the Depository has received an express
acknowledgment from the participant in the Depository tendering Old Notes that
such participant has received and agrees to be bound by the Notice of
Guaranteed Delivery.
By tendering Old Notes pursuant to the procedures set forth above,
each holder will make to the Company the representations set forth above in the
third paragraph under the heading " -- Purpose and Effect of the Exchange
Offer."
The tender by a holder and the acceptance thereof by the Company will
constitute agreement between such holder and the Company in accordance with the
terms and subject to the conditions set forth herein and in the Letter of
Transmittal.
THE METHOD OF DELIVERY OF OLD NOTES AND THE LETTER OF TRANSMITTAL AND
ALL OTHER REQUIRED DOCUMENTS TO THE EXCHANGE AGENT IS AT THE ELECTION AND SOLE
RISK OF THE HOLDER. AS AN ALTERNATIVE TO DELIVERY BY MAIL, HOLDERS MAY WISH TO
CONSIDER
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OVERNIGHT OR HAND DELIVERY SERVICE. IN ALL CASES, SUFFICIENT TIME SHOULD BE
ALLOWED TO ASSURE DELIVERY TO THE EXCHANGE AGENT BEFORE THE EXPIRATION DATE.
NO LETTER OF TRANSMITTAL OR NOTES SHOULD BE SENT TO THE COMPANY. HOLDERS MAY
REQUEST THEIR RESPECTIVE BROKERS, DEALERS, COMMERCIAL BANKS, TRUST COMPANIES OR
NOMINEES TO EFFECT THE ABOVE TRANSACTIONS FOR SUCH HOLDERS.
Any beneficial owner whose Old Notes are registered in the name of a
broker, dealer, commercial bank, trust company or other nominee and who wishes
to tender should contact the registered holder promptly and instruct such
registered holder to tender on such beneficial owner's behalf. see "Instruction
to Registered Holder and/or Book-Entry Transfer Facility Participant from
Owner" included with the Letter of Transmittal.
Signatures on a Letter of Transmittal or a notice of withdrawal, as
the case may be, must be guaranteed by an Eligible Institution (as defined
below) unless the Old Notes tendered pursuant thereto are tendered (i) by a
registered holder who has not completed the box entitled "Special Registration
Instructions" or "Special Delivery Instructions" on the Letter of Transmittal
or (ii) for the account of an Eligible Institution. In the event that
signatures on a Letter of Transmittal or a notice of withdrawal, as the case
may be, are required to be guaranteed, such guarantee must be by a member firm
of the Medallion System (an "Eligible Institution").
If the Letter of Transmittal is signed by a person other than the
registered holder of any Old Notes listed therein, such Old Notes must be
endorsed or accompanied by a properly completed bond power, signed by such
registered holder as such registered holder's name appears on such Old Notes
with the signature thereon guaranteed by an Eligible Institution.
If the Letter of Transmittal or any Old Notes or bond powers are
signed by trustees, executors, administrators, guardians, attorneys-in-fact,
offices of corporations or others acting in a fiduciary or representative
capacity, such persons should so indicate when signing, and evidence
satisfactory to the Company of their authority to so act must be submitted with
the Letter of Transmittal.
The Company understands that the Exchange Agent will make a request
promptly after the date of this Prospectus to establish accounts with respect
to the Old Notes at the book-entry transfer facility, The Depository Trust
Company ("DTC" or the "Book-Entry Transfer Facility"), for the purpose of
facilitating the Exchange Offer, and subject to the establishment thereof, any
financial institution that is a participant in the Book-Entry Transfer
Facility's system may make book-entry delivery of Old Notes by causing such
Book-Entry Transfer Facility to transfer such Old Notes into the Exchange
Agent's account with respect to the Old Notes in accordance with the Book-Entry
Transfer Facility's procedures for such transfer. Although delivery of the Old
Notes may be effected through book-entry transfer into the Exchange Agent's
account at the Book-Entry Transfer Facility, an appropriate Letter of
Transmittal properly completed and duly executed with any required signature
guarantee, or, in the case of a book-entry transfer, an Agent's Message in lieu
of the Letter of Transmittal and all other required documents must in each case
be transmitted to and received or confirmed by the Exchange Agent at its
address set forth in the Letter of Transmittal on or prior to the Expiration
Date, or, if the guaranteed delivery procedures described below are complied
with, within the time period provided under such procedures. Delivery of
documents to the Book-Entry Transfer Facility does not constitute delivery to
the Exchange Agent.
The Exchange Agent and DTC have confirmed that the Exchange Offer is
eligible for the DTC Automated Tender Offer Program ("ATOP"). Accordingly, DTC
participants may electronically transmit their acceptance of the Exchange Offer
by causing DTC to transfer Old Notes to the Exchange Agent in accordance with
DTC's ATOP procedures for transfer. DTC will then send an Agent's Message to
the Exchange Agent.
All questions as to the validity, form, eligibility (including time of
receipt), acceptance of tendered Old Notes and withdrawal of tendered Old Notes
will be determined by the Company in its sole discretion, which determination
will be final and binding. The Company reserves the absolute right to reject
any and all Old Notes not properly tendered
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or any Old Notes the Company's acceptance of which would, in the opinion of
counsel for the Company, be unlawful. The Company also reserves the right in
its sole discretion to waive any defects, irregularities or conditions of
tender as to particular Old Notes. The Company's interpretation of the terms
and conditions of the Exchange Offer (including the instructions in the Letter
of Transmittal) will be final and binding on all parties. Unless waived, any
defects or irregularities in connection with tenders of Old Notes must be cured
within such time as the Company shall determine. Although the Company intends,
to notify holders of defects or irregularities with respect to tenders of Old
Notes, neither the Company, the Exchange Agent nor any other person shall incur
any liability for failure to give such notification. Tenders of Old Notes will
not be deemed to have been made until such defects or irregularities have been
cured or waived. Any Old Notes received by the Exchange Agent that are not
properly tendered and as to which the defects or irregularities have not been
cured or waived will be returned by the Exchange Agent to the tendering
holders, unless otherwise provided in the Letter of Transmittal, as soon as
practicable following the Expiration Date.
GUARANTEED DELIVERY PROCEDURES
Holders who wish to tender their Old Notes and (i) whose Old Notes are
not immediately available, (ii) who cannot deliver their Old Notes, the Letter
of Transmittal or any other required documents to the Exchange Agent or (iii)
who cannot complete the procedures for book-entry transfer, prior to the
Expiration Date, may effect a tender if:
(a) the tender is made through an Eligible Institution;
(b) prior to the Expiration Date, the Exchange Agent
receives from such Eligible Institution a properly completed and duly
executed Notice of Guaranteed Delivery (by facsimile transmission,
mail or hand delivery) setting forth the name and address of the
holder, the certificate number(s) of such Old Notes and the principal
amount of Old Notes tendered, stating that the tender is being made
thereby and guaranteeing that, within five New York Stock Exchange
trading days after the Expiration Date, the Letter of Transmittal (or
facsimile thereof) together with the certificate(s) representing the
Old Notes (or a confirmation of book-entry transfer of such Old Notes
into the Exchange Agent's account at the Book-Entry Transfer
Facility), and any other documents required by the Letter of
Transmittal will be deposited by the Eligible Institution with the
Exchange Agent; and
(c) such properly completed and executed Letter of
Transmittal (of facsimile thereof), as well as the certificates
representing all tendered Old Notes in proper form for transfer (or a
confirmation of book- entry transfer of such Old Notes into the
Exchange Agent's account at the Book-Entry Transfer Facility), and all
other documents required by the Letter of Transmittal are received by
the Exchange Agent upon five New York Stock Exchange trading days
after the Expiration Date.
Upon request to the Exchange Agent, a Notice of Guaranteed Delivery
will be sent to holders who wish to tender their Old Notes according to the
guaranteed delivery procedures set forth above.
WITHDRAWAL OF TENDERS
Except as otherwise provided herein, tenders of Old Notes may be
withdrawn at any time prior to 5:00 p.m., New York time, on the Expiration
Date.
To withdraw a tender of Old Notes in the Exchange Offer, a telegram,
telex, letter or facsimile transmission notice of withdrawal must be received
by the Exchange Agent at its address set forth in the Letter of Transmittal
prior to 5:00 p.m., New York time, on the Expiration Date. Any such notice of
withdrawal must (i) specify the name of the person having deposited the Old
Notes to be withdrawn (the "Depositor"), (ii) identify the Old Notes to be
withdrawn (including the certificate number(s) and principal amount of such Old
Notes, or, in the case of Old Notes transferred by book-entry transfer, the
name and number of the account at the Book-Entry Transfer Facility to be
credited), (iii) be signed by the holder in the same manner as the original
signature on the Letter of Transmittal by which such Old Notes
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were tendered (including any required signature guarantees) or be accompanied
by documents of transfer sufficient to have the Trustee with respect to the Old
Notes register the transfer of such Old Notes into the name of the person
withdrawing the tender and (iv) specify the name in which any such Old Notes
are to be registered, if different from that of the Depositor. All questions
as to the validity, form and eligibility (including time of receipt) of such
notices will be determined by the Company, whose determination shall be final
and binding on all parties. Any Old Notes so withdrawn will be deemed not to
have been validly tendered for purposes of the Exchange Offer and no Exchange
Notes will be issued with respect thereto unless the Old Notes so withdrawn are
validly retendered. Any Old Notes which have been tendered but which are not
accepted for exchange will be returned to the holder thereof without cost to
such holder as soon as practicable after withdrawal, rejection of tender or
termination of the Exchange Offer. Properly withdrawn Old Notes may be
retendered by following one of the procedures described above under " --
Procedures for Tendering" at any time prior to the Expiration Date.
CONDITIONS
Notwithstanding any other term of the Exchange Offer, the Company
shall not be required to accept for exchange, or exchange Exchange Notes for,
any Old Notes, and may terminate or amend the Exchange Offer as provided herein
before the acceptance of such Old Notes, if:
(a) any action or proceeding is instituted or threatened
in any court or by or before any governmental agency with respect to
the Exchange Offer which, in the Company's reasonable discretion,
might materially impair the ability of the Company to proceed with the
Exchange Offer or any material adverse development has occurred in any
existing action or proceeding with respect to the Company or any of
its subsidiaries; or
(b) any law, statute, rule, regulation or interpretation
by the staff of the Commission is proposed, adopted or enacted, which,
in the Company's reasonable discretion, might materially impair the
ability of the Company to proceed with the Exchange offer or
materially impair the contemplated benefits of the Exchange offer to
the Company; or
(c) any governmental approval has not been obtained,
which approval the Company shall, in the Company's reasonable
discretion, deem necessary for the consummation of the Exchange Offer
as contemplated hereby.
If the Company determines in its reasonable discretion that any of the
conditions are not satisfied, the Company may (i) refuse to accept any Old
Notes and return all tendered Old Notes to the tendering holders, (ii) extend
the Exchange Offer and retain all Old Notes tendered prior to the expiration of
the Exchange Offer, subject, however, to the rights of holders to withdraw such
Old Notes (see "-- Withdrawal of Tenders"), or (iii) waive such unsatisfied
conditions with respect to the Exchange Offer and accept all properly tendered
Old Notes which have not been withdrawn.
EXCHANGE AGENT
Texas Commerce Bank National Association (the "Exchange Agent") has
been appointed as Exchange Agent for the Exchange Offer. Questions and
requests for assistance, requests for additional copies of this Prospectus or
of the Letter of Transmittal and requests for Notice of Guaranteed Delivery
should be directed to the Exchange Agent at the address indicated in the Letter
of Transmittal. Delivery to an address other than as set forth in the Letter
of Transmittal will not constitute a valid delivery.
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FEES AND EXPENSES
The expenses of soliciting tenders will be borne by the Company. The
principal solicitation is being made by mail; however, additional solicitation
may be made by telegraph, telecopy, telephone or in person by officers and
regular employees of the Company and its affiliates.
The Company has not retained any dealer-manager in connection with the
Exchange Offer and will not make any payments to brokers, dealers, or others
soliciting acceptances of the Exchange Offer. The Company, however, will pay
the Exchange Agent reasonable and customary fees for its services and will
reimburse it for its reasonable out-of-pocket expenses in connection therewith.
The cash expenses to be incurred in connection with the Exchange Offer
will be paid by the Company. Such expenses include fees and expenses of the
Exchange Agent and Trustee, accounting and legal fees and printing costs, among
others.
ACCOUNTING TREATMENT
The Exchange Notes will be recorded at the same carrying value as the
Old Notes, which is face value, as reflected in the Company's accounting
records on the date of exchange. Accordingly, no gain or loss for accounting
purposes will be recognized by the Company. The expenses of the Exchange Offer
will be expensed over the term of the Exchange Notes.
CONSEQUENCES OF FAILURE TO EXCHANGE
The Old Notes that are not exchanged for Exchange Notes pursuant to
the Exchange Offer will remain restricted securities. Accordingly, such Old
Notes may be resold only.
RESALE OF THE EXCHANGE NOTES
With respect to resales of Exchange Notes, based on interpretations by
the staff of the Commission set forth in no-action letters issued to third
parties (for example, the letters of the commission to (i) Exxon Capital
Holdings Corporation, available May 13, 1988, (ii) Morgan Stanley & Co., Inc.
available June 5, 1991 and (iii) Shearson & Sterling, available July 2, 1993),
the Company believes that a holder or other person (other than a person that is
an affiliate of the Company within the meaning of Rule 405 under the Securities
Act) who receives Exchange Notes in exchange for Old Notes in the ordinary
course of business and who is not participating, does not intend to
participate, and has no arrangement or understanding with any person to
participate, in the distribution of the Exchange Notes, will be allowed to
resell the Exchange Notes to the public without further registration under the
Securities Act and without delivering to the purchasers of the Exchange Notes a
prospectus that satisfies the requirements of Section 10 of the Securities Act.
However, if any holder acquires Exchange Notes in the Exchange Offer for the
purpose of distributing or participating in a distribution of the Exchange
Notes, such holder cannot rely on the position of the staff of the Commission
enunciated in such no-action letters or any similar interpretive letters, and
must comply with the registration and prospectus delivery requirements of the
Securities Act in connection with any resale transaction, unless an exemption
from registration is otherwise available. Further, each Participating
Broker-Dealer that receives Exchange Notes for its own account in exchange for
Old Notes, where such Old Notes were acquired by such Participating
Broker-Dealer as a result of market-making activities or other trading
activities, must acknowledge that it will deliver a prospectus in connection
with any resale of such Exchange Notes.
Each holder of Old Notes who wishes to exchange Old Notes for Exchange
Notes in the Exchange Offer will be required to represent that (i) it is not an
affiliate of the Company, (ii) it is not engaged in, and does not intend to
engage in, and has no arrangement or understanding with any person to
participate in, a distribution of the Exchange Notes and (iii) it is acquiring
the Exchange Notes in its ordinary course of business. Each broker-dealer that
receives
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Exchange Notes for its own account pursuant to the Exchange Offer must
acknowledge that it acquired the Old Notes for its own account as the result of
market-making activities or other trading activities and must agree that it
will deliver a prospectus meeting the requirements of the Securities Act in
connection with any resale of such Exchange Notes. The Letter of Transmittal
states that by so acknowledging and by delivering a prospectus, a broker-dealer
will not be deemed to admit that it is an "underwriter" within the meaning of
the Securities Act. Based on the position taken by the staff of the Division
of Corporation Finance of the Commission in the interpretive letters referred
to above, the Company believes that Participating Broker-Dealers who acquired
Old Notes for their own accounts as a result of market-making activities or
other trading activities may fulfill their prospectus delivery requirements
with respect to the Exchange Notes received upon exchange of such Old Notes
(other than Old Notes which represent an unsold allotment from the original
sale of the Old Notes) with a prospectus meeting the requirements of the
Securities Act, which may be the prospectus prepared for an exchange offer so
long as it contains a description of the plan of distribution with respect to
the resale of such Exchange Notes. Accordingly, this Prospectus, as it may be
amended or supplemented from time to time, may be used by a Participating
Broker-Dealer during the period referred to below in connection with resales of
Exchange Notes received in exchange for Old Notes where such Old Notes were
acquired by such Participating Broker-Dealer for its own account as a result of
market-making or such other trading activities. Subject to certain provisions
set forth in the Registration Rights Agreement, the Company has agreed that
this Prospectus, as it may be amended or supplemented from time to time, may be
used by a Participating Broker-Dealer in connection with resales of such
Exchange Notes for a period ending 180 days after the date on which the
Exchange Offer Registration Statement is declared effective. However, a
Participating Broker-Dealer who intends to use this Prospectus in connection
with the resale of Exchange Notes received in exchange for Old Notes pursuant
to the Exchange Offer must notify the Company, or cause the Company to be
notified, on or prior to the Expiration Date, that it is a Participating
Broker-Dealer. Such notice may be given in the space provided for that purpose
in the Letter of Transmittal or may be delivered to the Exchange Agent at one
of the addresses set forth in the Letter of Transmittal. See "Plan of
Distribution." Any Participating Broker-Dealer who is an "affiliate" of the
Company may not rely on such interpretive letters and must comply with the
registration and prospectus delivery requirements of the Securities Act in
connection with any resale transaction.
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DESCRIPTION OF EXCHANGE NOTES
GENERAL
The Old Notes were issued and the Exchange Notes will be issued
pursuant to the Indenture (the "Indenture") among the Company, the Initial
Restricted Subsidiary and Texas Commerce Bank, National Association, as trustee
(the "Trustee"). The terms of the Notes include those stated in the Indenture
and the Pledge Agreement and those made part of the Indenture and the Pledge
Agreement by reference to the Trust Indenture Act of 1939, as amended (the
"Trust Indenture Act"). The Notes are subject to all such terms, and holders
("Holders") of Notes are referred to the Indenture and the Trust Indenture Act
for a statement thereof. The following summary of certain provisions of the
Indenture and the Pledge Agreement does not purport to be complete and is
qualified in its entirety by reference to the Indenture and the Pledge
Agreement, including the definitions therein of certain terms used below. A
copy of the Indenture and Pledge Agreement is available as set forth under "--
Additional Information." The definitions of certain terms used in the following
summary are set forth below under "-- Certain Definitions." For purposes of
this Section, references to the "Company" shall mean HighwayMaster
Communications, Inc., excluding its Subsidiaries.
The obligations of the Company under the Old Notes are and under the
Exchange Notes will be jointly and severally guaranteed by the Company's
Restricted Subsidiaries. See "-- Subsidiary Guarantees." As of the date of this
Prospectus, the Company's only Subsidiary, HighwayMaster Corporation, a
Delaware corporation (the "Initial Restricted Subsidiary"), is a Restricted
Subsidiary.
Under certain circumstances, the Company will be able to designate
current or future Subsidiaries as Unrestricted Subsidiaries. Unrestricted
Subsidiaries will not guarantee the Exchange Notes and will not be subject to
many of the restrictive covenants set forth in the Indenture.
The form and terms of the Exchange Notes are the same as the form and
terms of the Old Notes (which they replace) except that (i) the Exchange Notes
bear a Series B designation, (ii) the Exchange Notes have been registered under
the Securities Act and, therefore, will not bear legends restricting the
transfer thereof, and (iii) the holders of Exchange Notes will not be entitled
to certain rights under the Registration Rights Agreement, including the
provisions providing for an increase in the interest rate on the Old Notes in
certain circumstances relating to the timing of the Exchange Offer, which
rights will terminate when the Exchange Offer is consummated. The Exchange
Notes will be issued solely in exchange for an equal principal amount of Old
Notes. As of the date hereof, $125.0 million aggregate principal amount of Old
Notes is outstanding. See "The Exchange Offer."
RANKING
The Exchange Notes will be senior obligations of the Company, will
rank pari passu in right of payment with all existing and future unsecured
senior Indebtedness of the Company and will rank senior in right of payment to
any Subordinated Indebtedness of the Company. The Subsidiary Guarantee of each
Restricted Subsidiary will be an unsecured, senior obligation of such
Restricted Subsidiary, will rank pari passu in right of payment with all
existing and future unsecured senior Indebtedness of such Restricted Subsidiary
and will rank senior in right of payment to any Subordinated Indebtedness of
such Restricted Subsidiary. As of June 30, 1997, after giving effect to the
Units Offering, the aggregate principal amount of outstanding senior
Indebtedness and other senior liabilities of the Company was $125.0 million
($120.8 million net of debt discount). As of June 30, 1997, the aggregate
principal amount of outstanding senior Indebtedness and other senior
liabilities (including trade payables) of the Initial Restricted Subsidiary,
but excluding the Subsidiary Guarantee, was approximately $9.2 million.
SECURITY
The Indenture provided that on the date of the closing of the Units
Offering, the Company shall purchase and pledge to the Trustee, for the benefit
of the Holders of the Notes, the Pledged Securities in such amount as will be
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sufficient upon receipt of scheduled interest and principal payments of such
securities, in the opinion of a nationally recognized firm of independent
public accountants selected by the Company, to provide for payment in full when
due of the first six scheduled interest payments on the Notes. The Company used
approximately $46.6 million of the net proceeds of the Units Offering to
acquire the Pledged Securities. The Pledged Securities are pledged by the
Company to the Trustee for the benefit of the Holders of the Notes pursuant to
the Pledge Agreement and secure the payment of the principal of and interest on
the Notes, Liquidated Damages, if any, and all other obligations under the
Indenture, to the extent of such security. The Pledged Securities and any
proceeds thereof are held by the Trustee in the Pledge Account. Pursuant to the
Pledge Agreement, immediately prior to an interest payment date on the Notes,
the Company may either deposit with the Trustee from funds otherwise available
to the Company cash sufficient to pay the interest scheduled to be paid on such
date or the Company may direct the Trustee to release from the Pledge Account
proceeds sufficient to pay the interest scheduled to be paid on such date. In
the event that the Company exercises the former option, the Pledge Agreement
provides that the Company may thereafter direct the Trustee to release to the
Company proceeds or Pledged Securities from the Pledge Account in a like
amount.
Interest earned on the Pledged Securities will be added to the Pledge
Account. In the event that the funds or Pledged Securities held in the Pledge
Account exceed the amount sufficient, in the opinion of a nationally recognized
firm of independent public accountants selected by the Company, to provide for
payment in full of the first six scheduled interest payments due on the Notes
(or, in the event an interest payment or interest payments have been made, an
amount sufficient to provide for payment in full of any interest payments
remaining, up to and including the sixth scheduled interest payment), if no
Default or Event of Default is then continuing, the Trustee will be permitted
to release to the Company at its request any such excess amount.
Under the Pledge Agreement, if the Company makes the first six
scheduled interest payments on the Notes in a timely manner and no Default or
Event of Default is then continuing, the remaining Pledged Securities, if any,
will be released from the Pledge Account and thereafter the Notes will be
unsecured.
SUBSIDIARY GUARANTEES
The obligations of the Company under the Exchange Notes will be
jointly and severally guaranteed by the Restricted Subsidiaries. The Subsidiary
Guarantee of each Restricted Subsidiary will be an unsecured, senior obligation
of such Restricted Subsidiary, will rank pari passu in right of payment with
all existing and future unsecured senior Indebtedness of such Restricted
Subsidiary and will rank senior in right of payment to any Subordinated
Indebtedness of such Restricted Subsidiary. As of the date of this Prospectus,
the Initial Restricted Subsidiary will be the only Restricted Subsidiary.
The Indenture contains provisions the intent of which is to provide
that the obligations of each Restricted Subsidiary will be limited to the
maximum amount that will, after giving effect to all other contingent and fixed
liabilities of such Restricted Subsidiary and after giving effect to any
collections from, rights to receive contribution from, or payments made by or
on behalf of any other Restricted Subsidiary in respect of the obligations of
such other Restricted Subsidiary under its Subsidiary Guarantee or pursuant to
its contribution obligations under the Indenture, result in the obligations of
such Restricted Subsidiary under its Subsidiary Guarantee not constituting a
fraudulent conveyance or fraudulent transfer under any applicable law. Each
Restricted Subsidiary that makes a payment or distribution under a Subsidiary
Guarantee shall be entitled to contribution from each other Restricted
Subsidiary so long as the exercise of such right does not impair the rights of
the Holders under the Subsidiary Guarantees. See "Risk Factors -- Fraudulent
Conveyance Considerations."
The Indenture requires the Company to cause any Person that becomes a
Restricted Subsidiary (including any Subsidiary that was previously an
Unrestricted Subsidiary and which becomes a Restricted Subsidiary) after the
Closing Date to execute and deliver to the Trustee a supplemental indenture
pursuant to which such Restricted Subsidiary will Guarantee the Notes. So long
as no Default or Event of Default exists or would be caused thereby, any Person
that is
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no longer a Restricted Subsidiary may, by execution and delivery to the Trustee
of a supplemental indenture satisfactory to the Trustee, be released from its
Subsidiary Guarantee and cease to Guarantee the Notes.
Each Subsidiary Guarantee will be a continuing Guarantee and shall (i)
remain in full force and effect until released pursuant to the Indenture or
pursuant to payment in full of all the obligations under the Indenture and the
Notes, (ii) be binding upon such Restricted Subsidiary and (iii) inure to the
benefit of and be enforceable by the Holders and their successors, transferees
and assigns.
The Indenture provides that, subject to the provisions described in
the next succeeding paragraph, no Restricted Subsidiary may consolidate or
merge with or into (whether or not such Restricted Subsidiary is the surviving
Person), or sell, assign, transfer, lease, convey or otherwise dispose of all
or substantially all of its properties or assets in one or more related
transactions, to another Person unless (i) the Person formed by or surviving
any such consolidation or merger (if other than such Restricted Subsidiary) or
the Person to which such sale, assignment, transfer, lease, conveyance or other
disposition shall have been made assumes all the obligations of such Restricted
Subsidiary under the Subsidiary Guarantee, in form satisfactory to the Trustee;
(ii) immediately after such transaction, no Default or Event of Default exists;
(iii) the Company and its Restricted Subsidiaries would, at the time of such
transaction and after giving pro forma effect thereto as if such transaction
had occurred at the beginning of the applicable fiscal quarter, be permitted to
Incur at least $1.00 of additional Indebtedness pursuant to the Leverage Ratio
test set forth in the first paragraph of the covenant described under the
caption "-- Certain Covenants -- Incurrence of Indebtedness"; (iv) the Company
shall have delivered to the Trustee an Officers' Certificate, and an Opinion of
Counsel, each stating that such consolidation, merger or transfer complies with
the Indenture; and (v) such Restricted Subsidiary (if such Restricted
Subsidiary is the surviving Person) shall have delivered a written instrument
in form satisfactory to the Trustee confirming its Subsidiary Guarantee after
giving effect to such consolidation, merger or transfer. Notwithstanding the
foregoing, any Restricted Subsidiary may merge into, consolidate with or
transfer all or part of its properties or assets to the Company or one or more
Restricted Subsidiaries.
The Indenture provides that in the event of a sale, assignment,
transfer, lease, conveyance or other disposition of all of the Equity Interests
in, or all or substantially all of the assets of, a Restricted Subsidiary to
any Person that is not the Company or any of its Restricted Subsidiaries,
whether by way of merger, consolidation or otherwise, if (i) the Net Proceeds
of such sale or other disposition are applied in accordance with provisions of
the Indenture described under "-- Repurchase at the Option of Holders -- Asset
Sales," (ii) no Default or Event of Default exists or would exist under the
Indenture after giving effect to such transaction, (iii) all obligations of
such Restricted Subsidiary under any other Indebtedness of the Company or any
of its Restricted Subsidiaries shall have been terminated (including, without
limitation, all Guarantees of any such Indebtedness), (iv) all Liens on assets
of such Restricted Subsidiary that secure any other Indebtedness of the Company
or any of its Restricted Subsidiaries shall have been terminated, and (v) all
obligations of the Company and its Restricted Subsidiaries under other
Indebtedness of such Restricted Subsidiary shall have been terminated
(including, without limitation, all Guarantees of such Indebtedness), then (A)
in the case of such a sale or other disposition, whether by way of merger,
consolidation or otherwise, of all of the Equity Interests in such former
Restricted Subsidiary, such former Restricted Subsidiary will be released and
relieved of any obligations under its Subsidiary Guarantee, or (B) in the case
of a sale or other disposition of all or substantially all of the assets of
such Restricted Subsidiary, the Person acquiring such assets will not be
required to assume the obligations of such Restricted Subsidiary under its
Subsidiary Guarantee.
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PRINCIPAL, MATURITY AND INTEREST
The Exchange Notes will be limited in aggregate principal amount to
$125 million and will mature on September 15, 2005. Interest on the Exchange
Notes will accrue at the rate of 13 3/4% per annum and will be payable semi-
annually in arrears on March 15 and September 15 of each year, commencing on
March 15, 1998, to Holders of record on the immediately preceding March 1 and
September 1. Interest on the Exchange Notes will accrue from the most recent
date to which interest has been paid or, if no interest has been paid, from
September 23, 1997. Interest will be computed on the basis of a 360-day year
comprised of twelve 30-day months. Principal of and premium, if any, interest
and Liquidated Damages, if any, on the Exchange Notes will be payable by wire
transfer of immediately available funds to the holder of the Global Note (as
defined herein) and with respect to holders of Certificated Notes (as defined
herein), at the office or agency of the Company maintained for such purpose or,
at the option of the Company, payment of interest and Liquidated Damages, if
any, may be made by check mailed to the Holders of the Exchange Notes at their
respective addresses set forth in the register of Holders of the Exchange
Notes; provided that all payments with respect to Exchange Notes the Holders of
which have given wire transfer instructions to the Company will be required to
be made by wire transfer of immediately available funds to the accounts
specified by the Holders thereof. Until otherwise designated by the Company,
the Company's office or agency will be the office of the Trustee maintained for
such purpose. The Exchange Notes will be issued in denominations of $1,000 and
integral multiples thereof.
OPTIONAL REDEMPTION
The Notes are not redeemable at the Company's option prior to
September 15, 2001. Thereafter, the Notes will be subject to redemption at the
option of the Company, in whole or in part, upon not less than 30 nor more than
60 days' notice, at the redemption prices (expressed as percentages of
principal amount) set forth below, plus accrued and unpaid interest and
Liquidated Damages, if any, thereon to the applicable redemption date, if
redeemed during the twelve-month period beginning on September 15 of the years
indicated below:
<TABLE>
<CAPTION>
YEAR PERCENTAGE
---- ----------
<S> <C>
2001 . . . . . . . . . . . . . . . . . 110.313%
2002 . . . . . . . . . . . . . . . . . 106.875%
2003 . . . . . . . . . . . . . . . . . 103.438%
2004 and thereafter . . . . . . . . . . 100.000%
</TABLE>
Notwithstanding the foregoing, on or prior to September 15, 2000, the
Company may, at its option, redeem, from time to time, up to 35% in aggregate
principal amount of the Notes at a redemption price of 113.75% of the principal
amount thereof, plus accrued and unpaid interest and Liquidated Damages, if
any, thereon to the redemption date with the net proceeds of an Equity
Investment; provided that no less than 65% of the aggregate principal amount of
Notes initially issued remains outstanding immediately after giving effect to
such redemption; and provided, further, that notice of such redemption shall
have been given not later than 30 days, and such redemption shall occur not
later than 90 days, after the date of the closing of the transaction giving
rise to such Equity Investment.
SELECTION AND NOTICE
If less than all of the Notes are to be redeemed at any time,
selection of Notes for redemption will be made by the Trustee in compliance
with the requirements of the principal national securities exchange, if any, on
which the Notes are listed, or, if the Notes are not so listed, on a pro rata
basis, by lot or by such method as the Trustee shall deem fair and appropriate;
provided that no Notes of $1,000 or less shall be redeemed in part. Notices of
redemption shall be mailed by first class mail at least 30 but not more than 60
days before the redemption date to each Holder of Notes to be redeemed at its
registered address. If any Note is to be redeemed in part only, the notice of
redemption that relates to such Note shall state the portion of the principal
amount thereof to be redeemed. A new Note in principal amount
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<PAGE> 102
equal to the unredeemed portion thereof will be issued in the name of the
Holder thereof upon cancellation of the original Note. On and after the
redemption date, interest ceases to accrue on Notes or portions thereof called
for redemption.
MANDATORY REDEMPTION
Except as set forth below under "-- Repurchase at the Option of
Holders," the Company is not required to repurchase the Exchange Notes or make
mandatory redemption or sinking fund payments with respect thereto.
REPURCHASE AT THE OPTION OF HOLDERS
Change of Control. Upon the occurrence of a Change of Control, the
Company will be required to make an offer (a "Change of Control Offer") to
repurchase all or any part (equal to $1,000 or an integral multiple thereof) of
each Holder's Notes, at an offer price in cash equal to 101% of the aggregate
principal amount thereof, plus accrued and unpaid interest and Liquidated
Damages, if any, thereon, to the date of repurchase (the "Change of Control
Payment"). Within 20 days following any Change of Control, the Company will
mail a notice to each Holder describing the transaction that constitutes the
Change of Control and offering to repurchase Notes pursuant to the procedures
required by the Indenture and described in such notice. The Company will comply
with the requirements of Rule 14e-1 under the Exchange Act and any other
securities laws and regulations thereunder to the extent such laws and
regulations are applicable in connection with the repurchase of the Notes as a
result of a Change of Control.
On a date that is at least 30 but no more than 60 days from the date
on which the Company mails notice of the Change of Control (the "Change of
Control Payment Date"), the Company will, to the extent lawful, (i) accept for
payment all Notes or portions thereof properly tendered pursuant to the Change
of Control Offer, (ii) deposit with the Trustee an amount equal to the Change
of Control Payment in respect of all Notes or portions thereof so tendered and
(iii) deliver or cause to be delivered to the Trustee the Notes so accepted
together with an Officers' Certificate stating the aggregate principal amount
of Notes or portions thereof being purchased by the Company. The Trustee will
promptly mail to each Holder of Notes so tendered the Change of Control Payment
for such Notes, and the Trustee will promptly authenticate and mail (or cause
to be transferred by book entry) to each Holder a new Note equal in principal
amount to any unpurchased portion of the Notes surrendered, if any; provided
that each such new Note will be in a principal amount of $1,000 or an integral
multiple thereof. The Company will publicly announce the results of the Change
of Control Offer on or as soon as practicable after the Change of Control
Payment Date. Unless the Company defaults in the payment for any Notes properly
tendered pursuant to the Change of Control Offer, any Notes accepted for
payment pursuant to the Change of Control Offer shall cease to accrue interest
after the Change of Control Payment Date.
The Change of Control provisions described above will be applicable
whether or not any other provisions of the Indenture are applicable.
Subject to the limitations discussed below, the Company could in the
future enter into certain transactions, including acquisitions, refinancings or
other recapitalizations, that would not constitute a Change of Control under
the Indenture, but that could increase the amount of Indebtedness outstanding
at such time or otherwise affect the Company's capital structure or credit
rating. The occurrence of a Change of Control, or the exercise by the Holders
of Notes of their right to require the Company to repurchase the Notes upon a
Change of Control, could cause a default under other senior Indebtedness of the
Company. The Company's ability to pay cash to the Holders of Notes upon a
Change of Control may be limited by the Company's then existing financial
resources. There can be no assurance that sufficient funds will be available
when necessary to make any required repurchases. The failure of the Company to
purchase any Notes tendered in a Change of Control Offer will constitute an
Event of Default under the Indenture. See "-- Events of Default and Remedies."
The Company will not be required to make a Change of Control Offer
upon a Change of Control if a third party makes the Change of Control Offer in
the manner, at the times and otherwise in compliance with the requirements set
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forth in the Indenture applicable to a Change of Control Offer made by the
Company and purchases all Notes validly tendered and not withdrawn under such
Change of Control Offer.
"Change of Control" means the occurrence of any of the following: (i)
the sale, lease, transfer, conveyance or other disposition (other than by way
of merger or consolidation), in one or a series of related transactions, of all
or substantially all of the assets of the Company and its Restricted
Subsidiaries taken as a whole to any "person" (as such term is used in Section
13(d)(3) of the Exchange Act) other than a Restricted Subsidiary; (ii) the
adoption of a plan relating to the liquidation or dissolution of the Company;
(iii) the consummation of any transaction (including, without limitation, any
merger or consolidation) the result of which is that any "person" (as defined
above), other than a Permitted Holder, becomes the "beneficial owner" (as such
term is defined in Rule 13d-3 and Rule 13d-5 under the Exchange Act), directly
or indirectly, of a greater percentage of the voting stock of the Company than
the percentage of the voting stock of the Company held by the Permitted
Holders; (iv) the first day on which the Permitted Holders in the aggregate
hold less than 35% of the voting stock of the Company; or (v) the first day on
which a majority of the members of the Board of Directors of the Company are
not Continuing Directors.
The definition of Change of Control includes a phrase relating to the
sale, lease, transfer, conveyance or other disposition of "all or substantially
all" of the assets of the Company and its Restricted Subsidiaries taken as a
whole. Although there is a developing body of case law interpreting the phrase
"substantially all," there is no precise established definition of the phrase
under applicable law. Accordingly, the ability of a Holder of Notes to require
the Company to repurchase such Notes as a result of a sale, lease, transfer,
conveyance or other disposition of less than all of the assets of the Company
and its Restricted Subsidiaries taken as a whole to another Person or group may
be uncertain.
"Continuing Director" means, as of any date of determination, any
member of the Board of Directors of the Company who (i) was a member of such
Board of Directors on the date of the Indenture, (ii) was nominated for
election or elected to such Board of Directors with the approval of a majority
of the Continuing Directors who were members of such Board of Directors at the
time of such nomination of election, or (iii) was designated pursuant to the
Stockholders' Agreement to be a member of the Board of Directors by a
stockholder of the Company who was a party to the Stockholders' Agreement as of
the Closing Date if such designation bound all parties to the Stockholders'
Agreement to take all action necessary to cause such individual to be elected
to such Board of Directors.
Asset Sales. The Indenture provides that the Company will not, and
will not permit any of its Restricted Subsidiaries to, engage in an Asset Sale
unless (i) the Company or such Restricted Subsidiary, as the case may be,
receives consideration at the time of such Asset Sale at least equal to the
Fair Market Value (which, if it exceeds $1 million, shall be determined by, and
set forth in, a resolution of the Board of Directors of the Company and
described in an Officers' Certificate of the Company delivered to the Trustee)
of the assets (including, if appropriate, Equity Interests) disposed of or
issued, as appropriate, and (ii) at least 75% of the consideration therefor
received by the Company or such Restricted Subsidiary is in the form of cash or
Cash Equivalents. For purposes of this covenant (and not for purposes of any
other provision of the Indenture), the term "cash" shall be deemed to include
(i) any notes or other obligations received by the Company or such Restricted
Subsidiary as consideration as part of such Asset Sale that are immediately
converted by the Company or such Restricted Subsidiary into actual cash (to the
extent of the actual cash so received), and (ii) any liabilities of the Company
or such Restricted Subsidiary (as shown on the most recent balance sheet of the
Company or such Restricted Subsidiary) that (A) are assumed by the transferee
of the assets which are the subject of such Asset Sale as consideration
therefor in a transaction the result of which is that the Company and all of
its Subsidiaries are released from all liability for such assumed liability,
(B) are not by their terms subordinated in right of payment to the Notes, (C)
are not owed to the Company or any Subsidiary of the Company, and (D)
constitute short-term liabilities (as determined in accordance with GAAP).
Within 360 days after the receipt of any Net Proceeds from an Asset
Sale, the Company may apply, directly or indirectly, such Net Proceeds (a) to
permanently reduce Indebtedness under the Bank Credit Agreement (and to
correspondingly reduce commitments with respect thereto) or (b) to invest in
Telecommunications Assets, which may include working capital requirements.
Pending the final application of any such Net Proceeds, the Company may
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temporarily invest such Net Proceeds in any manner that is not prohibited by
the Indenture (including, without limitation, to the reduction of Indebtedness
under the Bank Credit Agreement). Any Net Proceeds from Asset Sales that are
not applied or invested as provided in the first sentence of this paragraph
will be deemed to constitute "Excess Proceeds." When the aggregate amount of
Excess Proceeds exceeds $5 million, the Company will be required to make an
offer to all Holders of Notes and, if the Company is required to do so under
the terms of any other senior Indebtedness, to the holders of such other senior
Indebtedness (an "Asset Sale Offer") to purchase Notes and principal of such
other senior Indebtedness, on a pro rata basis, having an aggregate principal
amount equal to the Excess Proceeds, at an offer price in cash equal to, in the
case of the Notes, 100% of the principal amount thereof, plus accrued and
unpaid interest and Liquidated Damages, if any, thereon to the date of
purchase, and, in the case of all other senior Indebtedness, 100% of the
principal amount thereof, plus accrued and unpaid interest, or premium, if any,
thereon to the date of purchase, in accordance with the procedures set forth in
the Indenture. To the extent that the aggregate principal amount of Notes
tendered pursuant to an Asset Sale Offer is less than the Excess Proceeds, the
Company may use any remaining Excess Proceeds for general corporate purposes
(subject to the restrictions of the Indenture). If the aggregate principal
amount of Notes and such other senior Indebtedness surrendered by holders
thereof exceeds the amount of Excess Proceeds, the Trustee shall select the
Notes to be purchased in compliance with the requirements of the principal
national securities exchange, if any, on which the Notes are listed or, if the
Notes are not so listed, on a pro rata basis with such other senior
Indebtedness based on the outstanding principal amounts thereof (with such
adjustments as may be deemed appropriate by the Company so that only Notes with
denominations of $1,000 or integral multiples thereof shall be purchased). Upon
completion of such offer to purchase, the amount of Excess Proceeds shall be
reset at zero.
The Indenture provides that the Company will not, and will not permit
any of its Restricted Subsidiaries to, transfer, convey, sell, lease or
otherwise dispose of any Capital Stock of any Restricted Subsidiary of the
Company to any Person (other than the Company or a Wholly Owned Restricted
Subsidiary of the Company), unless (i) such transfer, conveyance, sale, lease
or other disposition is of all of the Capital Stock of such Restricted
Subsidiary owned by the Company and its Restricted Subsidiaries or is otherwise
permitted under the covenant described under the caption "-- Certain Covenants
- -- Limitation on Issuance, Sale and Ownership of Capital Stock of Restricted
Subsidiaries" and (ii) such transaction is conducted in accordance with the
covenant described in the preceding two paragraphs.
The Company will comply with the requirements of Rule 14e-1 under the
Exchange Act and any other securities laws and regulations thereunder to the
extent such laws and regulations are applicable in connection with the
repurchase of Notes using Excess Proceeds.
CERTAIN COVENANTS
Restricted Payments. The Indenture provides that the Company will not,
and will not permit any of its Restricted Subsidiaries to, directly or
indirectly, (i) declare or pay any dividend or make any other payment or
distribution on account of the Company's or any Restricted Subsidiary's Equity
Interests (including, without limitation, any payment in connection with any
merger or consolidation) other than dividends or distributions (a) paid or
payable in Equity Interests (other than Disqualified Stock) of the Company or
(b) paid or payable to the Company or any Wholly Owned Restricted Subsidiary of
the Company; (ii) purchase, redeem or otherwise acquire or retire for value any
Equity Interests of the Company or any direct or indirect parent of the Company
or other Affiliate of the Company or any Restricted Subsidiary of the Company
(other than any such Equity Interests owned by the Company or any Wholly Owned
Restricted Subsidiary of the Company); (iii) make any principal payment on, or
purchase, redeem, defease or otherwise acquire or retire for value prior to the
scheduled maturity, scheduled repayment or scheduled sinking fund payment, any
Subordinated Indebtedness (except, if no Default or Event of Default is
continuing or would result therefrom, any such payment, purchase, redemption,
defeasance or other acquisition or retirement for value made (a) out of Excess
Proceeds available for general corporate purposes if (1) such payment or other
action is required by the indenture or other agreement or instrument pursuant
to which such Subordinated Indebtedness was issued and (2) the Company has
purchased all Notes and other senior Indebtedness properly tendered pursuant to
an Asset Sale Offer required under "-- Repurchase at the Option of Holders --
Asset Sales" or (b) upon the occurrence of a Change of
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Control if (1) such payment or other action is required by the indenture or
other agreement or instrument pursuant to which such Subordinated Indebtedness
was issued and (2) the Company has purchased all Notes properly tendered
pursuant to the Change of Control Offer resulting from such Change of Control);
or (iv) make any Restricted Investment (all such payments and other actions set
forth in clauses (i) through (iv) above being collectively referred to as
"Restricted Payments"), unless, at the time of and after giving effect to such
Restricted Payment:
(a) no Default or Event of Default shall have occurred and be
continuing or would occur as a consequence thereof;
(b) the Company would, at the time of such Restricted Payment
and after giving pro forma effect thereto as if such Restricted
Payment had been made at the beginning of the applicable fiscal
quarter, have been permitted to Incur at least $1.00 of additional
Indebtedness pursuant to the Leverage Ratio test set forth in the
first paragraph of the covenant described under the caption "--
Incurrence of Indebtedness;" and
(c) such Restricted Payment, together with the aggregate
amount of all other Restricted Payments declared or made by the
Company and its Restricted Subsidiaries after the Closing Date shall
not exceed, at the date of determination, the sum of (1) 50% of
aggregate Consolidated Net Income of the Company from the beginning of
the first fiscal quarter commencing after the Closing Date to the end
of the Company's most recently ended fiscal quarter for which
financial statements are available at the time of such Restricted
Payment (or, if such aggregate Consolidated Net Income for such period
is a deficit, less 100% of such deficit), plus (2) 100% of the
aggregate net cash proceeds received by the Company from the issue or
sale after the Closing Date of Equity Interests of the Company or of
Disqualified Stock or debt securities of the Company that have been
converted into such Equity Interests (other than Equity Interests (or
Disqualified Stock or convertible debt securities) sold to a
Subsidiary of the Company and other than Disqualified Stock or debt
securities that have been converted into Disqualified Stock), plus (3)
the aggregate net cash proceeds received by the Company as capital
contributions to the Company (other than from a Subsidiary of the
Company) after the Closing Date, plus (4) if any Restricted Investment
that was made after the Closing Date is sold for cash, to the extent
such amount is not included in the Consolidated Net Income of the
Company, the lesser of (A) the Net Proceeds from such sale to the
extent received by the Company or any Restricted Subsidiary, and (B)
the initial amount of such Restricted Investment, plus (5) in the
event an Unrestricted Subsidiary is redesignated as a Restricted
Subsidiary, an amount equal to the lesser of (A) the book value of
such Unrestricted Subsidiary, and (B) the Fair Market Value of such
Unrestricted Subsidiary.
The foregoing provisions will not prohibit the following Restricted
Payments: (i) the payment of any dividend or other distribution within 60 days
after the date of declaration thereof, if at said date of declaration such
payment would have complied with the provisions of the Indenture; (ii) the
redemption, repurchase, retirement or other acquisition of any Equity Interests
of the Company (other than Disqualified Stock) in exchange for, or out of the
proceeds of, the substantially concurrent sale (other than to a Subsidiary of
the Company) of other Equity Interests of the Company (other than Disqualified
Stock); provided that the amount of any such net cash proceeds that are
utilized for any such redemption, repurchase, retirement or other acquisition
shall be excluded from clause (c) of the preceding paragraph (both for purposes
of determining the aggregate amount of Restricted Payments made and for
purposes of determining the aggregate amount of Restricted Payments permitted);
(iii) the payment, purchase, redemption, defeasance or other acquisition or
retirement for value of Subordinated Indebtedness with the net cash proceeds
from a substantially concurrent Incurrence of Permitted Refinancing
Indebtedness or the substantially concurrent sale (other than to a Subsidiary
of the Company) of Equity Interests of the Company (other than Disqualified
Stock); provided that the amount of any such net cash proceeds that are
utilized for any such payment, purchase, redemption, defeasance or other
acquisition or retirement shall be excluded from clause (c) of the preceding
paragraph (both for purposes of determining the aggregate amount of Restricted
Payments made and for purposes of determining the aggregate amount of
Restricted Payments permitted); (iv) so long as no Default or Event of Default
is continuing, the repurchase of Equity Interests of the Company from former
employees of the Company or any Restricted Subsidiary thereof (or the estates,
heirs or legatees of such former employees) for consideration which does not
exceed $3 million in the aggregate in any
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fiscal year; (v) so long as no Default or Event of Default is continuing, loans
made to current officers, directors and employees of the Company or any
Restricted Subsidiary thereof in an aggregate principal amount at any one time
outstanding not to exceed $3 million; (vi) any Restricted Investment made with
the net cash proceeds from a substantially concurrent sale (other than to a
Subsidiary of the Company) of Equity Interests of the Company (other than
Disqualified Stock); and (vii) Permitted Telecommunications Investments in an
aggregate amount not to exceed $15 million at any one time outstanding (the
amount of any such Restricted Payment being the amount thereof on the date such
Restricted Payment is made). Except to the extent specifically noted above,
Restricted Payments made pursuant to this paragraph shall be included in
calculating the amount of Restricted Payments made after the Closing Date.
The Board of Directors of the Company may designate any Restricted
Subsidiary to be an Unrestricted Subsidiary if (i) such designation would not
cause a Default or Event of Default, (ii) at the time of and after giving
effect to such designation, the Company could incur $1.00 of additional
Indebtedness pursuant to the Leverage Ratio test set forth in the first
paragraph of the covenant entitled "-- Incurrence of Indebtedness," and (iii)
each of the other requirements of the definition of the term "Unrestricted
Subsidiary" are satisfied. For purposes of making such determination, all
outstanding Investments by the Company and its Restricted Subsidiaries (except
to the extent repaid in cash) in the Subsidiary so designated will be deemed to
be Restricted Payments at the time of such designation and will reduce the
amount available for Restricted Payments under the first paragraph of this
covenant. All such outstanding Investments will be deemed to constitute
Restricted Payments in an amount equal to the greater of (i) the net book value
of such Investments at the time of such designation and (ii) the Fair Market
Value of such Investments at the time of such designation. Such designation
will only be permitted if such Restricted Payment would be permitted at such
time and if such Restricted Subsidiary otherwise meets the definition of an
Unrestricted Subsidiary. Upon being so designated as an Unrestricted
Subsidiary, any Subsidiary Guarantee that was previously executed by such
Unrestricted Subsidiary shall be deemed terminated.
The amount of all Restricted Payments not made in cash shall be the
Fair Market Value (which, if it exceeds $1 million, shall be determined by, and
set forth in, a resolution of the Board of Directors of the Company and
described in an Officers' Certificate delivered to the Trustee) on the date of
the Restricted Payment of the asset(s) proposed to be transferred by the
Company or any Restricted Subsidiary, as the case may be, pursuant to the
Restricted Payment. Not later than the date of making any Restricted Payment,
the Company shall deliver to the Trustee an Officers' Certificate stating that
such Restricted Payments during such quarter were permitted and setting forth
the basis upon which the calculations required by the covenant described under
"-- Restricted Payments" were computed, which calculations may be based upon
the Company's latest available financial statements.
Incurrence of Indebtedness. The Indenture provides that the Company
will not, and will not permit any of its Restricted Subsidiaries to, directly
or indirectly, Incur any Indebtedness (including Acquired Indebtedness), except
for Permitted Indebtedness; provided, however, that the Company and its
Restricted Subsidiaries may Incur Indebtedness (including Acquired
Indebtedness) if, at the time of Incurrence of such Indebtedness, after giving
pro forma effect to such Incurrence as of such date and to the use of proceeds
therefrom (including the application or the use of the net proceeds therefrom
to repay Indebtedness or make any Restricted Payment) as if the same had
occurred at the beginning of the most recently ended full fiscal quarter of the
Company for which internal financial statements are available, the Company's
Leverage Ratio would have been greater than zero but no greater than 5.5 to 1.
"Permitted Indebtedness" means any and all of the following:
(i) Indebtedness of the Company and its Restricted
Subsidiaries pursuant to the Bank Credit Agreement (including all
Guarantees thereof) in an aggregate amount not to exceed the greater
of (A) $15 million and (B) the sum of 60% of Eligible Inventory plus
85% of Eligible Receivables, in each case at any one time outstanding;
(ii) Indebtedness represented by the Notes, the Indenture, the
Subsidiary Guarantees and the Pledge Agreement;
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(iii) intercompany Indebtedness between or among the Company
and any of its Restricted Subsidiaries; provided that (A) if the
Company is an obligor on such Indebtedness, such Indebtedness is
expressly subordinate to the payment in full of all Obligations with
respect to the Notes and (B) any subsequent issuance or transfer of
Equity Interests that results in any such Indebtedness being held by a
Person other than the Company or a Restricted Subsidiary of the
Company, or any sale or other transfer of any such Indebtedness to a
Person that is not either the Company or a Restricted Subsidiary of
the Company, shall be deemed to constitute a new Incurrence of such
Indebtedness by the Company or such Restricted Subsidiary, as the case
may be;
(iv) Permitted Refinancing Indebtedness Incurred in exchange
for, or the net proceeds of which are used to extend, refinance,
renew, replace, defease or refund, (A) Indebtedness (other than
Permitted Indebtedness) that was Incurred in compliance with the
Indenture, (B) Indebtedness referred to in clause (ii) of the
definition of the term "Permitted Indebtedness," or (C) Existing
Indebtedness;
(v) Indebtedness of a Restricted Subsidiary of the Company
constituting a Guarantee of Indebtedness of the Company or a
Restricted Subsidiary which Indebtedness was Incurred pursuant to this
definition or the Leverage Ratio test set forth in the first paragraph
of the covenant described under the caption "-- Incurrence of
Indebtedness;"
(vi) Hedging Obligations of the following types: (A) Interest
Rate Hedges the notional principal amount of which does not exceed the
principal amount of the Indebtedness to which such Interest Rate Hedge
relates, and (B) Currency Hedges that do not increase the outstanding
loss potential or liabilities other than as a result of fluctuations
in foreign currency exchange rates;
(vii) (1) Capital Lease Obligations in an aggregate amount at
any one time outstanding not to exceed an amount equal to (A) $15
million minus (B) the aggregate outstanding amount of Attributable
Debt (other than Capital Lease Obligations) Incurred in connection
with sale and leaseback transactions in reliance on clause (a)(i)(2)
of the covenant described under "-- Sale and Leaseback Transactions"
and in compliance therewith, and (2) Indebtedness constituting a
Guarantee by the Company or any Restricted Subsidiary of any Capital
Lease Obligations and Attributable Debt of the types described in
clause (1) under which such Person is the lessee;
(viii) Indebtedness (in addition to Indebtedness permitted by
any other clause of this paragraph) in an aggregate principal amount
at any time outstanding not to exceed $25 million; and
(ix) Existing Indebtedness.
For purposes of determining compliance with the covenant entitled
"Incurrence of Indebtedness," (i) in the event that an item of Indebtedness
meets the criteria of more than one of the types of Indebtedness described
herein, the Company, in its sole discretion, will classify such item of
Indebtedness and only be required to include the amount and type of such
Indebtedness in one of the above clauses and (ii) an item of Indebtedness may
be divided and classified in more than one of the types of Indebtedness
described herein.
Liens. The Indenture provides that the Company will not, and will not
permit any of its Restricted Subsidiaries to, directly or indirectly, create,
incur, affirm, assume or suffer to exist any Lien of any kind on any property
now owned or hereafter acquired, or any income or profits therefrom or assign
or convey any right to receive income therefrom, unless (i) in the case of
Liens securing obligations subordinate to the Notes, the Notes are secured by a
valid, perfected Lien on such property that is senior in priority to such
Liens, (ii) in the case of Liens securing obligations subordinate to a
Subsidiary Guarantee, such Subsidiary Guarantee is secured by a valid,
perfected Lien on such property that is senior in priority to such Liens, and
(iii) in all other cases, the Notes (and, if such Lien secures obligations of a
Restricted
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Subsidiary, a Subsidiary Guarantee of such Restricted Subsidiary) are equally
and ratably secured; provided, however, that the foregoing shall not prohibit
or restrict Permitted Liens.
Dividend and Other Payment Restrictions Affecting Subsidiaries. The
Indenture provides that the Company will not, and will not permit any of its
Restricted Subsidiaries to, directly or indirectly, create or otherwise cause
or suffer to exist or become effective any consensual encumbrance or
restriction on the ability of any Restricted Subsidiary to (i)(a) pay dividends
or make any other distributions to the Company or any of its Restricted
Subsidiaries on its Capital Stock or with respect to any other interest or
participation in, or measured by, its profits or (b) pay any Indebtedness owed
to the Company or any of its Restricted Subsidiaries, (ii) make loans or
advances to the Company or any of its Restricted Subsidiaries, (iii) transfer
any of its properties to the Company or any of its Restricted Subsidiaries,
(iv) grant any Liens in favor of the Holders of the Notes and the Trustee or
(v) guarantee the Notes or any renewals or refinancings thereof, except for
such encumbrances or restrictions existing under or by reason of (A) Existing
Indebtedness, (B) the Bank Credit Agreement, (C) applicable law, (D) any
instrument governing Indebtedness or Capital Stock of a Person acquired by the
Company or any of its Restricted Subsidiaries as in effect at the time of such
acquisition (except to the extent such Indebtedness was Incurred in connection
with or in contemplation of such acquisition), which encumbrance or restriction
is not applicable to any Person, or the properties of any Person, other than
the Person, or the property of the Person, so acquired, provided that in the
case of Indebtedness, such Indebtedness was permitted by the terms of the
Indenture to be Incurred, (E) customary non-assignment provisions in leases,
licenses, sales agreements or other contracts (but excluding contracts related
to the extension of credit) entered into in the ordinary course of business and
consistent with past practices, (F) restrictions imposed pursuant to a binding
agreement for the sale or disposition of all or substantially all of the Equity
Interests or assets of any Restricted Subsidiary, provided such restrictions
apply solely to the Equity Interests or assets being sold, (G) restrictions
imposed by Permitted Liens on the transfer of the assets that are subject to
such Liens, and (H) Permitted Refinancing Indebtedness Incurred to refinance
Existing Indebtedness or Indebtedness of the type described in clause (D)
above, provided that the restrictions contained in the agreements governing
such Permitted Refinancing Indebtedness are no more restrictive, as a whole,
than those contained in the agreements governing the Indebtedness being
refinanced.
Limitation on Issuance, Sale and Ownership of Capital Stock of
Restricted Subsidiaries. The Indenture provides that the Company will not, and
will not permit any Restricted Subsidiary to (i) sell, assign, transfer, convey
or otherwise dispose of, any Equity Interests of any Restricted Subsidiary,
other than to the Company or a Wholly Owned Restricted Subsidiary, (ii) permit
any Restricted Subsidiary to issue any Equity Interests (including, without
limitation, pursuant to any merger, consolidation, recapitalization or similar
transaction) other than to the Company or a Wholly Owned Restricted Subsidiary
or (iii) permit any Person other than the Company or a Wholly Owned Restricted
Subsidiary to own any Equity Interests of any Restricted Subsidiary, except for
(A) a sale to a Person of all of the Equity Interests of a Restricted
Subsidiary, which sale was made by the Company or a Restricted Subsidiary
subject to, and in compliance with, the "Asset Sales" covenant, (B) the
issuance and subsequent ownership of directors' qualifying shares, and (C) the
issuance, sale and subsequent ownership of Capital Stock of a Restricted
Subsidiary if and only to the extent that (1) such Restricted Subsidiary is
organized under the laws of a jurisdiction other than the United States and
Canada and political subdivisions thereof (such other jurisdiction being a
"Foreign Jurisdiction"), (2) the laws of such Foreign Jurisdiction
unconditionally require, as a condition to such Restricted Subsidiary being
permitted to transact business in such Foreign Jurisdiction, that the
government of such Foreign Jurisdiction or individuals of such Foreign
Jurisdiction own such Capital Stock, (3) the government of such Foreign
Jurisdiction or individuals of such Foreign Jurisdiction, as appropriate, at
all times both legally and beneficially own such Capital Stock, and such
ownership satisfies the requirement described in clause (2) above, and (4) such
Restricted Subsidiary does not, directly or indirectly, conduct business in the
United States or Canada and does not, directly or indirectly, own or control
any properties or assets located in the United States or Canada.
Merger, Consolidation, or Sale of Assets. The Indenture provides that
the Company may not consolidate or merge with or into (whether or not the
Company is the surviving entity), or sell, assign, transfer, lease, convey or
otherwise dispose of all or substantially all of its properties or assets in
one or more related transactions, to another Person, unless (i) the Company is
the surviving entity, or the Person formed by or surviving any such
consolidation or
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merger (if other than the Company) or to which such sale, assignment, transfer,
lease, conveyance or other disposition shall have been made is a corporation
organized or existing under the laws of the United States, any state thereof or
the District of Columbia; (ii) the Person formed by or surviving any such
consolidation or merger (if other than the Company) or the Person to which such
sale, assignment, transfer, lease, conveyance or other disposition shall have
been made assumes all the obligations of the Company under the Notes and the
Indenture pursuant to a supplemental indenture in a form reasonably
satisfactory to the Trustee; (iii) immediately after giving effect to such
transaction, no Default or Event of Default exists or would exist; (iv) except
in the case of a merger of the Company with or into a Wholly Owned Restricted
Subsidiary of the Company, the Company or the Person formed by or surviving any
such consolidation or merger (if other than the Company) or to which such sale,
assignment, transfer, lease, conveyance or other disposition shall have been
made (A) will (treating any Indebtedness not previously an obligation of the
Company or any of its Restricted Subsidiaries as a result of such transaction
as having been Incurred at the time of such transaction) have Consolidated Net
Worth immediately after the transaction equal to or greater than the
Consolidated Net Worth of the Company immediately preceding the transaction and
(B) will, at the time of such transaction and after giving pro forma effect
thereto as if such transaction had occurred at the beginning of the applicable
fiscal quarter, be permitted to Incur at least $1.00 of additional Indebtedness
pursuant to the Leverage Ratio test set forth in the first paragraph of the
covenant described under the caption "-- Incurrence of Indebtedness;" and (v)
the Company shall have delivered to the Trustee an Officers' Certificate and an
opinion of counsel, each stating that such consolidation, merger or transfer
and such supplemental indenture (if any) comply with the Indenture. For
purposes of the foregoing, the transfer (by lease, assignment, sale or
otherwise, in a single transaction or series of transactions) of all or
substantially all of the properties or assets of one or more of the Restricted
Subsidiaries of the Company, the Capital Stock of which constitutes all or
substantially all of the properties and assets of the Company, shall be deemed
to be the transfer of all or substantially all of the properties and assets of
the Company. For restrictions on mergers, consolidations and disposition of
assets involving Restricted Subsidiaries, see "-- Subsidiary Guarantees."
Transactions with Affiliates. The Indenture provides that the Company
will not, and will not permit any of its Restricted Subsidiaries to, make any
payment to, or sell, lease, transfer or otherwise dispose of any of its
properties or assets to, or purchase any property or assets from, or enter into
or make or amend any contract, agreement, understanding, loan, advance or
guarantee with, or for the benefit of, any Affiliate of the Company (other than
the Company or a Restricted Subsidiary), in one transaction or a series of
transactions (each of the foregoing an "Affiliate Transaction"), unless (i)
such Affiliate Transaction is on terms that are no less favorable to the
Company or the relevant Restricted Subsidiary than those that would have been
obtained in a comparable transaction with an unrelated Person and (ii) the
Company delivers to the Trustee (a) with respect to any Affiliate Transaction
or series of related Affiliate Transactions after the Closing Date involving
aggregate consideration in excess of $2 million, a resolution described in an
Officers' Certificate, certifying that such Affiliate Transaction complies with
clause (i) above and such Affiliate Transaction has been approved by a majority
of the disinterested members of the Board of Directors of the Company and (b)
with respect to any Affiliate Transaction or series of related Affiliate
Transactions after the Closing Date involving aggregate consideration in excess
of $10 million, an opinion as to the fairness to the Company of such Affiliate
Transaction from a financial point of view issued by an accounting, appraisal
or investment banking firm of recognized national standing; provided that the
following types of transactions shall not constitute Affiliate Transactions:
(1) any transaction with an officer or director of the Company or any
Restricted Subsidiary in connection with such individual's compensation
(including directors' fees), employee benefits, severance arrangements or
indemnification (to the extent consistent with applicable law and the charter
and bylaws of the Company or such Restricted Subsidiary), in each case entered
into by the Company or any of its Restricted Subsidiaries in the ordinary
course of business, (2) transactions between or among the Company and its
Restricted Subsidiaries, (3) Restricted Payments that are permitted by the
provisions of the covenant described under "-- Restricted Payments;" (4) the
consummation of the specific transactions described in the various documents
listed on Annex I to the Indenture, as such documents are in effect on the
Closing Date; (5) sales of Capital Stock of the Company made at prevailing
market rates; and (6) loans to officers, directors and employees of the Company
and its Restricted Subsidiaries made in the ordinary course of business in an
aggregate amount not to exceed $3 million at any one time outstanding.
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Sale and Leaseback Transactions. The Indenture provides that the
Company will not, and will not permit any of its Restricted Subsidiaries to,
enter into any sale and leaseback transaction; provided that the Company or any
Restricted Subsidiary may enter into a sale and leaseback transaction if (a)
the Company could have (i) Incurred Indebtedness in an amount equal to the
Attributable Debt relating to such sale and leaseback transaction pursuant to
either (1) the Leverage Ratio test set forth in the first paragraph of the
covenant described under "-- Incurrence of Indebtedness" or (2) clause (vii) of
the definition of the term "Permitted Indebtedness" and (ii) incurred a Lien to
secure such Indebtedness pursuant to the covenant described under "-- Liens,"
and (b) the sale portion of such sale and leaseback transaction complies with
the covenant described in "-- Repurchase at the Option of Holders -- Asset
Sales," and the net proceeds from such sale are applied in accordance with such
covenant.
Business Activities. The Indenture provides that the Company will not,
and will not permit any of its Restricted Subsidiaries to, engage in any
business other than the Telecommunications Business.
Payments for Consent. The Indenture provides that the Company will
not, and will not permit any of its Restricted Subsidiaries to, directly or
indirectly, pay or cause to be paid any consideration, whether by way of
interest, fee or otherwise, to any Holder of any Notes for or as an inducement
to any consent, waiver or amendment of any of the terms or provisions of the
Indenture, the Notes, the Pledge Agreement or the Subsidiary Guarantees unless
such consideration is offered to be paid or is paid to all Holders of the Notes
that so consent, waive or agree to amend in the time frame set forth in the
solicitation documents relating to such consent, waiver or agreement.
Reports. The Indenture provides that, whether or not required by the
rules and regulations of the Commission, so long as any Notes are outstanding,
the Company will furnish to the Holders of Notes (i) all quarterly and annual
financial information that would be required to be contained in a filing with
the Commission on Forms 10-Q and 10-K if the Company were required to file such
Forms, including a "Management's Discussion and Analysis of Financial Condition
and Results of Operations" that describes the financial condition and results
of operations of the Company and its Subsidiaries and, with respect to the
annual information only, a report thereon by the Company's certified
independent accountants and (ii) all current reports that would be required to
be filed with the Commission on Form 8-K if the Company were required to file
such reports. In addition, whether or not required by the rules and regulations
of the Commission, the Company will file a copy of all such information and
reports with the Commission for public availability (unless the Commission will
not accept such a filing) and make such information available to securities
analysts and prospective investors upon request. In addition, the Company has
agreed that, for so long as any Notes remain outstanding, it will furnish to
the Holders and to securities analysts and prospective investors, upon their
request, the information required to be delivered pursuant to Rule 144A(d)(4)
under the Securities Act.
EVENTS OF DEFAULT AND REMEDIES
The Indenture provides that each of the following constitutes an
"Event of Default": (i) default for 30 days in the payment when due of any
interest or Liquidated Damages payable with respect to the Notes at any time
(provided that such 30-day grace period shall be inapplicable for the first six
scheduled interest payments due on the Notes); (ii) default in payment when due
(whether at maturity, upon redemption or repurchase, or otherwise) of the
principal of or premium, if any, on the Notes; (iii) failure by the Company or
a Restricted Subsidiary to comply with the provisions described under "--
Security," "-- Subsidiary Guarantees," "-- Repurchase at the Option of Holders
- -- Change of Control," "-- Repurchase at the Option of Holders -- Asset Sales"
or "Certain Covenants -- Merger, Consolidation, or Sale of Assets;" (iv)
failure by the Company or any Restricted Subsidiary for 30 days after notice
from the Trustee or Holders of at least 25% in aggregate principal amount of
the Notes to the Company and the Trustee to comply with any of its other
agreements in the Indenture or the Notes; (v) 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 Company or
any of its Restricted Subsidiaries (or the payment of which is Guaranteed by
the Company or any of its Restricted Subsidiaries), whether such Indebtedness
or Guarantee now exists or is created after the date of the Indenture, which
default (a) is caused by a failure to pay principal of or premium, if any, or
interest on such Indebtedness following the expiration of the grace period
provided in such Indebtedness on the date of such default (a
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"Payment Default") or (b) results in the acceleration of such Indebtedness
(including any obligation to redeem or repurchase 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 $5 million or more; (vi) failure by the Company or
any of its Restricted Subsidiaries to pay final non-appealable judgments
rendered against the Company or any of its Restricted Subsidiaries aggregating
in excess of $5 million, which judgments are not paid, discharged or stayed for
a period of 60 days after such judgments become final and non-appealable; (vii)
certain events of bankruptcy or insolvency with respect to the Company or any
Restricted Subsidiary; (viii) certain events of breach, default, repudiation or
unenforceability of the Pledge Agreement; and (ix) any Guarantee of the Notes
shall be held in a judicial proceeding to be unenforceable or invalid or shall
cease for any reason to be in full force and effect, or any Restricted
Subsidiary, or any Person acting on behalf of any Restricted Subsidiary, shall
deny or disaffirm its obligations under its Guarantee of any Notes.
If any Event of Default occurs and is continuing, the Trustee or the
Holders of at least 25% in principal amount of the then outstanding Notes may
declare all the Notes to be due and payable immediately. Notwithstanding the
foregoing, in the case of an Event of Default arising from certain events of
bankruptcy or insolvency with respect to the Company or any Restricted
Subsidiary of the Company, all outstanding Notes will become due and payable
without further action or notice by the Trustee or any Holder. Holders of the
Notes may not enforce the Indenture or the Notes except as provided in the
Indenture. Subject to certain limitations, Holders of a majority in principal
amount of the then outstanding Notes may direct the Trustee in its exercise of
any trust or power. The Trustee may withhold from Holders of the Notes notice
of any continuing Default or Event of Default (except a Default or Event of
Default relating to the payment of principal or interest) if it determines that
withholding notice is in their interest.
In the case of any Event of Default occurring by reason of any willful
action (or inaction) taken (or not taken) by or on behalf of the Company or a
Restricted Subsidiary with the intention of avoiding payment of the premium
that the Company would have had to pay if the Company then had elected to
redeem the Notes pursuant to the optional redemption provisions of the
Indenture, an equivalent premium shall also become and be immediately due and
payable to the extent permitted by law upon the acceleration of the Notes. If
an Event of Default occurs prior to September 15, 2001 by reason of any willful
action (or inaction) taken (or not taken) by or on behalf of the Company or a
Restricted Subsidiary with the intention of avoiding the prohibition on
redemption of the Notes prior to such date, then the premium specified in the
Indenture shall also become immediately due and payable to the extent permitted
by law upon the acceleration of the Notes.
The Holders of a majority in aggregate principal amount of the Notes
then outstanding by notice to the Trustee may on behalf of the Holders of all
of the Notes waive any existing Default or Event of Default and its
consequences under the Indenture except a continuing Default or Event of
Default in the payment of the principal of or premium, interest or Liquidated
Damages on the Notes.
The Company is required to deliver to the Trustee annually a statement
regarding compliance with the Indenture, and the Company is required, upon
becoming aware of any Default or Event of Default, to deliver to the Trustee a
statement specifying such Default or Event of Default.
LEGAL DEFEASANCE AND COVENANT DEFEASANCE
The Company may, at its option and at any time, elect to discharge all
of its obligations with respect to the outstanding Notes and all obligations of
the Restricted Subsidiaries under the Subsidiary Guarantees ("Legal
Defeasance") except for (i) the rights of Holders of outstanding Notes to
receive payments in respect of the principal of and premium, if any, interest
and Liquidated Damages, if any, on the Notes when such payments are due from
the trust referred to below, (ii) the Company's obligations with respect to the
Notes concerning issuing temporary Notes, registration of transfers or
exchanges of Notes, replacement of mutilated, destroyed, lost or stolen Notes
as required by the Indenture and the maintenance of an office or agency for
payment and money for security payments held in trust,
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(iii) the rights, powers, trusts, duties and immunities of the Trustee, and the
Company's obligations in connection therewith and (iv) the Legal Defeasance and
optional redemption provisions of the Indenture. In addition, the Company may,
at its option and at any time, elect to have its obligations released with
respect to certain covenants that are described in the Indenture ("Covenant
Defeasance") and thereafter any omission to comply with such obligations shall
not constitute a Default or Event of Default with respect to the Notes. In the
event Covenant Defeasance occurs, certain events (not including nonpayment,
bankruptcy, receivership, rehabilitation and insolvency events) described under
"Events of Default" will no longer constitute an Event of Default with respect
to the Notes.
In order to exercise either Legal Defeasance or Covenant Defeasance,
(i) the Company must irrevocably deposit with the Trustee, in trust, for the
benefit of the Holders of the Notes, cash in U.S. dollars or non-callable
Government Securities, or a combination thereof, in such amounts as will be
sufficient, without reinvestment, in the opinion of a nationally recognized
firm of independent public accountants, to pay the principal of and premium, if
any, interest and Liquidated Damages, if any, on the outstanding Notes on the
stated maturity or on the applicable redemption date, as the case may be; (ii)
in the case of Legal Defeasance, the Company shall have delivered to the
Trustee an opinion of counsel in the United States reasonably acceptable to the
Trustee confirming that (a) the Company has received from, or there has been
published by, the IRS a ruling or (b) since the date of the Indenture, there
has been a change in the applicable federal income tax law, in either case to
the effect that, and based thereon such opinion of counsel shall confirm that,
the Holders of the outstanding Notes will not recognize income, gain or loss
for federal income tax purposes as a result of such Legal Defeasance and will
be subject to federal income tax on the same amounts, in the same manner and at
the same times as would have been the case if such Legal Defeasance had not
occurred; (iii) in the case of Covenant Defeasance, the Company shall have
delivered to the Trustee an opinion of counsel in the United States reasonably
acceptable to the Trustee confirming that the Holders of the outstanding Notes
will not recognize income, gain or loss for federal income tax purposes as a
result of such Covenant Defeasance and will be subject to federal income tax on
the same amounts, in the same manner and at the same times as would have been
the case if such Covenant Defeasance had not occurred; (iv) no Default or Event
of Default shall have occurred and be continuing on the date of such deposit or
insofar as Events of Default from bankruptcy or insolvency events are
concerned, at any time in the period ending on the 91st day after the date of
deposit; (v) such Legal Defeasance or Covenant Defeasance will not result in a
breach or violation of, or constitute a default under any material agreement or
instrument to which the Company or any of its Subsidiaries is a party or by
which the Company or any of its Subsidiaries is bound; (vi) the Company shall
have delivered to the Trustee an Officer's Certificate stating that the deposit
was not made by the Company with the intent of preferring the Holders of Notes
over the other creditors of the Company with the intent of defeating,
hindering, delaying or defrauding creditors of the Company or others; and (vii)
the Company shall have delivered to the Trustee an Officer's Certificate and an
opinion of counsel, each stating that all conditions precedent provided for
relating to the Legal Defeasance or the Covenant Defeasance, as the case may
be, have been complied with.
TRANSFER AND EXCHANGE
A Holder may transfer or exchange Notes in accordance with the
Indenture. The Registrar and the Trustee may require a Holder, among other
things, to furnish appropriate endorsements and transfer documents and the
Company may require a Holder to pay any taxes and fees required by law or
permitted by the Indenture. The Company is not required to transfer or exchange
any Note selected for redemption. Also, the Company is not required to transfer
or exchange any Note for a period of 15 days before a selection of Notes to be
redeemed.
The registered Holder of a Note will be treated as the owner of such
Note for all purposes.
AMENDMENT, SUPPLEMENT AND WAIVER
Except as provided in the next two succeeding paragraphs, the
Indenture, the Pledge Agreement, the Notes or the Subsidiary Guarantees may be
amended or supplemented by the Company, each Restricted Subsidiary, and the
Trustee with the consent of the Holders of at least a majority in principal
amount of the Notes then outstanding (including, without limitation, consents
obtained in connection with a purchase of, or tender offer or exchange offer
for,
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Notes), and any existing default or non-compliance with any provision of the
Indenture, the Pledge Agreement, the Notes or the Subsidiary Guarantees may be
waived with the consent of the Holders of a majority in principal amount of the
then outstanding Notes (including consents obtained in connection with a
purchase of, or tender offer or exchange offer for Notes).
Without the consent of each Holder affected, an amendment or waiver
may not (with respect to any Notes held by a non-consenting Holder): (i) reduce
the principal amount of Notes whose Holders must consent to an amendment,
supplement or waiver; (ii) reduce the principal of or change the fixed maturity
of any Note or alter the provisions with respect to the redemption of the Notes
(other than provisions relating to the covenants described under "-- Repurchase
at the Option of Holders"); (iii) reduce the rate of or change the time for
payment of interest on any Note; (iv) waive a Default or Event of Default in
the payment of principal of or premium, if any, interest or Liquidated Damages,
if any, on the Notes (except a rescission of acceleration of the Notes by the
Holders of at least a majority in aggregate principal amount of the Notes and a
waiver of the payment default that resulted from such acceleration); (v) make
any Note payable in money other than that stated in the Notes; (vi) make any
change in the provisions of the Indenture relating to waivers of past Defaults
or the rights of Holders of Notes to receive payments of principal of or
premium, if any, interest or Liquidated Damages, if any, on the Notes; (vii)
waive a redemption payment with respect to any Note (other than a payment
required by one of the covenants described under "-- Repurchase at the Option
of Holders"); (viii) release any Collateral from the Lien created by the Pledge
Agreement, except in accordance with the terms thereof, or amend the terms
thereof relating to release of Collateral; (ix) release any Restricted
Subsidiary from its Subsidiary Guarantee except as permitted hereunder; (x)
make any change in the provisions of the Indenture requiring any Guarantees
thereof or in the provisions of any such Guarantees; or (xi) make any change in
the foregoing amendment and waiver provisions.
Notwithstanding the foregoing, without the consent of any Holder of
Notes, the Company, the Restricted Subsidiaries and the Trustee may amend or
supplement the Indenture, the Pledge Agreement, the Notes or the Subsidiary
Guarantees to cure any ambiguity, defect or inconsistency, to provide for
uncertificated Notes in addition to or in place of certificated Notes, to
provide for the assumption of the Company's obligations to Holders of Notes in
the case of a merger or consolidation, to make any change that would provide
any additional rights or benefits to the Holders of Notes or that does not
adversely affect the legal rights under the Indenture of any such Holder, to
add Guarantees of Restricted Subsidiaries with respect to the Notes or to
comply with requirements of the Commission in order to effect or maintain the
qualification of the Indenture under the Trust Indenture Act.
SATISFACTION AND DISCHARGE
The Indenture will be discharged and will cease to be of further
effect (except as to surviving rights of registration of transfer or exchange
of Notes) as to all outstanding Notes when (i) either (a) all such Notes
theretofore authenticated and delivered (except lost, stolen or destroyed Notes
that have been replaced or paid and Notes for whose payment money has
theretofore been deposited in trust with the Trustee and thereafter repaid to
the Company or discharged from such trust) have been delivered to the Trustee
for cancellation; or (b) all such Notes not theretofore delivered to the
Trustee for cancellation have become due and payable, will become due and
payable by their terms within one year, or are to be called for redemption
within one year under arrangements satisfactory to the Trustee for the giving
of notice of redemption, and in each case the Company has irrevocably deposited
or caused to be deposited with the Trustee funds in an amount of money in U.S.
dollars sufficient to pay and discharge the entire indebtedness on the Notes
not theretofore delivered to the Trustee for cancellation, for the principal
amount, premium, if any, accrued and unpaid interest, and Liquidated Damages,
if any, to the date of such deposit together with irrevocable instructions from
the Company directing the Trustee to apply such funds to the payment thereof;
(ii) the Company has paid all other sums payable by it under the Indenture; and
(iii) the Company has delivered irrevocable instructions to the Trustee to
apply the deposited money toward the payment of the Notes at maturity, as the
case may be. In addition, the Company must deliver an Officers' Certificate and
an opinion of counsel stating that all conditions precedent under the Indenture
to satisfaction and discharge have been complied with.
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NO PERSONAL LIABILITY OF DIRECTORS, OFFICERS, EMPLOYEES, PARTNERS AND
STOCKHOLDERS
No past, present or future director, officer, employee, incorporator,
partner or stockholder of either of the Company or any of its Subsidiaries, as
such, shall have any liability for any obligations of the Company or its
Subsidiaries under the Notes, the Subsidiary Guarantees or the Indenture or for
any claim based on, in respect of or by reason of such obligations or their
creation. Each Holder of Notes by accepting a Note waives and releases all such
liability. The waiver and release are part of the consideration for issuance of
the Notes and the Subsidiary Guarantees. Such waiver may not be effective to
waive liabilities under the federal Securities laws and it is the view of the
Commission that such a waiver is against public policy.
CONCERNING THE TRUSTEE
The Indenture contains certain limitations on the rights of the
Trustee, should it become a creditor of the Company, to obtain payment of
claims in certain cases or to realize on certain property received in respect
of any such claim as security or otherwise. The Trustee will be permitted to
engage in other transactions; however, if it acquires any conflicting interest
it must eliminate such conflict within 90 days, apply to the Commission for
permission to continue, or resign.
The Holders of a majority in principal amount of the then outstanding
Notes will have the right to direct the time, method and place of conducting
any proceeding for exercising any remedy available to the Trustee, subject to
certain exceptions. The Indenture provides that in case an Event of Default
shall occur (which shall not be cured), the Trustee will be required, in the
exercise of its power, to use the degree of care of a prudent man in the
conduct of his own affairs. Subject to such provisions, the Trustee will be
under no obligation to exercise any of its rights or powers under the Indenture
at the request of any Holder of Notes, unless such Holder shall have offered to
the Trustee security and indemnity satisfactory to it against any loss,
liability or expense.
ADDITIONAL INFORMATION
Anyone who receives this Prospectus may obtain copies of the Indenture
and the Pledge Agreement and the Exchange Registration Rights Agreement without
charge by writing to the Company, 16479 Dallas Parkway, Suite 710, Dallas,
Texas 75248, Attention: Chief Financial Officer.
CERTAIN DEFINITIONS
Set forth below are certain defined terms used in the Indenture.
Reference is made to the Indenture for a full description of all such terms, as
well as any other capitalized terms used herein for which no definition is
provided.
"Acquired Indebtedness" means, with respect to any specified Person,
(i) Indebtedness of any other Person existing at the time such other Person is
merged with or into or becomes a Subsidiary of such specified Person,
including, without limitation, Indebtedness Incurred in connection with, or in
contemplation of, such other Person merging with or into or becoming a
Subsidiary of such specified Person and (ii) Indebtedness secured by a Lien
encumbering any asset acquired by such specified Person.
"Affiliate" of any specified Person means any other Person directly or
indirectly controlling or controlled by or under direct or indirect common
control with such specified Person. For purposes of this definition, "control"
(including, with correlative meanings, the terms "controlling," "controlled by"
and "under common control with"), 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 securities, by agreement or otherwise; provided that
beneficial ownership of 10% or more of the voting securities of a Person shall
be deemed to be control.
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"Asset Sale" means (a) the direct or indirect sale, lease, license,
conveyance or other disposition of any assets or rights (including, without
limitation, by way of a sale and leaseback or similar arrangement, by merger or
consolidation) by the Company or a Restricted Subsidiary (a "disposition"), in
one transaction or a series of transactions; provided that the disposition of
all or substantially all of the assets of the Company and its Restricted
Subsidiaries taken as a whole will be governed by the provisions of the
Indenture described under "-- Repurchase at the Option of Holders -- Change of
Control" and/or the provisions described under "-- Certain Covenants -- Merger,
Consolidation, or Sale of Assets" and not by the provisions of the covenant
described under "-- Repurchase at the Option of Holders -- Asset Sales," and
(b) the issuance or disposition by the Company or any of its Restricted
Subsidiaries of Equity Interests of the Company's Restricted Subsidiaries.
Notwithstanding the foregoing, none of the following will be deemed an Asset
Sale: (i) a disposition of assets by the Company to a Restricted Subsidiary or
by a Restricted Subsidiary to the Company or to a Restricted Subsidiary; (ii)
an issuance of Equity Interests by a Restricted Subsidiary to the Company or to
a Restricted Subsidiary; (iii) a Restricted Payment that is permitted by the
covenant described under "-- Certain Covenants -- Restricted Payments;" (iv)
dispositions in any fiscal year with Net Proceeds in the aggregate of $1
million or less; (v) dispositions of assets or rights in the ordinary course of
business consistent with past practices ("OCB dispositions"); (vi) dispositions
of inventory that would constitute OCB dispositions except that the
consideration therefor received by the Company or such Restricted Subsidiary
consists of Telecommunications Assets usable by the Company and its Restricted
Subsidiaries in the ordinary course of business; (vii) the grant in the
ordinary course of business of any license of intellectual property rights
(which includes backup, escrow and other licensing arrangements common in the
Telecommunications Business to the extent that such arrangements are beneficial
to the Company and its Restricted Subsidiaries) if (A) such license by its
terms prohibits any disposition thereof (including any sublicense thereof)
other than sublicenses in the ordinary course of business (1) to Affiliates of
such licensee or, (2) solely for the use thereof in the ordinary course of
business, to customers of such licensee, (B) the Company or one or more of its
Restricted Subsidiaries retains the unconditional right to use such
intellectual property without payment of any royalty or other consideration at
least to the extent and in the manner that the Company and its Restricted
Subsidiaries used such intellectual property rights at the time of the grant of
such license, and (C) neither the grant of such license nor the use thereof by
the licensee results in a material decrease in the value of the related
intellectual property rights retained by the Company and its Restricted
Subsidiaries or interferes with or impairs the ability of the Company and its
Restricted Subsidiaries to conduct their business; (viii) the grant of any
license of intellectual property rights if (A) such license provides rights to
the licensee only with respect to jurisdictions outside of the United States
and Canada, (B) the Company or one or more of its Restricted Subsidiaries
retains the unconditional right to use such intellectual property in the United
States and Canada without payment of any royalty or other consideration, and
(C) neither the grant of such license nor the use thereof by the licensee
results in a material decrease in the value of the related retained
intellectual property rights within the United States and Canada; (ix) any
liquidation of any Cash Equivalent; (x) any disposition of defaulted
receivables for collection; and (xi) the grant of any Lien securing
Indebtedness (or any foreclosure thereon) to the extent that such Lien is
granted in compliance with the covenant set forth under "-- Certain Covenants
Liens."
"Attributable Debt" in respect of a sale and leaseback transaction
means, at the time of determination, the present value (discounted at the rate
of interest implicit in such transaction, determined in accordance with GAAP)
of the obligation of the lessee for net rental payments during the remaining
term of the lease included in such sale and leaseback transaction (including
any period for which such lease has been extended or may, at the option of the
lessor, be extended).
"Bank Credit Agreement" means any senior revolving credit facility
governing Indebtedness for borrowed money owed by the Company or a Restricted
Subsidiary to banks, trust companies or other institutions that are principally
engaged in the business of lending money to businesses.
"Capital Lease Obligation" means, at the time any determination
thereof is to be made, the amount of the liability in respect of a capital
lease that would at such time be required to be capitalized on a balance sheet
in accordance with GAAP.
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"Capital Stock" means (i) in the case of a corporation, corporate
stock, (ii) in the case of an association or business entity, any and all
shares, interests, participations, rights or other equivalents (however
designated) of corporate stock, (iii) in the case of a partnership, partnership
interests (whether general or limited) and (iv) any other interest or
participation that confers on a Person the right to receive a share of the
profits and losses of, or distributions of assets of, the issuing Person.
"Cash Equivalents" means (i) Government Securities having maturities
of not more than twelve months from the date of acquisition, (ii) certificates
of deposit and eurodollar time deposits with maturities of twelve months or
less from the date of acquisition, bankers' acceptances with maturities not
exceeding six months and overnight bank deposits, in each case with any member
bank of the U.S. Federal Reserve System having capital and surplus in excess of
$500 million, (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 financial institution meeting the qualifications
specified in clause (ii) above, and (iv) commercial paper having the rating of
at least P-1 from Moody's Investors Service, Inc., or any successor to its
rating business, or at least A-1 from Standard & Poor's Ratings Group, or any
successor to its rating business, and in each case maturing within 180 days
after the date of acquisition.
"Collateral" means the Pledged Securities and the proceeds thereof.
"Consolidated Cash Flow" means, with respect to any Person for any
period, the Consolidated Net Income of such Person for such period plus (a) to
the extent deducted in computing Consolidated Net Income, the sum of (i)
provision for taxes based on income or profits of such Person and its
Restricted Subsidiaries for such period, (ii) Consolidated Interest Expense and
(iii) depreciation, amortization (including amortization of goodwill and other
intangibles but excluding amortization of prepaid cash expenses that were paid
in a prior period) of such Person and its Restricted Subsidiaries for such
period, and other non-cash charges (excluding any such non-cash charge to the
extent that it represents an accrual of or reserve for cash charges in any
future period or amortization of a prepaid cash expense that was paid in a
prior period), minus (b) non-cash items increasing consolidated revenues in
determining such Consolidated Net Income for such period (excluding any items
which represent the reversal of any accrual of, or cash reserves for,
anticipated cash charges in any prior period), in each case, on a consolidated
basis and determined in accordance with GAAP. Notwithstanding the foregoing,
the amounts referred to in clauses (a) and (b) of the preceding sentence with
respect to Restricted Subsidiaries shall only be added to (deducted from)
Consolidated Net Income to compute Consolidated Cash Flow to the extent (and in
the same proportion) that the Net Income of such Restricted Subsidiary was
included in calculating the Consolidated Net Income of such Person and only if
a corresponding amount would be permitted at the date of determination to be
paid as a dividend to the Company by such Restricted Subsidiary without direct
or indirect restriction pursuant to the terms of its charter and by-laws and
all agreements, instruments, judgments, decrees, orders, statutes, rules and
governmental regulations applicable to such Restricted Subsidiary or its
stockholders.
"Consolidated Indebtedness" means, with respect to any Person as of
any date of determination, the sum, without duplication, of (i) the total
amount of Indebtedness of such Person and its Restricted Subsidiaries, plus
(ii) the aggregate liquidation value of all Disqualified Stock (and in the case
of a Restricted Subsidiary of the Company, preferred stock other than preferred
stock held by the Company or any of its Restricted Subsidiaries) of such
Person, in each case, determined on a consolidated basis in accordance with
GAAP.
"Consolidated Interest Expense" means, with respect to any Person for
any period, the sum, without duplication, of (i) the consolidated interest
expense of such Person and its Restricted Subsidiaries for such period, whether
paid or accrued (including, without limitation, amortization of debt issuance
costs and original issue discount, non-cash interest payments, the interest
component of any deferred payment obligations, the interest component of all
payments associated with Capital Lease Obligations, imputed interest with
respect to Attributable Debt, interest payments in respect of Indebtedness of
another Person that is Guaranteed by such Person or one of its Restricted
Subsidiaries or secured by a Lien on assets of such Person or one of its
Restricted Subsidiaries, commissions, discounts and other fees and charges
incurred in respect of letter of credit or bankers' acceptance financings, and
net payments
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(if any) pursuant to Hedging Obligations), (ii) the consolidated interest
expense of such Person and its Restricted Subsidiaries that was capitalized
during such period, in each case, on a consolidated basis and in accordance
with GAAP, and (iii) the product of (A) the aggregate amount of dividends paid
(to the extent not accrued in a prior period) or accrued on Disqualified Stock
of the Company and its Restricted Subsidiaries or preferred stock of the
Company's Restricted Subsidiaries, to the extent such Disqualified Stock or
preferred stock is owned by Persons other than the Company and its Restricted
Subsidiaries and (B) a fraction, the numerator of which is one and the
denominator of which is one minus the then current combined federal, state,
local and foreign statutory tax rate of such Person, expressed as a decimal.
"Consolidated Net Income" means, with respect to any Person for any
period, the aggregate of the Net Income of such Person and its Subsidiaries for
such period, on a consolidated basis, determined in accordance with GAAP;
provided that (i) the Net Income (but not loss) of any Person that is not a
Restricted Subsidiary or that is accounted for by the equity method of
accounting shall be included only to the extent of the amount of dividends or
distributions paid in cash to the specified Person as to which Consolidated Net
Income is being calculated, (ii) the Net Income of any Restricted Subsidiary
shall be excluded to the extent that the declaration or payment of dividends or
similar distributions by such Restricted Subsidiary of such Net Income would
not be permitted at the date of determination directly or indirectly, pursuant
to the terms of its charter and by-laws and all agreements, instruments,
judgments, decrees, orders, statutes, rules or governmental regulations
applicable to such Restricted Subsidiary or its stockholders, (iii) the Net
Income (if positive) of any Person acquired in a pooling of interests
transaction for any period prior to the date of such acquisition shall be
excluded, and (iv) the cumulative effect of a change in accounting principles
shall be excluded.
"Consolidated Net Worth" means, with respect to any Person as of any
date, the sum of (i) the consolidated equity of the common equity holders of
such Person and its consolidated Restricted Subsidiaries as of such date plus
(ii) the respective amounts reported on such Person's balance sheet as of such
date with respect to any series of preferred equity (other than Disqualified
Stock) that by its terms is not entitled to the payment of dividends or other
distributions, unless such dividends or other distributions may be declared and
paid only out of net earnings in respect of the year of such declaration and
payment, but only to the extent of any cash received by such Person upon
issuance of such preferred equity, less (x) all write-ups (other than write-ups
resulting from foreign currency translations and write-ups of tangible assets
of a going concern business made within 12 months after the acquisition of such
business) subsequent to the date of the Indenture in the book value of any
asset owned by such Person or a consolidated Restricted Subsidiary of such
Person, (y) all investments as of such date in Persons that are not Restricted
Subsidiaries (except, in each case, Permitted Investments), and (z) all
unamortized debt discount and expense and unamortized deferred charges as of
such date, all of the foregoing determined in accordance with GAAP.
"Default" means any event that is or with the passage of time or the
giving of notice or both would be an Event of Default.
"Disqualified Stock" means any Capital Stock that, 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, matures or is mandatorily
redeemable, pursuant to a sinking fund obligation or otherwise, or redeemable
at the option of the holder thereof, in whole or in part, on or prior to the
date that is 91 days after the date on which the Notes mature.
"Eligible Inventory" means the finished goods, raw materials and
work-in-process of the Company and its Restricted Subsidiaries less any
applicable reserves, each of the foregoing determined in accordance with GAAP.
"Eligible Receivables" means the trade receivables of the Company and
its Restricted Subsidiaries less the allowance for doubtful accounts, each of
the foregoing determined in accordance with GAAP.
"Equity Interests" means Capital Stock and all warrants, options or
other rights to acquire Capital Stock (but excluding any debt security that is
convertible into, or exchangeable for, Capital Stock).
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"Equity Investment" means the issuance after the Closing Date of
Capital Stock of the Company (other than Disqualified Stock) to any Person
other than a Subsidiary of the Company in a single transaction or one or more
transactions within a twelve-month period resulting in net cash proceeds to the
Company of at least $30 million.
"Existing Indebtedness" means Indebtedness of the Company and its
Restricted Subsidiaries in existence on the date of the Indenture pro forma
after giving effect to the Offering.
"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; provided that if such value exceeds
$1 million, such determination shall be made in good faith by the Board of
Directors of the Company.
"GAAP" means generally accepted accounting principles in the United
States of America 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 have been
approved by a significant segment of the accounting profession, which are in
effect on the date of the Indenture.
"Government Securities" means direct obligations of, or obligations
fully guaranteed by, or participations in pools consisting solely of
obligations of or obligations guaranteed by, the United States of America for
the payment of which guarantee or obligations the full faith and credit of the
United States of America is pledged.
"Guarantee" means a guarantee (other than by endorsement of negotiable
instruments for collection in the ordinary course of business), direct or
indirect, in any manner (including, without limitation, letters of credit and
reimbursement agreements in respect thereof), of all or any part of any
Indebtedness.
"Hedging Obligations" means, with respect to any Person, the
obligations of such Person under (i) interest or currency exchange rate swap
agreements, interest or currency exchange rate cap agreements and interest or
currency exchange rate collar agreements and (ii) other agreements or
arrangements, in any case, designed to protect such Person against fluctuations
in interest or currency exchange rates (as appropriate, "Interest Rate Hedges"
and "Currency Hedges").
"Incur" means, with respect to any Indebtedness or other obligation of
any Person, to create, issue, incur (by conversion, exchange or otherwise),
assume, Guarantee or otherwise become liable in respect of such Indebtedness or
other obligation or the recording, as required pursuant to GAAP or otherwise,
of any such Indebtedness or other obligation on the balance sheet of such
Person (and "Incurrence," "Incurred," "Incurrable" and "Incurring" shall have
meanings correlative to the foregoing); provided, however, that a change in
GAAP that results in an obligation of such Person that exists at such time, and
is not theretofore classified as Indebtedness, becoming Indebtedness shall not
be deemed an Incurrence of such Indebtedness.
"Indebtedness" means, with respect to any Person, (a) any liability of
such Person, whether or not contingent (i) for borrowed money, or under any
reimbursement obligation relating to a letter of credit, bankers' acceptance or
note purchase facility; (ii) evidenced by a bond, note, debenture or similar
instrument (including a purchase money obligation); (iii) for the payment of
money relating to a Capital Lease Obligation; (iv) for or pursuant to
Disqualified Stock; (v) for or pursuant to preferred stock of any Restricted
Subsidiary of the Company (other than preferred stock held by the Company or
any of its Restricted Subsidiaries); (vi) representing the balance deferred and
unpaid of the purchase price of any property or services (except any such
balance that constitutes a trade payable or accrued liability in the ordinary
course of business that is not overdue by more than 90 days or is being
contested in good faith by appropriate proceedings promptly instituted and
diligently conducted); or (vii) under or in respect of Hedging Obligations; (b)
any liability of others described in the preceding clause (a) that such Person
has guaranteed, that is recourse to such Person or that is otherwise its legal
liability, or the payment of which is secured by (or for which the
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holder of such liability has an existing right to be secured by) any Lien upon
property owned by such Person, even though such Person has not assumed or
become liable for the payment of such liability; and (c) any amendment,
supplement, modification, deferral, renewal, extension or refunding of any
liability of the types referred to in clauses (a) and (b) above. The amount of
any non-interest bearing or other discount Indebtedness shall be deemed to be
the principal amount thereof that would be shown on the balance sheet of the
issuer dated such date prepared in accordance with GAAP, but such Indebtedness
shall be deemed to have been Incurred only on the date of the original issuance
thereof.
"Investments" means, with respect to any Person, all investments by
such Person in other Persons (including Affiliates) in the forms of direct or
indirect loans (including guarantees of Indebtedness or other obligations (but
excluding endorsements of negotiable instruments for collection in the ordinary
course of business)), advances or capital contributions (excluding commission,
travel and similar advances to directors, officers and employees made in the
ordinary course of business), purchases or other acquisitions (for
consideration) of Indebtedness, Equity Interests or other securities, together
with all items that are or would be classified as investments on a balance
sheet prepared in accordance with GAAP; provided that an acquisition of Equity
Interests or other securities by the Company or any of its Restricted
Subsidiaries for consideration consisting of common equity securities of the
Company shall not be deemed to be an Investment.
"Leverage Ratio" means, with respect to any Person as of any date of
determination (the "Calculation Date"), the ratio of (i) the Consolidated
Indebtedness of such Person as of the Calculation Date to (ii) the result of
the multiplication of the Consolidated Cash Flow of such Person for the most
recent full fiscal quarter ending immediately prior to the Calculation Date for
which internal financial statements are available times four. In the event that
the Company or any of its Restricted Subsidiaries Incurs or redeems any
Indebtedness (other than revolving credit borrowings with respect to which the
related commitment remains outstanding) or issues or redeems Disqualified Stock
subsequent to the commencement of the period for which the Leverage Ratio is
being calculated but prior to the Calculation Date, then the Leverage Ratio
shall be calculated giving pro forma effect to such Incurrence or redemption of
Indebtedness, or such issuance or redemption of Disqualified Stock, as if the
same had occurred at the beginning of the applicable period. For purposes of
making the computation referred to above, dispositions of all or substantially
all of an operating unit of a business, Investments, acquisitions, and
discontinued operations (as determined in accordance with GAAP) that have been
made by the Company or any of its Restricted Subsidiaries, including all
mergers and consolidations during the quarter reference period or subsequent to
such reference period and on or prior to the Calculation Date, shall be
calculated on a pro forma basis assuming that all such dispositions,
Investments, acquisitions, discontinued operations, mergers and consolidations
(and the reduction of any associated fixed charge obligations and the change in
Consolidated Cash Flow resulting therefrom) had occurred on the first day of
such reference period. If since the beginning of such reference period any
Person (that subsequently became a Restricted Subsidiary or was merged with or
into the Company or any Restricted Subsidiary since the beginning of such
period) shall have made any Investment, acquisition, disposition which
constitutes all or substantially all of an operating unit of a business,
discontinued operation, merger or consolidation that would have required
adjustment pursuant to this definition, the Leverage Ratio shall be calculated
giving pro forma effect thereto for such reference period as if such
Investment, acquisition, disposition, discontinued operation, merger or
consolidation had occurred at the beginning of such reference period. For
purposes of this definition, whenever pro forma effect is to be given to a
transaction, the pro forma calculations shall be made in good faith by a
responsible financial or accounting officer of the Company.
"Lien" means, with respect to any asset, any mortgage, lien, pledge,
charge, security interest or encumbrance of any kind in respect of such asset,
whether or not filed, recorded or otherwise perfected under applicable law
(including any conditional sale or other title retention agreement, and any
lease in the nature thereof).
"Net Income" means, with respect to any Person for any period, the net
income (loss) of such Person for such period, determined in accordance with
GAAP and before any reduction in respect of preferred stock dividends,
excluding, however, (i) any gain (but not loss), together with any related
provision for taxes on such gain (but not loss), realized in connection with
(a) any sales of assets (including, without limitation, dispositions pursuant
to sale and
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leaseback transactions) other than in the ordinary course of business or (b)
the disposition of any securities by such Person or any of its Restricted
Subsidiaries or the extinguishment of any Indebtedness of such Person or any of
its Restricted Subsidiaries, (ii) any extraordinary or non-recurring gain (but
not loss), together with any related provision for taxes on such extraordinary
or non-recurring gain (but not loss), and (iii) unrealized foreign exchange
gains (but not losses).
"Net Proceeds" means the aggregate cash proceeds received by the
Company or any of its Restricted Subsidiaries in respect of any Asset Sale
(including, without limitation, (i) Cash Equivalents received as consideration
in such Asset Sale, (ii) any cash received upon the disposition of any non-cash
consideration received in such Asset Sale, and (iii) any assumption of
liabilities deemed to constitute "cash" for purposes of the covenant described
in "-- Asset Sales"), net of the direct costs relating to such Asset Sale
(including, without limitation, legal, accounting and investment banking fees,
and sales commissions), any relocation expenses incurred as a result thereof,
any taxes paid or payable by the Company or any of its Restricted Subsidiaries
as a result thereof (after taking into account any available tax credits or
deductions and any tax sharing arrangements), amounts required to be paid to
any Person (other than the Company and its Restricted Subsidiaries) having a
Lien on the assets subject to the Asset Sale, amounts required to be paid to
any Person (other than the Company or any Restricted Subsidiary) owning a
beneficial interest in the assets subject to the Asset Sale, and any reserve
for adjustment in respect of the sale price of such asset or assets established
in accordance with GAAP (provided that the amount of any such reserve shall be
deemed to constitute Net Proceeds at the time such reserve shall have been
released or is not otherwise required to be retained for such purpose).
"Non-Recourse Debt" means Indebtedness (i) as to which neither the
Company nor any of its Restricted Subsidiaries (a) provides credit support of
any kind (including any undertaking, agreement or instrument that would
constitute Indebtedness), (b) is directly or indirectly liable (as a guarantor
or otherwise), or (c) constitutes the lender, (ii) no default with respect to
which (including any rights that the holders thereof may have to take
enforcement action against an Unrestricted Subsidiary) would permit (upon
notice, lapse of time or both) any holder of any other Indebtedness of the
Company or any of its Restricted Subsidiaries to declare a default on such
other Indebtedness or cause the payment thereof to be accelerated or payable
prior to its stated maturity and (iii) as to which the lenders have expressly
waived any recourse which they may have, in law, equity or otherwise, whether
based on misrepresentation, control, ownership or otherwise, to the Company or
any of its Restricted Subsidiaries, including, without limitation, a waiver of
the benefits of the provisions of Section 1111(b) of the U.S. Bankruptcy Code
(Title 11, United States Code), as amended.
"Obligations" means any principal, interest, penalties, fees,
indemnifications, reimbursements, damages and other liabilities payable under
the documentation governing any Indebtedness.
"Officer" means, with respect to any Person, the chief executive
officer, the president, the chief operating officer, the chief financial
officer, the chief accounting officer, the treasurer, any assistant treasurer,
the controller, the secretary, any assistant secretary or any vice-president of
such Person.
"Officers' Certificate" means a certificate signed on behalf of a
Person by two Officers of such Person, one of whom must be the principal
executive officer, the principal financial officer or the principal accounting
officer of such Person, that meets the requirements set forth in the Indenture.
"Permitted Holders" means (i) Carlyle HighwayMaster Investors, L.P.,
Carlyle HighwayMaster Investors II, L.P., H.M. Rana Investments Limited, TC
Group, L.L.C., Mark D. Ein, Chase Manhattan Investment Holdings, Inc., Archery
Partners, Clipper/Merban, L.P., Clipper/Merchant Partners, L.P., Clipper
Capital Associates, L.P., Erin Mills International Investment Corporation, The
Erin Mills Investment Corporation, The Erin Mills Development Corporation,
William C. Kennedy, Jr., Donald M. Kennedy, William C. Saunders, Robert S.
Folsom, Robert T. Hayes, and Southwestern Bell Wireless Holdings, Inc., (ii) in
the case of each Permitted Holder described in clause (i) that is an entity,
the beneficial owners of such entity as of the Closing Date, and (iii) all
Affiliates of Permitted Holders described in clauses (i) and (ii) (provided
that, for purposes of this clause (iii) only, the proviso set forth in the
definition of the
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term "Affiliate" shall be deemed modified to provide that beneficial ownership
of 50% or more of the voting securities of a Person shall constitute, and shall
be necessary to constitute, control).
"Permitted Investments" means (i) any Investment in the Company or in
a Restricted Subsidiary of the Company; (ii) any Investment in Cash
Equivalents; (iii) any Investment by the Company or any of its Restricted
Subsidiaries in a Person engaged in the Telecommunications Business if, as a
result of such Investment, (A) such Person becomes a Restricted Subsidiary of
the Company or (B) such Person is merged, consolidated or amalgamated with or
into, or transfers or conveys substantially all of its assets to, or is
liquidated into, the Company or a Restricted Subsidiary of the Company; (iv)
any Investment in Government Securities in accordance with the provisions of
the Pledge Agreement; (v) Investments the payment for which consists
exclusively of Equity Interests (excluding Disqualified Stock) of the Company;
(vi) Investments in shares of money market mutual or similar funds having
assets in excess of $500 million; and (vii) Investments in negotiable
instruments held for collection in the ordinary course of business and lease,
utility and similar deposits.
"Permitted Liens" means (i) Liens securing Permitted Indebtedness
Incurred pursuant to clause (i) of the definition of such term; (ii) Liens in
favor of the Company and/or its Restricted Subsidiaries; (iii) Liens on
property of a Person existing at the time such Person is merged into or
consolidated with the Company or any of its Restricted Subsidiaries, provided
that such Liens were in existence prior to the contemplation of such merger or
consolidation and do not extend to any assets other than those of the Person
merged into or consolidated with the Company or any such Restricted Subsidiary;
(iv) Liens securing any Acquired Indebtedness and which exist at the time of
acquisition thereof by the Company or any of its Restricted Subsidiaries,
provided that such Liens were in existence prior to the contemplation of such
acquisition; (v) Liens arising under the Indenture in favor of the Trustee;
(vi) Liens existing on the date of the Indenture; (vii) Liens arising by reason
of (1) any judgment, decree or order of any court not constituting an Event of
Default; (2) taxes not yet delinquent or which are being contested in good
faith by appropriate proceedings which suspend the collection thereof, promptly
instituted and diligently conducted, and for which adequate reserves have been
established to the extent required by GAAP; (3) security for payment of
workers' compensation or other insurance; (4) good faith deposits in connection
with tenders, leases and contracts (other than contracts for the payment of
money), bids, licenses, performance or similar bonds and other obligations of a
like nature, in the ordinary course of business; (5) zoning restrictions,
easements, licenses, reservations, provisions, covenants, conditions, waivers,
restrictions on the use of property or minor irregularities of title (and with
respect to leasehold interests, mortgages, obligations, Liens and other
encumbrances incurred, created, assumed or permitted to exist and arising by,
through or under a landlord or owner of the leased property, with or without
consent of the lessees), none of which materially impairs the use of any parcel
of property material to the operation of the business of the Company or any
Restricted Subsidiary or the value of such property for the purpose of such
business; (6) deposits to secure public or statutory obligations or in lieu of
surety or appeal bonds; (7) surveys, exceptions, title defects, encumbrances,
easements, reservations of, or rights of others for, rights of way, sewers,
electric lines, telegraph or telephone lines and other similar purposes or
zoning or other restrictions as to the use of real property not interfering
with the ordinary conduct of the business of the Company or any of its
Restricted Subsidiaries; or (8) operation of law or statute and incurred in the
ordinary course of business, including without limitation, those in favor of
mechanics, materialmen, suppliers, laborers or employees, and, if securing sums
of money, for sums which are not yet delinquent or are being contested in good
faith by appropriate proceedings which suspend the collection thereof, promptly
instituted and diligently conducted, and for which adequate reserves have been
established to the extent required by GAAP; (viii) Liens created by the Pledge
Agreement; (ix) Liens resulting from the deposit of funds or Government
Securities in trust for the purpose of decreasing or defeasing Indebtedness of
the Company and its Restricted Subsidiaries so long as such deposit of funds or
Government Securities and such decreasing or defeasing of Indebtedness are
permitted under the "Restricted Payments" covenant; (x) Liens securing
obligations in a maximum aggregate amount not to exceed $15 million and
consisting exclusively of (1) Permitted Indebtedness Incurred pursuant to
clause (vii) of the definition of such term and (2) Attributable Debt that
could have been Incurred as a Capital Lease Obligation pursuant to clause (vii)
of the definition of the term "Permitted Indebtedness"; provided that such
Liens attach only to assets subject to such capital lease or sale and leaseback
transaction and other assets directly related thereto; (xi) Liens constituting
licenses of intellectual property rights not otherwise prohibited under the
terms of the Indenture; and (xii) any extension, renewal or replacement (or
successive extensions, renewals or
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replacements), in whole or in part, of any Lien referred to in the foregoing
clauses (iii), (iv) and (vi) above; provided that the principal amount of the
Indebtedness secured thereby shall not exceed the principal amount of
Indebtedness secured thereby immediately prior to the time of such extension,
renewal or replacement, and that such extension, renewal or replacement Lien
shall be limited to all or a part of the property that secured the Lien so
extended, renewed or replaced (plus improvements on such property).
"Permitted Refinancing Indebtedness" means any Indebtedness of the
Company or any of its Restricted Subsidiaries issued in exchange for, or the
net proceeds of which are used by such Person to extend, refinance, renew,
replace, defease or refund other Indebtedness of such Person ("Old
Indebtedness"); provided that: (i) the principal amount (or accreted value, if
applicable) of such Permitted Refinancing Indebtedness does not exceed the
principal amount (or accreted value, if applicable) of the Old Indebtedness;
(ii) such Permitted Refinancing Indebtedness has a final maturity date equal to
or later than the final maturity date of, and has a Weighted Average Life to
Maturity equal to or greater than the Weighted Average Life to Maturity of, the
Old Indebtedness; (iii) if the Old Indebtedness is subordinated in right of
payment to the Notes, such Permitted Refinancing Indebtedness is subordinated
in right of payment to the Notes on terms at least as favorable to the Holders
as those contained in the documentation governing the Old Indebtedness; (iv)
such Permitted Refinancing Indebtedness is on terms that are no more
restrictive, as a whole, than those governing such Old Indebtedness; and (v)
such Permitted Refinancing Indebtedness is Incurred only by the Company or the
Restricted Subsidiary that is the obligor on the Old Indebtedness.
"Permitted Telecommunications Investments" means Investments made by
the Company and its Restricted Subsidiaries in Persons (including Unrestricted
Subsidiaries) engaged as a primary business in the Telecommunications Business.
"Person" means any individual, corporation, limited liability company,
partnership, joint venture, association, joint-stock company, trust,
unincorporated organization or government or any agency or political
subdivision thereof.
"Pledge Account" means an account established with the Trustee
pursuant to the terms of the Pledge Agreement for the deposit of the Pledged
Securities purchased by the Company with a portion of the proceeds from the
sale of the Notes.
"Pledge Agreement" means the Collateral Pledge and Security Agreement,
dated as of the date of the Indenture, by and between the Company and the
Trustee governing the disbursement of funds from the Pledge Account, as such
may be amended from time to time pursuant to the terms thereof.
"Pledged Securities" means the securities purchased with a portion of
the proceeds from the sale of the Notes, which shall consist of Government
Securities, to be deposited in the Pledge Account.
"Restricted Investment" means an Investment other than a Permitted
Investment.
"Restricted Subsidiary" of a Person means any Subsidiary of such
Person that is not an Unrestricted Subsidiary.
"Securities Act" means the Securities Act of 1933, as amended.
"Stockholders' Agreement" means that certain Amended and Restated
Stockholders Agreement, dated as of September 27, 1996, by and among the
Company and certain stockholders of the Company, as in effect on the Closing
Date.
"Subordinated Indebtedness" means Indebtedness of the Company (or a
Restricted Subsidiary) that is expressly subordinated in right of payment to
the Notes (or a Subsidiary Guarantee, as appropriate).
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"Subsidiary" means, with respect to any Person, (i) any corporation,
association or other business entity of which more than 50% of the total voting
power of shares of Capital Stock entitled (without regard to the occurrence of
any contingency) to vote in the election of directors, managers or trustees
thereof is at the time owned or controlled, directly or indirectly, by such
Person or one or more of the other Subsidiaries of such Person (or a
combination thereof) and (ii) any partnership (a) the sole general partner or
the managing general partner of which is such Person or a Subsidiary of such
Person or (b) the only general partners of which are such Person or of one or
more Subsidiaries of such Person (or any combination thereof). Unless indicated
to the contrary, "Subsidiary" refers to a Subsidiary of the Company.
"Subsidiary Guarantee" means an unconditional guaranty of the Notes
and the Indenture given by any Restricted Subsidiary or other Person pursuant
to the terms of the Indenture or any supplement thereto.
"Telecommunications Assets" means assets or working capital used or
useful in the conduct or furtherance of a Telecommunications Business.
"Telecommunications Business" means the business of (i) developing,
implementing, marketing and distributing voice, data or position location
solutions for mobile communications markets, or (ii) evaluating, participating
in or pursuing any other activity or opportunity that is related to those
identified in clause (i) above.
"Unrestricted Subsidiary" means any Subsidiary that is designated by
the Board of Directors of the Company as an Unrestricted Subsidiary pursuant to
a resolution of the Board of Directors of the Company, but only to the extent
that such Subsidiary (i) has no Indebtedness other than Non-Recourse Debt, (ii)
does not own any Equity Interests of, or own or hold any Lien on, any property
of the Company or any Restricted Subsidiary of the Company (other than any
Subsidiary of the Subsidiary to be so designated), (iii) has not, and the
Subsidiaries of such Subsidiary have not at the time of designation, and does
not thereafter, Incur any Indebtedness pursuant to which the lender has
recourse to any of the assets of the Company or any of its Restricted
Subsidiaries, (iv) is not party to any material agreement, contract,
arrangement or understanding with the Company or any of its Restricted
Subsidiaries unless either (a) the terms of any such agreement, contract,
arrangement or understanding are no less favorable to the Company or such
Restricted Subsidiary than those that might be obtained at the time from
Persons who are not Affiliates of the Company, or (b) such agreement, contract,
arrangement or understanding is a license of intellectual property by the
Company or a Restricted Subsidiary of the Company to an Unrestricted Subsidiary
of the Company and less than all of the outstanding Capital Stock or other
ownership interests of such Unrestricted Subsidiary (other than directors'
qualifying shares) is owned by the Company and its Restricted Subsidiaries, (v)
is a Person with respect to which neither the Company nor any of its Restricted
Subsidiaries has any direct or indirect obligation (a) to subscribe for
additional Equity Interests or (b) to maintain or preserve such Person's
financial condition or to cause such Person to achieve any specified levels of
operating results, (vi) has not guaranteed or otherwise directly or indirectly
provided credit support for any Indebtedness of the Company or any of its
Restricted Subsidiaries and (vii) has at least one director on its board of
directors that is not a director or executive officer of the Company or any of
its Restricted Subsidiaries and has at least one executive officer that is not
a director or executive officer of the Company or any of its Restricted
Subsidiaries. Any such designation by the Board of Directors of the Company
shall be evidenced to the Trustee by filing with the Trustee a certified copy
of the resolution of the Board of Directors of the Company giving effect to
such designation and an Officers' Certificate certifying that (i) such
designation complied with the foregoing conditions, (ii) such designation was
permitted by the covenant described under "-- Certain Covenants -- Restricted
Payments," (iii) immediately after giving effect to such designation, the
Company could Incur at least $1.00 of additional Indebtedness pursuant to the
Leverage Ratio test set forth in the first paragraph of the covenant described
under the caption "-- Certain Covenants-- Incurrence of Indebtedness" and (iv)
no Default or Event of Default would be in existence immediately following such
designation. If, at any time, any Unrestricted Subsidiary would fail to meet
the foregoing requirements as an Unrestricted Subsidiary, it shall thereafter
cease to be an Unrestricted Subsidiary for purposes of the Indenture and any
Indebtedness, Liens or agreements of such Subsidiary shall be deemed to be
Incurred or created by a Restricted Subsidiary of the Company as of such date
(and, if such Indebtedness, Liens or agreements are not permitted to be
Incurred or created as of such date under the covenants described under "--
Certain Covenants," the Company shall be in default of such
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covenants). The Board of Directors of the Company may at any time designate any
Unrestricted Subsidiary to be a Restricted Subsidiary, provided that such
designation shall be deemed to be an Incurrence of Indebtedness and a creation
of Liens and agreements by a Restricted Subsidiary of the Company of any
outstanding Indebtedness, Liens or agreements of such Unrestricted Subsidiary
and such designation shall only be permitted if (i) such Indebtedness, Liens
and agreements are permitted under the covenants described under "-- Certain
Covenants," and (ii) no Default or Event of Default would be in existence
immediately following such designation.
"Weighted Average Life to Maturity" means, when applied to any
Indebtedness at any date, the number of years obtained by dividing (i) the sum
of the products obtained by multiplying (a) the amount of each then remaining
installment, sinking fund, serial maturity or other required payments of
principal, including payment at final maturity, in respect thereof, by (b) the
number of years (calculated to the nearest one-twelfth) that will elapse
between such date and the making of such payment, by (ii) the then outstanding
principal amount of such Indebtedness.
"Wholly Owned Restricted Subsidiary" of any Person means a Restricted
Subsidiary of such Person all of the outstanding Capital Stock or other
ownership interests of which (other than directors' qualifying shares) shall at
the time be owned by such Person or by one or more Wholly Owned Restricted
Subsidiaries of such Person.
BOOK-ENTRY, DELIVERY AND FORM
Except as set forth in the next paragraph, the Exchange Notes will
initially be issued in the form of one or more Global Notes (the "Global
Notes"). The Global Notes will be deposited on the date of the closing of the
sale of the Notes offered hereby (the "Closing Date") with, or on behalf of,
the Depositary and registered in the name of Cede & Co., as nominee for the
Depositary (such nominee being referred to herein as the "Global Note Holder").
Exchange Notes that are issued as described below under " --
Certificated Securities" will be issued in registered form (the "Certificated
Securities"). Upon the transfer of Certificated Securities, such Certificated
Securities may, unless the Global Notes have previously been exchanged for
Certificated Securities, be exchanged for an interest in a Global Note
representing the principal amount of Notes being transferred.
The Depositary is a limited-purpose trust company which was created to
hold securities for its participating organizations (collectively, the
"Participants" or the "Depositary's Participants") and to facilitate the
clearance and settlement of transactions in such securities between
Participants through electronic book-entry changes in accounts of its
Participants. The Depositary's Participants include securities brokers and
dealers (including the Initial Purchaser), banks and trust companies, clearing
corporations and certain other organizations. Access to the Depositary's system
is also available to other entities such as banks, brokers, dealers and trust
companies (collectively, the "Indirect Participants" or the "Depositary's
Indirect Participants") that clear through or maintain a custodial relationship
with a Participant, either directly or indirectly. Persons who are not
Participants may beneficially own securities held by or on behalf of the
Depositary only through the Depositary's Participants or the Depositary's
Indirect Participants.
The Company expects that pursuant to procedures established by the
Depositary (i) upon deposit of the Global Notes, the Depositary will credit the
accounts of Participants with portions of the principal amount of the Global
Notes and (ii) ownership of the Notes evidenced by the Global Notes will be
shown on, and the transfer of ownership thereof will be effected only through,
records maintained by the Depositary (with respect to the interests of the
Depositary's Participants), the Depositary's Participants and the Depositary's
Indirect Participants. Prospective purchasers are advised that the laws of some
states require that certain Persons take physical delivery in definitive form
of securities that they own. Consequently, the ability to transfer Exchange
Notes evidenced by the Global Notes will be limited to such extent. For certain
other restrictions on the transferability of the Exchange Notes, see "Notice to
Investors."
So long as the Global Note Holder is the registered owner of any
Exchange Notes, the Global Note Holder will be considered the sole owner or
holder of such Exchange Notes outstanding under the Indenture. Beneficial
owners of Exchange Notes evidenced by the Global Note will not be considered
the owners or holders thereof under the Indenture
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for any purpose, including with respect to the giving of any directions,
instructions or approvals to the Trustee thereunder. The ability of a Person
having a beneficial interest in Exchange Notes represented by a Global Note to
pledge such interest to Persons or entities that do not participate in the
Depositary's system or to otherwise take actions in respect of such interest,
may be affected by the lack of a physical certificate evidencing such interest.
None of the Company nor the Trustee will have any responsibility or
liability for any aspect of the records relating to or payments made on account
of Exchange Notes by the Depositary, or for maintaining, supervising or
reviewing any records of the Depositary relating to such Exchange Notes.
Payments in respect of the principal of, premium, if any, interest and
Liquidated Damages, if any, on any Exchange Notes registered in the name of a
Global Note Holder on the applicable record date will be payable by the Trustee
to or at the direction of such Global Note Holder in its capacity as the
registered holder under the Indenture. Under the terms of the Indenture, the
Company and the Trustee may treat the Persons in whose names the Exchange
Notes, including the Global Notes, are registered as the owners thereof for the
purpose of receiving such payments and for any and all other purposes
whatsoever. Consequently, none of the Company nor the Trustee has or will have
any responsibility or liability for the payment of such amounts to beneficial
owners of Exchange Notes (including principal, premium, if any, interest and
Liquidated Damages, if any).
The Company believes, however, that it is currently the policy of the
Depositary to immediately credit the accounts of the relevant Participants with
such payment, in amounts proportionate to their respective holdings in
principal amount of beneficial interests in the relevant security as shown on
the records of the Depositary. Payments by the Depositary's Participants and
the Depositary's Indirect Participants to the beneficial owners of Exchange
Notes will be governed by standing instructions and customary practice and will
be the responsibility of the Depositary's Participants or the Depositary's
Indirect Participants.
CERTIFICATED SECURITIES
Subject to certain conditions, any Person having a beneficial interest
in a Global Note may, upon request to the Company or the Trustee, exchange such
beneficial interest for Exchange Notes in the form of Definitive Notes. Upon
any such issuance, the Trustee is required to register such Exchange Notes in
the name of, and cause the same to be delivered to, such Person or Persons. In
addition, if (i) the Company notifies the Trustee in writing that the
Depositary is no longer willing or able to act as a depositary and the Company
is unable to appoint a qualified successor within 90 days or (ii) the Company,
at its option, notifies the Trustee in writing that it elects to cause the
issuance of Exchange Notes in the form of Definitive Notes under the Indenture,
then, upon surrender by the relevant Global Note Holder of its Global Note,
Exchange Notes in such form will be issued to each Person that the Depositary
identifies as the beneficial owner of the related Exchange Notes.
Neither the Company nor the Trustee shall be liable for any delay by
the Depositary in identifying the beneficial owners of the related Exchange
Notes and each such Person may conclusively rely on, and shall be protected in
relying on, instructions from the Depositary for all purposes (including with
respect to the registration and delivery, and the respective principal amounts,
of the Exchange Notes to be issued).
SAME DAY SETTLEMENT AND PAYMENT
The Indenture requires that payments in respect of the Notes
represented by the Global Securities (including principal, premium, if any,
interest and Liquidated Damages, if any) be made by wire transfer of
immediately available funds to the accounts specified by the Global Security
Holder. With respect to Certificated Securities, the Company will make all
payments of principal, premium, if any, interest and Liquidated Damages, if
any, by wire transfer of immediately available funds to the accounts specified
by the Holders thereof or, if no such account is specified, by mailing a check
to each such Holder's registered address. The Notes represented by the Global
Notes are expected to trade in the Depositary's Same Day Funds Settlement
System, and any permitted secondary market trading activity in
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such Notes will therefore be required by the Depositary to be settled in
immediately available funds. The Company expects that secondary trading in the
Certificated Securities will also be settled in immediately available funds.
CERTAIN U.S. FEDERAL TAX CONSEQUENCES
The following discussion is a summary of certain U.S. federal tax
consequences relevant to the exchange of Old Notes for Exchange Notes and the
ownership of Exchange Notes by persons who (a) acquired Old Notes on original
issue for cash and (b) hold Old Notes and Exchange Notes as capital assets
within the meaning of Section 1221 of the Internal Revenue Code of 1986, as
amended (the "Code"). The discussion is based upon the Code, Treasury
Regulations, Internal Revenue Service ("IRS") rulings and pronouncements, and
judicial decisions now in effect, all of which are subject to change at any
time by legislative, administrative, or judicial action. The discussion does
not discuss every aspect of U.S. federal taxation that may be relevant to a
particular taxpayer under special circumstances or to persons who are otherwise
subject to a special tax treatment (including, without limitation, banks,
broker-dealers, insurance companies, pension and other employee benefit plans,
tax exempt organizations and entities, persons holding Notes, Warrants, or
Common Stock as a part of a hedging or conversion transaction or a straddle,
and holders whose functional currency is not the U.S. dollar) and it does not
discuss the effect of any applicable U.S. state and local or non-U.S. tax laws.
The Company has not sought and will not seek any rulings from the IRS
concerning the tax consequences of the exchange of Old Notes for Exchange Notes
and the ownership of Exchange Notes and, accordingly, there can be no assurance
that the IRS will not successfully challenge the tax consequences described
below. EACH PROSPECTIVE PURCHASER IS URGED TO CONSULT HIS OWN TAX ADVISOR WITH
RESPECT TO THE U.S. FEDERAL TAX CONSEQUENCES OF EXCHANGING OLD NOTES FOR
EXCHANGE NOTES AND OWNING EXCHANGE NOTES, AS WELL AS ANY TAX CONSEQUENCES
APPLICABLE UNDER THE LAWS OF ANY U.S. STATE, LOCAL, OR NON-U.S. TAXING
JURISDICTION.
U.S. HOLDERS
This Section summarizes certain U.S. federal income tax consequences
of the exchange of Old Notes for Exchange Notes and the ownership of Exchange
Notes by "U.S. Holders." The term "U.S. Holder" refers to a person that is
classified for U.S. federal tax purposes as a United States person. For this
purpose, a United States person includes (i) a resident (within the meaning of
Section 7701(b) of the Code) or current or former citizen of the United States,
(ii) a corporation, limited liability company, or partnership created or
organized in the United States or under the laws of the United States or of any
state or political subdivision thereof, or (iii) an estate or trust whose
income is includable in gross income for U.S. federal income tax purposes
regardless of its source.
Exchange of Notes. The exchange of Old Notes for the Exchange Notes
pursuant to the Exchange Offer should not be treated as an "exchange" for
federal income tax purposes, because the Exchange Notes should not be
considered to differ materially in kind or extent from the Old Notes.
Accordingly, the exchange of Old Notes for Exchange Notes should not be a
taxable event to holders for federal income tax purposes. Moreover, the
Exchange Notes should have the same tax attributes and tax consequences to
holders as the Old Notes had to holders, including, without limitation, the
same issue price, adjusted issue price, original issue discount ("OID"),
adjusted tax basis and holding period. The tax attributes and tax consequences
of ownership of the Old Notes and, thus, of the Exchange Notes (collectively,
the "Notes"), are summarized below.
Stated Interest. Stated interest paid or accrued on the Notes will be
taxable to a U.S. Holder as ordinary income in accordance with the holder's
method of accounting for federal income tax purposes. Alternatively, a U.S.
Holder may elect to include stated interest on the Notes (as well as OID,
market discount, de minimis market discount and unstated interest on the Notes,
as adjusted by any amortizable bond premium or acquisition premium) in gross
income on a constant-yield basis. The election will generally apply only to the
Note with respect to which it is made and may not be revoked without the
consent of the IRS. The mechanics and implications of such an election are
beyond the scope of this discussion and, as a result, U.S. Holders should
consult their own tax advisors regarding the desirability of making such an
election.
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Original Issue Discount. The Notes were issued with OID for U.S.
federal income tax purposes. The amount of OID on a Note equals the excess of
the principal amount due at maturity on the Note over its "issue price." The
Company has determined that the portion of the purchase price originally paid
for each Unit which was properly allocable to each Note and, thus, the "issue
price" of each $1,000 Note, equaled $966.51. Although this allocation is not
binding on the IRS, each U.S. Holder is bound by the Company's allocation,
unless a disclosure statement is attached to the timely filed U.S. federal
income tax of the U.S. Holder for its taxable year in which it acquired the
Note.
Each U.S. Holder (whether reporting on the cash or accrual basis of
accounting for tax purposes) will be required to include in taxable income for
any particular taxable year the daily portion of the OID described in the
preceding paragraph that accrues on the Note for each day during the taxable
year on which such U.S. Holder holds the Note, and in advance of the receipt of
the cash to which such OID is attributable. The daily portion is determined by
allocating to each day of an accrual period (generally, in the case of the
Notes, the initial period beginning on the issue date and ending on March 15,
1998 and each subsequent six-month period thereafter ending on March 15 and
September 15) a pro rata portion of the OID allocable to such accrual period.
The amount of OID allocable to an accrual period equals the excess of (i) the
product of the "adjusted issue price" of the Note at the beginning of the
accrual period and the Note's "yield to maturity," over (ii) the amount of any
stated interest payments allocable to such accrual period. The "yield to
maturity" of the Notes is the discount rate that, when applied to all payments
due under the Notes (including stated interest payments), results in a present
value equal to the issue price of the Notes. The "adjusted issue price" of a
Note at the beginning of an accrual period will equal its issue price,
increased by the aggregate amount of OID that has accrued on the Note in all
prior accrual periods, and decreased by any principal payments made on the Note
during all prior accrual periods.
Impact of Applicable High Yield Discount Obligation Rules. If the
yield-to-maturity on the Notes equals or exceeds the sum of 5% and the
"applicable federal rate" (within the meaning of Section 1274(d) of the Code)
in effect for the month in which the Notes are issued ("AFR"), the Notes would
be considered "applicable high yield discount obligations" within the meaning
of Section 163(i) of the Code. In such a case, the Company would not be
permitted to take a deduction for U.S. federal income tax purposes for interest
and OID accrued on the Notes until such time as the Company actually pays such
interest and OID in cash or in property other than stock or debt of the Company
(or persons related to the Company). Moreover, to the extent that the yield to
maturity of the Notes exceeds the sum of 6% and the AFR, such excess (the
"Dividend-Equivalent Interest") would not be deductible at any time by the
Company for U.S. federal income tax purposes (regardless of whether the
Company actually pays such Dividend Equivalent Interest in cash or in other
property). Such Dividend-Equivalent Interest would be treated as a dividend to
the extent it is deemed to have been paid out of the Company's current or
accumulated earnings and profits. Accordingly, a U.S. Holder that is a domestic
corporation may be entitled to take a dividends-received deduction with respect
to any Dividend-Equivalent Interest received by such corporate U.S. Holder on
the Note.
Sale, Retirement, or Other Taxable Disposition of Notes. A U.S. Holder
whose Notes are sold or redeemed for cash will recognize gain or loss to the
extent of the difference between the cash received (other than amounts
reflecting accrued and unpaid stated interest on the Notes, which will be taxed
as ordinary income), and the U.S. Holder's adjusted tax basis in the Notes. A
U.S. Holder's tax basis in a Note will initially equal the issue price of the
Note (determined as described under "-- Original Issue Discount," above, and
will subsequently be increased by the OID includable in such U.S. Holder's
taxable income under the rules described in "-- Original Issue Discount,"
above, and will be reduced by any stated principal payments received on the
Note. Any such gain recognized by a U.S. Holder under the rules described in
this paragraph will be (a) long-term capital gain if the U.S. Holder has held
the Note for more than 18 months, (b) mid-term capital gain if the U.S. Holder
has held the Note for more than one year but not more than 18 months, and (c)
short-term capital gain if the U.S. Holder has not held the Note for more than
one year. Under the recently enacted Taxpayer Relief Act of 1997, (i) long-term
capital gains of individuals are now generally taxed at a maximum rate of 20%
and (ii) mid-term capital gains of individuals are now generally taxed at a
maximum rate of 28%. Short-term capital gains continue to be taxed at ordinary
income rates and the deductibility of capital losses continues to be subject to
certain limitations.
121
<PAGE> 128
Holders of Notes should be aware that the market discount rules may
affect resale of the Notes. If a subsequent purchaser of a Note purchases the
Note at a "market discount" and thereafter recognizes gain upon its
disposition, such gain will be taxable as ordinary interest income (rather than
capital gain) to the extent of the "market discount" that has accrued (and has
not otherwise been included in income pursuant to an election made by such
subsequent purchaser) during the period the subsequent purchaser held such
Note. Generally, "market discount" will exist on the purchase of a Note if the
purchase price is less than the adjusted issue price of the Note and any such
market discount will accrue over the remaining term of the Note on a straight
line basis or, at the election of the subsequent purchaser, on a constant yield
to maturity basis.
Liquidated Damages. The Company intends to take the position that the
Liquidated Damages described above under "Description of the Notes --
Registration Rights; Liquidated Damages" are taxable to U.S. Holders as
ordinary income in accordance with the U.S. Holder's usual method of income tax
accounting. The IRS may take a different position, however, which could require
the U.S. Holder to include such Liquidated Damages in income as they accrue or
become fixed, regardless of the U.S. Holder's method of income tax accounting.
Information Reporting; Backup Withholding. The Company is required to
furnish to record holders of the Notes, other than corporations and other
exempt holders, and to the IRS, information with respect to interest paid and
the amount of OID accrued on the Notes. Holders who purchase Notes after the
Offering for an amount that differs from the adjusted issue price of the Notes
are required to determine for themselves the amount of OID that is includable
in their taxable income.
Certain U.S. Holders may be subject to backup withholding at the rate
of 31% with respect to interest and OID paid on the Notes or with respect to
proceeds received from a disposition of the Notes. Generally, backup
withholding applies only if (i) the payee fails to furnish a correct taxpayer
identification number ("TIN") to the payor in the manner required or fails to
demonstrate that it otherwise qualifies for an exemption, (ii) the IRS notifies
the payor that the TIN furnished by the payee is incorrect, (iii) the payee has
failed to report properly the receipt of a "reportable payment" on one or more
occasions and the IRS has notified the payor that withholding is required, or
(iv) the payee fails (in certain circumstances) to provide a certified
statement, signed under penalties of perjury, that the TIN furnished is the
correct number and that such holder is not subject to backup withholding.
Backup withholding is not an additional tax but, rather, is a method of tax
collection. U.S. Holders will be entitled to credit any amounts withheld under
the backup withholding rules against their actual tax liabilities provided the
required information is furnished to the IRS.
NON-U.S. HOLDERS
This Section summarizes certain U.S. federal tax consequences of the
exchange of Old Notes for Exchange Notes and the ownership of Notes by
"Non-U.S. Holders." The term "Non-U.S. Holder" refers to a person that is not
classified for U.S. federal tax purposes as a "United States person," as
defined in "-- U.S. Holders," above.
Exchange of Notes. The exchange of Old Notes for the Exchange Notes
pursuant to the Exchange Offer should not be a taxable event to Non-U.S.
Holders for U.S. federal income tax purposes.
Interest and OID. In general, a Non-U.S. Holder will not be subject to
U.S. federal income tax or regular withholding tax with respect to stated
interest or OID received or accrued on the Notes so long as (a) the interest
and OID is not effectively connected with the conduct of a trade or business
within the United States, (b) the Non-U.S. Holder does not actually or
constructively own 10% or more of the total combined voting power of all
classes of stock of the Company entitled to vote, (c) the Non-U.S. Holder is
not a controlled foreign corporation that is related to the Company actually or
constructively through stock ownership, and (d) either (i) the beneficial owner
of the Note certifies to the Company or its agent, under penalties of perjury,
that it is not a U.S. Holder and provides its name and address on U.S. Treasury
Form W-8 (or on a suitable substitute form) or (ii) the Note is held by a
securities clearing organization, bank or other financial institution that
holds customers' securities in the ordinary course of its trade or business (a
"financial institution") and such financial institution certifies under
penalties of perjury that such a Form W-8
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<PAGE> 129
(or suitable substitute form) has been received from the beneficial owner by it
or by a financial institution between it and the beneficial owner and furnishes
the payor with a copy thereof.
Gain on Disposition of Notes. Non-U.S. Holders generally will not be
subject to U.S. federal income taxation on gain recognized on a disposition of
Notes so long as (i) the gain is not effectively connected with the conduct by
the Non-U.S. Holder of a trade or business within the United States and (ii) in
the case of a Non-U.S. Holder who is an individual, either such Non-U.S. Holder
is not present in the United States for 183 days or more in the taxable year of
disposition or such Non-U.S. Holder does not have a "tax home" (within the
meaning of section 911(d)(3) of the Code) in the United States.
Federal Estate Taxes. In general, an individual who is a Non-U.S.
Holder will incur liability for U.S. federal estate tax if the fair market
value of the property included in such individual's taxable estate for U.S.
federal estate tax purposes exceeds the statutory threshold amount, which is
currently $60,000. For these purposes, a Note held by such an individual who,
at the time of death, is not a citizen or resident of the United States should
not be subject to U.S. federal estate tax as a result of such individual's
death if the individual does not actually or constructively own 10% or more of
the total combined voting power of all classes of stock of the Company entitled
to vote and, at the time of the individual's death, if payments with respect to
such Note would not have been effectively connected with the conduct by such
individual of a trade or business in the United States.
U.S. Information Reporting Requirements and Backup Withholding Tax.
Generally, payments of interest, OID, premium or principal on the Notes to
Non-U.S. Holders will not be subject to information reporting or backup
withholding if the Non-U.S. Holder complies with the certification requirements
set forth in clause (d) under "-- Interest and OID on Notes" above.
Non-U.S. Holders will not be subject to information reporting or
backup withholding with respect to the payment of proceeds from the disposition
of Notes effected by, to or through the foreign office of a broker; provided,
however, that if the broker is a U.S. person or a U.S.-related person,
information reporting (but not backup withholding) would apply unless the
broker has documentary evidence in its records as to the Non-U.S. Holder's
foreign status (and has no actual knowledge to the contrary), or the Non-U.S.
Holder certifies as to its non-U.S. status under penalty of perjury or
otherwise establishes an exemption. Non-U.S. Holders will be subject to
information reporting and backup withholding at a rate of 31% with respect to
the payment of proceeds from the disposition of Notes effected by, to or
through the U.S. office of a broker, unless the Non-U.S. Holder certifies as to
its non-U.S. status under penalty of perjury or otherwise establishes an
exemption.
The IRS has proposed regulations that, if issued as final regulations,
would require Non-U.S. Holders to provide additional information in order to
establish an exemption from, or reduce the rate of, withholding tax or backup
withholding tax and, in particular, would require certain Non-U.S. Holders, and
foreign partners of partnerships that are Non-U.S. Holders, to provide certain
information and comply with certain certification requirements not required
under existing law, including requirements that the Non-U.S. Holder furnish its
name, address and taxpayer identification number. Such proposed regulations are
proposed to be effective generally for payments made after December 31, 1997.
It is not possible to predict whether, or in what form, the proposed
regulations ultimately will be adopted.
Amounts withheld under the backup withholding rules do not constitute
a separate U.S. federal income tax. Rather, amounts withheld under the backup
withholding rules from a payment to a Non-U.S. Holder will be allowed as a
credit against such Non-U.S. Holder's U.S. federal income tax liability and any
amounts withheld in excess of such Non- U.S. Holder's U.S. federal income tax
liability would be refunded, provided that the required information is
furnished to the IRS.
123
<PAGE> 130
PLAN OF DISTRIBUTION
Each Participating Broker-Dealer that receives Exchange Notes for its
own account in connection with the Exchange Offer must acknowledge that it will
deliver a prospectus in connection with any resale of such Exchange Notes.
This Prospectus, as it may be amended or supplemented from time to time, may be
used by Participating Broker-Dealers during the period referred to below in
connection with resales of Exchange Notes received in exchange for Old Notes
where such Old Notes were acquired by such Participating Broker-Dealers for
their own accounts as a result of market- making activities or other trading
activities (other than a resale of an unsold allotment from the original sale
of Old Notes). The Company has agreed that this Prospectus, as it may be
amended or supplemented from time to time, may be used by a Participating
Broker-Dealer in connection with resales of such Exchange Notes for a period
ending 180 days from the date on which the Exchange Offer Registration
Statement is declared effective. However, a Participating Broker-Dealer who
intends to use this Prospectus in connection with the resale of Exchange Notes
received in exchange for Old Notes pursuant to the Exchange Offer must notify
the Company, or cause the Company to be notified, on or prior to the Expiration
Date, that it is a Participating Broker-Dealer. Such notice may be given in
the space provided for that purpose in the Letter of Transmittal or may be
delivered to the Exchange Agent at one of the addresses set forth in the Letter
of Transmittal. See "The Exchange Offer -- Resales of Exchange Notes."
The Company will not receive any proceeds from the issuance of the
Exchange Notes offered hereby. Exchange Notes received by Participating
Broker-Dealers for their own accounts in connection with the Exchange Offer may
be sold from time to time in one or more transactions in the over-the-counter
market, in negotiated transactions, through the writing of options on the
Exchange Notes or a combination of such methods of resale, at market prices
prevailing at the time of resale, at prices related to such prevailing market
prices or at negotiated prices. Any such resale may be made directly to
purchasers or to or through brokers or dealers who may receive compensation in
the form of commissions or concessions from any such broker-dealer and/or the
purchasers of any such Exchange Notes. Any Participating Broker- Dealer that
resells Exchange Notes that were received by it for its own account in
connection with the Exchange Offer and any broker or dealer that participates
in a distribution of such Exchange Notes may be deemed to be an "underwriter"
within the meaning of the Securities Act, and any profit on any such resale of
Exchange Notes and any commissions or concessions received by any such persons
may be deemed to be underwriting compensation under the Securities Act. The
Letter of Transmittal states that by acknowledging that it will deliver and by
delivering a prospectus, a Participating Broker-Dealer will not be deemed to
admit that it is an "underwriter" within the meaning of the Securities Act.
For a period ending 180 days from the date on which the Exchange Offer
Registration Statement is declared effective, the Company will promptly send
additional copies of this Prospectus and any amendment or supplement to this
Prospectus to any Participating Broker-Dealer that requests such documents in
the Letter of Transmittal.
124
<PAGE> 131
LEGAL MATTERS
The legality of the securities offered hereby will be passed upon for
the Company by Baker & Botts, L.L.P., Dallas, Texas.
EXPERTS
The consolidated financial statements of HighwayMaster Communications,
Inc. and its subsidiary as of December 31, 1995 and 1996 and for each of the
years in the three-year period ended December 31, 1996, included in this
Prospectus, have been audited by Price Waterhouse LLP, independent accountants,
as stated in their report appearing herein.
125
<PAGE> 132
GLOSSARY
AIRTIME CHARGES: Charges to users of wireless communications
systems based on the actual minutes of use.
ANALOG: A transmission method employing a continuous wave
to communicate information rather than a pulsed or
digital method. Most existing cellular and SMR
systems employ analog technology.
A-SIDE AND B-SIDE: The FCC permits only two cellular carriers to
compete in each cellular market, one from a group
of A-Side carriers which operate in one frequency
range and the other from a second frequency range,
the B-Side.
AUTONOMOUS
REGISTRATION: Procedure whereby a cellular telephone
automatically identifies itself to the cellular
carrier as it enters a new cellular MSA or RSA,
allowing for automatic out-of-area call delivery.
Existing autonomous-registration call delivery
systems have very limited RSA participation
because of the high operating costs to cellular
carriers.
CALL AUTHORIZATION: Pre-authorization procedure undertaken by a
cellular carrier for outgoing calls from a
cellular telephone. Call authorization for an
out-of-area caller requires verification with his
home cellular carrier.
CELLULAR: The mobile radio service licensed by the FCC to
provide services on a common carrier basis
utilizing 50 MHZ of spectrum in the 800-MHZ band.
Cellular is the first mobile radio service to
broadly employ frequency reuse in its system
design, allowing for greatly expanded capacity and
reduced pricing.
COMMON CARRIER: An entity offering services that are for profit,
interconnected with the public switched telephone
network, and held out to the public without
restrictions and on a non-discriminatory basis.
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<PAGE> 133
DIGITAL: Describes a method of storing, processing and
transmitting information through the use of pulses
which represent numbers. Because digital systems
reduce all sound, information, or other data to
numeric values, as opposed to continuously
variable analog signals, digital systems allow for
rapid manipulation, processing, and storage of the
sound or other data by computer.
DISPATCH: A service provided to customers who want to
transmit and receive short messages to and from a
fleet of vehicles operating within range of the
system's repeater. Dispatch can be structured in a
one-to-one format or a one-to-many format between
Series 5000 Mobile Units and a fixed base station.
EMPTY MILES: Miles driven by a truck without a revenue-
generating load.
ESMR: Enhanced Specialized Mobile Radio. ESMR is a
technology that has been developed specifically to
provide digital service using the SMR frequency
band. ESMR provides enhanced services such as
instant conferencing, mobile telephone, short-text
messaging with acknowledgment and data
transmission.
FCC: Federal Communications Commission.
FREQUENCY: A point on the spectrum, measured in Hertz. Radio
transmitters are designed to transmit signals
utilizing a pre-selected frequency, and receivers
are designed to tune out all signals other than
signals of a pre-selected frequency. Two users
cannot broadcast simultaneously on identical
frequencies in the same location without
interference, creating the need for regulatory
bodies such as the FCC to allocate radio
frequencies.
GEO-STATIONARY ORBIT: An orbit 22,300 miles above the equator which
allows a satellite to orbit at the same speed as
the earth's rotation, remaining in a fixed
position over the earth. Existing satellite
communications systems utilize geo-stationary
satellites.
GPS: Global Positioning System. A network of
navigational satellites maintained by the U.S.
Department of Defense which provides navigational
information to specialized radio receivers.
GTE-TSI: GTE Telecommunications Services Incorporated
and/or its affiliates.
127
<PAGE> 134
GTE WIRELESS: GTE Wireless and/or its affiliates.
HERTZ: The unit for measuring electromagnetic (including
radio) frequencies. One Hertz (abbreviated Hz)
equals one cycle per second; kHz (kilohertz)
stands for thousands of Hertz; MHZ (megahertz)
stands for millions of Hertz.
HIGHWAYMASTER NETWORK: A private, wireless enhanced services
telecommunications network utilized by the
Company. This network integrates the following
principal elements utilizing the Company's
patented technology: (i) access to the cellular
infrastructure through contracts with more than 70
cellular carriers; (ii) call processing, data
management and related functions provided through
switching complexes operated by AT&T and the
Company; and (iii) call delivery information and
other "clearinghouse" services provided through
contracts with GTE-TSI and EDS.
INCOMING CALL
DELIVERY: The ability of a cellular telephone system to
deliver a call to a mobile telephone (ring the
mobile telephone).
INTERFACE: Computer software and hardware which allow two
different computer systems to communicate with
each other or, as a verb, the action of
establishing such a connection.
LEO: Low-earth orbit. LEO satellites orbit quickly
around the earth, requiring multiple satellites if
continuous communication is required in a specific
geographic location.
LORAN-C: Local Radio Aid to Navigation. A network of
navigational transmitters maintained by the U.S.
Coast Guard to provide navigational information to
specialized radio receivers in the continental
United States.
LONG-HAUL: Segment of the trucking industry which carries
freight over average distances of over 100 miles.
LTL: Less-than-truckload; trucking companies that
utilize smaller local delivery trucks to pick up
less-than-truckload shipments for consolidation at
a depot before long-haul shipment.
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<PAGE> 135
MEO: Middle-earth orbit. MEO satellites orbit at
distances from the earth that are greater than
LEOs but less than geo-stationary satellites.
MODEM: Modulator-Demodulator. Converts digital data into
a form that can be transmitted over telephone
lines, and reconverts it to digital on the
receiving end.
MSA: Metropolitan Statistical Area. MSAs are of two
types, cellular MSAs and census MSAs. Cellular
MSAs are determined by the FCC for the purpose of
granting licenses to provide cellular telephone
service within a particular area. Census MSAs are
determined by the U.S. Census Bureau for general
purposes. Cellular MSAs and census MSAs may differ
from area to area.
PAGING: A one-way messaging service generally transmitting
text messages of limited length to a compact
receiver while within range of the paging
company's transmitters.
PCS: Personal Communications Services. PCS is an
all-digital wireless telephony service that
provides integrated services not currently offered
by traditional analog cellular providers and a
wider range of service options, including
integrated voice mail, enhanced custom-calling and
short-messaging. In the future, PCS systems may
offer high-speed data transmission to and from
computers, advanced paging services, facsimile
services and Internet access.
PRIVATE CARRIER: A for-profit operator of a private land mobile
service which does not resell for profit any
exchange or inter-exchange service or facility
which has been purchased from a common carrier.
REAL-TIME: A term used to describe a computer or
communications function which happens
instantaneously, while the system is in use, as
opposed to batched or store-and-forward methods
that record and store information for processing
or transmission at a later time.
RESELLER: A carrier that does not own transmission
facilities, but obtains communications services
from another carrier for resale to the public for
profit.
RSA: Rural Service Area as defined by the FCC.
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<PAGE> 136
SERIES 5000 MOBILE
UNIT: The Series 5000 mobile communications unit,
including earlier fully-equipped versions, which
functions include voice communication, the
transmission and receipt of data messages,
navigational tracking, calculation of fuel taxes,
estimating times of arrival, storing data and
monitoring on-board electronic engine and other
electronic functions.
SMR: Specialized Mobile Radio. SMR is a type of
wireless dispatch communications that is used
primarily as a business communications tool. The
service provides point-to-multipoint or
"one-to-many" voice communications. The FCC
allocated SMR operators a total of 19 MHZ of
spectrum, near the allocation for cellular
operators in the 800 and 900 MHZ bands. The FCC
regulated SMR differently from cellular, however,
leading SMR to develop networks based on
high-powered transmitters that precluded
increasing system capacity by reusing frequencies.
Capacity restraints led SMR operators to focus on
dispatch service.
SPECTRUM: A term generally applied to the entire collection
of radio frequencies. Because two users can not
simultaneously broadcast on the same frequency in
the same location without interference, regulatory
bodies such as the FCC must pre- approve usage of
each portion of the spectrum.
WIRELESS: When used broadly, this term describes
telecommunications services that rely on radio
waves for communication rather than a land-line
link.
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<PAGE> 137
INDEX TO CONSOLIDATED FINANCIAL STATEMENTS
<TABLE>
<CAPTION>
PAGE
----
<S> <C>
CONSOLIDATED FINANCIAL STATEMENTS AS OF DECEMBER 31, 1995 AND 1996 AND FOR THE
YEARS ENDED DECEMBER 31, 1994, 1995 AND 1996:
Report Of Independent Accountants...................................................................... F-2
Consolidated Balance Sheets At December 31, 1995 And 1996.............................................. F-3
Consolidated Statements Of Operations For The Years Ended
December 31, 1994, 1995 And 1996.................................................................... F-4
Consolidated Statements Of Cash Flows For The Years Ended
December 31, 1994, 1995 And 1996.................................................................... F-5
Consolidated Statements Of Changes In Partners' And Stockholders' Equity
For The Years Ended December 31, 1994, 1995 And 1996................................................ F-6
Notes To Consolidated Financial Statements............................................................. F-7
CONSOLIDATED FINANCIAL STATEMENTS AS OF DECEMBER 31, 1996 AND JUNE 30, 1997 AND
FOR THE SIX MONTHS ENDED JUNE 30, 1996 AND JUNE 30, 1997 (UNAUDITED):
Consolidated Balance Sheets At December 31, 1996 And June 30, 1997 (Unaudited)......................... F-25
Consolidated Statements Of Operations For The Six Months Ended June 30, 1996
And June 30, 1997 (Unaudited)....................................................................... F-26
Consolidated Statements Of Cash Flows For The Six Months Ended June 30, 1996
And June 30, 1997 (Unaudited)....................................................................... F-27
Consolidated Statements Of Changes In Stockholders' Equity For The Six Months
Ended June 30, 1997 (Unaudited)..................................................................... F-28
Notes To Consolidated Financial Statements (Unaudited)................................................. F-29
</TABLE>
F-1
<PAGE> 138
REPORT OF INDEPENDENT ACCOUNTANTS
To the Board of Directors and Stockholders of HighwayMaster
Communications, Inc.
In our opinion, the consolidated financial statements appearing on
pages F-3 through F-24 of this Prospectus, present fairly, in all material
respects, the financial position of HighwayMaster Communications, Inc. and its
subsidiary at December 31, 1995 and 1996, and the results of their operations
and their cash flows for each of the three years in the period ended December
31, 1996, in conformity with generally accepted accounting principles. These
financial statements are the responsibility of the Company's management; our
responsibility is to express an opinion on these financial statements based on
our audits. We conducted our audits of these statements in accordance with
generally accepted auditing standards which 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, assessing the accounting principles used and significant estimates
made by management, and evaluating the overall financial statement
presentation. We believe that our audits provide a reasonable basis for the
opinion expressed above.
PRICE WATERHOUSE LLP
Dallas, Texas
February 10, 1997
F-2
<PAGE> 139
HIGHWAYMASTER COMMUNICATIONS, INC. AND SUBSIDIARY
CONSOLIDATED BALANCE SHEETS
(IN THOUSANDS, EXCEPT SHARE INFORMATION)
<TABLE>
<CAPTION>
ASSETS
December 31,
1995 1996
--------- ---------
<S> <C> <C>
Current assets:
Cash and cash equivalents .................................................... $ 23,969 $ 19,725
Accounts receivable, net of allowance for doubtful
accounts of $815 and $774, respectively ................................... 5,949 8,537
Other short-term receivables ................................................. 803 919
Inventory .................................................................... 4,199 3,458
Prepaid expenses ............................................................. 506 231
--------- ---------
Total current assets ................................................. 35,426 32,870
Property and equipment, net of accumulated depreciation of
$800 and $1,776, respectively ................................................ 3,927 7,756
Long-term receivables .......................................................... 1,394 1,045
Deposits ....................................................................... 112 309
Other assets, net of accumulated amortization of $1,125 and
$1,024, respectively ......................................................... 1,510 949
--------- ---------
Total assets ......................................................... $ 42,369 $ 42,929
========= =========
LIABILITIES AND STOCKHOLDERS' EQUITY
Current liabilities:
Accounts payable ............................................................. $ 5,028 $ 3,450
Telecommunications costs payable ............................................. 1,984 2,805
Accrued interest payable to related parties .................................. 345 --
Accrued warranty ............................................................. 876 273
Accrued loss on short-term contracts ......................................... -- 570
Other current liabilities .................................................... 1,421 1,167
--------- ---------
Total current liabilities ............................................ 9,654 8,265
Notes payable to related parties ............................................... 11,488 --
--------- ---------
Commitments and contingencies (Note 12)
Total liabilities .................................................... 21,142 8,265
--------- ---------
Series B redeemable preferred stock, $.01 par value, 10,000
shares authorized; 1,080 and zero shares issued and
outstanding, respectively .................................................... 8,126 --
--------- ---------
Stockholders' equity:
Series D participating convertible preferred stock, $.01 par value, 1,000
shares authorized; zero and 1,000
shares issued and outstanding at December 31, 1995 and .................... -- --
1996, respectively
Common stock, $.01 par value, 50,000,000 shares
authorized; 22,333,661 and 25,150,527 shares issued;
22,021,664 and 24,838,530 shares outstanding at ........................... 223 251
December 31, 1995 and 1996, respectively
Additional paid-in capital ................................................... 90,560 144,829
Accumulated deficit........................................................... (77,135) (109,869)
Treasury stock, 311,997 shares, at cost....................................... (547) (547)
---------- ---------
Total stockholders' equity............................................ 13,101 34,664
--------- ---------
Total liabilities and stockholders' equity............................ $ 42,369 $ 42,929
========= =========
</TABLE>
See accompanying notes to consolidated financial statements.
F-3
<PAGE> 140
HIGHWAYMASTER COMMUNICATIONS, INC. AND SUBSIDIARY
CONSOLIDATED STATEMENTS OF OPERATIONS
(IN THOUSANDS, EXCEPT PER SHARE)
<TABLE>
<CAPTION>
YEAR ENDED DECEMBER 31,
-----------------------
1994 1995 1996
---- ---- ----
<S> <C> <C> <C>
Revenues:
Product ...................................................... $ 11,075 $ 16,946 $ 14,645
Service ...................................................... 2,436 9,908 16,056
-------- -------- --------
Total revenues ....................................... 13,511 26,854 30,701
-------- -------- --------
Cost of revenues:
Product ...................................................... 11,867 17,730 15,099
Service ...................................................... 2,099 9,172 11,489
Write-down of inventory ...................................... 1,658 -- 1,943
-------- -------- --------
Total cost of revenues ............................... 15,624 26,902 28,531
-------- -------- --------
Gross profit (loss) ............................................ (2,113) (48) 2,170
General and administrative expenses ............................ 6,577 7,299 9,479
Sales and marketing expenses ................................... 3,890 6,273 9,139
Engineering expenses ........................................... 1,900 2,868 4,094
Customer service expenses ...................................... 4,587 5,727 8,089
-------- -------- --------
Operating loss ....................................... (19,067) (22,215) (28,631)
Interest income ................................................ 279 1,041 809
Interest expense to related parties ............................ (5,999) (5,106) (1,691)
Recapitalization costs ......................................... (733) -- --
Other (expense) ................................................ (361) (117) (230)
-------- -------- --------
Loss before income taxes and extraordinary
item ............................................... (25,881) (26,397) (29,743)
Income tax provision ........................................... -- -- --
-------- -------- --------
Loss before extraordinary item ....................... (25,881) (26,397) (29,743)
Extraordinary item-- loss on extinguishment of debt ............ -- (6,980) (317)
-------- -------- --------
Net loss ............................................. $(25,881) $(33,377) $(30,060)
======== ======== ========
Primary per share data:
Loss before extraordinary item ............................... $ (1.39) $ (1.39)
Extraordinary item ........................................... (0.34) (0.01)
-------- --------
Net loss per share ........................................... $ (1.73) $ (1.40)
======== ========
Weighted average number of shares outstanding .................. 20,407 22,763
======== ========
Pro forma per share data (unaudited):
pro forma net loss per share ................................. $ (1.50)
========
Weighted average number of shares outstanding used in the
pro forma net loss per share calculation .................. 18,259
========
</TABLE>
See accompanying notes to consolidated financial statements.
F-4
<PAGE> 141
HIGHWAYMASTER COMMUNICATIONS, INC. AND SUBSIDIARY
CONSOLIDATED STATEMENTS OF CASH FLOWS
(IN THOUSANDS)
<TABLE>
<CAPTION>
YEAR ENDED DECEMBER 31,
-----------------------
1994 1995 1996
---- ---- ----
<S> <C> <C> <C>
Cash flows from operating activities:
Net loss .................................................. $(25,881) $(33,377) $(30,060)
Adjustments to reconcile net loss to cash used in
operating activities:
Depreciation and amortization .......................... 825 886 1,651
Amortization of discount on notes payable .............. 2,410 2,296 871
Interest paid-in-kind .................................. 457 -- --
Payment of debt issue costs ............................ (1,000) -- --
Extraordinary item ..................................... -- 6,980 317
(Increase) decrease in accounts receivable ............. (4,169) (1,127) (2,588)
(Increase) decrease in other receivables ............... (1,051) (1,146) 233
(Increase) decrease in inventory ....................... (182) (669) 741
(Increase) decrease in prepaid expenses and
deposits ............................................. (3) (386) 78
Increase (decrease) in accounts payable ................ 3,942 (906) (1,578)
Increase (decrease) in accrued expenses and other
current liabilities .................................. 2,346 1,753 189
Other .................................................. 219 (74) 329
-------- -------- --------
Net cash used in operating activities ............. (22,087) (25,770) (29,817)
-------- -------- --------
Cash flows from investing activities:
Additions to property and equipment ....................... (1,098) (2,990) (4,877)
Additions to capitalized software ......................... (515) (1,086) (262)
-------- -------- --------
Net cash used in investing activities ............. (1,613) (4,076) (5,139)
-------- -------- --------
Cash flows from financing activities:
Proceeds from issuance of common stock, net ............... -- 72,774 10,000
Proceeds from issuance of preferred stock and warrants,
net .................................................... -- -- 19,688
Proceeds from notes payable to related parties ............ 35,000 4,122 5,000
Payments on loans from related parties .................... (7,225) (27,239) (5,000)
Proceeds from exercise of stock options ................... -- -- 1,024
Purchase of treasury shares ............................... (547) -- --
-------- -------- --------
Net cash provided by financing activities ......... 27,228 49,657 30,712
-------- -------- --------
Increase (decrease) in cash ................................. 3,528 19,811 (4,244)
Cash and cash equivalents, beginning of period .............. 630 4,158 23,969
-------- -------- --------
Cash and cash equivalents, end of period .................... $ 4,158 $ 23,969 $ 19,725
======== ======== ========
Supplemental cash flow information:
interest paid ............................................. $ 2,451 $ 3,267 $ 1,056
======== ======== ========
</TABLE>
See accompanying notes to consolidated financial statements.
F-5
<PAGE> 142
HIGHWAYMASTER COMMUNICATIONS, INC. AND SUBSIDIARY
CONSOLIDATED STATEMENTS OF CHANGES IN PARTNERS' AND STOCKHOLDERS' EQUITY
(DOLLARS IN THOUSANDS, EXCEPT SHARE INFORMATION)
<TABLE>
<CAPTION>
PREFERRED STOCK COMMON STOCK
GENERAL LIMITED --------------- ---------------------------
PARTNERS PARTNERS SHARES AMOUNT SHARES AMOUNT
----------- -------- ----- ------ ---------- --------
<S> <C> <C> <C> <C> <C> <C>
Partners' deficit at December 31,
1993 .............................. $ (5,193) $ 1,377 -- $ -- -- $ --
Recapitalization .................. 5,193 (1,377) 929 -- 13,650,000 137
Issuance of common stock .......... 4,154,329 41
Purchase of treasury stock ........
Accretion of discount -- Series
B redeemable preferred stock ....
net loss for year .................
----------- -------- ----- ------- ---------- --------
Stockholders' equity (deficit) at
december 31, 1994 ................. -- -- 929 -- 17,804,329 178
Issuance of common
stock -- Initial public
offering ........................ 4,000,000 40
Issuance of common
stock-- Note exchange ........... 529,332 5
Accretion of discount-- Series
B redeemable preferred stock ....
Cancellation of Series C
preferred stock ................. (929) --
Net loss for year .................
----------- -------- ----- ------- ---------- --------
Stockholders' equity (deficit) at
December 31, 1995 ................. -- -- -- -- 22,333,661 223
Issuance of common stock .......... 1,818,018 18
Issuance of Series D preferred
stock ........................... 1,000 --
Exchange of Series B preferred
stock for common stock .......... 864,000 9
Accretion of discount -- Series
B redeemable preferred stock ....
Exercise of stock options ......... 134,848 1
Net loss for year .................
----------- -------- ----- ------- ---------- --------
Stockholders' equity (deficit) at
December 31, 1996 ................. $ -- $ -- 1,000 $ -- 25,150,527 $ 251
=========== ======== ===== ======= ========== ========
<CAPTION>
ADDITIONAL TREASURY STOCK
PAID-IN -------------- ACCUMULATED
CAPITAL SHARES AMOUNT DEFICIT TOTAL
--------- ------- --------- --------- --------
<S> <C> <C> <C> <C> <C>
Partners' deficit at December 31,
1993 .............................. $ -- -- $ -- $ -- $ (3,816)
Recapitalization .................. (2,194) (14,665) (12,906)
Issuance of common stock .......... 9,571 9,612
Purchase of treasury stock ........ 311,997 (547) (547)
Accretion of discount -- Series
B redeemable preferred stock .... (1,235) (1,235)
net loss for year ................. (25,881) (25,881)
--------- ------- --------- --------- --------
Stockholders' equity (deficit) at
december 31, 1994 ................. 7,377 311,997 (547) (41,781) (34,773)
Issuance of common
stock -- Initial public
offering ........................ 72,734 72,774
Issuance of common
stock-- Note exchange ........... 10,449 10,454
Accretion of discount-- Series
B redeemable preferred stock .... (1,977) (1,977)
Cancellation of Series C
preferred stock ................. --
Net loss for year ................. (33,377) (33,377)
--------- ------- --------- --------- --------
Stockholders' equity (deficit) at
December 31, 1995 ................. 90,560 311,997 (547) (77,135) 13,101
Issuance of common stock .......... 22,707 22,725
Issuance of Series D preferred
stock ........................... 19,688 19,688
Exchange of Series B preferred
stock for common stock .......... 10,791 (843) 9,957
Accretion of discount -- Series
B redeemable preferred stock .... (1,831) (1,831)
Exercise of stock options ......... 1,083 1,084
Net loss for year ................. (30,060) (30,060)
--------- ------- --------- --------- --------
Stockholders' equity (deficit) at
December 31, 1996 ................. $ 144,829 311,997 $ (547) $(109,869) $ 34,664
========= ======= ========= ========= ========
</TABLE>
See accompanying notes to consolidated financial statements.
F-6
<PAGE> 143
HIGHWAYMASTER COMMUNICATIONS, INC. AND SUBSIDIARY
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
1. RECAPITALIZATION AND BUSINESS OVERVIEW
Recapitalization
On April 24, 1992, By-Word Joint Venture L.P., a Delaware limited
partnership, was formed with one general partner, By-Word Technologies, Inc.
("By-Word") and one limited partner, the FBR Eighteen Corporation ("FBR"). FBR
was wholly-owned by the Eighteen Wheeler Corporation ("Eighteen Wheeler"). On
April 27, 1992, By-Word Joint Venture L.P. changed its name to HighwayMaster
L.P. (the "Partnership"). At December 31, 1993, the approximate percentages of
interest in the Partnership were as follows:
<TABLE>
<S> <C>
By-Word...................................................... 39.55%
FBR.......................................................... 58.99%
Robert Hayes................................................. 1.08%
Robert Folsom................................................ 0.38%
</TABLE>
On February 4, 1994, the Company was recapitalized in a transaction
whereby, (i) holders of the stock of Eighteen Wheeler contributed such stock to
a newly formed entity, HM Holding Corporation, in exchange for promissory notes
in the aggregate principal amount of $9,291,050; 8,052,330 shares of common
stock; and 929.105 shares of Series A Preferred Stock, (ii) individual partners
contributed their interests in the Partnership to HM Holding Corporation in
exchange for promissory notes in the aggregate principal amount of $1,508,950;
198,900 shares of common stock; and 150.895 shares of Series A Preferred Stock
and (iii) By-Word contributed its interest in the Partnership and the residual
rights to certain intellectual property previously licensed to the Partnership
in exchange for 5,398,770 shares of common stock. The shares of Series A
Preferred Stock were subsequently canceled in exchange for which the prior
holders of stock in Eighteen Wheeler received 929.105 shares of Series B
Preferred Stock and 929.105 shares of Series C Preferred Stock, and the
individual partners received 150.895 shares of Series B Preferred Stock. As a
result of the foregoing transactions, Eighteen Wheeler became a wholly-owned
subsidiary of HM Holding Corporation. FBR and the Partnership were merged with
and into Eighteen Wheeler, and the name of the surviving corporation was
changed to HighwayMaster Corporation. By virtue of the merger, HighwayMaster
Corporation became the successor in interest to the Partnership. These
transactions are collectively referred to as the "Recapitalization."
In connection with the Recapitalization, the Company paid an aggregate
of $733,000 in transaction and legal fees which were charged to earnings during
1994. Approximately $465,000 of these fees were paid to a stockholder of the
Company.
From February 4, 1994 to December 31, 1994, certain stockholders of
the Company contributed a total of $35.0 million in cash in exchange for the
Company's common stock and notes payable (see Note 8).
In February 1995, HM Holding Corporation changed its name to
HighwayMaster Communications, Inc. (the "Company"). Since the operations were
conducted solely by the Partnership and the Company and no other party to the
Recapitalization conducted operating activities, there was no change in the
historical cost basis of the Company's assets and liabilities. Unless otherwise
stated, references to the "Company" shall include HighwayMaster Communications,
Inc. (formerly HM Holding Corporation) and its subsidiary and its predecessors,
including the Partnership.
F-7
<PAGE> 144
Business Overview
From April 24, 1992 (inception) through June 1993, the Company was in
the development stage and its primary activities related to the design and
development of its products. The Company began selling its products in the
third quarter of 1993.
The Company operates a wireless enhanced-services network with both
voice and data capabilities in 99% of the available cellular coverage areas in
the United States and 100% of the ASide cellular coverage areas in Canada. The
Company's private network covers approximately 95% of the United States
interstate highway system. Through this private network, the Company provides
integrated mobile voice, data, tracking, and fleet management information
services to trucking companies and private truck operators in the long-haul
segment of the transportation industry.
The HighwayMaster system includes a Mobile Communication Unit (the
"Mobile Communication Unit" or "Unit") installed in each truck and a
proprietary dispatch software package developed by the Company for use by
trucking companies. The Mobile Communication Unit transmits and receives voice
and data communication to and from long-haul trucks through the Company's
private network. In addition, the Unit contains a sophisticated navigational
tracking device that enables dispatchers to obtain accurate position reports
for trucks located anywhere in the United States and Canada. The Company's
dispatch software package enables a trucking company to optimize the use of its
fleet by processing data transmitted by Mobile Communication Units and
performing a variety of fleet management functions.
In the fourth quarter of 1996, the Company entered into a strategic
business alliance with Prince Corporation ("Prince"), a subsidiary of Johnson
Controls, Inc., to develop and provide AutoLink service for motorists in the
United States and Canada. The basic AutoLink Product will provide an
intelligent communications link from the car to an information services complex
in order to provide emergency assistance, roadside assistance and information
services to the occupants of the car, including remote tracking of stolen or
missing vehicles. HighwayMaster will be responsible for managing the network,
providing software for the intelligent mobile unit in the car and assisting in
managing various information services providers. The AutoLink business alliance
is currently in its preliminary stages and no revenues will be realized by the
Company from AutoLink in 1997.
2. STOCK SPLIT
On May 26, 1995, the Company's board of directors authorized, and a
majority of stockholders approved, a one thousand nine hundred and
fifty-for-one (1,950 for 1) common stock split effected in the form of a stock
dividend, payable to shareholders of record on May 26, 1995. The stock split
has been given retroactive effect to January 1, 1994 (the year in which the
Recapitalization to a corporate structure took place) in the accompanying
financial statements.
3. COMPLETION OF INITIAL PUBLIC OFFERING AND NOTE EXCHANGE
On June 28, 1995, the Company completed its initial public offering
(the "Offering") of 4,000,000 shares of common stock at a price of $19.75 per
share. Proceeds from the Offering totaled $72,774,000, net of underwriters'
discounts and other offering expenses totaling $6,226,000.
A portion of the proceeds from the Offering was used to retire notes
payable to related parties in the aggregate principal amount of $27,239,000
(see Note 8). In addition, 529,332 shares of common stock were issued to retire
notes payable to related parties (the "Note Exchange") in the aggregate
principal amount of $10,454,000. In connection with the foregoing, the
unamortized balances of debt discount and debt issue costs associated with the
indebtedness retired, in the aggregate amount of $6,980,000, were charged to
expense and are reported in the accompanying consolidated statements of
operations as an extraordinary item, "loss on extinguishment of debt."
F-8
<PAGE> 145
4. SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES
Basis of Presentation
The consolidated financial statements include those of HighwayMaster
Communications, Inc. and HighwayMaster Corporation. All significant
intercompany accounts and transactions have been eliminated in consolidation.
Estimates Inherent in the Preparation of Financial Statements
The preparation of financial statements in conformity with generally
accepted accounting principles requires management to make estimates and
assumptions that affect the reported amounts of assets and liabilities and
disclosure of contingent assets and liabilities at the date of the financial
statements and the reported amounts of revenues and expenses during the
reporting period. Actual results could differ from those estimates.
Revenue Recognition
Revenues from equipment sales and licensing of equipment software are
generally recognized at the time the Units are shipped to customers. In certain
cases the Company has installed Units in customers' trucks on a trial basis,
permitting customers to return the Units with limited or no penalty. In such
cases, the Company recognizes revenue when the trial period expires. Revenues
generated from voice and data communications services are recognized upon
customer usage. Until 1996, AT&T invoiced and collected payments from all of
the Company's customers for voice and data communication services associated
with the Company's equipment. The Company records as revenue an amount equal to
the payments received from AT&T, and the remainder of these service charges,
including amounts for call processing, enhanced long distance services and
customer collection fees, is retained by AT&T under the terms of the AT&T
Contract (see Note 11). Beginning in the third quarter of 1996, the Company
started providing customer billing, credit and collection activities for voice
and data communication services for certain customers.
Cash and Cash Equivalents
Cash and cash equivalents include cash on hand and investments with
purchased original maturities of three months or less. Such investments consist
of short-term commercial paper, U.S. Government and U.S. Government Agency
obligations, and money-market accounts. The Company has approximately
$19,500,000 of cash and cash equivalents in excess of FDIC insured limits at
December 31, 1996. The Company has not experienced any losses on its cash and
cash equivalents.
Business and Credit Concentrations
The majority of the Company's business activities and related accounts
receivable are with customers in the interstate trucking industry. The
receivables generated from equipment sales are generally secured by the
respective Units shipped to the customer. Allowances have been provided for
amounts which may eventually become uncollectible and to provide for any
disputed charges. No customer accounted for more than 10% of total consolidated
revenues for the years ended December 31, 1995 and 1996. During 1994, one
interstate trucking company accounted for approximately $2.8 million, or 21%,
of total consolidated revenues.
Inventory
Inventory consists primarily of component parts and finished products
which are valued at the lower of cost or market. Cost is determined using the
first-in, first-out (FIFO) method.
F-9
<PAGE> 146
Property and Equipment
Property and equipment are stated at cost and are depreciated on a
straight-line basis over the estimated useful lives of the various classes of
assets, which range from three to five years. Maintenance and repairs are
charged to operations while renewals or betterments are capitalized.
Accrued loss on short-term contracts
The Company contracts with existing customers to upgrade previously
installed earlier generation Mobile Communication Units to current generation
Units. In the event the cost of the equipment to be provided for upgrade
contracts is expected to exceed the sum of the upgrade contract price and the
estimated fair market value of the equipment to be returned as a result of the
upgrade, a loss is recognized.
Research and Development Costs
The Company expenses research and development costs as incurred.
During 1994, 1995 and 1996, the Company expensed $1,211,000, $1,539,000 and
$1,294,000 in research and development costs for hardware and software that are
reflected in Engineering Expenses in the Consolidated Statements of Operations.
Software Development Costs
Purchased computer software costs are amortized using the
straight-line method over expected useful lives which range from 18 to 60
months. Payments to the Company's service providers for software enhancements,
to which the service providers retain ownership, are capitalized as software
development costs. These costs are amortized over the lives of the service
contracts, varying from 12 to 36 months.
Costs related to the research, design and development of computer
software are charged to research and development expense as incurred. During
1994, 1995, and 1996, the Company expensed $330,000, $804,000, and $673,000,
respectively, in research and development costs that are reflected in
Engineering Expenses in the Consolidated Statements of Operations. Software
development costs that meet the capitalization requirements of Statement of
Financial Accounting Standards No. 86, "Accounting for the Costs of Computer
Software to be Sold, Leased, or Otherwise Marketed" are capitalized. Software
development costs are amortized using the straight line method over eighteen
months or the estimated economic life of the product, whichever is less.
As of December 31, 1995 and 1996, the unamortized portion of computer
software costs was $1,199,000 and $873,000, respectively. Amortization of such
costs charged to expense during 1994, 1995, and 1996 was $223,000, $278,000,
and $504,000, respectively.
Advertising Costs
Advertising costs are expensed as incurred. During 1994, 1995, and
1996 the Company expensed $941,000, $2,041,000 and $1,637,000, respectively, in
advertising costs that are reflected in Sales and Marketing Expenses in the
Consolidated Statements of Operations.
Income Taxes
The Company accounts for income taxes pursuant to Statement of
Financial Accounting Standards No. 109, "Accounting For Income Taxes" ("SFAS
109"). Deferred income taxes are calculated using an asset and liability
approach wherein deferred taxes are provided for the tax effects of basis
differences for assets and liabilities arising from differing treatments for
financial and income tax reporting purposes. Valuation allowances against
deferred tax assets are provided where appropriate.
F-10
<PAGE> 147
Earnings Per Share
Net loss per share for the years ended December 31, 1995 and 1996
("primary loss per share") was computed by dividing the net loss, increased by
the accretion of discount on the Series B Preferred Stock ($1,977,000 and
$1,831,000 in 1995 and 1996, respectively), by the weighted average number of
shares outstanding during the year.
Stock options granted with exercise prices below the $19.75 initial
public offering price and shares of common stock issued during the twelve-month
period preceding the initial filing date of the Offering have been included in
the calculation of weighted average shares outstanding through the date of the
Offering (June 28, 1995). The stock options were included in the calculation of
common stock equivalents using the treasury stock method. Stock options are
excluded from the calculation of weighted average shares outstanding subsequent
to the date of the Offering since their effect would be anti-dilutive.
Pro forma net loss per share (unaudited) was computed by dividing the
pro forma net loss for the year ended December 31, 1994 by the pro forma
weighted average number of shares outstanding during the year. Pro forma net
loss was calculated by increasing the net loss for 1994 by $1,481,000,
representing interest expense on the $10.8 million of notes payable related to
the Recapitalization for the period January 1, 1994 to February 4, 1994
($134,000) and the accretion of discount on the Series B Preferred Stock for
the period from January 1, 1994 to December 31, 1994 ($1,347,000). The pro
forma weighted average number of shares was calculated assuming that all shares
issued in the Recapitalization were issued as of January 1, 1994.
Supplemental net loss per share (unaudited) is presented below to show
what loss per share would have been for 1996 assuming the shares issued in
September 1996 to retire indebtedness and the Series B Preferred Stock had been
issued as of January 1, 1996 and the associated indebtedness and Series B
Preferred Stock had been retired as of January 1, 1996. Supplemental net loss
per share (unaudited) for the year ended December 31, 1996 is based on the
weighted average number of shares of common stock used in the primary loss per
share calculation plus the number of additional weighted average shares
(1,384,648) that would have been outstanding had $12,662,000 of indebtedness
and $10,800,000 of Series B Preferred Stock been retired at January 1, 1996.
For the purposes of computing supplemental net loss per share (unaudited), the
net loss for the year ended December 31, 1996 was increased by $1,831,000 for
the accretion of discount on the Series B Preferred Stock and was reduced by
$1,659,000 and $1,831,000 for the interest expense on the indebtedness and the
accretion of discount on the Series B Preferred Stock, respectively.
Supplemental net loss per share (unaudited) for the year ended December 31,
1996 is as follows:
<TABLE>
<S> <C>
Supplemental net loss before extraordinary item .......................... $ (1.17)
Extraordinary item ....................................................... (.01)
--------------
Supplemental net loss per share .......................................... $ (1.18)
==============
Weighted average number of shares outstanding used in the supplemental net
loss per share calculation ............................................. 24,147,512
==============
</TABLE>
Fair Value of Financial Instruments
The carrying amount of cash and cash equivalents, accounts receivable,
accounts payable and accrued liabilities approximates fair value because of
their short-term maturity.
Reclassifications
Certain operating expenses for 1994 and 1995 have been reclassified to
conform to the 1996 presentation.
F-11
<PAGE> 148
5. LEASING OPERATIONS
The Company leases its products to certain customers with terms
ranging from three to five years. The related contracts are accounted for as
sales-type leases. As of December 31, 1996, minimum future lease payments
expected to be received were:
<TABLE>
<C> <C>
1997 ............................................... $ 513,000
1998 ............................................... 513,000
1999 ............................................... 445,000
2000 ............................................... 154,000
-----------
Total minimum future lease payments ...... 1,625,000
Less: unearned interest income ..................... (157,000)
-----------
Total receivable balance ................. $ 1,468,000
===========
</TABLE>
Of the receivable balance above, $423,000 is included in other
short-term receivables and $1,045,000 is included in long-term receivables in
the Consolidated Balance Sheet at December 31, 1996.
In March 1997, a customer who represents $1,239,000 of the total
receivable balance notified the Company that they intended to terminate their
long-term lease commitment. Although the lease agreement contains termination
penalties, the Company believes that it may be necessary to write-off a portion
of the receivable as a result of the lease termination. The Company estimates
that the amount of the write-off may range from approximately $500,000 to
$1,000,000, although the Company is continuing to evaluate its position under
the lease and no final decision has been reached. No provision for loss has
been recorded in the Consolidated Financial Statements.
6. INVENTORY
Inventory consisted of the following:
<TABLE>
<CAPTION>
December 31
--------------------------
1995 1996
---------- ----------
<S> <C> <C>
Complete systems...................................... $1,968,000 $1,265,000
Component parts....................................... 2,231,000 2,193,000
---------- ----------
$4,199,000 $3,458,000
========== ==========
</TABLE>
During 1996, the Company recorded a write-down of approximately $1.9
million to adjust the carrying value of used earlier generation mobile unit
component parts inventory to its estimated net realizable value.
7. PROPERTY AND EQUIPMENT
Property and equipment consisted of the following:
<TABLE>
<CAPTION>
December 31
--------------------------
1995 1996
----------- -----------
<S> <C> <C>
Machinery and equipment ........... $ 1,692,000 $ 2,234,000
Vehicles .......................... 370,000 370,000
Computers and office equipment .... 1,166,000 2,087,000
Network Services Center ........... -- 4,841,000
Construction-in-progress .......... 1,499,000 --
----------- -----------
4,727,000 9,532,000
Less: accumulated depreciation .... (800,000) (1,776,000)
----------- -----------
$ 3,927,000 $ 7,756,000
=========== ===========
</TABLE>
F-12
<PAGE> 149
Total depreciation expense charged to operations during 1994, 1995 and
1996 was $296,000, $395,000 and $1,041,000, respectively.
8. NOTES PAYABLE TO RELATED PARTIES
As a part of the Recapitalization, the Company issued promissory notes
in the amount of $10.8 million, 13,650,000 shares of common stock, 1,080 shares
of Series B Preferred Stock and 929 shares of Series C Preferred Stock (see
Note 1).
Also as part of the Recapitalization, the holders of the stock of
Eighteen Wheeler contributed such stock to the Company in exchange for notes in
the aggregate principal amount of approximately $9.3 million, 8,052,330 shares
of common stock and 929.1 shares of Series A Preferred Stock; individual
partners contributed their interest in the Partnership to the Company in
exchange for notes in the aggregate principal amount of approximately $1.5
million, 198,900 shares of common stock and 150.895 shares of Series A
Preferred Stock; and By-Word contributed its interest in the Partnership and
the residual rights to certain intellectual property previously licensed to the
Partnership in exchange for 5,398,770 shares of common stock. The Company also
entered into a Subscription Agreement dated February 4, 1994 (the "Subscription
Agreement") providing for the sale by the Company of up to $45 million
aggregate principal amount of promissory notes and up to an aggregate of
5,850,000 shares of common stock of the Company. Pursuant to the Subscription
Agreement, (i) on February 4, 1994, the Company issued $10.0 million aggregate
principal amount of promissory notes and 975,000 shares of common stock of the
Company for $10.0 million; (ii) on March 28, 1994, the Company issued $20.0
million aggregate principal amount of promissory notes and 2,437,500 shares of
common stock for $20.0 million; and (iii) on October 17, 1994, the Company
issued $5.0 million aggregate principal amount of promissory notes and 741,848
shares of common stock for $5.0 million. The coupon interest rate on the
outstanding principal amount of the notes was 8% per annum. The notes were
discounted using an effective borrowing rate of approximately 18%.
Pursuant to the Note Exchange Agreement entered into in May 1995, the
Company and noteholders agreed to modify the requirements for repayment of the
notes upon closing of a public offering. Accordingly, upon completion of the
Offering (see Note 3) (i) 50% of the outstanding principal amount of the notes
held by members of the Carlyle Group, Clipper and Chase were paid in cash from
proceeds of the Offering, an aggregate of $5.0 million of the principal amount
of such notes were exchanged for common stock at the Offering price (but not
registered for sale in the Offering), and the remaining principal balance of
the notes held by such noteholders continue to be held by such noteholders
after the Offering; (ii) 50% of the outstanding principal amount of the notes
held by Erin Mills affiliates were paid in cash from the proceeds of the
Offering, and the remaining principal balance of the notes held by Erin Mills
affiliates were exchanged for common stock at the Offering price (but not
registered for sale in the Offering); (iii) 50% of the notes held by Mr. Folsom
and Mr. Hayes were paid in cash from the proceeds of the Offering, and the
remaining principal balance of the notes held by Mr. Folsom and Mr. Hayes were
exchanged for common stock at the Offering price (but not registered for sale
in the Offering) and; (iv) the maturity date for the principal amount of the
notes was changed to December 31, 1996.
In April 1995, May 1995 and June 1995, certain stockholders of the
Company, other than certain management stockholders, entered into Note Purchase
Agreements with the Company pursuant to which such stockholders purchased pro
rata, in proportion to their stock ownership, short-term 9% promissory notes
from the Company in the aggregate principal amount of $1.6 million, $1.4
million and $1.1 million, respectively. These notes, together with accrued
interest thereon, were repaid in June, 1995 with proceeds from the Offering.
Pursuant to the Note Exchange Agreement and the Note Purchase
Agreements an aggregate principal amount of $27,239,000 of notes payable to
related parties were repaid with proceeds from the Offering. In addition,
529,332 shares of common stock were issued to retire notes payable to related
parties (the "Note Exchange") in the aggregate principal amount of $10,454,000.
In connection with the foregoing, the unamortized balances of debt discount and
debt issue costs associated with the indebtedness retired, in the aggregate
amount of $6,980,000 were charged to expense and are reported in the
accompanying consolidated statements of operations as an extraordinary item,
"loss on extinguishment of debt."
F-13
<PAGE> 150
After the above repayments, $12,662,000 principal amount of notes
payable to related parties remained outstanding at December 31, 1995. These
notes had an 8% per annum coupon rate and a maturity date of December 31, 1996.
The notes were discounted using an effective borrowing rate of approximately
18%.
On March 29, 1996, the Company and the noteholders entered into a Note
Extension Option Agreement (the "Extension Option"). Under the Extension
Option, the Company had the unilateral right to elect to extend the maturity
date of the notes to June 30, 1997. Because of the availability of the
Extension Option to the Company, the notes were classified as a long-term
liability at December 31, 1995.
On September 27, 1996, the Company, the Erin Mills Stockholders, the
Carlyle Stockholders and certain other holders of outstanding securities of the
Company entered into a Recapitalization Agreement (the "1996 Recapitalization
Agreement"), and consummated the 1996 Recapitalization Transactions
contemplated thereby. In particular, upon the terms and conditions set forth in
the 1996 Recapitalization Agreement, (i) the Company repaid in full the
principal amount of and interest accrued on certain promissory notes in the
aggregate principal amount of $5.0 million executed in favor of an Erin Mills
Stockholder in order to repay certain advances made by such Erin Mills
Stockholder in August and September 1996 to enable the Company to meet its
short-term working capital and other requirements, (ii) the Company issued an
aggregate of 800,000 shares of Common Stock to two Erin Mills Stockholders in
exchange for aggregate cash payments in the amount of $10.0 million, (iii) the
Company issued an aggregate of 864,000 shares of Common Stock to three Erin
Mills Stockholders and two other persons in exchange for the surrender to the
Company for cancellation of all outstanding shares of Series B Preferred Stock,
(iv) the Company paid to the Carlyle Stockholders a portion of the accrued and
unpaid interest on certain promissory notes in the aggregate principal amount
of $12,662,000 (the "Carlyle Notes") executed in favor of the Carlyle
stockholders, and (v) the Company issued an aggregate of 1,018,018 shares of
Common Stock in exchange for the surrender of the Carlyle Notes for
cancellation. In connection with the foregoing, the unamortized balances of
debt discount and debt issue costs associated with the indebtedness retired, in
the aggregate amount of $317,000, were charged to expense and are reported in
the accompanying consolidated statements of operations as an extraordinary
item, "loss on extinguishment of debt."
9. INCOME TAXES
As discussed in Note 1, the Company's predecessor business activities
prior to February 4, 1994 were conducted as a Partnership which was not subject
to income tax. The profits and losses of the Partnership were reflected on the
tax returns of the individual partners. Accordingly, the financial statements
of the Partnership for periods prior to February 4, 1994 do not include any
provision for income taxes.
Effective with the Recapitalization on February 4, 1994, the Company
became a corporation and the consolidated financial statements reflect the tax
effects of the Company's activities from that date. The tax effects for the
period January 1 to February 4, 1994 and arising from the Company's conversion
to a corporation on February 4, 1994 were not material.
F-14
<PAGE> 151
The components of the Company's net deferred tax asset were as
follows:
<TABLE>
<CAPTION>
December 31
----------------------------
1995 1996
------------ ------------
<S> <C> <C>
Deferred tax assets
Step-up of tax basis in assets ...................... $ 1,183,000 $ 1,543,000
Research and development credit ..................... 340,000 254,000
Accrued warranty .................................... 298,000 93,000
Recapitalization costs .............................. 369,000 266,000
Allowance for doubtful accounts ..................... 277,000 263,000
Accrued interest .................................... 590,000 332,000
Inventory ........................................... 146,000 104,000
Accrued vacation .................................... 89,000 67,000
Net operating loss carryforwards .................... 18,457,000 32,352,000
------------ ------------
Gross deferred tax assets ........................... 21,749,000 35,274,000
Valuation allowance ................................. (21,551,000) (34,745,000)
------------ ------------
Net deferred tax asset .............................. 198,000 529,000
Deferred tax liability
Depreciation ........................................ (158,000) (460,000)
Other ............................................... (40,000) (69,000)
------------ ------------
Net deferred tax asset ................................ $ -- $ --
============ ============
</TABLE>
The following is a reconciliation of the provision for income taxes at
the U.S. federal income tax rate to the income taxes reflected in the
Consolidated Statements of Operations:
F-15
<PAGE> 152
<TABLE>
<CAPTION>
December 31
------------------------------------------
1994 1995 1996
----------- ----------- ------------
<S> <C> <C> <C>
Income tax benefit at Federal statutory rate ..... $(8,800,000) $(8,784,000) $(10,220,000)
Net operating losses not benefitted .............. 8,761,000 8,735,000 10,146,000
Other ............................................ 39,000 49,000 74,000
----------- ----------- ------------
Income tax benefit ..................... $ -- $ -- $ --
=========== =========== ============
</TABLE>
At December 31, 1996, the Company had net operating loss carryforwards
aggregating approximately $95.2 million which expire in various years between
2007 and 2011. Due to the issuance of certain notes payable in connection with
the Recapitalization discussed in Note 8, there was a change in ownership under
the Internal Revenue Code which limits the annual utilization of these
carryforwards and will cause some amount of the carryforwards to expire
unutilized. Any additional changes in ownership subsequent to the
Recapitalization could also result in additional limitations of loss
carryforwards.
10. PARTNERS'/STOCKHOLDERS' EQUITY INSTRUMENTS AND RELATED MATTERS
Issuance of Series D Preferred Stock
On September 27, 1996, the Company and Southwestern Bell Wireless
Holdings, Inc. ("SBW"), a wholly owned subsidiary of SBC Communications Inc.
("SBC"), consummated certain transactions, including but not limited to (i) the
issuance of 1,000 shares of a new series of preferred stock, par value $0.01
per share, designated as Series D Participating Convertible Preferred Stock
("Series D Preferred Stock") in consideration of a cash payment in the amount
of $20.0 million and (ii) the issuance to SBW of certain Warrants.
Each outstanding share of Series D Preferred Stock is convertible into
1,600 shares of Common Stock at the option of SBW. In addition, at such time as
SBW obtains certain regulatory relief required in order for it to offer
long-distance telephone services, all outstanding shares of Series D Preferred
Stock will automatically convert into an equal number of shares of a new series
of common stock designated as Class B Common Stock.
Each outstanding share of Class B Common Stock will be convertible
into 1,600 shares of Common Stock at the option of SBW. The holders of Class B
Common Stock will be entitled to receive dividends and liquidating
distributions in an amount equal to the dividends and liquidating distributions
payable on or in respect of the number of shares of Common Stock into which
such shares of Class B Common Stock are then convertible. The holders of Common
Stock and Class B Common Stock will generally have identical voting rights and
will vote together as a single class, with the holders of Class B Common Stock
being entitled to a number of votes equal to the number of shares of Common
Stock into which the shares of Class B Common Stock held by them are then
convertible. In addition, the holders of Class B Common Stock will be entitled
to elect one director of the Company (or two directors if SBW and its
affiliates beneficially own at least 20% of the outstanding shares of Common
Stock on a fully diluted basis) and will have the right to approve certain
actions on the part of the Company.
The Warrants issued to SBW entitle the holder thereof to purchase (i)
3,000,000 shares of Common Stock at an exercise price of $14.00 per share and
(ii) 2,000,000 shares of Common Stock at an exercise price of $18.00 per share.
The Warrants will expire on September 27, 2001.
Series B Preferred Stock
As part of the Recapitalization described in Note 1, the Company
issued 1,080 shares of its Series A Preferred Stock. On February 28, 1994, all
shares of the Series A Preferred Stock were reacquired by the Company and the
F-16
<PAGE> 153
respective holders were issued shares of Series B and Series C Preferred Stock.
The Preferred Stock was recorded at its fair value as of the date of issuance.
The Series C Preferred Stock was canceled in 1995.
The Series B Preferred Stock was required to be redeemed by the
Company at a price of $10,000 per share ($10,800,000 in the aggregate) if the
purchasers of the notes and common stock under the Subscription Agreement had
realized a certain required return (as defined) on their investment in the
Company. In contemplation of the transactions consummated on September 27,
1996, it was determined that the Series B Preferred Stock would qualify for
redemption at its maturity date, February 4, 1997. Accordingly, the Series B
Preferred Stock was extinguished pursuant to the 1996 Recapitalization
Agreement by the issuance of 864,000 shares of Common Stock (see Note 8).
Settlement Agreement and By-Word Exchange Agreement
In connection with a lawsuit brought by a former employee of By-Word
and the employee's spouse (collectively, the "Plaintiffs") against By-Word, the
Company and certain of its stockholders and affiliates (collectively, the
"Defendants"), in which the Plaintiffs alleged certain claims for, among other
things, breach of employment and personal injury, the Plaintiffs entered into a
Compromise Settlement and Mutual Release, in September 1994 (the "Settlement
Agreement"), pursuant to which the plaintiffs rescinded the original purchase
of the shares of By-Word, and the Plaintiffs settled all claims against the
Defendants in exchange for $1,653,000 (the "Settlement Amount"). The Company
loaned By-Word the Settlement Amount pursuant to a promissory note dated
September 30, 1994, in the amount of $1,653,000 (the "By-Word Note") to pay the
Plaintiffs under the Settlement Agreement.
Pursuant to an agreement dated October 1, 1994, between the Company
and By-Word (the "By-Word Exchange Agreement"), By-Word contributed 5,398,770
shares of the Company's common stock to the Company in exchange for which the
Company issued 5,086,773 shares of the Company's common stock to By-Word and
assumed By-Word's obligations under the By-Word Note. The Company recorded the
transaction as an increase in treasury shares. The obligations assumed from
By-Word by the Company were in excess of the fair value of the stock received;
therefore, the amount of $1,106,000 of obligations assumed over the fair value
of the stock was recorded as an expense that is reflected in General and
Administrative Expenses in the 1994 Consolidated Statement of Operations.
By-Word instituted dissolution proceedings on November 30, 1994 and distributed
its shares of common stock of the Company then held by By-Word pro rata to the
former shareholders of By-Word.
Incentive Plan and Other
Pursuant to a 1994 Stock Option Plan, as amended, (the "Plan") options
may be granted to employees for the purchase of an aggregate of up to 2,474,462
shares of the Company's common stock. The Plan requires that the exercise price
for each stock option be not less than 100% of the fair market value of common
stock at the time the option is granted. Both nonqualified stock options and
incentive stock options, as defined by the Internal Revenue Code of 1986, as
amended, may be granted under the Plan. Options granted under the Plan vest 20%
on the date of grant and 20% on each of the following four anniversary dates of
the date of grants and expire six years from the date of grant.
The Company applies APB Opinion No. 25 and related interpretations in
accounting for the Plan. Accordingly, no compensation cost has been recognized
for options issued under the Plan. Had compensation cost been determined based
on the fair market value at the grant dates for awards under the Plan
consistent with the method provided by SFAS 123, the Company's net loss and net
loss per share would have been increased to the pro forma amounts indicated
below:
<TABLE>
<CAPTION>
For the Year Ended December 31,
----------------------------------
1995 1996
------------ ------------
<S> <C> <C> <C>
Net loss............................................ As reported $(33,377,000) $(30,060,000)
Pro forma $(33,458,000) $(30,584,000)
Primary net loss per share.......................... As reported $ (1.73) $ (1.40)
Pro forma $ (1.74) $ (1.42)
</TABLE>
F-17
<PAGE> 154
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 during the years ended December 31, 1995
and 1996:
<TABLE>
<CAPTION>
FOR THE YEAR ENDED
DECEMBER 31,
------------------
1995 1996
---- ----
<S> <C> <C>
Dividend ..................... -- --
Expected volatility .......... 70.90% 74.02%
Risk free rate of return ..... 6.80% 6.24%
Expected life in years ....... 6.00 6.00
</TABLE>
A summary of the status of the Company's Plan as of December 31, 1994,
1995 and 1996, and changes during the years ended on those dates is presented
below:
<TABLE>
<CAPTION>
1994 1995 1996
WEIGHTED WEIGHTED WEIGHTED
AVERAGE AVERAGE AVERAGE
EXERCISE EXERCISE EXERCISE
SHARES PRICE SHARES PRICE SHARES PRICE
--------- --------- --------- --------- --------- --------
<S> <C> <C> <C> <C> <C> <C>
Outstanding at beginning of
year ........................ -- -- 1,947,144 $ 7.58 1,974,462 $ 7.58
Granted ....................... 1,947,144 $ 7.58 27,318 7.58 266,000 7.73
Exercised ..................... -- -- -- -- (134,848) 7.59
Forfeited ..................... -- -- -- -- (62,316) 7.62
--------- --------- --------- --------- --------- --------
Outstanding at end of year .... 1,947,144 $ 7.58 1,974,462 $ 7.58 2,043,298 $ 7.61
========= ========= ========= ========= ========= ========
Options exercisable at end
of year ..................... 1,338,994 $ 7.58 1,496,496 $ 7.58 1,565,165 $ 7.58
========= ========= ========= ========= ========= ========
Weighted average value of
options granted during the
year ........................ $ 12.77 $ 5.51
========== ========
</TABLE>
F-19
<PAGE> 155
The following table summarizes information about stock options outstanding
under the Plan at December 31, 1996:
<TABLE>
<CAPTION>
OPTIONS OPTIONS
OUTSTANDING EXERCISABLE
----------- -----------
<S> <C> <C>
Number of options . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 2,043,298 1,565,165
Range of exercise prices . . . . . . . . . . . . . . . . . . . . . . . . . $7.58 to $7.75 $7.58 to $7.75
Weighted average remaining contractual
life in years . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 3.8 3.6
Weighted average exercise price . . . . . . . . . . . . . . . . . . . . . . $7.61 $7.58
</TABLE>
During April 1995, the Company granted options outside of the Plan to
a director of the Company to purchase 3,798 shares of common stock. The options
were immediately exercisable for a term of six years at a price of $7.58 per
share. The fair value of the option grant was estimated to be approximately
$12.79 per option on the date of grant using the Black-Scholes option pricing
model with the following weighted average assumptions: no expected dividend
yield; an expected life of six years; expected volatility of 70.09 percent; and
a risk free interest rate of 7.00 percent. Approximately $32,000 was charged
to compensation cost during 1995 for the options. All such options were
unexercised at December 31, 1996.
Retirement Plan
In December 1994, the Company established the 401(k) Retirement
Investment Profit-Sharing Plan covering substantially all employees. The
Company did not make matching contributions to the Plan in either 1994, 1995 or
1996.
Partner's Deficit and Other
Capital account allocations for financial reporting purposes, which
are different than capital account allocations for tax purposes, reflect the
net profits and losses from operations allocated each year as defined in the
Partnership Agreement.
11. TERMINATION OF AT&T CONTRACT
The Company and AT&T were parties to a contract (the "AT&T Contract")
under which AT&T provided enhanced call processing, data management services
and long-distance network transport services through a switching complex owned
and operated by AT&T. The AT&T Contract was terminated by AT&T effective June
29, 1996. However, AT&T continues to provide services for certain Company
customers without a formal contract pursuant to AT&T's obligations with respect
to its existing service agreements with such customers.
12. COMMITMENTS AND CONTINGENCIES
Litigation
On February 16, 1996, the Company filed a lawsuit against AT&T Corp.
("AT&T") in the U.S. District Court, Northern District of Texas, Dallas
Division. The Company is seeking preliminary and permanent injunctive relief
restraining AT&T from using and disclosing the Company's trade secrets and
proprietary information relating to its mobile communications technology. In
July 1996, AT&T filed counterclaims essentially mirroring the Company's claims.
In September and October 1996, both the Company and AT&T filed
additional claims against each other related to breach of contract and various
tortious activities. AT&T seeks an injunction, a declaratory judgment defining
the parties' intellectual property rights, actual and punitive damages and
attorneys' fees in connection with its counterclaims. The Company seeks a
declaration that the patents issued to AT&T using the Company's proprietary
F-20
<PAGE> 156
information are invalid and should be transferred from AT&T to the Company. The
Company also brought Texas Deceptive Trade Practices Act ("DTPA") claims
against AT&T and seeks actual, punitive and treble damages and attorneys' fees
in connection with its claims. Additionally, the Company's amended complaint
added Lucent Technologies, Inc. ("Lucent") as an additional defendant, to which
AT&T transferred certain of the patents at issue in the lawsuit.
In November 1996, AT&T filed a Partial Motion to Dismiss the Company's
DTPA claims, various tort claims and the patent invalidity charges.
Additionally, in November 1996, Lucent filed a motion to dismiss all of the
Company's claims against Lucent. In December 1996, the Company filed a response
to AT&T's partial motion to dismiss and a response to Lucent's motion to
dismiss. A hearing on the parties' motions is currently scheduled for May 1997.
On December 14, 1995 and on February 23, 1996, lawsuits were filed by
certain plaintiffs against the Company and its directors, along with the lead
underwriters for the Company's Offering. The plaintiff in each suit sought
securities class-action certification and purported to represent all similarly
situated shareholders, who bought stock in the Company pursuant to its Offering
in June 1995 or immediately thereafter. The plaintiffs sought unspecified
damages and alleged that the Company's registration statement, prospectus and
other communications in its Offering contained false and materially misleading
statements. The two lawsuits were consolidated into one. On November 4, 1996,
the Court entered a Stipulation and Order of Dismissal which was signed by all
parties, including proposed plaintiffs- in-intervention. This action dismissed
the pending litigation with prejudice, precluding these same plaintiffs from
refiling the same claims in the future. The dismissal of this action did not
involve any payment on the part of the Company or any other defendant.
The Company is involved in other litigation matters that normally
arise in the course of conducting its business. These matters are not
considered to be of a material nature nor would they have a material effect on
the business activities or continued operations of the Company.
GTE and EDS Contracts
A subsidiary of GTE, GTE Telecommunications Services, Inc.
("GTE-TSI"), and a subsidiary of Electronic Data Systems, Inc. ("EDS"), perform
certain "clearinghouse" functions for the Company which include, among other
things, validation and verification of roaming numbers and provision and
routing of call delivery information. The Company's agreement with GTE-TSI
expires in March 1998, with certain renewal options by the Company after that
date. The agreement with GTE-TSI may be renewed by the Company for up to ten
additional one-year terms after expiration at a reasonable price to be
determined solely by GTE-TSI. The agreement with EDS expires in August 1998
with successive automatic renewal terms of one-year thereafter, unless
terminated at the option of either party upon 60 days' notice prior to any
expiration date. Another subsidiary of GTE, GTE Wireless, indirectly provides a
significant amount of cellular coverage for the HighwayMaster system and pays
all cellular carriers in the HighwayMaster system for HighwayMaster, billing
the Company on a monthly basis. The term of the current agreement with GTE
Wireless expires in March 1999. The aggregate future minimum payments
associated with these agreements were as follows as of December 31, 1996:
<TABLE>
<S> <C>
1997 . . . . . . . . . . . . . . . . . . $1,080,000
1998 . . . . . . . . . . . . . . . . . . 680,000
1999 . . . . . . . . . . . . . . . . . . 120,000
----------
$1,880,000
==========
</TABLE>
Costs related to these contracts are included as cost of service
revenues in the Consolidated Statements of Operations.
F-21
<PAGE> 157
Employment Agreements
Two officers of the Company entered into employment contracts with
HighwayMaster Corporation effective February 1994 and continuing through the
fifth anniversary of the consummation of the Offering (see Note 3), unless
terminated earlier in the event of death, permanent disability, for "cause" or,
under certain conditions, voluntarily. Under the employment contracts, either
HighwayMaster Corporation or the individuals may terminate employment, without
liability, at any time after February 1996 upon one year's written notice to
the other party. The terms of the contracts provide for an annual base salary
($399,300 at December 31, 1996) for each officer, with annual increases each
year equal to 10%. Each officer shall also receive annual bonuses during the
term of his contract, calculated as defined in the contracts. In addition, the
officers may receive discretionary bonuses at the sole discretion of the board
of directors of HighwayMaster Corporation. During 1994, 1995 and 1996, no
bonuses were earned by the employees. The employment contracts provide for a
severance payment equal to the remaining amount of salary payable under the
contract in the event of termination other than for "cause". The employment
contracts also provide that each of the officers is subject to a covenant not
to compete during the period that compensation is paid under his employment
agreement and for 24 months thereafter.
A third officer of the Company entered into an employment contract
with HighwayMaster Corporation effective November 1994 and continuing through
the fifth anniversary of the consummation of the Offering, unless terminated
earlier in the event of death, permanent disability, for "cause" or, under
certain conditions, voluntarily. Pursuant to the employment contract, the
officer receives an annual base salary ($302,500 at December 31, 1996), with
annual increases, annual bonuses and discretionary bonuses set on similar terms
as above. During 1994, 1995 and 1996 no such bonuses were earned. In the event
of a termination of employment by the Company with notice or by the officer due
to the Company's breach, the officer will be entitled to the remaining amount
of salary and the minimum bonus that would be payable under the employment
contract absent the termination. In the event of a termination by the officer
with notice (other than as set forth in the preceding sentence), the officer
will be entitled to the salary payable for the remaining term of the contract
or 90 days, whichever is less. Other than in the case of a termination by the
officer due to a breach by the Company, or a termination by the Company with
notice, the contract provides that the officer is subject to a covenant not to
compete for a period of 12 months after the termination of his employment.
Leases
The Company leases certain office facilities and furniture and
equipment under noncancelable operating leases. The future minimum lease
payments associated with such leases were as follows as of December 31, 1996:
<TABLE>
<S> <C>
1997 . . . . . . . . . . . . . . . . . . . . $ 1,056,000
1998 . . . . . . . . . . . . . . . . . . . . 699,000
1999 . . . . . . . . . . . . . . . . . . . . 141,000
2000 . . . . . . . . . . . . . . . . . . . . 50,000
2001 . . . . . . . . . . . . . . . . . . . . 8,000
-----------
$ 1,954,000
===========
</TABLE>
During 1994, 1995, and 1996, total rent expense charged to operating
expenses was approximately $613,000, $941,000, and $1,388,000, respectively.
Pickett Racing Contract
The Company is obligated under a promotional Sports Car Club of
America ("SCCA") racing team sponsorship agreement with Pickett Racing to pay
ten consecutive monthly payments of $65,000 each, which commenced in January
1997.
F-22
<PAGE> 158
Truckstops of America, Inc. Contract
In June 1994, the Company entered into a three-year operating
agreement with Truckstops of America, Inc. to sell, install, and service Mobile
Communication Units through a national network of truckstop sites. Truckstops
of America, Inc. is required to purchase minimum levels of inventory and parts
for each sales location, and the Company is obligated to repurchase inventory
in the event it becomes unsalable. At December 31, 1996, the amount of
inventory subject to return was approximately $150,000.
Capital Expenditures
The Company is committed to build another Network Switching Center
(the "additional Complex") in connection with its contract with Prince for the
AutoLink product offering. Construction of the additional Complex is scheduled
for the fourth quarter of 1997 at a cost estimated to range from $2.0 to $3.0
million.
13. RELATED PARTY TRANSACTIONS
In connection with the Recapitalization, the Company assumed the
rights and obligations of the Partnership under a certain Agency Agreement,
dated as of February 1, 1993, by and between the Partnership and Saunders,
Lubinski & White, Inc. (the "Agency"). During 1994, 1995, and 1996, the Company
paid $1,231,000, $1,405,000, and $435,000, respectively, under the Agency
Agreement, which includes the pass-through of actual third-party expenses
incurred by the Agency on the Company's behalf. The Agency Agreement provides
that in consideration for its advertising services, the Agency will receive a
5% profit based on the Agency's internal costs on all services provided to the
Company, subject to future negotiation, in addition to actual third-party
media, production and other reasonable expenses. The Agency Agreement may be
terminated, with or without cause, at any time by either party, with 90 days'
notice. An officer of the Company was a principal stockholder and officer of
the Agency until January 1, 1997.
The Company leases office space from a stockholder for $57,000 per
month plus maintenance and repairs, at an average rate of $14.60 per square
foot per year. Total rent paid under this agreement during 1994, 1995 and 1996
was approximately $194,000, $311,000, and $699,000, respectively.
Two stockholders of the Company and certain of their affiliates own a
minority interest in Truckstops of America, Inc. (see Note 12). During 1994,
1995 and 1996, the Company recorded revenues of approximately $687,000,
$428,000 and zero, respectively, from sales to Truckstops of America, Inc.
14. QUARTERLY RESULTS OF OPERATIONS (UNAUDITED)
Unaudited consolidated quarterly results of operations for 1996 and
1995 are as follows (in thousands, except per share amounts):
<TABLE>
<CAPTION>
FIRST SECOND THIRD FOURTH
QUARTER QUARTER QUARTER QUARTER
------- ------- ------- -------
1996
----
<S> <C> <C> <C> <C>
Total revenues . . . . . . . . . . . . . . . . . . . $ 6,291 $ 7,581 $ 7,524 $ 9,305
Gross profit (loss)(1) . . . . . . . . . . . . . . . 1,003 1,052 1,375 (1,260)
Operating loss . . . . . . . . . . . . . . . . . . . (6,136) (6,484) (6,718) (9,293)
Loss before extraordinary item . . . . . . . . . . . (6,368) (6,899) (7,463) (9,013)
Extraordinary item . . . . . . . . . . . . . . . . . -- -- (317) --
Net loss . . . . . . . . . . . . . . . . . . . . . . (6,368) (6,899) (7,780) (9,013)
Primary loss per share:(2)
Before extraordinary item . . . . . . . . . . . . . $ (0.32) $ (0.34) $ (0.37) $ (0.36)
Extraordinary item . . . . . . . . . . . . . . . . -- -- (0.01) --
Net loss . . . . . . . . . . . . . . . . . . . . . $ (0.32) $ (0.34) $ (0.38) $ (0.36)
Weighted average shares outstanding . . . . . . . . . 22,022 22,035 22,178 24,801
</TABLE>
F-23
<PAGE> 159
<TABLE>
<CAPTION>
FIRST SECOND THIRD FOURTH
QUARTER QUARTER QUARTER QUARTER
------- ------- ------- -------
1995
-----
<S> <C> <C> <C> <C>
Total revenues . . . . . . . . . . . . . . . . . . . $ 5,681 $ 6,032 $ 7,654 $ 7,487
Gross profit (loss) . . . . . . . . . . . . . . . . . (238) 226 472 (508)
Operating loss . . . . . . . . . . . . . . . . . . . (5,432) (4,826) (5,175) (6,782)
Loss before extraordinary item . . . . . . . . . . . (7,243) (6,786) (5,268) (7,100)
Extraordinary item . . . . . . . . . . . . . . . . . -- (6,980) -- --
Net loss . . . . . . . . . . . . . . . . . . . . . . (7,243) (13,766) (5,268) (7,100)
Primary loss per share:(2)
Before extraordinary item . . . . . . . . . . . . . $ (0.41) $ (0.39) $ (0.26) $ (0.34)
Extraordinary item . . . . . . . . . . . . . . . . -- $ (0.37) -- --
Net loss . . . . . . . . . . . . . . . . . . . . . $ (0.41) $ (0.76) $ (0.26) $ (0.34)
Weighted average shares outstanding . . . . . . . . . 18,711 18,820 22,022 22,022
</TABLE>
- -----------------
(1) Fourth quarter includes $1,943,000 inventory writedown related to used
earlier generation mobile unit component parts.
(2) Net loss per share is computed independently for each of the quarters
presented. Therefore, the sum of the quarterly net loss per share
amounts will not necessarily equal the total for the year.
F-24
<PAGE> 160
HIGHWAYMASTER COMMUNICATIONS, INC. AND SUBSIDIARY
CONSOLIDATED BALANCE SHEETS
(UNAUDITED)
(IN THOUSANDS)
ASSETS
<TABLE>
<CAPTION>
DECEMBER 31, JUNE 30,
1996 1997
---- ----
<S> <C> <C>
Current assets:
Cash and cash equivalents . . . . . . . . . . . . . . . . . . . . . . . . $ 19,725 $ 5,987
Accounts receivable, net . . . . . . . . . . . . . . . . . . . . . . . . 8,537 11,503
Other short-term receivables . . . . . . . . . . . . . . . . . . . . . . 919 838
Inventory . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 3,458 2,764
Prepaid expenses . . . . . . . . . . . . . . . . . . . . . . . . . . . . 231 420
-------- ---------
Total current assets . . . . . . . . . . . . . . . . . . . . . . 32,870 21,512
Property, plant and equipment, net . . . . . . . . . . . . . . . . . . . . 7,756 8,080
Long-term receivables . . . . . . . . . . . . . . . . . . . . . . . . . . . 1,045 336
Deposits . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 309 308
Other assets . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 949 2,750
-------- ---------
Total assets . . . . . . . . . . . . . . . . . . . . . . . . . . $ 42,929 $ 32,986
======== =========
LIABILITIES AND STOCKHOLDERS' EQUITY
Current liabilities:
Accounts payable . . . . . . . . . . . . . . . . . . . . . . . . . . . . $ 3,450 $ 4,345
Telecommunications costs payable . . . . . . . . . . . . . . . . . . . . 2,805 4,828
Accrued warranty . . . . . . . . . . . . . . . . . . . . . . . . . . . . 273 709
Accrued loss on short-term contracts . . . . . . . . . . . . . . . . . . 570 367
Other current liabilities . . . . . . . . . . . . . . . . . . . . . . . . 1,167 1,888
-------- ---------
Total current liabilities . . . . . . . . . . . . . . . . . . . . 8,265 12,137
-------- ---------
Stockholders' equity:
Preferred stock . . . . . . . . . . . . . . . . . . . . . . . . . . . . . -- --
Common stock . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 251 252
Additional paid-in capital . . . . . . . . . . . . . . . . . . . . . . . 144,829 145,030
Accumulated deficit . . . . . . . . . . . . . . . . . . . . . . . . . . . (109,869) (123,886)
Treasury stock . . . . . . . . . . . . . . . . . . . . . . . . . . . . . (547) (547)
-------- ---------
Total stockholders' equity . . . . . . . . . . . . . . . . . . . 34,664 20,849
-------- ---------
Total liabilities and stockholders' equity . . . . . . . . . . . . . . $ 42,929 $ 32,986
======== =========
</TABLE>
See accompanying notes to consolidated financial statements.
F-25
<PAGE> 161
HIGHWAYMASTER COMMUNICATIONS, INC. AND SUBSIDIARY
CONSOLIDATED STATEMENTS OF OPERATIONS
(UNAUDITED)
(IN THOUSANDS, EXCEPT PER SHARE)
<TABLE>
<CAPTION>
SIX MONTHS ENDED
JUNE 30,
------------------
1996 1997
---- ----
<S> <C> <C>
Revenues:
Product . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . $ 6,423 $ 14,249
Service . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 7,449 11,006
--------- ---------
Total revenues . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 13,872 25,255
--------- ---------
Cost of revenues:
Product . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 6,403 12,148
Service . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 5,415 8,671
--------- ---------
Total cost of revenues . . . . . . . . . . . . . . . . . . . . . . . . . 11,818 20,819
--------- ---------
Gross profit . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 2,054 4,436
General and administrative expenses . . . . . . . . . . . . . . . . . . . . . . . . 4,299 7,096
Sales and marketing expenses . . . . . . . . . . . . . . . . . . . . . . . . . . . 4,710 4,055
Engineering expenses . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 1,736 2,212
Customer service expenses . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 3,930 5,538
--------- ---------
Operating loss . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . (12,621) (14,465)
Interest income . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 444 448
Interest expense to related parties . . . . . . . . . . . . . . . . . . . . . . . . (1,088) --
Other expense . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . (3) --
--------- ---------
Loss before income taxes and extraordinary item . . . . . . . . . . . . . . . . . (13,268) (14,017)
Income tax provision . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . -- --
--------- ---------
Net loss . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . $ (13,268) $ (14,017)
========= =========
Per share data:
Net loss per share . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . $ (0.66) $ (0.56)
--------- ---------
Weighted average number of shares outstanding . . . . . . . . . . . . . . . . . . 22,029 24,843
========= =========
</TABLE>
See accompanying notes to consolidated financial statements.
F-26
<PAGE> 162
HIGHWAYMASTER COMMUNICATIONS, INC. AND SUBSIDIARY
CONSOLIDATED STATEMENTS OF CASH FLOWS
(UNAUDITED)
(IN THOUSANDS)
<TABLE>
<CAPTION>
SIX MONTHS ENDED JUNE 30,
-------------------------
1996 1997
---- ----
<S> <C> <C>
CASH FLOWS FROM OPERATING ACTIVITIES:
Net loss . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . $ (13,268) $(14,017)
Adjustments to reconcile net loss to cash used in
operating activities:
Depreciation and amortization . . . . . . . . . . . . . . . . . . . . 645 1,172
Amortization of discount on notes payable . . . . . . . . . . . . . . 574 --
(Increase) decrease in accounts receivable . . . . . . . . . . . . . . 28 (2,966)
(Increase) decrease in other receivables . . . . . . . . . . . . . . . 99 790
(Increase) decrease in inventory . . . . . . . . . . . . . . . . . . . (5,379) 694
(Increase) decrease in prepaid expenses and deposits . . . . . . . . . 158 (188)
Increase (decrease) in accounts payable . . . . . . . . . . . . . . . 56 895
Increase (decrease) in accrued expenses and other
current liabilities . . . . . . . . . . . . . . . . . . . . . . . . . (453) 2,977
Other . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 116 (44)
--------- --------
Net cash used in operating activities . . . . . . . . . . . . . . (17,424) (10,687)
--------- --------
CASH FLOWS FROM INVESTING ACTIVITIES:
Additions to property and equipment . . . . . . . . . . . . . . . . . . . (2,099) (1,191)
Additions to capitalized software . . . . . . . . . . . . . . . . . . . . (88) (2,062)
--------- --------
Net cash used in investing activities . . . . . . . . . . . . . . (2,187) (3,253)
--------- --------
CASH FLOWS FROM FINANCING ACTIVITIES:
Proceeds from exercise of stock options . . . . . . . . . . . . . . . . . 272 202
--------- --------
Net cash provided by financing activities . . . . . . . . . . . . 272 202
--------- --------
Net decrease in cash . . . . . . . . . . . . . . . . . . . . . . . . . . . (19,339) (13,738)
Cash and cash equivalents, beginning of period . . . . . . . . . . . . . . 23,969 19,725
--------- --------
Cash and cash equivalents, end of period . . . . . . . . . . . . . . . . . $ 4,630 $ 5,987
========= ========
Supplemental cash flow information:
Interest paid . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . $ 508 $ --
========= ========
</TABLE>
See accompanying notes to consolidated financial statements.
F-27
<PAGE> 163
HIGHWAYMASTER COMMUNICATIONS, INC. AND SUBSIDIARY
CONSOLIDATED STATEMENT OF CHANGES IN STOCKHOLDERS' EQUITY
SIX MONTHS ENDED JUNE 30, 1997
(UNAUDITED)
(IN THOUSANDS, EXCEPT SHARE INFORMATION)
<TABLE>
PREFERRED STOCK COMMON STOCK ADDITIONAL TREASURY STOCK
--------------- ------------------- PAID-IN --------------- ACCUMULATED
SHARES AMOUNT SHARES AMOUNT CAPITAL SHARES AMOUNT DEFICIT TOTAL
------ ------ ------ ------ ---------- ------ ------ ----------- --------
<S> <C> <C> <C> <C> <C> <C> <C> <C> <C>
Stockholders' equity at
December 31, 1996 . . 1,000 $ -- 25,150,527 $ 251 $ 144,829 311,997 $ (547) $ (109,869) $ 34,664
Exercise of stock
options . . . . . . 26,456 1 201 202
Net loss . . . . . . (14,017) (14,017)
----- ------ ---------- ------ ---------- ------- ------ ----------- --------
Stockholders' equity at
June 30, 1997 . . . . 1,000 $ -- 25,176,983 $ 252 $ 145,030 311,997 $ (547) $ (123,886) $ 20,849
===== ====== ========== ====== ========== ======= ====== =========== ========
</TABLE>
See accompanying notes to consolidated statements.
F-28
<PAGE> 164
HIGHWAYMASTER COMMUNICATIONS, INC. AND SUBSIDIARY
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
(UNAUDITED)
1. BUSINESS OVERVIEW
The Company develops and implements mobile communications solutions,
including integrated voice, data and position location services, to meet the
needs of its customers. The initial application for the Company's wireless
enhanced services has been developed for, and is currently being marketed and
sold to, companies which operate in the long-haul trucking market. The Company
provides long-haul trucking companies with a comprehensive package of mobile
communications and management control services at low, fixed per minute rates,
thereby enabling its trucking customers to effectively monitor the operations
and improve the performance of their fleets. The Company is currently
developing additional applications for its network to expand the range of
trucking companies that utilize its services and to address the need of the
automotive and other markets. Among other things, the Company recently entered
into a strategic business alliance with Prince Corporation, a subsidiary of
Johnson Controls, Inc. and a leading supplier of automotive interior systems
and components, to develop and provide an automobile safety and security
service, the "AutoLink" service, to motorists in the United States and Canada.
The AutoLink service is expected to be available on a commercial basis
beginning in late 1998.
At the present time, the Company derives all of its revenues from the
long-haul trucking market from sales and installation of Mobile Communication
Units and charges for its services.
2. BASIS OF PRESENTATION
The unaudited consolidated financial statements presented herein have
been prepared in accordance with the instructions to Form 10-Q and Article 10
of Regulation S-X. Accordingly, they do not include all footnote disclosures
required by generally accepted accounting principles. These consolidated
financial statements should be read in conjunction with the Company's audited
consolidated financial statements for the year ended December 31, 1996. The
accompanying consolidated financial statements reflect all adjustments (all of
which are of a normal recurring nature) which are, in the opinion of
management, necessary for a fair presentation of the Company's financial
position, results of operations and cash flows for the interim periods. The
results for any interim period are not necessarily indicative of the results
for the entire year.
3. LEASING OPERATIONS
The Company leases its products to certain customers with terms
ranging from three to five years. The related contracts are accounted for as
sales-type leases. At December 31, 1996, the total amounts receivable under
sales-type leases was $1,468,000. In March 1997, a customer who represented
$1,239,000 of this amount receivable notified the Company that it intended to
terminate its long-term lease commitment. Although the lease agreement contains
termination penalties, the amount due from this customer is in dispute.
Accordingly, the Company recorded a $1,000,000 charge to reduce the carrying
value of the receivable at March 31, 1997.
4. INVENTORIES
<TABLE>
<CAPTION>
DECEMBER 31, JUNE 30,
1996 1997
---------- ----------
<S> <C> <C>
Complete systems . . . . . . . . . . . . . . . . . . . . . . . . . . . . . $1,265,000 $ 543,000
Component parts . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 2,193,000 2,221,000
---------- ----------
$3,458,000 $2,764,000
========== ==========
</TABLE>
F-29
<PAGE> 165
5. EARNINGS PER SHARE
Net loss per share for the six months ended June 30, 1997 was computed
by dividing the net loss by the weighted average number of shares outstanding
during the period. Net loss per share for the six months ended June 30, 1996
was computed by dividing the net loss, increased by the accretion of discount
on Series B Preferred Stock ($1,220,000) by the weighted average number of
shares outstanding during the period.
Stock options are excluded from the calculation of weighted average
shares outstanding for the six months ended June 30, 1996 and 1997 since their
effect would be anti-dilutive.
In February 1997, the FASB issued FAS No. 128, "Earnings per Share"
("FAS 128"), which is effective for financial statements issued for periods
ending after December 15, 1997, including interim periods. Effective December
31, 1997, the Company will adopt FAS 128, which establishes standards for
computing and presenting earnings per share (EPS). Adoption of FAS 128 would
not have changed the earnings per share amounts reported in the accompanying
consolidated financial statements.
6. LITIGATION
As previously reported, the Company is party to a lawsuit filed in the
U.S. District Court, Northern District of Texas, Dallas Division against AT&T
Corp. ("AT&T") and Lucent Technologies, Inc. ("Lucent"). Since the filing of
the Company's Annual Report on Form 10-K for the year ended December 31, 1996,
there have been no material changes in this matter except that with respect to
AT&T's Partial Motion to Dismiss and Lucent's Motion to Dismiss, the court has
requested supplemental briefing in lieu of a hearing on oral arguments.
Briefing dates extend into September and an Order by the Court will follow.
F-30
<PAGE> 166
================================================================================
NO PERSON HAS BEEN AUTHORIZED TO GIVE ANY INFORMATION OR MAKE ANY
REPRESENTATIONS NOT CONTAINED IN THIS PROSPECTUS, AND, IF GIVEN OR MADE, SUCH
INFORMATION OR REPRESENTATION MUST NOT BE RELIED UPON AS HAVING BEEN AUTHORIZED
BY THE COMPANY. THIS PROSPECTUS DOES NOT CONSTITUTE AN OFFER TO SELL, OR A
SOLICITATION OF AN OFFER TO BUY, ANY SECURITY OTHER THAN THE EXCHANGE NOTES
OFFERED HEREBY, NOR DOES IT CONSTITUTE AN OFFER TO SELL OR A SOLICITATION OF AN
OFFER TO BUY ANY OF THE EXCHANGE NOTES TO ANYONE OR BY ANYONE IN ANY
JURISDICTION WHERE, OR TO ANY PERSON TO WHOM, IT WOULD BE UNLAWFUL TO MAKE SUCH
AN OFFER OR SOLICITATION. NEITHER THE DELIVERY OF THIS PROSPECTUS NOR ANY SALE
MADE HEREUNDER SHALL, UNDER ANY CIRCUMSTANCES, CREATE AN IMPLICATION THAT THERE
HAS NOT BEEN A CHANGE IN THE INFORMATION SET FORTH IN THIS PROSPECTUS OR IN THE
AFFAIRS OF THE COMPANY SINCE THE DATE HEREOF.
------------
TABLE OF CONTENTS
------------
<TABLE>
<CAPTION>
PAGE
----
<S> <C>
Prospectus Summary . . . . . . . . . . . . . . . . . . . . . . . . . . . 1
Risk Factors . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 18
Use of Proceeds . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 34
Capitalization . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 35
Selected Financial Data . . . . . . . . . . . . . . . . . . . . . . . . . 36
Management's Discussion and Analysis Of
Financial Condition and Results of Operations . . . . . . . . . . . . . 38
Business . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 45
Management . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 69
Security Ownership . . . . . . . . . . . . . . . . . . . . . . . . . . . 77
Certain Relationships and Related
Party Transactions . . . . . . . . . . . . . . . . . . . . . . . . . . 79
The Exchange Offer . . . . . . . . . . . . . . . . . . . . . . . . . . . 83
Description of Exchange Notes . . . . . . . . . . . . . . . . . . . . . . 92
Certain U.S. Federal Income Tax
Considerations . . . . . . . . . . . . . . . . . . . . . . . . . . . . 120
Plan of Distribution . . . . . . . . . . . . . . . . . . . . . . . . . . 124
Legal Matters . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 125
Experts . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 125
Glossary . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 126
Index to Consolidated Financial Statements . . . . . . . . . . . . . . . F-1
</TABLE>
================================================================================
================================================================================
HIGHWAYMASTER
COMMUNICATIONS, INC.
OFFER TO EXCHANGE
ITS 13 3/4% SENIOR NOTES
DUE 2005 (SERIES B)
FOR ANY AND ALL OF ITS OUTSTANDING 13 3/4% SENIOR NOTES
DUE 2005 (SERIES A)
-----------------------
PROSPECTUS
-----------------------
_____________, 1997
================================================================================
<PAGE> 167
PART II
INFORMATION NOT REQUIRED IN PROSPECTUS
ITEM 20. INDEMNIFICATION OF DIRECTORS AND OFFICERS.
The Company is incorporated under the laws of the State of Delaware.
Section 145 of the Delaware General Corporation Law (the "DGCL") permits a
corporation to indemnify any director or officer of the corporation against
expenses (including attorneys' fees), judgments, fines and amounts paid in
settlement actually and reasonably incurred in connection with any action, suit
or proceeding brought by reason of the fact that such person is or was a
director or officer of the corporation, if such person acted in good faith and
in a manner that he reasonably believed to be in or not opposed to the best
interests of the corporation and, with respect to any criminal action or
proceeding, if he had no reason to believe his conduct was unlawful. In a
derivative action (i.e., one brought by or on behalf of the corporation),
indemnification may be made only for expenses actually and reasonably incurred
by any director or officer in connection with the defense or settlement of such
an action or suit, if such person acted in good faith and in a manner that he
reasonably believed to be in or not opposed to the best interests of the
corporation, except that no indemnification shall be made if such person shall
have been adjudged to be liable to the corporation, unless and only to the
extent that the court in which the action or suit was brought shall determine
that the defendant is fairly and reasonably entitled to indemnity for such
expenses despite such adjudication of liability.
Delaware law also permits a corporation to purchase and maintain
insurance on behalf of any person who is or was a director or officer against
any liability asserted against him and incurred by him in such capacity or
arising out of his status as such, whether or not the corporation has the power
to indemnify him against that liability under Section 145 of the DGCL.
Article X of the Company's Certificate and Article VIII of the
Company's Bylaws provide for indemnification of directors and officers and for
the purchase of insurance for their benefit.
Article X of the Certificate provides that the Company shall indemnify
any person who was or is a party or is threatened to be made a party to any
threatened, pending or completed action, suit or proceeding, whether civil,
criminal, administrative, arbitrative or investigative, any appeal in such an
action, suit or proceeding and any inquiry or investigation that could lead to
such an action, suit or proceeding (whether or not by or in the right of the
Company), by reason of the fact that he is or was a director, officer, employee
or agent of the Company, or is or was serving at the request of the Company as
a director, officer, partner, venturer, proprietor, trustee, employee, agent or
similar functionary of another corporation, partnership, joint venture, sole
proprietorship, trust, nonprofit entity, employee benefit plan or other
enterprise, against all judgments, penalties (including excise and similar
taxes), fines, settlements and expenses (including attorneys' fees and court
costs) actually and reasonably incurred by him or her in connection with such
action, suit or proceeding to the fullest extent permitted by any applicable
law, and such indemnity shall inure to the benefit of the heirs, executors and
administrators of any such person so indemnified.
The right to indemnification under Article X of the Certificate is a
contract right which includes, with respect to directors and officers, the
right to be paid by the Company the expenses incurred in defending any such
proceeding in advance of its disposition; provided, however, that, if the DGCL
requires, the payment of such expenses incurred by a director or officer in
advance of the final disposition of a proceeding shall be made only upon
delivery to the Company of an undertaking, by or on behalf of such director or
officer, to repay all amounts so advanced if it shall ultimately be determined
that such director or officer is not entitled to be indemnified under Article X
of the Certificate or otherwise. The Company will, by action of its Board of
Directors, pay such expenses incurred by employees and agents of the Company
upon such terms as the Board of Directors deems appropriate. The
indemnification and advancement of expenses provided by, or granted pursuant
to, Article X of the Certificate shall not be deemed exclusive of any other
right to which those seeking indemnification may be entitled under any law,
bylaw, agreement, vote of stockholders or disinterested directors otherwise,
both as to action in his official capacity and as to action in another capacity
while holding such office.
Article IX of the Certificate provides that to the fullest extent
permitted by the DGCL a director of the Company shall not be liable to the
Company or its stockholders for monetary damages for breach of fiduciary duty
as a director.
Article VIII of the Bylaws provides that the Company shall indemnify
any person who was or is a party or is threatened to be made a party to any
threatened, pending or completed action, suit or proceeding, whether civil,
criminal, administrative or investigative (other than an action by or in the
right of the Company), by reason of the fact that he or she is or was a
director, officer, employee or agent of the Company, or is or was serving at
the request of the Company as a director,
II-1
<PAGE> 168
officer, employee or agent of another corporation, partnership, joint venture,
trust or other enterprise, against expenses (including attorneys' fees),
judgments, fines and amounts paid in settlement actually and reasonably
incurred by him in connection with such action, suit or proceeding if he acted
in good faith and in a manner he reasonably believed to be in or not opposed to
the best interests of the Company, and, with respect to any criminal action or
proceeding, had no reasonable cause to believe his conduct was unlawful.
Article VIII of the Bylaws also provides that the Company shall
indemnify any person who was or is a party or is threatened to be made a party
to any threatened, pending or completed action or suit by or in the right of
the Company to procure a judgment in its favor by reason of the fact that he is
or was a director, officer, employee or agent of the Company, or is or was
serving at the request of the Company as a director, officer, employee or agent
of another corporation, partnership, joint venture or trust or other
enterprise, against expenses (including attorneys' fees) actually and
reasonably incurred by him or her in connection with the defense or settlement
of such action or suit if he acted in good faith and in a manner he or she
reasonably believed to be in or not opposed to the best interests of the
Company, and except that no indemnification shall be made in respect of any
claim, issue or matter as to which such person shall have been adjudged to be
liable to the Company unless and only to the extent that the court in which
such action or suit was brought shall determine upon application that, despite
the adjudication of liability but in view of all the circumstances of the case,
such person is fairly and reasonably entitled to indemnity for such expenses
which the court shall deem proper.
The above discussion of the Company's Bylaws and Certificate of
Incorporation is not intended to be exhaustive and is respectively qualified in
its entirety by such documents.
II-2
<PAGE> 169
ITEM 21. EXHIBITS AND FINANCIAL STATEMENT SCHEDULES.
(A) EXHIBITS.
3.1 Certificate of Incorporation of the Company, as amended.(1)(9)
3.2 Amended and Restated By-Laws of the Company.(11)
4.1 Specimen of certificate representing Common Stock, $.01 par
value, of the Company.(1)
4.2 Warrant Certificate, dated September 27, 1996, issued to
SBW.(7)
4.3 Recapitalization Agreement, dated September 27, 1996, by and
among the Company, the Erin Mills Stockholders, the Carlyle
Stockholders and the other persons named therein.(7)
4.4 Amended and Restated Stockholders' Agreement, dated September
27, 1996, by and among the Company, SBW, the Erin Mills
Stockholders, the Carlyle Stockholders, the By-Word
Stockholders and the other persons named therein.(7)
4.5 Indenture dated September 23, 1997 by and among the Company,
HighwayMaster Corporation and Texas Commerce Bank, National
Association.(12)
4.6 Pledge Agreement dated September 23, 1997 by and among the
Company, Bear, Stearns & Co. Inc. and Smith Barney Inc.(12)
4.7 Registration Rights Agreement dated September 23, 1997 by and
among the Company, HighwayMaster Corporation, Bear, Stearns &
Co. Inc. and Smith Barney Inc.(12)
4.8 Warrant Agreement dated September 23, 1997 by and among the
Company, Bear, Stearns & Co. Inc. and Smith Barney Inc.(12)
4.9 Warrant Registration Rights Agreement dated September 23, 1997
by and among the Company, Bear, Stearns & Co. Inc. and Smith
Barney Inc.(12)
5.1 Opinion of Baker & Botts, L.L.P.(13)
10.1 License Agreement, dated April 23, 1992, by and between Voice
Control Systems and the Company (as successor to By-Word
Technologies, Inc.)(1)
10.2 Agency Agreement, dated February 1, 1993, between the Company
and Saunders, Lubinski & White, Inc.(1)
10.3 Employment Agreement, dated February 4, 1994, by and between
HighwayMaster Corporation and William C. Kennedy, Jr., as
amended.(1)(5)
10.4 Employment Agreement, dated February 4, 1994, by and between
HighwayMaster Corporation and William C. Saunders, as
amended.(1)(5)
10.5 Employment Agreement, dated November 23, 1994, by and between
HighwayMaster Corporation and Gordon D. Quick.(1)(5)
10.6 Amended and Restated 1994 Stock Option Plan of the Company,
dated February 4, 1994, as amended.(1)(5)(6)
10.7 Purchase Agreement, dated September 27, 1996, between the
Company and SBW.(7)
10.8 Mobile Communications (Voice and Data) Services Agreement,
dated as of July 15, 1993, between the Company and EDS
Personal Communications Corporation.(1)(2)
10.9 Services Agreement, dated March 14, 1995, between the Company
and GTE Telecommunications Services Incorporated.(1)(2)
10.10 Services Agreement, dated March 20, 1996, between the Company
and GTE-Mobile Communications Service Corporation.(3)(4)
10.11 Agreement, dated June 8, 1994, between the Company and
Truckstops of America, Inc.(1)
10.12 Amendment dated November 16, 1995 to that certain Mobile
Communications (Voice and Data) Services Agreement, dated as
of July 15, 1993, between the Company and EDS Personal
Communications Corporation.(3)(4)
10.13 Letter Agreement, dated April 5, 1995, between the Company and
IEX Corporation.(1)
10.14 Product Development Agreement, dated December 21, 1995,
between the Company and IEX Corporation.(3)(4)
10.15 Technical Services Agreement, dated September 27, 1996,
between the HM Corporation and SBW.(7)
10.16 Letter Agreement, dated February 19, 1996, between the Company
and IEX Corporation.(3)
10.17 Form of Adoption Agreement, Regional Prototype Cash or
Deferred Profit-Sharing Plan and Trust Sponsored by McKay
Hochman Co., Inc., relating to the HighwayMaster Corporation
401(k) Plan.(1)
10.18 Agreement, dated December 3, 1996, between the Company and
Pickett Racing.(8)
II-3
<PAGE> 170
10.19 Software Transfer Agreement, dated April 25, 1997 between the
Company and Burlington Motor Carriers, Inc.(9)(10)
10.20 Purchase Agreement dated September 18, 1997 by and among the
Company, HighwayMaster Corporation, Bear, Stearns & Co. Inc.
and Smith Barney Inc.(12)
11 Statement re: Computation of Per Share Earnings.(13)
21.1 Subsidiaries of the Company.(1)
23.1 Consent of Price Waterhouse LLP, independent auditors.(12)
23.2 Consent of Baker & Botts, L.L.P. (included in Exhibit 5.1).
24 Powers of Attorney of directors and officers of the Company
(included on signature pages to this Registration Statement).
25.1 Statement of Eligibility of Trustee on Form T-1.(12)
99.1 Form of Letter of Transmittal.(13)
99.2 Form of Notice of Guaranteed Delivery.(13)
99.3 Form of Tender Instructions.(13)
(1) Filed in connection with the Company's Registration
Statement on Form S-1, as amended (No. 33-91486)
effective June 22, 1995.
(2) Certain confidential portions deleted pursuant to
Order Granting Application for Confidential Treatment
issued in connection with Registration Statement on
Form S-1 (No. 33-91486) effective June 22, 1995.
(3) Filed in connection with the Company's Annual Report
on Form 10-K for the fiscal year ended December 31,
1995.
(4) Certain confidential portions deleted pursuant to
Application for Confidential Treatment filed in
connection with the Company's Annual Report on Form
10-K for the fiscal year ended December 31, 1995.
(5) Indicates management or compensatory plan or
arrangement required to be identified pursuant to
Item 14(a)(4).
(6) Filed in connection with the Company's Form 10-Q
Quarterly Report for the quarterly period ended June
30, 1996.
(7) Filed in connection with the Company's Current Report
on Form 8-K filed on October 7, 1996.
(8) Filed in connection with the Company's Annual Report
on Form 10-K for the fiscal Year ended December 31,
1996.
(9) Filed in connection with the Company's Form 10-Q
Quarterly Report for the quarterly period ended March
31, 1997.
(10) Certain confidential portions deleted pursuant to
Order Granting Application for Confidential Treatment
issued in connection with the Company's Form 10-Q
Quarterly Report for the quarterly period ended March
31, 1997.
(11) Filed in connection with the Company's Form 10-Q
Quarterly Report for the quarterly period ended June
30, 1997.
(12) Filed herewith.
(13) To be filed by amendment.
(B) FINANCIAL STATEMENT SCHEDULES.
<TABLE>
<CAPTION>
Schedule No. Description
------------ -----------
<S> <C>
II Valuation and Qualifying Accounts
</TABLE>
All other Schedules for which provision is made in the applicable accounting
regulations of the Securities and Exchange Commission are inapplicable and
therefore have been omitted.
II-4
<PAGE> 171
ITEM 22. UNDERTAKINGS.
The undersigned registrant hereby undertakes:
(1) To respond to requests for information that is
incorporated by reference into the prospectus pursuant to Item 4,
10(b), 11, or 13 of this form, within one business day of receipt of
such request, and to send the incorporated documents by first class
mail or other equally prompt means. This includes information
contained in documents filed subsequent to the effective date of the
registration statement through the date of responding to the request.
(2) To supply by means of a post-effective amendment all
information concerning a transaction, and the company being acquired
involved therein, that was not the subject of and included in the
registration statement when it became effective.
(3) Insofar as indemnification for liabilities arising
under the Securities Act of 1933 (the "Securities Act") may be
permitted to directors, officers and controlling persons of the
registrant pursuant to the provision described under Item 20 or
otherwise, the registrant has been advised that in the opinion of the
Securities and Exchange Commission such indemnification is against
public policy as expressed in the Securities Act and is, therefore,
unenforceable. In the event that a claim for indemnification against
such liabilities (other than the payment by the registrant of expenses
incurred or paid by a director, officer or controlling person of the
registrant in the successful defense of any action, suit or proceeding)
is asserted by such director, officer or controlling person in
connection with the securities being registered, the registrant will,
unless in the opinion of its counsel the matter has been settled by
controlling precedent, submit to a court of appropriate jurisdiction
the question whether such indemnification by it is against public
policy as expressed in the Securities Act and will be governed by the
final adjudication of such issue.
II-5
<PAGE> 172
SIGNATURES
Pursuant to the requirements of the Securities Act of 1933, the
Registrant had duly caused this Registration Statement to be signed on its
behalf by the undersigned, thereunto duly authorized, in the City of Dallas,
State of Texas, on October 17, 1997.
HIGHWAYMASTER COMMUNICATIONS, INC.
By: /s/ William C. Saunders
-------------------------------------
William C. Saunders
President and Chief Executive Officer
POWER OF ATTORNEY
The undersigned directors and executive officers of HighwayMaster
Communications, Inc. hereby constitute and appoint J. Philip McCormick and
Wesley E. Schlenker, and each of them, with full power to act without the other
and with full power of substitution and resubstitution, our true and lawful
attorneys-in-fact with full power to execute in our name and behalf in the
capacities indicated below any and all amendments (including post-effective
amendments and amendments thereto) to this Registration Statement and to file
the same, with all exhibits thereto and other documents in connection therewith
with the Securities and Exchange Commission and hereby ratify and confirm all
that such attorneys-in-fact, or either of them, or their substitutes shall
lawfully do or cause to be done by virtue hereof.
Pursuant to the requirements of the Securities Act of 1933, this
registration statement or amendment has been signed by the following persons in
the capacities and on the date indicated.
<TABLE>
<CAPTION>
Signature Title Date
- --------- ----- ----
<S> <C> <C>
/s/ William C. Kennedy, Jr. Chairman of the Board of Directors October 17, 1997
- ----------------------------------
William C. Kennedy, Jr.
/s/ William C. Saunders President, Chief Executive Officer, and October 17, 1997
- ---------------------------------- Director (Principal Executive Officer)
William C. Saunders
/s/ J. Philip McCormick Executive Vice President and Chief October 17, 1997
- ---------------------------------- Financial Officer (Principal Financial
J. Philip McCormick Officer)
/s/ Stephen P. Tacke Vice President and Controller (Principal October 17, 1997
- ---------------------------------- Accounting Officer)
Stephen P. Tacke
/s/ Terry Parker Director October 17, 1997
- ----------------------------------
Terry Parker
/s/ Director October , 1997
- ---------------------------------- --
Stephen Greaves
/s/ Gerry C. Quinn Director October 20, 1997
- ----------------------------------
Gerry C. Quinn
</TABLE>
II-6
<PAGE> 173
SIGNATURES
Pursuant to the requirements of the Securities Act of 1933, the
Registrant had duly caused this Registration Statement to be signed on its
behalf by the undersigned, thereunto duly authorized, in the City of Dallas,
State of Texas, on October 17, 1997.
HIGHWAYMASTER CORPORATION
By: /s/ William C. Saunders
-------------------------------------
William C. Saunders
President and Chief Executive Officer
POWER OF ATTORNEY
The undersigned directors and executive officers of HighwayMaster
Corporation hereby constitute and appoint J. Philip McCormick and Wesley E.
Schlenker, and each of them, with full power to act without the other and with
full power of substitution and resubstitution, our true and lawful
attorneys-in-fact with full power to execute in our name and behalf in the
capacities indicated below any and all amendments (including post-effective
amendments and amendments thereto) to this Registration Statement and to file
the same, with all exhibits thereto and other documents in connection therewith
with the Securities and Exchange Commission and hereby ratify and confirm all
that such attorneys- in-fact, or either of them, or their substitutes shall
lawfully do or cause to be done by virtue hereof.
Pursuant to the requirements of the Securities Act of 1933, this
registration statement or amendment has been signed by the following persons in
the capacities and on the date indicated.
<TABLE>
<CAPTION>
Signature Title Date
- --------- ----- ----
<S> <C> <C>
/s/ William C. Kennedy, Jr. Chairman of the Board of Directors October 17, 1997
- ---------------------------
William C. Kennedy, Jr.
/s/ William C. Saunders President, Chief Executive Officer, October 17, 1997
- --------------------------- and Director (Principal Executive
William C. Saunders Officer)
/s/ J. Philip McCormick Executive Vice President and Chief October 17, 1997
- --------------------------- Financial Officer (Principal Financial
J. Philip McCormick Officer)
/s/ Stephen P. Tacke Vice President and Controller October 17, 1997
- --------------------------- (Principal Accounting Officer)
Stephen P. Tacke
/s/ Terry Parker Director October 17, 1997
- ---------------------------
Terry Parker
/s/ Director October , 1997
- ---------------------------
Stephen Greaves
/s/ Gerry C. Quinn Director October 20, 1997
- ---------------------------
Gerry C. Quinn
</TABLE>
II-7
<PAGE> 174
SCHEDULE II
HIGHWAYMASTER COMMUNICATIONS INC.
VALUATION AND QUALIFYING ACCOUNTS
<TABLE>
<CAPTION>
ADDITIONS
BALANCE AT CHARGED TO
BEGINNING OF COSTS AND BALANCE AT
DESCRIPTION PERIOD EXPENSES DEDUCTIONS OTHER END OF PERIOD
- ----------- ----------- ---------- ----------- ------- -----------
<S> <C> <C> <C> <C> <C>
Year ended December 31, 1994
Allowance for doubtful accounts $ 0 217,000 0 0 $ 217,000
Inventory reserves 0 1,828,000 (1,658,000) 0 170,000
Valuation allowance against
deferred tax asset 0 12,490,000 0 0 12,490,000
Year ended December 31, 1995
Allowance for doubtful accounts 217,000 604,000 (6,000) 0 815,000
Inventory reserves 170,000 551,000 (291,000) 0 430,000
Valuation allowance against
deferred tax asset 12,490,000 9,061,000 0 0 21,551,000
Year ended December 31, 1996
Allowance for doubtful accounts 815,000 160,000 (201,000) 0 774,000
Inventory reserves 430,000 2,223,000 (405,000) 0 2,248,000
Valuation allowance against
deferred tax asset $21,551,000 12,816,000 0 378,000 $34,745,000
</TABLE>
S-1
<PAGE> 175
INDEX TO EXHIBITS
3.1 Certificate of Incorporation of the Company, as amended.(1)(9)
3.2 Amended and Restated By-Laws of the Company.(11)
4.1 Specimen of certificate representing Common Stock, $.01 par
value, of the Company.(1)
4.2 Warrant Certificate, dated September 27, 1996, issued to
SBW.(7)
4.3 Recapitalization Agreement, dated September 27, 1996, by and
among the Company, the Erin Mills Stockholders, the Carlyle
Stockholders and the other persons named therein.(7)
4.4 Amended and Restated Stockholders' Agreement, dated September
27, 1996, by and among the Company, SBW, the Erin Mills
Stockholders, the Carlyle Stockholders, the By-Word
Stockholders and the other persons named therein.(7)
4.5 Indenture dated September 23, 1997 by and among the Company,
HighwayMaster Corporation and Texas Commerce Bank, National
Association.(12)
4.6 Pledge Agreement dated September 23, 1997 by and among the
Company, Bear, Stearns & Co. Inc. and Smith Barney Inc.(12)
4.7 Registration Rights Agreement dated September 23, 1997 by and
among the Company, HighwayMaster Corporation, Bear, Stearns &
Co. Inc. and Smith Barney Inc.(12)
4.8 Warrant Agreement dated September 23, 1997 by and among the
Company, Bear, Stearns & Co. Inc. and Smith Barney Inc.(12)
4.9 Warrant Registration Rights Agreement dated September 23, 1997
by and among the Company, Bear, Stearns & Co. Inc. and Smith
Barney Inc.(12)
5.1 Opinion of Baker & Botts, L.L.P.(13)
10.1 License Agreement, dated April 23, 1992, by and between Voice
Control Systems and the Company (as successor to By-Word
Technologies, Inc.)(1)
10.2 Agency Agreement, dated February 1, 1993, between the Company
and Saunders, Lubinski & White, Inc.(1)
10.3 Employment Agreement, dated February 4, 1994, by and between
HighwayMaster Corporation and William C. Kennedy, Jr., as
amended.(1)(5)
10.4 Employment Agreement, dated February 4, 1994, by and between
HighwayMaster Corporation and William C. Saunders, as
amended.(1)(5)
10.5 Employment Agreement, dated November 23, 1994, by and between
HighwayMaster Corporation and Gordon D. Quick.(1)(5)
10.6 Amended and Restated 1994 Stock Option Plan of the Company,
dated February 4, 1994, as amended.(1)(5)(6)
10.7 Purchase Agreement, dated September 27, 1996, between the
Company and SBW.(7)
10.8 Mobile Communications (Voice and Data) Services Agreement,
dated as of July 15, 1993, between the Company and EDS
Personal Communications Corporation.(1)(2)
10.9 Services Agreement, dated March 14, 1995, between the Company
and GTE Telecommunications Services Incorporated.(1)(2)
10.10 Services Agreement, dated March 20, 1996, between the Company
and GTE-Mobile Communications Service Corporation.(3)(4)
10.11 Agreement, dated June 8, 1994, between the Company and
Truckstops of America, Inc.(1)
10.12 Amendment dated November 16, 1995 to that certain Mobile
Communications (Voice and Data) Services Agreement, dated as
of July 15, 1993, between the Company and EDS Personal
Communications Corporation.(3)(4)
10.13 Letter Agreement, dated April 5, 1995, between the Company and
IEX Corporation.(1)
10.14 Product Development Agreement, dated December 21, 1995,
between the Company and IEX Corporation.(3)(4)
10.15 Technical Services Agreement, dated September 27, 1996,
between the HM Corporation and SBW.(7)
10.16 Letter Agreement, dated February 19, 1996, between the Company
and IEX Corporation.(3)
10.17 Form of Adoption Agreement, Regional Prototype Cash or
Deferred Profit-Sharing Plan and Trust Sponsored by McKay
Hochman Co., Inc., relating to the HighwayMaster Corporation
401(k) Plan.(1)
10.18 Agreement, dated December 3, 1996, between the Company and
Pickett Racing.(8)
<PAGE> 176
10.19 Software Transfer Agreement, dated April 25, 1997 between the
Company and Burlington Motor Carriers, Inc.(9)(10)
10.20 Purchase Agreement dated September 18, 1997 by and among the
Company, HighwayMaster Corporation, Bear, Stearns & Co. Inc.
and Smith Barney Inc.(12)
11 Statement re: Computation of Per Share Earnings.(13)
21.1 Subsidiaries of the Company.(1)
23.1 Consent of Price Waterhouse LLP, independent auditors.(12)
23.2 Consent of Baker & Botts, L.L.P. (included in Exhibit 5.1).
24 Powers of Attorney of directors and officers of the Company
(included on signature pages to this Registration Statement).
25.1 Statement of Eligibility of Trustee on Form T-1.(12)
27.1 Financial Data Schedule.(13)
99.1 Form of Letter of Transmittal.(13)
99.2 Form of Notice of Guaranteed Delivery.(13)
99.3 Form of Tender Instructions.(13)
(1) Filed in connection with the Company's Registration
Statement on Form S-1, as amended (No. 33-91486)
effective June 22, 1995.
(2) Certain confidential portions deleted pursuant to
Order Granting Application for Confidential Treatment
issued in connection with Registration Statement on
Form S-1 (No. 33-91486) effective June 22, 1995.
(3) Filed in connection with the Company's Annual Report
on Form 10-K for the fiscal year ended December 31,
1995.
(4) Certain confidential portions deleted pursuant to
Application for Confidential Treatment filed in
connection with the Company's Annual Report on Form
10-K for the fiscal year ended December 31, 1995.
(5) Indicates management or compensatory plan or
arrangement required to be identified pursuant to
Item 14(a)(4).
(6) Filed in connection with the Company's Form 10-Q
Quarterly Report for the quarterly period ended June
30, 1996.
(7) Filed in connection with the Company's Current Report
on Form 8-K filed on October 7, 1996.
(8) Filed in connection with the Company's Annual Report
on Form 10-K for the fiscal Year ended December 31,
1996.
(9) Filed in connection with the Company's Form 10-Q
Quarterly Report for the quarterly period ended March
31, 1997.
(10) Certain confidential portions deleted pursuant to
Order Granting Application for Confidential Treatment
issued in connection with the Company's Form 10-Q
Quarterly Report for the quarterly period ended March
31, 1997.
(11) Filed in connection with the Company's Form 10-Q
Quarterly Report for the quarterly period ended June
30, 1997.
(12) Filed herewith.
(13) To be filed by amendment.
<PAGE> 1
- --------------------------------------------------------------------------------
HIGHWAYMASTER COMMUNICATIONS, INC. as Issuer
HIGHWAYMASTER CORPORATION
as Subsidiary Guarantor
$125,000,000
13 3/4% SENIOR NOTES DUE 2005
-----------------
INDENTURE
Dated as of September 23, 1997
-----------------
TEXAS COMMERCE BANK NATIONAL ASSOCIATION
as Trustee
---------------
- --------------------------------------------------------------------------------
<PAGE> 2
CROSS-REFERENCE TABLE*
<TABLE>
<CAPTION>
Trust Indenture
Act Section Indenture Section
- --------------- -----------------
<S> <C>
310 (a)(1) . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 7.10
(a)(2) . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 7.10
(a)(3) . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . N.A.
(a)(4) . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . N.A.
(a)(5) . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 7.10
(b) . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 7.3,7.10
(c) . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . N.A.
311 (a) . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 7.11
(b) . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 7.11
(c) . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . N.A.
312 (a) . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 2.5
(b) . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 12.3
(c) . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 12.3
313 (a) . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 7.6
(b)(1) . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . N.A.
(b)(2) . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 7.6,7.7
(c) . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 7.6,12.2
(d) . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 7.6
314 (a) . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 4.3,12.5
(b) . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 11.2
(c)(1) . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 12.4
(c)(2) . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 11.4,12.4
(c)(3) . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . N.A.
(d) . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 11.3,11.4
(e) . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 12.5
(f) . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . N.A.
315 (a) . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 7.1(b)
(b) . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 7.5,12.2
(c) . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 7.1(a)
(d) . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 7.1(c)
(e) . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 6.11
316 (a)(last sentence) . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 2.9
(a)(1)(A) . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 6.5
(a)(1)(B) . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 6.4
(a)(2) . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . N.A.
</TABLE>
<PAGE> 3
<TABLE>
<S> <C>
(b) . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 6.7
(c) . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 9.4
317 (a)(1) . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 6.8
(a)(2) . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 6.9
(b) . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 2.4
318 (a) . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 12.1
(b) . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . N.A.
(c) . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 12.1
</TABLE>
N.A. means not applicable.
*This Cross-Reference Table is not part of the Indenture.
<PAGE> 4
TABLE OF CONTENTS
<TABLE>
<CAPTION>
PAGE
----
<S> <C> <C>
ARTICLE 1 DEFINITIONS AND INCORPORATION BY REFERENCE . . . . . . 1
SECTION 1.1. DEFINITIONS . . . . . . . . . . . . . . . . . . . . . . 1
SECTION 1.2. OTHER DEFINITIONS . . . . . . . . . . . . . . . . . . . 17
SECTION 1.3. INCORPORATION BY REFERENCE OF TRUST INDENTURE ACT . . . 17
SECTION 1.4. RULES OF CONSTRUCTION . . . . . . . . . . . . . . . . . 18
ARTICLE 2 THE NOTES . . . . . . . . . . . . . . . . . . . . . . . 18
SECTION 2.1. FORM AND DATING . . . . . . . . . . . . . . . . . . . . 19
SECTION 2.2. EXECUTION AND AUTHENTICATION . . . . . . . . . . . . . 20
SECTION 2.3. TRUSTEE, REGISTRAR AND PAYING AGENT . . . . . . . . . . 21
SECTION 2.4. PAYING AGENT TO HOLD MONEY IN TRUST . . . . . . . . . . 22
SECTION 2.5. HOLDER LISTS . . . . . . . . . . . . . . . . . . . . . 22
SECTION 2.6. TRANSFER AND EXCHANGE . . . . . . . . . . . . . . . . . 22
SECTION 2.7. REPLACEMENT NOTES . . . . . . . . . . . . . . . . . . . 31
SECTION 2.8. OUTSTANDING NOTES . . . . . . . . . . . . . . . . . . . 31
SECTION 2.9. TREASURY NOTES . . . . . . . . . . . . . . . . . . . . 31
SECTION 2.10. TEMPORARY NOTES . . . . . . . . . . . . . . . . . . . . 32
SECTION 2.11. CANCELLATION . . . . . . . . . . . . . . . . . . . . . 32
SECTION 2.12. DEFAULTED INTEREST . . . . . . . . . . . . . . . . . . 32
SECTION 2.13. PERSONS DEEMED OWNERS . . . . . . . . . . . . . . . . . 33
SECTION 2.14. CUSIP NUMBERS . . . . . . . . . . . . . . . . . . . . . 33
ARTICLE 3 REDEMPTION AND PREPAYMENT . . . . . . . . . . . . . . . 33
SECTION 3.1. NOTICES TO TRUSTEE . . . . . . . . . . . . . . . . . . 33
SECTION 3.2. SELECTION OF NOTES TO BE REDEEMED . . . . . . . . . . . 33
SECTION 3.3. NOTICE OF REDEMPTION . . . . . . . . . . . . . . . . . 34
SECTION 3.4. EFFECT OF NOTICE OF REDEMPTION . . . . . . . . . . . . 35
SECTION 3.5. DEPOSIT OF REDEMPTION PRICE . . . . . . . . . . . . . . 35
SECTION 3.6. NOTES REDEEMED IN PART . . . . . . . . . . . . . . . . 35
SECTION 3.7. OPTIONAL REDEMPTION . . . . . . . . . . . . . . . . . . 35
SECTION 3.8. MANDATORY REDEMPTION . . . . . . . . . . . . . . . . . 36
ARTICLE 4 COVENANTS . . . . . . . . . . . . . . . . . . . . . . . 36
SECTION 4.1. PAYMENT OF NOTES . . . . . . . . . . . . . . . . . . . 36
SECTION 4.2. MAINTENANCE OF OFFICE OR AGENCY . . . . . . . . . . . . 37
SECTION 4.3. PROVISIONS OF REPORTS AND OTHER INFORMATION . . . . . . 37
SECTION 4.4. COMPLIANCE CERTIFICATE . . . . . . . . . . . . . . . . 38
SECTION 4.5. TAXES . . . . . . . . . . . . . . . . . . . . . . . . . 38
SECTION 4.6. STAY, EXTENSION AND USURY LAWS . . . . . . . . . . . . 39
SECTION 4.7. LIMITATION ON RESTRICTED PAYMENTS . . . . . . . . . . . 39
SECTION 4.8. LIMITATION ON DIVIDEND AND OTHER PAYMENT
RESTRICTIONS AFFECTING RESTRICTED SUBSIDIARIES . . . 42
SECTION 4.9. LIMITATION ON INDEBTEDNESS . . . . . . . . . . . . . . 43
SECTION 4.10. LIMITATION ON ASSET SALES . . . . . . . . . . . . . . . 45
SECTION 4.11. LIMITATION ON TRANSACTIONS WITH AFFILIATES . . . . . . 46
</TABLE>
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<TABLE>
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<S> <C> <C>
SECTION 4.12. LIMITATION ON LIENS . . . . . . . . . . . . . . . . . . 47
SECTION 4.13. LIMITATION ON ISSUANCE AND SALE OF CAPITAL STOCK OF
RESTRICTED SUBSIDIARIES . . . . . . . . . . . . . . . 47
SECTION 4.14. OFFER TO REPURCHASE UPON CHANGE OF CONTROL . . . . . . 48
SECTION 4.15. LIMITATION ON SALE AND LEASEBACK TRANSACTIONS . . . . . 49
SECTION 4.16. COVENANT WITH RESPECT TO BUSINESS ACTIVITIES . . . . . 49
SECTION 4.17. CORPORATE EXISTENCE . . . . . . . . . . . . . . . . . . 49
SECTION 4.18. PLEDGE ACCOUNT . . . . . . . . . . . . . . . . . . . . 49
ARTICLE 5 SUCCESSORS . . . . . . . . . . . . . . . . . . . . . . 50
SECTION 5.1. MERGER, CONSOLIDATION, OR SALE OF ASSETS . . . . . . . 50
SECTION 5.2. SUCCESSOR COMPANY SUBSTITUTED . . . . . . . . . . . . . 51
ARTICLE 6 DEFAULTS AND REMEDIES . . . . . . . . . . . . . . . . . 51
SECTION 6.1. EVENTS OF DEFAULT . . . . . . . . . . . . . . . . . . . 51
SECTION 6.2. ACCELERATION . . . . . . . . . . . . . . . . . . . . . 53
SECTION 6.3. OTHER REMEDIES . . . . . . . . . . . . . . . . . . . . 54
SECTION 6.4. WAIVER OF PAST DEFAULTS . . . . . . . . . . . . . . . . 54
SECTION 6.5. CONTROL BY MAJORITY . . . . . . . . . . . . . . . . . . 54
SECTION 6.6. LIMITATION ON SUITS . . . . . . . . . . . . . . . . . . 54
SECTION 6.7. RIGHTS OF HOLDERS OF NOTES TO RECEIVE PAYMENT . . . . . 55
SECTION 6.8. COLLECTION SUIT BY TRUSTEE . . . . . . . . . . . . . . 55
SECTION 6.9. TRUSTEE MAY FILE PROOFS OF CLAIM . . . . . . . . . . . 55
SECTION 6.10. PRIORITIES . . . . . . . . . . . . . . . . . . . . . . 56
SECTION 6.11. UNDERTAKING FOR COSTS . . . . . . . . . . . . . . . . . 56
ARTICLE 7 TRUSTEE . . . . . . . . . . . . . . . . . . . . . . . . 57
SECTION 7.1. DUTIES OF TRUSTEE . . . . . . . . . . . . . . . . . . . 57
SECTION 7.2. RIGHTS OF TRUSTEE . . . . . . . . . . . . . . . . . . . 58
SECTION 7.3. INDIVIDUAL RIGHTS OF TRUSTEE . . . . . . . . . . . . . 59
SECTION 7.4. TRUSTEE'S DISCLAIMER . . . . . . . . . . . . . . . . . 59
SECTION 7.5. NOTICE OF DEFAULTS . . . . . . . . . . . . . . . . . . 59
SECTION 7.6. REPORTS BY TRUSTEE TO HOLDERS OF THE NOTES . . . . . . 59
SECTION 7.7. COMPENSATION AND INDEMNITY . . . . . . . . . . . . . . 60
SECTION 7.8. REPLACEMENT OF TRUSTEE . . . . . . . . . . . . . . . . 61
SECTION 7.9. SUCCESSOR TRUSTEE BY MERGER, ETC . . . . . . . . . . . 62
SECTION 7.10. ELIGIBILITY; DISQUALIFICATION . . . . . . . . . . . . . 62
SECTION 7.11. PREFERENTIAL COLLECTION OF CLAIMS AGAINST COMPANY . . . 62
ARTICLE 8 DEFEASANCE AND DISCHARGE . . . . . . . . . . . . . . . 62
SECTION 8.1. OPTION TO EFFECT LEGAL DEFEASANCE OR COVENANT
DEFEASANCE . . . . . . . . . . . . . . . . . . . . . 62
SECTION 8.2. LEGAL DEFEASANCE . . . . . . . . . . . . . . . . . . . 63
SECTION 8.3. COVENANT DEFEASANCE . . . . . . . . . . . . . . . . . . 63
SECTION 8.4. CONDITIONS TO LEGAL OR COVENANT DEFEASANCE . . . . . . 64
SECTION 8.5. DISCHARGE . . . . . . . . . . . . . . . . . . . . . . . 65
SECTION 8.6. DEPOSITED MONEY AND GOVERNMENT SECURITIES TO BE HELD
IN TRUST; OTHER
</TABLE>
2
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<TABLE>
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<S> <C> <C>
MISCELLANEOUS PROVISIONS . . . . . . . . . . . . . . . 65
SECTION 8.7. REPAYMENT TO COMPANY . . . . . . . . . . . . . . . . . 66
SECTION 8.8. REINSTATEMENT . . . . . . . . . . . . . . . . . . . . . 66
ARTICLE 9 AMENDMENT, SUPPLEMENT AND WAIVER . . . . . . . . . . . 66
SECTION 9.1. WITHOUT CONSENT OF HOLDERS OF NOTES . . . . . . . . . . 67
SECTION 9.2. WITH CONSENT OF HOLDERS OF NOTES . . . . . . . . . . . 67
SECTION 9.3. COMPLIANCE WITH TRUST INDENTURE ACT . . . . . . . . . . 69
SECTION 9.4. REVOCATION AND EFFECT OF CONSENTS . . . . . . . . . . . 69
SECTION 9.5. NOTATION ON OR EXCHANGE OF NOTES . . . . . . . . . . . 70
SECTION 9.6. TRUSTEE TO SIGN AMENDMENTS, ETC . . . . . . . . . . . . 70
SECTION 9.7. PAYMENTS FOR CONSENT . . . . . . . . . . . . . . . . . 70
ARTICLE 10 SUBSIDIARY GUARANTEES . . . . . . . . . . . . . . . . . 70
SECTION 10.1. GUARANTEES. . . . . . . . . . . . . . . . . . . . . . . 71
SECTION 10.2. SUBSIDIARY GUARANTORS MAY CONSOLIDATE, ETC., ON
CERTAIN TERMS . . . . . . . . . . . . . . . . . . . . 72
SECTION 10.3. LIMITATION ON LIABILITY . . . . . . . . . . . . . . . . 73
SECTION 10.4. SUCCESSORS AND ASSIGNS . . . . . . . . . . . . . . . . 74
SECTION 10.5. NO WAIVER . . . . . . . . . . . . . . . . . . . . . . . 74
SECTION 10.6. MODIFICATION . . . . . . . . . . . . . . . . . . . . . 74
SECTION 10.7. RELEASE OF SUBSIDIARY GUARANTOR . . . . . . . . . . . . 74
SECTION 10.8. EXECUTION OF SUPPLEMENTAL INDENTURE BY FUTURE
RESTRICTED SUBSIDIARIES . . . . . . . . . . . . . . . 74
ARTICLE 11 COLLATERAL AND SECURITY . . . . . . . . . . . . . . . . 75
SECTION 11.1. PLEDGE AGREEMENT . . . . . . . . . . . . . . . . . . . 75
SECTION 11.2. RECORDING AND OPINIONS . . . . . . . . . . . . . . . . 76
SECTION 11.3. RELEASE OF COLLATERAL . . . . . . . . . . . . . . . . . 76
SECTION 11.4. CERTIFICATE OF THE COMPANY . . . . . . . . . . . . . . 77
SECTION 11.5. AUTHORIZATION OF ACTIONS TO BE TAKEN BY THE TRUSTEE
UNDER THE PLEDGE AGREEMENT . . . . . . . . . . . . . 77
SECTION 11.6. AUTHORIZATION OF FUNDS BY THE TRUSTEE UNDER THE
PLEDGE AGREEMENT . . . . . . . . . . . . . . . . . . 78
SECTION 11.7. TERMINATION OF SECURITY INTEREST . . . . . . . . . . . 78
ARTICLE 12 MISCELLANEOUS . . . . . . . . . . . . . . . . . . . . . 78
SECTION 12.1. TRUST INDENTURE ACT CONTROLS . . . . . . . . . . . . . 78
SECTION 12.2. NOTICES . . . . . . . . . . . . . . . . . . . . . . . . 78
SECTION 12.3. COMMUNICATION BY HOLDERS OF NOTES WITH OTHER HOLDERS
OF NOTES . . . . . . . . . . . . . . . . . . . . . . 79
SECTION 12.4. CERTIFICATE AND OPINION AS TO CONDITIONS PRECEDENT . . 79
SECTION 12.5. STATEMENTS REQUIRED IN CERTIFICATE OR OPINION . . . . . 80
SECTION 12.6. RULES BY TRUSTEE AND AGENTS . . . . . . . . . . . . . . 80
SECTION 12.7. NO PERSONAL LIABILITY OF DIRECTORS, OFFICERS,
EMPLOYEES AND OTHERS. . . . . . . . . . . . . . . . . 80
SECTION 12.8. GOVERNING LAW . . . . . . . . . . . . . . . . . . . . . 81
SECTION 12.9. NO ADVERSE INTERPRETATION OF OTHER AGREEMENTS . . . . . 81
SECTION 12.10. SUCCESSORS . . . . . . . . . . . . . . . . . . . . . . 81
SECTION 12.11. SEVERABILITY . . . . . . . . . . . . . . . . . . . . . 81
SECTION 12.12. ORIGINALS . . . . . . . . . . . . . . . . . . . . . . . 81
SECTION 12.13. TABLE OF CONTENTS, HEADINGS, ETC. . . . . . . . . . . . 81
SECTION 12.14. COUNTERPARTS . . . . . . . . . . . . . . . . . . . . . 82
</TABLE>
3
<PAGE> 7
EXHIBITS AND ANNEX
<TABLE>
<S> <C> <C>
Exhibit A FORM OF NOTE . . . . . . . . . . . . . . . . . . A-1
Exhibit B CERTIFICATE OF TRANSFEROR . . . . . . . . . . . B-1
Annex I CERTAIN AFFILIATE TRANSACTIONS . . . . . . . . . I-1
</TABLE>
* Check applicable box.
<PAGE> 8
EXHIBIT 4.5
This INDENTURE, dated as of September 23, 1997, is by and
among HighwayMaster Communications, Inc., a Delaware corporation (the
"Company"), HighwayMaster Corporation, a Delaware corporation, as the initial
Subsidiary Guarantor, and Texas Commerce Bank National Association, as trustee
(the "Trustee").
The parties listed above agree as follows for the benefit of
each other and for the equal and ratable benefit of the Holders of the 13-3/4%
Senior Notes due 2005, Series A (the "Series A Notes") and the 13-3/4% Senior
Notes due 2005, Series B (the "Series B Notes" and, together with the Series A
Notes, the "Notes").
ARTICLE 1
DEFINITIONS AND INCORPORATION
BY REFERENCE
SECTION 1.1. DEFINITIONS.
"Acquired Indebtedness" means, with respect to any specified
Person, (i) Indebtedness of any other Person existing at the time such other
Person is merged with or into or becomes a Subsidiary of such specified Person,
including, without limitation, Indebtedness Incurred in connection with, or in
contemplation of, such other Person merging with or into or becoming a
Subsidiary of such specified Person and (ii) Indebtedness secured by a Lien
encumbering any asset acquired by such specified Person.
"Affiliate" of any specified Person means any other Person
directly or indirectly controlling or controlled by or under direct or indirect
common control with such specified Person. For purposes of this definition,
"control" (including, with correlative meanings, the terms "controlling,"
"controlled by" and "under common control with"), 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 securities, by agreement or otherwise;
provided that beneficial ownership of 10% or more of the voting securities of a
Person shall be deemed to be control.
"Agent" means any Registrar or Paying Agent.
"Applicable Law", except as the context may otherwise require,
means all applicable laws, rules, regulations, ordinances, judgments, decrees,
injunctions, writs and orders of any court or governmental or congressional
agency or authority and rules, regulations, orders, licenses and permits of any
United States federal, state, municipal, regional, or other governmental body,
instrumentality, agency or authority.
"Asset Sale" means (a) the direct or indirect sale, lease,
license, conveyance or other disposition of any assets or rights (including,
without limitation, by way of a sale and leaseback or
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<PAGE> 9
similar arrangement, by merger or consolidation) by the Company or a Restricted
Subsidiary (a "disposition"), in one transaction or a series of transactions;
provided that the disposition of all or substantially all of the assets of the
Company and its Restricted Subsidiaries taken as a whole will be governed by
the provisions of Section 4.14 and/or Section 5.1 and not by the provisions of
Section 4.10, and (b) the issuance or disposition by the Company or any of its
Restricted Subsidiaries of Equity Interests of the Company's Restricted
Subsidiaries. Notwithstanding the foregoing, none of the following will be
deemed an Asset Sale: (i) a disposition of assets by the Company to a
Restricted Subsidiary or by a Restricted Subsidiary to the Company or to a
Restricted Subsidiary; (ii) an issuance of Equity Interests by a Restricted
Subsidiary to the Company or to a Restricted Subsidiary; (iii) a Restricted
Payment that is permitted by Section 4.7; (iv) dispositions in any fiscal year
with Net Proceeds in the aggregate of $1,000,000 or less; (v) dispositions of
assets or rights in the ordinary course of business consistent with past
practices ("OCB dispositions"); (vi) dispositions of inventory that would
constitute OCB dispositions except that the consideration therefor received by
the Company or such Restricted Subsidiary consists of Telecommunications Assets
usable by the Company and its Restricted Subsidiaries in the ordinary course of
business; (vii) the grant in the ordinary course of business of any license of
intellectual property rights (which includes backup, escrow and other licensing
arrangements common in the Telecommunications Business to the extent that such
arrangements are beneficial to the Company and its Restricted Subsidiaries) if
(A) such license by its terms prohibits any disposition thereof (including any
sublicense thereof) other than sublicenses in the ordinary course of business
(1) to Affiliates of such licensee or, (2) solely for the use thereof in the
ordinary course of business, to customers of such licensee, (B) the Company or
one or more of its Restricted Subsidiaries retains the unconditional right to
use such intellectual property without payment of any royalty or other
consideration at least to the extent and in the manner that the Company and its
Restricted Subsidiaries used such intellectual property rights at the time of
the grant of such license, and (C) neither the grant of such license nor the
use thereof by the licensee results in a material decrease in the value of the
related intellectual property rights retained by the Company and its Restricted
Subsidiaries or interferes with or impairs the ability of the Company and its
Restricted Subsidiaries to conduct their business; (viii) the grant of any
license of intellectual property rights if (A) such license provides rights to
the licensee only with respect to jurisdictions outside of the United States
and Canada, (B) the Company or one or more of its Restricted Subsidiaries
retains the unconditional right to use such intellectual property in the United
States and Canada without payment of any royalty or other consideration, and
(C) neither the grant of such license nor the use thereof by the licensee
results in a material decrease in the value of the related retained
intellectual property rights within the United States and Canada; (ix) any
liquidation of any Cash Equivalent; (x) any disposition of defaulted
receivables for collection; and (xi) the grant of any Lien securing
Indebtedness (or any foreclosure thereon) to the extent that such Lien is
granted in compliance with Section 4.12.
"Attributable Debt" in respect of a sale and leaseback
transaction means, at the time of determination, the present value (discounted
at the rate of interest implicit in such transaction, determined in accordance
with GAAP) of the obligation of the lessee for net rental payments during the
remaining term of the lease included in such sale and leaseback transaction
(including any period for which such lease has been extended or may, at the
option of the lessor, be extended).
2
<PAGE> 10
"Bank Credit Agreement" means any senior revolving credit
facility governing Indebtedness for borrowed money owed by the Company or a
Restricted Subsidiary to banks, trust companies or other institutions that are
principally engaged in the business of lending money to businesses.
"Bankruptcy Law" means Title 11, United States Code, as may be
amended from time to time, or any similar federal or state law for the relief
of debtors.
"Board of Directors" means, with respect to any Person, the
Board of Directors of such Person, or any authorized committee of the Board of
Directors of such Person.
"Board Resolutions" means, with respect to any Person, a copy
of a resolution certified by the Secretary or an Assistant Secretary of such
Person to have been duly adopted by the Board of Directors of such Person and
to be in full force and effect on the date of such certification, and delivered
to the Trustee.
"Business Day" means any day other than a Saturday, Sunday,
public holiday or day on which banking institutions in New York (or, with
respect to any payments or transfers to be made by the Trustee or any Agent, as
applicable, in the city where such Trustee or Agent is located) are authorized
or obligated by law or executive order to close.
"Capital Lease Obligation" means, at the time any
determination thereof is to be made, the amount of the liability in respect of
a capital lease that would at such time be required to be capitalized on a
balance sheet in accordance with GAAP.
"Capital Stock" means (i) in the case of a corporation,
corporate stock, (ii) in the case of an association or business entity, any and
all shares, interests, participations, rights or other equivalents (however
designated) of corporate stock, (iii) in the case of a partnership, partnership
interests (whether general or limited) and (iv) any other interest or
participation that confers on a Person the right to receive a share of the
profits and losses of, or distributions of assets of, the issuing Person.
"Cash Equivalents" means (i) Government Securities having
maturities of not more than twelve months from the date of acquisition, (ii)
certificates of deposit and eurodollar time deposits with maturities of twelve
months or less from the date of acquisition, bankers' acceptances with
maturities not exceeding six months and overnight bank deposits, in each case
with any member bank of the U.S. Federal Reserve System having capital and
surplus in excess of $500,000,000, (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 financial institution meeting the
qualifications specified in clause (ii) above, and (iv) commercial paper having
the rating of at least P-1 from Moody's Investors Service, Inc., or any
successor to its rating business, or at least A-1 from Standard & Poor's
Ratings Group, or any successor to its rating business, and in each case
maturing within 180 days after the date of acquisition.
3
<PAGE> 11
"Change of Control" means the occurrence of any of the
following: (i) the sale, lease, transfer, conveyance or other disposition
(other than by way of merger or consolidation), in one or a series of related
transactions, of all or substantially all of the assets of the Company and its
Restricted Subsidiaries taken as a whole to any "person" (as such term is used
in Section 13(d)(3) of the Exchange Act) other than a Restricted Subsidiary;
(ii) the adoption of a plan relating to the liquidation or dissolution of the
Company; (iii) the consummation of any transaction (including, without
limitation, any merger or consolidation) the result of which is that any
"person" (as defined above), other than a Permitted Holder, becomes the
"beneficial owner" (as such term is defined in Rule 13d-3 and Rule 13d-5 under
the Exchange Act), directly or indirectly, of a greater percentage of the
voting stock of the Company than the percentage of the voting stock of the
Company held by the Permitted Holders; (iv) the first day on which the
Permitted Holders in the aggregate hold less than 35% of the voting stock of
the Company; or (v) the first day on which a majority of the members of the
Board of Directors of the Company are not Continuing Directors.
"Closing Date" means the date of original issuance of the
Series A Notes.
"Collateral" means the Pledged Securities and the proceeds
thereof.
"Commission" or "SEC" means the Securities and Exchange
Commission, and any successor thereto.
"Consolidated Cash Flow" means, with respect to any Person for
any period, the Consolidated Net Income of such Person for such period plus (a)
to the extent deducted in computing Consolidated Net Income, the sum of (i)
provision for taxes based on income or profits of such Person and its
Restricted Subsidiaries for such period, (ii) Consolidated Interest Expense and
(iii) depreciation, amortization (including amortization of goodwill and other
intangibles but excluding amortization of prepaid cash expenses that were paid
in a prior period) of such Person and its Restricted Subsidiaries for such
period, and other non-cash charges (excluding any such non-cash charge to the
extent that it represents an accrual of or reserve for cash charges in any
future period or amortization of a prepaid cash expense that was paid in a
prior period), minus (b) non-cash items increasing consolidated revenues in
determining such Consolidated Net Income for such period (excluding any items
which represent the reversal of any accrual of, or cash reserves for,
anticipated cash charges in any prior period), in each case, on a consolidated
basis and determined in accordance with GAAP. Notwithstanding the foregoing,
the amounts referred to in clauses (a) and (b) of the preceding sentence with
respect to Restricted Subsidiaries shall only be added to (deducted from)
Consolidated Net Income to compute Consolidated Cash Flow to the extent (and in
the same proportion) that the Net Income of such Restricted Subsidiary was
included in calculating the Consolidated Net Income of such Person and only if
a corresponding amount would be permitted at the date of determination to be
paid as a dividend to the Company by such Restricted Subsidiary without direct
or indirect restriction pursuant to the terms of its charter and by-laws and
all agreements, instruments, judgments, decrees, orders, statutes, rules and
governmental regulations applicable to such Restricted Subsidiary or its
stockholders.
4
<PAGE> 12
"Consolidated Indebtedness" means, with respect to any Person
as of any date of determination, the sum, without duplication, of (i) the total
amount of Indebtedness of such Person and its Restricted Subsidiaries, plus
(ii) the aggregate liquidation value of all Disqualified Stock (and in the case
of a Restricted Subsidiary of the Company, preferred stock other than preferred
stock held by the Company or any of its Restricted Subsidiaries) of such
Person, in each case, determined on a consolidated basis in accordance with
GAAP.
"Consolidated Interest Expense" means, with respect to any
Person for any period, the sum, without duplication, of (i) the consolidated
interest expense of such Person and its Restricted Subsidiaries for such
period, whether paid or accrued (including, without limitation, amortization of
debt issuance costs and original issue discount, non-cash interest payments,
the interest component of any deferred payment obligations, the interest
component of all payments associated with Capital Lease Obligations, imputed
interest with respect to Attributable Debt, interest payments in respect of
Indebtedness of another Person that is Guaranteed by such Person or one of its
Restricted Subsidiaries or secured by a Lien on assets of such Person or one of
its Restricted Subsidiaries, commissions, discounts and other fees and charges
incurred in respect of letter of credit or bankers' acceptance financings, and
net payments (if any) pursuant to Hedging Obligations), (ii) the consolidated
interest expense of such Person and its Restricted Subsidiaries that was
capitalized during such period, in each case, on a consolidated basis and in
accordance with GAAP, and (iii) the product of (A) the aggregate amount of
dividends paid (to the extent not accrued in a prior period) or accrued on
Disqualified Stock of the Company and its Restricted Subsidiaries or preferred
stock of the Company's Restricted Subsidiaries, to the extent such Disqualified
Stock or preferred stock is owned by Persons other than the Company and its
Restricted Subsidiaries and (B) a fraction, the numerator of which is one and
the denominator of which is one minus the then current combined federal, state,
local and foreign statutory tax rate of such Person, expressed as a decimal.
"Consolidated Net Income" means, with respect to any Person
for any period, the aggregate of the Net Income of such Person and its
Subsidiaries for such period, on a consolidated basis, determined in accordance
with GAAP; provided that (i) the Net Income (but not loss) of any Person that
is not a Restricted Subsidiary or that is accounted for by the equity method of
accounting shall be included only to the extent of the amount of dividends or
distributions paid in cash to the specified Person as to which Consolidated Net
Income is being calculated, (ii) the Net Income of any Restricted Subsidiary
shall be excluded to the extent that the declaration or payment of dividends or
similar distributions by such Restricted Subsidiary of such Net Income would
not be permitted at the date of determination directly or indirectly, pursuant
to the terms of its charter and by-laws and all agreements, instruments,
judgments, decrees, orders, statutes, rules or governmental regulations
applicable to such Restricted Subsidiary or its stockholders, (iii) the Net
Income (if positive) of any Person acquired in a pooling of interests
transaction for any period prior to the date of such acquisition shall be
excluded, and (iv) the cumulative effect of a change in accounting principles
shall be excluded.
"Consolidated Net Worth" means, with respect to any Person as
of any date, the sum of (i) the consolidated equity of the common equity
holders of such Person and its consolidated Restricted Subsidiaries as of such
date plus (ii) the respective amounts reported on such Person's
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<PAGE> 13
balance sheet as of such date with respect to any series of preferred equity
(other than Disqualified Stock) that by its terms is not entitled to the
payment of dividends or other distributions, unless such dividends or other
distributions may be declared and paid only out of net earnings in respect of
the year of such declaration and payment, but only to the extent of any cash
received by such Person upon issuance of such preferred equity, less (x) all
write-ups (other than write-ups resulting from foreign currency translations
and write-ups of tangible assets of a going concern business made within 12
months after the acquisition of such business) subsequent to the Closing Date
in the book value of any asset owned by such Person or a consolidated
Restricted Subsidiary of such Person, (y) all investments as of such date in
Persons that are not Restricted Subsidiaries (except, in each case, Permitted
Investments), and (z) all unamortized debt discount and expense and unamortized
deferred charges as of such date, all of the foregoing determined in accordance
with GAAP.
"Continuing Director" means, as of any date of determination,
any member of the Board of Directors of the Company who (i) was a member of
such Board of Directors on the Closing Date, (ii) was nominated for election or
elected to such Board of Directors with the approval of a majority of the
Continuing Directors who were members of such Board of Directors at the time of
such nomination of election, or (iii) was designated pursuant to the
Stockholders' Agreement to be a member of the Board of Directors by a
stockholder of the Company who was a party to the Stockholders' Agreement as of
the Closing Date if such designation bound all parties to the Stockholders'
Agreement to take all action necessary to cause such individual to be elected
to such Board of Directors.
"Corporate Trust Office of the Trustee" shall be at the
address of the Trustee specified in Section 12.2 hereof or such other address
as to which the Trustee may give notice to the Company.
"Custodian" means any receiver, trustee, assignee, liquidator,
sequestrator, custodian or similar official under any Bankruptcy Law.
"Default" means any event that is or with the passage of time
or the giving of notice or both would be an Event of Default.
"Definitive Notes" means Notes that are in the form of the
Notes attached hereto as Exhibit A that do not include the paragraph called for
by footnote 1 or the schedule called for by footnote 4 thereof.
"Depositary" means, with respect to the Notes issuable or
issued in whole or in part in global form, the Person specified in Section 2.3
hereof as the Depositary with respect to the Notes, until a successor shall
have been appointed and become such pursuant to the applicable provision of
this Indenture, and, thereafter, "Depositary" shall mean or include such
successor.
"Disqualified Stock" means any Capital Stock that, 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, matures or is
mandatorily redeemable, pursuant to a sinking fund obligation or otherwise,
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<PAGE> 14
or redeemable at the option of the holder thereof, in whole or in part, on or
prior to the date that is 91 days after the date on which the Notes mature.
"Eligible Inventory" means the finished goods, raw materials
and work-in-process of the Company and its Restricted Subsidiaries less any
applicable reserves, each of the foregoing determined in accordance with GAAP.
"Eligible Receivables" means the trade receivables of the
Company and its Restricted Subsidiaries less the allowance for doubtful
accounts, each of the foregoing determined in accordance with GAAP.
"Equity Interests" means Capital Stock and all warrants,
options or other rights to acquire Capital Stock (but excluding any debt
security that is convertible into, or exchangeable for, Capital Stock).
"Equity Investment" means the issuance after the Closing Date
of Capital Stock of the Company (other than Disqualified Stock) to any Person
other than a Subsidiary of the Company in a single transaction or one or more
transactions within a twelve-month period resulting in net cash proceeds to the
Company of at least $30,000,000.
"Exchange Act" means the Securities Exchange Act of 1934, as
amended, and the rules and regulations thereunder.
"Exchange Notes" means the Series B Notes to be issued by the
Company upon the expiration of the Exchange Offer pursuant to the terms of the
Registration Rights Agreement, containing terms identical in all material
respects to the Series A Notes (except that (i) the transfer restrictions
thereon shall be eliminated (other than as may be imposed by state securities
laws) and (ii) there will be no provision for the payment of Liquidated
Damages).
"Exchange Offer" means, subject to the terms of the
Registration Rights Agreement, the offer by the Company to the Holders of the
opportunity to exchange their Series A Notes for Exchange Notes pursuant to a
registration statement filed with the Commission.
"Existing Indebtedness" means Indebtedness of the Company and
its Restricted Subsidiaries in existence on the Closing Date pro forma after
giving effect to the offering and sale of the Series A 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; provided that if such
value exceeds $1,000,000, such determination shall be made in good faith by the
Board of Directors of the Company.
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"GAAP" means generally accepted accounting principles in the
United States of America 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 have been
approved by a significant segment of the accounting profession, which are in
effect on the date of this Indenture.
"Global Note" means a Note that contains the paragraph called
for by footnote 1 and the schedule referred to in footnote 4 to the form of the
Note attached hereto as Exhibit A.
"Government Securities" means direct obligations of, or
obligations fully guaranteed by, or participations in pools consisting solely
of obligations of or obligations guaranteed by, the United States of America
for the payment of which guarantee or obligations the full faith and credit of
the United States of America is pledged.
"Guarantee" means a guarantee (other than by endorsement of
negotiable instruments for collection in the ordinary course of business),
direct or indirect, in any manner (including, without limitation, letters of
credit and reimbursement agreements in respect thereof), of all or any part of
any Indebtedness.
"Hedging Obligations" means, with respect to any Person, the
obligations of such Person under (i) interest or currency exchange rate swap
agreements, interest or currency exchange rate cap agreements and interest or
currency exchange rate collar agreements and (ii) other agreements or
arrangements, in any case, designed to protect such Person against fluctuations
in interest or currency exchange rates (as appropriate, "Interest Rate Hedges"
and "Currency Hedges").
"Holder" or "Securityholder" means a Person in whose name a
Note is registered on the Register.
"Incur" means, with respect to any Indebtedness or other
obligation of any Person, to create, issue, incur (by conversion, exchange or
otherwise), assume, Guarantee or otherwise become liable in respect of such
Indebtedness or other obligation or the recording, as required pursuant to GAAP
or otherwise, of any such Indebtedness or other obligation on the balance sheet
of such Person (and "Incurrence," "Incurred," "Incurrable" and "Incurring"
shall have meanings correlative to the foregoing); provided, however, that a
change in GAAP that results in an obligation of such Person that exists at such
time, and is not theretofore classified as Indebtedness, becoming Indebtedness
shall not be deemed an Incurrence of such Indebtedness.
"Indebtedness" means, with respect to any Person, (a) any
liability of such Person, whether or not contingent (i) for borrowed money, or
under any reimbursement obligation relating to a letter of credit, bankers'
acceptance or note purchase facility; (ii) evidenced by a bond, note, debenture
or similar instrument (including a purchase money obligation); (iii) for the
payment of money relating to a Capital Lease Obligation; (iv) for or pursuant
to Disqualified Stock; (v) for or pursuant to preferred stock of any Restricted
Subsidiary of the Company (other than preferred stock held by the Company or
any of its Restricted Subsidiaries); (vi) representing the balance deferred
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<PAGE> 16
and unpaid of the purchase price of any property or services (except any such
balance that constitutes a trade payable or accrued liability in the ordinary
course of business that is not overdue by more than 90 days or is being
contested in good faith by appropriate proceedings promptly instituted and
diligently conducted); or (vii) under or in respect of Hedging Obligations; (b)
any liability of others described in the preceding clause (a) that such Person
has guaranteed, that is recourse to such Person or that is otherwise its legal
liability, or the payment of which is secured by (or for which the holder of
such liability has an existing right to be secured by) any Lien upon property
owned by such Person, even though such Person has not assumed or become liable
for the payment of such liability; and (c) any amendment, supplement,
modification, deferral, renewal, extension or refunding of any liability of the
types referred to in clauses (a) and (b) above. The amount of any non-interest
bearing or other discount Indebtedness shall be deemed to be the principal
amount thereof that would be shown on the balance sheet of the issuer dated
such date prepared in accordance with GAAP, but such Indebtedness shall be
deemed to have been Incurred only on the date of the original issuance thereof.
"Indenture" means this Indenture, as amended or supplemented
from time to time.
"Initial Subsidiary Guarantor" means HighwayMaster
Corporation, a Delaware corporation.
"Interest Payment Date" means each March 15 and September 15
of each year.
"Investments" means, with respect to any Person, all
investments by such Person in other Persons (including Affiliates) in the forms
of direct or indirect loans (including guarantees of Indebtedness or other
obligations (but excluding endorsements of negotiable instruments for
collection in the ordinary course of business)), advances or capital
contributions (excluding commission, travel and similar advances to directors,
officers and employees made in the ordinary course of business), purchases or
other acquisitions (for consideration) of Indebtedness, Equity Interests or
other securities, together with all items that are or would be classified as
investments on a balance sheet prepared in accordance with GAAP; provided that
an acquisition of Equity Interests or other securities by the Company or any of
its Restricted Subsidiaries for consideration consisting of common equity
securities of the Company shall not be deemed to be an Investment.
"Leverage Ratio" means, with respect to any Person as of any
date of determination (the "Calculation Date"), the ratio of (i) the
Consolidated Indebtedness of such Person as of the Calculation Date to (ii) the
result of the multiplication of the Consolidated Cash Flow of such Person for
the most recent full fiscal quarter ending immediately prior to the Calculation
Date for which internal financial statements are available times four. In the
event that the Company or any of its Restricted Subsidiaries Incurs or redeems
any Indebtedness (other than revolving credit borrowings with respect to which
the related commitment remains outstanding) or issues or redeems Disqualified
Stock subsequent to the commencement of the period for which the Leverage Ratio
is being calculated but prior to the Calculation Date, then the Leverage Ratio
shall be calculated giving pro forma effect to such Incurrence or redemption of
Indebtedness, or such issuance or redemption of Disqualified Stock, as if the
same had occurred at the beginning of the applicable period. For
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<PAGE> 17
purposes of making the computation referred to above, dispositions of all or
substantially all of an operating unit of a business, Investments,
acquisitions, and discontinued operations (as determined in accordance with
GAAP) that have been made by the Company or any of its Restricted Subsidiaries,
including all mergers and consolidations during the quarter reference period or
subsequent to such reference period and on or prior to the Calculation Date,
shall be calculated on a pro forma basis assuming that all such dispositions,
Investments, acquisitions, discontinued operations, mergers and consolidations
(and the reduction of any associated fixed charge obligations and the change in
Consolidated Cash Flow resulting therefrom) had occurred on the first day of
such reference period. If since the beginning of such reference period any
Person (that subsequently became a Restricted Subsidiary or was merged with or
into the Company or any Restricted Subsidiary since the beginning of such
period) shall have made any Investment, acquisition, disposition which
constitutes all or substantially all of an operating unit of a business,
discontinued operation, merger or consolidation that would have required
adjustment pursuant to this definition, the Leverage Ratio shall be calculated
giving pro forma effect thereto for such reference period as if such
Investment, acquisition, disposition, discontinued operation, merger or
consolidation had occurred at the beginning of such reference period. For
purposes of this definition, whenever pro forma effect is to be given to a
transaction, the pro forma calculations shall be made in good faith by a
responsible financial or accounting officer of the Company.
"Lien" means, with respect to any asset, any mortgage, lien,
pledge, charge, security interest or encumbrance of any kind in respect of such
asset, whether or not filed, recorded or otherwise perfected under applicable
law (including any conditional sale or other title retention agreement, and any
lease in the nature thereof) .
"Liquidated Damages" means liquidated damages as defined in
Section 5 of the Registration Rights Agreement.
"Net Income" means, with respect to any Person for any period,
the net income (loss) of such Person for such period, determined in accordance
with GAAP and before any reduction in respect of preferred stock dividends,
excluding, however, (i) any gain (but not loss), together with any related
provision for taxes on such gain (but not loss), realized in connection with
(a) any sales of assets (including, without limitation, dispositions pursuant
to sale and leaseback transactions) other than in the ordinary course of
business or (b) the disposition of any securities by such Person or any of its
Restricted Subsidiaries or the extinguishment of any Indebtedness of such
Person or any of its Restricted Subsidiaries, (ii) any extraordinary or non-
recurring gain (but not loss), together with any related provision for taxes on
such extraordinary or non-recurring gain (but not loss), and (iii) unrealized
foreign exchange gains (but not losses).
"Net Proceeds" means the aggregate cash proceeds received by
the Company or any of its Restricted Subsidiaries in respect of any Asset Sale
(including, without limitation, (i) Cash Equivalents received as consideration
in such Asset Sale, (ii) any cash received upon the disposition of any non-cash
consideration received in such Asset Sale, and (iii) any assumption of
liabilities deemed to constitute "cash" for purposes of Section 4.10), net of
the direct costs relating to such Asset Sale (including, without limitation,
legal, accounting and investment banking fees, and sales
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<PAGE> 18
commissions), any relocation expenses incurred as a result thereof, any taxes
paid or payable by the Company or any of its Restricted Subsidiaries as a
result thereof (after taking into account any available tax credits or
deductions and any tax sharing arrangements), amounts required to be paid to
any Person (other than the Company and its Restricted Subsidiaries) having a
Lien on the assets subject to the Asset Sale, amounts required to be paid to
any Person (other than the Company or any Restricted Subsidiary) owning a
beneficial interest in the assets subject to the Asset Sale, and any reserve
for adjustment in respect of the sale price of such asset or assets established
in accordance with GAAP (provided that the amount of any such reserve shall be
deemed to constitute Net Proceeds at the time such reserve shall have been
released or is not otherwise required to be retained for such purpose).
"Non-Recourse Debt" means Indebtedness (i) as to which neither
the Company nor any of its Restricted Subsidiaries (a) provides credit support
of any kind (including any undertaking, agreement or instrument that would
constitute Indebtedness), (b) is directly or indirectly liable (as a guarantor
or otherwise), or (c) constitutes the lender, (ii) no default with respect to
which (including any rights that the holders thereof may have to take
enforcement action against an Unrestricted Subsidiary) would permit (upon
notice, lapse of time or both) any holder of any other Indebtedness of the
Company or any of its Restricted Subsidiaries to declare a default on such
other Indebtedness or cause the payment thereof to be accelerated or payable
prior to its stated maturity and (iii) as to which the lenders have expressly
waived any recourse which they may have, in law, equity or otherwise, whether
based on misrepresentation, control, ownership or otherwise, to the Company or
any of its Restricted Subsidiaries, including, without limitation, a waiver of
the benefits of the provisions of Section 1111(b) of the Bankruptcy Law.
"Note Custodian" means the Trustee, as custodian with respect
to the Notes in global form, or any successor entity thereto.
"Obligations" means any principal, interest, penalties, fees,
indemnifications, reimbursements, damages and other liabilities payable under
the documentation governing any Indebtedness.
"Officer" means, with respect to any Person, the chief
executive officer, the president, the chief operating officer, the chief
financial officer, the chief accounting officer, the treasurer, any assistant
treasurer, the controller, the secretary, any assistant secretary or any vice-
president of such Person.
"Officers' Certificate" means a certificate signed on behalf
of a Person by two Officers of such Person, one of whom must be the principal
executive officer, the principal financial officer or the principal accounting
officer of such Person, that meets the requirements of Section 12.5 hereof.
"Opinion of Counsel" means an opinion from legal counsel who
is reasonably acceptable to the Trustee, that meets the requirements of Section
12.5 hereof. The counsel may be counsel to the Company, any Subsidiary of the
Company or the Trustee.
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"Permitted Holders" means (i) Carlyle HighwayMaster Investors,
L.P., Carlyle HighwayMaster Investors II, L.P., H.M. Rana Investments Limited,
TC Group, L.L.C., Mark D. Ein, Chase Manhattan Investment Holdings, Inc.,
Archery Partners, Clipper/Merban, L.P., Clipper/Merchant Partners, L.P.,
Clipper Capital Associates, L.P., Erin Mills International Investment
Corporation, The Erin Mills Investment Corporation, The Erin Mills Development
Corporation, William C. Kennedy, Jr., Donald M. Kennedy, William C. Saunders,
Robert S. Folsom, Robert T. Hayes, and Southwestern Bell Wireless Holdings,
Inc., (ii) in the case of each Permitted Holder described in clause (i) that is
an entity, the beneficial owners of such entity as of the Closing Date, and
(iii) all Affiliates of Permitted Holders described in clauses (i) and (ii)
(provided that, for purposes of this clause (iii) only, the proviso set forth
in the definition of the term "Affiliate" shall be deemed modified to provide
that beneficial ownership of 50% or more of the voting securities of a Person
shall constitute, and shall be necessary to constitute, control).
"Permitted Investments" means (i) any Investment in the
Company or in a Restricted Subsidiary of the Company; (ii) any Investment in
Cash Equivalents; (iii) any Investment by the Company or any of its Restricted
Subsidiaries in a Person engaged in the Telecommunications Business if, as a
result of such Investment, (A) such Person becomes a Restricted Subsidiary of
the Company or (B) such Person is merged, consolidated or amalgamated with or
into, or transfers or conveys substantially all of its assets to, or is
liquidated into, the Company or a Restricted Subsidiary of the Company; (iv)
any Investment in Government Securities in accordance with the provisions of
the Pledge Agreement; (v) Investments the payment for which consists
exclusively of Equity Interests (excluding Disqualified Stock) of the Company;
(vi) Investments in shares of money market mutual or similar funds having
assets in excess of $500,000,000; and (vii) Investments in negotiable
instruments held for collection in the ordinary course of business and lease,
utility and similar deposits.
"Permitted Liens" means (i) Liens securing Permitted
Indebtedness Incurred pursuant to clause (i) of the definition of such term;
(ii) Liens in favor of the Company and/or its Restricted Subsidiaries; (iii)
Liens on property of a Person existing at the time such Person is merged into
or consolidated with the Company or any of its Restricted Subsidiaries,
provided that such Liens were in existence prior to the contemplation of such
merger or consolidation and do not extend to any assets other than those of the
Person merged into or consolidated with the Company or any such Restricted
Subsidiary; (iv) Liens securing any Acquired Indebtedness and which exist at
the time of acquisition thereof by the Company or any of its Restricted
Subsidiaries, provided that such Liens were in existence prior to the
contemplation of such acquisition; (v) Liens arising under this Indenture in
favor of the Trustee; (vi) Liens existing on the Closing Date; (vii) Liens
arising by reason of (1) any judgment, decree or order of any court not
constituting an Event of Default; (2) taxes not yet delinquent or which are
being contested in good faith by appropriate proceedings which suspend the
collection thereof, promptly instituted and diligently conducted, and for which
adequate reserves have been established to the extent required by GAAP; (3)
security for payment of workers' compensation or other insurance; (4) good
faith deposits in connection with tenders, leases and contracts (other than
contracts for the payment of money), bids, licenses, performance or similar
bonds and other obligations of a like nature, in the ordinary course of
business; (5) zoning restrictions, easements, licenses, reservations,
provisions, covenants, conditions, waivers, restrictions
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<PAGE> 20
on the use of property or minor irregularities of title (and with respect to
leasehold interests, mortgages, obligations, Liens and other encumbrances
incurred, created, assumed or permitted to exist and arising by, through or
under a landlord or owner of the leased property, with or without consent of
the lessees), none of which materially impairs the use of any parcel of
property material to the operation of the business of the Company or any
Restricted Subsidiary or the value of such property for the purpose of such
business; (6) deposits to secure public or statutory obligations or in lieu of
surety or appeal bonds; (7) surveys, exceptions, title defects, encumbrances,
easements, reservations of, or rights of others for, rights of way, sewers,
electric lines, telegraph or telephone lines and other similar purposes or
zoning or other restrictions as to the use of real property not interfering
with the ordinary conduct of the business of the Company or any of its
Restricted Subsidiaries; or (8) operation of law or statute and incurred in the
ordinary course of business, including without limitation, those in favor of
mechanics, materialmen, suppliers, laborers or employees, and, if securing sums
of money, for sums which are not yet delinquent or are being contested in good
faith by appropriate proceedings which suspend the collection thereof, promptly
instituted and diligently conducted, and for which adequate reserves have been
established to the extent required by GAAP; (viii) Liens created by the Pledge
Agreement; (ix) Liens resulting from the deposit of funds or Government
Securities in trust for the purpose of decreasing or defeasing Indebtedness of
the Company and its Restricted Subsidiaries so long as such deposit of funds or
Government Securities and such decreasing or defeasing of Indebtedness are
permitted under Section 4.7; (x) Liens securing obligations in a maximum
aggregate amount not to exceed $15,000,000 and consisting exclusively of (1)
Permitted Indebtedness Incurred pursuant to clause (vii) of Section 4.9(b) and
(2) Attributable Debt that could have been Incurred as a Capital Lease
Obligation pursuant to clause (vii) of Section 4.9(b); provided that such Liens
attach only to assets subject to such capital lease or sale or leaseback
transaction and other assets directly related thereto; (xi) Liens constituting
licenses of intellectual property rights not otherwise prohibited under the
terms of this Indenture; and (xii) any extension, renewal or replacement (or
successive extensions, renewals or replacements), in whole or in part, of any
Lien referred to in the foregoing clauses (iii), (iv) and (vi) above; provided
that the principal amount of the Indebtedness secured thereby shall not exceed
the principal amount of Indebtedness secured thereby immediately prior to the
time of such extension, renewal or replacement, and that such extension,
renewal or replacement Lien shall be limited to all or a part of the property
that secured the Lien so extended, renewed or replaced (plus improvements on
such property).
"Permitted Refinancing Indebtedness" means any Indebtedness of
the Company or any of its Restricted Subsidiaries issued in exchange for, or
the net proceeds of which are used by such Person to extend, refinance, renew,
replace, defease or refund other Indebtedness of such Person ("Old
Indebtedness"); provided that: (i) the principal amount (or accreted value, if
applicable) of such Permitted Refinancing Indebtedness does not exceed the
principal amount (or accreted value, if applicable) of the Old Indebtedness;
(ii) such Permitted Refinancing Indebtedness has a final maturity date equal to
or later than the final maturity date of, and has a Weighted Average Life to
Maturity equal to or greater than the Weighted Average Life to Maturity of, the
Old Indebtedness; (iii) if the Old Indebtedness is subordinated in right of
payment to the Notes, such Permitted Refinancing Indebtedness is subordinated
in right of payment to the Notes on terms at least as favorable to the Holders
as those contained in the documentation governing the Old Indebtedness;
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<PAGE> 21
(iv) such Permitted Refinancing Indebtedness is on terms that are no more
restrictive, as a whole, than those governing such Old Indebtedness; and (v)
such Permitted Refinancing Indebtedness is Incurred only by the Company or the
Restricted Subsidiary that is the obligor on the Old Indebtedness.
"Permitted Telecommunications Investments" means Investments
made by the Company and its Restricted Subsidiaries in Persons (including
Unrestricted Subsidiaries) engaged as a primary business in the
Telecommunications Business.
"Person" means any individual, corporation, limited liability
company, partnership, joint venture, association, joint-stock company, trust,
unincorporated organization or government or any agency or political
subdivision thereof.
"Pledge Account" means an account established with the Trustee
pursuant to the terms of the Pledge Agreement for the deposit of the Pledged
Securities purchased by the Company with a portion of the proceeds from the
sale of the Notes.
"Pledge Agreement" means the Pledge and Security Agreement,
dated as of the Closing Date, by and among the Company, the Trustee and the
Pledge Agent named therein, governing the disbursement of funds from the Pledge
Account, as such may be amended from time to time pursuant to the terms
thereof.
"Pledged Securities" means the securities purchased with a
portion of the proceeds from the sale of the Notes, which shall consist of
Government Securities, to be deposited in the Pledge Account.
"Registration Rights Agreement" means the Exchange and
Registration Rights Agreement, dated as of the Closing Date, by and among the
Company, the Initial Subsidiary Guarantor and the other parties thereto, as
such agreement may be amended from time to time pursuant to the terms thereof.
"Responsible Officer," when used with respect to the Trustee,
means any officer within the Corporate Trust Administration of the Trustee (or
any successor group of the Trustee) or any other officer of the Trustee
customarily performing functions similar to those performed by any of the above
designated officers and also means, with respect to a particular corporate
trust matter, any other officer to whom such matter is referred because of his
knowledge of and familiarity with the particular subject.
"Restricted Investment" means an Investment other than a
Permitted Investment.
"Restricted Subsidiary" of a Person means any Subsidiary of
such Person that is not an Unrestricted Subsidiary.
"Securities Act" means the Securities Act of 1933, as amended.
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<PAGE> 22
"Stockholders' Agreement" means that certain Amended and
Restated Stockholders Agreement, dated as of September 27, 1996, by and among
the Company and certain stockholders of the Company, as in effect on the
Closing Date.
"Subordinated Indebtedness" means Indebtedness of the Company
(or a Restricted Subsidiary) that is expressly subordinated in right of payment
to the Notes (or a Subsidiary Guarantee, as appropriate).
"Subsidiary" means, with respect to any Person, (i) any
corporation, association or other business entity of which more than 50% of the
total voting power of shares of Capital Stock entitled (without regard to the
occurrence of any contingency) to vote in the election of directors, managers
or trustees thereof is at the time owned or controlled, directly or indirectly,
by such Person or one or more of the other Subsidiaries of such Person (or a
combination thereof) and (ii) any partnership (a) the sole general partner or
the managing general partner of which is such Person or a Subsidiary of such
Person or (b) the only general partners of which are such Person or of one or
more Subsidiaries of such Person (or any combination thereof). Unless indicated
to the contrary, "Subsidiary" refers to a Subsidiary of the Company.
"Subsidiary Guarantee" means an unconditional guaranty of the
Notes and this Indenture given by any Restricted Subsidiary or other Person
pursuant to the terms of this Indenture or any supplement hereto.
"Subsidiary Guarantors" means (i) as of the Closing Date, the
Initial Subsidiary Guarantor, and (ii) thereafter, any other Restricted
Subsidiary that becomes a guarantor of the Notes in compliance with the
provisions of this Indenture and executes a supplemental indenture agreeing to
be bound by the terms of this Indenture; in each case until such time, if any,
as such Restricted Subsidiary is released from the Subsidiary Guarantee as
permitted by this Indenture.
"Telecommunications Assets" means assets or working capital
used or useful in the conduct or furtherance of a Telecommunications Business.
"Telecommunications Business" means the business of (i)
developing, implementing, marketing and distributing voice, data or position
location solutions for mobile communications markets, or (ii) evaluating,
participating in or pursuing any other activity or opportunity that is related
to those identified in clause (i) above.
"TIA" means the Trust Indenture Act of 1939 (15 U.S.C.
Sections 77aaa-77bbbb) and the rules and regulations thereunder, as in effect
on the date on which this Indenture is qualified under the TIA (except as
provided in Sections 9.1(f) and 9.3 hereof).
"Transfer Restricted Securities" means securities that bear or
are required to bear the legend set forth in Section 2.6 hereof.
"Trustee" means the party named as such above until a
successor replaces it in
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<PAGE> 23
accordance with the applicable provisions of this Indenture and thereafter
means the successor serving hereunder.
"Unrestricted Subsidiary" means any Subsidiary that is
designated by the Board of Directors of the Company as an Unrestricted
Subsidiary pursuant to a Board Resolution of the Company, but only to the
extent that such Subsidiary (i) has no Indebtedness other than Non-Recourse
Debt, (ii) does not own any Equity Interests of, or own or hold any Lien on,
any property of the Company or any Restricted Subsidiary of the Company (other
than any Subsidiary of the Subsidiary to be so designated), (iii) has not, and
the Subsidiaries of such Subsidiary have not at the time of designation, and
does not thereafter, Incur any Indebtedness pursuant to which the lender has
recourse to any of the assets of the Company or any of its Restricted
Subsidiaries, (iv) is not party to any material agreement, contract,
arrangement or understanding with the Company or any of its Restricted
Subsidiaries unless either (a) the terms of any such agreement, contract,
arrangement or understanding are no less favorable to the Company or such
Restricted Subsidiary than those that might be obtained at the time from
Persons who are not Affiliates of the Company, or (b) such agreement, contract,
arrangement or understanding is a license of intellectual property by the
Company or a Restricted Subsidiary of the Company to an Unrestricted Subsidiary
of the Company and less than all of the outstanding Capital Stock or other
ownership interests of such Unrestricted Subsidiary (other than directors'
qualifying shares) is owned by the Company and its Restricted Subsidiaries, (v)
is a Person with respect to which neither the Company nor any of its Restricted
Subsidiaries has any direct or indirect obligation (a) to subscribe for
additional Equity Interests or (b) to maintain or preserve such Person's
financial condition or to cause such Person to achieve any specified levels of
operating results, (vi) has not guaranteed or otherwise directly or indirectly
provided credit support for any Indebtedness of the Company or any of its
Restricted Subsidiaries and (vii) has at least one director on its board of
directors that is not a director or executive officer of the Company or any of
its Restricted Subsidiaries and has at least one executive officer that is not
a director or executive officer of the Company or any of its Restricted
Subsidiaries. Any such designation by the Board of Directors of the Company
shall be evidenced to the Trustee by filing with the Trustee a certified copy
of the Board Resolution of the Company giving effect to such designation and an
Officers' Certificate certifying that (i) such designation complied with the
foregoing conditions, (ii) such designation was permitted by Section 4.7, (iii)
immediately after giving effect to such designation, the Company could Incur at
least $1.00 of additional Indebtedness pursuant to the Leverage Ratio test set
forth in Section 4.9(a), and (iv) no Default or Event of Default would be in
existence immediately following such designation. If, at any time, any
Unrestricted Subsidiary would fail to meet the foregoing requirements as an
Unrestricted Subsidiary, it shall thereafter cease to be an Unrestricted
Subsidiary for purposes of this Indenture and any Indebtedness, Liens or
agreements of such Subsidiary shall be deemed to be Incurred or created by a
Restricted Subsidiary of the Company as of such date (and, if such
Indebtedness, Liens or agreements are not permitted to be Incurred or created
as of such date under the covenants described in Article IV of this Indenture,
the Company shall be in default of such covenants). The Board of Directors of
the Company may at any time designate any Unrestricted Subsidiary to be a
Restricted Subsidiary, provided that such designation shall be deemed to be an
Incurrence of Indebtedness and a creation of Liens and agreements by a
Restricted Subsidiary of the Company of any outstanding Indebtedness, Liens or
agreements of such Unrestricted Subsidiary and such designation shall only
16
<PAGE> 24
be permitted if (i) such Indebtedness, Liens and agreements are permitted under
the covenants described in Article IV of this Indenture, and (ii) no Default or
Event of Default would be in existence immediately following such designation.
"Weighted Average Life to Maturity" means, when applied to any
Indebtedness at any date, the number of years obtained by dividing (i) the sum
of the products obtained by multiplying (a) the amount of each then remaining
installment, sinking fund, serial maturity or other required payments of
principal, including payment at final maturity, in respect thereof, by (b) the
number of years (calculated to the nearest one-twelfth) that will elapse
between such date and the making of such payment, by (ii) the then outstanding
principal amount of such Indebtedness.
"Wholly Owned Restricted Subsidiary" of any Person means a
Restricted Subsidiary of such Person all of the outstanding Capital Stock or
other ownership interests of which (other than directors' qualifying shares)
shall at the time be owned by such Person or by one or more Wholly Owned
Restricted Subsidiaries of such Person.
SECTION 1.2. OTHER DEFINITIONS.
<TABLE>
<CAPTION>
Defined in
Term Section
---- -------
<S> <C>
"Affiliate Transaction" . . . . . . . . . . . . . . . . . . . 4.11
"Asset Sale Offer" . . . . . . . . . . . . . . . . . . . . . . 4.10(b)
"Change of Control Offer" . . . . . . . . . . . . . . . . . . 4.14(a)
"Change of Control Payment" . . . . . . . . . . . . . . . . . 4.14(a)
"Change of Control Payment Date" . . . . . . . . . . . . . . . 4.14(b)
"Covenant Defeasance" . . . . . . . . . . . . . . . . . . . . 8.3
"Discharge" . . . . . . . . . . . . . . . . . . . . . . . . . 8.5
"DTC" . . . . . . . . . . . . . . . . . . . . . . . . . . . . 2.1(b)
"DTC Participants" . . . . . . . . . . . . . . . . . . . . . . 2.1(b)
"Event of Default" . . . . . . . . . . . . . . . . . . . . . . 6.1
"Legal Defeasance" . . . . . . . . . . . . . . . . . . . . . . 8.2
"Paying Agent" . . . . . . . . . . . . . . . . . . . . . . . . 2.3
"Permitted Indebtedness" . . . . . . . . . . . . . . . . . . . 4.9(b)
"Register" . . . . . . . . . . . . . . . . . . . . . . . . . . 2.3
"Registrar" . . . . . . . . . . . . . . . . . . . . . . . . . 2.3
"Restricted Payments" . . . . . . . . . . . . . . . . . . . . 4.7(a)
"SEC" . . . . . . . . . . . . . . . . . . . . . . . . . . . . 1.1 ("Commission")
"Separation Date" . . . . . . . . . . . . . . . . . . . . . . 2.6(k)
"Unit Legend" . . . . . . . . . . . . . . . . . . . . . . . . 2.6(k)
"Units" . . . . . . . . . . . . . . . . . . . . . . . . . . . 2.6(k)
"Warrants" . . . . . . . . . . . . . . . . . . . . . . . . . . 2.6(k)
</TABLE>
17
<PAGE> 25
SECTION 1.3. INCORPORATION BY REFERENCE OF TRUST INDENTURE ACT.
Whenever this Indenture refers to a provision of the TIA, the
provision is incorporated by reference in and made a part of this Indenture.
The following TIA terms used in this Indenture have the
following meanings:
"indenture securities" means the Notes;
"indenture security holder" means a Holder of a Note;
"indenture to be qualified" means this Indenture;
"indenture trustee" or "institutional trustee" means the
Trustee;
"obligor" on the Notes means the Company and any successor
obligor upon the Notes.
All other terms used in this Indenture that are defined by the
TIA, defined by TIA reference to another statute or defined by SEC rule under
the TIA have the meanings so assigned to them.
SECTION 1.4. RULES OF CONSTRUCTION.
Unless the context otherwise requires:
(a) a term has the meaning assigned to it;
(b) an accounting term not otherwise defined has the
meaning assigned to it in accordance with GAAP;
(c) "or" is not exclusive;
(d) words in the singular include the plural, and in the
plural include the singular;
(e) provisions apply to successive events and transactions;
(f) references to sections of or rules under the Exchange
Act or the Securities Act shall be deemed to include substitute,
replacement of successor sections or rules adopted by the SEC from time to
time; and
(g) "herein," "hereof" and other words or similar import
refer to this Indenture as a whole (as amended or supplemented from time
to time) and not to any particular Article, Section or other subdivision.
18
<PAGE> 26
ARTICLE 2
THE NOTES
SECTION 2.1. FORM AND DATING.
(a) General Form of Notes. The Notes and the Trustee's
certificate of authentication shall be substantially in the form of Exhibit A
hereto, which Exhibit is part of this Indenture. The Notes may have notations,
legends or endorsements required by law, stock exchange rule or usage. Each
Note shall be dated the date of its authentication. The Notes shall be issued
only in registered form without coupons and only in minimum denominations of
$1,000 and integral multiples thereof. The terms and provisions contained in
the Notes shall constitute, and are hereby expressly made, a part of this
Indenture and the Company and the Trustee, by their execution and delivery of
this Indenture, expressly agree to such terms and provisions and to be bound
thereby. Notes offered and sold in reliance on Rule 144A under the Securities
Act or outside of the United States to a non-U.S. Person in reliance on
Regulation S under the Securities Act will initially be issued only in the form
of one or more Global Notes. Notes offered and sold in reliance on any other
exemption from registration under the Securities Act will be issued only in the
form of Definitive Notes. Global Notes shall be substantially in the form of
Exhibit A attached hereto (including the text and schedule called for by
footnotes 1 and 4 thereto). Definitive Notes shall be substantially in the
form of Exhibit A attached hereto (excluding the text and schedule called for
by footnotes 1 and 4 thereto). Global Notes or Definitive Notes issued as
Exchange Notes will not include the legend called for by footnote 2 of Exhibit
A. Global Notes or Definitive Notes issued after the Separation Date will not
include the legend called for by footnote 3 of Exhibit A.
(b) Form of Global Notes. Each Global Note (i) shall
represent such portion of the outstanding Notes as shall be specified therein,
(ii) shall provide that it shall represent the aggregate amount of outstanding
Notes from time to time endorsed thereon and that the aggregate amount of
outstanding Notes represented thereby may from time to time be reduced or
increased, as appropriate, to reflect exchanges and redemptions, (iii) shall be
registered in the name of the Depositary or its nominee, duly executed by the
Company and authenticated by the Trustee as provided herein, for credit to the
respective accounts of the Holders (or such accounts as they may direct) at the
Depositary, (iv) shall be delivered by the Trustee or its Agent to the
Depositary or a Note Custodian pursuant to the Depositary's instructions and
(v) shall bear a legend substantially to the following effect:
"Unless this certificate is presented by an authorized representative
of The Depository Trust Company, a New York corporation ("DTC"), New
York, New York, to the Company or its agent for registration of
transfer, exchange or payment, and any certificate issued is
registered in the name of Cede & Co. or such other name as is
required by an authorized representative of DTC (and any payment
hereon is made to Cede & Co. or to such other entity as is requested
by an authorized representative of DTC), ANY TRANSFER, PLEDGE OR
OTHER USE HEREOF FOR VALUE OR OTHERWISE BY OR TO ANY PERSON IS
WRONGFUL inasmuch as the registered owner hereof, Cede & Co., has an
interest herein."
19
<PAGE> 27
Members of, or participants in, the Depositary ("DTC Participants") shall have
no rights under this Indenture with respect to any Global Note held on their
behalf by the Depositary, and the Depositary may be treated by the Company, the
Trustee, and any agent of the Company or the Trustee as the absolute owner of
such Global Note for all purposes whatsoever. Notwithstanding the foregoing,
nothing herein shall prevent the Company, the Trustee, or any agent of the
Company or the Trustee from giving effect to any written certification, proxy
or other authorization furnished to the Depositary or impair, as between the
Depositary and its agent members, the operation of customary practices
governing the exercise of the rights of a Holder of any Note.
Any endorsement of a Global Note to reflect the amount of any
increase or decrease in the amount of outstanding Notes represented thereby
shall be made by the Trustee or the Note Custodian, at the direction of the
Trustee, in accordance with instructions given by the Holder thereof as
required by Section 2.6 hereof.
(c) Form of Definitive Notes. Definitive Notes may be
produced in any manner determined by the Officers of the Company executing such
Notes, as evidenced by their execution of such Notes. The Trustee must
register Definitive Notes so issued in the name of, and cause the same to be
delivered to, such Person (or its nominee). Except as provided in this Section
2.1 or Section 2.6, any Person having a beneficial interest in the Global Note
may not exchange such beneficial interest for fully certificated Definitive
Notes in duly registered form.
(d) Provisions Applicable to Forms of Notes. The Notes
may also have such additional provisions, omissions, variations or
substitutions as are not inconsistent with the provisions of this Indenture,
and may have such letters, numbers or other marks of identification and such
legends or endorsements placed thereon as may be required to comply with this
Indenture, any Applicable Law or with any rules made pursuant thereto or with
the rules of any securities exchange or governmental agency or as may be
determined consistently herewith by the Officers of the Company executing such
Notes, as conclusively evidenced by their execution of such Notes. All Notes
shall be otherwise substantially identical except as provided herein.
Subject to the provisions of this Article 2, a registered
Holder of a beneficial interest in a Global Note may grant proxies and
otherwise authorize any Person to take any action that a Holder is entitled to
take under this Indenture or the Notes.
SECTION 2.2. EXECUTION AND AUTHENTICATION.
An Officer of the Company shall sign the Notes for the
Company by manual or facsimile signature. The Company's seal may be reproduced
on the Notes and may be in facsimile form.
If an Officer of the Company whose signature is on a Note no
longer holds that office at the time a Note is authenticated, the Note shall
nevertheless be valid.
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<PAGE> 28
A Note shall not be valid or obligatory for any purpose or
entitled to the benefits of this Indenture until authenticated by the manual
signature of the Trustee or its authenticating agent. The signature shall be
conclusive evidence that the Note has been authenticated under this Indenture.
The Trustee shall, upon the delivery to the Trustee of a
written order of the Company signed by two Officers, from time to time,
authenticate Notes for original issue up to an aggregate principal amount of
$125,000,000. The aggregate principal amount of Notes outstanding at any time
may not exceed such amount except as provided in Section 2.7 hereof.
The Trustee may appoint an authenticating agent to
authenticate Notes. An authenticating agent may authenticate Notes whenever
the Trustee may do so. Each reference in this Indenture to authentication by
the Trustee includes authentication by such agent. An authenticating agent has
the same rights as an Agent to deal with the Company or an Affiliate of the
Company.
SECTION 2.3. TRUSTEE, REGISTRAR AND PAYING AGENT.
The Company shall maintain an office or agency where Notes may
be presented for registration of transfer or for exchange ("Registrar") and an
office or agency where Notes may be presented for payment ("Paying Agent").
The Registrar shall keep a register ("Register") of the Notes and of their
transfer and exchange. The Company may also from time to time appoint one or
more co-registrars and one or more additional paying agents. The term
"Registrar" includes any co-registrar and the term "Paying Agent" includes any
additional paying agent. The Company may change any Paying Agent or Registrar
upon notice to the Holders. The Company shall notify the Trustee in writing of
the name and address of any Agent not a party to this Indenture. If the
Company fails to appoint or maintain another entity as Registrar or Paying
Agent, the Trustee shall act, subject to the last paragraph of this Section
2.3, as such. The Company or any of its Subsidiaries may act as Paying Agent
or Registrar; provided, however, that none of the Company, its Subsidiaries or
the Affiliates of the foregoing shall act (i) as Paying Agent in connection
with any redemption, offer to purchase, discharge or defeasance, as otherwise
specified in this Indenture, and (ii) as Paying Agent or Registrar if a Default
or Event of Default has occurred and is continuing.
The Company hereby appoints Texas Commerce Bank National
Association, at its Corporate Trust Office, as the Trustee hereunder and Texas
Commerce Bank National Association, hereby accepts such appointment. The
Trustee shall have the powers and authority granted to and conferred upon it in
the Notes and hereby and such further powers and authority to act on behalf of
the Company as may be mutually agreed upon by the Company and the Trustee, and
the Trustee shall keep a copy of this Indenture available for inspection during
normal business hours at its Corporate Trust Office.
The Company initially appoints DTC to act as Depositary with
respect to the Global Notes.
The Company initially appoints the Trustee to act as the
Registrar and Paying Agent and to act as Note Custodian with respect to the
Global Notes.
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<PAGE> 29
All of the terms and provisions with respect to such powers
and authority contained in the Notes are subject to and governed by the terms
and provisions hereof.
The Trustee may resign as Registrar or Paying Agent upon 30
days prior written notice to the Company.
SECTION 2.4. PAYING AGENT TO HOLD MONEY IN TRUST.
The Company shall require each Paying Agent other than the
Trustee to agree in writing that the Paying Agent will hold in trust for the
benefit of the Holders and the Trustee all money held by the Paying Agent for
the payment of principal of, premium, if any, interest and Liquidated Damages,
if any, on, the Notes, and shall notify the Trustee of any default by the
Company in making any such payment. While any such default continues, the
Trustee may require a Paying Agent to pay all money held by it to the Trustee.
The Company at any time may require a Paying Agent to pay all money held by it
to the Trustee. Upon payment of all such money over to the Trustee, the Paying
Agent (if other than the Company or a Subsidiary) shall have no further
liability for the money. If the Company or a Subsidiary acts as Paying Agent,
it shall segregate and hold in a separate trust fund for the benefit of the
Holders all money held by it as Paying Agent. Upon any bankruptcy or
reorganization proceedings relating to the Company, the Trustee shall serve as
Paying Agent for the Notes.
SECTION 2.5. HOLDER LISTS.
The Trustee shall preserve in as current a form as is
reasonably practicable to it the most recent list available to it of the names
and addresses of all Holders and, after the consummation of the Exchange Offer,
shall otherwise strictly comply with TIA Section 312(a). If the Trustee is
not the Registrar, the Company shall furnish to the Trustee at least ten
Business Days before each Interest Payment Date and at such other times as the
Trustee may request in writing, a list in such form and as of such date as the
Trustee may require of the names and addresses of the Holders of Notes and,
after the consummation of the Exchange Offer, the Company shall otherwise
strictly comply with TIA Section 312(a).
SECTION 2.6. TRANSFER AND EXCHANGE.
(a) Transfer and Exchange of Definitive Notes. If
Definitive Notes are presented by a Holder to the Registrar with a request:
(x) to register the transfer of the Definitive
Notes; or
(y) to exchange such Definitive Notes for an
equal principal amount of Definitive Notes of other authorized
denominations,
the Registrar shall register the transfer or make the exchange as requested if
its requirements for such transactions are met; provided, however, that the
Definitive Notes presented or surrendered for
22
<PAGE> 30
register of transfer or exchange:
(i) shall be duly endorsed or accompanied by a
written instruction of transfer in form satisfactory to the
Registrar duly executed by such Holder or by such Holder's
attorney, duly authorized in writing; and
(ii) in the case of a Definitive Note that is a
Transfer Restricted Security, such request shall be
accompanied by the following additional information and
documents, as applicable:
(A) if such Transfer Restricted
Security is being delivered to the Registrar
by a Holder for registration in the name of
such Holder, without transfer, a
certification to that effect from such Holder
(in substantially the form of Exhibit B
hereto);
(B) if such Transfer Restricted
Security is being transferred (1) to a
"qualified institutional buyer" (as defined
in Rule 144A under the Securities Act) in
accordance with Rule 144A under the
Securities Act or (2) pursuant to an
effective registration statement under the
Securities Act, a certification to that
effect (in substantially the form of Exhibit
B hereto);
(C) if such Transfer Restricted
Security is being transferred to an
institutional "accredited investor" within
the meaning of Rule 501(a)(1), (2), (3) or
(7) under the Securities Act pursuant to a
private placement exemption from the
registration requirements of the Securities
Act (and based on an opinion of counsel if
the Company so requests in the case of a
transfer of Notes with an aggregate principal
amount of $100,000 or less), a certification
to that effect (in substantially the form of
Exhibit B hereto) and a certification from
the applicable transferee;
(D) if such Transfer Restricted
Security is being transferred pursuant to an
exemption from registration in accordance
with Rule 904 under the Securities Act, a
certification to that effect (in
substantially the form of Exhibit B hereto);
or
(E) if such Transfer Restricted
Security is being transferred in reliance on
another exemption from the registration
requirements of the Securities Act (and based
on an opinion of counsel if the Company so
requests) a certification to that effect (in
substantially the form of Exhibit B hereto).
(b) Restrictions on Transfer of a Definitive Note for a
Beneficial Interest in a
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<PAGE> 31
Global Note. A Definitive Note may not be exchanged for a beneficial interest
in a Global Note except upon satisfaction of the requirements set forth below.
Upon receipt by the Trustee of a Definitive Note, duly endorsed or accompanied
by appropriate instruments of transfer, in form satisfactory to the Trustee,
together with:
(i) if such Definitive Note is a Transfer
Restricted Security, a certification from the Holder
thereof (in substantially the form of Exhibit B hereto) to
the effect that such Definitive Note is being transferred
by such Holder either (A) to a "qualified institutional
buyer" (as defined in Rule 144A under the Securities Act)
in accordance with Rule 144A under the Securities Act, (B)
outside the United States to a foreign person in a
transaction meeting the requirements of Rule 904 under the
Securities Act or (C) to an institutional "accredited
investor" within the meaning of Rule 501(a)(1), (2), (3) or
(7) under the Securities Act pursuant to a private
placement exemption from the registration requirements of
the Securities Act (and based on an opinion of counsel if
the Company so requests in the case of a transfer of Notes
with an aggregate principal amount of $100,000 or less) who
wishes to take delivery thereof in the form of a beneficial
interest in a Global Note; and
(ii) whether or not such Definitive Note is a
Transfer Restricted Security, written instructions from the
Holder thereof directing the Trustee to make, or to direct
the Note Custodian to make, an endorsement on the
appropriate Global Note to reflect an increase in the
aggregate principal amount of the Notes represented by such
Global Note,
in which case the Trustee or its agent shall cancel such Definitive Note in
accordance with Section 2.11 hereof and cause, or direct the Note Custodian to
cause, in accordance with the standing instructions and procedures existing
between the Depositary and the Note Custodian, the aggregate principal amount
of Notes represented by the Global Note to be increased accordingly. If no
Global Notes are then outstanding, the Company shall issue and, upon receipt of
an authentication order in accordance with Section 2.2 hereof, the Trustee
shall authenticate a new Global Note in the appropriate principal amount.
(c) Transfer and Exchange of a Beneficial Interest in a
Global Note. The transfer and exchange of beneficial interests in Global Notes
shall be effected through the Depositary, in accordance with this Indenture and
the procedures of the Depositary therefor, which shall include restrictions on
transfer comparable to those set forth herein to the extent required by the
Securities Act. Any Notes evidenced by the Regulation S Global Note may only be
transferred in accordance with the provisions of Regulation S under the
Securities Act. Notwithstanding the foregoing, in the case of a Transfer
Restricted Security, a beneficial interest in a Global Note being transferred
in reliance on an exemption from the registration requirements of the
Securities Act (other than in accordance with Rule 144A, Rule 144 or Rule 904
under the Securities Act) may only be transferred for a Definitive Note and
pursuant to the provisions of Section 2.6(d) below.
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<PAGE> 32
(d) Transfer and Exchange of a Beneficial Interest in a
Global Note for a Definitive Note.
(i) Any Person having a beneficial
interest in a Global Note may upon request exchange
such beneficial interest for a Definitive Note. Upon
receipt by the Trustee of written instructions or
such other form of instructions as is customary for
the Depositary from the Depositary or its nominee on
behalf of any Person having a beneficial interest in
a Global Note and, in the case of any Transfer
Restricted Security, the following additional
information and documents (all of which may be
submitted by facsimile):
(A) if such beneficial interest is
being delivered to the Person designated by
the Depositary as being the beneficial owner,
a certification to that effect (in
substantially the form of Exhibit B hereto);
(B) if such beneficial interest is
being transferred (1) to a "qualified
institutional buyer" (as defined in Rule 144A
under the Securities Act) in accordance with
Rule 144A under the Securities Act or (2)
pursuant to an effective registration
statement under the Securities Act, a
certification to that effect (in
substantially the form of Exhibit B hereto);
(C) if such beneficial interest is
being transferred to any institutional
"accredited investor" within the meaning of
Rule 501(a)(1), (2), (3) or (7) under the
Securities Act pursuant to a private
placement exemption from the registration
requirements of the Securities Act (and based
on an opinion of counsel if the Company so
requests in the case of a transfer of Notes
with an aggregate principal amount of
$100,000 or less), a certification to that
effect (in substantially the form of Exhibit
B hereto) and a certification from the
applicable transferee;
(D) if such beneficial interest is
being transferred pursuant to an exemption
from registration in accordance with Rule 904
under the Securities Act, a certification to
that effect (in substantially the form of
Exhibit B hereto), provided that no Notes
represented by the Regulation S Global Note
may be exchanged for Definitive Notes until
expiration of the applicable restricted
period under Regulation S of the Securities
Act; or
(E) if such beneficial interest is
being transferred in reliance on another
exemption from the registration requirements
of the Securities Act (and based on an
opinion of counsel if the Company so
requests), a certification to that effect (in
substantially the form of Exhibit B hereto);
in which case the Trustee or the Note Custodian, at
the direction of the Trustee, shall, in accordance
with the standing instructions and procedures
existing between the Depositary and the Note
Custodian, cause the aggregate principal amount of
Global Notes to be reduced accordingly and, following
such reduction, the Company shall execute and, upon
receipt of an
25
<PAGE> 33
authentication order in accordance with Section 2.2
hereof, the Trustee shall authenticate and deliver to
the transferee a Definitive Note in the appropriate
principal amount.
(i) Definitive Notes issued in exchange
for a beneficial interest in a Global Note pursuant
to this Section 2.6(d) shall be registered in such
names and in such authorized denominations as the
Depositary, pursuant to instructions from its direct
or indirect participants or otherwise, shall instruct
the Trustee. The Trustee shall deliver such
Definitive Notes to the Persons in whose names such
Notes are so registered.
(e) Restrictions on Transfer and Exchange of Global
Notes. Notwithstanding any other provision of this Indenture (other than the
provisions set forth in subsection (f) of this Section 2.6), a Global Note may
not be transferred as a whole except by the Depositary to a nominee of the
Depositary or by a nominee of the Depositary to the Depositary or another
nominee of the Depositary or by the Depositary or any such nominee to a
successor Depositary or a nominee of such successor Depositary.
(f) Authentication of Definitive Notes in Absence of
Depositary. If at any time:
(i) the Depositary for the Notes
notifies the Company that the Depositary is unwilling
or unable to continue as Depositary for the Global
Notes or, if at any time such Depositary ceases to be
a "clearing agency" registered under the Exchange
Act, and a successor Depositary for the Global Notes
is not appointed by the Company within 90 days after
delivery of such notice; or
(ii) the Company, at its sole discretion,
notifies the Trustee in writing that it elects to
cause the issuance of Definitive Notes under this
Indenture in exchange for all or any part of the
Notes represented by a Global Note or Global Notes,
the Depositary or the Note Custodian shall surrender such Global Note to the
Trustee, without charge, and then the Company shall execute, and the Trustee
shall, upon receipt of an authentication order in accordance with Section 2.2
hereof, authenticate and deliver in exchange for such Global Notes, Definitive
Notes in an aggregate principal amount equal to the principal amount of such
Global Notes. Such Definitive Notes shall be registered in such names as the
Depositary shall direct in writing.
(g) Legends.
(i) Except as permitted by the following
paragraphs (ii), and (iii), each Note certificate
evidencing Global Notes and Definitive Notes (and all
Notes issued in exchange therefor or substitution
thereof) shall bear legends
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<PAGE> 34
in substantially the following form:
THIS SECURITY HAS NOT BEEN REGISTERED UNDER THE
SECURITIES ACT OF 1933, AS AMENDED (THE "SECURITIES
ACT"), OR ANY STATE SECURITIES LAWS. NEITHER THIS
SECURITY NOR ANY INTEREST OR PARTICIPATION HEREIN MAY
BE OFFERED, SOLD, ASSIGNED, TRANSFERRED, PLEDGED,
ENCUMBERED OR OTHERWISE DISPOSED OF IN THE ABSENCE OF
SUCH REGISTRATION OR UNLESS SUCH TRANSACTION IS
EXEMPT FROM, OR NOT SUBJECT TO, REGISTRATION.
THE HOLDER OF THIS SECURITY BY ITS ACCEPTANCE HEREOF
AGREES TO (A) OFFER, SELL, PLEDGE OR OTHERWISE
TRANSFER THIS SECURITY ONLY (1) TO THE COMPANY, (2)
PURSUANT TO A REGISTRATION STATEMENT WHICH HAS BEEN
DECLARED EFFECTIVE UNDER THE SECURITIES ACT, (3) TO A
PERSON IT REASONABLY BELIEVES IS A "QUALIFIED
INSTITUTIONAL BUYER" AS DEFINED IN RULE 144A IN A
TRANSACTION MEETING THE REQUIREMENTS OF RULE 144A,
(4) PURSUANT TO OFFERS AND SALES TO NON-U.S. PERSONS
THAT OCCUR OUTSIDE THE UNITED STATES IN A TRANSACTION
MEETING THE REQUIREMENTS OF RULE 904 OF REGULATION S
UNDER THE SECURITIES ACT, (5) TO AN INSTITUTIONAL
"ACCREDITED INVESTOR" (AS DEFINED IN RULE 501(A)(1),
(2), (3) OR (7) OF REGULATION D UNDER THE SECURITIES
ACT (AN "IAI") THAT, PRIOR TO SUCH TRANSFER,
FURNISHES TO THE TRUSTEE A SIGNED LETTER CONTAINING
CERTAIN REPRESENTATIONS AND AGREEMENTS RELATING TO
THE TRANSFER OF THIS SECURITY (THE FORM OF WHICH
LETTER CAN BE OBTAINED FROM THE TRUSTEE) AND, IN THE
CASE OF ANY TRANSFER TO ANY IAI OF SECURITIES WITH AN
AGGREGATE PRINCIPAL AMOUNT OF $100,000 OR LESS, AN
OPINION OF COUNSEL IF THE COMPANY SO REQUESTS OR (6)
PURSUANT TO ANY OTHER AVAILABLE EXEMPTION FROM THE
REGISTRATION REQUIREMENTS UNDER THE SECURITIES ACT
(AND BASED ON AN OPINION OF COUNSEL IF THE COMPANY SO
REQUESTS), SUBJECT IN EACH OF THE FOREGOING CASES TO
APPLICABLE SECURITIES LAWS OF ANY STATE OF THE UNITED
STATES OR ANY OTHER APPLICABLE JURISDICTION AND (B)
THAT IT WILL, AND EACH SUBSEQUENT HOLDER IS REQUIRED
TO, NOTIFY ANY PURCHASER FROM IT OF THE SECURITY
EVIDENCED HEREBY OF THE RESALE RESTRICTIONS SET FORTH
IN (A) ABOVE.
(ii) Upon any sale or transfer of a
Transfer Restricted Security
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<PAGE> 35
(including any Transfer Restricted Security
represented by a Global Note) pursuant to an
effective registration statement under the Securities
Act, pursuant to Rule 144 under the Securities Act or
pursuant to an opinion of counsel reasonably
satisfactory to the Company that no legend is
required:
(A) in the case of any Transfer
Restricted Security that is a Definitive
Note, the Registrar shall permit the Holder
thereof to exchange such Transfer Restricted
Security for a Definitive Note that does not
bear the legend set forth in (i) above and
rescind any restriction on the transfer of
such Transfer Restricted Security; and
(B) in the case of any Transfer
Restricted Security represented by a Global
Note, such Transfer Restricted Security shall
not be required to bear the legend set forth
in (i) above, but shall continue to be
subject to the provisions of Section 2.6(c)
hereof; provided, however, that with respect
to any request for an exchange of a Transfer
Restricted Security that is represented by a
Global Note for a Definitive Note that does
not bear the legend set forth in (i) above,
which request is made in reliance upon Rule
144 (and based upon an opinion of counsel if
the Company so requests), the Holder thereof
shall certify in writing to the Registrar
that such request is being made pursuant to
Rule 144 (such certification to be
substantially in the form of Exhibit B
hereto).
(iii) Notwithstanding the foregoing, upon
consummation of the Exchange Offer, the Company shall
issue and, upon receipt of an authentication order in
accordance with Section 2.2 hereof, the Trustee shall
authenticate Series B Notes in exchange for Series A
Notes accepted for exchange in the Exchange Offer,
which Series B Notes shall not bear the legend set
forth in (i) above, and the Registrar shall rescind
any restriction on the transfer of such Notes, in
each case unless the Holder of such Series A Notes is
either (A) a broker-dealer, (B) a Person
participating in the distribution of the Series A
Notes or (C) a Person who is an affiliate (as defined
in Rule 144A) of the Company.
(iv) The Unit Legend and provisions
related thereto are set forth in Section 2.6(k),
below.
(h) Cancellation and/or Adjustment of Global Notes. At
such time as all beneficial interests in Global Notes have been exchanged for
Definitive Notes, redeemed, repurchased or canceled, all Global Notes shall be
returned to or retained and canceled by the Trustee or its agent in accordance
with Section 2.11 hereof. At any time prior to such cancellation, if any
beneficial interest in a Global Note is exchanged for Definitive Notes,
redeemed, repurchased or canceled, the principal amount of Notes represented by
such Global Note shall be reduced
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<PAGE> 36
accordingly and an endorsement shall be made on such Global Note, by the
Trustee or the Notes Custodian, at the direction of the Trustee, to reflect
such reduction.
(i) General Provisions Relating to Transfers and
Exchanges.
(i) To permit registrations of transfers
and exchanges, the Company shall execute and the
Trustee shall authenticate Definitive Notes and
Global Notes at the Registrar's request.
(ii) No service charge shall be made to a
Holder for any registration of transfer or exchange,
but the Company may require payment of a sum
sufficient to cover any transfer tax or similar
governmental charge payable in connection therewith
(other than any such transfer taxes or similar
governmental charge payable upon exchange or transfer
pursuant to Sections 2.2, 2.10, 3.6, 3.7, 4.10, 4.14
and 9.5 hereto).
(iii) All Definitive Notes and Global
Notes issued upon any registration of transfer or
exchange of Definitive Notes or Global Notes shall be
the valid obligations of the Company, evidencing the
same debt, and entitled to the same benefits under
this Indenture, as the Definitive Notes or Global
Notes surrendered upon such registration of transfer
or exchange.
(iv) Neither the Registrar nor the
Company shall be required:
(A) to issue, to register the
transfer of or to exchange Notes during a period
beginning at the opening of business 15 Business Days
before the day of any selection of Notes for
redemption under Section 3.2 hereof and ending at the
close of business on the day of selection; or
(B) to register the transfer of or
to exchange any Note so selected for redemption in
whole or in part, except the unredeemed portion of
any Note being redeemed in part; or
(C) to register the transfer of or
to exchange a Note between a record date and the next
succeeding Interest Payment Date.
(v) The Trustee shall authenticate
Definitive Notes and Global Notes in accordance with
the provisions of Section 2.2 hereof.
(j) Certain Transfers in Connection with and after the
Exchange Offer. Notwithstanding any other provision of this Indenture: (i) no
Series B Note may be exchanged by the Holder thereof for a Series A Note; (ii)
accrued and unpaid interest on the Series A Notes being exchanged in the
Exchange Offer shall be due and payable on the next Interest Payment Date for
the Series B Notes following the Exchange Offer; and (iii) interest on the
Series B Notes to be issued
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<PAGE> 37
in the Exchange Offer shall accrue from the date of the Exchange Offer.
(k) Separability of Notes and Warrants.
(i) Except as provided in this Section
2.6(k), each Definitive Note and each Global Note
shall bear the following legend (the "Unit Legend")
on the face thereof:
THE NOTES EVIDENCED HEREBY WERE INITIALLY ISSUED AS
PART OF AN ISSUANCE OF UNITS (THE "UNITS"), EACH OF
WHICH CONSISTS OF $1,000 PRINCIPAL AMOUNT OF 13 3/4%
SENIOR NOTES DUE 2005 (THE "NOTES") OF HIGHWAYMASTER
COMMUNICATIONS, INC. (THE "COMPANY") AND ONE WARRANT
TO PURCHASE 6.566 SHARES OF COMMON STOCK, $0.01 PAR
VALUE, OF THE COMPANY (THE "WARRANTS"). THE NOTES
EVIDENCED HEREBY ARE NOT TRANSFERABLE SEPARATELY FROM
THE WARRANTS UNTIL THE EARLIER TO OCCUR OF (i) 180
DAYS FROM THE DATE OF ISSUANCE, (ii) SUCH DATE AS
BEAR, STEARNS & CO. INC. AND SMITH BARNEY INC. MAY,
IN THEIR DISCRETION, DEEM APPROPRIATE, (iii) IN THE
EVENT A CHANGE OF CONTROL (AS DEFINED IN THE
INDENTURE RELATING TO THE NOTES) OCCURS, THE DATE THE
COMPANY MAILS NOTICE THEREOF TO HOLDERS OF THE NOTES,
(iv) THE COMMENCEMENT OF THE EXCHANGE OFFER (AS
DEFINED IN THE EXCHANGE AND REGISTRATION RIGHTS
AGREEMENT RELATING TO THE NOTES), AND (v) THE
EFFECTIVENESS OF THE SHELF REGISTRATION STATEMENT
RELATING TO THE NOTES PURSUANT TO THE EXCHANGE AND
REGISTRATION RIGHTS AGREEMENT. THE DATE ON WHICH THE
NOTES AND THE WARRANTS ARE SEPARABLE IS THE
"SEPARATION DATE."
(ii) By its acceptance of any Note
represented by a certificate bearing the Unit Legend,
each Holder of, and each beneficial owner of an
interest in, such Note acknowledges that the Notes
have been issued as part of the issuance of the Units
and agrees that prior to the Separation Date, Notes
shall not be transferable except as part of a
transfer of Units. The Registrar shall not register
the transfer of any Note prior to the Separation Date
unless the Company receives evidence reasonably
satisfactory to it that such transfer is part of a
transfer of a Unit or Units; provided that the
Registrar shall not be required to determine (but may
rely on the determination made by the Company with
respect to) the sufficiency of any such evidence.
Notice from the Warrant Agent of a proposed transfer
of Warrants (in a number that together with the
principal amounts of Notes proposed to be transferred
will constitute a Unit or Units) by the same Holder
requesting transfer of such Notes to the same
proposed transferee to which such Notes are to be
transferred, shall constitute satisfactory evidence
for purposes of this subsection.
(iii) The Company shall notify the Trustee
and the Depositary in writing of the occurrence of
the Separation Date on such Separation Date. Any
Notes issued after the Separation Date shall not
include the Unit Legend.
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SECTION 2.7. REPLACEMENT NOTES.
If any mutilated Note is surrendered to the Trustee, or the
Company and the Trustee receive evidence to their satisfaction of the
destruction, loss or theft of any Note, the Company shall, upon the written
request of the Holder thereof, issue and the Trustee, upon the written order of
the Company signed by two Officers of the Company, shall authenticate a
replacement Note if the Trustee's requirements are met. If required by the
Trustee or the Company, an indemnity bond must be supplied by such Holder that
is sufficient in the judgment of the Trustee and the Company to protect the
Company, the Trustee, any Agent and any authenticating agent from any loss that
any of them may suffer if a Note is replaced. The Company may charge for its
expenses in replacing a Note.
Every replacement Note is an additional obligation of the
Company and shall be entitled to all of the benefits of this Indenture equally
and proportionately with all other Notes duly issued hereunder.
The provisions of this Section 2.7 are exclusive and shall
preclude (to the extent lawful) all other rights and remedies with respect to
the replacement or payment of mutilated, destroyed, lost or stolen Notes.
SECTION 2.8. OUTSTANDING NOTES.
The Notes outstanding at any time are all the Notes
authenticated by the Trustee except for those canceled by it (or its agent),
those delivered to it (or its agent) for cancellation, those reductions in the
interest in a Global Note effected by the Trustee in accordance with the
provisions hereof, and those described in this Section as not outstanding.
Except as set forth in Section 2.9 hereof, a Note does not cease to be
outstanding because the Company or an Affiliate of the Company holds the Note.
If a Note is replaced pursuant to Section 2.7 hereof, it
ceases to be outstanding unless the Trustee receives proof satisfactory to it
that the replaced Note (other than a mutilated Note surrendered for
replacement) is held by a bona fide purchaser (as such term is defined in
Section 8-302 of the Uniform Commercial Code as in effect in the State of New
York).
If the principal amount of any Note is considered paid under
Section 4.1 hereof, it ceases to be outstanding and interest on it ceases to
accrue.
If the Paying Agent (other than the Company, a Subsidiary or
an Affiliate of any thereof) holds, on a redemption date or maturity date,
money sufficient to pay Notes payable on that date, then on and after that date
such Notes shall be deemed to be no longer outstanding and shall cease to
accrue interest.
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<PAGE> 39
SECTION 2.9. TREASURY NOTES.
In determining whether the Holders of the required principal
amount of Notes have concurred in any direction, waiver or consent, Notes owned
by the Company, or by any Person directly or indirectly controlling or
controlled by or under direct or indirect common control with the Company,
shall be considered as though not outstanding, except that for the purposes of
determining whether the Trustee shall be protected in relying on any such
direction, waiver or consent, only Notes that a Responsible Officer of the
Trustee has actual knowledge are so owned shall be so disregarded.
SECTION 2.10. TEMPORARY NOTES.
Until definitive Notes are ready for delivery, the Company may
prepare and the Trustee shall authenticate temporary Notes upon a written order
of the Company signed by two Officers of the Company. Temporary Notes shall be
substantially in the form of definitive Notes but may have variations that the
Company considers appropriate for temporary Notes and as shall be reasonably
acceptable to the Trustee. Without unreasonable delay, the Company shall
prepare and the Trustee shall authenticate definitive Notes in exchange for
temporary Notes.
Until such exchange, Holders of temporary Notes shall be
entitled to all of the benefits of this Indenture.
SECTION 2.11. CANCELLATION.
The Company at any time may deliver Notes to the Trustee or
its Agent for cancellation. The Registrar and Paying Agent shall forward to
the Trustee any Notes surrendered to them for registration of transfer,
exchange or payment. The Trustee (or its Agent) and no one else shall cancel
all Notes surrendered for registration of transfer, exchange, payment,
replacement or cancellation and shall destroy canceled Notes (subject to the
record retention requirement of the Exchange Act). Certification of the
destruction of all canceled Notes shall be delivered to the Company from time
to time. The Company may not issue new Notes to replace Notes that it has paid
or that have been delivered to the Trustee (or its Agent) for cancellation. If
the Company acquires any of the Notes, such acquisition shall not operate as a
redemption or satisfaction of the indebtedness represented by such Notes unless
and until the same are surrendered to the Trustee (or its Agent) for
cancellation pursuant to this Section 2.11.
SECTION 2.12. DEFAULTED INTEREST.
If the Company defaults in a payment of interest on the Notes,
it shall pay the defaulted interest in any lawful manner plus, to the extent
lawful, interest payable on the defaulted interest, to the Persons who are
Holders on a subsequent special record date, in each case at the rate provided
in the Notes and in Section 4.1 hereof. The Company shall notify the Trustee
in writing of the amount of defaulted interest proposed to be paid on each Note
and the date of the proposed payment. The Company shall fix or cause to be
fixed each such special record date and payment date, provided that no such
special record date shall be less than 10 days prior to the related payment
date for such defaulted interest. At least 15 days before the special record
date, the Company (or,
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<PAGE> 40
upon the written request of the Company, the Trustee in the name and at the
expense of the Company) shall mail or cause to be mailed to Holders a notice
that states the special record date, the related payment date and the amount of
such defaulted interest to be paid.
SECTION 2.13. PERSONS DEEMED OWNERS.
Prior to due presentment for the registration of a transfer of
any Note, the Trustee, any Agent, the Company and any agent of the foregoing
shall deem and treat the Person in whose name any Note is registered as the
absolute owner of such Note for all purposes (including the purpose of
receiving payment of principal of and interest on such Notes; provided that
defaulted interest shall be paid as set forth in Section 2.12), and none of the
Trustee, any Agent, the Company or any agent of the foregoing shall be affected
by notice to the contrary.
SECTION 2.14. CUSIP NUMBERS
Pursuant to a recommendation promulgated by the Committee on
Uniform Security Identification Procedures, the Company will print CUSIP
numbers on the Notes, and the Trustee may use CUSIP numbers in notices of
redemption and purchase as a convenience to Holders; provided, however, that
any such notices may state that no representation is made as to the correctness
of such numbers as printed on the Notes and that reliance may be placed only on
the other identification numbers printed on the Notes, and any such redemption
or purchase shall not be affected by any defect or omission in such numbers.
ARTICLE 3
REDEMPTION AND PREPAYMENT
SECTION 3.1. NOTICES TO TRUSTEE.
If the Company elects to redeem Notes pursuant to the optional
redemption provisions of Section 3.7 hereof, it shall furnish to the Trustee,
at least 30 days but not more than 60 days before a redemption date (unless a
shorter period is acceptable to the Trustee), an Officers' Certificate setting
forth (i) the clause of Section 3.7 pursuant to which the redemption shall
occur, (ii) the redemption date, (iii) the principal amount of Notes to be
redeemed, (iv) the redemption price and accrued and unpaid interest and (v)
whether it requests the Trustee to give notice of such redemption. Any such
notice may be canceled at any time prior to the mailing of notice of such
redemption to any Holder and shall thereby be void and of no effect.
SECTION 3.2. SELECTION OF NOTES TO BE REDEEMED.
If less than all of the Notes are to be redeemed at any time,
the Trustee shall select the Notes to be redeemed among the Holders of the
Notes in compliance with the requirements of the principal national securities
exchange, if any, on which the Notes are listed, or, if the Notes are not so
listed, on a pro rata basis, by lot or by such other method as the Trustee
shall deem fair and
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<PAGE> 41
appropriate; provided that no Notes of $1,000 principal amount or less shall be
redeemed in part. In the event of partial redemption by lot, the particular
Notes to be redeemed shall be selected, unless otherwise provided herein, not
less than 30 nor more than 60 days prior to the redemption date by the Trustee
from the outstanding Notes not previously called for redemption.
The Trustee shall promptly notify the Company in writing of
the Notes selected for redemption and, in the case of any Note selected for
partial redemption, the principal amount thereof to be redeemed. Notes and
portions of Notes selected shall be in amounts of $1,000 or whole multiples of
$1,000; except that if all of the Notes of a Holder are to be redeemed, the
entire outstanding amount of Notes held by such Holder, even if not a multiple
of $1,000, shall be redeemed. Except as provided in the preceding sentence,
provisions of this Indenture that apply to Notes called for redemption also
apply to portions of Notes called for redemption.
SECTION 3.3. NOTICE OF REDEMPTION.
At least 30 days but not more than 60 days before a redemption
date, the Company shall mail or cause to be mailed, by first class mail, a
notice of redemption to each Holder whose Notes are to be redeemed at such
Holder's registered address.
The notice shall identify the Notes to be redeemed and shall
state:
(a) the redemption date;
(b) the redemption price and accrued and unpaid interest;
(c) if any Note is being redeemed in part, the portion of the
principal amount of such Note to be redeemed and that, after the
redemption date upon surrender of such Note, a new Note or Notes in
principal amount equal to the unredeemed portion shall be issued upon
cancellation of the original Note;
(d) the name and address of the Paying Agent;
(e) that Notes called for redemption must be surrendered to the
Paying Agent to collect the redemption price;
(f) that, unless the Company defaults in making such redemption
payment, interest on Notes called for redemption ceases to accrue on and
after the redemption date and the only remaining right of the Holders of
such Notes is to receive payment of the redemption price upon surrender to
the Paying Agent of the Notes redeemed;
(g) the paragraph of the Notes and/or Section of this Indenture
pursuant to which the Notes called for redemption are being redeemed; and
(h) that no representation is made as to the correctness or
accuracy of the CUSIP number, if any, listed in such notice or printed on
the Notes.
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<PAGE> 42
At the Company's request, the Trustee shall give the notice of
redemption in the Company's name and at its expense; provided, however, that
the Company shall have delivered to the Trustee, at least 40 days prior to the
redemption date (unless a shorter period is acceptable to the Trustee), an
Officers' Certificate requesting that the Trustee give such notice and setting
forth the information to be stated in such notice as provided in the preceding
paragraph.
SECTION 3.4. EFFECT OF NOTICE OF REDEMPTION.
Unless otherwise stated therein, once notice of redemption is
mailed in accordance with Section 3.3 hereof, Notes called for redemption
become irrevocably due and payable on the redemption date at the redemption
price.
SECTION 3.5. DEPOSIT OF REDEMPTION PRICE.
On or prior to the redemption date, the Company shall deposit
with the Paying Agent (other than the Company or any of its Subsidiaries) money
sufficient in same day funds to pay the redemption price of and accrued
interest on all Notes to be redeemed on that date. The Paying Agent shall
promptly return to the Company any money deposited with the Paying Agent by the
Company in excess of the amounts necessary to pay the redemption price of, and
accrued interest on, all Notes to be redeemed. If the money is deposited on
the redemption date, such deposit shall be made by 10:00 a.m. New York City
time.
If the Company complies with the provisions of the preceding
paragraph, on and after the redemption date, interest shall cease to accrue on
the Notes or the portions of Notes called for redemption whether or not such
Notes are presented for payment, and the only remaining right of the Holders of
such Notes shall be to receive payment of the redemption price upon surrender
to the Paying Agent of the Notes redeemed. If a Note is redeemed on or after
an interest record date but on or prior to the related interest payment date,
then any accrued and unpaid interest shall be paid to the Person in whose name
such Note was registered at the close of business on such record date. If any
Note called for redemption shall not be so paid upon surrender for redemption
because of the failure of the Company to comply with the preceding paragraph,
interest shall be paid on the unpaid principal from the redemption date until
such principal is paid and to the extent lawful, on any interest not paid on
such unpaid principal, in each case at the rate provided in the Notes and in
Section 4.1 hereof.
SECTION 3.6. NOTES REDEEMED IN PART.
Upon surrender of a Note that is redeemed in part, the Company
shall issue and, upon the Company's written request, the Trustee shall
authenticate for the Holder at the expense of the Company a new Note equal in
principal amount to the unredeemed portion of the Note surrendered.
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<PAGE> 43
SECTION 3.7. OPTIONAL REDEMPTION.
(a) Except as set forth in clause (b) of this
Section 3.7, the Company shall not have the option to redeem the Notes
pursuant to this Section 3.7 prior to September 15, 2001. Thereafter,
the Notes will be subject to redemption at the option of the Company,
in whole or in part, upon not less than 30 nor more than 60 days'
notice, at the redemption prices (expressed as percentages of
principal amount) set forth below, plus accrued and unpaid interest
and Liquidated Damages, if any, thereon to the applicable redemption
date, if redeemed during the twelve-month period beginning on
September 15 of the years indicated below:
<TABLE>
<CAPTION>
YEAR PERCENTAGE
---- ----------
<S> <C>
2001 110.313%
2002 106.875%
2003 103.438%
2004 and thereafter 100.000%
</TABLE>
(b) Notwithstanding the foregoing, on and prior to
September 15, 2000, the Company, at its option, may redeem, from time to time,
up to 35% of the aggregate principal amount of the Notes at a redemption price
of 113.75% of the principal amount thereof, plus accrued and unpaid interest
and Liquidated Damages, if any, thereon to the redemption date with the net
proceeds of an Equity Investment; provided that no less than 65% of the
aggregate principal amount of the Notes initially issued remains outstanding
immediately after giving effect to such redemption; and provided, further, that
notice of such redemption shall have been given not later than 30 days, and
such redemption shall occur not later than 90 days, after the date of the
closing of the transaction giving rise to such Equity Investment.
(c) Any redemption pursuant to this Section 3.7 shall be
made pursuant to the provisions of Sections 3.1 through 3.6 hereof.
SECTION 3.8. MANDATORY REDEMPTION.
Except as set forth under Sections 4.10 and 4.14 hereof, the
Company shall not be required to make mandatory redemption payments with
respect to the Notes.
ARTICLE 4
COVENANTS
SECTION 4.1. PAYMENT OF NOTES.
The Company shall pay or cause to be paid in New York, New
York the principal of, premium, if any, interest and Liquidated Damages, if
any, on the Notes on the dates and in the manner provided herein, in the Notes
and in the Registration Rights Agreement. Principal, premium,
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<PAGE> 44
if any, interest and Liquidated Damages, if any, shall be considered paid on
the date due if the Paying Agent (or, with respect to the first six interest
payments, the Pledge Agent under the Pledge Agreement), if other than the
Company or a Subsidiary thereof, holds as of 10:00 a.m. New York City time on
the due date money deposited by the Company in same day funds and designated
for and sufficient to pay all principal, premium, if any, interest and
Liquidated Damages, if any, then due. The Paying Agent shall return to the
Company, no later than three Business Days following the date of payment, any
money (including accrued interest) in excess of the amounts paid on the Notes.
The Company shall pay interest (including post-petition
interest in any proceeding under any Bankruptcy Law) on overdue principal at
the rate specified therefor in the Notes; it shall pay interest (including
post-petition interest in any proceeding under any Bankruptcy Law to the extent
that such interest is an allowed claim against the debtor under such Bankruptcy
Law) on overdue installments of interest (without regard to any applicable
grace period) at the same rate to the extent lawful.
SECTION 4.2. MAINTENANCE OF OFFICE OR AGENCY.
The Company shall maintain in the Borough of Manhattan, the
City of New York, an office or agency (which may be an office of the Trustee or
an affiliate of the Trustee, Registrar or co-registrar) where Notes may be
surrendered for registration of transfer or for exchange and where notices and
demands to or upon the Company in respect of the Notes and this Indenture may
be served. The Company shall give prompt written notice to the Trustee of the
location, and any change in the location, of such office or agency. If at any
time the Company shall fail to maintain any such required office or agency or
shall fail to furnish the Trustee with the address thereof, such presentations,
surrenders, notices and demands may be made or served at the Corporate Trust
Office of the Trustee.
The Company may also from time to time designate one or more
other offices or agencies where the Notes may be presented or surrendered for
any or all such purposes and may from time to time rescind such designations;
provided, however, that no such designation or rescission shall in any manner
relieve the Company of its obligation to maintain an office or agency in the
Borough of Manhattan, the City of New York for such purposes. The Company
shall give prompt written notice to the Trustee of any such designation or
rescission and of any change in the location of any such other office or
agency.
The Company hereby designates the Corporate Trust Office of
the Trustee as one such office or agency of the Company in accordance with
Section 2.3.
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<PAGE> 45
SECTION 4.3. PROVISIONS OF REPORTS AND OTHER INFORMATION.
(a) Whether or not required by the rules and regulations
of the Commission, so long as any Notes are outstanding, the Company will
furnish to the Trustee and the Holders of Notes (i) all quarterly and annual
financial information that would be required to be contained in a filing with
the Commission on Forms 10-Q and 10-K if the Company were required to file such
forms, including a "Management's Discussion and Analysis of Financial Condition
and Results of Operations" that describes the financial condition and results
of operations of the Company and its Subsidiaries and, with respect to the
annual information only, a report thereon by the Company's certified
independent accountants and (ii) all current reports that would be required to
be filed with the Commission on Form 8-K if the Company were required to file
such reports. In addition, whether or not required by the rules and regulations
of the Commission, the Company will file a copy of all such information and
reports with the Commission for public availability (unless the Commission will
not accept such a filing) and make such information available to securities
analysts and prospective investors upon request. If required by the terms
thereof, the Company shall also comply with the provisions of TIA Section
314(a).
(b) So long as any of the Transfer Restricted Securities
remain outstanding, the Company shall furnish to the Holders of the Transfer
Restricted Securities and to securities analysts and prospective investors,
upon their request, the information required to be delivered pursuant to Rule
144A(d)(4) under the Securities Act.
(c) If the Company instructs the Trustee to distribute
any of the documents described in Section 4.3(a) to the Holders, the Company
shall provide the Trustee with a sufficient number of copies of all such
documents that the Company may be required to deliver to such Holders.
SECTION 4.4. COMPLIANCE CERTIFICATE.
(a) The Company shall deliver to the Trustee, within 45
days after the end of each fiscal year, an Officers' Certificate stating that a
review of the activities of the Company and its Subsidiaries during the
preceding fiscal year has been made under the supervision of the signing
Officers with a view to determining whether the Company has kept, observed,
performed and fulfilled its obligations under this Indenture, and further
stating, as to each such Officer signing such certificate, that to the best of
his or her knowledge the Company has kept, observed, performed and fulfilled
each and every covenant contained in this Indenture and is not in default in
the performance or observance of any of the terms, provisions and conditions of
this Indenture (or, if a Default or Event of Default shall have occurred,
describing all such Defaults or Events of Default of which he or she may have
knowledge and what action the Company is taking or proposes to take with
respect thereto) and that to the best of his or her knowledge no event has
occurred and remains in existence by reason of which payments on account of the
principal of, or interest on, the Notes are prohibited or, if such event has
occurred, a description of the event and what action the Company is taking or
proposes to take with respect thereto.
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(b) So long as not contrary to the then current
recommendations of the American Institute of Certified Public Accountants, the
year-end financial statements delivered pursuant to Section 4.3 above shall be
accompanied by a written statement of the Company's independent public
accountants (who shall be a firm of established national reputation) that in
making the examination necessary for certification of such financial
statements, nothing has come to their attention that would lead them to believe
that the Company has violated any provisions of Article 4 or Article 5 hereof
or, if any such violation has occurred, specifying the nature and period of
existence thereof, it being understood that such accountants shall not be
liable directly or indirectly to any Person for any failure to obtain knowledge
of any such violation.
(c) The Company shall, so long as any of the Notes are
outstanding, deliver to the Trustee, forthwith upon any Officer becoming aware
of any Default or Event of Default, an Officers' Certificate specifying such
Default or Event of Default and what action the Company is taking or proposes
to take with respect thereto.
SECTION 4.5. TAXES.
The Company shall pay, and shall cause each of its
Subsidiaries to pay, prior to delinquency, all material taxes, assessments, and
governmental levies except (i) such as are contested in good faith and by
appropriate proceedings or (ii) such as for which reserve or other appropriate
provision, if any, as shall be required to be in conformity with GAAP, has been
made therefor, or (iii) where the failure to effect such payment is not adverse
in any material respect to the Holders of the Notes.
SECTION 4.6. STAY, EXTENSION AND USURY LAWS.
The Company and each Subsidiary Guarantor covenants (to the
extent that it may lawfully do so) that it shall not at any time insist upon,
plead, or in any manner whatsoever claim or take the benefit or advantage of,
any stay, extension or usury law wherever enacted, now or at any time hereafter
in force, that may affect the covenants or the performance of this Indenture;
and the Company and each Subsidiary Guarantor (to the extent that it may
lawfully do so) hereby expressly waives all benefit or advantage of any such
law, and covenants that it shall not, by resort to any such law, hinder, delay
or impede the execution of any power herein granted to the Trustee, but shall
suffer and permit the execution of every such power as though no such law has
been enacted.
SECTION 4.7. LIMITATION ON RESTRICTED PAYMENTS.
(a) The Company will not, and will not permit any of its
Restricted Subsidiaries to, directly or indirectly: (i) declare or pay any
dividend or make any other payment or distribution on account of the Company's
or any Restricted Subsidiary's Equity Interests (including, without limitation,
any payment in connection with any merger or consolidation) other than
dividends or distributions (A) paid or payable in Equity Interests (other than
Disqualified Stock) of the Company or (B) paid or payable to the Company or any
Wholly Owned Restricted Subsidiary of the Company; (ii) purchase, redeem or
otherwise acquire or retire for value any Equity Interests of the Company
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or any direct or indirect parent of the Company or any other Affiliate of the
Company or any Restricted Subsidiary of the Company (other than any such Equity
Interests owned by the Company or any Wholly Owned Restricted Subsidiary of the
Company); (iii) make any principal payment on, or purchase, redeem, defease or
otherwise acquire or retire for value prior to the scheduled maturity,
scheduled repayment or scheduled sinking fund payment, any Subordinated
Indebtedness (except, if no Default or Event of Default is continuing or would
result therefrom, any such payment, purchase, redemption, defeasance or other
acquisition or retirement for value made (A) out of Excess Proceeds available
for general corporate purposes if (1) such payment or other action is required
by the indenture or other agreement or instrument pursuant to which such
Subordinated Indebtedness was issued and (2) the Company has purchased all
Notes and other senior Indebtedness properly tendered pursuant to an Asset Sale
Offer required under Section 4.10 or (B) upon the occurrence of a Change of
Control if (1) such payment or other action is required by the indenture or
other agreement or instrument pursuant to which such Subordinated Indebtedness
was issued and (2) the Company has purchased all Notes properly tendered
pursuant to the Change of Control Offer resulting from such Change of Control);
or (iv) make any Restricted Investment (all such payments and other actions set
forth in clauses (i) through (iv) above being collectively referred to
hereinafter as "Restricted Payments"), unless, at the time of and after giving
effect to such Restricted Payment:
(i) no Default or Event of Default shall have
occurred and be continuing or would occur as a consequence
thereof;
(ii) the Company would, at the time of such
Restricted Payment and after giving pro forma effect thereto
as if such Restricted Payment had been made at the beginning
of the applicable fiscal quarter, have been permitted to Incur
at least $1.00 of additional Indebtedness pursuant to the
Leverage Ratio test set forth in Section 4.9(a); and
(iii) such Restricted Payment, together with the
aggregate amount of all other Restricted Payments declared or
made by the Company and its Restricted Subsidiaries after the
Closing Date shall not exceed, at the date of determination,
the sum of (1) 50% of aggregate Consolidated Net Income of the
Company from the beginning of the first fiscal quarter
commencing after the Closing Date to the end of the Company's
most recently ended fiscal quarter for which financial
statements are available at the time of such Restricted
Payment (or, if such aggregate Consolidated Net Income for
such period is a deficit, less 100% of such deficit), plus (2)
100% of the aggregate net cash proceeds received by the
Company from the issue or sale after the Closing Date of
Equity Interests of the Company or of Disqualified Stock or
debt securities of the Company that have been converted into
such Equity Interests (other than Equity Interests (or
Disqualified Stock or convertible debt securities) sold to a
Subsidiary of the Company and other than Disqualified Stock or
debt securities that have been converted into Disqualified
Stock), plus (3) the aggregate net cash proceeds received by
the Company as capital contributions to the Company (other
than from a Subsidiary of the Company) after the Closing Date,
plus (4) if any Restricted Investment that was made after the
Closing Date is sold for cash, to the
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extent such amount is not included in the Consolidated Net
Income of the Company, the lesser of (A) the Net Proceeds from
such sale to the extent received by the Company or any
Restricted Subsidiary, and (B) the initial amount of such
Restricted Investment, plus (5) in the event an Unrestricted
Subsidiary is redesignated as a Restricted Subsidiary, an
amount equal to the lesser of (A) the book value of such
Unrestricted Subsidiary, and (B) the Fair Market Value of such
Unrestricted Subsidiary.
(b) The foregoing provisions of this Section 4.7 shall
not prohibit the following Restricted Payments:
(i) the payment of any dividend or other
distribution within 60 days after the date of declaration
thereof, if at said date of declaration such payment would
have complied with the provisions of this Indenture;
(ii) the redemption, repurchase, retirement or
other acquisition of any Equity Interests of the Company
(other than Disqualified Stock) in exchange for, or out of the
proceeds of, the substantially concurrent sale (other than to
a Subsidiary of the Company) of other Equity Interests of the
Company (other than Disqualified Stock); provided that the
amount of any such net cash proceeds that are utilized for any
such redemption, repurchase, retirement or other acquisition
shall be excluded from clause (iii) of the preceding
subsection 4.7(a) (both for purposes of determining the
aggregate amount of Restricted Payments made and for purposes
of determining the aggregate amount of Restricted Payments
permitted);
(iii) the payment, purchase, redemption, defeasance
or other acquisition or retirement for value of Subordinated
Indebtedness with the net cash proceeds from a substantially
concurrent Incurrence of Permitted Refinancing Indebtedness or
the substantially concurrent sale (other than to a Subsidiary
of the Company) of Equity Interests of the Company (other than
Disqualified Stock); provided that the amount of any such net
cash proceeds that are utilized for any such payment,
purchase, redemption, defeasance or other acquisition or
retirement shall be excluded from clause (iii) of the
preceding subsection 4.7(a) (both for purposes of determining
the aggregate amount of Restricted Payments made and for
purposes of determining the aggregate amount of Restricted
Payments permitted);
(iv) so long as no Default or Event of Default is
continuing, the repurchase of Equity Interests of the Company
from former employees of the Company or any Restricted
Subsidiary thereof (or the estates, heirs or legatees of such
former employees) for consideration which does not exceed $3
million in the aggregate in any fiscal year;
(v) so long as no Default or Event of Default is
continuing, loans made to current officers, directors and
employees of the Company or any Restricted
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Subsidiary thereof in an aggregate principal amount at any one
time outstanding not to exceed $3 million;
(vi) any Restricted Investment made with the net
cash proceeds from a substantially concurrent sale (other than
to a Subsidiary of the Company) of Equity Interests of the
Company (other than Disqualified Stock); and
(vii) Permitted Telecommunications Investments in
an aggregate amount not to exceed $15 million at any one time
outstanding (the amount of any such Restricted Payment being
the amount thereof on the date such Restricted Payment is
made).
Except to the extent specifically noted above, Restricted
Payments made pursuant to this Section 4.7(b) shall be included in calculating
the amount of Restricted Payments made after the Closing Date.
(c) The Board of Directors of the Company may designate
any Restricted Subsidiary to be an Unrestricted Subsidiary if (i) such
designation would not cause a Default or Event of Default, (ii) at the time of
and after giving effect to such designation, the Company could incur $1.00 of
additional Indebtedness pursuant to the Leverage Ratio test set forth in
Section 4.9(a), and (iii) each of the other requirements of the definition of
the term "Unrestricted Subsidiary" are satisfied. For purposes of making such
determination, all outstanding Investments by the Company and its Restricted
Subsidiaries (except to the extent repaid in cash) in the Subsidiary so
designated will be deemed to be Restricted Payments at the time of such
designation and will reduce the amount available for Restricted Payments under
the first paragraph of this covenant. All such outstanding Investments will be
deemed to constitute Restricted Payments in an amount equal to the greater of
(i) the net book value of such Investments at the time of such designation and
(ii) the Fair Market Value of such Investments at the time of such designation.
Such designation will only be permitted if such Restricted Payment would be
permitted at such time and if such Restricted Subsidiary otherwise meets the
definition of an Unrestricted Subsidiary. Upon being so designated as an
Unrestricted Subsidiary, any Subsidiary Guarantee that was previously executed
by such Unrestricted Subsidiary shall be deemed terminated.
(d) The amount of all Restricted Payments not made in
cash shall be the Fair Market Value (which, if it exceeds $1 million, shall be
determined by, and set forth in, a resolution of the Board of Directors of the
Company and described in an Officers' Certificate delivered to the Trustee) on
the date of the Restricted Payment of the asset(s) proposed to be transferred
by the Company or any Restricted Subsidiary, as the case may be, pursuant to
the Restricted Payment. Not later than the date of making any Restricted
Payment, the Company shall deliver to the Trustee an Officers' Certificate
stating that such Restricted Payments during such quarter were permitted and
setting forth the basis upon which the calculations required by this Section
4.7 were computed, which calculations may be based upon the Company's latest
available financial statements.
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SECTION 4.8. LIMITATION ON DIVIDEND AND OTHER PAYMENT RESTRICTIONS
AFFECTING RESTRICTED SUBSIDIARIES.
The Company will not, and will not permit any of its
Restricted Subsidiaries to, directly or indirectly, create or otherwise cause
or suffer to exist or become effective any consensual encumbrance or
restriction on the ability of any Restricted Subsidiary to (i)(a) pay dividends
or make any other distributions to the Company or any of its Restricted
Subsidiaries on its Capital Stock or with respect to any other interest or
participation in, or measured by, its profits or (b) pay any Indebtedness owed
to the Company or any of its Restricted Subsidiaries, (ii) make loans or
advances to the Company or any of its Restricted Subsidiaries, (iii) transfer
any of its properties to the Company or any of its Restricted Subsidiaries,
(iv) grant any Liens in favor of the Holders of the Notes and the Trustee or
(v) guarantee the Notes or any renewals or refinancings thereof, except for
such encumbrances or restrictions existing under or by reason of (A) Existing
Indebtedness, (B) the Bank Credit Agreement, (C) applicable law, (D) any
instrument governing Indebtedness or Capital Stock of a Person acquired by the
Company or any of its Restricted Subsidiaries as in effect at the time of such
acquisition (except to the extent such Indebtedness was Incurred in connection
with or in contemplation of such acquisition), which encumbrance or restriction
is not applicable to any Person, or the properties of any Person, other than
the Person, or the property of the Person, so acquired, provided that in the
case of Indebtedness, such Indebtedness was permitted by the terms of this
Indenture to be Incurred, (E) customary non-assignment provisions in leases,
licenses, sales agreements or other contracts (but excluding contracts related
to the extension of credit) entered into in the ordinary course of business and
consistent with past practices, (F) restrictions imposed pursuant to a binding
agreement for the sale or disposition of all or substantially all of the Equity
Interests or assets of any Restricted Subsidiary, provided such restrictions
apply solely to the Equity Interests or assets being sold, (G) restrictions
imposed by Permitted Liens on the transfer of the assets that are subject to
such Liens, and (H) Permitted Refinancing Indebtedness Incurred to refinance
Existing Indebtedness or Indebtedness of the type described in clause (D)
above, provided that the restrictions contained in the agreements governing
such Permitted Refinancing Indebtedness are no more restrictive, as a whole,
than those contained in the agreements governing the Indebtedness being
refinanced.
SECTION 4.9. LIMITATION ON INDEBTEDNESS.
(a) The Company will not, and will not permit any of its
Restricted Subsidiaries to, directly or indirectly, Incur any Indebtedness
(including Acquired Indebtedness), except for Permitted Indebtedness; provided,
however, that the Company and its Restricted Subsidiaries may Incur
Indebtedness (including Acquired Indebtedness) if, at the time of Incurrence of
such Indebtedness, after giving pro forma effect to such Incurrence as of such
date and to the use of proceeds therefrom (including the application or the use
of the net proceeds therefrom to repay Indebtedness or make any Restricted
Payment) as if the same had occurred at the beginning of the most recently
ended full fiscal quarter of the Company for which internal financial
statements are available, the Company's Leverage Ratio would have been greater
than zero but no greater than 5.5 to 1.
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(b) "Permitted Indebtedness" means any and all of the
following:
(i) Indebtedness of the Company and its
Restricted Subsidiaries pursuant to the Bank Credit Agreement
(including all Guarantees thereof) in an aggregate amount not
to exceed the greater of (A) $15 million and (B) the sum of
60% of Eligible Inventory plus 85% of Eligible Receivables, in
each case at any one time outstanding;
(ii) Indebtedness represented by the Notes, this
Indenture, the Subsidiary Guarantees and the Pledge Agreement;
(iii) intercompany Indebtedness between or among
the Company and any of its Restricted Subsidiaries; provided
that (A) if the Company is an obligor on such Indebtedness,
such Indebtedness is expressly subordinate to the payment in
full of all Obligations with respect to the Notes and (B) any
subsequent issuance or transfer of Equity Interests that
results in any such Indebtedness being held by a Person other
than the Company or a Restricted Subsidiary of the Company, or
any sale or other transfer of any such Indebtedness to a
Person that is not either the Company or a Restricted
Subsidiary of the Company, shall be deemed to constitute a new
Incurrence of such Indebtedness by the Company or such
Restricted Subsidiary, as the case may be;
(iv) Permitted Refinancing Indebtedness Incurred
in exchange for, or the net proceeds of which are used to
extend, refinance, renew, replace, defease or refund, (A)
Indebtedness (other than Permitted Indebtedness) that was
Incurred in compliance with this Indenture, (B) Indebtedness
referred to in clause (b) (ii) of this Section, or (C)
Existing Indebtedness;
(v) Indebtedness of a Restricted Subsidiary of
the Company constituting a Guarantee of Indebtedness of the
Company or a Restricted Subsidiary which Indebtedness was
Incurred pursuant to this Section 4.9(b) or the Leverage Ratio
test set forth in Section 4.9(a);
(vi) Hedging Obligations of the following types:
(A) Interest Rate Hedges the notional principal amount of
which does not exceed the principal amount of the Indebtedness
to which such Interest Rate Hedge relates, and (B) Currency
Hedges that do not increase the outstanding loss potential or
liabilities other than as a result of fluctuations in foreign
currency exchange rates;
(vii) (1) Capital Lease Obligations in an aggregate
amount at any one time outstanding not to exceed an amount
equal to (A) $15 million minus (B) the aggregate outstanding
amount of Attributable Debt (other than Capital Lease
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Obligations) Incurred in connection with sale and leaseback
transactions in reliance on clause (a)(i)(2) of Section 4.15
and in compliance therewith, and (2) Indebtedness constituting
a Guarantee by the Company or any Restricted Subsidiary of any
Capital Lease Obligations and Attributable Debt of the types
described in clause (1) under which such Person is the lessee;
(viii) Indebtedness (in addition to Indebtedness
permitted by any other clause of this Section 4.9(b)) in an
aggregate principal amount at any time outstanding not to
exceed $25 million; and
(ix) Existing Indebtedness.
(c) For purposes of determining compliance with this
Section 4.9, (i) in the event that an item of Indebtedness meets the criteria
of more than one of the types of Indebtedness described herein, the Company, in
its sole discretion, will classify such item of Indebtedness and only be
required to include the amount and type of such Indebtedness in one of the
above clauses and (ii) an item of Indebtedness may be divided and classified in
more than one of the types of Indebtedness described herein.
SECTION 4.10. LIMITATION ON ASSET SALES.
(a) The Company will not, and will not permit any of its
Restricted Subsidiaries to, engage in an Asset Sale unless (i) the Company or
such Restricted Subsidiary, as the case may be, receives consideration at the
time of such Asset Sale at least equal to the Fair Market Value (which, if it
exceeds $1 million, shall be determined by, and set forth in, a resolution of
the Board of Directors of the Company and described in an Officers' Certificate
of the Company delivered to the Trustee) of the assets (including, if
appropriate, Equity Interests) disposed of or issued, as appropriate, and (ii)
at least 75% of the consideration therefor received by the Company or such
Restricted Subsidiary is in the form of cash or Cash Equivalents. For purposes
of this Section (and not for purposes of any other provision of this
Indenture), the term "cash" shall be deemed to include (i) any notes or other
obligations received by the Company or such Restricted Subsidiary as
consideration as part of such Asset Sale that are immediately converted by the
Company or such Restricted Subsidiary into actual cash (to the extent of the
actual cash so received), and (ii) any liabilities of the Company or such
Restricted Subsidiary (as shown on the most recent balance sheet of the Company
or such Restricted Subsidiary) that (A) are assumed by the transferee of the
assets which are the subject of such Asset Sale as consideration therefor in a
transaction the result of which is that the Company and all of its Subsidiaries
are released from all liability for such assumed liability, (B) are not by
their terms subordinated in right of payment to the Notes, (C) are not owed to
the Company or any Subsidiary of the Company, and (D) constitute short-term
liabilities (as determined in accordance with GAAP).
(b) Within 360 days after the receipt of any Net Proceeds
from an Asset Sale, the Company may apply, directly or indirectly, such Net
Proceeds (a) to permanently reduce Indebtedness under the Bank Credit Agreement
(and to correspondingly reduce commitments with
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respect thereto) or (b) to invest in Telecommunications Assets, which may
include working capital requirements. Pending the final application of any such
Net Proceeds, the Company may temporarily invest such Net Proceeds in any
manner that is not prohibited by this Indenture (including, without limitation,
to the reduction of Indebtedness under the Bank Credit Agreement). Any Net
Proceeds from Asset Sales that are not applied or invested as provided in the
first sentence of this Section 4.10(b) will be deemed to constitute "Excess
Proceeds." When the aggregate amount of Excess Proceeds exceeds $5 million, the
Company will be required to make an offer to all Holders of Notes and, if the
Company is required to do so under the terms of any other senior Indebtedness,
to the holders of such other senior Indebtedness (an "Asset Sale Offer") to
purchase Notes and principal of such other senior Indebtedness, on a pro rata
basis, having an aggregate principal amount equal to the Excess Proceeds, at an
offer price in cash equal to, in the case of the Notes, 100% of the principal
amount thereof, plus accrued and unpaid interest and Liquidated Damages, if
any, thereon to the date of purchase, and, in the case of all other senior
Indebtedness, 100% of the principal amount thereof, plus accrued and unpaid
interest, or premium, if any, thereon to the date of purchase, in accordance
with the procedures set forth in this Indenture. To the extent that the
aggregate principal amount of Notes tendered pursuant to an Asset Sale Offer is
less than the Excess Proceeds, the Company may use any remaining Excess
Proceeds for general corporate purposes (subject to the restrictions of this
Indenture). If the aggregate principal amount of Notes and such other senior
Indebtedness surrendered by holders thereof exceeds the amount of Excess
Proceeds, the Trustee shall select the Notes to be purchased in compliance with
the requirements of the principal national securities exchange, if any, on
which the Notes are listed or, if the Notes are not so listed, on a pro rata
basis with such other senior Indebtedness based on the outstanding principal
amounts thereof (with such adjustments as may be deemed appropriate by the
Company so that only Notes with denominations of $1,000 or integral multiples
thereof shall be purchased). Upon completion of such offer to purchase, the
amount of Excess Proceeds shall be reset at zero.
(c) The Company will not, and will not permit any of its
Restricted Subsidiaries to, transfer, convey, sell, lease or otherwise dispose
of any Capital Stock of any Restricted Subsidiary of the Company to any Person
(other than the Company or a Wholly Owned Restricted Subsidiary of the
Company), unless (i) such transfer, conveyance, sale, lease or other
disposition is of all of the Capital Stock of such Restricted Subsidiary owned
by the Company and its Restricted Subsidiaries or is otherwise permitted under
Section 4.13 and (ii) such transaction is conducted in accordance with clauses
(a) and (b) above.
(d) The Company will comply with the requirements of Rule
14e-1 under the Exchange Act and any other securities laws and regulations
thereunder to the extent such laws and regulations are applicable in connection
with the repurchase of Notes using Excess Proceeds.
SECTION 4.11. LIMITATION ON TRANSACTIONS WITH AFFILIATES.
The Company will not, and will not permit any of its
Restricted Subsidiaries to, make any payment to, or sell, lease, transfer or
otherwise dispose of any of its properties or assets to, or purchase any
property or assets from, or enter into or make or amend any contract,
agreement, understanding, loan, advance or guarantee with, or for the benefit
of, any Affiliate of the Company
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(other than the Company or a Restricted Subsidiary), in one transaction or a
series of transactions (each of the foregoing an "Affiliate Transaction"),
unless (i) such Affiliate Transaction is on terms that are no less favorable to
the Company or the relevant Restricted Subsidiary than those that would have
been obtained in a comparable transaction with an unrelated Person and (ii) the
Company delivers to the Trustee (a) with respect to any Affiliate Transaction
or series of related Affiliate Transactions after the Closing Date involving
aggregate consideration in excess of $2 million, a resolution described in an
Officers' Certificate, certifying that such Affiliate Transaction complies with
clause (i) above and such Affiliate Transaction has been approved by a majority
of the disinterested members of the Board of Directors of the Company and (b)
with respect to any Affiliate Transaction or series of related Affiliate
Transactions after the Closing Date involving aggregate consideration in excess
of $10 million, an opinion as to the fairness to the Company of such Affiliate
Transaction from a financial point of view issued by an accounting, appraisal
or investment banking firm of recognized national standing; provided that the
following types of transactions shall not constitute Affiliate Transactions:
(1) any transaction with an officer or director of the Company or any
Restricted Subsidiary in connection with such individual's compensation
(including directors' fees), employee benefits, severance arrangements or
indemnification (to the extent consistent with applicable law and the charter
and bylaws of the Company or such Restricted Subsidiary), in each case entered
into by the Company or any of its Restricted Subsidiaries in the ordinary
course of business, (2) transactions between or among the Company and its
Restricted Subsidiaries, (3) Restricted Payments that are permitted by the
provisions of Section 4.7; (4) the consummation of the specific transactions
described in the various documents listed on Annex I to this Indenture, as such
documents are in effect on the Closing Date; (5) sales of Capital Stock of the
Company made at prevailing market rates; and (6) loans to officers, directors
and employees of the Company and its Restricted Subsidiaries made in the
ordinary course of business in an aggregate amount not to exceed $3 million at
any one time outstanding.
SECTION 4.12. LIMITATION ON LIENS.
The Company will not, and will not permit any of its
Restricted Subsidiaries to, directly or indirectly, create, incur, affirm,
assume or suffer to exist any Lien of any kind on any property now owned or
hereafter acquired, or any income or profits therefrom or assign or convey any
right to receive income therefrom, unless (i) in the case of Liens securing
obligations subordinate to the Notes, the Notes are secured by a valid,
perfected Lien on such property that is senior in priority to such Liens, (ii)
in the case of Liens securing obligations subordinate to a Subsidiary
Guarantee, such Subsidiary Guarantee is secured by a valid, perfected Lien on
such property that is senior in priority to such Liens, and (iii) in all other
cases, the Notes (and, if such Lien secures obligations of a Restricted
Subsidiary, a Subsidiary Guarantee of such Restricted Subsidiary) are equally
and ratably secured; provided, however, that the foregoing shall not prohibit
or restrict Permitted Liens.
SECTION 4.13. LIMITATION ON ISSUANCE AND SALE OF CAPITAL STOCK OF RESTRICTED
SUBSIDIARIES.
The Company will not, and will not permit any Restricted
Subsidiary to (i) sell, assign, transfer, convey or otherwise dispose of, any
Equity Interests of any Restricted Subsidiary,
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other than to the Company or a Wholly Owned Restricted Subsidiary, (ii) permit
any Restricted Subsidiary to issue any Equity Interests (including, without
limitation, pursuant to any merger, consolidation, recapitalization or similar
transaction) other than to the Company or a Wholly Owned Restricted Subsidiary
or (iii) permit any Person other than the Company or a Wholly Owned Restricted
Subsidiary to own any Equity Interests of any Restricted Subsidiary, except for
(A) a sale to a Person of all of the Equity Interests of a Restricted
Subsidiary, which sale was made by the Company or a Restricted Subsidiary
subject to, and in compliance with, Section 4.10, (B) the issuance and
subsequent ownership of directors' qualifying shares, and (C) the issuance,
sale and subsequent ownership of Capital Stock of a Restricted Subsidiary if
and only to the extent that (1) such Restricted Subsidiary is organized under
the laws of a jurisdiction other than the United States and Canada and
political subdivisions thereof (such other jurisdiction being a "Foreign
Jurisdiction"), (2) the laws of such Foreign Jurisdiction unconditionally
require, as a condition to such Restricted Subsidiary being permitted to
transact business in such Foreign Jurisdiction, that the government of such
Foreign Jurisdiction or individuals of such Foreign Jurisdiction own such
Capital Stock, (3) the government of such Foreign Jurisdiction or individuals
of such Foreign Jurisdiction, as appropriate, at all times both legally and
beneficially own such Capital Stock, and such ownership satisfies the
requirement described in clause (2) above, and (4) such Restricted Subsidiary
does not, directly or indirectly, conduct business in the United States or
Canada and does not, directly or indirectly, own or control any properties or
assets located in the United States or Canada.
SECTION 4.14. OFFER TO REPURCHASE UPON CHANGE OF CONTROL.
(a) Upon the occurrence of a Change of Control, the
Company will be required to make an offer (a "Change of Control Offer") to
repurchase all or any part (equal to $1,000 or an integral multiple thereof) of
each Holder's Notes, at an offer price in cash equal to 101% of the aggregate
principal amount thereof, plus accrued and unpaid interest and Liquidated
Damages, if any, thereon, to the date of repurchase (the "Change of Control
Payment").
(b) Notice of a Change of Control Offer shall be mailed
by the Company, with a copy to the Trustee, or, at the Company's option, by the
Trustee (at the Company's expense) not more than 20 calendar days after the
Change of Control to each Holder of the Notes at such Holder's last registered
address appearing in the Register. In such notice, the Company shall describe
the transaction that constitutes the Change of Control and offer to repurchase
Notes pursuant to the procedures required by this Section 4.14 and described in
such notice. The notice shall contain all instructions and materials necessary
to enable Holders to tender Notes pursuant to the Change of Control Offer. In
addition, the notice shall state: (1) that the Change of Control Offer is
being made pursuant to this Section 4.14 and that all Notes (or portions
thereof) properly tendered will be accepted for payment; (2) the Change of
Control Payment and the purchase date, which shall be no sooner than 30 nor
later than 60 days from the date on which the Company notifies the Holders of
the occurrence of the Change of Control (the "Change of Control Payment Date");
(3) that any Note (or portion thereof) not properly tendered will continue to
accrue interest; (4) that, unless the Company defaults in the payment of the
Change of Control Payment, all Notes (or portions thereof) accepted for payment
pursuant to the Change of Control Offer shall cease to accrue interest after
the
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Change of Control Payment Date; and (5) the procedures that Holders of Notes
must follow in order to tender their Notes (or portions thereof) for payment
and the procedures that Holders of Notes must follow in order to withdraw an
election to tender Notes (or portions thereof) for payment. The Company will
comply with the requirements of Rule 14e-1 under the Exchange Act and any other
securities laws and regulations thereunder to the extent such laws and
regulations are applicable in connection with the repurchase of the Notes as a
result of a Change of Control.
(c) On the Change of Control Payment Date, the Company
will, to the extent lawful, (i) accept for payment all Notes or portions
thereof properly tendered pursuant to the Change of Control Offer, (ii) deposit
with the Trustee an amount equal to the Change of Control Payment in respect of
all Notes or portions thereof so tendered and (iii) deliver or cause to be
delivered to the Trustee the Notes so accepted together with an Officers'
Certificate stating the aggregate principal amount of Notes or portions thereof
being purchased by the Company. The Trustee will promptly mail to each Holder
of Notes so tendered the Change of Control Payment for such Notes, and the
Trustee will promptly authenticate and mail (or cause to be transferred by book
entry) to each Holder a new Note equal in principal amount to any unpurchased
portion of the Notes surrendered, if any; provided that each such new Note will
be in a principal amount of $1,000 or an integral multiple thereof. The Company
will publicly announce the results of the Change of Control Offer on or as soon
as practicable after the Change of Control Payment Date. Unless the Company
defaults in the payment for any Notes properly tendered pursuant to the Change
of Control Offer, any Notes accepted for payment pursuant to the Change of
Control Offer shall cease to accrue interest after the Change of Control
Payment Date.
(d) The Company will not be required to make a Change of
Control Offer upon a Change of Control if a third party makes the Change of
Control Offer in the manner, at the times and otherwise in compliance with the
requirements set forth in this Section 4.14 applicable to a Change of Control
Offer made by the Company and purchases all Notes validly tendered and not
withdrawn under such Change of Control Offer.
SECTION 4.15. LIMITATION ON SALE AND LEASEBACK TRANSACTIONS.
The Company will not, and will not permit any of its
Restricted Subsidiaries to, enter into any sale and leaseback transaction;
provided that the Company or any Restricted Subsidiary may enter into a sale
and leaseback transaction if (a) the Company could have (i) Incurred
Indebtedness in an amount equal to the Attributable Debt relating to such sale
and leaseback transaction pursuant to either (1) the Leverage Ratio test set
forth in Section 4.9(a) or (2) clause (vii) of Section 4.9(b) and (ii) incurred
a Lien to secure such Indebtedness pursuant to Section 4.12, and (b) the sale
portion of such sale and leaseback transaction complies with Section 4.10, and
the net proceeds from such sale are applied in accordance with Section 4.10.
SECTION 4.16. COVENANT WITH RESPECT TO BUSINESS ACTIVITIES.
The Company will not, and will not permit any of its
Restricted Subsidiaries to, engage in any business other than the
Telecommunications Business.
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SECTION 4.17. CORPORATE EXISTENCE
Except as otherwise permitted pursuant to the terms hereof,
the Company shall do or cause to be done all things necessary to preserve and
keep in full force and effect (i) its corporate existence, and the corporate,
partnership or other existence of each of its Subsidiaries, in accordance with
their respective organizational documents (as the same may be amended from time
to time), and (ii) the material rights (charter and statutory), licenses and
franchises of the Company and its Subsidiaries; provided, however, that the
Company shall not be required to preserve any such right, license or franchise
of itself or any of its Subsidiaries, or the corporate, partnership or other
existence of any of its Subsidiaries, if the Board of Directors shall determine
that the preservation thereof is no longer desirable in the conduct of the
business of the Company and its Subsidiaries, taken as a whole, and that the
loss thereof is not adverse in any material respect to the Holders of the
Notes.
SECTION 4.18. PLEDGE ACCOUNT
The Company shall, on the date hereof, enter into the Pledge
Agreement, and pursuant thereto, shall purchase and pledge to the Trustee, for
the benefit of the Holders of the Notes, the Pledged Securities, in such amount
as will be sufficient upon receipt of scheduled interest and principal payments
of such securities, in the opinion of a nationally recognized firm of
independent public accountants selected by the Company (to be delivered
promptly after the Closing Date), to provide for payment in full when due of
the first six scheduled interest payments on the Notes. If for any reason the
Pledged Securities, together with the other funds in the Pledge Account, shall
not, in the opinion of such independent public accounting firm, be sufficient
to provide for payment of such first six interest payments, the Company shall
immediately pledge to the Trustee pursuant to the Pledge Agreement additional
Pledged Securities or other funds in such amounts as shall be sufficient, in
the opinion of such independent public accounting firm, to provide for payment
in full of such interest payments, and shall promptly deliver an opinion from
such accounting firm with regard thereto.
ARTICLE 5
SUCCESSORS
SECTION 5.1. MERGER, CONSOLIDATION, OR SALE OF ASSETS.
The Company may not consolidate or merge with or into (whether
or not the Company is the surviving entity), or sell, assign, transfer, lease,
convey or otherwise dispose of all or substantially all of its properties or
assets in one or more related transactions, to another Person, unless:
(i) the Company is the surviving entity, or the Person
formed by or surviving any such consolidation or merger (if other than
the Company) or to which such sale, assignment, transfer, lease,
conveyance or other disposition shall have been made is a corporation
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organized or existing under the laws of the United States, any state
thereof or the District of Columbia;
(ii) the Person formed by or surviving any such
consolidation or merger (if other than the Company) or the Person to
which such sale, assignment, transfer, lease, conveyance or other
disposition shall have been made assumes all the obligations of the
Company under the Notes and this Indenture pursuant to a supplemental
indenture in a form reasonably satisfactory to the Trustee;
(iii) immediately after giving effect to such transaction,
no Default or Event of Default exists or would exist;
(iv) except in the case of a merger of the Company with or
into a Wholly Owned Restricted Subsidiary of the Company, the Company
or the Person formed by or surviving any such consolidation or merger
(if other than the Company) or to which such sale, assignment,
transfer, lease, conveyance or other disposition shall have been made
(A) will (treating any Indebtedness not previously an obligation of
the Company or any of its Restricted Subsidiaries as a result of such
transaction as having been Incurred at the time of such transaction)
have Consolidated Net Worth immediately after the transaction equal to
or greater than the Consolidated Net Worth of the Company immediately
preceding the transaction and (B) will, at the time of such
transaction and after giving pro forma effect thereto as if such
transaction had occurred at the beginning of the applicable fiscal
quarter, be permitted to Incur at least $1.00 of additional
Indebtedness pursuant to the Leverage Ratio test set forth in Section
4.9(a); and
(v) the Company shall have delivered to the Trustee an
Officers' Certificate and an Opinion of Counsel, each stating that
such consolidation, merger or transfer and such supplemental indenture
(if any) comply with this Indenture.
For purposes of the foregoing, the transfer (by lease,
assignment, sale or otherwise, in a single transaction or series of
transactions) of all or substantially all of the properties or assets of one or
more of the Restricted Subsidiaries of the Company, the Capital Stock of which
constitutes all or substantially all of the properties and assets of the
Company, shall be deemed to be the transfer of all or substantially all of the
properties and assets of the Company.
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SECTION 5.2. SUCCESSOR COMPANY SUBSTITUTED.
Upon any consolidation or merger or any transfer of all or
substantially all of the assets of the Company and its Restricted Subsidiaries
taken as a whole in accordance with Section 5.1 hereof, the successor
corporation formed by such consolidation or into which the Company is merged or
to which such transfer is made, shall succeed to, and be substituted for, and
may exercise every right and power of the Company under this Indenture with the
same effect as if such successor corporation had been named as the Company
herein; and thereafter, if the Company is dissolved following a transfer of all
or substantially all of its assets in accordance with this Indenture, the
Company shall be discharged and released from all obligations and covenants
under this Indenture and the Notes. The Trustee shall enter into a
supplemental indenture to evidence the succession and substitution of such
successor Person and such discharge and release of the Company.
ARTICLE 6
DEFAULTS AND REMEDIES
SECTION 6.1. EVENTS OF DEFAULT.
An "Event of Default" occurs if one of the following shall
have occurred (whatever the reason for such Event of Default and whether it
shall be voluntary or involuntary or be effected by operation of law or
pursuant to any judgment, decree or order of any court or any order, rule or
regulation of any administrative or governmental body):
(a) the Company defaults in the payment of interest or Liquidated
Damages on the Notes when the same become due and payable, which default
continues for a period of 30 calendar days (provided that such 30-day
grace period shall be inapplicable for the first six Interest Payment
Dates);
(b) the Company defaults in the payment of the principal of or
premium, if any, on the Notes when the same become due and payable whether
at maturity, by acceleration, upon redemption or repurchase, or otherwise;
(c) the Company or a Restricted Subsidiary fails to comply with
any of its obligations under Articles 5, 10 or 11 or Sections 4.10 or
4.14;
(d) the Company or any Restricted Subsidiary of the Company fails
to comply with any of its covenants or agreements in the Notes, this
Indenture or the Pledge Agreement (other than those referred to in clauses
(a), (b) and (c) above and (i) below) and such failure continues for 30
calendar days after receipt by the Company of a notice of default
specifying such Default;
(e) 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 Company or any of its
Restricted Subsidiaries (or the payment of which is Guaranteed
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by the Company or any of its Restricted Subsidiaries), whether such
Indebtedness or Guarantee now exists or is created after the date of this
Indenture, which default (i) is caused by a failure to pay principal of or
premium, if any, or interest on such Indebtedness following the expiration
of the grace period provided in such Indebtedness on the date of such
default (a "Payment Default") or (ii) results in the acceleration of such
Indebtedness (including any obligation to redeem or repurchase 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 $5
million or more;
(f) failure by the Company or any of its Restricted Subsidiaries
to pay final non-appealable judgments rendered against the Company or any
of its Restricted Subsidiaries aggregating in excess of $5 million, which
judgments are not paid, discharge or stayed for a period of 60 calendar
days after such judgments become final and non-appealable;
(g) the Company or any Restricted Subsidiary of the Company
pursuant to or within the meaning of any Bankruptcy Law: (i) commences a
voluntary case or proceeding, (ii) consents to the entry of an order for
relief against it in an involuntary case or proceeding, (iii) consents to
the appointment of a Custodian of it or for all or substantially all of
its property, (iv) makes a general assignment for the benefit of its
creditors, or (v) admits in writing its inability to pay its debts
generally as they become due;
(h) a court of competent jurisdiction enters an order or decree
under any Bankruptcy Law that: (i) is for relief against the Company or
any Restricted Subsidiary of the Company in an involuntary case or
proceeding, (ii) appoints a Custodian of the Company or any Restricted
Subsidiary of the Company or for all or substantially all of its
respective properties, (iii) orders the liquidation of the Company or any
Restricted Subsidiary of the Company, (iv) adjudicates the Company or any
Restricted Subsidiary of the Company as bankrupt or insolvent, or (v)
ratifies an accord or composition in bankruptcy between the Company or a
Restricted Subsidiary and the respective creditors thereof; and in each
case the order or decree remains unstayed and in effect for 60 calendar
days;
(i) breach by the Company of any representation or warranty set
forth in the Pledge Agreement, or default by the Company in the
performance of any covenant set forth in the Pledge Agreement and the
expiration of any cure period set forth therein, or repudiation by the
Company of any of its obligations under the Pledge Agreement or the
unenforceability of the Pledge Agreement against the Company for any
reason (other than as permitted pursuant to the terms thereof), which in
any one of the foregoing cases or in the aggregate results in a material
impairment of the rights intended to be afforded thereby; or
(j) any Guarantee of the Notes shall be held in a judicial
proceeding to be unenforceable or invalid or shall cease for any reason to
be in full force and effect, or any Restricted Subsidiary, or any Person
acting on behalf of any Restricted Subsidiary, shall deny or disaffirm its
obligations under its Guarantee of any Notes.
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A Default under clause (d) above is not an Event of Default
until the Trustee notifies the Company, or the Holders of at least 25% in
aggregate principal amount of the Notes at the time outstanding notify the
Company and the Trustee, of the Default and the Company does not cure such
Default within the time period specified in clause (d) above after receipt of
such notice. Such notice must be in writing and specify the Default, demand
that it be remedied and state that the notice is a "Notice of Default."
SECTION 6.2. ACCELERATION.
If any Event of Default (other than an Event of Default
described in clauses (g) and (h) of Section 6.1 hereof) occurs and is
continuing, then the Trustee or the Holders of at least 25% in aggregate
principal amount of the then outstanding Notes by written notice to the Company
(and to the Trustee, if given by the Holders) may declare the unpaid principal
of, and any accrued interest on, all the Notes to be due and payable
immediately. If any Event of Default specified in clauses (g) or (h) of
Section 6.1 hereof occurs, all outstanding principal and interest on the Notes
shall be immediately due and payable without any declaration or other act on
the part of the Trustee or any Holder. The Holders of a majority in aggregate
principal amount of the Notes then outstanding, by written notice to the
Trustee and to the Company, may rescind an acceleration (except an acceleration
due to a default in payment of the principal of or premium, interest or
Liquidated Damages on any of the Notes) if the rescission would not conflict
with any judgment or decree and if all existing Events of Default (except
nonpayment of principal, premium, interest or Liquidated Damages that have
become due solely because of the acceleration) have been cured or waived.
In the case of any Event of Default occurring by reason of any
willful action (or inaction) taken (or not taken) by or on behalf of the
Company or a Restricted Subsidiary with the intention of avoiding payment of
the premium that the Company would have had to pay if the Company then had
elected to redeem the Notes pursuant to Section 3.7(a), an equivalent premium
shall also become and be immediately due and payable to the extent permitted by
law upon the acceleration of the Notes. If an Event of Default occurs prior to
September 15, 2001 by reason of any willful action (or inaction) taken (or not
taken) by or on behalf of the Company or a Restricted Subsidiary with the
intention of avoiding the prohibition on redemption of the Notes prior to such
date, then the premium specified in Section 3.7(b) shall also become
immediately due and payable to the extent permitted by law upon the
acceleration of the Notes.
SECTION 6.3. OTHER REMEDIES.
Subject to Section 6.2, if an Event of Default occurs and is
continuing, the Trustee may pursue any available remedy by proceeding at law or
in equity to collect any payment due on the Notes or to enforce the performance
of any provision of the Notes or this Indenture.
The Trustee may maintain a proceeding even if it does not
possess any of the Notes or does not produce any of them in the proceeding. A
delay or omission by the Trustee or any Holder of a Note in exercising any
right or remedy accruing upon an Event of Default shall not
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impair the right or remedy or constitute a waiver of or acquiescence in the
Event of Default. All remedies are cumulative to the extent permitted by law.
SECTION 6.4. WAIVER OF PAST DEFAULTS.
Subject to Section 9.2, Holders of a majority in aggregate
principal amount of the then outstanding Notes by notice to the Trustee may, on
behalf of the Holders of all of the Notes, waive an existing Default or Event
of Default and its consequences hereunder except a continuing Default or Event
of Default in the payment of the principal of or premium, interest or
Liquidated Damages on the Notes. Upon any such waiver, such Default shall
cease to exist, and any Event of Default arising therefrom shall be deemed to
have been cured for every purpose of this Indenture; but no such waiver shall
extend to any subsequent or other Default or impair any right consequent
thereon.
SECTION 6.5. CONTROL BY MAJORITY.
The Holders of a majority in aggregate principal amount of the
Notes then outstanding may direct the time, method and place of conducting any
proceeding for any remedy available to the Trustee or exercising any trust or
power conferred on it. However, the Trustee may refuse to follow any direction
that conflicts with law or this Indenture or that the Trustee determines may be
unduly prejudicial to the rights of another Holder or that involves the Trustee
in personal liability. The Trustee may take any other action deemed proper by
the Trustee that is not inconsistent with such direction.
SECTION 6.6. LIMITATION ON SUITS.
Subject to the provisions of Section 6.7 hereof, no Holder of
a Note may pursue any remedy with respect to this Indenture or the Notes
(including without limitation the institution of any proceeding, judicial or
otherwise, with respect to the Notes or this Indenture or for the appointment
of a receiver or trustee for the Company and/or any of its Subsidiaries)
unless:
(a) the Holder has given to the Trustee written notice of a
continuing Event of Default;
(b) the Holders of at least 25% in aggregate principal amount of
the Notes then outstanding have made a written request to the Trustee to
pursue the remedy;
(c) such Holders have offered to provide to the Trustee indemnity
reasonably satisfactory to the Trustee against any loss, liability or
expense;
(d) the Trustee has not complied with the request within 60
calendar days after receipt of the request and the offer of indemnity; and
(e) during such 60-day period, the Holders of a majority in
aggregate principal amount of the Notes then outstanding have not given the
Trustee a direction which, in the opinion of the Trustee, is inconsistent
with the request.
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A Holder of a Note may not use this Indenture to prejudice the
rights of another Holder of a Note or to obtain a preference or priority over
another Holder of a Note.
SECTION 6.7. RIGHTS OF HOLDERS OF NOTES TO RECEIVE PAYMENT.
Notwithstanding any other provision of this Indenture, the
right of any Holder of a Note to receive payment of principal of, and premium,
if any, and interest on, the Note, on or after the respective due dates
expressed in the Note (including in connection with an offer to purchase), or
to bring suit for the enforcement of any such payment on or after such
respective dates, shall not be impaired or affected without the consent of such
Holder.
SECTION 6.8. COLLECTION SUIT BY TRUSTEE.
If an Event of Default specified in Section 6.1(a) or (b)
occurs and is continuing, the Trustee is authorized to recover judgment in its
own name and as trustee of an express trust against the Company for principal
of, and premium, if any, and interest on, the Notes and interest on overdue
principal and, to the extent lawful, interest, and such further amount as shall
be sufficient to cover the costs and expenses of collection, including the
reasonable compensation, expenses, disbursements and advances of the Trustee,
its agents and counsel.
SECTION 6.9. TRUSTEE MAY FILE PROOFS OF CLAIM.
The Trustee is authorized to file such proofs of claim and
other papers or documents as may be necessary or advisable in order to have the
claims of the Trustee (including any claim for the reasonable compensation,
expenses, disbursements and advances of the Trustee, its agents and counsel)
and the Holders of the Notes allowed in any judicial proceedings relative to
the Company (or any other obligor upon the Notes), its creditors or its
property and shall be entitled and empowered to collect, receive and distribute
any money or other property payable or deliverable on any such claims and any
custodian in any such judicial proceeding is hereby authorized by each Holder
to make such payments to the Trustee, and in the event that the Trustee shall
consent to the making of such payments directly to the Holders, to pay to the
Trustee any amount due to it for the reasonable compensation, expenses,
disbursements and advances of the Trustee, its agents and counsel, and any
other amounts due the Trustee under Section 7.7 hereof. To the extent that the
payment of any such reasonable compensation, expenses, disbursements and
advances of the Trustee, its agents and counsel, and any other amounts due the
Trustee under Section 7.7 hereof out of the estate in any such proceeding,
shall be denied for any reason, payment of the same shall be secured by a Lien
on, and shall be paid out of, any and all distributions, dividends, money,
securities and other properties that the Holders may be entitled to receive in
such proceeding whether in liquidation or under any plan of reorganization or
arrangement or otherwise. Nothing herein
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contained shall be deemed to authorize the Trustee to authorize or consent to
or accept or adopt on behalf of any Holder any plan of reorganization,
arrangement, adjustment or composition affecting the Notes or the rights of any
Holder, or to authorize the Trustee to vote in respect of the claim of any
Holder in any such proceeding.
SECTION 6.10. PRIORITIES.
If the Trustee collects any money pursuant to this Article 6,
it shall pay out the money in the following order:
First: to the Trustee for amounts due under Section 7.7
hereof, including payment of all compensation, expense and liabilities
incurred, and all advances made, by the Trustee and the costs and expenses of
collection;
Second: to Holders of Notes for amounts due and unpaid on the
Notes for principal, premium, if any, interest, and Liquidated Damages, if any,
ratably, without preference or priority of any kind, according to the amounts
due and payable on the Notes for principal, premium, if any, and interest,
respectively; and
Third: the remainder to the Company or to such party as a
court of competent jurisdiction shall direct.
The Trustee may fix a record date and payment date for any
payment to Holders of Notes pursuant to this Section 6.10. At least 15
calendar days before such record date, the Company shall mail to each Holder
and the Trustee a notice that states the record date, the payment date and the
amount to be paid.
SECTION 6.11. UNDERTAKING FOR COSTS.
In any suit for the enforcement of any right or remedy under
this Indenture or in any suit against the Trustee for any action taken or
omitted by it as a Trustee, each party to this Indenture agrees, and each
Holder by its acceptance of its Notes shall be deemed to have agreed, that any
court in its discretion may require the filing by any party litigant in the
suit of an undertaking to pay the costs of the suit, and the court in its
discretion may assess reasonable costs, including reasonable attorneys' fees,
against any party litigant in the suit, having due regard to the merits and
good faith of the claims or defenses made by the party litigant. This Section
does not apply to a suit by the Trustee, a suit by a Holder of a Note pursuant
to Section 6.7 hereof, or a suit by Holders of more than 10% in principal
amount of the then outstanding Notes.
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ARTICLE 7
TRUSTEE
SECTION 7.1. DUTIES OF TRUSTEE.
(a) If an Event of Default has occurred and is
continuing, the Trustee shall exercise such of the rights and powers vested in
it by this Indenture, and use the same degree of care and skill in its
exercise, as a prudent Person would exercise or use under the circumstances in
the conduct of its own affairs.
(b) Except during the continuance of an Event of Default:
(i) the Trustee shall not be liable hereunder
except for such duties of the Trustee which shall be
determined solely by the express provisions of this Indenture
and the Trustee need perform only those duties that are
specifically set forth in this Indenture and no others, and no
implied covenants or obligations shall be read into this
Indenture against the Trustee; and
(ii) in the absence of bad faith on its part, the
Trustee may conclusively rely, as to the truth of the
statements and the correctness of the opinions expressed
therein, upon certificates or opinions furnished to the
Trustee and conforming to the requirements of this Indenture.
However, the Trustee shall examine the certificates and
opinions to determine whether or not such documents conform to
the requirements of this Indenture.
(c) The Trustee may not be relieved from liabilities for
its own negligent action, its own negligent failure to act, or its own willful
misconduct, except that:
(i) this paragraph does not limit the effect of
paragraph (b) of this Section;
(ii) the Trustee shall not be liable for any error
of judgment made in good faith by a Responsible Officer,
unless it is proved that the Trustee was negligent in
ascertaining the pertinent facts; and
(iii) the Trustee shall not be liable with respect
to any action it takes or omits to take in good faith in
accordance with a direction received by it pursuant to Section
6.5 hereof.
(d) Whether or not therein expressly so provided, every
provision of this Indenture that in any way relates to the Trustee is subject
to paragraphs (a), (b), and (c) of this Section 7.1.
(e) No provision of this Indenture shall require the
Trustee to expend or risk its own funds or incur any liability whatsoever in
the performance of any of its duties hereunder or in the exercise of any of its
rights or powers hereunder. The Trustee shall be under no obligation to
exercise any of its rights and powers under this Indenture at the request of
any Holders, unless such Holder shall have offered to the Trustee security and
indemnity satisfactory to it in its sole subjective discretion (which
discretion shall be exercised in good faith) against any loss, liability or
expense.
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(f) The Trustee shall not be liable for interest on any
money received by it except as the Trustee may agree in writing with the
Company. Money held in trust by the Trustee need not be segregated from other
funds except to the extent required by law.
(g) Every provision of this Indenture relating to the
conduct or affecting the liability of or affording protection to the Trustee
shall be subject to the provision of this Section 7.1 and to the provisions of
the TIA.
SECTION 7.2. RIGHTS OF TRUSTEE.
(a) Subject to Section 7.1, the Trustee may conclusively
rely upon any document believed by it to be genuine and to have been signed or
presented by the proper Person. The Trustee need not investigate any fact or
matter stated in the document.
(b) Before the Trustee acts or refrains from acting, it
may consult with counsel and require an Officers' Certificate or an Opinion of
Counsel or both. The Trustee shall not be liable for any action it takes or
omits to take in good faith in reliance on such Officers' Certificate or
Opinion of Counsel.
(c) The Trustee may act through its attorneys and agents
and shall not be responsible for the misconduct or negligence of any agent
appointed with due care.
(d) The Trustee shall not be liable for any action it
takes or omits to take in good faith that it believes in its sole subjective
discretion (which discretion shall be exercised in good faith) to be authorized
or within the rights or powers conferred upon it by this Indenture.
(e) The permissive right of the Trustee to act hereunder
shall not be construed as a duty.
(f) Unless otherwise specifically provided in this
Indenture, any demand, request, direction or notice from the Company shall be
sufficient if signed by an Officer of the Company.
(g) The Trustee shall be under no obligation to exercise
any of the rights or powers vested in it by this Indenture at the request or
direction of any of the Holders unless such Holders shall have offered to the
Trustee security or indemnity satisfactory to the Trustee in its sole
subjective discretion (which discretion shall be exercised in good faith)
against the costs, expenses and liabilities that might be incurred by it in
compliance with such request or direction.
(h) The Trustee shall not be required to take notice or
deemed to have notice of any Event of Default hereunder, except failure by the
Company to make any of the payments to the Trustee pursuant to Section 6.1(a)
or Section 6.1(b) hereof, unless the Trustee shall be specifically notified in
writing of such Event of Default by the Company or by one or more of the
Holders.
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SECTION 7.3. INDIVIDUAL RIGHTS OF TRUSTEE.
The Trustee in its individual or any other capacity may become
the owner or pledgee of Notes and may otherwise deal with the Company or any
Affiliate of the Company with the same rights it would have if it were not
Trustee. However, in the event that the Trustee acquires any conflicting
interest (as such term is defined in TIA Section 310(b)), it must eliminate
such conflict within 90 days, apply to the SEC for permission to continue as
trustee (to the extent permitted under TIA Section 310(b)) or resign. Any
Agent may do the same with like rights and duties. The Trustee is also subject
to Sections 7.10 and 7.11 hereof.
SECTION 7.4. TRUSTEE'S DISCLAIMER.
The Trustee shall not be responsible for and makes no
representation as to the validity or adequacy of this Indenture or the Notes,
it shall not be accountable for the Company's use of the proceeds from the
Notes or any money paid to the Company or upon the Company's direction under
any provision of this Indenture, it shall not be responsible for the use or
application of any money received by any Paying Agent other than the Trustee,
and it shall not be responsible for any statement or recital herein or any
statement in the Notes or any other document in connection with the sale of the
Notes or pursuant to this Indenture other than its certificate of
authentication.
SECTION 7.5. NOTICE OF DEFAULTS.
If a Default or Event of Default occurs and is continuing and
if it is actually known to the Trustee, the Trustee shall mail to Holders of
Notes a notice of the Default or Event of Default within 90 days after such
event occurs. Except in the case of a Default or Event of Default under
Section 6.1(a) or (b), the Trustee may withhold such notice if it determines
that withholding the notice is in the interests of the Holders of the Notes.
SECTION 7.6. REPORTS BY TRUSTEE TO HOLDERS OF THE NOTES.
Within 60 days after each May 15 beginning with the May 15
following the date of this Indenture, and for so long as Notes remain
outstanding, the Trustee shall mail to the Holders of the Notes a brief report
dated as of such reporting date that complies with TIA Section 313(a) (but if
no event described in TIA Section 313(a) has occurred within the twelve months
preceding the reporting date, no report need be transmitted). The Trustee also
shall comply with TIA Section 313(b)(2). The Trustee shall also transmit by
mail all reports as required by TIA Section 313(c).
A copy of each report at the time of its mailing to the
Holders of Notes shall be mailed to the Company and filed with the SEC and each
stock exchange, if any, on which the Notes are listed in accordance with and to
the extent required by TIA Section 313(d). The Company shall promptly notify
the Trustee if the Notes become listed on any stock exchange or automatic
quotation system.
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SECTION 7.7. COMPENSATION AND INDEMNITY.
The Company shall pay to the Trustee from time to time
reasonable compensation as shall be agreed upon between the Company and the
Trustee for its acceptance of this Indenture and services hereunder, including
extraordinary services such as default administration. The Trustee's
compensation shall not be limited by any law on compensation of a trustee of an
express trust. The Company shall reimburse the Trustee promptly upon request
for all reasonable disbursements, advances and expenses incurred or made by it
in addition to the compensation for its services. Such expenses shall include
the reasonable compensation, disbursements and expenses of the Trustee's agents
and counsel.
The Company shall indemnify the Trustee against any and all
losses, liabilities or expenses incurred by it arising out of or in connection
with the acceptance or administration of its duties under this Indenture,
including the costs and expenses of enforcing this Indenture against the
Company (including this Section 7.7) and defending itself against any claim
(whether asserted by the Company or any Holder or any other Person) or
liability in connection with the exercise or performance of any of its powers
or duties hereunder, except to the extent any such loss, liability or expense
may be attributable to its negligence or bad faith. The Trustee shall promptly
notify the Company of any claim for which it may seek indemnity. The Company
shall defend the claim and the Trustee shall cooperate in the defense. The
Trustee may have separate counsel and the Company shall pay the reasonable fees
and expenses of such counsel; provided that the Company will not be required to
pay such fees and expenses if it assumes the Trustee's defense with counsel
acceptable to and approved by the Trustee (such approval not to be unreasonably
withheld) and there is no conflict of interest between the Company and the
Trustee in connection with such defense. The Company need not pay for any
settlement made without its written consent, which consent shall not be
unreasonably withheld. The Company need not reimburse the Trustee for any
expense or indemnity against any liability or loss of the Trustee to the extent
such expense, liability or loss is attributable to the negligence, bad faith or
willful misconduct of the Trustee.
The obligations of the Company under this Section 7.7 shall
survive the satisfaction and discharge of this Indenture.
To secure the Company's payment obligations in this Section,
the Trustee shall have a Lien prior to the Notes on all money or property held
or collected by the Trustee, except that held in trust to pay principal and
interest on particular Notes. Such Lien shall survive the satisfaction and
discharge of this Indenture.
When the Trustee incurs expenses or renders services after an
Event of Default specified in Section 6.1(g) or (h) hereof occurs, the expenses
and the compensation for the services (including the fees and expenses of its
agents and counsel) are intended to constitute expenses of administration under
any Bankruptcy Law.
The Trustee shall comply with the provisions of TIA Section
313(b)(2).
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SECTION 7.8. REPLACEMENT OF TRUSTEE.
A resignation or removal of the Trustee and appointment of a
successor Trustee shall become effective only upon the successor Trustee's
acceptance of appointment as provided in this Section.
The Trustee may resign in writing upon 60 days notice and be
discharged from the trust hereby created by so notifying the Company in
writing. The Holders of Notes of a majority in principal amount of the then
outstanding Notes may remove the Trustee by so notifying the Trustee and the
Company in writing and may appoint a successor trustee with the consent of the
Company. The Company may remove the Trustee if:
(a) the Trustee fails to comply with Section 7.10 hereof;
(b) the Trustee is adjudged a bankrupt or an insolvent or an order
for relief is entered with respect to the Trustee under any Bankruptcy
Law;
(c) a receiver, Custodian or public officer takes charge of the
Trustee or its property; or
(d) the Trustee becomes incapable of acting.
If the Trustee resigns or is removed or if a vacancy exists in
the office of Trustee for any reason, the Company shall promptly appoint or
request the Trustee to appoint a successor Trustee. Within one year after the
successor Trustee takes office, the Holders of a majority in principal amount
of the then outstanding Notes may appoint a successor Trustee to replace the
successor Trustee appointed by the Company.
If a successor Trustee does not take office within 60 days
after the retiring Trustee resigns or is removed, the retiring Trustee, the
Company, or the Holders of Notes of at least 10% in principal amount of the
then outstanding Notes may petition any court of competent jurisdiction for the
appointment of a successor Trustee.
If the Trustee, after written request by any Holder of a Note
who has been a Holder of a Note for at least six months, fails to comply with
Section 7.10, such Holder of a Note may petition any court of competent
jurisdiction for the removal of the Trustee and the appointment of a successor
Trustee.
A successor Trustee shall deliver a written acceptance of its
appointment to the retiring Trustee and to the Company. Thereupon, the
resignation or removal of the retiring Trustee shall become effective, and the
successor Trustee shall have all the rights, powers and duties of the Trustee
under this Indenture. The successor Trustee shall mail a notice of its
succession to Holders of the Notes. The retiring Trustee shall promptly
transfer all property held by it as Trustee to the successor Trustee, provided
all sums owing to the Trustee hereunder have been paid and subject to the Lien
provided for in Section 7.7 hereof. Notwithstanding replacement of the Trustee
pursuant
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to this Section 7.8, the Company's obligations under Section 7.7 hereof shall
continue for the benefit of the retiring Trustee.
SECTION 7.9. SUCCESSOR TRUSTEE BY MERGER, ETC.
If the Trustee consolidates, merges or converts into, or
transfers all or substantially all of its corporate trust business to, another
corporation, the successor corporation without any further act shall be the
successor Trustee.
SECTION 7.10. ELIGIBILITY; DISQUALIFICATION.
There shall at all times be a Trustee hereunder that is a
corporation organized and doing business under the laws of the United States of
America or of any state thereof that is authorized under such laws to exercise
corporate trustee power, that is subject to supervision or examination by
federal or state authorities and that has a combined capital and surplus of at
least $100 million as set forth in its most recent published annual report of
condition.
This Indenture shall always have a Trustee who satisfies the
requirements of TIA Section 310(a)(1), (2) and (5). The Trustee is subject to
TIA Section 310(b).
SECTION 7.11. PREFERENTIAL COLLECTION OF CLAIMS AGAINST COMPANY.
The Trustee is subject to TIA Section 311(a), excluding any
creditor relationship listed in TIA Section 311(b). A Trustee who has
resigned or been removed shall be subject to TIA Section 311(a) to the extent
indicated therein.
ARTICLE 8
DEFEASANCE AND DISCHARGE
SECTION 8.1. OPTION TO EFFECT LEGAL DEFEASANCE OR COVENANT DEFEASANCE.
The Company may, at the option of its Board of Directors
evidenced by a resolution set forth in an Officers' Certificate, at any time,
elect to have either Section 8.2 or 8.3 hereof be applied to all outstanding
Notes upon compliance with the conditions set forth below in this Article 8.
SECTION 8.2. LEGAL DEFEASANCE.
Upon the Company's exercise under Section 8.1 hereof of the
option applicable to this Section 8.2, the Company shall, subject to the
satisfaction of the conditions set forth in Section 8.4 hereof, be deemed to
have been discharged from its obligations with respect to all outstanding Notes
and all obligations of the Restricted Subsidiaries under the Subsidiary
Guarantees on the date the conditions set forth below are satisfied
(hereinafter, "Legal Defeasance"). For this purpose,
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Legal Defeasance means that the Company shall be deemed to have paid and
discharged the entire Indebtedness represented by the outstanding Notes, which
shall thereafter be deemed to be "outstanding" only for the purposes of Section
8.6 hereof and the other Sections of this Indenture referred to in (a) and (b)
below, and to have satisfied all its other obligations under such Notes and
this Indenture (and the Trustee, on demand of and at the expense of the
Company, shall execute proper instruments acknowledging the same), except for
the following provisions which shall survive until otherwise terminated or
discharged pursuant to this Indenture: (a) the rights of Holders of
outstanding Notes to receive solely from the trust fund described in Section
8.4 hereof, and as more fully set forth in such Section, payments in respect of
the principal of and premium, if any, interest and Liquidated Damages, if any,
on such Notes when such payments are due, (b) the Company's obligations with
respect to such Notes under Sections 2.3, 2.4, 2.6, 2.7, 2.10 and 4.2 hereof,
(c) the rights, powers, trusts, duties and immunities of the Trustee hereunder
and the Company's obligations in connection therewith and (d) this Article 8.
Subject to compliance with this Article 8, the Company may exercise its option
under this Section 8.2 notwithstanding the prior exercise of its option under
Section 8.3 hereof.
SECTION 8.3. COVENANT DEFEASANCE.
Upon the Company's exercise under Section 8.1 hereof of the
option applicable to this Section 8.3, and subject to the satisfaction of the
conditions set forth in Section 8.4 hereof, the Company and the Subsidiary
Guarantors shall be released from their obligations under the covenants
contained in Sections 4.3, 4.4, 4.5, 4.7, 4.8, 4.9, 4.10, 4.11, 4.12, 4.13,
4.14, 4.15, 4.16, 4.17, 4.18, 5.1 and 5.2 and Articles 10 and 11 with respect
to the outstanding Notes on and after the date the conditions set forth below
are satisfied (hereinafter, "Covenant Defeasance"), and the Notes shall
thereafter be deemed not "outstanding" for the purposes of any direction,
waiver, consent or declaration or act of Holders (and the consequences of any
thereof) in connection with such covenants, but shall continue to be deemed
"outstanding" for all other purposes hereunder (it being understood that such
Notes shall not be deemed outstanding for accounting purposes). For this
purpose, Covenant Defeasance means that, with respect to the outstanding Notes,
the Company may omit to comply with and shall have no liability in respect of
any term, condition or limitation set forth in any such covenant, whether
directly or indirectly, by reason of any reference elsewhere herein to any such
covenant or by reason of any reference in any such covenant to any other
provision herein or in any other document and such omission to comply shall not
constitute a Default or an Event of Default under Section 6.1 hereof, but,
except as specified above, the remainder of this Indenture and such Notes shall
be unaffected thereby. In addition, upon the Company's exercise under Section
8.1 hereof of the option applicable to this Section 8.3 hereof, subject to the
satisfaction of the conditions set forth in Section 8.4 hereof, Sections
6.1(e), 6.1(f), 6.1(i) and 6.1(j) hereof shall not constitute Events of
Default.
SECTION 8.4. CONDITIONS TO LEGAL OR COVENANT DEFEASANCE.
The following shall be the conditions to application of either
Section 8.2 or Section 8.3 to the outstanding Notes:
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(a) The Company must irrevocably deposit, or caused to be
deposited, with the Trustee (or another trustee satisfying the requirements of
this Indenture), in trust for such purpose, specifically pledged as security
for the benefit of the Holders of the Notes, (1) cash in U.S. dollars in an
amount, (2) non-callable Government Securities which through the payment of
principal and interest in accordance with their terms will provide money in an
amount, or (3) a combination thereof, in such amounts, as will be sufficient,
without reinvestment (and without other assets, including without limitation,
the Pledged Securities and other assets held pursuant to the Pledge Agreement),
in the opinion of a nationally recognized firm of independent public
accountants expressed in a written certification thereof delivered to the
Trustee, to pay the principal of and premium, if any, interest and Liquidated
Damages, if any, on the outstanding Notes on the stated maturity or on the
applicable redemption date, as the case may be, together with all other amounts
payable by the Company under this Indenture.
(b) In the case of an election under Section 8.2, the
Company shall have delivered to the Trustee an Opinion of Counsel in the United
States reasonably acceptable to the Trustee confirming that (i) the Company has
received from, or there has been published by, the Internal Revenue Service a
ruling or (ii) since the date hereof, there has been a change in the applicable
federal income tax law, in either case to the effect that, and based thereon
such Opinion of Counsel shall confirm that, the Holders of the outstanding
Notes will not recognize income, gain or loss for federal income tax purposes
as a result of such Legal Defeasance and will be subject to federal income tax
on the same amounts, in the same manner and at the same times as would have
been the case if such Legal Defeasance had not occurred.
(c) In the case of an election under Section 8.3, the
Company shall have delivered to the Trustee an Opinion of Counsel in the United
States reasonably acceptable to the Trustee confirming that the Holders of the
outstanding Notes will not recognize income, gain or loss for federal income
tax purposes as a result of such Covenant Defeasance and will be subject to
federal income tax on the same amounts, in the same manner and at the same
times as would have been the case if such Covenant Defeasance had not occurred.
(d) No Default or Event of Default shall have occurred
and be continuing on the date of such deposit or insofar as Sections 6.1(g) and
(h) are concerned, at any time in the period ending on the 91st day after the
date of deposit (it being understood that this condition shall not be deemed
satisfied until the expiration of such period).
(e) Such Legal Defeasance or Covenant Defeasance will not
result in a breach or violation of, or constitute a default under any material
agreement or instrument to which the Company or any of its Subsidiaries is a
party or by which the Company or any of its Subsidiaries is bound.
(f) The Company shall have delivered to the Trustee an
Officers' Certificate stating that the deposit was not made by the Company with
the intent of preferring the Holders of Notes over the other creditors of the
Company with the intent of defeating, hindering, delaying or defrauding
creditors of the Company or others.
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(g) The Company shall have delivered to the Trustee an
Officers' Certificate and an Opinion of Counsel, each stating that all
conditions precedent provided for relating to either the Legal Defeasance under
Section 8.2 or the Covenant Defeasance under Section 8.3, as the case may be,
have been complied with as contemplated by this Section 8.4.
SECTION 8.5. DISCHARGE.
This Indenture will be discharged and will cease to be of
further effect (except as to surviving rights of registration of transfer or
exchange of Notes) as to all outstanding Notes ("Discharge") when (i) either
(a) all such Notes theretofore authenticated and delivered (except lost, stolen
or destroyed Notes that have been replaced or paid and Notes for whose payment
money has theretofore been deposited in trust with the Trustee and thereafter
repaid to the Company or discharged from such trust) have been delivered to the
Trustee for cancellation; or (b) all such Notes not theretofore delivered to
the Trustee for cancellation have become due and payable, will become due and
payable by their terms within one year, or are to be called for redemption
within one year under arrangements satisfactory to the Trustee for the giving
of notice of redemption, and in each case the Company has irrevocably deposited
or caused to be deposited with the Trustee, as trust funds solely for the
benefit of the Holders for that purpose, funds in an amount of money in U.S.
dollars sufficient to pay and discharge the entire indebtedness on the Notes
not theretofore delivered to the Trustee for cancellation, for the principal
amount, premium, if any, accrued and unpaid interest, and Liquidated Damages,
if any, to the date of such deposit together with irrevocable instructions from
the Company directing the Trustee to apply such funds to the payment thereof;
(ii) the Company has paid all other sums payable by it under this Indenture;
and (iii) the Company has delivered irrevocable instructions to the Trustee to
apply the deposited money toward the payment of the Notes at maturity, as the
case may be. In addition, the Company must deliver an Officers' Certificate
and an Opinion of Counsel stating that all conditions precedent under this
Indenture to satisfaction and discharge have been complied with.
SECTION 8.6. DEPOSITED MONEY AND GOVERNMENT SECURITIES TO BE HELD IN TRUST;
OTHER MISCELLANEOUS PROVISIONS.
Subject to Section 8.7 hereof, all money and Government
Securities (including the proceeds thereof) deposited with the Trustee (or
other qualifying trustee, collectively for purposes of this Section 8.6, the
"Trustee") pursuant to Section 8.4 or 8.5 hereof in respect of the outstanding
Notes shall be held in trust and applied by the Trustee, in accordance with the
provisions of such Notes and this Indenture, to the payment, either directly or
through any Paying Agent (including the Company or any of its Subsidiaries or
Affiliates acting as Paying Agent) as the Trustee may determine, to the Holders
of such Notes of all sums due and to become due thereon in respect of
principal, premium, if any, interest and Liquidated Damages, if any, but such
money need not be segregated from other funds except to the extent required by
law.
The Company shall pay and indemnify the Trustee against any
tax, fee or other charge imposed on or assessed against the cash or Government
Securities deposited pursuant to this Section 8.6 or the principal and interest
received in respect thereof other than any such tax, fee or other charge which
by law is for the account of the Holders of the outstanding Notes.
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Anything in this Article 8 to the contrary notwithstanding,
the Trustee shall deliver or pay to the Company from time to time upon the
request of the Company any money or Government Securities held by it as
provided in this Section 8.6 which, in the opinion of a nationally recognized
firm of independent public accountants expressed in a written certification
thereof delivered to the Trustee (which may be the opinion delivered under
Section 8.4 hereof), are in excess of the amount thereof that would then be
required to be deposited to effect an equivalent Legal Defeasance, Covenant
Defeasance or Discharge.
SECTION 8.7. REPAYMENT TO COMPANY.
Any money deposited with the Trustee or any Paying Agent, or
then held by the Company or any of its Subsidiaries or Affiliates, in trust for
the payment of the principal of or premium, if any, interest or Liquidated
Damages, if any, on any Note and remaining unclaimed for one year after such
principal, premium, if any, interest or Liquidated Damages, if any, has become
due and payable shall be paid to the Company on its request or (if then held by
the Company or any of its Subsidiaries or Affiliates) shall be discharged from
such trust; and the Holder of such Note shall thereafter, as an unsecured
general creditor, look only to the Company for payment thereof, and all
liability of the Trustee or such Paying Agent with respect to such trust money,
and all liability of the Company or any of its Subsidiaries or Affiliates as
trustee thereof, shall thereupon cease.
SECTION 8.8. REINSTATEMENT.
If the Trustee or Paying Agent is unable to apply any U.S.
dollars or Government Securities in accordance with Section 8.2, 8.3 or 8.5
hereof, as the case may be, by reason of any order or judgment of any court or
governmental authority enjoining, restraining or otherwise prohibiting such
application, then the Company's obligations under this Indenture and the Notes
shall be revived and reinstated as though no deposit had occurred pursuant to
Section 8.2, 8.3 or 8.5 hereof until such time as the Trustee or Paying Agent
is permitted to apply all such assets in accordance with Section 8.2, 8.3 or
8.5 hereof, as the case may be; provided, however, that, if the Company makes
any payment of principal of or premium, if any, interest or Liquidated Damages,
if any, on any Note following the reinstatement of its obligations, the Company
shall be subrogated to the rights of the Holders of such Notes to receive such
payment from the money held by the Trustee or Paying Agent.
ARTICLE 9
AMENDMENT, SUPPLEMENT AND WAIVER
SECTION 9.1. WITHOUT CONSENT OF HOLDERS OF NOTES.
Notwithstanding Section 9.2 of this Indenture, the Company,
the Subsidiary Guarantors and the Trustee may amend or supplement this
Indenture, the Notes or the Pledge
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Agreement without the consent of any Holder:
(a) to cure any ambiguity, defect or inconsistency;
(b) to provide for uncertificated Notes in addition to or in place
of certificated Notes;
(c) to provide for the assumption of the Company's obligations to
the Holders of Notes in the case of a merger or consolidation pursuant to
Article 5 hereof;
(d) to make any change that would provide any additional rights or
benefits to the Holders of the Notes or that does not adversely affect the
legal rights hereunder of any such Holder;
(e) to add a Subsidiary Guarantor pursuant to the provisions set
forth in this Indenture; or
(f) to comply with requirements of the SEC in order to effect or
maintain the qualification of this Indenture under the TIA as then in
effect.
Upon the request of the Company and the Subsidiary Guarantors,
accompanied by a Board Resolution of the Company and each Subsidiary Guarantor
authorizing the execution of any such amended or supplemental Indenture, and
upon receipt by the Trustee of the documents described in Section 7.2 hereof,
the Trustee shall join with the Company and the Subsidiary Guarantors in the
execution of any amended or supplemental Indenture authorized or permitted by
the terms of this Indenture and to make any further appropriate agreements and
stipulations that may be therein contained. After an amendment or supplement
under this Section 9.1 becomes effective, the Company shall mail to the Holders
of Notes a notice briefly describing the amendment or supplement. Any failure
of the Company to mail such notice, or any defect therein, shall not, however,
in any way impair or affect the validity of any such amended or supplemental
Indenture.
SECTION 9.2. WITH CONSENT OF HOLDERS OF NOTES.
Except as provided below in this Section 9.2, this Indenture,
the Notes or the Pledge Agreement may be amended or supplemented with the
consent of the Holders of at least a majority in principal amount of the Notes
then outstanding (including, without limitation, consents obtained in
connection with a purchase of, or tender offer or exchange offer for, Notes),
and, subject to Sections 6.4 and 6.7, any existing Default or Event of Default
(other than a Default or Event of Default in the payment of principal of,
premium, if any, interest or Liquidated Damages, if any, on, the Notes, except
a payment default resulting from an acceleration that has been rescinded) or
compliance with any provision of this Indenture or the Notes may be waived with
the consent of the Holders of a majority in principal amount of the then
outstanding Notes (including consents obtained in connection with a purchase
of, or tender offer or exchange offer for, Notes).
Upon the request of the Company and the Subsidiary Guarantors,
accompanied by
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a Board Resolution of the Company and each Subsidiary Guarantor authorizing the
execution of any such amended or supplemental Indenture, and upon the filing
with the Trustee of evidence satisfactory to the Trustee of the consent of the
Holders of Notes as aforesaid, and upon receipt by the Trustee of the documents
described in Section 7.2 hereof, the Trustee shall join with the Company and
the Subsidiary Guarantors in the execution of such amended or supplemental
Indenture and to make any further appropriate agreements and stipulations that
may be therein contained, but the Trustee shall not be obligated to enter into
such amended or supplemental Indenture that adversely affects its own rights,
duties, liabilities or immunities under this Indenture or otherwise.
It shall not be necessary for the consent of the Holders of
Notes under this Section 9.2 to approve the particular form of any proposed
amendment or waiver, but it shall be sufficient if such consent approves the
substance thereof.
After an amendment, supplement or waiver under this Section
9.2 becomes effective, the Company shall mail to the Holders of Notes a notice
briefly describing the amendment, supplement or waiver. Any failure of the
Company to mail such notice, or any defect therein, shall not, however, in any
way impair or affect the validity of any such amended or supplemental Indenture
or waiver. Subject to Sections 6.4 and 6.7 hereof, the Holders of a majority
in principal amount of the Notes then outstanding may waive compliance in a
particular instance by the Company with any provision of this Indenture, the
Notes or the Pledge Agreement. However, without the consent of each Holder
affected, an amendment or waiver may not (with respect to any Notes held by a
non-consenting Holder):
(a) reduce the principal amount of Notes whose Holders
must consent to an amendment, supplement or waiver;
(b) reduce the principal of or change the fixed maturity
of any Note or alter the provisions with respect to the redemption of the Notes
(other than the provisions relating to Section 4.14);
(c) reduce the rate of or change the time for payment of
interest on any Note;
(d) waive a Default or Event of Default in the payment of
principal of or premium, if any, interest or Liquidated Damages, if any, on the
Notes (except a rescission of acceleration of the Notes by the Holders of at
least a majority in aggregate principal amount of the Notes and a waiver of the
payment default that resulted from such acceleration);
(e) make any Note payable in money other than that stated
in the Notes;
(f) make any change in the provisions of this Indenture
relating to waivers of past Defaults or the rights of Holders of Notes to
receive payments of principal of or premium, if any, interest or Liquidated
Damages, if any, on the Notes;
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(g) waive a redemption payment with respect to any Note
(other than a payment required by Section 4.14);
(h) release any Collateral from the Lien created by the
Pledge Agreement, except in accordance with the terms thereof, or amend the
terms thereof relating to the release of Collateral;
(i) release any Subsidiary Guarantor from its Subsidiary
Guarantee except as permitted hereunder;
(j) make any change in the provisions of this Indenture
requiring any Guarantee hereof or in the provisions of any such Guarantees; or
(k) make any change in the foregoing amendment and waiver
provisions.
SECTION 9.3. COMPLIANCE WITH TRUST INDENTURE ACT.
Every amendment or supplement to this Indenture or the Notes
shall be set forth in an amended or supplemental Indenture that complies with
the TIA as then in effect.
SECTION 9.4. REVOCATION AND EFFECT OF CONSENTS.
Until an amendment, supplement or waiver becomes effective, a
consent to it by a Holder of a Note is a continuing consent by the Holder of a
Note and every subsequent Holder of a Note or portion of a Note that evidences
the same debt as the consenting Holder's Note, even if notation of the consent
is not made on any Note. However, any such Holder of a Note or subsequent
Holder of a Note may revoke the consent as to its Note if the Trustee receives
written notice of revocation before the date the waiver, supplement or
amendment has been approved by the requisite Holders. An amendment, supplement
or waiver becomes effective when approved by the requisite Holders and executed
by the Trustee (or, if otherwise provided in such waiver, supplement or
amendment, in accordance with its terms) and thereafter binds every Holder.
The Company may, but shall not be obligated to, fix a record
date for the purpose of determining the Holders entitled to consent to any
amendment, supplement or waiver. If a record date is fixed, then
notwithstanding the last sentence of the immediately preceding paragraph, those
Persons who were Holders at such record date (or their duly designated
proxies), and only those Persons, shall be entitled to consent to such
amendment or waiver or revoke any consent previously given, whether or not such
Persons continue to be Holders after such record date. No consent shall be
valid or effective for more than 90 days after such record date except to the
extent that the requisite number of consents to the amendment, supplement or
waiver have been obtained within such 90-day period or as set forth in the next
paragraph of this Section 9.4.
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After an amendment, supplement or waiver becomes effective, it
shall bind every Holder, unless it makes a change described in any of clauses
(a) through (k) of Section 9.2, in which case, the amendment, supplement or
waiver shall bind only each Holder of a Note who has consented to it and every
subsequent Holder of a Note or portion of a Note that evidences the same
indebtedness as the consenting Holder's Note.
SECTION 9.5. NOTATION ON OR EXCHANGE OF NOTES.
The Trustee may place an appropriate notation about an
amendment, supplement or waiver on any Note thereafter authenticated. The
Company in exchange for all Notes may issue, and the Trustee shall
authenticate, new Notes that reflect the amendment, supplement or waiver.
Failure to make the appropriate notation or issue a new Note
shall not affect the validity and effect of such amendment, supplement or
waiver.
SECTION 9.6. TRUSTEE TO SIGN AMENDMENTS, ETC.
The Trustee shall sign any amended or supplemental Indenture
authorized pursuant to this Article 9 if the amendment or supplement does not
adversely affect the rights, duties, liabilities or immunities of the Trustee.
In executing any amended or supplemental indenture, the Trustee shall be
entitled to receive and (subject to Section 7.1) shall be fully protected in
relying upon, an Officers' Certificate and an Opinion of Counsel stating that
the execution of such amended or supplemental indenture is authorized or
permitted by this Indenture.
SECTION 9.7. PAYMENTS FOR CONSENT.
The Company will not, and will not permit any of its
Restricted Subsidiaries to, directly or indirectly, pay or cause to be paid any
consideration, whether by way of interest, fee or otherwise, to any Holder of
any Notes for or as an inducement to any consent, waiver or amendment of any
terms or provisions of this Indenture, the Notes, the Pledge Agreement or the
Subsidiary Guarantees unless such consideration is offered to be paid or is
paid to all Holders of the Notes that so consent, waive or agree to amend in
the time frame set forth in solicitation documents relating to such consent,
waiver or agreement.
ARTICLE 10
SUBSIDIARY GUARANTEES
SECTION 10.1. GUARANTEES.
Each Subsidiary Guarantor hereby, jointly and severally,
unconditionally and irrevocably guarantees, to each Holder and to the Trustee
and its successors and assigns the due and
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punctual payment of principal of, premium, if any, interest and Liquidated
Damages, if any, on the Notes and all other amounts due and payable under this
Indenture and the Notes by the Company whether at maturity, by acceleration,
redemption, repurchase or otherwise, including, without limitation, interest on
the overdue principal of, premium, if any, interest and Liquidated Damages, if
any, on the Notes, to the extent lawful, all in accordance with the terms
hereof and thereof.
Each Subsidiary Guarantor waives presentation to, demand of,
payment from and protest to the Company of any of the obligations contained in
the Notes and this Indenture and also waives notice of protest for nonpayment,
notice of intent to accelerate and notice of acceleration. Each Subsidiary
Guarantor waives notice of any default under the Notes or the obligations
guaranteed hereby. The obligations of each Subsidiary Guarantor hereunder
shall not be affected by (a) the failure of any Holder or the Trustee to assert
any claim or demand or to enforce any right or remedy against the Company or
any other Person under this Indenture, the Notes or any other agreement or
otherwise; (b) any extension or renewal of any thereof; (c) any rescission,
waiver, amendment or modification of any of the terms or provisions of this
Indenture, the Notes or any other agreement; (d) the release of any security
held by any Holder or the Trustee for the obligations guaranteed hereby or any
of them; (e) the failure of any Holder or the Trustee to exercise any right or
remedy against any other guarantor of the obligations guaranteed hereby; or (f)
any change in the ownership of such Subsidiary Guarantor.
Each Subsidiary Guarantor further agrees that its Subsidiary
Guarantee herein constitutes a guarantee of payment, performance and compliance
when due (and not a guarantee of collection) and waives any right to require
that any resort be had by any Holder or the Trustee to any security held for
payment of the obligations guaranteed hereby.
Except as expressly set forth in Sections 8.2, 8.3, 10.3 and
10.7, the obligations of each Subsidiary Guarantor hereunder shall not be
subject to any reduction, limitation, impairment or termination for any reason,
including any claim of waiver, release, surrender, alteration or compromise,
and shall not be subject to any defense of setoff, counterclaim, recoupment or
termination whatsoever or by reason of the invalidity, illegality or
unenforceability of the obligations guaranteed hereby or otherwise. Without
limiting the generality of the foregoing, the obligations of each Subsidiary
Guarantor herein shall not be discharged or impaired or otherwise affected by
the failure of any Holder or the Trustee to assert any claim or demand or to
enforce any remedy under this Indenture, the Notes or any other agreement, by
any waiver or modification of any thereof, by any default, failure or delay,
willful or otherwise, in the performance of the obligations guaranteed hereby,
or by any other act or thing or omission or delay to do any other act or thing
which may or might in any manner or to any extent vary the risk of such
Subsidiary Guarantor or would otherwise operate as a discharge of such
Subsidiary Guarantor as a matter of law or equity.
Each Subsidiary Guarantor further agrees that its Subsidiary
Guarantee herein shall continue to be effective or be reinstated, as the case
may be, if at any time payment, or any part thereof, of principal of, premium,
if any, interest or Liquidated Damages, if any, on any obligation guaranteed
hereby is rescinded or must otherwise be restored by any Holder or the Trustee
upon the bankruptcy or reorganization of the Company or otherwise.
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In furtherance of the foregoing and not in limitation of any
other right which any Holder or the Trustee has at law or in equity against any
Subsidiary Guarantor by virtue hereof, upon the failure of the Company to pay
the principal of, premium, if any, interest or Liquidated Damages, if any, on
any obligation guaranteed hereby when and as the same shall become due, whether
at maturity, by acceleration, by redemption or otherwise, or to perform or
comply with any other obligation guaranteed hereby, each Subsidiary Guarantor
hereby promises to and will, upon receipt of written demand by the Trustee,
forthwith pay, or cause to be paid, in cash, to the Holders or the Trustee an
amount equal to the sum of (i) the unpaid amount of such obligations, (ii)
accrued and unpaid interest on such obligations (but only to the extent not
prohibited by law) and (iii) all other monetary obligations of the Company to
the Holders and the Trustee.
Each Subsidiary Guarantor agrees that it shall not be entitled
to any right of subrogation in respect of any obligations guaranteed hereby
until payment in full of all such obligations. Each Subsidiary Guarantor
further agrees that, as between it, on the one hand, and the Holders and the
Trustee, on the other hand, (x) the maturity of the obligations guaranteed
hereby may be accelerated as provided in Article 6 for the purposes of such
Subsidiary Guarantor's Subsidiary Guarantee herein, notwithstanding any stay,
injunction or other prohibition preventing such acceleration in respect of the
obligations guaranteed hereby, and (y) in the event of any declaration of
acceleration of such obligations as provided in Article 6, such obligations
(whether or not due and payable) shall forthwith become due and payable by such
Subsidiary Guarantor for the purposes of this Section.
Each Subsidiary Guarantor also agrees to pay any and all costs
and expenses (including reasonable attorneys' fees) incurred by the Trustee or
any Holder in enforcing any rights under this Section.
SECTION 10.2. SUBSIDIARY GUARANTORS MAY CONSOLIDATE, ETC., ON CERTAIN TERMS.
(a) Subject to paragraph (b) of this Section 10.2, no
Restricted Subsidiary may consolidate or merge with or into (whether or not
such Restricted Subsidiary is the surviving Person), or sell, assign, transfer,
lease, convey or otherwise dispose of all or substantially all of its
properties or assets in one or more related transactions, to another Person
unless (i) the Person formed by or surviving any such consolidation or merger
(if other than such Restricted Subsidiary) or the Person to which such sale,
assignment, transfer, lease, conveyance or other disposition shall have been
made assumes all the obligations of such Restricted Subsidiary under the
Subsidiary Guarantee, pursuant to a supplemental indenture in form satisfactory
to the Trustee; (ii) immediately after such transaction, no Default or Event of
Default exists; (iii) the Company and its Restricted Subsidiaries would, at the
time of such transaction and after giving pro forma effect thereto as if such
transaction had occurred at the beginning of the applicable fiscal quarter, be
permitted to Incur at least $1.00 of additional Indebtedness pursuant to the
Leverage Ratio test set forth in Section 4.9(a); (iv) the Company shall have
delivered to the Trustee an Officers' Certificate and an Opinion of Counsel,
each stating that such consolidation, merger or transfer complies with the
provisions of this Indenture; and (v) such Restricted Subsidiary (if such
Restricted Subsidiary is the surviving Person) shall have delivered a written
instrument in form satisfactory to the Trustee confirming its
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Subsidiary Guarantee after giving effect to such consolidation, merger or
transfer. Notwithstanding the foregoing, any Restricted Subsidiary may merge
into, consolidate with or transfer all or part of its properties or assets to
the Company or one or more Restricted Subsidiaries.
(b) In the event of a sale, assignment, transfer, lease,
conveyance or other disposition of all of the Equity Interests in, or all or
substantially all of the assets of, a Restricted Subsidiary to any Person that
is not the Company or any of its Restricted Subsidiaries, whether by way of
merger, consolidation or otherwise, if (i) the Net Proceeds of such sale or
other disposition are applied in accordance with the provisions of Section
4.10, (ii) no Default or Event of Default exists or would exist under this
Indenture after giving effect to such transaction, (iii) all obligations of
such Restricted Subsidiary under any other Indebtedness of the Company or any
of its Restricted Subsidiaries shall have been terminated (including, without
limitation, all Guarantees of any such Indebtedness), (iv) all Liens on assets
of such Restricted Subsidiary that secure any other Indebtedness of the Company
or any of its Restricted Subsidiaries shall have been terminated, and (v) all
obligations of the Company and its Restricted Subsidiaries under other
Indebtedness of such Restricted Subsidiary shall have been terminated
(including, without limitation, all Guarantees of such Indebtedness), then (A)
in the case of such a sale or other disposition, whether by way of merger,
consolidation or otherwise, of all of the Equity Interests in such former
Restricted Subsidiary, such former Restricted Subsidiary will be released and
relieved of any obligations under its Subsidiary Guarantee, or (B) in the case
of a sale or other disposition of all or substantially all of the assets of
such Restricted Subsidiary, the Person acquiring such assets will not be
required to assume the obligations of such Restricted Subsidiary under its
Subsidiary Guarantee.
SECTION 10.3. LIMITATION ON LIABILITY.
Any term or provision of this Indenture to the contrary
notwithstanding, the maximum aggregate amount of the obligations guaranteed
hereunder by any Subsidiary Guarantor shall not exceed the maximum amount that
can be hereby guaranteed without rendering this Indenture, as it relates to
such Subsidiary Guarantor, voidable under applicable law relating to fraudulent
conveyance or fraudulent transfer or similar laws affecting the rights of
creditors generally. To effectuate the foregoing intention, the obligations of
each Subsidiary Guarantor shall be limited to the maximum amount as will, after
giving effect to all other contingent and fixed liabilities of such Subsidiary
Guarantor and after giving effect to any collections from, rights to receive
contributions from, or payments made by or on behalf of any other Subsidiary
Guarantor in respect of the obligations of such other Subsidiary Guarantor
under its Subsidiary Guarantee or pursuant to its contribution obligations
hereunder, result in the obligations of such Subsidiary Guarantor under its
Subsidiary Guarantee not constituting a fraudulent conveyance or fraudulent
transfer under any Applicable Law. Each Subsidiary Guarantor that makes a
payment or distribution under a Subsidiary Guarantee shall be entitled to a
contribution from each other Subsidiary Guarantor so long as the exercise of
such right does not impair the rights of the Holders under the Subsidiary
Guarantees.
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SECTION 10.4. SUCCESSORS AND ASSIGNS.
This Article 10 shall be binding upon each Subsidiary
Guarantor and its successors and assigns and shall inure to the benefit of the
successors and assigns of the Trustee and the Holders and, in the event of any
transfer or assignment of rights by any Holder or the Trustee, the rights and
privileges conferred upon that party in this Indenture and in the Notes shall
automatically extend to and be vested in such transferee or assignee, all
subject to the terms and conditions of this Indenture.
SECTION 10.5. NO WAIVER.
Neither a failure nor a delay on the part of either the
Trustee or the Holders in exercising any right, power or privilege under this
Article 10 shall operate as a waiver thereof, nor shall a single or partial
exercise thereof preclude any other or further exercise of any right, power or
privilege. The rights, remedies and benefits of the Trustee and the Holders
herein expressly specified are cumulative and not exclusive of any other
rights, remedies or benefits which either may have under this Article 10 at
law, in equity, by statute or otherwise.
SECTION 10.6. MODIFICATION.
No modification, amendment or waiver of any provision of this
Article 10, nor the consent to any departure by any Subsidiary Guarantor
therefrom, shall in any event be effective unless the same shall be in writing
and signed by the Trustee, and then such waiver or consent shall be effective
only in the specific instance and for the purpose for which given. No notice
to or demand on any Subsidiary Guarantor in any case shall entitle such
Subsidiary Guarantor to any other or further notice or demand in the same,
similar or other circumstances.
SECTION 10.7. RELEASE OF SUBSIDIARY GUARANTOR.
Upon the sale or disposition of a Subsidiary Guarantor (or
substantially all of its assets) or the designation of a Subsidiary Guarantor
as an Unrestricted Subsidiary pursuant to and in compliance with the terms of
this Indenture, including, but not limited to the provisions of Section 10.2,
such Subsidiary shall be released from and relieved of its obligations under
its Subsidiary Guarantee upon execution and delivery of a supplemental
indenture satisfactory to the Trustee. Such supplemental indenture shall be
accompanied by an Officers' Certificate and an Opinion of Counsel, each stating
that such supplemental indenture and release of the Subsidiary Guarantee
complies with the provisions of this Indenture and that all conditions
precedent to such supplemental indenture and release of the Subsidiary
Guarantee have been complied with.
SECTION 10.8. EXECUTION OF SUPPLEMENTAL INDENTURE BY FUTURE RESTRICTED
SUBSIDIARIES.
The Company shall cause any Person that becomes a Restricted
Subsidiary after the Closing Date (including any Subsidiary that was previously
an Unrestricted Subsidiary and which becomes a Restricted Subsidiary) to
promptly execute and deliver to the Trustee a supplemental
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indenture pursuant to which such Restricted Subsidiary shall become a
Subsidiary Guarantor under this Article 10 and shall guarantee the Notes
pursuant to the terms hereof. Concurrently with the execution and delivery of
such supplemental indenture, the Company shall deliver to the Trustee an
Opinion of Counsel to the effect that such supplemental indenture has been duly
authorized, executed and delivered by such Restricted Subsidiary and that,
subject to the application of bankruptcy, insolvency, moratorium, fraudulent
conveyance or transfer and other similar laws relating to creditors' rights
generally and to the principles of equity, whether considered in a proceeding
at law or in equity, the Subsidiary Guarantee of such Subsidiary Guarantor is a
legal, valid and binding obligation of such Subsidiary Guarantor, enforceable
against such Subsidiary Guarantor in accordance with its terms.
ARTICLE 11
COLLATERAL AND SECURITY
SECTION 11.1. PLEDGE AGREEMENT.
(a) The due and punctual payment of the principal of,
premium, interest and Liquidated Damages, if any, on the Notes when and as the
same shall be due and payable on each Interest Payment Date, at maturity or by
acceleration, and interest on the overdue principal of and interest (to the
extent permitted by law), if any, on the Notes and payment and performance of
all other obligations of the Company to the Holders of the Notes or the Trustee
under this Indenture and the Pledge Agreement with respect to the Notes,
according to the terms hereunder or thereunder, shall be secured as provided in
the Pledge Agreement which the Company and the Trustee have entered into
simultaneously with the execution of this Indenture. Upon the acceleration of
the maturity of the Notes prior to the termination of the Pledge Agreement, the
Pledge Agreement will provide for the foreclosure by the Trustee of the net
proceeds of the Pledge Account. Each Holder of the Notes, by its acceptance
thereof, consents and agrees to the terms of the Pledge Agreement (including,
without limitation, the provisions providing for foreclosure and disbursement
of Collateral) as the same may be in effect or may be amended from time to time
in accordance with its terms and authorizes and directs the Trustee to enter
into the Pledge Agreement and to perform its obligations and exercise its
rights thereunder in accordance therewith. The Company shall deliver to the
Trustee copies of the Pledge Agreement, and shall do or cause to be done all
such acts and things as may be necessary or proper, or as may be required by
the provisions of the Pledge Agreement, to assure and confirm to the Trustee
the security interest in the Collateral contemplated by the Pledge Agreement or
any part thereof, as from time to time constituted, so as to render the same
available for the security and benefit of this Indenture with respect to, and
of, the Notes, according to the intent and purposes expressed in the Pledge
Agreement. Prior to the termination of the Pledge Agreement pursuant to its
terms, the Company shall take any and all actions reasonably required to cause
the Pledge Agreement to create and maintain (to the extent possible under
applicable law), as security for the obligations of the Company hereunder, a
valid and enforceable perfected first priority Lien in and on all the
Collateral, in favor of the Trustee for the benefit of the Trustee and the
Holders of the Notes, superior to and prior to the rights of all third Persons
and subject to no other Liens. The Trustee shall have no responsibility for
perfecting or
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maintaining the perfection of the Trustee's security interest in the Collateral
or for filing any instrument, document or notice in any public office at any
time or times.
(b) The Pledge Agreement shall further provide that in
the event a portion of the Notes has been retired by the Company, if no Default
or Event of Default is then continuing, depending upon the amount available in
the Pledge Account, funds representing the interest payments which have not
previously been made on such retired Notes shall, upon the written request of
the Company to the Trustee, be paid to the Company upon compliance with the
release of collateral provisions of the TIA and upon receipt of a notice
relating thereto from the Trustee.
SECTION 11.2. RECORDING AND OPINIONS.
(a) The Company shall furnish to the Trustee
simultaneously with the execution and delivery of this Indenture an Opinion of
Counsel either (i) stating that in the opinion of such counsel all action has
been taken with respect to the recording, registering and filing of this
Indenture, financing statements or other instruments necessary to make
effective the Lien intended to be created by the Pledge Agreement and reciting
with respect to the security interests in the Collateral the details of such
action, or (ii) stating that in the opinion of such counsel no such action is
necessary to make such Lien effective.
(b) The Company shall furnish to the Trustee on September
15, 1998, and on each September 15 thereafter until the date upon which the
balance of Available Funds (as defined in the Pledge Agreement) shall have been
reduced to zero, an Opinion of Counsel, dated as of such date, satisfying the
requirements of TIA Section 314(b) and either (i) stating that (A) in the
opinion of such counsel, all action has been taken with respect to the
recording, registering, filing, re-recording, re-registering and refiling of
all supplemental indentures, financing statements, continuation statements, and
other instruments of further assurance as is necessary to maintain the Lien of
the Pledge Agreement and reciting with respect to the security interests in the
Collateral the details of such action or referring to prior Opinions of Counsel
in which such details are given and (B) based on relevant laws as in effect on
the date of such Opinion of Counsel, all financing statements and continuation
statements have been executed and filed that are necessary as of such date and
during the succeeding 12 months fully to preserve and protect, to the extent
such protection and preservation are possible by filing, the rights of the
Holders of Notes and the Trustee hereunder and under the Pledge Agreement with
respect to the security interests in the Collateral or (ii) stating that, in
the opinion of such counsel, no such action is necessary to maintain such Lien.
SECTION 11.3. RELEASE OF COLLATERAL.
(a) Subject to subsections (b), (c) and (d) of this
Section 11.3, Collateral may be released from the Lien created by the Pledge
Agreement only in accordance with the provisions of the Pledge Agreement.
(b) Except to the extent that any Lien on proceeds of
Collateral is automatically released by operation of Section 9-306 of the
Uniform Commercial Code or other similar law, no
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Collateral shall be released from the Lien created by the Pledge Agreement
pursuant to the provisions of the Pledge Agreement, other than to the Holders
pursuant to the terms thereof, unless there shall have been delivered to the
Trustee the certificates, if any, required by Section 11.3(d) and Section 11.4.
(c) At any time when an Event of Default shall have
occurred and be continuing and the maturity of the Notes shall have been
accelerated (whether by declaration or otherwise), no Collateral shall be
released pursuant to the provisions of the Pledge Agreement, and no release of
Collateral in contravention of this Section 11.3(c) shall be effective as
against the Holders of the Notes, except for the disbursement of all Available
Funds (as defined in the Pledge Agreement) to the Trustee pursuant to Section
6(b)(iii) of the Pledge Agreement.
(d) On or before each of the first six Interest Payment
Dates, if the conditions set forth in Sections 3.2(a) and 3.2(c) of the Pledge
Agreement have been satisfied, then the Pledge Agent under the Pledge Agreement
may release Collateral from the Liens created by this Indenture and the Pledge
Agreement and apply such funds as required by Section 4.1 of this Indenture.
Any such release of Collateral shall not be deemed to impair the security under
this Indenture in contravention of the provisions hereof. To the extent
applicable, the Company shall cause TIA Section 314(d) relating to the release
of property or securities from the Lien and security interest of the Pledge
Agreement to be complied with. Any certificate or opinion required by TIA
Section 314(d) may be made by an Officer of the Company except in cases where
TIA Section 314(d) requires that such certificate or opinion be made by an
independent Person, which Person shall be an independent engineer, appraiser or
other expert selected or approved by the Trustee in the exercise of reasonable
care.
SECTION 11.4. CERTIFICATE OF THE COMPANY.
The Company shall furnish to the Trustee, prior to any
proposed release of Collateral other than pursuant to the express terms of the
Pledge Agreement, (i) all documents required by TIA Section 314 and (ii) an
Opinion of Counsel to the effect that such accompanying documents constitute
all documents required by TIA Section 314 and that such release is permitted by
the terms of this Indenture and the Pledge Agreement.
SECTION 11.5. AUTHORIZATION OF ACTIONS TO BE TAKEN BY THE TRUSTEE UNDER THE
PLEDGE AGREEMENT.
Subject to the provisions of Section 7.1 and Section 7.2, the
Trustee may, without the consent of the Holders of the Notes, on behalf of the
Holders of the Notes, take all actions it deems necessary or appropriate in
order to (a) enforce any of the terms of the Pledge Agreement and (b) collect
and receive any and all amounts payable in respect of the obligations of the
Company hereunder and thereunder. The Trustee shall have power to institute
and maintain such suits and proceedings as it may deem expedient to prevent any
impairment of the Collateral by any acts that may be unlawful or in violation
of the Pledge Agreement or this Indenture, and such suits and proceedings as
the Trustee may deem expedient to preserve or protect its interests and the
interests
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of the Holders of the Notes in the Collateral (including power to institute and
maintain suits or proceedings to restrain the enforcement of or compliance with
any legislative or other governmental enactment, rule or order that may be
unconstitutional or otherwise invalid if the enforcement of, or compliance
with, such enactment, rule or order would impair the security interest
hereunder or be prejudicial to the interests of the Holders of the Notes or of
the Trustee).
SECTION 11.6. AUTHORIZATION OF RECEIPT OF FUNDS BY THE TRUSTEE UNDER THE
PLEDGE AGREEMENT.
The Trustee is authorized to receive any funds for the benefit
of the Holders of the Notes disbursed under the Pledge Agreement, and to make
further distributions of such funds to the Holders of the Notes according to
the provisions of this Indenture.
SECTION 11.7. TERMINATION OF SECURITY INTEREST.
Upon the earliest to occur of (i) the date upon which the
balance of Available Funds (as defined in the Pledge Agreement) shall have been
reduced to zero, (ii) if no Default or Event of Default exists, the date upon
which the Company shall have paid in full in accordance with the terms of this
Indenture the first six scheduled interest payments due on the Notes, (iii) the
payment in full of all obligations of the Company under this Indenture and the
Notes, (iv) Legal Defeasance under Article 8, (v) Covenant Defeasance under
Article 8, and (vi) the termination of the Pledge Agreement pursuant to the
terms thereof, the Trustee shall at the written request of the Company, release
the Liens pursuant to this Indenture and the Pledge Agreement upon the
Company's compliance with the provisions of the TIA pertaining to release of
collateral.
ARTICLE 12
MISCELLANEOUS
SECTION 12.1. TRUST INDENTURE ACT CONTROLS.
If any provision of this Indenture limits, qualifies or
conflicts with the duties imposed by TIA Section 318(c), such TIA-imposed
duties shall control under this Indenture.
SECTION 12.2. NOTICES.
Any notice or communication by the Company, any Subsidiary
Guarantor or the Trustee to the other shall be sufficiently given if in writing
and delivered in person or mailed by first class mail (registered or certified,
return receipt requested), telex, telecopier or overnight air courier
guaranteeing next day delivery, addressed as follows:
If to the Company or any Subsidiary Guarantor:
HighwayMaster Communications, Inc.
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16479 Dallas Parkway
Suite 710
Dallas, Texas 75248
Phone No.: (972) 732-2500
Telecopier No.: (972) 930-7263
Attention: General Counsel
If to the Trustee:
Texas Commerce Bank National Association
2200 Ross Avenue, 5th Floor
Dallas, Texas 75201
Phone No.: (214) 965-3510
Telecopier No.: (214) 965-3577
Attention: Corporate Trust Department
The Company, any Subsidiary Guarantor or the Trustee, by
notice to the other, may designate additional or different addresses for
subsequent notices or communications.
All notices and communications (other than those sent to
Holders) shall be deemed to have been duly given: at the time delivered by
hand, if personally delivered; five Business Days after being deposited in the
mail, postage prepaid, if mailed; when receipt acknowledged, if telecopied; and
the next Business Day after timely delivery to the courier, if sent by
overnight air courier guaranteeing next day delivery, in each case to the
address shown above. Notwithstanding the foregoing, notices to the Trustee
shall only be effective upon actual receipt thereof by the Trustee at the
Corporate Trust Office of the Trustee.
Any notice or communication to a Holder shall be mailed by
first class mail, certified or registered, return receipt requested, or by
overnight air courier guaranteeing next day delivery to its address shown on
the register kept by the Registrar. Any notice or communication shall also be
so mailed to any Person described in TIA Section 313(c), to the extent
required by the TIA. Failure to mail a notice or communication to a Holder or
any defect in it shall not affect its sufficiency with respect to other
Holders.
If a notice or communication is mailed in the manner provided
above within the time prescribed, it is duly given, whether or not the
addressee receives it.
If the Company mails a notice or communication to Holders, it
shall mail a copy to the Trustee and each Agent at the same time.
SECTION 12.3. COMMUNICATION BY HOLDERS OF NOTES WITH OTHER HOLDERS OF NOTES.
Holders may communicate pursuant to TIA Section 312(b) with
other Holders with respect to their rights under this Indenture or the Notes.
The Company, the Subsidiary Guarantors, the
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Trustee, the Registrar and anyone else shall have the protection of TIA Section
312(c).
SECTION 12.4. CERTIFICATE AND OPINION AS TO CONDITIONS PRECEDENT.
Upon any request or application by the Company or any
Subsidiary Guarantor to the Trustee to take any action under this Indenture,
the Company or such Subsidiary Guarantor, as the case may be, shall furnish to
the Trustee:
(a) an Officers' Certificate in form and substance reasonably
satisfactory to the Trustee (which shall include the statements set forth
in Section 12.5 hereof) stating that, in the opinion of the signers, all
conditions precedent and covenants, if any, provided for in this Indenture
relating to the proposed action have been satisfied; and
(b) an Opinion of Counsel in form and substance reasonably
satisfactory to the Trustee (which shall include the statements set forth
in Section 12.5 hereof) stating that, in the opinion of such counsel, all
such conditions precedent and covenants have been satisfied.
SECTION 12.5. STATEMENTS REQUIRED IN CERTIFICATE OR OPINION.
Each certificate or opinion with respect to compliance with a
condition or covenant provided for in this Indenture (other than a certificate
provided pursuant to TIA Section 314(a)(4)) shall comply with the provisions
of TIA Section 314(e), shall comply with the definition of the term "Officers'
Certificate" and shall include:
(a) a statement that the Person making such certificate or opinion
has read such covenant or condition;
(b) a brief statement as to the nature and scope of the
examination or investigation upon which the statements or opinions
contained in such certificate or opinion are based;
(c) a statement that, in the opinion of such Person, he or she has
made such examination or investigation as is necessary to enable him to
express an informed opinion as to whether or not such covenant or
condition has been satisfied; and
(d) a statement as to whether or not, in the opinion of such
Person, such condition or covenant has been satisfied.
SECTION 12.6. RULES BY TRUSTEE AND AGENTS.
The Trustee may make reasonable rules for action by or at a
meeting of Holders. The Registrar or Paying Agent may make reasonable rules and
set reasonable requirements for its functions.
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SECTION 12.7. NO PERSONAL LIABILITY OF DIRECTORS, OFFICERS, EMPLOYEES AND
OTHERS.
No past, present or future director, officer, employee,
incorporator, partner or stockholder of either of the Company or any of its
Subsidiaries, as such, shall have any liability for any obligations of the
Company or its Subsidiaries under the Notes, the Subsidiary Guarantees or this
Indenture or for any claim based on, in respect of or by reason of such
obligations or their creation. Each Holder by accepting a Note waives and
releases all such liability. This waiver and release are part of the
consideration for issuance of the Notes and the Subsidiary Guarantees.
SECTION 12.8. GOVERNING LAW.
THIS INDENTURE AND THE NOTES SHALL BE GOVERNED BY, AND
CONSTRUED AND ENFORCED IN ACCORDANCE WITH, THE INTERNAL LAW OF THE STATE OF NEW
YORK. THE COMPANY HEREBY SUBMITS TO THE PERSONAL JURISDICTION OF ANY COMPETENT
COURT OF THE STATE OF NEW YORK, OR A UNITED STATES FEDERAL COURT SITTING IN NEW
YORK CITY.
SECTION 12.9. NO ADVERSE INTERPRETATION OF OTHER AGREEMENTS.
This Indenture may not be used to interpret any other
indenture, loan or debt agreement of the Company or its Subsidiaries or of any
other Person. Any such indenture, loan or debt agreement may not be used to
interpret this Indenture.
SECTION 12.10. SUCCESSORS.
This Indenture shall inure to the benefit of and be binding
upon the parties hereto and each of their respective successors and assigns,
except that the Company may not assign this Indenture or its obligations
hereunder except as expressly permitted by Sections 5.1 and 5.2. Without
limiting the generality of the foregoing, this Indenture shall inure to the
benefit of all Holders from time to time. Nothing expressed or mentioned in
this Indenture is intended or shall be construed to give any Person, other than
the parties hereto, their respective successors and assigns, and the Holders,
any legal or equitable right, remedy or claim under or in respect of this
Indenture or any provision herein contained.
SECTION 12.11. SEVERABILITY.
In case any provision in this Indenture or in the Notes shall
be invalid, illegal or unenforceable, the validity, legality and enforceability
of the remaining provisions shall not in any way be affected or impaired
thereby.
SECTION 12.12. ORIGINALS.
The parties may sign any number of copies of this Indenture.
Each signed copy shall be an original, but all of them together represent the
same agreement.
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SECTION 12.13. TABLE OF CONTENTS, HEADINGS, ETC.
The Table of Contents, Cross-Reference Table and Headings of
the Articles and Sections of this Indenture have been inserted for convenience
of reference only, are not to be considered a part of this Indenture and shall
in no way modify or restrict any of the terms or provisions hereof.
SECTION 12.14. COUNTERPARTS
This Indenture may be signed in counterparts and by the
different parties hereto in separate counterparts, each of which shall
constitute an original and all of which together shall constitute one and the
same instrument.
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<PAGE> 91
IN WITNESS WHEREOF, the parties hereto have caused this Indenture to
be duly executed as of the date first above written.
THE COMPANY:
HIGHWAYMASTER COMMUNICATIONS, INC.
By: /S/ William C. Saunders
-------------------------------------
Name: William C. Saunders
-------------------------------------
Title: President and Chief Executive Officer
-------------------------------------
INITIAL SUBSIDIARY GUARANTOR:
HIGHWAYMASTER CORPORATION
By: /S/ William C. Saunders
-------------------------------------
Name: William C. Saunders
-------------------------------------
Title: President and Chief Executive Officer
-------------------------------------
TRUSTEE:
TEXAS COMMERCE BANK NATIONAL ASSOCIATION,
as Trustee
By: /S/ Gary Jones
-------------------------------------
Name: Gary Jones
------------------------------------
Title: Vice President
------------------------------------
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<PAGE> 92
EXHIBIT A
EXHIBIT A
(Form of Face of Note)
Unless and until it is exchanged in whole or in part for Notes in
definitive form, this Note may not be transferred except as a whole by the
Depositary to a nominee of the Depositary or by a nominee of the Depositary to
the Depositary or another nominee of the Depositary or by the Depositary or any
such nominee to a successor Depositary or a nominee of such successor
Depositary. Unless this certificate is presented by an authorized
representative of The Depository Trust Company, a New York corporation ("DTC"),
New York, New York, to the Company or its agent for registration of transfer,
exchange or payment, and any certificate issued is registered in the name of
Cede & Co. or such other name as may be requested by an authorized
representative of DTC (and any payment is made to Cede & Co. or such other
entity as may be requested by an authorized representative of DTC), ANY
TRANSFER, PLEDGE OR OTHER USE HEREOF FOR VALUE OR OTHERWISE BY OR TO ANY PERSON
IS WRONGFUL inasmuch as the registered owner hereof, Cede & Co., has an
interest herein.[1]
THIS SECURITY HAS NOT BEEN REGISTERED UNDER THE SECURITIES ACT OF 1933, AS
AMENDED (THE "SECURITIES ACT"), OR ANY STATE SECURITIES LAWS. NEITHER THIS
SECURITY NOR ANY INTEREST OR PARTICIPATION HEREIN MAY BE OFFERED, SOLD,
ASSIGNED, TRANSFERRED, PLEDGED, ENCUMBERED OR OTHERWISE DISPOSED OF IN THE
ABSENCE OF SUCH REGISTRATION OR UNLESS SUCH TRANSACTION IS EXEMPT FROM, OR NOT
SUBJECT TO, REGISTRATION.
THE HOLDER OF THIS SECURITY BY ITS ACCEPTANCE HEREOF AGREES TO (A) OFFER, SELL,
PLEDGE OR OTHERWISE TRANSFER THIS SECURITY ONLY (1) TO THE COMPANY, (2)
PURSUANT TO A REGISTRATION STATEMENT WHICH HAS BEEN DECLARED EFFECTIVE UNDER
THE SECURITIES ACT, (3) TO A PERSON IT REASONABLY BELIEVES IS A "QUALIFIED
INSTITUTIONAL BUYER" AS DEFINED IN RULE 144A IN A TRANSACTION MEETING THE
REQUIREMENTS OF RULE 144A, (4) PURSUANT TO OFFERS AND SALES TO NON-U.S. PERSONS
THAT OCCUR OUTSIDE THE UNITED STATES IN A TRANSACTION MEETING THE REQUIREMENTS
OF RULE 904 OF REGULATION S UNDER THE SECURITIES ACT, (5) TO AN INSTITUTIONAL
"ACCREDITED INVESTOR" (AS DEFINED IN RULE 501(A)(1), (2), (3) OR (7) OF
REGULATION D UNDER THE SECURITIES ACT (AN "IAI") THAT, PRIOR TO SUCH TRANSFER,
FURNISHES TO THE TRUSTEE A SIGNED LETTER CONTAINING CERTAIN REPRESENTATIONS AND
AGREEMENTS RELATING TO THE TRANSFER OF THIS SECURITY (THE FORM OF WHICH LETTER
CAN BE OBTAINED FROM THE TRUSTEE) AND, IN THE CASE OF ANY TRANSFER TO ANY IAI
OF SECURITIES WITH AN AGGREGATE PRINCIPAL AMOUNT OF $100,000 OR LESS, AN
OPINION OF COUNSEL IF THE COMPANY SO REQUESTS OR (6) PURSUANT TO ANY OTHER
AVAILABLE EXEMPTION FROM THE REGISTRATION REQUIREMENTS UNDER THE SECURITIES ACT
(AND BASED ON AN OPINION OF COUNSEL IF THE COMPANY SO REQUESTS), SUBJECT IN
EACH OF THE FOREGOING CASES TO APPLICABLE SECURITIES LAWS OF
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ANY STATE OF THE UNITED STATES OR ANY OTHER APPLICABLE JURISDICTION AND (B)
THAT IT WILL, AND EACH SUBSEQUENT HOLDER IS REQUIRED TO, NOTIFY ANY PURCHASER
FROM IT OF THE SECURITY EVIDENCED HEREBY OF THE RESALE RESTRICTIONS SET FORTH
IN (A) ABOVE.[2]
THE NOTES EVIDENCED HEREBY WERE INITIALLY ISSUED AS PART OF AN ISSUANCE OF
UNITS (THE "UNITS"), EACH OF WHICH CONSISTS OF $1,000 PRINCIPAL AMOUNT OF 13
3/4% SENIOR NOTES DUE 2005 (THE "NOTES") OF HIGHWAYMASTER COMMUNICATIONS, INC.
(THE "COMPANY") AND ONE WARRANT TO PURCHASE 6.566 SHARES OF COMMON STOCK, $0.01
PAR VALUE, OF THE COMPANY (THE "WARRANTS"). THE NOTES EVIDENCED HEREBY ARE NOT
TRANSFERABLE SEPARATELY FROM THE WARRANTS UNTIL THE EARLIER TO OCCUR OF (i) 180
DAYS FROM THE DATE OF ISSUANCE, (ii) SUCH DATE AS BEAR, STEARNS & CO. INC. AND
SMITH BARNEY INC. MAY, IN THEIR DISCRETION, DEEM APPROPRIATE, (iii) IN THE
EVENT A CHANGE OF CONTROL (AS DEFINED IN THE INDENTURE RELATING TO THE NOTES)
OCCURS, THE DATE THE COMPANY MAILS NOTICE THEREOF TO HOLDERS OF THE NOTES, (iv)
THE COMMENCEMENT OF THE EXCHANGE OFFER (AS DEFINED IN THE EXCHANGE AND
REGISTRATION RIGHTS AGREEMENT RELATING TO THE NOTES), AND (v) THE EFFECTIVENESS
OF THE SHELF REGISTRATION STATEMENT RELATING TO THE NOTES PURSUANT TO THE
EXCHANGE AND REGISTRATION RIGHTS AGREEMENT. THE DATE ON WHICH THE NOTES AND
THE WARRANTS ARE SEPARABLE IS THE "SEPARATION DATE."[3]
- --------------------------
1. This paragraph should be included only if the Note is issued in global
form.
2. This legend not required in the case of (1) a Note issued pursuant to
Section 2.6(g)(ii) of the Indenture or (2) a Series B Note issued pursuant
to Section 2.6(g)(iii) of the Indenture.
3. This legend is not required in the case of certain Notes as more
particularly described in Section 2.6(k) of the Indenture.
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<PAGE> 94
HIGHWAYMASTER COMMUNICATIONS, INC.
13 3/4% Senior Notes due 2005 [, Series A][, Series B]
No. $
----------
CUSIP #
----------
HighwayMaster Communications, Inc., a Delaware corporation (the
"Company"), promises to pay to CEDE & CO. or registered assigns, the principal
sum indicated on Schedule A hereof on September 15, 2005.
Interest Payment Dates: March 15 and September 15, commencing on March
15, 1998.
Record Dates: March 1 and September 1.
Dated: ,
----------- -----
HIGHWAYMASTER COMMUNICATIONS, INC.
By:
--------------------------------
Name:
------------------------------
Title:
-----------------------------
TRUSTEE'S CERTIFICATE OF
AUTHENTICATION
This is one of the
Notes referred to in the
within-mentioned Indenture:
TEXAS COMMERCE BANK NATIONAL ASSOCIATION,
as Trustee
By:
----------------------------------
Authorized Signatory
Dated:
--------------------------------
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(Form of Reverse Side of Note)
13 3/4% Senior Notes due 2005[, Series A] [,Series B]
Capitalized terms used herein but not defined shall have the meanings
assigned to them in the Indenture referred to below unless otherwise indicated.
1. INTEREST. The Notes will be limited in aggregate principal
amount to $125 million (except as otherwise provided in Section 2.7 of the
Indenture referred to below) and will mature on September 15, 2005. The
Company promises to pay interest on the principal amount of this Note from the
Closing Date until maturity. The Company will pay interest semi-annually on
March 15 and September 15 of each year, commencing March 15, 1998, or if any
such day is not a Business Day, on the next succeeding Business Day (each an
"Interest Payment Date") to Holders of record on the immediately preceding
March 1 and September 1, as appropriate (each, a "Record Date"). Interest on
the Notes will accrue at the rate of 13 3/4% per annum from the most recent
date to which interest has been paid or, if no interest has been paid, from the
Closing Date. The Company shall pay interest (including post-petition interest
in any proceeding under any Bankruptcy Law to the extent that such interest is
an allowed claim enforceable against the debtor under such Bankruptcy Law) on
overdue principal and premium, if any, from time to time on demand at the rate
equal to 1% per annum in excess of the rate then in effect; it shall pay
interest (including post-petition interest in any proceeding under any
Bankruptcy Law) on overdue installments of interest (without regard to any
applicable grace periods) from time to time on demand at the same rate to the
extent lawful. Interest will be computed on the basis of a 360-day year of
twelve 30-day months. Notwithstanding any other provision of the Indenture or
this Note: (i) accrued and unpaid interest on the Series A Notes being
exchanged in the Exchange Offer shall be due and payable on the next Interest
Payment Date for the Series B Notes following the Exchange Offer, (ii) interest
on the Series B Notes to be issued in the Exchange Offer shall accrue from the
date the Exchange Offer is consummated and (iii) the Series B Notes shall have
no provisions for Liquidated Damages.
2. METHOD OF PAYMENT. The Company shall pay the principal of,
and premium, interest and Liquidated Damages on, the Notes on the dates and in
the manner provided herein, in the Indenture and in the Registration Rights
Agreement. Principal of, and premium, interest and Liquidated Damages on,
Definitive Notes will be payable, and Definitive Notes may be presented for
registration of transfer or exchange, at the office or agency of the Company
maintained for such purpose. Principal of, and premium, interest and
Liquidated Damages on, Global Notes will be payable by the Company through the
Trustee to the Depositary by wire transfer of immediately available funds.
Holders of Definitive Notes will be entitled to receive interest payments by
wire transfer in immediately available funds if appropriate wire transfer
instructions have been received in writing by the Trustee not less than 15 days
prior to the applicable Interest Payment Date. Such wire instructions, upon
receipt by the Trustee, shall remain in effect until revoked by such Holder.
If wire instructions have not been received by the Trustee with respect to any
Holder of a Definitive
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Note, payment of interest and Liquidated Damages, if any, may be made by check
in immediately available funds mailed to such Holder at the address set forth
upon the Register maintained by the Registrar.
3. PAYING AGENT AND REGISTRAR. Initially, Texas Commerce Bank
National Association, the Trustee under the Indenture, will act as Paying Agent
and Registrar. The Company may change any Paying Agent or Registrar without
notice to any Holder. The Company or any of its Subsidiaries may act in any
such capacity, except that none of the Company, its Subsidiaries or their
Affiliates shall act (i) as Paying Agent in connection with any redemption,
offer to purchase, discharge or defeasance, as otherwise specified in the
Indenture, and (ii) as Paying Agent or Registrar if a Default or Event of
Default has occurred and is continuing.
4. INDENTURE.
The Company issued the Notes under an Indenture dated as of
September 23, 1997 (as such may be amended, supplemented or restated from time
to time, the "Indenture") by and among the Company, the Initial Subsidiary
Guarantor named therein, the Trustee. The terms of the Notes include those
stated in the Indenture and those made part of the Indenture by reference to
the Trust Indenture Act of 1939, as amended (15 U.S. Code Sections 77aaa-
77bbbb). The Notes are subject to all such terms, and Holders are referred to
the Indenture and such Act for a statement of such terms. The Notes are senior
obligations of the Company limited to $125 million in aggregate principal
amount (except as otherwise provided in Section 2.7 of the Indenture).
The Indenture requires the Company to cause HighwayMaster
Corporation and any other Person that becomes a Restricted Subsidiary after the
Closing Date to execute and deliver to the Trustee a supplemental indenture
pursuant to which such Restricted Subsidiary will Guarantee the Notes. So long
as no Default or Event of Default exists or would be caused thereby, any Person
that is no longer a Restricted Subsidiary may, by execution and delivery to the
Trustee of a supplemental indenture satisfactory to the Trustee, be released
from its Subsidiary Guarantee and cease to Guarantee the Notes.
The Indenture contains certain covenants that, among other
things, limit the ability of the Company and its Restricted Subsidiaries to
incur additional Indebtedness, pay dividends or make other distributions,
repurchase any capital stock or Subordinated Indebtedness, make certain
investments, create certain liens, enter into certain transactions with
affiliates, sell assets, enter into certain mergers and consolidations, allow
Restricted Subsidiaries to create certain dividend and other payment
restrictions, enter into sale and leaseback transactions, and issue or sell
capital stock of Restricted Subsidiaries.
5. OPTIONAL REDEMPTION.
The Notes will not be redeemable at the Company's option prior
to September 15, 2001, except as provided below. Thereafter, the Notes will be
subject to redemption at the option of the Company, in whole or in part, upon
not less than 30 nor more than 60 days' notice to the
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Holders, at the redemption prices (expressed as percentages of principal
amount) set forth below plus accrued and unpaid interest and Liquidated
Damages, if any, thereon to the applicable redemption date, if redeemed during
the twelve-month period beginning on September 15 of the years indicated below:
<TABLE>
<CAPTION>
YEAR PERCENTAGE
---- ----------
<S> <C>
2001 ........................................ 110.313%
2002 ........................................ 106.875%
2003 ........................................ 103.438%
2004 and thereafter.......................... 100.000%
</TABLE>
Notwithstanding the foregoing, on and prior to September 15,
2000, the Company, at its option, may redeem, from time to time, up to 35% of
the aggregate principal amount of the Notes at a redemption price of 113.75% of
the principal amount thereof, plus accrued and unpaid interest and Liquidated
Damages, if any, thereon to the redemption date with the net proceeds of an
Equity Investment, as described in Section 3.7 of the Indenture; provided that
no less than 65% of the aggregate principal amount of the Notes initially
issued remains outstanding immediately after giving effect to such redemption;
and provided, further, that such notice of redemption shall be given not later
than 30 days, and such redemption shall occur not later than 90 days, after the
date of the closing of the transaction giving rise to such Equity Investment.
Unless the Company defaults in making such redemption payment, on and after the
redemption date, interest ceases to accrue on the Notes or portions thereof
called for redemption.
6. MANDATORY REDEMPTION. Except as set forth in paragraph 7
below, the Company shall not be required to make mandatory redemption payments
with respect to the Notes.
7. REPURCHASE AT OPTION OF HOLDER.
(a) Upon a Change of Control, the Company shall be
required to make an offer to Holders to repurchase all or any part (equal to
$1,000 or an integral multiple thereof) of each Holder's Notes at a purchase
price equal to 101% of the aggregate principal amount thereof, plus accrued and
unpaid interest and Liquidated Damages, if any, thereon to the date of purchase
as provided in, and subject to the terms of, the Indenture.
(b) If the Company or any Restricted Subsidiary
consummates any Asset Sale, the Company may be required, subject to the terms
and conditions of the Indenture, to utilize a certain portion of the proceeds
received from such Asset Sale to repurchase Notes at a purchase price equal to
100% of the principal amount thereof, plus accrued and unpaid interest and
Liquidated Damages, if any, thereon to the date of purchase.
8. DENOMINATIONS, TRANSFER, EXCHANGE. The Notes are in
registered form without coupons in denominations of $1,000 and integral
multiples of $1,000. The transfer of Notes may be registered and Notes may be
exchanged as provided in the Indenture. The Registrar and the
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<PAGE> 98
Trustee may require a Holder, among other things, to furnish appropriate
endorsements and transfer documents and the Company may require a Holder to pay
any taxes and fees required by law or permitted by the Indenture. The Company
need not exchange or register the transfer of any Note or portion of a Note
selected for redemption, except for the unredeemed portion of any Note being
redeemed in part. Also, it need not exchange or register the transfer of any
Notes for a period of 15 days before a selection of Notes to be redeemed or
during the period between a Record Date and the corresponding Interest Payment
Date.
9. PERSONS DEEMED OWNERS. The registered Holder of a Note may be
treated as its owner for all purposes.
10. UNCLAIMED MONEY. If money for the payment of principal,
premium, interest or Liquidated Damages, if any, remains unclaimed for one
year, the Trustee and the Paying Agent will pay the money back to the Company
at its request. After that, all liability of the Trustee and such Paying Agent
with respect to such money shall cease.
11. DEFEASANCE PRIOR TO REDEMPTION OR MATURITY. Subject to
certain conditions contained in the Indenture, the Company at any time may
terminate some or all of its obligations under the Notes and the Indenture if
the Company deposits with the Trustee money or Government Securities sufficient
to pay the principal of, premium, interest and Liquidated Damages, if any, on,
the Notes to redemption or maturity, as the case may be.
12. AMENDMENT, SUPPLEMENT AND WAIVER. Subject to certain
exceptions, the Indenture or the Notes may be amended or supplemented with the
consent of the Holders of at least a majority in principal amount of the Notes
then outstanding, and any existing Default or Event or Default or compliance
with any provision of the Indenture or the Notes may be waived with the consent
of the Holders of a majority in principal amount of the then outstanding Notes.
Without the consent of any Holder of a Note, the Indenture or the Notes may be
amended or supplemented to cure any ambiguity, defect or inconsistency, to
provide for uncertificated Notes in addition to or in place of certificated
Notes, to provide for the assumption of the Company's obligations to Holders of
Notes in case of a merger or consolidation, to make any change that would
provide any additional rights or benefits to the Holders of the Notes or that
does not adversely affect the legal rights under the Indenture of any such
Holder, or to comply with the requirements of the SEC in order to effect or
maintain the qualification of the Indenture under the TIA as then in effect.
13. DEFAULTS AND REMEDIES.
Events of Default include: (i) default for 30 days in the
payment when due of any interest or Liquidated Damages payable with respect to
the Notes at any time (provided that such 30-day grace period shall be
inapplicable for the first six scheduled interest payments due on the Notes);
(ii) default in payment when due (whether at maturity, upon redemption or
repurchase, or otherwise) of the principal of or premium, if any, on the Notes;
(iii) failure by the Company or any Restricted Subsidiary to comply with the
provisions described under Articles 5, 10 or 11 or Sections 4.10 or 4.14 of the
Indenture; (iv) failure by the Company or any Restricted Subsidiary for 30
calendar days
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after notice from the Trustee or Holders of at least 25% in aggregate principal
amount of the Notes to the Company and the Trustee to comply with any of its
other agreements in the Indenture, the Notes or the Pledge Agreement; (v)
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 Company or any of its Restricted Subsidiaries (or the payment
of which is Guaranteed by the Company or any of its Restricted Subsidiaries),
whether such Indebtedness or Guarantee now exists or is created after the date
of the Indenture, which default (a) is caused by a failure to pay principal of
or premium, if any, or interest on such Indebtedness following the expiration
of the grace period provided in such Indebtedness on the date of such default
(a "Payment Default") or (b) results in the acceleration of such Indebtedness
(including any obligation to redeem or repurchase 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 $5 million or more; (vi) failure by the Company or
any of its Restricted Subsidiaries to pay final non-appealable judgments
rendered against the Company or any of its Restricted Subsidiaries aggregating
in excess of $5 million, which judgments are not paid, discharged or stayed for
a period of 60 days after such judgments become final and non-appealable; (vii)
certain events of bankruptcy or insolvency with respect to the Company or any
Restricted Subsidiary; (viii) certain events of breach, default, repudiation or
unenforceability of the Pledge Agreement; and (ix) any Guarantee of the Notes
shall be held in a judicial proceeding to be unenforceable or invalid or shall
cease for any reason to be in full force and effect, or any Restricted
Subsidiary, or any Person acting on behalf of any Restricted Subsidiary, shall
deny or disaffirm its obligations under its Guarantee of any Notes.
If an Event of Default occurs and is continuing, the Trustee
may pursue any available remedy by proceeding at law or in equity to collect
any payment due, or to enforce the performance of any provision, under the
Notes or the Indenture. The Trustee may refuse to enforce the Indenture or the
Notes unless it receives reasonable indemnity or security. Holders of Notes
may not enforce the Indenture or the Notes except as provided in the Indenture.
Subject to certain limitations, Holders of a majority in principal amount of
the Notes may direct the Trustee in its exercise of any trust or power. The
Trustee may withhold from Holders of the Notes notice of any continuing Default
or Event of Default (except under clauses (i) or (ii) above) if it determines
that withholding notice is in their interest.
14. PLEDGE AGREEMENT. In order to secure the due and punctual
payment of the principal of, premium, interest and Liquidated Damages, if any,
on the Notes and the payment and performance of all other obligations of the
Company to the Holders of the Notes or the Trustee under the Indenture, the
Company has granted a first priority Lien on certain funds and Government
Securities to the Trustee for the benefit of the Holders, as more particularly
described in the Pledge Agreement. If the funds and Government Securities held
in the Pledge Account exceed the amount sufficient, in the opinion of a
nationally recognized firm of independent public accountants selected by the
Company, to provide for payment in full of the first six scheduled interest
payments due on the Notes (or, in the event an interest payment or interest
payments have been made, an amount sufficient to provide for payment in full of
any interest payments remaining, up to and including the sixth scheduled
interest payment), if no Default or Event of Default is then continuing, upon
the
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satisfaction of certain conditions specified in the Pledge Agreement, any such
excess amount of funds and Government Securities shall be paid to the Company.
Upon such payment to the Company, the Lien of the Trustee thereon for the
benefit of the Holders shall be released.
15. TRUSTEE'S DEALINGS WITH COMPANY. The Trustee, in its
individual or any other capacity, may make loans to, accept deposits from, and
perform services for the Company or its Affiliates, and may otherwise deal with
the Company or its Affiliates, as if it were not the Trustee, subject to the
provisions of TIA Section 310.
16. NO RECOURSE AGAINST OTHERS. No past or present director,
officer, employee, incorporator, partner or stockholder of either of the
Company or any of its Subsidiaries, as such, shall have any liability for any
obligations of the Company or its Subsidiaries under any of the Notes, the
Subsidiary Guarantees or the Indenture or for any claim based on, in respect of
or by reason of such obligations or their creation. Each Holder by accepting a
Note waives and releases all such liability. This waiver and release are part
of the consideration for the issuance of the Notes.
17. AUTHENTICATION. This Note shall not be valid until
authenticated by the manual signature of the Trustee or an authenticating
agent.
18. ABBREVIATIONS. Customary abbreviations may be used in the
name of a Holder or an assignee, such as: TEN COM (= tenants in common), TEN
ENT (= tenants by the entireties), JT TEN (= joint tenants with right of
survivorship and not as tenants in common), CUST (= Custodian), and U/G/M/A (=
Uniform Gifts to Minors Act).
19. ADDITIONAL RIGHTS OF HOLDERS OF TRANSFER RESTRICTED
SECURITIES. In addition to the rights provided to Holders under the Indenture,
Holders of Transfer Restricted Securities shall have all the rights set forth
in the Registration Rights Agreement.
20. CUSIP NUMBERS. Pursuant to a recommendation promulgated by
the Committee on Uniform Security Identification Procedures, the Company has
caused CUSIP numbers to be printed on the Notes and the Trustee may use CUSIP
numbers in notices of redemption as a convenience to Holders. No
representation is made as to the accuracy of such numbers either as printed on
the Notes or as contained in any notice of redemption and reliance may be
placed only on the other identification numbers placed thereon.
21. GOVERNING LAW. THE INDENTURE AND THIS NOTE SHALL BE GOVERNED
BY, AND CONSTRUED AND ENFORCED IN ACCORDANCE WITH, THE INTERNAL LAW OF THE
STATE OF NEW YORK.
22. SUCCESSOR CORPORATION. In the event a successor corporation
assumes all the obligations of the Company under the Notes and the Indenture,
pursuant to the terms thereof, the Company will be released from all such
obligations.
The Company will furnish to any Holder upon written request
and without charge a
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copy of the Indenture, the Registration Rights Agreement and the Pledge
Agreement. Requests may be made to:
HighwayMaster Communications, Inc.
16479 Dallas Parkway
Suite 710
Dallas, Texas 75248
Phone No.: (972) 732-2500
Telecopier No.: (972) 930-7263
Attention: General Counsel
A-10
<PAGE> 102
ASSIGNMENT FORM
To assign this Note, fill in the form below and have your signature
guaranteed:
(I) or (we) assign and transfer this Note to
(Insert assignee's soc. sec. or tax I.D. no.)
(Print or type assignee's name, address and zip code)
and irrevocably appoint
to transfer this Note on the books of the Company. The agent may substitute
another to act for him.
Date: . . . . . . . . . Your Name:
(Print your name exactly as it appears on the
face of this Note)
. .
. . Your Signature:
(Sign exactly as your name appears on the
face of this Note)
. .
. . Signature Guarantee*:
. . . . . . . . . . . . . .
* Participant in a recognized Signature Guarantee Medallion Program (or other
signature guarantor acceptable to the Trustee).
A-11
<PAGE> 103
OPTION OF HOLDER TO ELECT PURCHASE
If you elect to have this Note purchased by the Company
pursuant to Section 4.10 or Section 4.14 of the Indenture, check the
appropriate box below:
Section 4.10
Section 4.14
If you elect to have only part of this Note purchased by the
Company pursuant to Section 4.10 or Section 4.14 of the Indenture, state the
amount (in minimum denominations of $1000 or integral multiples thereof) you
elect to have purchased: $___________
Date: . . . . . . . Your Name:
-----------------------------------------
(Print your name exactly as it appears
on the face of this Note)
Your Signature:
------------------------------------
(Sign exactly as your name appears
on the face of this Note)
Social Security or Tax Identification No.:
----------
Signature Guarantee*:
-------------------------------
. . . . . . . . . . . . . .
* Participant in a recognized Signature Guarantee Medallion Program (or other
signature guarantor acceptable to the Trustee).
A-12
<PAGE> 104
SCHEDULE A
SCHEDULE OF INCREASES OR DECREASES IN GLOBAL NOTE [4]
The initial principal amount at maturity of this Global Note
shall be $________. The following increases or decreases in this Global
Note have been made:
<TABLE>
<CAPTION>
Amount of Amount of Principal Amount
decrease in increase in of this Global Signature of
Principal Amount Principal Amount Note following authorized officer
Date of of this Global of this Global such decrease (or of Trustee or
Exchange Note Note increase) Note Custodian
- -------------------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C>
</TABLE>
[4] This schedule should be included only if the Note is issued in global
form.
A-13
<PAGE> 105
EXHIBIT B
CERTIFICATE TO BE DELIVERED UPON EXCHANGE OR REGISTRATION OF TRANSFER OF NOTES
Re: 13 3/4% Senior Notes due 2005 (the "Notes") of HighwayMaster
Communications, Inc. (the "Company").
This Certificate relates to $_____ principal amount of Notes
held in * global or * definitive form by ________________ (the "Transferor").
The Transferor*:
has requested the Trustee by written order to deliver, in
exchange for its beneficial interest in the Global Note held by the Depositary,
a Note or Notes in definitive, registered form or a beneficial interest in the
Series B Global Note issued pursuant to the Exchange Offer, in both cases in
the authorized denominations in an aggregate principal amount equal to its
beneficial interest in such Global Note (or the portion thereof indicated
above); or
has requested the Trustee by written order to exchange or
register the transfer of a Note or Notes.
In connection with such request and in respect of each such
Note, the Transferor does hereby certify that it is familiar with the Indenture
relating to the above captioned Notes, and the transfer of this Note does not
require registration under the Securities Act of 1933, as amended (the
"Securities Act") because *:
Such Note is being acquired for the Transferor's own account without
transfer.
Such Note is being transferred (i) to a "qualified institutional
buyer" (as defined in Rule 144A under the Securities Act) in accordance with
Rule 144A under the Securities Act or (ii) pursuant to an effective
registration statement under the Securities Act.
Such Note is being transferred to an institutional "accredited
investor" within the meaning of Rule 501(a)(1), (2), (3) or (7) under the
Securities Act pursuant to a private placement exemption from the registration
requirements of the Securities Act (and based on an opinion of counsel if the
Company so requests in the case of a transfer of Notes with an aggregate
principal amount of $100,000 or less).
Such Note is being transferred pursuant to an exemption from
registration in accordance with Rule 904 under the Securities Act, provided
that the Transferor understands that any Notes issued pursuant to Regulation S
under the Securities Act may only be transferred in accordance with the
provisions of Regulation S.
Such Note is being transferred in reliance on another exemption from
the registration requirements of the Securities Act (and based on an opinion of
counsel if the Company so requests).
Date: . . . . . . . . . Your Name:
------------------------------------------
(Print your name exactly as it appears
on the face of the Note)
Your Signature:
-------------------------------------
(Sign exactly as your name appears
on the face of the Note)
Social Security or Tax Identification No.:
-------------------------
Signature Guarantee**:
-------
- ----------------------------------
* Participant in a recognized Signature Guarantee Medallion Program (or
other signature guarantor acceptable to the Trustee).
B-1
<PAGE> 1
EXHIBIT 4.6
PLEDGE AND SECURITY AGREEMENT
This PLEDGE AND SECURITY AGREEMENT, dated as of September 23,
1997, is by and among Texas Commerce Bank National Association, as pledge agent
(in such capacity, the "Pledge Agent"), Texas Commerce Bank National
Association, as Trustee (in such capacity, the "Trustee") under the Indenture
(as defined herein), and HighwayMaster Communications, Inc., a Delaware
corporation (the "Company").
RECITALS
A. Pursuant to the Indenture, dated as of the date hereof, by
and among the Company, the Trustee and the Subsidiary Guarantor named therein
(as such may be amended or supplemented from time to time, the "Indenture"),
the Company is issuing $125,000,000 aggregate principal amount of its 13 3/4%
Senior Notes Due 2005, Series A (the "Series A Notes") and authorizing the
issuance of its 13 3/4% Senior Notes Due 2005, Series B (the "Series B Notes,"
and together with the Series A Notes, the "Notes").
B. As security for its obligations under the Notes and the
Indenture, the Company hereby grants to the Trustee, for the benefit of the
Trustee and the holders of the Notes, a security interest in and lien upon the
Pledge Account (as defined herein).
C. The parties have entered into this Agreement in order to
set forth the conditions upon which, and the manner in which, funds will be
disbursed from the Pledge Account and released from the security interest and
Lien described above.
NOW, THEREFORE, the parties hereto, intending to be legally
bound, hereby agree as follows:
1. DEFINED TERMS. All capitalized terms used but not defined
herein shall have the meanings ascribed to them in the Indenture. In addition
to any other defined terms used herein, the following terms shall constitute
defined terms for purposes of this Agreement and shall have the meanings set
forth below:
"Agreement" means this Pledge and Security Agreement, as
amended or supplemented from time to time.
"Applied" means that disbursed funds have been applied (i) to
the payment of interest on the Notes, (ii) pursuant to Section 3.3, or (iii)
pursuant to Section 6(b) (iii).
"Available Funds" means (A) the sum of (i) the Initial Pledge
Amount and (ii) interest earned or dividends paid on the funds in the Pledge
Account (including holdings of Government Securities), less (B) the aggregate
disbursements previously made pursuant to this Agreement.
"Collateral" shall have the meaning given in Section 6(a)
hereof.
"Initial Pledge Amount" shall mean approximately $47,000,000.
"Payment Notice and Disbursement Request" means a notice sent
by the Trustee to
<PAGE> 2
the Pledge Agent requesting a disbursement of funds from the Pledge Account, in
substantially the form of Exhibit A hereto. Each Payment Notice and Disbursement
Request shall be signed by an officer of the Trustee.
"Pledge Account" shall mean the pledge account established
pursuant to Section 2.2.
2. PLEDGE ACCOUNT; PLEDGE AGENT.
2.1 Appointment of Pledge Agent. The Company and the
Trustee hereby appoint the Pledge Agent, and the Pledge Agent hereby accepts
appointment, as Pledge Agent, under the terms and conditions of this Agreement.
2.2 Establishment of Pledge Account. On the Closing Date,
the Pledge Agent shall establish a pledge account entitled "Pledge Account
pledged by HighwayMaster Communications, Inc. to Texas Commerce Bank National
Association, as Trustee" (the "Pledge Account") at its office located at 2200
Ross Avenue, 5th Floor, Dallas, Texas 75201. All funds accepted by the Pledge
Agent pursuant to this Agreement shall be held for the exclusive benefit of the
Trustee and the holders of the Notes, as secured parties hereunder (the
"Beneficiaries"). All such funds shall be held in the Pledge Account until
disbursed or paid in accordance with the terms hereof. The Pledge Account, the
funds held therein and any Government Securities held by the Pledge Agent shall
be under the sole dominion and control of the Pledge Agent for the benefit of
the Beneficiaries. On the Closing Date, the Company shall deliver the Initial
Pledge Amount to the Pledge Agent for deposit into the Pledge Account against
the Pledge Agent's written acknowledgment and receipt.
2.3 Pledge Agent Compensation. The Company shall pay to
the Pledge Agent such compensation for services to be performed by it under
this Agreement as the Company and the Pledge Agent may agree in writing from
time to time. The Pledge Agent shall be paid any compensation owed to it
directly by the Company and shall not disburse from the Pledge Account any such
amounts.
The Company shall reimburse the Pledge Agent upon request for
all reasonable expenses, disbursements, and advances incurred or made by the
Pledge Agent in implementing any of the provisions of this Agreement, including
compensation and the reasonable expenses and disbursements of its counsel. The
Pledge Agent shall be paid any such expenses owed to it directly by the Company
and shall not disburse from the Pledge Account any such amounts.
2.4 Investment of Funds in Pledge Account. Funds
deposited in the Pledge Account shall be invested and reinvested only upon the
following terms and conditions:
(a) Acceptable Investments. All funds deposited or
held in the Pledge Account at any time shall be invested by the Pledge
Agent in Government Securities in accordance with the Initial
Instructions annexed hereto as Exhibit B and thereafter the Company's
written instructions from time to time to the Pledge Agent; provided,
however, that the Company shall only designate investment of funds in
Government Securities
2
<PAGE> 3
maturing in an amount sufficient to and/or generating interest income
sufficient to, when added to the balance of funds held in the Pledge
Account, provide for the payment of interest on the outstanding Notes
on each Interest Payment Date beginning on and including March 15,
1998 and through and including the Interest Payment Date on September
15, 2000; provided, further, however, that any such written
instruction shall specify the particular investment to be made, shall
state that such investment is authorized to be made hereby and in
particular satisfies the requirements of the preceding proviso and
Section 2.4(e), shall contain the certification referred to in Section
2.4(b), if required, and shall be executed by an Officer of the
Company. All Government Securities shall be assigned to and held in
the possession of, or, in the case of Government Securities maintained
in book entry form with the Federal Reserve Bank, transferred to a
book entry account in the name of, the Pledge Agent, for the benefit
of the Trustee, with such guarantees as are customary, except that
Government Securities maintained in book entry form with the Federal
Reserve Bank shall be transferred to a book entry account in the name
of the Pledge Agent at the Federal Reserve Bank that includes only
Government Securities held by the Pledge Agent for its customers and
segregated by separate recordation in the books and records of the
Pledge Agent. The Pledge Agent shall not be liable for losses on any
investments made by it pursuant to and in compliance with such
instructions. In the absence of qualifying instructions from the
Company that meet the requirements of this Section 2.4(a), the Pledge
Agent shall have no obligation to invest funds held in the Pledge
Account.
(b) Security Interest in Investments. No investment
of funds in the Pledge Account shall be made unless the Company has
certified to the Pledge Agent and the Trustee that, upon such
investment, the Trustee will have a first priority perfected security
interest in the applicable investment. If a certificate as to a class
of investments has been provided to the Pledge Agent, a certificate
need not be issued with respect to individual investments in
securities in that class if the certificate applicable to the class
remains accurate with respect to such individual investments, which
continued accuracy the Pledge Agent may conclusively assume. On the
Closing Date, and from time to time thereafter as required by Section
11.2 of the Indenture and as required by the TIA, until the
termination of this Agreement, the Trustee shall receive an Opinion of
Counsel to the Company, dated each such date as applicable, which
opinion shall meet the requirements of Section 314(b) of the TIA and
shall comply with Section 11.2 of the Indenture.
(c) Interest and Dividends. All interest earned and
dividends paid on funds invested in Government Securities shall be
deposited in the Pledge Account as additional Collateral for the
exclusive benefit of the Beneficiaries and, if not required to be
disbursed in accordance with the terms hereof, shall be reinvested in
accordance with the terms hereof at the Company's written instruction,
and shall be available for disbursement to the Company upon
satisfaction of the conditions set forth in Section 3.3.
(d) Limitation on Pledge Agent's Responsibilities.
The Pledge Agent's sole responsibilities under this Section 2 shall be
(A) to retain possession of certificated Government Securities (except,
however, that the Pledge Agent may surrender possession to the issuer
of any such Government Security for the purposes of effecting
assignment,
3
<PAGE> 4
crediting interest, or reinvesting such security or reducing such
security to cash) and to be the registered or designated owner of
Government Securities which are not certificated, (B) to follow the
Company's written instructions given in accordance with Section
2.4(a), (C) to invest and reinvest funds pursuant to this Section 2.4
and (D) to use reasonable efforts to reduce to cash such Government
Securities as may be required to fund any disbursement or payment in
accordance with Section 3. In connection with clause (A) above, the
Pledge Agent will maintain continuous possession in the State of New
York of certificated Government Securities and cash included in the
Collateral and will cause uncertificated Government Securities to be
registered in the book-entry system of, and transferred to an account
of the Pledge Agent or a sub-agent of the Pledge Agent at, the Federal
Reserve Bank of New York or Dallas. Except as provided in Section 6,
the Pledge Agent shall have no other responsibilities with respect to
perfecting or maintaining the perfection of the Trustee's security
interest in the Collateral and shall not be required to file any
instrument, document or notice in any public office at any time or
times. In connection with clause (D) above and subject to the
following sentence, the Pledge Agent shall not be required to reduce
to cash any Government Securities to fund any disbursement or payment
in accordance with Section 3 in the absence of written instructions
signed by an Officer of the Company specifying the particular
investment to liquidate. If no such written instructions are received,
the Pledge Agent may liquidate those Government Securities having the
lowest interest rate per annum or if none such exist, those having the
nearest maturity.
(e) Manner of Investment. Funds deposited in the
Pledge Account shall initially be invested in accordance with the
Initial Instructions (attached hereto as Exhibit B), which is in a
manner such that there will be sufficient funds available without any
further investment by the Company to cover all interest due on the
outstanding Notes, as such interest becomes due, for each Interest
Payment Date beginning on and including the Closing Date and through
and including September 15, 2000, provided that such investments shall
have such maturities and/or interest payment dates such that funds
will be available with respect to each such Interest Payment Date no
later than the time the Pledge Agent is required to disburse such
funds to the Trustee pursuant to Section 3.1. The Pledge Agent shall
have no responsibility for determining whether funds held in the
Pledge Account shall have been invested in such a manner so as to
comply with the requirements of this subsection (e)
2.5 Substitution of Pledge Agent. The Pledge Agent may resign
by giving no less than 20 Business Days prior written notice to the Company and
the Trustee. Such resignation shall take effect upon the later to occur of (i)
delivery of all funds and Government Securities maintained by the Pledge Agent
hereunder and copies of all books, records, plans and other documents in the
Pledge Agent's possession relating to such funds or Government Securities or
this Agreement to a successor Pledge Agent mutually approved by the Company and
the Trustee (which approvals shall not be unreasonably withheld or delayed) and
(ii) the Company, the Trustee and such successor agent enter into this
Agreement or any written successor agreement no less favorable to the interests
of the holders of the Notes and the Trustee than this Agreement. The Pledge
Agent shall thereafter be discharged of all obligations under this Agreement and
shall have no further duties, obligations
4
<PAGE> 5
or responsibilities in connection herewith, except as set forth in Section 4.
If a successor pledge agent has not been appointed or has not accepted such
appointment within 20 Business Days after notice of resignation is given to the
Company, the Pledge Agent may apply to a court of competent jurisdiction for
the appointment of a successor pledge agent.
2.6 Pledge Account Statement. At least 30 days prior to each
Interest Payment Date, the Pledge Agent shall deliver to the Company and the
Trustee a statement setting forth with reasonable particularity the balance of
funds then in the Pledge Account and the manner in which such funds are
invested. The parties hereto irrevocably instruct the Pledge Agent that on the
first date upon which the balance in the Pledge Account (including the holdings
of all Government Securities) is reduced to zero, the Pledge Agent shall
deliver to the Company and to the Trustee a notice that the balance in the
Pledge Account has been reduced to zero.
3. DISBURSEMENTS.
3.1 Payment Notice and Disbursement Request; Disbursements.
The Trustee shall, at least five Business Days prior to an Interest Payment
Date, submit to the Pledge Agent a completed Payment Notice and Disbursement
Request substantially in the form of Exhibit A hereto.
The Pledge Agent's disbursement pursuant to any Payment
Notice and Disbursement Request shall be subject to the satisfaction of the
applicable conditions set forth in Section 3.2. If such Payment Notice and
Disbursement Request is not rejected by the Pledge Agent, the Pledge Agent, as
soon as reasonably practicable on the Interest Payment Date, but in no event
later than 12:00 Noon (New York City time) on the Interest Payment Date, shall
disburse the funds requested in such Payment Notice and Disbursement Request by
wire or book-entry transfer of immediately available funds to the account of
the Trustee for the benefit of the Beneficiaries. The Pledge Agent shall notify
the Trustee as soon as reasonably possible (but not later than two Business
Days from the date of receipt of the Payment Notice and Disbursement Request)
if any Payment Notice and Disbursement Request is rejected and the reason(s)
therefor. In the event such rejection is based upon nonsatisfaction of the
condition in Section 3.2(a) below, the Trustee shall thereupon resubmit the
Payment Notice and Disbursement Request with appropriate changes.
3.2 Conditions Precedent to Disbursement. The Pledge Agent's
payment of any disbursement shall be made only if: (a) the Trustee shall have
submitted, in accordance with the provisions of Section 3.1 herein, a completed
Payment Notice and Disbursement Request to the Pledge Agent substantially in
the form of Exhibit A with blanks appropriately filled in, (b) the Company
shall have complied with the requirements of Section 11.3 of the Indenture, and
(c) the Pledge Agent shall not have received any notice from the Trustee that
as a result of an Event of Default the indebtedness represented by the Notes
has been accelerated and has become due and payable (in which event the Pledge
Agent shall apply all Available Funds as required by Section 6(b) (iii)).
3.3 Disbursements to Company. If (i) a portion of the
Notes has been retired by the Company and submitted to the Trustee for
cancellation or the Company has deposited with the Trustee from funds otherwise
available to the Company cash sufficient to pay interest scheduled to
5
<PAGE> 6
be paid on an Interest Payment Date, and as a result of such retirement or
deposit, or (ii) as a result of overfunding of the Pledge Account, interest or
dividends earned on Collateral, or realization of proceeds thereof in
accordance with the terms hereof, the funds or Pledged Securities held in the
Pledge Account exceed the amount sufficient, in the opinion of a nationally
recognized firm of independent public accountants selected by the Company, to
provide for payment in full of the first six scheduled interest payments due on
the Notes (or, in the event an interest payment or interest payments have been
made, an amount sufficient to provide for payment in full of any interest
payments remaining, up to and including the sixth scheduled interest payment),
if no Default or Event of Default is then continuing, upon the written request
of the Company to the Pledge Agent and the Trustee, any such excess amount of
Collateral shall be paid to the Company upon compliance with the release of
collateral provisions of the TIA and upon receipt by the Pledge Agent of a
notice relating thereto from the Trustee.
4. PLEDGE AGENT.
The Pledge Agent's responsibility and liability under this
Agreement shall be limited as follows: (i) the Pledge Agent does not represent,
warrant or guaranty to the holders of the Notes from time to time the
performance of the Company; (ii) the Pledge Agent shall have no responsibility
to the Company or the holders of the Notes or the Trustee from time to time as
a consequence of performance or non-performance by the Pledge Agent hereunder,
except for any gross negligence or willful misconduct of the Pledge Agent;
(iii) the Company shall remain solely responsible for all aspects of the
Company's business and conduct; and (iv) the Pledge Agent is not obligated to
supervise, inspect or inform the Company or any third party of any matter
referred to above.
No implied covenants or obligations shall be inferred from
this Agreement against the Pledge Agent, nor shall the Pledge Agent be bound by
the provisions of any agreement beyond the specific terms hereof. Specifically
and without limiting the foregoing, the Pledge Agent shall in no event have any
liability in connection with its investment, reinvestment or liquidation, in
good faith and in accordance with the terms hereof, of any funds or Government
Securities held by it hereunder, including without limitation any liability for
any delay not resulting from gross negligence or willful misconduct in such
investment, reinvestment or liquidation, or for any loss of principal or income
incident to any such delay.
The Pledge Agent shall be entitled to rely upon any judicial
order or judgment, upon any written opinion of counsel or upon any
certification, instruction, notice, or other writing delivered to it by the
Company or the Trustee in compliance with the provisions of this Agreement
without being required to determine the authenticity or the correctness of any
fact stated therein or the propriety or validity of service thereof. The Pledge
Agent may act in reliance upon any instrument comporting with the provisions of
this Agreement or signature believed by it to be genuine and may assume that
any person purporting to give notice or receipt or advice or make any statement
or execute any document in connection with the provisions hereof has been duly
authorized to do so.
6
<PAGE> 7
At any time the Pledge Agent may request in writing an
instruction in writing from the Company, and may at its own option include in
such request the course of action it proposes to take and the date on which it
proposes to act, regarding any matter arising in connection with its duties and
obligations hereunder; provided, however, that the Pledge Agent shall state in
such request that it believes in good faith that such proposed course of action
is consistent with another identified provision of this Agreement. The Pledge
Agent shall not be liable to the Company for acting without the Company's
consent in accordance with such a proposal on or after the date specified
therein if (i) the specified date is at least two (2) Business Days after the
Company receives the Pledge Agent's request for instructions and its proposed
course of action, and (ii) prior to so acting, the Pledge Agent has not
received the written instructions requested from the Company.
The Pledge Agent may act pursuant to the written advice of
counsel chosen by it with respect to any matter relating to this Agreement and
(subject to clause (ii) of the first paragraph of this Section 4) shall not be
liable for any action taken or omitted in accordance with such advice.
The Pledge Agent shall not be called upon to advise any party
as to selling or retaining, or taking or refraining from taking any action with
respect to, any securities or other property deposited hereunder.
In the event of any ambiguity in the provisions of this
Agreement with respect to any funds or property deposited hereunder, the Pledge
Agent shall be entitled to refuse to comply with any and all claims, demands or
instructions with respect to such funds or property, and the Pledge Agent shall
not be or become liable for its failure or refusal to comply with conflicting
claims, demands or instructions. The Pledge Agent shall be entitled to refuse
to act until either any conflicting or adverse claims or demands shall have
been finally determined by a court of competent jurisdiction or settled by
agreement between the conflicting claimants as evidenced in a writing,
satisfactory to the Pledge Agent, or the Pledge Agent shall have received
security or an indemnity satisfactory to the Pledge Agent sufficient to save
the Pledge Agent harmless from and against any and all loss, liability or
expense which the Pledge Agent may incur by reason of its acting. The Pledge
Agent may in addition elect in its sole option to commence an interpleader
action or seek other judicial relief or orders as the Pledge Agent may deem
necessary.
No provision of this Agreement shall require the Pledge Agent
to expend or risk its own funds or otherwise incur any financial liability in
the performance of any of its duties hereunder.
5. INDEMNITY. The Company shall indemnify, hold harmless and
defend the Pledge Agent and its directors, officers, agents, employees and
controlling persons, from and against any and all claims, actions, obligations,
liabilities and expenses, including defense costs, investigative fees and
costs, legal fees, and claims for damages, arising from the Pledge Agent's
performance or non-performance, or in connection with its acceptance or
appointment as Pledge Agent, under this Agreement, except to the extent that
such liability, expense or claim is solely and directly attributable to the
negligence or willful misconduct of any of the foregoing persons. The
provisions of this Section 5 shall survive any termination, satisfaction or
discharge of this Agreement as well as the resignation or removal of the Pledge
Agent.
7
<PAGE> 8
6. GRANT OF SECURITY INTERESTS; INSTRUCTIONS TO PLEDGE
AGENT.
(a) The Company hereby irrevocably grants a first priority
security interest in and lien on, and pledges, assigns, and sets over to the
Trustee for the benefit of the Beneficiaries, all of the Company's right, title
and interest in the Pledge Account, and all property now or hereafter placed or
deposited in, or delivered to the Pledge Agent for placement or deposit in, the
Pledge Account, including, without limitation, all funds held therein, all
Government Securities held by (or otherwise maintained in the name of) the
Pledge Agent pursuant to Section 2, and all proceeds thereof as well as all
rights of the Company under this Agreement (collectively, the "Collateral"), in
order to secure the due and punctual payment of the principal of, premium,
interest and Liquidated Damages, if any, on the Notes when and as the same
shall be due and payable on each Interest Payment Date, at maturity or by
acceleration, and interest on the overdue principal of and interest (to the
extent permitted by law), if any, on the Notes and the payment and performance
of all other obligations of the Company to the Holders of the Notes or the
Trustee under the Indenture and this Agreement with respect to the Notes,
according to the terms hereunder or thereunder. The Pledge Agent hereby
acknowledges the Trustee's security interest and lien as set forth above. The
Company shall take all actions necessary on its part to insure the continuance
of a first priority security interest in the Collateral in favor of the Trustee
in order to secure all such obligations and indebtedness.
(b) The Company and the Trustee hereby irrevocably instruct
the Pledge Agent to, and the Pledge Agent shall: (i) (A) maintain sole dominion
and control over funds and Government Securities in the Pledge Account for the
benefit of the Trustee to the extent specifically required herein, (B)
maintain, or cause its agent within the State of New York to maintain,
possession of all certificated Government Securities purchased hereunder that
are physically possessed by the Pledge Agent in order for the Trustee to enjoy
a continuous perfected first priority security interest therein under the law
of the State of New York (the Company hereby agreeing that in the event any
certificated Government Securities are in the possession of the Company or a
third party, the Company shall use its best efforts to deliver all such
certificates to the Pledge Agent), (C) take all steps specified by the Company
pursuant to Section 6 to cause the Trustee to enjoy a continuous perfected
first priority security interest under any applicable Federal and State of New
York law in all Government Securities purchased hereunder that are not
certificated and (D) maintain the Collateral free and clear of all Liens,
security interests, safekeeping or other charges, demands and claims against
the Pledge Agent of any nature now or hereafter existing in favor of anyone
other than the Trustee; (ii) promptly notify the Trustee if the Pledge Agent
receives written notice that any Person other than the Trustee has a Lien or
security interest upon any portion of the Collateral; and (iii) in addition to
disbursing amounts pledged pursuant to any Payment Notice and Disbursement
Requests given to it by the Trustee pursuant to Section 3, upon receipt of
written notice from the Trustee of the acceleration of the maturity of the
Notes, and direction from the Trustee to disburse all Available Funds to the
Trustee, as promptly as practicable, after following, if it so chooses, the
procedures set forth in the fourth paragraph of Section 4, disburse all funds
held in the Pledge Account to the Trustee and transfer title to all Government
Securities held by the Pledge Agent hereunder to the Trustee. The Lien and
security interest provided for by this Section 6 shall automatically terminate
and cease as to, and shall not extend or apply to, and the Trustee shall have
8
<PAGE> 9
no security interest in or Lien on, any funds disbursed by the Pledge Agent to
the Company pursuant to this Agreement to the extent not inconsistent with the
terms hereof. Notwithstanding any other provision contained in this Agreement,
the Pledge Agent shall act solely as the Trustee's agent in connection with its
duties under this Agreement. The Pledge Agent shall not have any right to
receive compensation from the Trustee and shall have no authority to obligate
the Trustee or to compromise or pledge its security interest hereunder.
Accordingly, the Pledge Agent is hereby directed to cooperate with the Trustee
in the exercise of its rights in the Collateral provided for herein.
(c) Any money and Government Securities collected by the
Trustee pursuant to Section 6(b) (iii) shall be applied as provided in Section
6.10 of the Indenture.
(d) Upon demand, the Company will execute and deliver to the
Trustee such instruments and documents as the Trustee may deem necessary or
advisable to confirm or perfect the rights of the Trustee under this Agreement
and the Trustee's interest in the Collateral. The Trustee shall be entitled to
take all necessary action to preserve and protect the security interest created
hereby as a lien and encumbrance upon the Collateral.
(e) The Company hereby appoints the Trustee as its
attorney-in-fact with full power of substitution to do any act which the
Company is obligated hereto to do, and the Trustee may exercise such rights as
the Company might exercise with respect to the Collateral and take any action
in the Company's name to protect the Trustee's security interest hereunder. In
addition to the rights provided under Section 6(b)(iii) hereof, upon an Event
of Default and for so long as such Event of Default continues, the Trustee may
exercise in respect of the Collateral, in addition to other rights and remedies
provided for herein or otherwise available to it, all the rights and remedies
of a secured party under the Uniform Commercial Code or other applicable law,
and the Trustee may also upon obtaining possession of the Collateral as set
forth herein, without notice to the Company except as specified below, sell the
Collateral or any part thereof in one or more parcels at public or private
sale, at any exchange, broker's board or at any of the Trustee's offices or
elsewhere, for cash, on credit or for future delivery, and upon such other
terms as the Trustee may deem commercially reasonable. The Company acknowledges
and agrees that any such private sale may result in prices and other terms less
favorable to the seller than if such sale were a public sale. The Company
agrees that, to the extent notice of sale shall be required by law, at least 10
days notice to the Company of the time and place of any public sale or the time
after which any private sale is to be made shall constitute reasonable
notification. The Trustee shall not be obligated to make any sale regardless of
notice of sale having been given. The Trustee may adjourn any public or private
sale from time to time by announcement at the time and place fixed therefor,
and such sale may, without further notice, be made at the time and place to
which it was so adjourned.
7. TERMINATION. Upon the earliest to occur of (i) the date
upon which the balance of Available Funds shall have been reduced to zero, (ii)
if no Default or Event of Default exists, the date upon which the Company shall
have paid in full in accordance with the terms of the Indenture the first six
scheduled interest payments due on the Notes, (iii) the payment in full of all
obligations of the Company under the Indenture and the Notes, (iv) Legal
Defeasance under Article 8 of the Indenture, (v) Covenant Defeasance under
Article 8 of the Indenture, and (vi) the agreement
9
<PAGE> 10
of the parties hereto to terminate this Agreement (in accordance with the terms
hereof and not in violation of the Indenture; provided, that the Trustee may
not agree to terminate unless it has received the consent of 100% of the
holders of all of the Notes outstanding), then the Trustee shall at the written
request of the Company, release the Liens pursuant to the Indenture and this
Agreement upon the Company's compliance with the provisions of the TIA
pertaining to release of collateral and terminate this Agreement; provided,
however, that the obligations of the Company under Section 2.3 and Section 5
(and any existing claims thereunder) shall survive termination of this
Agreement and any resignation of the Pledge Agent.
8. MISCELLANEOUS.
8.1 Waiver. Any party hereto may specifically waive any
breach of this Agreement by any other party, but no such waiver shall be deemed
to have been given unless such waiver is in writing, signed by the waiving
party and specifically designating the breach waived, nor shall any such waiver
constitute a continuing waiver of similar or other breaches.
8.2 Invalidity. If for any reason whatsoever any one or more
of the provisions of this Agreement shall be held or deemed to be inoperative,
unenforceable or invalid in a particular case or in all cases, such
circumstances shall not have the effect of rendering any of the other
provisions of this Agreement inoperative, unenforceable or invalid, and the
inoperative, unenforceable or invalid provision shall be construed as if it
were written so as to effectuate, to the maximum extent possible, the parties'
intent.
8.3 Assignment. This Agreement is personal to the parties
hereto, and the rights and duties of any party hereunder shall not be
assignable except with the prior written consent of the other parties.
Notwithstanding the foregoing, this Agreement shall inure to and be binding
upon the parties and their successors and permitted assigns.
8.4 Benefit. The parties hereto and their successors and
permitted assigns, but no others, shall be bound hereby and entitled to the
benefits hereof; provided, however, that the Holders shall be entitled to the
benefits hereof and to enforce this Agreement, subject to Article 6 of the
Indenture.
8.5 Time. Time is of the essence with respect to each
provision of this Agreement.
8.6 Entire Agreement; Amendments. This Agreement and the
Indenture contain the entire agreement among the parties with respect to the
subject matter hereof and supersede any and all prior agreements,
understandings and commitments, whether oral or written. This Agreement may be
amended only in accordance with Article 9 of the Indenture and further by a
writing signed by a duly authorized representative of each party hereto.
8.7 Notices. All notices and other communications
required or permitted to be given or made under this Agreement shall be in
writing and shall be deemed to have been duly given and received when actually
received, including: (a) on the day of hand delivery; (b) three business
10
<PAGE> 11
days following the day sent, when sent by United States certified mail, postage
and certification fee prepaid, return receipt requested, addressed as set forth
below; (c) when transmitted by telecopy with verbal confirmation of receipt by
the telecopy operator to the telecopy number set forth below; or (d) one
business day following the day timely delivered to a next-day air courier
addressed as set forth below:
To Pledge Agent:
Texas Commerce Bank National Association
2200 Ross Avenue, 5th Floor
Dallas, Texas 75201
Telephone: 214-965-3510
Telecopy: 214-965-3577
Attention: Corporate Trust Department
To Trustee:
Texas Commerce Bank National Association
2200 Ross Avenue, 5th Floor
Dallas, Texas 75201
Telephone: 214-965-3510
Telecopy: 214-965-3577
Attention: Corporate Trust Department
To the Company:
HighwayMaster Communications, Inc.
16479 Dallas Parkway
Suite 710
Dallas, Texas 75248
Telephone: (972) 732-2500
Telecopy: (972) 930-7263
Attention: General Counsel
or at such other address as the specified entity most recently may have
designated in writing in accordance with this Section.
8.8 Counterparts. This Agreement may be executed in one
or more counterparts, each of which shall be deemed an original but all of
which together shall constitute one and the same instrument.
11
<PAGE> 12
8.9 Captions. Captions in this Agreement are for
convenience only and shall not be considered or referred to in resolving
questions of interpretation of this Agreement.
8.10 Choice of Law. The construction and enforceability of
any and all terms and provisions of this Agreement shall be determined in
accordance with and governed by the laws of the State of New York, without
regard to principles of conflicts of laws. The Company hereby submits to the
personal jurisdiction of any competent Court of the State of New York, or a
United States Federal Court sitting in New York City.
8.11 Representations and Warranties.
(a) The Company hereby represents and warrants that this
Agreement has been duly authorized, executed and delivered on its behalf and
constitutes the legal, valid and binding obligation of the Company. The
execution, delivery and performance of this Agreement by the Company does not
violate any applicable law or regulation to which the Company is subject and
does not require the consent of any governmental or other regulatory body to
which the Company is subject, except for such consents and approvals as have
been obtained and are in full force and effect.
(b) Each of the Pledge Agent and the Trustee hereby
represents and warrants that this Agreement has been duly authorized, executed
and delivered on its behalf and constitutes its legal, valid and binding
obligation of the Pledge Agent and the Trustee, respectively.
[REMAINDER OF THIS PAGE INTENTIONALLY LEFT BLANK]
12
<PAGE> 13
IN WITNESS WHEREOF, the parties have executed and delivered
this Pledge Agreement as of the day first above written.
PLEDGE AGENT: TEXAS COMMERCE BANK NATIONAL
ASSOCIATION, as Pledge Agent
By: /S/ Gary Jones
-------------------------------
Name: Gary Jones
-----------------------------
Title: Vice President
----------------------------
TRUSTEE: TEXAS COMMERCE BANK NATIONAL
ASSOCIATION, as Trustee
By: /S/ Gary Jones
-------------------------------
Name: Gary Jones
-----------------------------
Title: Vice President
----------------------------
COMPANY: HIGHWAYMASTER COMMUNICATIONS, INC.
By: /S/ William C. Saunders
-------------------------------
Name: William C. Saunders
Title: President and Chief Executive Officer
13
<PAGE> 14
EXHIBIT A
Form of Payment Notice and Disbursement Request
[Letterhead of the Trustee]
[Date]
- --------------------------------
- --------------------------------
- --------------------------------
Attention: Corporate Trust Department
Re: Disbursement Request No.____________________
[indicate whether revised]
Ladies and Gentlemen:
We refer to the Pledge and Security Agreement, dated as of September
23, 1997 by and among you (the "Pledge Agent"), the undersigned as Trustee, and
HighwayMaster Communications, Inc., a Delaware corporation (the "Company") (as
amended and supplemented to the date hereof, the "Pledge Agreement").
Capitalized terms used herein shall have the meaning given in the Pledge
Agreement unless otherwise defined herein.
This letter constitutes a Payment Notice and Disbursement Request
under the Pledge Agreement.
[CHOOSE ONE OF THE FOLLOWING, AS APPLICABLE:]
[The undersigned hereby notifies you that a scheduled interest payment
in the amount of $___________ is due and payable on _____________, ____ and the
Company has not deposited with the Trustee from funds otherwise available to
the Company funds sufficient to pay such interest payment. Accordingly, the
undersigned requests a disbursement of funds contained in the Pledge Account in
such amount to the Trustee.]
[The undersigned (i) hereby notifies you that [CHOOSE ONE:]
[Notes equaling $_____________ in aggregate principal amount
have been retired]
[The Company deposited with the Trustee from funds otherwise
available to the Company funds sufficient to pay interest
that was due on a prior Interest Payment
A-1
<PAGE> 15
Date]
[as a result of interest or dividends earned on Collateral,
or realization of proceeds thereof in accordance with the
terms of the Pledge Agreement, excess Collateral exists]
and (ii) authorizes you to release $____________ of funds in the
Pledge Account to the Company (to an account designated by the Company
in writing), which amount represents the amount permitted to be
released in accordance with Section 3.3 of the Pledge Agreement.]
[The undersigned hereby notifies you that there has been an
acceleration of the maturity of the Notes. Accordingly, you are hereby
requested to disburse all remaining funds contained in the Pledge Account to
the Trustee such that the balance in the Pledge Account is reduced to zero.]
In connection with the requested disbursement, the undersigned hereby
notifies you that:
1.[The Notes have not, as a result of an Event of Default,
been accelerated and become due and payable.]
2.All prior disbursements from the Pledge Account have been
Applied.
3.[add wire instructions]
The Pledge Agent is entitled to rely on the foregoing in disbursing
funds relating to this Payment Notice and Disbursement Request.
TEXAS COMMERCE BANK NATIONAL
ASSOCIATION, as Trustee
By:
---------------------------
Name:
-------------------------
Title:
------------------------
A-2
<PAGE> 1
EXHIBIT 4.7
EXCHANGE AND REGISTRATION RIGHTS AGREEMENT
This Exchange and Registration Rights Agreement (this "Agreement") is
made and entered into as of September 23, 1997 by and among HighwayMaster
Communications, Inc., a Delaware corporation (the "Company"), HighwayMaster
Corporation, a Delaware corporation (the "Guarantor"), Bear, Stearns & Co. Inc.
("Bear Stearns") and Smith Barney Inc. ("Smith Barney"). Bear Stearns and Smith
Barney are hereafter referred to collectively as the "Purchasers."
Pursuant to the Purchase Agreement, dated September 18, 1997, (the
"Purchase Agreement"), by and among the Company, the Guarantor and the
Purchasers, the Purchasers have agreed to purchase units consisting in part of
the Company's 13 3/4% Senior Notes due 2005 the payment of which the Guarantor
has guaranteed (the "Series A Notes").
In order to induce the Purchasers to purchase the units, the Company
and the Guarantor have agreed to provide the registration rights set forth in
this Agreement. The execution and delivery of this Agreement is a condition to
the obligations of the Purchasers set forth in Section 9 of the Purchase
Agreement.
The parties hereby agree as follows:
SECTION 1. DEFINITIONS
As used in this Agreement, the following capitalized terms shall have
the following meanings:
Act: The Securities Act of 1933, as amended.
Advice: As defined in Section 6(d).
Agreement: As defined in the preamble hereto.
Bear Stearns: As defined in the preamble hereto.
Broker-Dealer: Any broker or dealer registered under the Exchange Act,
including the Purchasers.
Business Day: Any day except a Saturday, Sunday or other day in the
City of New York on which banks are authorized to close.
Closing Date: The date of this Agreement.
Commission: The Securities and Exchange Commission.
Consummate: The Exchange Offer shall be deemed "Consummated" for
purposes of this Agreement upon the occurrence of (a) the filing and
effectiveness under the Act of the Exchange Offer Registration Statement
relating to the Series B Notes to be issued in the Exchange Offer, (b) the
maintenance of such Registration Statement continuously effective and the
keeping of the Exchange Offer open for a period not less than the minimum
period required pursuant to Section 3(b) hereof, and (c) the delivery by the
Company to the Trustee under the Indenture of Series B Notes in the same
aggregate principal amount as the aggregate principal amount of Series A Notes
that were validly tendered by Holders thereof pursuant to the Exchange Offer.
<PAGE> 2
Damages Payment Date: With respect to the Series A Notes, each
Interest Payment Date.
Effectiveness Target Date: As defined in Section 5.
Exchange Act: The Securities Exchange Act of 1934, as amended.
Exchange Offer: The registration by the Company under the Act of the
Series B Notes (and by the Guarantor of the related guarantees) pursuant to an
Exchange Offer Registration Statement pursuant to which the Company offers the
Holders of all outstanding Transfer Restricted Securities the opportunity to
exchange all such outstanding Transfer Restricted Securities held by such
Holders for Series B Notes in an aggregate principal amount equal to the
aggregate principal amount of the Transfer Restricted Securities validly
tendered in such exchange offer by such Holders.
Exchange Offer Registration Statement: The Registration Statement
relating to the Exchange Offer, including the related Prospectus.
Exempt Resales: The transactions in which the Purchasers propose to
sell the Series A Notes to certain "qualified institutional buyers," as such
term is defined in Rule 144A under the Act, and outside the United States to
persons other than U.S. Persons in offshore transactions meeting the
requirements of Rule 903 of Regulation S under the Securities Act.
Guarantor: As defined in the preamble hereto, but also including any
future guarantors of the Securities as provided under the Indenture. The
Company shall cause any such future guarantors to comply with the obligations
of the Guarantor under this Agreement.
Holder: As defined in Section 2(b) hereof.
Holder Resale Notice: As defined in Section 4(a) hereof.
Indenture: The Indenture, dated as of the Closing Date, among the
Company, the Guarantor and the Trustee, pursuant to which the Securities are to
be issued, as such Indenture is amended or supplemented from time to time in
accordance with the terms thereof.
Interest Payment Date: As defined in the Indenture and the Securities.
Liquidated Damages: As defined in Section 5 hereof.
NASD: National Association of Securities Dealers, Inc.
Person: An individual, partnership, corporation, limited liability
company, joint venture, association, trust or other organization whether or not
a legal entity, or a government or agency or political subdivision thereof.
Prospectus: The prospectus included in a Registration Statement, as
amended or supplemented by any prospectus supplement and by all other
amendments thereto,
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<PAGE> 3
including post-effective amendments, and all material incorporated by reference
into such Prospectus.
Purchase Agreement: As defined in the preamble hereto.
Purchasers: As defined in the preamble hereto.
Registration Default: As defined in Section 5 hereof.
Registration Statement: Any registration statement of the Company (and
with respect to the guarantees, the Guarantor) relating to (a) an offering of
Series B Notes pursuant to an Exchange Offer or (b) the registration for resale
of Transfer Restricted Securities pursuant to the Shelf Registration Statement,
which is filed pursuant to the provisions of this Agreement, in each case,
including the Prospectus included therein, all amendments and supplements
thereto (including post-effective amendments) and all exhibits and material
incorporated by reference therein.
Securities: The Series A Notes and the Series B Notes.
Series A Notes: As defined in the preamble hereto.
Series B Notes: The Company's 13 3/4% Senior Notes due 2005 to be
issued pursuant to the Indenture in the Exchange Offer, the payment of which
the Guarantor will guarantee.
Shelf Registration: A registration effected by the filing of a Shelf
Registration Statement pursuant to Section 4 hereof.
Shelf Registration Statement: As defined in Section 4 hereof.
Smith Barney: As defined in the preamble hereto.
TIA: The Trust Indenture Act of 1939 as in effect on the date of the
Indenture.
Transfer Restricted Securities: The following Securities: (a) each
Series A Note until the date on which such Series A Note has been exchanged by
a Person other than a Broker-Dealer for a Series B Note in the Exchange offer,
(b) following the exchange by a Broker-Dealer in the Exchange Offer of a Series
A Note for a Series B Note, the date on which such Series B Note is sold to a
purchaser who receives from such Broker-Dealer on or prior to the date of such
sale a copy of the Prospectus contained in the Exchange Offer Registration
Statement if it is permissible under applicable law and Commission policy to
use the Prospectus for such purpose, (c) the date on which such Security has
been effectively registered under the Securities Act and disposed of in
accordance with the Shelf Registration Statement, or (d) the date on which such
Security is distributed (and not merely eligible for distribution) to the
public pursuant to Rule 144 under the Securities Act.
Trustee: Texas Commerce Bank, National Association or such other
Person who may be the trustee under the Indenture at the time.
Underwritten Registration or Underwritten Offering: A registration in
which securities
3
<PAGE> 4
of the Company (and to the extent of the guarantees, the Guarantor) are sold to
an underwriter for reoffering to the public.
U.S. Person: As defined in Rule 902 of Regulation S under the
Securities Act.
SECTION 2. SECURITIES SUBJECT TO THIS AGREEMENT
(a) Transfer Restricted Securities. The Securities entitled to
the benefits of this Agreement are the Transfer Restricted Securities.
(b) Holders of Transfer Restricted Securities. A Person is deemed
to be a holder of Transfer Restricted Securities (each, a "Holder") whenever
such Person beneficially owns Transfer Restricted Securities.
SECTION 3. REGISTERED EXCHANGE OFFER
(a) Exchange Offer. Unless the Exchange Offer shall not be permissible
under applicable law or Commission policy, the Company (and to the extent of
the guarantees, the Guarantor) shall (i) cause to be filed with the Commission,
on or prior to 45 days after the Closing Date, the Exchange Offer Registration
Statement under the Act relating to the Series B Notes and the Exchange Offer,
(ii) use its best efforts to cause such Exchange Offer Registration Statement
to be declared effective by the Commission on or prior to 135 days after the
Closing Date, (iii) in connection with the foregoing, file (A) all
pre-effective amendments to such Exchange Offer Registration Statement as may
be necessary in order to cause such Exchange Offer Registration Statement to
become effective, (B) cause all necessary filings in connection with the
registration and qualification of the Series B Notes to be made under the Blue
Sky laws of such jurisdictions as are necessary to permit Consummation of the
Exchange Offer, and (iv) upon the effectiveness of such Exchange Offer
Registration Statement, commence the Exchange Offer. The Exchange Offer shall
be on an appropriate form permitting registration of the Series B Notes to be
offered in exchange for the Transfer Restricted Securities and to permit
resales of Securities held by Broker-Dealers as contemplated by Section 3(c)
below, if permissible under applicable law or Commission policy. If, after such
Exchange Offer Registration Statement initially is declared effective by the
Commission, the Exchange Offer or the issuance of Series B Notes thereunder or
the sale of Transfer Restricted Securities pursuant thereto as contemplated by
Section 3(c) below is interfered with by any stop order, injunction or other
order or requirement of the Commission or any other governmental agency or
court, such Exchange Offer Registration Statement shall be deemed not to have
become effective for purposes of this Agreement during the period that such
stop order, injunction or other similar order or requirement shall remain in
effect.
(b) Duration. The Company (and to the extent of the guarantees, the
Guarantor) shall use its best efforts to cause the Exchange Offer Registration
Statement to be effective continuously and shall keep the Exchange Offer open
for a period of not less than the minimum period required under applicable
federal and state securities laws to Consummate the Exchange Offer; provided,
however, that in no event shall such period be less than 20 Business Days. The
Company (and to the extent of the guarantees, the Guarantor) shall cause the
Exchange Offer to comply with all applicable federal and state
4
<PAGE> 5
securities laws. No securities other than the Securities shall be included in
the Exchange Offer Registration Statement. The Company (and to the extent of
the guarantees, the Guarantor) shall use its best efforts to cause the Exchange
Offer to be Consummated not later than 180 days after the Closing Date.
(c) Broker-Dealers. The Company (and to the extent of the guarantees,
the Guarantor) shall indicate in a "Plan of Distribution" section contained in
the Prospectus included in the Exchange Offer Registration Statement that any
Broker-Dealer who holds Series A Notes that are Transfer Restricted Securities
and that were acquired for its own account as a result of market-making
activities or other trading activities (other than Transfer Restricted
Securities acquired directly from the Company), may exchange such Series A
Notes pursuant to the Exchange Offer; provided, however, that such
Broker-Dealer may be deemed to be an "underwriter" within the meaning of the
Act and must, therefore, deliver a prospectus meeting the requirements of the
Act in connection with any resales of the Series B Notes received by such
Broker-Dealer in the Exchange Offer, which prospectus delivery requirement may
be satisfied by the delivery by such Broker-Dealer of the Prospectus contained
in the Exchange Offer Registration Statement. Such "Plan of Distribution"
section shall also contain all other information with respect to such resales
by Broker-Dealers that the Commission may require in order to permit such
resales pursuant thereto, but such "Plan of Distribution" shall not name any
such Broker-Dealer or disclose the amount of Securities held by any such
Broker-Dealer except to the extent required by the Commission.
The Company (and to the extent of the guarantees, the Guarantor) shall
use its best efforts to keep the Exchange Offer Registration Statement
continuously effective, supplemented and amended as required by the provisions
of Section 6(c) below to the extent necessary to ensure that it is available
for resales of Securities acquired by Broker-Dealers for their own accounts as
a result of market-making activities or other trading activities, and to ensure
that it conforms with the requirements of this Agreement, the Act and the
policies, rules and regulations of the Commission as announced from time to
time, for a period of 180 days from the date on which the Exchange Offer
Registration Statement is declared effective.
The Company shall provide sufficient copies of the latest version of
such Prospectus to Broker-Dealers promptly upon request at any time during such
period in order to facilitate such resales.
5
<PAGE> 6
SECTION 4. SHELF REGISTRATION
(a) Shelf Registration. If (i) the Company is not required to file an
Exchange Offer Registration Statement or consummate the Exchange Offer because
the Exchange Offer is not permitted by applicable law or Commission policy (so
long as the procedures set forth in Section 6(a) below are being or have been
complied with) or (ii) any Holder of Transfer Restricted Securities shall
deliver a notice (the "Holder Resale Notice") to the Company on or prior to the
20th Business Day following the Consummation of the Exchange Offer that (A)
such Holder is prohibited by applicable law or Commission policy from
participating in the Exchange Offer, (B) such Holder may not resell the Series
B Notes to be acquired by it in the Exchange Offer to the public without
delivering a prospectus and that the Prospectus contained in the Exchange Offer
Registration Statement is not appropriate or available for such resales by such
Holder, or (c) such Holder is a Broker- Dealer and holds Series A Notes
acquired directly from the Company or an affiliate of the Company, then the
Company (and to the extent of the guarantees, the Guarantor) shall:
(x) cause to be filed a shelf registration statement
pursuant to Rule 415 under the Act, which may be an amendment to the
Exchange Offer Registration Statement (in either event, the "Shelf
Registration Statement"), on or prior to the 45th day after the
obligation to file such Shelf Registration Statement arises, which
Shelf Registration Statement shall provide for resales of all Transfer
Restricted Securities, the Holders of which shall have provided the
information required pursuant to Section 4(b) hereof; and
(y) use its best efforts to cause such Shelf
Registration Statement to be declared effective by the Commission on
or before the 120th day after the obligation to file such Shelf
Registration Statement arises (but in any event within 180 days after
the Closing Date).
Subject to paragraph (c) below, the Company (and to the extent of the
guarantees, the Guarantor) shall use its best efforts to keep such Shelf
Registration Statement continuously effective, supplemented and amended as
required by the provisions of Sections 6(b) and (c) hereof to the extent
necessary to ensure that it is available for resales of Securities by the
Holders of Transfer Restricted Securities entitled to the benefit of this
Section 4(a), and to ensure that it conforms with the requirements of this
Agreement, the Act and the policies, rules and regulations of the Commission as
announced from time to time, until the earlier of (A) the date two years after
the effective date thereof (plus any extension of such two year period pursuant
to Section 4(c) below), (B) the consummation of the Exchange Offer with respect
to all Transfer Restricted Securities and the expiration of 20 Business Days
after the consummation thereof if during such 20 day period no Holder Resale
Notice shall have been delivered to the Company and (C) the date when all
securities covered by the Shelf Registration Statement have been sold pursuant
to the Shelf Registration Statement.
(b) Provision by Holders of Certain Information in Connection with the
Shelf Registration Statement. No Holder of Transfer Restricted Securities may
include any of its Transfer Restricted Securities in any Shelf Registration
Statement pursuant to this Agreement unless and until such Holder furnishes to
the Company in writing such information as the Company may reasonably request
specified in Item 507 and Item 508
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<PAGE> 7
of Regulation S-K under the Act for use in connection with any Shelf
Registration Statement or Prospectus or preliminary Prospectus included
therein. Each Holder as to which any Shelf Registration Statement is being
effected agrees to furnish promptly to the Company all information required to
be disclosed in order to make the information previously furnished to the
Company by such Holder not materially misleading. No Holder of Transfer
Restricted Securities shall be entitled to Liquidated Damages pursuant to
Section 5 hereof unless and until such Holder shall have used its best efforts
to provide all such reasonably requested information.
(c) Black Out Period. During any consecutive 365 day period, the
Company may suspend the effectiveness of the Shelf Registration Statement on
two occasions for a period of not more than 45 consecutive days if there is a
possible acquisition or business combination or other transaction, business
development or event involving the Company that may require disclosure in the
Shelf Registration Statement and the Board of Directors of the Company
determines in the exercise of its reasonable judgment that such disclosure is
not in the best interests of the Company and its stockholders or obtaining any
financial statements relating to a possible acquisition or business combination
required to be included in the Shelf Registration Statement would be
impracticable. In such a case, the Company shall promptly notify the Holders of
the suspension of the Shelf Registration Statement's effectiveness, provided
that such notice shall not require the Company to disclose the possible
acquisition or business combination or other transaction, business development
or event if the Board of Directors of the Company determines in good faith that
such acquisition or business combination or other transaction, business
development or event should remain confidential. Upon the abandonment,
consummation, or termination of the possible acquisition or business
combination, or the availability of the required financial statements with
respect to a possible acquisition or business combination, the suspension of
the use of the Shelf Registration Statement pursuant to this Section 4(c) shall
cease and the Company shall promptly comply with Section 6(c)(ii) hereof and
notify the Holders that disposition of Transfer Restricted Securities may be
resumed. The length of any periods during which the Company prohibits offers
and sales of Transfer Restricted Securities pursuant to the Shelf Registration
Statement under this Section 4(c) shall be considered periods of a Registration
Default under Section 5 hereof. In addition, the length of any periods during
which the Company prohibits offers and sales of Transfer Restricted Securities
pursuant to the Shelf Registration Statement under this Section 4(c) shall be
added to the two year period described in Section 4(a) above.
7
<PAGE> 8
SECTION 5. LIQUIDATED DAMAGES
If (a) the Company (and to the extent of the guarantees, the
Guarantor) fails to file any of the Registration Statements required by this
Agreement on or before the date specified for such filing, (b) any of such
Registration Statements is not declared effective by the Commission on or prior
to the date specified for such effectiveness (the "Effectiveness Target Date"),
(c) the Company (and to the extent of the guarantees, the Guarantor) fails to
commence, accept tenders, issue registered Series B Notes in respect of
accepted tenders under the Exchange Offer within 30 Business Days after the
Effectiveness Target Date with respect to the Exchange Offer Registration
Statement or (d) the Shelf Registration Statement or the Exchange Offer
Registration Statement is declared effective but thereafter ceases to be
effective or usable in connection with resales of Transfer Restricted
Securities during the periods specified in this Agreement (each such event
referred to in clauses (a) through (d) above a "Registration Default"), then
the Company will pay damages (the "Liquidated Damages") to the Holders in an
amount equal to 0.25% per annum of the outstanding principal amount of the
Transfer Restricted Securities for the first 90 days after such Registration
Default. The amount of the Liquidated Damages will increase, up to a maximum
rate of 1.0% per annum, by an additional 0.25% per annum with respect to each
subsequent 90 day period. All accrued Liquidated Damages will be paid by the
Company on each Damages Payment Date to the record holders of the respective
Securities by wire transfer of immediately available funds to the accounts
specified by them or by mailing checks to their registered addresses if no such
accounts have been specified. Following the cure of all Registration Defaults,
the accrual of Liquidated Damages will cease.
All obligations of the Company set forth in the preceding paragraph
that are outstanding with respect to any Transfer Restricted Security at the
time such security ceases to be a Transfer Restricted Security shall survive
until such time as all such obligations with respect to such Security shall
have been satisfied in full.
SECTION 6. REGISTRATION PROCEDURES
(a) Exchange Offer Registration Statement. In connection with the
Exchange Offer, the Company (and to the extent of the guarantees, the
Guarantor) shall comply with all of the provisions of Section 6(c) below, shall
use its best efforts to effect such exchange to permit the sale of Transfer
Restricted Securities being sold in accordance with the intended method or
methods of distribution thereof, and shall comply with all of the following
provisions:
(i) If in the reasonable opinion of counsel to the
Company there is a question as to whether the Exchange Offer is
permitted by applicable law, the Company hereby agrees to seek a
no-action letter or other favorable decision from the Commission,
including oral advice from the staff of the Commission, allowing the
Company to Consummate an Exchange Offer for such Series A Notes. The
Company hereby agrees to pursue the issuance of such a decision to the
Commission staff level but shall not be required to take commercially
unreasonable action to effect a change of Commission policy. In
connection with the foregoing, the Company hereby agrees, however, to
(A) participate in telephonic conferences with the Commission, (B)
deliver to the Commission staff an analysis prepared by
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<PAGE> 9
counsel to the Company setting forth the legal bases, if any, upon
which such counsel has concluded that such an Exchange Offer should be
permitted and (C) diligently pursue a resolution (which need not be
favorable) by the Commission staff of such submission.
(ii) As a condition to its participation in the
Exchange Offer pursuant to the terms of this Agreement, each Holder of
Transfer Restricted Securities shall furnish, upon the request of the
Company, prior to the Consummation thereof, a written representation
to the Company (which may be contained in the letter of transmittal
contemplated by the Exchange Offer Registration Statement) to the
effect that (A) it is not an affiliate of the Company, (B) it is not
engaged in, and does not intend to engage in, and has no arrangement
or understanding with any Person to participate in, a distribution of
the Series B Notes to be issued in the Exchange Offer and (C) it is
acquiring the Series B Notes in its ordinary course of business. Each
Holder hereby acknowledges and agrees that any Broker-Dealer who
acquired Series A Notes directly from the Company or any affiliate of
the Company and any such Holder intending to use the Exchange Offer to
participate in a distribution of the securities to be acquired in the
Exchange Offer (1) could not under Commission policy as in effect on
the date of this Agreement rely on the position of the Commission
enunciated in Morgan Stanley and Co., Inc. (available June 5, 1991)
and Exxon Capital Holdings Corporation (available May 13, 1988), as
interpreted in the Commission's letter to Shearman & Sterling dated
July 2, 1993, and similar no-action letters (including any no-action
letter obtained pursuant to clause (i) above), and (2) must comply
with the registration and prospectus delivery requirements of the Act
in connection with a secondary resale transaction and that such a
secondary resale transaction should be covered by an effective
registration statement containing the selling security holder
information required by Item 507 or 508, as applicable, of Regulation
S-K if the resales are of Series B Notes obtained by such Holder in
exchange for Series A Notes acquired by such Holders directly from the
Company.
(iii) Prior to effectiveness of the Exchange Offer
Registration Statement, the Company shall, if requested by the
Commission, provide a supplemental letter to the Commission (A)
stating that the Company is registering the Exchange Offer in reliance
on the position of the Commission enunciated in Exxon Capital Holdings
Corporation (available May 13, 1988), Morgan Stanley and Co., Inc.
(available June 5, 1991) and, if applicable, any no-action letter
obtained pursuant to clause (i) above, and (B) including a
representation that the Company has not entered into any arrangement
or understanding with any Person to distribute the Series B Notes to
be received in the Exchange Offer and that, to the best of the
Company's information and belief, each Holder participating in the
Exchange Offer is acquiring the Series B Notes in its ordinary course
of business and has no arrangement or understanding with any Person to
participate in the distribution of the Series B Notes received in the
Exchange Offer.
(b) Shelf Registration Statement. In connection with the Shelf
Registration Statement, the Company (and to the extent of the guarantees, the
Guarantor) shall comply with all the provisions of Section 6(c) below and shall
use its best efforts to effect such registration to permit the sale of the
Transfer Restricted Securities being sold in accordance with the intended
method or methods of distribution thereof, and pursuant
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<PAGE> 10
thereto, the Company (and to the extent of the guarantees, the Guarantor) will
prepare and file with the Commission within the period specified in Section
4(a) above a Registration Statement relating to the registration on any
appropriate form under the Act, which form shall be available for the sale of
the Transfer Restricted Securities in accordance with the intended method or
methods of distribution thereof.
(c) General Provisions. In connection with any Registration Statement
and any related Prospectus required by this Agreement to permit the sale or
resale of Transfer Restricted Securities (including, without limitation, any
Registration Statement and the related Prospectus required to permit resales of
Securities by Broker-Dealers), the Company (and to the extent of the
guarantees, the Guarantor) shall:
(i) Use its best efforts to keep such Registration
Statement continuously effective and provide all requisite financial
statements for the period specified in Section 3 and 4 of this
Agreement, as applicable; upon the occurrence of any event that would
cause any such Registration Statement or the Prospectus contained
therein (A) to contain a material misstatement or omission or (B) not
to be effective and usable for resale of Transfer Restricted
Securities during the period required by this Agreement, the Company
(and to the extent of the guarantees, the Guarantor) shall file
promptly an appropriate amendment to such Registration Statement, in
the case of clause (A), correcting any such misstatement or omission,
and, in the case of either clause (A) or (B), use its best efforts to
cause such amendment to be declared effective and such Registration
Statement and the related Prospectus to become usable for their
intended purpose(s) as soon as reasonably practicable thereafter;
(ii) Prepare and file with the Commission such
amendments and post-effective amendments to the Registration Statement
as may be necessary to keep the Registration Statement effective for
the applicable period set forth in Section 3 or 4 hereof, as
applicable, or such shorter period as will terminate when all Transfer
Restricted Securities covered by such Registration Statement have been
exchanged or sold or until such Transfer Restricted Securities no
longer constitute Transfer Restricted Securities or are no longer
outstanding; cause, subject to Section 4(c), the Prospectus to be
supplemented by any required Prospectus supplement, and as so
supplemented to be filed pursuant to Rule 424 under the Act, and to
comply fully with the applicable provisions of Rules 424 and 430A
under the Act in a timely manner; and comply with the provisions of
the Act with respect to the disposition of all securities covered by
such Registration Statement during the applicable period in accordance
with the intended method or methods of distribution by the sellers
thereof set forth in such Registration Statement or supplement to the
Prospectus;
(iii) Advise promptly the underwriter(s), if any,
and selling Holders and, if requested by such Persons, to confirm such
advice in writing, (A) when the Prospectus or any Prospectus
supplement or post-effective amendment has been filed, and, with
respect to any Registration Statement or any post-effective amendment
thereto, when the same has become effective, (B) of any request by the
Commission for amendments to the Registration Statement or amendments
or supplements to the Prospectus or for additional information
relating thereto, (C) of the issuance by the Commission of any stop
order suspending the effectiveness of
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<PAGE> 11
the Registration Statement under the Act or of the suspension by any
state securities commission of the qualification of the Transfer
Restricted Securities for offering or sale in any jurisdiction, or the
initiation of any proceeding for any of the preceding purposes or (D)
of the existence of any fact or the happening of any event that makes
any statement of a material fact made in the Registration Statement,
the Prospectus, any amendment or supplement thereto, or any document
incorporated by reference therein untrue, or that requires the making
of any additions to or changes in the Registration Statement or the
Prospectus in order to make the statements of material fact therein
not misleading; if at any time the Commission shall issue any stop
order suspending the effectiveness of the Registration Statement, or
any state securities commission or other regulatory authority shall
issue an order suspending the qualification or exemption from
qualification of the Transfer Restricted Securities under state
securities or Blue Sky laws, the Company (and to the extent of the
guarantees, the Guarantor) shall use its best efforts to obtain the
withdrawal or lifting of such order at the earliest practicable time;
(iv) Furnish to the Purchasers, each selling Holder
named in any Registration Statement or Prospectus and each of the
underwriter(s) in connection with such sale, if any, before filing
with the Commission, copies of any Registration Statement or any
Prospectus included therein or any amendments or supplements to any
such Registration Statement or Prospectus (including all documents
incorporated by reference), which documents will be subject to the
review of such Holders and underwriter(s) in connection with such
sale, if any, for a period of at least five Business Days, and the
Company (and to the extent of the guarantees, the Guarantor) will not
file any such Registration Statement or Prospectus or any amendment or
supplement to any such Registration Statement or Prospectus (including
all documents incorporated by reference) to which a selling Holder of
Transfer Restricted Securities covered by such Registration Statement
or the underwriter(s) in connection with such sale, if any, shall
reasonably object within five Business Days after the receipt thereof;
a selling Holder or underwriter, if any, shall be deemed to have
reasonably objected to such filing if such Registration Statement,
amendment, Prospectus or supplement, as applicable, as proposed to be
filed, contains a material misstatement or omission or fails to comply
with the applicable requirements of the Act;
(v) Promptly prior to the filing of any document
that is to be incorporated by reference into a Registration Statement
or Prospectus, if requested by any selling Holders or the
underwriter(s), if any, within five Business Days after receipt of
notification thereof from the Company, provide copies of such document
to the selling Holders and to the underwriter(s), if any, make the
Company's representatives available for discussion of such document
and other customary due diligence matters, and include such
information in such document prior to the filing thereof as such
selling Holders or underwriter(s), if any, reasonably may request;
(vi) Make available at reasonable times for
inspection by the selling Holders, any managing underwriter
participating in any disposition pursuant to such Registration
Statement, and any attorney or accountant retained by such selling
Holders or any of the underwriter(s), all financial and other records,
pertinent corporate documents and properties of the Company and cause
the Company's
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<PAGE> 12
officers, directors and employees to supply all information reasonably
requested by any such Holder, underwriter, attorney or accountant in
connection with such Registration Statement subsequent to the filing
thereof and prior to its effectiveness;
(vii) If requested by any selling Holders or the
underwriter(s) in connection with such sale, if any, promptly include
in any Registration Statement or Prospectus, pursuant to a supplement
or post-effective amendment if necessary, such information as such
selling Holders and such underwriter(s), if any, may reasonably
request to have included therein, including, without limitation,
information relating to the "Plan of Distribution" of the Transfer
Restricted Securities, information with respect to the principal
amount of Transfer Restricted Securities being sold to such
underwriter(s), the purchase price being paid therefor and any other
terms of the offering of the Transfer Restricted Securities to be sold
in such offering; and make all required filings of such Prospectus
supplement or post-effective amendment as soon as practicable after
the Company is notified of the matters to be included in such
Prospectus supplement or post-effective amendment;
(viii) Cause the Transfer Restricted Securities
covered by the Registration Statement to be rated with the appropriate
rating agencies, if so requested by the Holders of a majority in
aggregate principal amount of the Securities covered thereby or the
managing underwriter(s), if any;
(ix) Furnish to each selling Holder and each of the
underwriter(s), if any, without charge, at least one copy of the
Registration Statement, as first filed with the Commission, and of
each amendment thereto, including all documents incorporated by
reference therein and all exhibits (including exhibits incorporated
therein by reference);
(x) Deliver to each selling Holder and each of the
underwriter(s) in connection with such sale, if any, without charge,
as many copies of the Prospectus (including each preliminary
prospectus) and any amendment or supplement thereto as such Persons
may request; the Company (and to the extent of the guarantees, the
Guarantor) hereby consents to the use of the Prospectus and any
amendment or supplement thereto by each of the selling Holders and
each of the underwriter(s), if any, in connection with the offering
and the sale of the Transfer Restricted Securities covered by the
Prospectus or any amendment or supplement thereto;
(xi) In connection with an underwritten offering of
Transfer Restricted Securities pursuant to a Shelf Registration
Statement, enter into an underwriting agreement as is customary in
underwritten offerings and take all such other actions as are
reasonably requested by the managing underwriter(s) in order to
expedite or facilitate the registration or the disposition of such
Transfer Restricted Securities, and in such connection, (A) make such
representations and warranties to the underwriters, with respect to
the business of the Company and its subsidiaries, and the Registration
Statement, Prospectus and documents, if any, incorporated or deemed to
be incorporated by reference therein, in each case, as are customarily
made by issuers to underwriters in underwritten offerings, and confirm
the same if and when requested; (B) obtain an opinion of counsel to
the Company and updates thereof in form and substance reasonably
satisfactory to the
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<PAGE> 13
managing underwriter(s), addressed to the underwriters covering the
matters customarily covered in opinions requested in underwritten
offerings and such other matters as may be reasonably requested by the
underwriters, including a statement to the effect that such counsel
has participated in conferences with officers and other
representatives of the Company, representatives of the independent
public accountants for the Company, and such other Persons as may
participate in such conferences at which the contents of such Shelf
Registration Statement and related Prospectus were discussed, and
although such counsel has not undertaken to investigate or
independently verify and does not assume any responsibility for the
accuracy, completeness, or fairness of the statements therein, such
counsel advises that (relying as to materiality to a large extent upon
facts provided to such counsel by officers and other representatives
of the Company and without independent check or verification), no
facts came to such counsel's attention that caused such counsel to
believe that the Shelf Registration Statement and related Prospectus,
at the time that the Shelf Registration Statement became effective,
contained an untrue statement of material fact or omitted to state a
material fact required to be stated therein or necessary to make the
statements therein not misleading; (C) obtain comfort letters and
updates thereof in form and substance reasonably satisfactory to the
managing underwriter(s) from the independent certified public
accountants of the Company; (D) if an underwriting agreement is
entered into, the same shall contain indemnification and contribution
provisions and procedures no less favorable than those set forth in
Section 8 hereof with respect to all parties to be indemnified
pursuant to Section 8. The above shall be done at each closing under
such underwriting agreement. In addition, notwithstanding anything
herein to the contrary, in connection with any other offering of
Transfer Restricted Securities pursuant to a Shelf Registration
Statement, the Company shall obtain those items specified in clause
(C) of the foregoing sentence concurrently with the effectiveness of
the Shelf Registration Statement and any post-effective amendments
thereto;
(xii) Prior to any public offering of Transfer
Restricted Securities, cooperate with the selling Holders, the
underwriter(s), if any, and their respective counsel in connection
with the registration and qualification of the Transfer Restricted
Securities under the securities or Blue Sky laws of such jurisdictions
as the selling Holders or underwriter(s), if any, may request and do
any and all other acts or things necessary or advisable to enable the
disposition in such jurisdictions of the Transfer Restricted
Securities covered by the applicable Registration Statement; provided
however, that the Company shall not be required to register or qualify
as a foreign corporation where it is not now so qualified or to take
any action that would subject it to service of process in suits or to
taxation in any jurisdiction where it is not now so subject;
(xiii) Shall issue, upon the request of any Holder
of Series A Notes covered by the Shelf Registration Statement, Series
B Notes, having an aggregate principal amount equal to the aggregate
principal amount of Series A Notes surrendered to the Company by such
Holder in exchange therefor or being sold by such Holder; such Series
B Notes to be registered in the name of such Holder or in the name of
the purchaser(s) of such Series B Notes, as the case may be; in
return, the Series A Notes held by such Holder shall be surrendered to
the Company for cancellation;
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<PAGE> 14
(xiv) Cooperate with the selling Holders and the
underwriter(s), if any, to facilitate the timely preparation and
delivery of certificates representing Transfer Restricted Securities
to be sold and not bearing any restrictive legends; and to register
such Transfer Restricted Securities in such denominations and such
names as the Holders or the underwriter(s), if any, may request at
least two Business Days prior to such sale of Transfer Restricted
Securities made by such underwriter(s);
(xv) Use its best efforts to cause the Transfer
Restricted 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(s), if any, to consummate the disposition
of such Transfer Restricted Securities, except as may be required
solely as a consequence of the nature of such seller's business (in
which case the Company will cooperate in all reasonable respects);
(xvi) If any fact or event contemplated by Section
6(c)(iii)(D) above shall exist or have occurred, prepare a supplement
or post-effective amendment to the Registration Statement or related
Prospectus or any document incorporated therein by reference or file
any other required document so that, as thereafter delivered to the
purchasers of Transfer Restricted Securities, the Prospectus will not
contain an untrue statement of a material fact or omit to state any
material fact necessary to make the statements therein not misleading;
(xvii) Provide a CUSIP number for all Transfer
Restricted Securities not later than the effective date of the
Registration Statement covering such Transfer Restricted Securities if
such Transfer Restricted Securities do not already have a CUSIP number
and provide the Trustee with printed certificates for the Transfer
Restricted Securities which are in a form eligible for deposit with
the Depository Trust Company if the Trustee does not already have a
sufficient quantity of printed certificates;
(xviii) Cooperate and assist in any filings required
to be made with the NASD and in the performance of any due diligence
investigation by any underwriter (including any "qualified independent
underwriter") that is required to be retained in accordance with the
rules and regulations of the NASD;
(xix) Otherwise use its best efforts to comply with
all applicable rules and regulations of the Commission, and make
generally available to Holders, as soon as reasonably practicable, a
consolidated earnings statement meeting the requirements of Rule 158
under the Act (which need not be audited) covering a twelve month
period (A) beginning at the end of any fiscal quarter in which
Transfer Restricted Securities are sold to underwriters in a firm or
best efforts Underwritten Offering or (B) if not sold to underwriters
in such an offering, commencing with the first month of the Company's
first fiscal quarter commencing after the effective date of the
Registration Statement;
(xx) Cause the Indenture to be qualified under the
TIA not later than the effective date of the first Registration
Statement required by this Agreement,
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<PAGE> 15
and, in connection therewith, cooperate, with the Trustee and the
Holders of Securities to effect such changes to the Indenture as may
be required for such Indenture to be so qualified in accordance with
the terms of the TIA; and execute, and use its best efforts to cause
the Trustee to execute, all documents that may be required to effect
such changes and all other forms and documents required to be filed
with the Commission to enable such Indenture to be so qualified in a
timely manner;
(xxi) Provide promptly to each Holder upon request
each document filed with the Commission pursuant to the requirements
of Section 13 or Section 15 of the Exchange Act; and
(xxii) Use its best efforts to cause all Transfer
Restricted Securities covered by the Registration Statement to be
listed on each securities exchange on which similar securities issued
by the Company are then listed if requested by the Holders of a
majority in aggregate principal amount of the Transfer Restricted
Securities covered by such Registration Statement or the managing
underwriter(s), if any.
(d) Restrictions on Holders. Each Holder agrees by acquisition of a
Transfer Restricted Security that, upon receipt of any notice from the Company
of the existence of any fact of the kind described in Section 6(c)(iii)(D)
hereof, such Holder will forthwith discontinue disposition of Transfer
Restricted Securities pursuant to the applicable Registration Statement until
such Holder's receipt of the copies of the supplemented or amended Prospectus
contemplated by Section 6(c)(xvi) hereof, or until it is advised in writing
(the "Advice") by the Company that the use of the Prospectus may be resumed,
and has received copies of any additional or supplemental filings that are
incorporated by reference in the Prospectus. If so directed by the Company,
each Holder will deliver to the Company (at the Company's expense) all copies,
other than permanent file copies then in such Holder's possession, of the
Prospectus covering such Transfer Restricted Securities that was current at the
time of receipt of such notice. In the event the Company shall give any such
notice, the time period regarding the effectiveness of such Registration
Statement set forth in Section 3 or 4 hereof, as applicable, shall be extended
by the number of days during the period from and including the date of the
giving of such notice pursuant to Section 6(c)(iii)(D) hereof to and including
the date when each selling Holder covered by such Registration Statement shall
have received the copies of the supplemented or amended Prospectus contemplated
by Section 6(c)(xvi) hereof or shall have received the Advice.
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<PAGE> 16
SECTION 7. REGISTRATION EXPENSES
(a) Company Expenses. All expenses incident to the Company's (and to
the extent of the guarantees, the Guarantor's) performance of or compliance
with this Agreement will be borne by the Company, regardless of whether a
Registration Statement becomes effective, including without limitation: (i) all
registration and filing fees and expenses (including filings made by any
underwriter or Holder with the NASD (and, if applicable, the fees and expenses
of any "qualified independent underwriter" and its counsel that may be required
by the rules and regulations of the NASD)), (ii) all fees and expenses incurred
in connection with compliance with federal securities and state Blue Sky or
securities laws, (iii) all expenses of printing (including printing
certificates for the Series B Notes to be issued in the Exchange Offer and
printing of Prospectuses), messenger and delivery services and telephone, (iv)
all fees and disbursements of counsel for the Company, and in accordance with
Section 7(b) below, the Holders of Transfer Restricted Securities, (v) if
applicable, all application and filing fees in connection with listing
Securities on a national securities exchange or automated quotation system
pursuant to the requirements hereof, and (vi) all fees and disbursements of
independent certified public accountants of the Company (including the expenses
of any special audit and comfort letters required by or incident to such
performance).
The Company will bear internal expenses (including, without
limitation, all salaries and expenses of its officers and employees performing
legal or accounting duties), the expenses of any annual audit and the fees and
expenses of any Person, including special experts, retained by the Company.
(b) Counsel for Holders. In connection with the Shelf Registration
Statement, the Company will reimburse the Purchasers and the Holders of
Transfer Restricted Securities being resold pursuant to the "Plan of
Distribution" contained therein for the reasonable fees and disbursements of
not more than one counsel, which shall be Akin, Gump, Strauss, Hauer & Feld,
L.L.P. or such other counsel as may be chosen by the Holders of a majority in
principal amount of the Transfer Restricted Securities for whose benefit such
Registration Statement is being prepared. Such Holders shall be responsible for
any of their other out-of-pocket expenses incurred in connection with the
registration of the sale of their Transfer Restricted Securities.
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<PAGE> 17
SECTION 8. INDEMNIFICATION
(a) Indemnification by the Company and the Guarantor. The Company and
the Guarantor, jointly and severally, agree to indemnify and hold harmless, to
the fullest extent permitted by law, each of the Holders, each Person, if any,
who controls any Holder within the meaning of Section 15 of the Act or Section
20(a) of the Exchange Act and the respective officers, directors, partners,
employees, representatives and agents of each Holder or any controlling Person,
against any and all losses, liabilities, claims, damages and expenses
whatsoever (including but not limited to attorneys' fees and any and all
expenses whatsoever incurred in investigating, preparing or defending against
any litigation, commenced or threatened, or any claim whatsoever, and any and
all amounts paid in settlement of any claim or litigation), joint or several,
to which they or any of them may become subject under the Act, the Exchange Act
or otherwise, insofar as such losses, liabilities, claims, damages or expenses
(or actions in respect thereof) arise out of or are based upon any untrue
statement or alleged untrue statement of a material fact contained in any
Registration Statement or Prospectus, or in any supplement thereto or amendment
thereof, or arise out of or are based upon the omission or alleged omission to
state therein a material fact required to be stated therein or necessary to
make the statements therein, in the light of the circumstances under which they
were made, not misleading; provided, however, that the Company and the
Guarantor will not be liable in any such case to the extent, but only to the
extent, that any such loss, liability, claim, damage or expense arises out of
or is based upon any such untrue statement or alleged untrue statement or
omission or alleged omission made therein in reliance upon and in conformity
with written information furnished to the Company by or on behalf of any
Holders expressly for use therein. This indemnity will be in addition to any
liability which the Company and the Guarantor may otherwise have, including,
under this Agreement.
(b) Indemnification by the Holders. Each of the Holders agrees,
severally and not jointly, to indemnify and hold harmless the Company, the
Guarantor, each Person, if any, who controls the Company within the meaning of
Section 15 of the Act or Section 20(a) of the Exchange Act and the respective
officers, directors, partners, employees, representatives and agents of the
Company, the Guarantor or any such controlling Person, against any and all
losses, liabilities, claims, damages and expenses whatsoever (including but not
limited to attorneys' fees and any and all expenses whatsoever incurred in
investigating, preparing or defending against any litigation, commenced or
threatened, or any claim whatsoever and any and all amounts paid in settlement
of any claim or litigation), joint or several, to which they or any of them may
become subject under the Act, the Exchange Act or otherwise, insofar as such
losses, liabilities, claims, damages or expenses (or actions in respect
thereof) arise out of or are based upon any untrue statement or alleged untrue
statement of a material fact contained in any Registration Statement or
Prospectus, or in any amendment thereof or supplement thereto, or arise out of
or are based upon the omission or alleged omission to state therein a material
fact required to be stated therein or necessary to make the statements therein,
in light of the circumstances under which they were made, not misleading in
each case to the extent, but only to the extent, that any such loss, liability,
claim, damage or expense arises out of or is based upon any untrue statement or
alleged untrue statement or omission or alleged omission made therein in
reliance upon and in conformity with written information furnished to the
Company by or on behalf of such Holder expressly for use therein; provided,
however, that in no case shall any Holder be liable or responsible for any
amount in excess of the dollar amount of the proceeds received by such Holder
upon the
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<PAGE> 18
sale of the Securities giving rise to such indemnification obligation. This
indemnity will be in addition to any liability which any Holder may otherwise
have, including under this Agreement.
(c) Indemnification Procedure. Promptly after receipt by an
indemnified party under subsection (a) or (b) above of notice of the
commencement of any action, such indemnified party shall, if a claim in respect
thereof is to be made against the indemnifying party under such subsection,
notify each party against whom indemnification is to be sought in writing of
the commencement thereof (but the failure so to notify an indemnifying party
shall not relieve it from any liability which it may have under this Section 8
except to the extent that it has been prejudiced in any material respect by
such failure or from any liability which it may otherwise have). In case any
such action is brought against any indemnified party, and it notifies an
indemnifying party of the commencement thereof, the indemnifying party will be
entitled to participate therein, and to the extent it may elect by written
notice delivered to the indemnified party promptly after receiving the
aforesaid notice from such indemnified party, to assume the defense thereof
with counsel reasonably satisfactory to such indemnified party. Notwithstanding
the foregoing, the indemnified party or parties shall have the right to employ
its or their own counsel in any such case, but the fees and expenses of such
counsel shall be at the expense of such indemnified party or parties unless (i)
the employment of such counsel shall have been authorized in writing by the
indemnifying parties in connection with the defense of such action, (ii) the
indemnifying parties shall not have employed counsel to take charge of the
defense of such action within a reasonable time after notice of commencement of
the action, or (iii) such indemnified party or parties shall have concluded,
upon the advice of counsel, that there may be defenses available to it or them
which are different from or additional to those available to one or all of the
indemnifying parties (in which case the indemnifying parties shall not have the
right to direct such different or additional defenses on behalf of the
indemnified party or parties, but shall retain the right to direct any common
defenses) in any of which events such fees and expenses of counsel shall be
borne by the indemnifying parties; provided, however, that the indemnifying
party under subsection (a) or (b) above, shall only be liable for the legal
expenses of one counsel (in addition to any local counsel) for all indemnified
parties in each jurisdiction in which any claim or action is brought. Anything
in this subsection to the contrary notwithstanding, an indemnifying party shall
not be liable for any settlement of any claim or action effected without its
written consent.
(d) Contribution. In order to provide for contribution in
circumstances in which the indemnification provided for in this Section 8 is
for any reason held to be unavailable or is insufficient (other than by reason
of the terms thereof) to hold harmless a party indemnified hereunder, the
Company and the Guarantor, on the one hand, and each Holder, on the other hand,
shall contribute to the aggregate losses, claims, damages, liabilities and
expenses of the nature contemplated by such indemnification provision
(including any investigation, legal and other expenses incurred in connection
with, and any amount paid in settlement of, any action, suit or proceeding or
any claims asserted, but after deducting in the case of losses, claims,
damages, liabilities and expenses suffered by the Company or the Guarantor any
contribution received by the Company or the Guarantor from Persons, other than
the Holders, who may also be liable for contribution, including Persons who
control the Company within the meaning of Section 15 of the Act or Section
20(a) of the Exchange Act) to which the Company and any Holder may be subject,
in such proportion as is appropriate to reflect the relative benefits received
by the Company and the Guarantor, on the one hand, and any such Holder, on the
other hand,
18
<PAGE> 19
or, if such allocation is not permitted by applicable law or if indemnification
is not available as a result of the indemnifying party not having received
notice as provided in this Section 8, in such proportion as is appropriate to
reflect not only the relative benefits referred to above but also the relative
fault of the Company and the Guarantor, on the one hand, and the Holders, on
the other hand, in connection with the statements or omissions which resulted
in such losses, claims, damages, liabilities or expenses, as well as any other
relevant equitable considerations. The relative benefits received by the
Company and the Guarantor, on the one hand, and any Holder, on the other hand,
shall be deemed to be in the same proportion as (x) the total proceeds from the
offering of the Series A Notes (net of discounts but before deducting expenses)
received by the Company and (y) the total proceeds received by such Holder upon
its sale of Securities which would otherwise give rise to the indemnification
obligation, respectively. The relative fault of the Company, the Guarantor, and
the Holders shall be determined by reference to, among other things, whether
the untrue or alleged untrue statement of a material fact or the omission or
alleged omission to state a material fact relates to information supplied or
which should have been supplied by the Company or the Guarantor, on the one
hand, or to information supplied by the Holders, on the other hand, and the
parties' relative intent, knowledge, access to information and opportunity to
correct or prevent such statement or omission. The Company, the Guarantor, and
each Holder agree that it would not be just and equitable if contribution
pursuant to this Section 8 were determined by pro rata allocation or by any
other method of allocation which does not take into account the equitable
considerations referred to above. Notwithstanding the provisions of this
Section 8, (i) no Holder shall be required to contribute, in the aggregate, any
amount in excess of the dollar amount by which the proceeds received by such
Holder with respect to the sale of its Securities exceeds the amount of any
damages which such Holder has otherwise been required to pay by reason of such
untrue statement or alleged untrue statement or omission or alleged omission
and (ii) no Person guilty of fraudulent misrepresentation (within the meaning
of Section 11(f) of the Act) shall be entitled to contribution from any Person
who was not guilty of such fraudulent misrepresentation. For purposes of this
Section 8, each Person, if any, who controls a Holder within the meaning of
Section 15 of the Act or Section 20(a) of the Exchange Act and the respective
officers, directors, partners, employees, representatives and agents of a
Holder or any controlling Person shall have the same rights to contribution as
such Holder, and each Person, if any, who controls the Company within the
meaning of Section 15 of the Act or Section 20(a) of the Exchange Act and the
respective officers, directors, partners, employees, representatives and agents
of the Company, the Guarantor, or any such controlling Person shall have the
same rights to contribution as the Company, subject in each case to clauses (i)
and (ii) of this Section 8(d). Any party entitled to contribution will,
promptly after receipt of notice of commencement of any action, suit or
proceeding against such party in respect of which a claim for contribution may
be made against another party or parties under this Section 8, notify such
party or parties from whom contribution may be sought, but the failure to so
notify such party or parties shall not relieve the party or parties from whom
contribution may be sought from any obligation it or they may have under this
Section 8 or otherwise.
19
<PAGE> 20
SECTION 9. RULE 144A
The Company hereby agrees with each Holder, for so long as any
Transfer Restricted Securities remain outstanding, to make available to any
Holder or beneficial owner of Transfer Restricted Securities in connection with
any sale thereof and any prospective purchaser of such Transfer Restricted
Securities from such Holder or beneficial owner, the information required by
Rule 144A(d)(4) under the Act in order to permit resales of such Transfer
Restricted Securities pursuant to Rule 144A.
SECTION 10. UNDERWRITTEN REGISTRATIONS
No Holder may participate in any Underwritten Registration hereunder
unless such Holder (a) agrees to sell such Holder's Transfer Restricted
Securities on the basis provided in any underwriting arrangements approved by
the Persons entitled hereunder to approve such arrangements and (b) completes
and executes all reasonable questionnaires, powers of attorney, indemnities,
underwriting agreements, lock-up letters and other documents required under the
terms of such underwriting arrangements.
SECTION 11. SELECTION OF UNDERWRITERS
The Holders of Transfer Restricted Securities covered by the Shelf
Registration Statement who desire to do so may sell such Transfer Restricted
Securities in an Underwritten Offering. In any such Underwritten Offering the
investment banker or investment bankers and manager or managers that will
administer the offering will be selected by the Holders of a majority in
aggregate principal amount of the Transfer Restricted Securities included in
such offering; provided, that such investment bankers and managers must be
reasonably satisfactory to the Company (it being understood that Bear Stearns
and Smith Barney are reasonably satisfactory); such investment bankers and
manager or managers are referred to herein as the "underwriters."
SECTION 12. MISCELLANEOUS
(a) Remedies. The Company (and to the extent of the guarantees, the
Guarantor) agrees that monetary damages (including the Liquidated Damages
contemplated hereby) would not be adequate compensation for any loss incurred
by reason of a breach by it of the provisions of this Agreement and hereby
agrees to waive the defense in any action for specific performance that a
remedy at law would be adequate.
(b) No Inconsistent Agreements. The Company (and to the extent of the
guarantees, the Guarantor) will not on or after the date of this Agreement
enter into any agreement with respect to its securities that is inconsistent
with the rights granted to the Holders in this Agreement or otherwise conflicts
with the provisions hereof. The Company (and to the extent of the guarantees,
the Guarantor) represents and warrants that the rights granted to the Holders
hereunder do not in any way conflict with and are not inconsistent with the
rights granted to the holders of the Company's securities (and to the extent of
the guarantees, the Guarantor's) under any agreement in effect on the date
hereof.
20
<PAGE> 21
(c) Adjustments Affecting the Securities. The Company (and to the
extent of the guarantees, the Guarantor) will not take any action, or permit
any change to occur, with respect to the Securities that would materially and
adversely affect the ability of the Holders to Consummate any Exchange Offer.
(d) Amendments and Waivers. The provisions of this Agreement may not
be amended, modified or supplemented, and waivers or consents to or departures
from the provisions hereof may not be given unless the Company has obtained the
written consent of Holders of a majority of the outstanding principal amount of
Transfer Restricted Securities. Notwithstanding the foregoing, a waiver or
consent to departure from the provisions hereof that relates exclusively to the
rights of Holders whose securities are being tendered pursuant to the Exchange
Offer or registered pursuant to the Shelf Registration and that does not affect
directly or indirectly the rights of other Holders whose securities are not
being tendered pursuant to such Exchange Offer or registered pursuant to the
Shelf Registration may be given by the Holders of a majority of the outstanding
principal amount of Transfer Restricted Securities being tendered or
registered, as applicable.
(e) Notices. All notices and other communications provided for or
permitted hereunder shall be made in writing by hand-delivery, first-class mail
(registered or certified, return receipt requested), facsimile transmission,
telex, telecopier, or air courier guaranteeing overnight delivery:
(i) if to a Holder, at the address set forth on
the records of the registrar under the Indenture, with a copy to the
registrar under the Indenture; and
(ii) if to the Company or the Guarantor:
HighwayMaster Communications, Inc.
16479 Dallas Parkway
Suite 710
Dallas, Texas 75248
Phone No.: (972) 732-2500
Facsimile No.: (972) 930-7263
Attention: William C. Saunders
All such notices and communications shall be deemed to have been duly
given: at the time delivered by hand, if personally delivered; five Business
Days after being deposited in the mail, postage prepaid, if mailed; upon
receipt of a confirmation notice, if sent by facsimile transmission; when
answered back, if telexed; when receipt acknowledged, if telecopied; and on the
next Business Day, if timely delivered to an air courier guaranteeing overnight
delivery.
Copies of all such notices, demands or other communications shall be
concurrently delivered by the Person giving the same to the Trustee at the
address specified in the Indenture.
(f) Successors and Assigns. This Agreement shall inure to the
benefit of and be binding upon the successors and assigns of each of the
parties, including without
21
<PAGE> 22
limitation and without the need for an express assignment, subsequent Holders
of Transfer Restricted Securities; provided, however, that this Agreement shall
not inure to the benefit of or be binding upon any Person that is not a Holder
of Transfer Restricted Securities.
(g) Counterparts. This Agreement may be executed in any number of
counterparts and by the parties hereto in separate counterparts, each of which
when so executed shall be deemed to be an original and all of which taken
together shall constitute one and the same agreement.
(h) Headings. The headings in this Agreement are for convenience
of reference only and shall not limit or otherwise affect the meaning hereof.
(i) Governing Law. THIS AGREEMENT SHALL BE GOVERNED BY AND
CONSTRUED IN ACCORDANCE WITH THE LAWS OF THE STATE OF NEW YORK,
WITHOUT REGARD TO THE CONFLICT OF LAW RULES THEREOF.
(j) Severability. In the event that any one or more of the provisions
contained herein, or the application thereof in any circumstance, is held
invalid, illegal or unenforceable, the validity, legality or enforceability of
any such provision in every other respect and of the remaining provisions
contained herein shall not be affected or impaired thereby.
(k) Entire Agreement. This Agreement together with the other Operative
Documents (as defined in the Purchase Agreement) is intended by the parties as
a final expression of their agreement and intended to be a complete and
exclusive statement of the agreement and understanding of the parties hereto in
respect of the subject matter contained herein. There are no restrictions,
promises, warranties or undertakings, other than those set forth or referred to
herein with respect to the registration rights granted by the Company (and with
respect to the guarantees, the Guarantor) with respect to the Transfer
Restricted Securities. This Agreement supersedes all prior agreements and
understandings between the parties with respect to such subject matter.
IN WITNESS WHEREOF, the parties have executed this Agreement as of the
date first written above.
HIGHWAYMASTER COMMUNICATIONS, INC.
By: /S/ J. Philip McCormick
-------------------------------------
Name: J. Philip McCormick
------------------------------------
Title: Executive Vice President and Chief
-----------------------------------
Financial Officer
22
<PAGE> 23
HIGHWAYMASTER CORPORATION
By: /S/ J. Philip McCormick
-------------------------------------
Name: J. Philip McCormick
------------------------------------
Title: Executive Vice President and Chief
-----------------------------------
Financial Officer
BEAR, STEARNS & CO. INC.
By: /S/ J. Andrew Bugas
-------------------------------------
Name: J. Andrew Bugas
-----------------------------------
Title: Senior Managing Director
----------------------------------
SMITH BARNEY INC.
By: /S/ Michael Anderson
-------------------------------------
Name: Michael Anderson
-----------------------------------
Title: Managing Director
----------------------------------
23
<PAGE> 1
EXHIBIT 4.8
- -------------------------------------------------------------------------------
WARRANT AGREEMENT
DATED AS OF SEPTEMBER 23, 1997
BY AND BETWEEN
HIGHWAYMASTER COMMUNICATIONS, INC.
AND
TEXAS COMMERCE BANK NATIONAL ASSOCIATION
- -------------------------------------------------------------------------------
<PAGE> 2
WARRANT AGREEMENT
TABLE OF CONTENTS
<TABLE>
<CAPTION>
PAGE
<S> <C>
SECTION 1. Certain Definitions...........................................................................................1
SECTION 2. Appointment of Warrant Agent..................................................................................3
SECTION 3. Issuance of Warrants; Warrant Certificates....................................................................3
SECTION 4. Execution of Warrant Certificates.............................................................................4
SECTION 5. Separation of Warrants........................................................................................4
SECTION 6. Registration and Countersignature.............................................................................4
SECTION 7. Registration of Transfers and Exchanges.......................................................................5
(a) Transfer and Exchange of Global Warrants.....................................................................5
(b) Exchange of a Beneficial Interest in a Global Warrant for a Definitive Warrant...............................5
(c) Transfer and Exchange of Definitive Warrants.................................................................6
(d) Restrictions on Exchange or Transfer of a Definitive Warrant for a Beneficial Interest in a
Global Warrant..............................................................................................7
(e) Restrictions on Transfer and Exchange of Global Warrants.....................................................8
(f) Countersigning of Definitive Warrants in Absence of Depositary...............................................8
(g) Legends......................................................................................................8
(h) Cancellation of Global Warrant..............................................................................10
(i) Obligations with Respect to Transfers and Exchanges of Warrants.............................................10
SECTION 8. Terms of Warrants; Exercise of Warrants.......................................................................10
SECTION 9. Payment of Taxes.............................................................................................12
SECTION 10. Mutilated or Missing Warrant Certificates...................................................................12
SECTION 11. Reservation of Warrant Shares...............................................................................12
SECTION 12. Obtaining Stock Exchange Listings...........................................................................13
SECTION 13. Adjustment of Exercise Price and Number of Warrant Shares Issuable..........................................13
(a) Stock Splits, Combinations, etc.............................................................................13
(b) Reclassification, Combinations, Mergers, etc................................................................14
(c) Issuance of Options or Convertible Securities...............................................................14
(d) Dividends and Distributions.................................................................................15
(e) Current Market Price........................................................................................16
(f) Certain Distributions.......................................................................................17
(g) Consideration Received......................................................................................17
(h) Deferral of Certain Adjustments............................................................................17
(i) Changes in Options and Convertible Securities..............................................................17
(j) Expiration of Options and Convertible Securities...........................................................17
(k) Other Adjustments..........................................................................................18
SECTION 14. Statement on Warrants.......................................................................................18
SECTION 15. Fractional Interest.........................................................................................18
SECTION 16. Notices to Warrant Holders..................................................................................18
SECTION 17. Merger, Consolidation or Change of Name of Warrant Agent....................................................20
SECTION 18. Warrant Agent...............................................................................................21
SECTION 19. Resignation and Removal of Warrant Agent: Appointment of Successor...........................................22
SECTION 20. Registration.................................................................................................23
</TABLE>
i
<PAGE> 3
<TABLE>
<S> <C>
SECTION 21. Reports......................................................................................................23
SECTION 22. Rule 144A....................................................................................................23
SECTION 23. Notices to Company and Warrant Agent.........................................................................24
SECTION 24. Supplement and Amendments....................................................................................24
SECTION 25. Successors...................................................................................................25
SECTION 26. Termination..................................................................................................25
SECTION 27. Governing Law................................................................................................25
SECTION 28. Benefits of This Agreement...................................................................................25
SECTION 29. Counterparts.................................................................................................25
EXHIBIT A--Form of Warrant Certificate...................................................................................A-1
EXHIBIT B--Form of Transferor's Notice...................................................................................B-1
</TABLE>
ii
<PAGE> 4
WARRANT AGREEMENT
WARRANT AGREEMENT, dated as of September 23, 1997, by and
between HighwayMaster Communications, Inc., a Delaware corporation, and Texas
Commerce Bank National Association, as warrant agent.
WHEREAS, the Company proposes to issue warrants (the
"Warrants") to purchase up to an aggregate of 820,750 shares of Common Stock
(as defined below), in connection with the offering of an aggregate of
$125,000,000 principal amount of the Company's 13 3/4 % Senior Notes due 2005
(the "Notes"), each Warrant entitling the holder thereof to purchase 6.566
shares of Common Stock. The Notes and the Warrants will be sold in Units (the
"Units"), each Unit consisting of $1,000 principal amount of Notes and one
Warrant.
WHEREAS, the Company desires the Warrant Agent to act on
behalf of the Company, and the Warrant Agent is willing so to act, in
connection with the issuance of Warrant Certificates (as defined below) and
other matters as provided herein.
NOW, THEREFORE, in consideration of the premises and the
mutual agreements herein set forth, and for the purpose of defining the
respective rights and obligations of the Company, the Warrant Agent and the
Holders (as defined below), the parties hereto agree as follows:
SECTION 1. Certain Definitions. As used in this Agreement,
the following terms shall have the following respective meanings:
"Affiliate" of any Person means any Person directly or
indirectly controlling or controlled by or under direct or indirect common
control with such Person. For purposes of this definition, "control" when used
with respect to any Person means the power to direct the management and
policies of such Person, directly or indirectly, whether through the ownership
of voting securities, by contract or otherwise, and the terms "controlling" and
"controlled" have meanings correlative to the foregoing.
"Agreement" means this Warrant Agreement.
"Commission" means the Securities and Exchange Commission.
"Common Equity Securities" means Common Stock and securities
convertible into, or exercisable or exchangeable for, Common Stock or rights or
options to acquire Common Stock or such other securities, excluding the
Warrants.
"Common Stock" means the common stock, par value $.01 per
share, of the Company, and any other capital stock of the Company into which
such common stock may be converted or reclassified or that may be issued in
exchange or substitution for such common stock by reason of any stock splits,
stock dividends, distributions, mergers, consolidations or other like events.
"Company" means HighwayMaster Communications, Inc., a
Delaware corporation, and its successors and assigns.
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<PAGE> 5
"Convertible Securities" has the meaning given such term in
Section 13(c).
"Definitive Warrants" has the meaning given such term in
Section 3.
"Depositary" has the meaning given such term in Section 3.
"Distribution" has the meaning given such term in Section
13(c).
"Exchange Act" means the Securities Exchange Act of 1934, as
amended
"Exercisability Date" means any time on or after the earlier
to occur of (i) September 23, 1998 and (ii) in the event a Change of Control
(as defined in the Indenture) occurs, the date the Company or the Trustee mails
notice thereof to the holders of the Notes and the Holders.
"Exercise Price" means the purchase price per share of Common
Stock to be paid upon the exercise of a Warrant in accordance with the terms
hereof, which price shall initially be $9 5/8 per share, subject to adjustment
from time to time pursuant to Section 13 hereof.
"Expiration Date" means September 15, 2005.
"Global Warrants" has the meaning given such term in
Section 3.
"Holder" means a Person who is the record holder of Warrants.
"Indenture" means the Indenture, dated the date hereof, among
the Company, HighwayMaster Corporation, a Delaware corporation, and Texas
Commerce Bank National Association, as trustee.
"Initial Purchasers" means Bear, Stearns & Co. Inc. and Smith
Barney Inc.
"Note Registration Rights Agreement" means the Exchange and
Registration Rights Agreement, dated as of the date hereof, among the Company,
HighwayMaster Corporation, a Delaware corporation, and the Initial Purchasers
relating to the Notes.
"Notes" has the meaning given to such term in the recitals
hereto.
"Options" has the meaning given such term in Section 13(c).
"Person" means any individual, corporation, partnership,
joint venture, association, joint-stock company, trust, unincorporated
organization or government or any agency or political subdivision thereof.
"Purchase Agreement" means the Purchase Agreement, dated as
of September 18, 1997, among the Company, HighwayMaster Corporation, and the
Initial Purchasers.
"Registrable Securities" means each Warrant until such
Warrant (i) is effectively registered under the Securities Act and disposed of
in accordance with a registration statement filed pursuant to the Warrant
Registration Rights Agreement or (ii) is distributed (and not merely eligible
for distribution) to the public pursuant to Rule 144 under the Securities Act.
2
<PAGE> 6
"Regulation S Global Warrant" has the meaning given such term
in Section 3.
"SEC Reports" has the meaning given such term in Section 21.
"Securities Act" means the Securities Act of 1933, as amended.
"Separation Date" means the earlier of (i) 180 days after the
issuance of the Units, (ii) such date as the Initial Purchasers may, in their
discretion, deem appropriate, (iii) in the event a Change of Control (as
defined in the Indenture) occurs, the date the Company or the Trustee mails
notice thereof to the registered holders of the Notes, (iv) the commencement of
the Exchange Offer (as defined in the Note Registration Rights Agreement), and
(v) the effectiveness of the shelf registration statement relating to the Notes
pursuant to the Note Registration Rights Agreement.
"Time of Determination" has the meaning given such term in
Section 13(e).
"Transfer Agent" has the meaning given such term in
Section 11.
"Trustee" means the trustee under the Indenture.
"Units" has the meaning given to such term in the recitals
hereto.
"Warrant Agent" means Texas Commerce Bank National
Association or the successor or successors of such Warrant Agent appointed in
accordance with the terms hereof.
"Warrant Certificates" has the meaning given such term in
Section 3.
"Warrant Registration Rights Agreement" means the Warrant
Registration Rights Agreement, dated as of the date hereof, by and among the
Company and the Initial Purchasers relating to the Warrants and the Warrant
Shares.
"Warrant Shares" means the shares of Common Stock issuable
upon the exercise of the Warrants, along with any other property or securities
issuable with respect to the Warrants.
"Warrants" has the meaning given such term in the recitals
hereto.
SECTION 2. Appointment of Warrant Agent. The Company hereby
appoints the Warrant Agent to act as agent for the Company in accordance with
the instructions set forth hereinafter in this Agreement, and the Warrant Agent
hereby accepts such appointment.
SECTION 3. Issuance of Warrants; Warrant Certificates. The
Warrants will be issued in the form of one or more global certificates (the
"Global Warrants"), substantially in the form of Exhibit A (including the text
accompanying footnote 1 thereto and the schedule referred to in footnote 2
thereto). The Global Warrants shall be
3
<PAGE> 7
deposited on the issue date with, or on behalf of, The Depository Trust Company
(the "Depositary") and registered in the name of Cede & Co., as the
Depositary's nominee, provided that any Warrants resold in Exempt Resales (as
defined in the Purchase Agreement) to Regulation S Investors (as defined in the
Purchase Agreement) shall be registered in the name of Cede & Co. for the
accounts of Euroclear System and Cedel, S.A. (a "Regulation S Global Warrant").
Any Warrants evidenced by the Regulation S Global Warrant may only be
transferred in accordance with the provisions of Regulation S under the
Securities Act. Each Global Warrant shall represent such of the outstanding
Warrants as shall be specified therein and each shall provide that it shall
represent the aggregate amount of outstanding Warrants from time to time
endorsed thereon and that the aggregate amount of outstanding Warrants
represented thereby may from time to time be reduced or increased, as
appropriate. Upon request, a beneficial owner of Warrants may receive from the
Depositary and the Warrant Agent Warrants in definitive form (the "Definitive
Warrants"), substantially in the form of Exhibit A (not including the text
accompanying footnote 1 or the schedule referred to in footnote 2 thereto) as
set forth in Section 7 below. Any certificates evidencing the Global Warrants
or the Definitive Warrants to be delivered pursuant to this Agreement are
hereafter referred to as the "Warrant Certificates".
SECTION 4. Execution of Warrant Certificates. Warrant
Certificates shall be signed on behalf of the Company by its Chairman of the
Board or its President or a Vice President and by its Secretary or an Assistant
Secretary under its corporate seal. Each such signature upon the Warrant
Certificates may be in the form of a facsimile signature of the present or any
future Chairman of the Board, President, Vice President, Secretary or Assistant
Secretary and may be imprinted or otherwise reproduced on the Warrant
Certificates and for that purpose the Company may adopt and use the facsimile
signature of any individual who shall have been Chairman of the Board,
President, Vice President, Secretary or Assistant Secretary, notwithstanding
the fact that at the time the Warrant Certificates shall be countersigned and
delivered or disposed of such individual shall have ceased to hold such office.
The seal of the Company may be in the form of a facsimile thereof and may be
impressed, affixed, imprinted or otherwise reproduced on the Warrant
Certificates.
In case any officer of the Company who shall have signed any
of the Warrant Certificates shall cease to be such officer before the Warrant
Certificates so signed shall have been countersigned by the Warrant Agent, or
disposed of by the Company, such Warrant Certificates nevertheless may be
countersigned and delivered or disposed of as though such individual had not
ceased to be such officer of the Company; and any Warrant Certificate may be
signed on behalf of the Company by any individual who, at the actual date of
the execution of such Warrant Certificate, shall be a proper officer of the
Company to sign such Warrant Certificate, although at the date of the execution
of this Warrant Agreement any such person was not such an officer.
Warrant Certificates shall be dated the date of the
countersignature.
SECTION 5. Separation of Warrants. The Notes and Warrants
shall not be separately transferable prior to the Separation Date.
SECTION 6. Registration and Countersignature. The Warrant
Agent, on behalf of the Company, shall number and register the Warrant
Certificates in a register as they are issued by the Company.
4
<PAGE> 8
Warrant Certificates shall be manually countersigned by the
Warrant Agent and shall not be valid for any purpose unless so countersigned.
The Warrant Agent shall, upon written instructions of the Chairman of the
Board, the President, a Vice President, the Treasurer or the Controller of the
Company, initially countersign, issue and deliver Warrants entitling the
Holders thereof to purchase not more than the number of Warrant Shares referred
to above in the first recital hereof and shall countersign and deliver Warrants
as otherwise provided in this Agreement.
The Company and the Warrant Agent may deem and treat the
Holders of the Warrant Certificates as the absolute owners thereof
(notwithstanding any notation of beneficial ownership or other writing thereon
made by anyone), for all purposes, and neither the Company nor the Warrant
Agent shall be affected by any notice to the contrary. Prior to the Separation
Date, the registered holder of the Unit shall be deemed the registered Holder
of such Warrants for all purposes hereunder.
SECTION 7. Registration of Transfers and Exchanges.
(a) Transfer and Exchange of Global Warrants. The transfer
and exchange of Global Warrants or beneficial interests therein shall be
effected through the Depositary, in accordance with this Warrant Agreement and
the procedures of the Depositary therefor.
(b) Exchange of a Beneficial Interest in a Global Warrant for
a Definitive Warrant.
(i) Any Person having a beneficial interest in a Global Warrant
may upon request exchange such beneficial interest for a
Definitive Warrant. Upon receipt by the Warrant Agent of
written instructions or such other form of instructions as is
customary for the Depositary from the Depositary or its
nominee on behalf of any Person having a beneficial interest
in a Global Warrant and, in the case of any Warrant that
constitutes a Registrable Security, the following additional
information and documents (all of which may be submitted by
facsimile):
(A) if such beneficial interest is being delivered to
the Person designated by the Depositary as being the
beneficial owner, a certification to that effect (in
substantially the form of Exhibit B hereto);
(B) if such beneficial interest is being transferred (1)
to a "qualified institutional buyer" (as defined in
Rule 144A under the Securities Act) in accordance
with Rule 144A under the Securities Act or (2)
pursuant to an effective registration statement
under the Securities Act, a certification to that
effect (in substantially the form of Exhibit B
hereto);
(C) if such beneficial interest is being transferred to
any institutional "accredited investor" within the
meaning of Rule 501(a)(1), (2), (3) or (7) under the
Securities Act pursuant to a private placement
exemption from the registration requirements of the
Securities Act (and based on an opinion of counsel
if the Company so requests in the case of a transfer
of Warrants to purchase 656.6 or fewer
5
<PAGE> 9
Warrant Shares), a certification to that effect (in
substantially the form of Exhibit B hereto) and a
certification from the applicable transferee in form
and substance reasonably satisfactory to the
Company;
(D) if such beneficial interest is being transferred
pursuant to an exemption from registration in
accordance with Rule 904 under the Securities Act, a
certification to that effect (in substantially the
form of Exhibit B hereto), provided that no Warrants
represented by the Regulation S Global Warrant may
be exchanged for Definitive Warrants until
expiration of the applicable restricted period under
Regulation S of the Securities Act; or
(E) if such beneficial interest is being transferred in
reliance on another exemption from the registration
requirements of the Securities Act (and based on an
opinion of counsel if the Company so requests), a
certification to that effect (in substantially the
form of Exhibit B hereto);
then the Warrant Agent shall cause, in accordance with the
standing instructions and procedures existing between the
Depositary and the Warrant Agent, the number of Warrants
represented by the Global Warrants to be reduced and,
following such reduction, the Company shall execute and the
Warrant Agent shall countersign and deliver to the
transferee, as the case may be, a Definitive Warrant.
(ii) Definitive Warrants issued in exchange for a beneficial
interest in a Global Warrant pursuant to this Section 7(b)
shall be registered in such names as the Depositary, pursuant
to instructions from its direct or indirect participants or
otherwise, shall instruct the Warrant Agent. The Warrant
Agent shall deliver such Definitive Warrants to the Persons
in whose names such Warrants are so registered.
(c) Transfer and Exchange of Definitive Warrants. When
Definitive Warrants are presented to the Warrant Agent with a request:
(i) to register the transfer of the Definitive Warrants; or
(ii) to exchange such Definitive Warrants for an equal number of
Definitive Warrants of other authorized denominations,
the Warrant Agent shall register the transfer or make the exchange as requested
if its requirements for such transactions are met; provided, however, that the
Definitive Warrants presented or surrendered for registration of transfer or
exchange:
(x) shall be duly endorsed or accompanied by a written
instruction of transfer in form satisfactory to the Warrant
Agent, duly executed by the Holder thereof or by his
attorney, duly authorized in writing; and
(y) in the case of any Warrant that constitutes a Registrable
Security, such request shall be accompanied by the following
additional information and documents, as applicable:
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<PAGE> 10
(A) if such Warrant is being delivered to the Warrant
Agent by a Holder for registration in the name of
such Holder, without transfer, a certification from
such Holder to that effect (in substantially the
form of Exhibit B hereto);
(B) if such Warrant is being transferred (1) to a
"qualified institutional buyer" (as defined in Rule
144A under the Securities Act) in accordance with
Rule 144A under the Securities Act or (2) pursuant
to an effective registration statement under the
Securities Act, a certification to that effect (in
substantially the form of Exhibit B hereto);
(C) if such Warrant is being transferred to an
institutional "accredited investor" within the
meaning of Rule 501(a)(1), (2), (3) or (7) under the
Securities Act pursuant to a private placement
exemption from the registration requirements of the
Securities Act (and based on an opinion of counsel
if the Company so requests in the case of a transfer
of Warrants to purchase 656.6 or fewer Warrant
Shares), a certification to that effect (in
substantially the form of Exhibit B hereto) and a
certification from the applicable transferee;
(D) if such Warrant is being transferred pursuant to an
exemption from registration in accordance with Rule
904 under the Securities Act, a certification to
that effect (in substantially the form of Exhibit B
hereto); or
(E) if such Warrant is being transferred in reliance on
another exemption from the registration requirements
of the Securities Act (and based on an opinion of
counsel if the Company so requests) a certification
to that effect (in substantially the form of Exhibit
B hereto).
(d) Restrictions on Exchange or Transfer of a Definitive
Warrant for a Beneficial Interest in a Global Warrant. A Definitive Warrant may
not be exchanged for a beneficial interest in a Global Warrant except upon
satisfaction of the requirements set forth below. Upon receipt by the Warrant
Agent of a Definitive Warrant, duly endorsed or accompanied by appropriate
instruments of transfer, in form satisfactory to the Warrant Agent, together
with:
(i) if such Warrant is a Registrable Security, certification from
the Holder thereof (in substantially the form of Exhibit B
hereto) to the effect that such Definitive Warrant is being
transferred by such Holder either (A) to a "qualified
institutional buyer" (as defined in Rule 144A under the
Securities Act) in accordance with Rule 144A under the
Securities Act, or (B) outside the United States to a foreign
person in a transaction meeting the requirements of Rule 904
under the Securities Act; and
(ii) written instructions directing the Warrant Agent to make, or
to direct the Depositary to make, an endorsement on the
Global Warrant to reflect an increase in the number of
Warrants represented by the Global Warrant,
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<PAGE> 11
then the Warrant Agent shall cancel such Definitive Warrant and cause, or
direct the Depositary to cause, in accordance with the standing instructions
and procedures existing between the Depositary and the Warrant Agent, the
number of Warrants represented by the Global Warrant to be increased
accordingly. If no Global Warrants are then outstanding, the Company shall
issue and the Warrant Agent shall countersign a new Global Warrant representing
the appropriate number of Warrants.
(e) Restrictions on Transfer and Exchange of Global Warrants.
Notwithstanding any other provisions of this Warrant Agreement (other than the
provisions set forth in subsection (f) of this Section 7), a Global Warrant may
not be transferred as a whole except by the Depositary to a nominee of the
Depositary or by a nominee of the Depositary to the Depositary or another
nominee of the Depositary or by the Depositary or any such nominee to a
successor Depositary or a nominee of such successor Depositary.
(f) Countersigning of Definitive Warrants in Absence of
Depositary. If at any time:
(i) the Depositary for the Global Warrants notifies the Company
that the Depositary is unwilling or unable to continue as
Depositary for the Global Warrants and a successor Depositary
for the Global Warrants is not appointed by the Company
within 90 days after delivery of such notice; or
(ii) the Company, in its sole discretion, notifies the Warrant
Agent in writing that it elects to cause the issuance of
Definitive Warrants under this Warrant Agreement,
then the Company shall execute, and the Warrant Agent, upon written
instructions signed by two officers of the Company, shall countersign and
deliver Definitive Warrants, in an aggregate number equal to the number of
Warrants represented by Global Warrants, in exchange for such Global Warrants.
(g) Legends.
(i) Except for any Warrant that does not constitute a Registrable
Security (including any Warrant represented by a Global
Warrant) as discussed in clause (ii) below, each Warrant
Certificate evidencing the Global Warrants and the Definitive
Warrants (and all Warrants issued in exchange therefor or
substitution thereof) shall bear a legend in substantially
the following form:
THIS SECURITY HAS NOT BEEN REGISTERED UNDER THE
SECURITIES ACT OF 1933, AS AMENDED (THE "SECURITIES
ACT"), OR ANY STATE SECURITIES LAWS. NEITHER THIS
SECURITY NOR ANY INTEREST OR PARTICIPATION HEREIN MAY BE
OFFERED, SOLD, ASSIGNED, TRANSFERRED, PLEDGED, ENCUMBERED
OR OTHERWISE DISPOSED OF IN THE ABSENCE OF SUCH
REGISTRATION OR UNLESS SUCH TRANSACTION IS EXEMPT FROM,
OR NOT SUBJECT TO, REGISTRATION.
8
<PAGE> 12
THE HOLDER OF THIS SECURITY BY ITS ACCEPTANCE HEREOF
AGREES TO (A) OFFER, SELL, PLEDGE OR OTHERWISE TRANSFER
THIS SECURITY ONLY (1) TO THE COMPANY, (2) PURSUANT TO A
REGISTRATION STATEMENT WHICH HAS BEEN DECLARED EFFECTIVE
UNDER THE SECURITIES ACT, (3) TO A PERSON IT REASONABLY
BELIEVES IS A "QUALIFIED INSTITUTIONAL BUYER" AS DEFINED
IN RULE 144A IN A TRANSACTION MEETING THE REQUIREMENTS OF
RULE 144A, (4) PURSUANT TO OFFERS AND SALES TO NON-U.S.
PERSONS THAT OCCUR OUTSIDE THE UNITED STATES IN A
TRANSACTION MEETING THE REQUIREMENTS OF RULE 904 OF
REGULATION S UNDER THE SECURITIES ACT, (5) TO AN
INSTITUTIONAL "ACCREDITED INVESTOR" (AS DEFINED IN RULE
501(A) (1), (2), (3) OR (7) OF REGULATION D UNDER THE
SECURITIES ACT) (AN "IAI"), THAT, PRIOR TO SUCH TRANSFER,
FURNISHES TO THE WARRANT AGENT A SIGNED LETTER CONTAINING
CERTAIN REPRESENTATIONS AND AGREEMENTS RELATING TO THE
TRANSFER OF THIS SECURITY (THE FORM OF WHICH LETTER CAN
BE OBTAINED FROM THE WARRANT AGENT), AND, IN THE CASE OF
ANY TRANSFER TO ANY IAI OF SECURITIES ENTITLING THE
HOLDER TO PURCHASE 656.6 OR FEWER SHARES OF COMMON STOCK,
AN OPINION OF COUNSEL IF THE COMPANY SO REQUESTS OR (6)
PURSUANT TO ANY OTHER AVAILABLE EXEMPTION FROM THE
REGISTRATION REQUIREMENTS UNDER THE SECURITIES ACT (AND
BASED ON AN OPINION OF COUNSEL IF THE COMPANY SO
REQUESTS), SUBJECT IN EACH OF THE FOREGOING CASES TO
APPLICABLE SECURITIES LAWS OF ANY STATE OF THE UNITED
STATES OR ANY OTHER APPLICABLE JURISDICTION AND (B) THAT
IT WILL, AND EACH SUBSEQUENT HOLDER IS REQUIRED TO,
NOTIFY ANY PURCHASER FROM IT OF THE SECURITY EVIDENCED
HEREBY OF THE RESALE RESTRICTIONS SET FORTH IN (A) ABOVE.
(ii) Upon any sale or transfer of a Warrant pursuant to an
effective registration statement under the Securities Act,
pursuant to Rule 144 under the Securities Act or pursuant to
an opinion of counsel reasonably satisfactory to the Company
that no legend is required, the Warrant Agent shall permit
the Holder thereof to exchange such Warrant for a Warrant
Certificate that does not bear the legend set forth in clause
(i) above and rescind any restriction on the transfer of such
Warrant, provided that if such certificate evidences both
Warrants that are Registrable Securities and Warrants that
are not Registrable Securities, the Warrant Agent shall issue
two Warrant Certificates. One Warrant Certificate shall
represent the Warrants that are Registrable Securities and
shall bear the legend set forth in clause (i) above and the
other Warrant Certificate shall represent
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<PAGE> 13
the Warrants that are not Registrable Securities and shall
not bear the legend set forth in clause (i) above.
(h) Cancellation of Global Warrant. At such time as all
beneficial interests in Global Warrants have either been exchanged for
Definitive Warrants, redeemed, repurchased or canceled, all Global Warrants
shall be returned to or retained and canceled by the Warrant Agent.
(i) Obligations with Respect to Transfers and Exchanges of
Warrants.
(i) To permit registrations of transfers and exchanges, the
Company shall execute and the Warrant Agent is hereby
authorized to countersign, in accordance with the provisions
of Section 6 and this Section 7, Definitive Warrants and
Global Warrants as required pursuant to the provisions of
this Section 7.
(ii) All Definitive Warrants and Global Warrants issued upon any
registration of transfer or exchange of Definitive Warrants
or Global Warrants shall be the valid obligations of the
Company, entitled to the same benefits under this Warrant
Agreement, as the Definitive Warrants or Global Warrants
surrendered upon such registration of transfer or exchange.
(iii) Prior to due presentment for registration of transfer of any
Warrant, the Warrant Agent and the Company may deem and treat
the person in whose name any Warrant is registered as the
absolute owner of such Warrant and neither the Warrant Agent,
nor the Company shall be affected by notice to the contrary.
(iv) No service charge shall be made to a Holder for any
registration, transfer or exchange.
SECTION 8. Terms of Warrants; Exercise of Warrants. Subject
to the terms of this Agreement, each Holder shall have the right, which may be
exercised commencing at the opening of business on the Exercisability Date and
until 5:00 p.m., New York City time on the Expiration Date to receive from the
Company the number of fully paid and nonassessable Warrant Shares which the
Holder may at the time be entitled to receive on exercise of such Warrants and
payment of the Exercise Price then in effect for such Warrant Shares; provided,
however, that no Holder shall be entitled to exercise such Holder's Warrants at
any time, unless, at the time of exercise, (i) a registration statement under
the Securities Act relating to the Warrant Shares has been filed with, and
declared effective by, the Commission, and no stop order suspending the
effectiveness of such registration statement has been issued by the Commission
or (ii) the issuance of the Warrant Shares is permitted pursuant to an
exemption from the registration requirements of the Securities Act. Subject to
the provisions of the following paragraph of this Section 8, each Warrant not
exercised prior to 5:00 p.m., New York City time, on the Expiration Date shall
become void and all rights thereunder and all rights in respect thereof under
this Agreement shall cease as of such time. No adjustments as to dividends will
be made upon exercise of the Warrants.
The Company shall give notice not less than 90, and not more
than 120, days prior to the Expiration Date to the Holders of all then
outstanding Warrants to the effect that the Warrants will terminate and become
void as of 5:00 p.m., New York City
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<PAGE> 14
time, on the Expiration Date. If the Company fails to give such notice, the
Warrants will not expire until 90 days after the Company gives such notice,
provided, however, in no event will Holders be entitled to any damages or other
remedy for the Company's failure to give such notice other than any such
extension. In addition, notwithstanding anything to the contrary in this
Agreement, if the Company has not maintained an effective registration
statement under the Securities Act for the issuance of the Warrant Shares
during the 45 days immediately before the Expiration Date, the Warrants shall
not expire until the Company maintains such an effective registration statement
for 45 consecutive days beginning with the first day after 45 days before the
Expiration Date that such registration statement is effective. In the
circumstances described in this paragraph, the extended Expiration Date for the
Warrants shall be considered the Expiration Date for purposes of this
Agreement.
A Warrant may be exercised upon surrender to the Company at
an office of the Warrant Agent of the certificate or certificates evidencing
the Warrant to be exercised with the form of election to purchase on the
reverse thereof duly filled in and signed, which signature shall be guaranteed
by a bank or trust company having an office or correspondent in the United
States or a broker or dealer which is a member of a registered securities
exchange or the National Association of Securities Dealers, Inc., and upon
payment to the Warrant Agent for the account of the Company of the Exercise
Price as adjusted as herein provided, for each of the Warrant Shares in respect
of which such Warrant is then exercised. Payment of the aggregate Exercise
Price shall be made in cash or by certified or official bank check, payable to
the order of the Company. In the alternative, each Holder may exercise its
right to receive Warrant Shares on a net basis, such that without the exchange
of any funds, the Holder receives that number of Warrant Shares otherwise
issuable upon exercise of its Warrants less that number of Warrant Shares
having a fair market value equal to the aggregate Exercise Price that would
otherwise have been paid by the Holder of the Warrant Shares. For purposes of
the foregoing sentence, "fair market value" of the Warrant Shares shall be the
current market price of the Warrant Shares on the date immediately preceding
the date of payment of the Exercise Price as determined by the procedures set
forth in Section 13(e). The exercise of Warrants by Holders of beneficial
interest in Global Warrants shall be effected in accordance with this Agreement
and the procedures of the Depositary therefor. The Warrant Agent shall maintain
in the Borough of Manhattan, the City of New York, an office where Holders may
surrender their Warrants upon exercise.
Subject to the provisions of Section 9 hereof, upon surrender
of Warrants and payment of the Exercise Price as provided above, the Warrant
Agent shall thereupon promptly notify the Company and the Company shall
promptly transfer to the Holder of such Warrant a certificate or certificates
for the appropriate number of Warrant Shares or other securities or property
(including any money) to which the Holder is entitled, registered or otherwise
placed in, or payable to the order of, such name or names as may be directed in
writing by the Holder, and shall deliver such certificate or certificates
representing the Warrant Shares and any other securities or property (including
any 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 15.
Any such certificate or certificates representing the Warrant Shares shall be
deemed to have been issued and any person so designated to be named therein
shall be deemed to have become a holder of record of such Warrant Shares as of
the date of the surrender of such Warrants and payment of the Exercise Price.
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<PAGE> 15
The Warrants shall be exercisable commencing on the
Exercisability Date, at the election of the Holders thereof, either in full or
from time to time in part and, in the event that a certificate evidencing
Warrants is exercised in respect of fewer than all of the Warrant Shares
issuable on such exercise at any time prior to the date of expiration of the
Warrants, a new certificate evidencing the remaining Warrant or Warrants will
be issued, and the Warrant Agent is hereby irrevocably authorized to
countersign and to deliver the required new Warrant Certificates pursuant to
the provisions of this Section and of Section 4 hereof, and the Company,
whenever required by the Warrant Agent, will supply the Warrant Agent with
Warrant Certificates duly executed on behalf of the Company for such purpose.
All Warrant Certificates surrendered upon exercise of
Warrants shall be canceled by the Warrant Agent. Such canceled Warrant
Certificates shall then be disposed of by the Warrant Agent in a manner
satisfactory to the Company. The Warrant Agent shall account promptly to the
Company with respect to Warrants exercised and concurrently pay to the Company
all monies received by the Warrant Agent for the purchase of the Warrant Shares
through the exercise of such Warrants.
The Warrant Agent shall keep copies of this Agreement and any
notices given or received hereunder by or from the Company available for
inspection by the Holders during normal business hours at its office. The
Company shall supply the Warrant Agent from time to time with such numbers of
copies of this Agreement as the Warrant Agent may request.
SECTION 9. Payment of Taxes. The Company will pay all
documentary stamp taxes attributable to the initial issuance of Warrant Shares
upon the exercise of Warrants or to any separation of the Warrants from the
Notes; provided, however, that the Company shall not be required to pay any tax
or taxes which may be payable in respect of any transfer involved in the issue
of any Warrant Certificates or any certificates for Warrant Shares in a name
other than that of the Holder of a Warrant Certificate surrendered upon the
exercise of a Warrant, and the Company shall not be required to issue or
deliver such Warrant Certificates unless or until the Person requesting the
issuance thereof shall have paid to the Company the amount of such tax or shall
have established to the satisfaction of the Company that such tax has been
paid.
SECTION 10. Mutilated or Missing Warrant Certificates. In
case any of the Warrant Certificates shall be mutilated, lost, stolen or
destroyed, the Company may in its discretion issue and the Warrant Agent may
countersign, in exchange and substitution for and upon cancellation of the
mutilated Warrant Certificate, or in lieu of and in substitution for the
Warrant Certificate lost, stolen or destroyed, a new Warrant Certificate of
like tenor and representing an equivalent number of Warrants, but only upon
receipt of evidence reasonably satisfactory to the Company and the Warrant
Agent of such loss, theft or destruction of such Warrant Certificate and
indemnity, if requested, also reasonably satisfactory to them. Applicants for
such substitute Warrant Certificates shall also comply with such other
reasonable regulations and pay such other reasonable charges as the Company or
the Warrant Agent may prescribe.
SECTION 11. Reservation of Warrant Shares. The Company will
at all times reserve and keep available, free from preemptive rights, out of
the aggregate of its authorized but unissued Common Stock or its authorized and
issued Common Stock held in its treasury, for the purpose of enabling it to
satisfy any obligation to issue
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<PAGE> 16
Warrant Shares upon exercise of Warrants, the maximum number of shares of
Common Stock which may then be deliverable upon exercise of all outstanding
Warrants.
The transfer agent for the Common Stock (the "Transfer
Agent") and every subsequent transfer agent for any shares of the Company's
capital stock issuable upon the exercise of any of the rights of purchase
aforesaid will be irrevocably authorized and directed at all times to reserve
such number of authorized shares as shall be required for such purpose. The
Company will keep a copy of this Agreement on file with the Transfer Agent and
with every subsequent transfer agent for any shares of the Company's capital
stock issuable upon the exercise of the rights of purchase represented by the
Warrants. The Warrant Agent is hereby irrevocably authorized to requisition
from time to time from such Transfer Agent the stock certificates required to
honor outstanding Warrants upon exercise thereof in accordance with the terms
of this Agreement. The Company will supply such Transfer Agent with duly
executed certificates for such purposes and will provide or otherwise make
available any cash which may be payable as provided in Section 15. The Company
will furnish such Transfer Agent a copy of all notices of adjustments and
certificates related thereto, transmitted to each Holder pursuant to Section 16
hereof.
Before taking any action which would cause an adjustment
pursuant to Section 13 hereof that would reduce the Exercise Price below the
then par value (if any) of the Warrant Shares, the Company will take any
corporate action which may, in the opinion of its counsel (which may be counsel
employed by the Company), be necessary in order that the Company may validly
and legally issue fully paid and nonassessable Warrant Shares at the Exercise
Price as so adjusted.
The Company covenants that all Warrant Shares which may be
issued upon exercise of Warrants in accordance with the terms of this Agreement
(including the payment of the Exercise Price) will, upon issue, be duly and
validly issued, fully paid, nonassessable, free of preemptive rights and free
from all taxes, liens, charges and security interests with respect to the issue
thereof.
SECTION 12. Obtaining Stock Exchange Listings. The Company
will from time to time take all action which may be necessary so that the
Warrant Shares, immediately upon their issuance upon the exercise of Warrants,
will be listed on the principal securities exchanges and markets (including,
without limitation, the Nasdaq National Market) within the United States of
America, if any, on which other shares of Common Stock are then listed. Upon
the listing of such Warrant Shares, the Company shall notify the Warrant Agent
in writing. The Company will obtain and keep all required permits and records
in connection with such listing.
SECTION 13. Adjustment of Exercise Price and Number of
Warrant Shares Issuable. The number and kind of shares purchasable upon the
exercise of the Warrants and the Exercise Price shall be subject to adjustment
from time to time as follows:
(a) Stock Splits, Combinations, etc. In case the Company
shall hereafter (A) pay a dividend or make a distribution on its Common Stock
in shares of its capital stock (whether shares of Common Stock or of capital
stock of any other class), (B) subdivide its outstanding shares of Common
Stock, (C) combine its outstanding shares of Common Stock into a smaller number
of shares, or (D) issue by
13
<PAGE> 17
reclassification of its shares of Common Stock any shares of capital stock of
the Company, the Exercise Price in effect and the number of Warrant Shares
issuable upon exercise of each Warrant immediately prior to such action shall
be adjusted so that the Holder of any Warrant thereafter exercised shall be
entitled to receive the number of shares of capital stock of the Company which
such Holder would have owned immediately following such action had such Warrant
been exercised immediately prior thereto. An adjustment made pursuant to this
paragraph shall become effective immediately after the record date in the case
of a dividend and shall become effective immediately after the effective date
in the case of a subdivision, combination or reclassification. If, as a result
of an adjustment made pursuant to this paragraph, the Holder of any Warrant
thereafter exercised shall become entitled to receive shares of two or more
classes of capital stock of the Company, the Board of Directors of the Company
(whose determination shall be conclusive) shall determine the allocation of the
adjusted Exercise Price between or among shares of such classes of capital
stock.
(b) Reclassification, Combinations, Mergers, etc. In case of
any reclassification or change of outstanding shares of Common Stock issuable
upon exercise of the Warrants (other than as set forth in paragraph (a) above
and other than a change in par value, or from par value to no par value, or
from no par value to par value or as a result of a subdivision or combination),
or in case of any consolidation or merger of the Company with or into another
corporation or entity (other than a merger in which the Company is the
continuing corporation and which does not result in any reclassification or
change of the then outstanding shares of Common Stock or other capital stock
issuable upon exercise of the Warrants), then, as a condition of such
reclassification, change, consolidation, or merger, the Company or such a
successor corporation or entity, as the case may be, shall forthwith make
lawful and adequate provision whereby the Holder of each Warrant then
outstanding shall have the right thereafter to receive on exercise of such
Warrant the kind and amount of shares of stock and other securities and
property receivable upon such reclassification, change, consolidation, or
merger, by a holder of the number of shares of Common Stock issuable upon
exercise of such Warrant immediately prior to such reclassification, change,
consolidation, or merger, and enter into a supplemental warrant agreement so
providing. Such provisions shall include provision for adjustments which shall
be as nearly equivalent as may be practicable to the adjustments provided for
in this Section 13. If the issuer of securities deliverable upon exercise of
the Warrants under the supplemental warrant agreement is an affiliate of the
formed or surviving corporation or other entity, that issuer shall join in the
supplemental warrant agreement. The above provisions of this paragraph (b)
shall similarly apply to successive reclassifications and changes of shares of
Common Stock and to successive consolidations, or mergers.
(c) Issuance of Options or Convertible Securities. In the
event the Company shall, at any time or from time to time after the date
hereof, issue, sell, distribute or otherwise grant in any manner (including by
assumption) to all holders of the Common Stock any rights to subscribe for or
to purchase, or any warrants or options for the purchase of, Common Stock or
any stock or securities convertible into or exchangeable for Common Stock (any
such rights, warrants or options being herein called "Options" and any such
convertible or exchangeable stock or securities being herein called
"Convertible Securities"), whether or not such Options or the rights to convert
or exchange such Convertible Securities are immediately exercisable, and the
price per share at which Common Stock is issuable upon the exercise of such
Options or upon the conversion or exchange of such Convertible Securities
(determined by
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<PAGE> 18
dividing (i) the aggregate amount, if any, received or receivable by the
Company as consideration for the issuance, sale, distribution or granting of
such Options or any such Convertible Security, plus the minimum aggregate
amount of additional consideration, if any, payable to the Company upon the
exercise of all such Options or upon conversion or exchange of all such
Convertible Securities, plus, in the case of Options to acquire Convertible
Securities, the minimum aggregate amount of additional consideration, if any,
payable upon the conversion or exchange of all such Convertible Securities, by
(ii) the total maximum number of shares of Common Stock issuable upon the
exercise of all such Options or upon the conversion or exchange of all such
Convertible Securities or upon the conversion or exchange of all Convertible
Securities issuable upon the exercise of all such Options) shall be less than
the current market price per share of Common Stock on the record date for the
issuance, sale, distribution or granting of such Options or Convertible
Securities (any such event being herein called a "Distribution"), then,
effective upon such Distribution, (I) the Exercise Price shall be reduced to
the price (calculated to the nearest 1/1,000 of one cent) determined by
multiplying the Exercise Price in effect immediately prior to such Distribution
by a fraction, the numerator of which shall be the sum of (i) the number of
shares of Common Stock outstanding (exclusive of any treasury shares)
immediately prior to such Distribution multiplied by the current market price
per share of Common Stock on the date of such Distribution plus (ii) the
consideration, if any, received by the Company upon such Distribution, and the
denominator of which shall be the product of (A) the total number of shares of
Common Stock outstanding (exclusive of any treasury shares) immediately after
such Distribution multiplied by (B) the current market price per share of
Common Stock on the record date for such Distribution and (II) the number of
shares of Common Stock purchasable upon the exercise of each Warrant shall be
increased to a number determined by multiplying the number of shares of Common
Stock so purchasable immediately prior to the record date for such Distribution
by a fraction, the numerator of which shall be the Exercise Price in effect
immediately prior to the adjustment required by clause (I) of this sentence and
the denominator of which shall be the Exercise Price in effect immediately
after such adjustment. For purposes of the foregoing, the total maximum number
of shares of Common Stock issuable upon exercise of all such Options or upon
conversion or exchange of all such Convertible Securities or upon the
conversion or exchange of the total maximum amount of the Convertible
Securities issuable upon the exercise of all such Options shall be deemed to
have been issued as of the date of such Distribution and thereafter shall be
deemed to be outstanding and the Company shall be deemed to have received as
consideration therefor such price per share, determined as provided above.
Except as provided in paragraphs (j) and (k) below, no additional adjustment of
the Exercise Price shall be made upon the actual exercise of such Options or
upon conversion or exchange of the Convertible Securities or upon the
conversion or exchange of the Convertible Securities issuable upon the exercise
of such Options.
(d) Dividends and Distributions. In the event the Company
shall, at any time or from time to time after the date hereof, distribute to
all the holders of Common Stock any dividend or other distribution of cash,
evidences of its indebtedness, other securities or other properties or assets
(in each case other than (i) dividends payable in Common Stock, Options or
Convertible Securities and (ii) any cash dividend that, when added to all other
cash dividends paid in the one year prior to the declaration date of such
dividend (excluding any such other dividend included in a previous adjustment
of the Exercise Price pursuant to this paragraph (d) and excluding cash
dividends or other cash distributions from current or retained earnings), does
not
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<PAGE> 19
exceed 5% of the current market price per share of Common Stock on such
declaration date), or any options, warrants or other rights to subscribe for or
purchase any of the foregoing, then (A) the Exercise Price shall be decreased
to a price determined by multiplying the Exercise Price then in effect by a
fraction, the numerator of which shall be the current market price per share of
Common Stock on the record date for such distribution less the sum of (X) the
cash portion, if any, of such distribution per share of Common Stock
outstanding (exclusive of any treasury shares) on the record date for such
distribution plus (Y) the then fair market value (as determined in good faith
by the Board of Directors of the Company) per share of Common Stock outstanding
(exclusive of any treasury shares) on the record date for such distribution of
that portion, if any, of such distribution consisting of evidences of
indebtedness, other securities, properties, assets, options, warrants or
subscription of purchase rights, and the denominator of which shall be such
current market price per share of Common Stock and (B) the number of shares of
Common Stock purchasable upon the exercise of each Warrant shall be increased
to a number determined by multiplying the number of shares of Common Stock so
purchasable immediately prior to the record date for such distribution by a
fraction, the numerator of which shall be the Exercise Price in effect
immediately prior to the adjustment required by clause (A) of this sentence and
the denominator of which shall be the Exercise Price in effect immediately
after such adjustment. The adjustments required by this paragraph (d) shall be
made whenever any such distribution occurs retroactive to the record date for
the determination of stockholders entitled to receive such distribution.
(e) Current Market Price. For the purpose of any computation
of current market price under this Section 13 and Section 15, the current
market price per share of Common Stock at any date shall be (x) for purposes of
Section 15, the closing price on the business day immediately prior to the
exercise of the applicable Warrant pursuant to Section 8 and (y) in all other
cases, the average of the daily closing prices for the shorter of (i) the 20
consecutive trading days ending on the last full trading day on the exchange or
market specified in the second succeeding sentence prior to the Time of
Determination (as defined below) and (ii) the period commencing on the date
next succeeding the first public announcement of the issuance, sale,
distribution or granting in question through such last full trading day prior
to the Time of Determination. The term "Time of Determination" as used herein
shall be the time and date of the earlier to occur of (A) the date as of which
the current market price is to be computed and (B) the last full trading day on
such exchange or market before the commencement of "ex-dividend" trading in the
Common Stock relating to the event giving rise to the adjustment required by
paragraph (a), (b), (c) or (d). The closing price for any day shall be the last
reported sale price regular way or, in case no such reported sale takes place
on such day, the average of the closing bid and asked prices regular way for
such day, in each case (1) on the principal national securities exchange on
which the shares of Common Stock are listed or to which such shares are
admitted to trading or (2) if the Common Stock is not listed or admitted to
trading on a national securities exchange, in the over-the-counter market as
reported by Nasdaq National Market or any comparable system or (3) if the
Common Stock is not listed on Nasdaq National Market or a comparable system, as
furnished by two members of the NASD selected from time to time in good faith
by the Board of Directors of the Company for that purpose. In the absence of
all of the foregoing, or if for any reason the current market price per share
cannot be determined pursuant to the foregoing provisions of this paragraph
(e), the current market price per share shall be the fair market value thereof
as determined in good faith by the Board of Directors of the Company.
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<PAGE> 20
(f) Certain Distributions. If the Company shall pay a
dividend or make any other distribution payable in Options or Convertible
Securities, then, for purposes of paragraph (c) above, such Options or
Convertible Securities shall be deemed to have been issued or sold without
consideration.
(g) Consideration Received. If any shares of Common Stock,
Options or Convertible Securities shall be issued, sold or distributed for a
consideration other than cash, the amount of the consideration other than cash
received by the Company in respect thereof shall be deemed to be the then fair
market value of such consideration (as determined in good faith by the Board of
Directors of the Company). If any Options shall be issued in connection with
the issuance and sale of other securities of the Company, together comprising
one integral transaction in which no specific consideration is allocated to
such Options by the parties thereto, such Options shall be deemed to have been
issued without consideration; provided, however, that if such Options have an
exercise price equal to or greater than the current market price of the Common
Stock on the date of issuance of such Options, then such Options shall be
deemed to have been issued for consideration equal to such exercise price.
(h) Deferral of Certain Adjustments. No adjustment to the
Exercise Price (including the related adjustment to the number of shares of
Common Stock purchasable upon the exercise of each Warrant) shall be required
hereunder unless such adjustment, together with other adjustments carried
forward as provided below, would result in an increase or decrease of at least
one percent of the Exercise Price; provided that any adjustments which by
reason of this paragraph (h) are not required to be made shall be carried
forward and taken into account in any subsequent adjustment. No adjustment need
to be made for a change in the par value of the Common Stock. All calculations
under this Section shall be made to the nearest 1/1,000 of one cent or to the
nearest 1/1000 of a share, as the case may be.
(i) Changes in Options and Convertible Securities. If the
exercise price provided for in any Options referred to in paragraph (c) above,
the additional consideration, if any, payable upon the conversion or exchange
of any Convertible Securities referred to in paragraph (c) above, or the rate
at which any Convertible Securities referred to in paragraph (c) above are
convertible into or exchangeable for Common Stock shall change at any time
(other than under or by reason of provisions designed to protect against
dilution upon an event which results in a related adjustment pursuant to this
Section 13), the Exercise Price then in effect and the number of shares of
Common Stock purchasable upon the exercise of each Warrant shall forthwith be
readjusted (effective only with respect to any exercise of any Warrant after
such readjustment) to the Exercise Price and number of shares of Common Stock
so purchasable that would then be in effect had the adjustment made upon the
issuance, sale, distribution or granting of such Options or Convertible
Securities been made based upon such changed purchase price, additional
consideration or conversion rate, as the case may be, but only with respect to
such Options and Convertible Securities as then remain outstanding.
(j) Expiration of Options and Convertible Securities. If, at
any time after any adjustment to the number of shares of Common Stock
purchasable upon the exercise of each Warrant shall have been made pursuant to
paragraph (c) or (i) above or this paragraph (j), any Options or Convertible
Securities shall have expired unexercised, the number of such shares so
purchasable shall, upon such expiration, be readjusted and shall thereafter be
such as they would have been had they been
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<PAGE> 21
originally adjusted (or had the original adjustment not been required, as the
case may be) as if (i) the only shares of Common Stock deemed to have been
issued in connection with such Options or Convertible Securities were the
shares of Common Stock, if any, actually issued or sold upon the exercise of
such Options or Convertible Securities 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 aggregate consideration, if any, actually received
by the Company for the issuance, sale, distribution or granting of all such
Options or Convertible Securities, whether or not exercised; provided that no
such readjustment shall have the effect of decreasing the number of such shares
so purchasable by an amount (calculated by adjusting such decrease to account
for all other adjustments made pursuant to this Section 13 following the date
of the original adjustment referred to above) in excess of the amount of the
adjustment initially made in respect of the issuance, sale, distribution or
granting of such Options or Convertible Securities.
(k) Other Adjustments. In the event that at any time, as a
result of an adjustment made pursuant to this Section 13, the Holders shall
become entitled to receive any securities of the Company other than shares of
Common Stock, thereafter the number of such other securities so receivable upon
exercise of the Warrants and the Exercise Price applicable to such exercise
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 shares
of Common Stock contained in this Section 13.
SECTION 14. Statement on Warrants. Irrespective of any
adjustment in the number or kind of shares issuable upon the exercise of the
Warrants or the Exercise Price, Warrants theretofore or thereafter issued may
continue to express the same number and kind of shares as are stated in the
Warrants initially issued pursuant to this Agreement.
SECTION 15. Fractional Interest. The Company shall not be
required to issue fractional shares of Common Stock on the exercise of
Warrants. If more than one Warrant shall be presented for exercise in full at
the same time by the same Holder, the number of full shares of Common Stock
which shall be issuable upon such exercise shall be computed on the basis of
the aggregate number of shares of Common Stock acquirable on exercise of the
Warrants so presented. If any fraction of a share of Common Stock would, except
for the provisions of this Section, be issuable on the exercise of any Warrant
(or specified portion thereof), the Company shall direct the Transfer Agent to
pay an amount in cash calculated by it to equal the then current market price
per share multiplied by such fraction computed to the nearest whole cent. The
Holders, by their acceptance of the Warrant Certificates, expressly waive any
and all rights to receive any fraction of a share of Common Stock or a stock
certificate representing a fraction of a share of Common Stock.
SECTION 16. Notices to Warrant Holders. Upon any adjustment
of the Exercise Price pursuant to Section 13, the Company shall promptly
thereafter (i) cause to be filed with the Warrant Agent a certificate of the
President and Chief Financial Officer of the Company setting forth the Exercise
Price after such adjustment and setting forth in reasonable detail the method
of calculation and the facts upon which such calculations are based and setting
forth the number of Warrant Shares (or portion thereof) issuable after such
adjustment in the Exercise Price, upon exercise of a Warrant and payment of the
adjusted Exercise Price, which certificate shall be conclusive evidence of the
correctness of the matters set forth therein, provided that if the Warrant
Agent reasonably
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requests, the Company shall engage a firm of independent public accountants of
recognized standing selected by the Board of Directors of the Company (who may
be the regular auditors of the Company) to prepare and file such certificate in
lieu of the certificate of the President and Chief Financial Officer, in which
case such certificate shall be conclusive evidence of the matters set forth
therein, and (ii) cause to be given to each of the registered Holders of the
Warrant Certificates at his address appearing on the Warrant register written
notice of such adjustments by first-class mail, postage prepaid. The Warrant
Agent shall be entitled to rely on the above-referenced certificate and shall
be under no duty or responsibility with respect to any such certificate, except
to exhibit the same from time to time to any Holder desiring an inspection
thereof during reasonable business hours. The Warrant Agent shall not at any
time be under any duty or responsibility to any Holder to determine whether any
facts exist that may require any adjustment of the number of shares of Common
Stock or other stock or property issuable on exercise of the Warrants or the
Exercise Price, or with respect to the nature or extent of any such adjustment
when made, or with respect to the method employed in making such adjustment or
the validity or value (or the kind or amount) of any shares of Common Stock or
other stock or property which may be issuable on exercise of the Warrants. The
Warrant Agent shall not be responsible for any failure of the Company to make
any cash payment or to issue, transfer or deliver any shares of Common Stock or
stock certificates or other common stock or property upon the exercise of any
Warrant.
In case:
(a) the Company shall authorize the issuance to all holders
of shares of Common Stock of rights, options or warrants to subscribe
for or purchase shares of Common Stock or of any other subscription
rights or warrants, or
(b) the Company shall authorize the distribution to all
holders of shares of Common Stock of evidences of its indebtedness or
assets (other than cash dividends or cash distributions payable out of
consolidated earnings or earned surplus or dividends payable in shares
of Common Stock or distributions referred to in Section 13 hereof); or
(c) of any consolidation or merger to which the Company is a
party and for which approval of any stockholders of the Company is
required, or of the conveyance or transfer of the properties and
assets of the Company substantially as an entirety, or of any
reclassification or change of Common Stock issuable upon exercise of
the Warrants (other than a change in par value, or from par value to
no par value, or from no par value to par value, or as a result of a
subdivision or combination), or a tender offer or exchange offer for
shares of Common Stock, or
(d) of the voluntary or involuntary dissolution, liquidation
or winding up of the Company; or
(e) a Change of Control (as defined in the Indenture) occurs;
or
(f) the Company proposes to take any other action that would
require an adjustment of the Exercise Price or the number of Warrant
Shares pursuant to Section 13;
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<PAGE> 23
then the Company shall cause to be filed with the Warrant Agent and shall cause
to be given to each of the registered Holders of the Warrant Certificates at
such Holder's address appearing on the Warrant register, at least 20 days (or
10 days in any case specified in clauses (a) or (b) above) prior to the
applicable record date hereinafter specified, or promptly in the case of events
for which there is no record date, by first class mail, postage prepaid, a
written notice stating (i) the date as of which the holders of record of shares
of Common Stock entitled to receive any such rights, options, warrants or
distribution is to be determined, or (ii) the initial expiration date set forth
in any tender offer or exchange offer for shares of Common Stock, or (iii) the
date on which any such consolidation, merger, conveyance, transfer,
dissolution, liquidation or winding up or Change of Control is expected to
become effective or consummated, and the date as of which it is expected that
holders of record of shares of Common Stock shall be entitled to exchange such
shares for securities or other property, if any, deliverable upon such
reclassification, consolidation, merger, conveyance, transfer, dissolution,
liquidation or winding up or Change of Control. The failure to give the notice
required by this Section 16 or any defect therein shall not affect the legality
or validity of any distribution, right, option, warrant, consolidation, merger,
conveyance, transfer, dissolution, liquidation or winding up, or Change of
Control or the vote upon any action, provided that the Holders shall retain any
right to damages from the Company with respect to such failure. Nothing
contained in this Agreement or in any of the Warrant Certificates shall be
construed as conferring upon the Holders thereof the right to vote or to
consent or to receive notice as stockholders in respect of the meetings of
stockholders or the election of directors of the Company or any other matter,
or any rights whatsoever as stockholders of the Company.
SECTION 17. Merger, Consolidation or Change of Name of
Warrant Agent. Any corporation into which the Warrant Agent may be merged or
with which it may be consolidated, or any corporation resulting from any merger
or consolidation to which the Warrant Agent shall be a party, or any
corporation succeeding to the business of the Warrant Agent, shall be the
successor to the Warrant Agent hereunder without the execution or filing of any
paper or any further act on the part of any of the parties hereto, provided
that such corporation would be eligible for appointment as a successor warrant
agent under the provisions of Section 19. Any such successor Warrant Agent
shall promptly cause notice of its succession as Warrant Agent to be mailed (by
first class mail, postage prepaid) to each Holder at such Holder's last address
as shown on the register maintained by the Warrant Agent pursuant this
Agreement. In case at the time such successor to the Warrant Agent shall
succeed to the agency created by this Agreement, and in case at that time any
of the Warrant Certificates shall have been countersigned but not delivered,
any such successor to the Warrant Agent may adopt the countersignature of the
original Warrant Agent; and in case at that time any of the Warrant
Certificates shall not have been countersigned, any successor to the Warrant
Agent may countersign such Warrant Certificates either in the name of the
predecessor Warrant Agent or in the name of the successor to the Warrant Agent;
and in all such cases such Warrant Certificates shall have the full force and
effect in the Warrant Certificates and in this Agreement.
In case at any time the name of the Warrant Agent shall be
changed and at such time any of the Warrant Certificates shall have been
countersigned but not delivered, the Warrant Agent whose name has been changed
may adopt the countersignature under its prior name, and in case at that time
any of the Warrant Certificates shall not have been countersigned, the Warrant
Agent may countersign such Warrant Certificates either in its prior name or in
its changed name, and in all such
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<PAGE> 24
cases such Warrant Certificates shall have the full force and effect provided
in the Warrant Certificates and in this Agreement.
SECTION 18. Warrant Agent. The Warrant Agent undertakes the
duties and obligations imposed by this Agreement upon the following terms and
conditions, by all of which the Company and the Holders of Warrants, by their
acceptance thereof, shall be bound.
(a) The statements contained herein and in the Warrant
Certificates shall be taken as statements of the Company and the Warrant Agent
assumes no responsibility for the correctness of any of the same except such as
describe the Warrant Agent or action taken or to be taken by it. The Warrant
Agent assumes no responsibility with respect to the distribution of the Warrant
Certificates except as herein otherwise provided.
(b) The Warrant Agent shall not be responsible for any
failure of the Company to comply with any of the covenants contained in this
Agreement or in the Warrant Certificates to be complied with by the Company.
(c) The Warrant Agent may consult at any time with counsel
satisfactory to it (who may be counsel for the Company) and the Warrant Agent
shall incur no liability or responsibility to the Company or to any Holder of
any Warrant Certificate in respect of any action taken suffered or omitted by
it hereunder in good faith and in accordance with the opinion or the advice of
such counsel.
(d) The Warrant Agent shall incur no liability or
responsibility to the Company or to any Holder of any Warrant Certificate for
any action taken in reliance on any Warrant Certificate, certificate of shares,
notice, resolution, waiver, consent, order, certificate, or other paper,
document or instrument believed by it to be genuine and to have been signed,
sent or presented by the proper party or parties.
(e) The Company agrees to pay to the Warrant Agent reasonable
compensation for all services rendered by the Warrant Agent in the performance
of this Agreement, to reimburse the Warrant Agent for all expenses, taxes and
governmental charges and other charges of any kind and nature reasonably
incurred by the Warrant Agent in the performance of this Agreement and to
indemnify the Warrant Agent and defend and save it harmless against any and all
liabilities, including judgments, reasonable costs and counsel fees, for
anything done or omitted by the Warrant Agent in the performance of this
Agreement except as a result of its negligence or bad faith.
(f) The Warrant Agent shall be under no obligation to
institute any action, suit or legal proceeding or to take any other action
likely to involve expense unless the Company or one or more Holders of Warrant
Certificates shall furnish the Warrant Agent with reasonable security and
indemnity for any costs and expenses which may be incurred, but this provision
shall not affect the power of the Warrant Agent to take such action as it may
consider proper, whether with or without any such security and indemnity. All
rights of action under this Agreement or under any of the Warrants may be
enforced by the Warrant Agent without the possession of any of the Warrant
Certificates or the production thereof at any trial or other proceeding
relative thereto, and any such action, suit or proceeding instituted by the
Warrant Agent shall be brought in its name as Warrant Agent and any recovery of
judgment shall be for the
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<PAGE> 25
ratable benefit of the Holders of the Warrants, as their respective rights or
interests may appear.
(g) The Warrant Agent, and any stockholder, director, officer
or employee of it, may buy, sell or deal in any of the Warrants or other
securities of the Company or become pecuniarily interested in any transaction
in which the Company may be interested, or contract with or lend money to the
Company or otherwise act as fully and freely as though it were not Warrant
Agent under this Agreement. Nothing herein shall preclude the Warrant Agent
from acting in any other capacity for the Company or for any other legal
entity.
(h) The Warrant Agent shall act hereunder solely as agent for
the Company, and its duties shall be determined solely by the provisions
hereof. The Warrant Agent shall not be liable for anything which it may do or
refrain from doing in connection with this Agreement except for its own
negligence or bad faith.
(i) The Warrant Agent shall not at any time be under any duty
or responsibility to any Holder of any Warrant Certificate to make or cause to
be made any adjustment of the Exercise Price or number of the Warrant Shares or
other securities or property deliverable as provided in this Agreement, or to
determine whether any facts exist which may require any of such adjustments, or
with respect to the nature or extent of any such adjustments, when made, or
with respect to the method employed in making the same. The Warrant Agent shall
not be accountable with respect to the validity or value or the kind or amount
of any Warrant Shares or of any securities or property which may at any time be
issued or delivered upon the exercise of any Warrant or with respect to whether
any such Warrant Shares or other securities will when issued be validly issued
and fully paid and nonassessable, and makes no representation with respect
thereto.
SECTION 19. Resignation and Removal of Warrant Agent:
Appointment of Successor. No resignation or removal of the Warrant Agent and no
appointment of a successor warrant agent shall become effective until the
acceptance of appointment by the successor warrant agent as provided herein The
Warrant Agent may resign its duties and be discharged from all further duties
and liability hereunder (except liability arising as a result of the Warrant
Agent's own negligence of willful misconduct) after giving written notice to
the Company. The Company may remove the Warrant Agent upon written notice, and
the Warrant Agent shall thereupon in like manner be discharged from all further
duties and liabilities hereunder, except as aforesaid. The Warrant Agent shall,
at the Company's expense, cause to be mailed (by first class mail, postage
prepaid) to each Holder of a Warrant at his last address as shown on the
register of the Company maintained by the Warrant Agent a copy of said notice
of resignation or notice of removal, as the case may be. Upon such resignation
or removal, the Company shall appoint in writing a new warrant agent. If the
Company shall fail to make such appointment within a period of 30 days after it
has been notified in writing of such resignation by the resigning Warrant Agent
or after such removal, then the resigning Warrant Agent or the Holder of any
Warrant may apply to any court of competent jurisdiction for the appointment of
a new warrant agent. Any new warrant agent, whether appointed by the Company or
by such court, shall be a corporation doing business under the laws of the
United States or any state thereof, in good standing and having a combined
capital and surplus of not less than $50,000,000. The combined capital and
surplus of any such new warrant agent shall be deemed to be the
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<PAGE> 26
combined capital and surplus as set forth in the most recent annual report of
its condition published by such warrant agent prior to its appointment,
provided that such reports are published at least annually pursuant to law or
to the requirements of a federal or state supervising or examining authority.
After acceptance in writing of such appointment by the new warrant agent, it
shall be vested with the same powers, rights, duties and responsibilities as if
it had been originally named herein as the Warrant Agent, without any further
assurance, conveyance, act or deed; but if for any reason it shall be necessary
or expedient to execute and deliver any further assurance, conveyance, act or
deed, the same shall be done at the expense of the Company and shall be legally
and validly executed and delivered by the resigning or removed Warrant Agent.
Not later than the effective date of any such appointment, the Company shall
give notice thereof to the resigning or removed Warrant Agent. Failure to give
any notice provided for in this Section, however, or any defect therein, shall
not affect the legality or validity of the resignation of the Warrant Agent or
the appointment of a new warrant agent, as the case may be.
SECTION 20. Registration. The Company and the Warrant Agent
acknowledge that Holders shall have the registration rights set forth in the
Warrant Registration Rights Agreement.
SECTION 21. Reports.
(a) So long as any of the Warrants remain outstanding, the
Company shall cause copies of all quarterly and annual financial reports and of
the information, documents, and other reports (or copies of such portions of
any of the foregoing as the Commission may by rules and regulations prescribe)
which the Company is required to file with the Commission pursuant to Section
13 or 15(d) of the Exchange Act ("SEC Reports") to be filed with the Warrant
Agent and mailed to the Holders at their addresses appearing in the register of
the Holders maintained by the Warrant Agent, in each case, within 15 days of
filing with the Commission. If the Company is not subject to the requirements
of Section 13 or 15(d) of the Exchange Act, the Company shall nevertheless
continue to cause SEC Reports, comparable to those which it would be required
to file pursuant to Section 13 or 15(d) of the Exchange Act if it were subject
to the requirements of either such Section, to be so filed with the Commission
(but only if the Commission permits such filings) and with the Warrant Agent
and mailed to the Holders, in each case, within the same time periods as would
have applied (including under the preceding sentence) had the Company been
subject to the requirements of Section 13 or 15(d) of the Exchange Act.
(b) The Company shall provide the Warrant Agent with a
sufficient number of copies of all SEC Reports to enable the Warrant Agent to
deliver to each Holder at least one copy and to each nominee Holder at least
one copy for each beneficial holder for whom such nominee Holder holds
Warrants.
SECTION 22. Rule 144A. The Company hereby agrees with each
Holder, for so long as any Warrants that constitute Registrable Securities
remain outstanding, to make available, upon request of any Holder, to any
Holder or beneficial owner of such Warrants in connection with any sale thereof
and any prospective purchaser of such Warrants designated by such Holder or
beneficial owner, the information required by Rule 144A(d)(4) under the
Securities Act in order to permit resales of such Warrants pursuant to Rule
144A.
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SECTION 23. Notices to Company and Warrant Agent.Any notice
or demand authorized by this Agreement to be given or made by the Warrant Agent
or by any Holder to or on the Company shall be sufficiently given or made when
and if deposited in the mail, first class or registered, postage prepaid,
addressed (until another address is filed in writing by the Company with the
Warrant Agent), as follows:
HighwayMaster Communications, Inc.
16479 Dallas Parkway, Suite 710
Dallas, Texas 75248
Telephone: (972) 732-2500
Telecopy: (972) 930-7263
Attention: President
In case the Company shall fail to maintain such office or
agency or shall fail to give such notice of the location or of any change in
the location thereof, presentations may be made and notices and demands may be
served at the principal office of the Warrant Agent.
Any notice pursuant to this Agreement to be given by the
Company or by the Holders to the Warrant Agent shall be sufficiently given when
and if deposited in the mail, first-class or registered, postage prepaid,
addressed (until another address is filed in writing by the Warrant Agent with
the Company) to the Warrant Agent as follows:
Texas Commerce Bank National Association
2200 Ross Avenue, 5th Floor
Dallas, Texas 75201
Telephone: (214) 965-3510
Telecopier: (214) 965-3577
Attention: Corporate Trust Department
SECTION 24. Supplement and Amendments. The Company and the
Warrant Agent may from time to time supplement or amend this Agreement without
the approval of any Holders in order to cure any ambiguity or to correct or
supplement any provision contained herein which may be defective or
inconsistent with any other provision herein, or to make any other provisions
in regard to matters or questions arising hereunder which the Company and the
Warrant Agent may deem necessary or desirable and which shall not in any way
adversely affect the interests of the Holders. Any amendment or supplement to
this Agreement that has a material adverse effect on the interests of the
Holders shall require the written consent of the Holders representing a
majority of the then outstanding Warrants. The consent of each Holder affected
shall be required for any amendment pursuant to which the Exercise Price would
be increased or the number of Warrant Shares purchasable upon exercise of the
Warrants would be decreased (other than pursuant to adjustments provided for in
Section 13 hereof). The Warrant Agent shall be entitled to receive and, subject
to Section 18, shall be fully protected in relying upon, an officers'
certificate and opinion of counsel as conclusive evidence that any such
amendment or supplement is authorized or permitted hereunder, that it is not
inconsistent herewith, and that it will be valid and binding upon the Company
in accordance with its terms.
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SECTION 25. Successors. All the covenants and provisions of
this Agreement by or for the benefit of the Company or the Warrant Agent shall
bind and inure to the benefit of their respective successors and assigns
hereunder.
SECTION 26. Termination.This Agreement (other than any
party's obligations with respect to Warrants previously exercised and with
respect to indemnification under Section 18) shall terminate at 5:00 p.m., New
York City time on the Expiration Date.
SECTION 27. Governing Law. THIS AGREEMENT AND EACH WARRANT
CERTIFICATE ISSUED HEREUNDER SHALL BE DEEMED TO BE A CONTRACT MADE UNDER THE
LAWS OF THE STATE OF NEW YORK AND FOR ALL PURPOSES SHALL BE CONSTRUED IN
ACCORDANCE WITH THE INTERNAL LAWS OF SAID STATE.
SECTION 28. Benefits of This Agreement.
(a) Nothing in this Agreement shall be construed to give to
any Person or corporation other than the Company, the Warrant Agent and the
Holders any legal or equitable right, remedy or claim under this Agreement; but
this Agreement shall be for the sole and exclusive benefit of the Company, the
Warrant Agent and the Holders.
(b) Prior to the exercise of the Warrants, no Holder, as
such, shall be entitled to any rights of a stockholder of the Company,
including, without limitation, the right to receive dividends or subscription
rights, the right to vote, to consent, to exercise any preemptive right, to
receive any notice of meetings of stockholders for the election of directors of
the Company or any other matter or to receive any notice of any proceedings of
the Company, except as may be specifically provided for herein. Until exercise
of their Warrants, the Holders are not entitled to share in the assets of the
Company in the event of the liquidation, dissolution or winding up of the
Company's affairs.
(c) All rights of action in respect of this Agreement are
vested in the Holders, and any Holder, without the consent of the Warrant Agent
or any other Holder, may, on such Holder's own behalf and for such Holder's own
benefit, enforce, and may institute and maintain any suit, action or proceeding
against the Company suitable to enforce, or otherwise in respect of, such
Holder's rights hereunder, including the right to exercise, exchange or
surrender for purchase such Holder's Warrants in the manner provided in this
Agreement.
SECTION 29. Counterparts. This Agreement may be executed in
any number of counterparts and each of such counterparts shall for all purposes
be deemed to be an original, and all such counterparts shall together
constitute but one and the same instrument.
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IN WITNESS WHEREOF, the parties hereto have caused this Agreement to
be duly executed, as of the day and year first above written.
HIGHWAYMASTER COMMUNICATIONS, INC.
By: /s/ J. Philip McCormick
-------------------------------------
Name: J. Philip McCormick
-----------------------------------
Title: Executive Vice President
and Chief Financial Officer
----------------------------------
TEXAS COMMERCE BANK
NATIONAL ASSOCIATION
By: /s/ Gary Jones
-------------------------------------
Name: Gary Jones
-----------------------------------
Title: Vice President
----------------------------------
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EXHIBIT A
FORM OF WARRANT CERTIFICATE
[Face]
EXERCISABLE ON OR AFTER THE EXERCISABILITY DATE (AS DEFINED HEREIN).
THE WARRANTS EVIDENCED BY THIS CERTIFICATE ARE NOT TRANSFERABLE SEPARATELY FROM
THE NOTES ORIGINALLY SOLD AS A UNIT WITH SUCH WARRANTS UNTIL THE EARLIER TO
OCCUR OF (i) 180 DAYS AFTER THE ISSUANCE OF THE UNITS, (ii) SUCH DATE AS BEAR,
STEARNS & CO. INC. AND SMITH BARNEY INC. MAY, IN THEIR DISCRETION, DEEM
APPROPRIATE, (iii) IN THE EVENT A CHANGE OF CONTROL (AS DEFINED IN THE
INDENTURE RELATING TO THE NOTES) OCCURS, THE DATE THE COMPANY MAILS NOTICE
THEREOF TO HOLDERS OF THE NOTES, (iv) THE COMMENCEMENT OF THE EXCHANGE OFFER
(AS DEFINED IN THE EXCHANGE AND REGISTRATION RIGHTS AGREEMENT RELATING TO THE
NOTES), AND (v) THE EFFECTIVENESS OF THE SHELF REGISTRATION STATEMENT RELATING
TO THE NOTES PURSUANT TO THE EXCHANGE AND REGISTRATION RIGHTS AGREEMENT.
No. Warrants
---------- --------
WARRANT CERTIFICATE
HIGHWAYMASTER COMMUNICATIONS, INC.
This Warrant Certificate certifies that ____________________, or its
registered assigns, is the registered holder of Warrants expiring September 15,
2005 (the "Warrants") to purchase Common Stock, par value $.01 per share (the
"Common Stock"), of HighwayMaster Communications, Inc., a Delaware corporation
(the "Company"). Each Warrant entitles the registered holder upon exercise at
any time from 9:00 a.m. on or after the earlier to occur of (i) September 23,
1998 and (ii) in the event a Change of Control (as defined in the Indenture
relating to the Notes) occurs, the date the Company mails the notice thereof to
the registered holders of the Notes and the registered holders of the Warrants
(the "Exercisability Date") until 5:00 p.m. New York City Time on September 15,
2005, to receive from the Company 6.566 fully paid and nonassessable shares of
Common Stock (the "Warrant Shares") at the initial exercise price (the
"Exercise Price") of $9 5/8 per share payable in lawful money of the United
States of America upon surrender of this Warrant Certificate and payment of the
Exercise Price at an office or agency of the Warrant Agent, but only subject to
the conditions set forth herein and in the Warrant Agreement referred to on the
reverse side hereof. The Exercise Price and number of Warrant Shares issuable
upon exercise of the Warrants are subject to adjustment upon the occurrence of
certain events set forth in the Warrant Agreement.
No Warrant may be exercised before the Exercisability Date. No Warrant
may be exercised after 5:00 p.m., New York City Time on September 15, 2005, and
to the extent not exercised by such time such Warrants shall become void.
Reference is hereby made to the further provisions of this Warrant
Certificate set forth on the reverse side hereof and such further provisions
shall for all purposes have the same effect as though fully set forth at this
place.
This Warrant Certificate shall not be valid unless countersigned by
the Warrant Agent, as such term is used in the Warrant Agreement.
A-1
<PAGE> 31
This Warrant Certificate shall be governed by and construed in
accordance with the internal laws of the State of New York.
IN WITNESS WHEREOF, HighwayMaster Communications, Inc. has caused this
Warrant Certificate to be signed by its President and by its Secretary, each by
a signature or a facsimile thereof, and has caused a facsimile of its corporate
seal to be affixed hereunto or imprinted hereon.
Dated:
--------------
HIGHWAYMASTER COMMUNICATIONS, INC.
[SEAL]
By:
-------------------------------------
Name:
-----------------------------------
Title: President
----------------------------------
By:
-------------------------------------
Name:
-----------------------------------
Title: Secretary
----------------------------------
Countersigned:
TEXAS COMMERCE BANK
NATIONAL ASSOCIATION,
as Warrant Agent
By:
---------------------------------
Authorized Signature
A-2
<PAGE> 32
[Reverse Side]
Unless and until it is exchanged in whole or in part for Warrants in
definitive form, this Warrant may not be transferred except as a whole by the
depositary to a nominee of the depositary or by a nominee of the depositary to
the depositary or another nominee of the depositary or by the depositary or any
such nominee to a successor depositary or a nominee of such successor
depositary. The Depository Trust Company ("DTC"), 55 Water Street, New York,
New York, shall act as the depositary until a successor shall be appointed by
the Company and the Warrant Agent. Unless this certificate is presented by an
authorized representative of DTC to the issuer or its agent for registration of
transfer, exchange or payment, and any certificate issued is registered in the
name of Cede & Co. or such other name as requested by an authorized
representative of DTC (and any payment is made to Cede & Co. or such other
entity as is requested by an authorized representative of DTC), ANY TRANSFER,
PLEDGE OR OTHER USE HEREOF FOR VALUE OR OTHERWISE BY OR TO ANY PERSON IS
WRONGFUL inasmuch as the registered owner hereof, Cede & Co., has an interest
herein.(1)
THIS SECURITY HAS NOT BEEN REGISTERED UNDER THE SECURITIES ACT OF 1933, AS
AMENDED (THE "SECURITIES ACT"), OR ANY STATE SECURITIES LAWS. NEITHER THIS
SECURITY NOR ANY INTERST OR PARTICIPATION HEREIN MAY BE OFFERED, SOLD,
ASSIGNED, TRANSFERRED, PLEDGED, ENCUMBERED OR OTHERWISE DISPOSED OF IN THE
ABSENCE OF SUCH REGISTRATION OR UNLESS SUCH TRANSACTION IS EXEMPT FROM, OR NOT
SUBJECT TO, REGISTRATION.
THE HOLDER OF THIS SECURITY BY ITS ACCEPTANCE HEREOF AGREES TO (A) OFFER, SELL,
PLEDGE OR OTHERWISE TRANSFER THIS SECURITY ONLY (1) TO THE COMPANY, (2)
PURSUANT TO A REGISTRATION STATEMENT WHICH HAS BEEN DECLARED EFFECTIVE UNDER
THE SECURITIES ACT, (3) TO A PERSON IT REASONABLY BELIEVES IS A "QUALIFIED
INSTITUTIONAL BUYER" AS DEFINED IN RULE 144A IN A TRANSACTION MEETING THE
REQUIREMENTS OF RULE 144A, (4) PURSUANT TO OFFERS AND SALES TO NON-U.S. PERSONS
THAT OCCUR OUTSIDE THE UNITED STATES IN A TRANSACTION MEETING THE REQUIREMENTS
OF RULE 904 OF REGULATION S UNDER THE SECURITIES ACT, (5) TO AN INSTITUTIONAL
"ACCREDITED INVESTOR" (AS DEFINED IN RULE 501(A) (1), (2), (3) OR (7) OF
REGULATION D UNDER THE SECURITIES ACT) (AN "IAI"), THAT, PRIOR TO SUCH
TRANSFER, FURNISHES TO THE WARRANT AGENT A SIGNED LETTER CONTAINING CERTAIN
REPRESENTATIONS AND AGREEMENTS RELATING TO THE TRANSFER OF THIS SECURITY (THE
FORM OF WHICH LETTER CAN BE OBTAINED FROM THE WARRANT AGENT) AND, IN THE CASE
OF ANY TRANSFER TO ANY IAI OF SECURITIES ENTITLING THE HOLDER TO PURCHASE 656.6
OR FEWER SHARES OF COMMON STOCK, AN OPINION OF COUNSEL IF THE COMPANY SO
REQUESTS OR (6) PURSUANT TO ANY OTHER AVAILABLE EXEMPTION FROM THE REGISTRATION
REQUIREMENTS UNDER THE SECURITIES ACT (AND BASED ON AN OPINION OF COUNSEL IF
THE COMPANY SO REQUESTS), SUBJECT IN EACH OF THE FOREGOING CASES TO APPLICABLE
SECURITIES LAWS OF ANY STATE OF THE UNITED STATES OR ANY OTHER APPLICABLE
JURISDICTION AND (B) THAT IT WILL, AND EACH SUBSEQUENT HOLDER IS REQUIRED TO,
NOTIFY AND
- ------------------
(1) This paragraph is to be included only if the Warrant is in global form.
A-3
<PAGE> 33
PURCHASER FROM IT OF THE SECURITY EVIDENCED HEREBY OF THE RESALE RESTRICTIONS
SET FORTH IN (A) ABOVE.
The Warrants evidenced by this Warrant Certificate are part of a duly
authorized issue of Warrants expiring September 15, 2005, entitling the holder
on exercise to receive shares of Common Stock, par value $.01 per share, of the
Company (the "Common Stock"), and are issued or to be issued pursuant to a
Warrant Agreement, dated as of September 23, 1997 (the "Warrant Agreement"),
duly executed and delivered by the Company to Texas Commerce Bank, National
Association, as warrant agent (the "Warrant Agent"), which Warrant Agreement is
hereby incorporated by reference herein and made a part of this instrument and
is hereby referred to for a description of the rights, limitation of rights,
obligations, duties and immunities thereunder of the Warrant Agent, the Company
and the holders (the words "holders" or "holder" meaning the registered holders
or registered holder) of the Warrant. A copy of the Warrant Agreement may be
obtained by the holder hereof upon written request to the Company. Capitalized
terms used herein without definition shall have the meanings ascribed to them
in the Warrant Agreement.
Warrants may be exercised at any time from 9:00 a.m. on or after the
Exercisability Date and until 5:00 p.m., New York City Time on September 15,
2005. The holder of Warrants evidenced by this Warrant Certificate may exercise
them by surrendering this Warrant Certificate, with the form of election to
purchase set forth hereon properly completed and executed, together with
payment of the Exercise Price in lawful money of the United States of America
at the office of the Warrant Agent. In the alternative, each holder may
exercise its right to receive Warrant Shares on a net basis, such that without
the exchange of any funds, the holder receives that number of Warrant Shares
otherwise issuable upon exercise of its Warrant less that number of Warrant
Shares having a fair market value equal to the aggregate Exercise Price that
would otherwise have been paid by the holder of the Warrant Shares. In the
event that upon any exercise of Warrants evidenced hereby the number of
Warrants exercised shall be less than the total number of Warrants evidenced
hereby, there shall be issued to the holder hereof or his assignee a new
Warrant Certificate evidencing the number of Warrants not exercised. No
adjustment shall be made for any dividends on any Common Stock issuable upon
exercise of this Warrant.
The Warrant Agreement provides that upon the occurrence of certain
events the Exercise Price set forth on the face hereof and/or the number of
shares of Common Stock issuable upon the exercise of each Warrant shall,
subject to certain conditions, be adjusted. No fractions of a share of Common
Stock will be issued upon the exercise of any Warrant, but the Company will pay
the cash value thereof determined as provided in the Warrant Agreement.
The Warrant Agreement provides that the Company shall be bound by
certain registration obligations with respect to the Common Stock issuable upon
exercise of the Warrants as set forth in the Warrant Registration Rights
Agreement (as defined in the Warrant Agreement).
Warrant Certificates, when surrendered at the office of the Warrant
Agent by the registered holder thereof in person or by legal representative or
attorney duly authorized in writing, may be exchanged, in the manner and
subject to the limitations provided in the Warrant Agreement, but without
payment of any service charge, for another Warrant Certificate or Warrant
Certificates of like tenor evidencing in the aggregate a like number of
Warrants.
A-4
<PAGE> 34
Upon due presentation for registration of transfer of this Warrant
Certificate at the office of the Warrant Agent a new Warrant Certificate or
Warrant Certificates of like tenor and evidencing in the aggregate a like
number of Warrants shall be issued to the transferees in exchange for this
Warrant Certificate, subject to the limitations provided in the Warrant
Agreement, without charge except for any tax or other governmental charge
imposed in connection therewith.
The Company and the Warrant Agent may deem and treat the registered
holders hereof as the absolute owners of this Warrant Certificate
(notwithstanding any notation of beneficial ownership or other writing hereon
made by anyone), for the purpose of any exercise hereof, of any distribution to
the holders hereof, and for all other purposes, and neither the Company nor the
Warrant Agent shall be affected by any notice to the contrary. Neither the
Warrants nor this Warrant Certificate entitles any holder hereof to any rights
of a stockholder of the Company.
[Form of Election to Purchase]
(To Be Executed Upon Exercise Of Warrant)
The undersigned hereby irrevocably elects to exercise the right,
represented by this Warrant Certificate, to receive __________________shares of
Common Stock and herewith makes payment therefor. The undersigned requests that
a certificate for such shares be registered in the name of
_________________________, whose address is _________________________________
and that such shares be delivered to ___________________, whose address is
__________________________. If said number of shares is less than all of the
shares of Common Stock purchasable hereunder, the undersigned requests that a
new Warrant Certificate representing the remaining balance of such shares be
registered in the name of ______________________________, whose address is
________________________________, and that such Warrant Certificate be
delivered to ______________________, whose address is ________________________.
----------------------------
Signature
Date:
--------------------
----------------------------
Signature Guaranteed
A-5
<PAGE> 35
SCHEDULE A TO WARRANT CERTIFICATE
SCHEDULE OF INCREASES OR DECREASES IN GLOBAL WARRANT(2)
The initial number of Warrants of this Global Warrant shall be _____
Warrants. The following increases or decreases in this Global Warrant have been
made:
<TABLE>
<CAPTION>
Signature of
Number of Authorized
Decrease in Increase in Warrants of This Officer of
Number of Number of Global Warrant Warrant Agent
Date of Warrants of This Warrants of This Following Such or Warrant
Exchange Global Warrant Global Warrant Decrease or Increase Custodian
-------- --------------- --------------- -------------------- --------------
<S> <C> <C> <C> <C>
</TABLE>
- --------------------------
(2) This schedule should be included only if the Warrant is issued in global
form.
A-6
<PAGE> 36
EXHIBIT B
CERTIFICATE TO BE DELIVERED UPON EXCHANGE OR REGISTRATION
OF TRANSFER OF WARRANTS
Re:______________________ Warrants to Purchase Common Stock (the "Warrants") of
HighwayMaster Communications, Inc. (the "Company")
This Certificate relates to __________ Warrants held in [ ] book-entry
or [ ] definitive form by ________________________ (the "Transferor").
Capitalized terms used herein without definition shall have the meanings
ascribed to them in the Warrant Agreement between the Company and the Warrant
Agent.
The Transferor:
[ ] has requested the Warrant Agent by written order to deliver in
exchange for its beneficial interest in the Global Warrants held by the
depositary a Warrant or Warrants in definitive, registered form equal to its
beneficial interest in such Global Warrant (or the portion thereof indicated
above); or
[ ] has requested the Warrant Agent by written order to exchange or
register the transfer of a Warrant or Warrants.
[ ] In connection with such request and in respect of each such Warrant,
the Transferor does hereby certify that the Transferor is familiar with the
Warrant Agreement relating to the above captioned Warrants and that:
[ ] Such Warrant is being acquired for the Transferor's own account
without transfer.
[ ] Such Warrant is being transferred (i) to a "qualified institutional
buyer" (as defined in Rule 144A under the Securities Act) in accordance with
Rule 144A under the Securities Act or (ii) pursuant to an effective
registration statement under the Securities Act.
[ ] Such Warrant is being transferred to an institutional "accredited
investor" within the meaning of Rule 501(a)(1), (2), (3) or (7) under the
Securities Act pursuant to a private placement exemption from the registration
requirements of the Securities Act (and based on an opinion of counsel if the
Company so requests in the case of a transfer of Warrants to purchase 656.6 or
fewer shares).
[ ] Such Warrant is being transferred pursuant to an exemption from
registration in accordance with Rule 904 under the Securities Act, provided
that the Transferor understands that any Warrants issued pursuant to Regulation
S under the Securities Act may only be transferred in accordance with the
provisions of Regulation S.
[ ] Such Warrant is being transferred in reliance on another exemption
from the registration requirements of the Securities Act (and based on an
opinion of counsel if the Company so requests).
B-1
<PAGE> 37
[INSERT NAME OF TRANSFEROR]
By:
----------------------------
Name:
--------------------------
Title:
-------------------------
Date:
---------------------
B-2
<PAGE> 1
EXHIBIT 4.9
WARRANT REGISTRATION RIGHTS AGREEMENT
This Warrant Registration Rights Agreement (this "Agreement") is made
and entered into as of September 23, 1997 by and among HighwayMaster
Communications, Inc., a Delaware corporation (the "Company"), Bear, Stearns &
Co. Inc. ("Bear Stearns"), and Smith Barney Inc. ("Smith Barney"). Bear
Stearns and Smith Barney are hereafter referred to collectively as the
"Purchasers."
Pursuant to the Purchase Agreement, dated September 18, 1997, (the
"Purchase Agreement"), by and among the Company, HighwayMaster Corporation, a
Delaware corporation, and the Purchasers, the Purchasers have agreed to
purchase 125,000 units consisting in part of warrants (the "Warrants") to
purchase shares of the Company's common stock, par value $.01 per share (the
"Common Stock").
In order to induce the Purchasers to purchase the units, the Company
has agreed to provide the registration rights set forth in this Agreement for
the benefit of (i) the Purchasers, and (ii) the Persons owning a beneficial
interest in the Warrants (the "Holders"). The execution and delivery of this
Agreement is a condition to the obligations of the Purchasers set forth in
Section 9 of the Purchase Agreement.
The parties hereby agree as follows:
SECTION 1. DEFINITIONS
As used in this Agreement, the following capitalized terms shall have
the following meanings:
Act: The Securities Act of 1933, as amended.
Advice: As defined in Section 7(b).
Affiliate: Affiliate of any specified Person means any other Person
which, directly or indirectly, is in control of, is controlled by, or is under
common control with such specified Person. For purposes of this definition,
control of a Person means the power, direct or indirect, to direct or cause the
direction of the management and policies of such Person whether by contract or
otherwise; and the terms "controlling" and "controlled" have meanings
correlative to the foregoing.
Agreement: As defined in the preamble hereto.
Bear Stearns: As defined in the preamble hereto.
Business Day: Any day except a Saturday, Sunday or other day in the
City of New York on which banks are authorized to close.
Closing Date: The date of this Agreement.
Commission: The Securities and Exchange Commission.
Common Stock: As defined in the preamble hereto.
Exchange Act: The Securities Exchange Act of 1934, as amended.
Holders: As defined in the preamble hereto.
<PAGE> 2
Managing Underwriters: As defined in Section 9 hereof.
Majority Holders: The Holders of a majority of the aggregate number of
outstanding Warrants.
NASD: National Association of Securities Dealers, Inc.
Person: An individual, partnership, corporation, limited liability
company, joint venture, association, trust or other organization whether or not
a legal entity, or a government or agency or political subdivision thereof.
Prospectus: The prospectus included in the Shelf Registration
Statement, as amended or supplemented by any prospectus supplement and by all
other amendments thereto, including post-effective amendments, and all material
incorporated by reference into such prospectus.
Purchase Agreement: As defined in the preamble hereto.
Purchasers: As defined in the preamble hereto.
Registrable Securities: The Warrants until resold by the Holders
thereof pursuant to the Shelf Registration Statement and the Warrant Shares
until issued by the Company pursuant to the Shelf Registration Statement.
Shelf Registration: The shelf registration effected pursuant to
Section 2 hereof.
Shelf Registration Statement: The shelf registration statement of the
Company pursuant to Section 2 hereof filed with the Commission which covers the
Registrable Securities, as applicable, on an appropriate form under Rule 415
under the Securities Act, or any similar rule that may be adopted by the
Commission, 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.
Smith Barney: As defined in the preamble hereto.
Underwriter: Any underwriter in connection with an Underwritten
Offering.
Underwritten Offering: An offering in which Warrants are sold to an
underwriter.
Warrants: As defined in the preamble hereto.
Warrant Agent: Texas Commerce Bank, National Association, as warrant
agent.
Warrant Agreement: The Warrant Agreement, dated as of the Closing
Date, between the Company and the Warrant Agent.
Warrant Shares: The shares of Common Stock issuable upon exercise of
the Warrants.
2
<PAGE> 3
SECTION 2. SHELF REGISTRATION STATEMENT
(a) Filing of a Shelf Registration Statement. The Company
shall (i) within 270 days following the Closing Date, file with the Commission
the Shelf Registration Statement relating to the resale of the Warrants by the
Holders thereof from time to time in accordance with the methods of
distribution elected by the Majority Holders and set forth in the Shelf
Registration Statement and the issuance of the Warrant Shares by the Company
upon the exercise of the Warrants in accordance with the terms of the Warrant
Agreement (including securities deemed registered pursuant to Rule 416 under
the Securities Act), and thereafter, (ii) use its best efforts to cause the
Shelf Registration Statement to be declared effective under the Securities Act
within 365 days following the Closing Date; provided that no Holder shall be
entitled to have its Warrants covered by the Shelf Registration Statement
unless such Holder is in compliance with Section 3 hereof.
(b) Effective Period. Subject to Section 4 hereof, the
Company shall use its best efforts (i) to keep the Shelf Registration Statement
continuously effective in order to permit the Prospectus forming part thereof
to be usable during a period from the date the Shelf Registration Statement is
declared effective to the earlier of (A) the expiration of the Warrants, and
(B) the time when all Warrants have been exercised, and (ii) after the
effectiveness of the Shelf Registration Statement, promptly upon the request of
any Holder to take any action reasonably necessary to register the sale of any
Warrants of such Holder and to identify such Holder as a selling
securityholder.
SECTION 3. HOLDER INFORMATION
No Holder of Registrable Securities may include any of its Registrable
Securities in the Shelf Registration Statement pursuant to this Agreement
unless and until such Holder furnishes to the Company in writing such
information as the Company may reasonably request specified in Item 507 and
Item 508 of Regulation S-K under the Act for use in connection with the Shelf
Registration Statement or Prospectus or preliminary Prospectus included
therein. Each Holder agrees to furnish promptly to the Company all information
required to be disclosed in order to make the information previously furnished
to the Company by such Holder not materially misleading.
SECTION 4. BLACK OUT PERIOD
During any consecutive 365 day period, the Company may suspend the
effectiveness of the Shelf Registration Statement on two occasions for a period
of not more than 45 consecutive days if there is a possible acquisition or
business combination or other transaction, business development or event
involving the Company that may require disclosure in the Shelf Registration
Statement and the Board of Directors of the Company determines in the exercise
of its reasonable judgment that such disclosure is not in the best interests of
the Company and its stockholders or obtaining any financial statements relating
to an acquisition or business combination required to be included in the Shelf
Registration Statement would be impracticable. In such a case, the Company
shall promptly notify the Holders of the suspension of the Shelf Registration
Statement's effectiveness, provided that such notice shall not require the
Company to disclose the possible acquisition or business combination or other
transaction, business development or event if the Board of
3
<PAGE> 4
Directors of the Company determines in good faith that such acquisition or
business combination or other transaction, business development or event should
remain confidential. Upon the abandonment, consummation, or termination of the
possible acquisition or business combination or other transaction, business
development or event, or the availability of the required financial statements
with respect to a possible acquisition or business combination, the suspension
of the use of the Shelf Registration Statement pursuant to this Section 4 shall
cease and the Company shall promptly comply with Section 5(a)(ii) hereof and
notify the Holders that disposition of Registrable Securities may be resumed.
Notwithstanding anything to the contrary in this Agreement, however, the
Company may not suspend the effectiveness of the Shelf Registration Statement
or permit any such suspension to continue at any time after 45 days before the
expiration of the Warrants.
SECTION 5. REGISTRATION PROCEDURES
(a) General Provisions. In connection with the Shelf Registration
Statement and any related Prospectus, the Company shall:
(i) Use its best efforts to keep the Shelf
Registration Statement continuously effective and provide all
requisite financial statements for the period specified in Section 2
hereof; upon the occurrence of any event that would cause the Shelf
Registration Statement or the Prospectus contained therein (A) to
contain a material misstatement or omission or (B) not to be effective
and usable during the period required by this Agreement, the Company
shall file promptly an appropriate amendment to the Shelf Registration
Statement, in the case of clause (A), correcting any such misstatement
or omission, and, in the case of either clause (A) or (B), use its
best efforts to cause such amendment to be declared effective and the
Shelf Registration Statement and the related Prospectus to become
usable for their intended purposes as soon as reasonably practicable
thereafter;
(ii) Prepare and file with the Commission such
amendments and post-effective amendments to the Shelf Registration
Statement as may be necessary to keep the Shelf Registration Statement
effective for the period set forth in Section 2 hereof, subject to
Section 4 hereof, the Prospectus to be supplemented by any required
Prospectus supplement, and as so supplemented to be filed pursuant to
Rule 424 under the Act, and to comply fully with the applicable
provisions of Rules 424 and 430A under the Act in a timely manner; and
comply with the provisions of the Act with respect to the disposition
of all Registrable Securities covered by the Shelf Registration
Statement in accordance with the intended method or methods of
distribution set forth in the Shelf Registration Statement or
supplement to the Prospectus;
(iii) Advise promptly the Underwriters, if any, and
Holders and, if requested by such Persons, to confirm such advice in
writing, (A) when the Shelf Registration Statement or any Prospectus
supplement or post-effective amendment has been filed, and with
respect to or any post-effective amendment, when the same has become
effective, (B) of any request by the Commission for amendments to the
Shelf Registration Statement or amendments or supplements to the
Prospectus or for additional information relating thereto, (C) of the
issuance by the
4
<PAGE> 5
Commission of any stop order suspending the effectiveness of the Shelf
Registration Statement under the Act or of the suspension by any state
securities commission of the qualification of the Registrable
Securities for offering or sale in any jurisdiction, or the initiation
of any proceeding for any of the preceding purposes or (D) of the
existence of any fact or the happening of any event that makes any
statement of a material fact made in the Shelf Registration Statement,
the Prospectus, any amendment or supplement thereto, or any document
incorporated by reference therein untrue, or that requires the making
of any additions to or changes in the Shelf Registration Statement or
the Prospectus in order to make the statements of material fact
therein not misleading; if at any time the Commission shall issue any
stop order suspending the effectiveness of the Shelf Registration
Statement, or any state securities commission or other regulatory
authority shall issue an order suspending the qualification or
exemption from qualification of the Registrable Securities under state
securities or Blue Sky laws, the Company shall use its best efforts to
obtain the withdrawal or lifting of such order at the earliest
practicable time;
(iv) Furnish to the Purchasers, each Holder, and
each of the Underwriters in connection with such sale, if any, before
filing with the Commission, copies of the Shelf Registration Statement
or the Prospectus included therein and any amendments or supplements
to such Shelf Registration Statement or Prospectus (including all
documents incorporated by reference), which documents will be subject
to the review of such Holders and Underwriters in connection with such
sale, if any, for a period of at least five Business Days, and the
Company will not file the Shelf Registration Statement or Prospectus
or any amendment or supplement to the Shelf Registration Statement or
Prospectus (including all documents incorporated by reference) to
which a Holder or the Underwriters in connection with such sale, if
any, shall reasonably object within five Business Days after the
receipt thereof; a Holder or Underwriter, if any, shall be deemed to
have reasonably objected to such filing if the Shelf Registration
Statement, amendment, Prospectus or supplement, as applicable, as
proposed to be filed, contains a material misstatement or omission or
fails to comply with the applicable requirements of the Act;
(v) Promptly prior to the filing of any document
that is to be incorporated by reference into the Shelf Registration
Statement or Prospectus, if requested by any Holders or the
Underwriters, if any, within five Business Days after receipt of
notification thereof from the Company, provide copies of such document
to the Holders and to the Underwriters, if any, make the Company's
representatives available for discussion of such document and other
customary due diligence matters, and include such information in such
document prior to the filing thereof as such Holders or Underwriters,
if any, reasonably may request;
(vi) Make available at reasonable times for
inspection by the Majority Holders, any Managing Underwriter
participating in any disposition pursuant to the Shelf Registration
Statement, and any attorney or accountant retained by the Majority
Holders or any of the Underwriters, all financial and other records,
pertinent corporate documents and properties of the Company and cause
the Company's officers, directors and employees to supply all
information reasonably requested by any such Majority Holder,
Underwriter, attorney or
5
<PAGE> 6
accountant in connection with the Shelf Registration Statement
subsequent to the filing thereof and prior to its effectiveness;
(vii) If requested by any Holders or the
Underwriters in connection with such sale, if any, promptly include in
the Shelf Registration Statement or Prospectus, pursuant to a
supplement or post-effective amendment if necessary, such information
as such Holders and such Underwriters, if any, may reasonably request
to have included therein, including, without limitation, information
relating to the "Plan of Distribution" of the Registrable Securities;
and make all required filings of such Prospectus supplement or
post-effective amendment as soon as practicable after the Company is
notified of the matters to be included in such Prospectus supplement
or post-effective amendment;
(viii) Furnish to each Holder and each of the
Underwriters, if any, without charge, at least one copy of the Shelf
Registration Statement, as first filed with the Commission, and of
each amendment thereto, including all documents incorporated by
reference therein and all exhibits (including exhibits incorporated
therein by reference);
(ix) Deliver to each Holder and each of the
Underwriters in connection with such sale, if any, without charge, as
many copies of the Prospectus (including each preliminary Prospectus)
and any amendment or supplement thereto as such Persons may request;
the Company hereby consents to the use of the Prospectus and any
amendment or supplement thereto by each of the Holders and each of the
Underwriters, if any, in connection with the offering and the sale of
the Registrable Securities covered by the Prospectus or any amendment
or supplement thereto;
(x) In connection with an Underwritten Offering of
Registrable Securities pursuant to the Shelf Registration Statement,
enter into an underwriting agreement as is customary in Underwritten
Offerings and take all such other actions as are reasonably requested
by the Managing Underwriters in order to expedite or facilitate the
registration or the disposition of such Registrable Securities, and in
such connection, (A) make such representations and warranties to the
Underwriters, with respect to the business of the Company and its
subsidiaries, and the Shelf Registration Statement, Prospectus and
documents, if any, incorporated or deemed to be incorporated by
reference therein, in each case, as are customarily made by issuers to
Underwriters in Underwritten Offerings, and confirm the same if and
when requested; (B) obtain an opinion of outside counsel to the
Company and updates thereof in form and substance reasonably
satisfactory to the Managing Underwriters, addressed to the
Underwriters covering the matters customarily covered in opinions
requested in Underwritten Offerings and such other matters as may be
reasonably requested by the Underwriters, including a statement to the
effect that such counsel has participated in conferences with officers
and other representatives of the Company, representatives of the
independent public accountants for the Company, and such other Persons
as may participate in such conferences at which the contents of such
Shelf Registration Statement and related Prospectus were discussed,
and although such counsel has not undertaken to investigate or
independently verify and does not assume any responsibility for the
accuracy, completeness, or fairness of the statements therein, such
counsel
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<PAGE> 7
advises that (relying as to materiality to a large extent upon facts
provided to such counsel by officers and other representatives of the
Company and without independent check or verification), no facts came
to such counsel's attention that caused such counsel to believe that
the Shelf Registration Statement and related Prospectus, at the time
that the Shelf Registration Statement became effective, contained an
untrue statement of material fact or omitted to state a material fact
required to be stated therein or necessary to make the statements
therein not misleading; (C) obtain comfort letters and updates thereof
in form and substance reasonably satisfactory to the Managing
Underwriters from the independent certified public accountants of the
Company; and (D) if an underwriting agreement is entered into, the
same shall contain indemnification and contribution provisions and
procedures no less favorable than those set forth in Section 7 hereof
with respect to all parties to be indemnified pursuant to Section 7.
The above shall be done at each closing under such underwriting
agreement. In addition, notwithstanding anything herein to the
contrary, in connection with any other offering of Registrable
Securities pursuant to the Shelf Registration Statement, the Company
shall obtain those items specified in clause (C) of the foregoing
sentence concurrently with the effectiveness of the Shelf Registration
Statement and any post-effective amendments thereto;
(xi) Prior to any public offering of Registrable
Securities, cooperate with the Holders, the Underwriters, if any, and
their respective counsel in connection with the registration and
qualification of the Registrable Securities under the securities or
Blue Sky laws of such jurisdictions as the Holders or Underwriters, if
any, may request and do any and all other acts or things necessary or
advisable to enable the disposition in such jurisdictions of the
Registrable Securities covered by the Shelf Registration Statement;
provided however, that the Company shall not be required to register
or qualify as a foreign corporation where it is not now so qualified
or to take any action that would subject it to service of process in
suits or to taxation in any jurisdiction where it is not now so
subject;
(xii) Cooperate with the Holders and the
Underwriters, if any, to facilitate the timely preparation and
delivery of certificates representing Registrable Securities to be
sold and not bearing any restrictive legends; and to register such
Registrable Securities in such denominations and such names as the
Holders or the Underwriters, if any, may request at least two Business
Days prior to such sale of Registrable Securities made by such
Underwriters;
(xiii) Use its best efforts to cause the
Registrable Securities covered by the Shelf 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 Underwriters, if any, to consummate the disposition of
such Registrable Securities, except as may be required solely as a
consequence of the nature of such seller's business (in which case
the Company will cooperate in all reasonable respects);
(xiv) If any fact or event contemplated by Section
5(a)(iii)(D) above shall exist or have occurred, prepare a supplement
or post-effective amendment to the Shelf Registration Statement or
related Prospectus or any document incorporated therein by reference
or file any other required document so that, as
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<PAGE> 8
thereafter delivered to the purchasers of Registrable Securities, the
Prospectus will not contain an untrue statement of a material fact or
omit to state any material fact necessary to make the statements
therein not misleading;
(xv) Provide a CUSIP number for all Registrable
Securities not later than the effective date of the Shelf Registration
Statement if such Registrable Securities do not already have a CUSIP
number;
(xvi) Cooperate and assist in any filings required
to be made with the NASD and in the performance of any due diligence
investigation by any Underwriter (including any "qualified independent
underwriter") that is required to be retained in accordance with the
rules and regulations of the NASD;
(xvii) Otherwise use its best efforts to comply with
all applicable rules and regulations of the Commission, and make
generally available to Holders, as soon as reasonably practicable, a
consolidated earnings statement meeting the requirements of Rule 158
under the Act (which need not be audited) covering a twelve month
period (A) beginning at the end of any fiscal quarter in which
Registrable Securities are sold to Underwriters in a firm or best
efforts Underwritten Offering or (B) if not sold to Underwriters in
such an offering, commencing with the first month of the Company's
first fiscal quarter commencing after the effective date of the Shelf
Registration Statement;
(xviii) Provide promptly to each Holder upon request
each document filed with the Commission pursuant to the requirements
of Section 13 or Section 15 of the Exchange Act;
(xix) In the event that any broker-dealer
registered under the Exchange Act shall underwrite any Registrable
Securities or participate as a member of an underwriting syndicate or
selling group or "assist in the distribution" (within the meaning of
the Rules of Fair Practice and the By-Laws of the NASD, including
Schedule E thereto) thereof, whether as a Holder of such Registrable
Securities or as an underwriter, a placement or sales agent or a
broker or dealer in respect thereof, or otherwise, assist such
broker-dealer in complying with the requirements of such Rules and
By-Laws, including, without limitation, by (A) engaging a "qualified
independent underwriter" (as defined in Schedule E) to participate in
the preparation of the Shelf Registration Statement relating to such
Registrable Securities and to exercise usual standards of due
diligence in respect thereto, (B) indemnifying any such qualified
independent underwriter to the same extent as the Company indemnifies
the Holders under Section 7 hereof, and (C) providing such
information to such broker-dealer as may be required in order for
such broker-dealer to comply with the requirements of the Rules of
Fair Practice of the NASD; and
(xx) Use its best efforts to cause all
Registrable Securities covered by the Shelf Registration Statement to
be listed on each securities exchange on which similar securities
issued by the Company are then listed if requested by the Majority
Holders or the Managing Underwriters, if any.
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<PAGE> 9
(b) Restrictions on Holders. Each Holder agrees by acquisition of
a Registrable Security that, upon receipt of any notice from the Company of the
existence of any fact of the kind described in Section 5(a)(iii)(D) hereof,
such Holder will forthwith discontinue disposition of Registrable Securities
pursuant to the Shelf Registration Statement until such Holder's receipt of the
copies of the supplemented or amended Prospectus contemplated by Section
5(a)(xiv) hereof, or until it is advised in writing (the "Advice") by the
Company that the use of the Prospectus may be resumed, and has received copies
of any additional or supplemental filings that are incorporated by reference in
the Prospectus. If so directed by the Company, each Holder will deliver to the
Company (at the Company's expense) all copies, other than permanent file copies
then in such Holder's possession, of the Prospectus covering such Registrable
Securities that was current at the time of receipt of such notice.
SECTION 6. REGISTRATION EXPENSES
(a) Company Expenses. All expenses incident to the Company's
performance of or compliance with this Agreement will be borne by the Company,
regardless of whether the Shelf Registration Statement becomes effective,
including without limitation: (i) all registration and filing fees and expenses
(including filings made by any Underwriter or Holder with the NASD (and, if
applicable, the fees and expenses of any "qualified independent underwriter"
and its counsel that may be required by the rules and regulations of the
NASD)), (ii) all fees and expenses incurred in connection with compliance with
federal securities and state Blue Sky or securities laws, (iii) all expenses of
printing (including printing certificates for the Warrant Shares and printing
of Prospectuses), messenger and delivery services and telephone, (iv) all fees
and disbursements of counsel for the Company, and in accordance with Section
6(b) below, the Holders, (v) if applicable, all application and filing fees in
connection with listing Registrable Securities on a national securities
exchange or automated quotation system pursuant to the requirements hereof, and
(vi) all fees and disbursements of independent certified public accountants of
the Company (including the expenses of any special audit and comfort letters
required by or incident to such performance).
The Company will bear internal expenses (including, without
limitation, all salaries and expenses of its officers and employees performing
legal or accounting duties), the expenses of any annual audit and the fees and
expenses of any Person, including special experts, retained by the Company.
(b) Counsel for Holders. In connection with the Shelf Registration
Statement, the Company will reimburse the Purchasers and the Holders for the
reasonable fees and disbursements of not more than one counsel, which shall be
Akin, Gump, Strauss, Hauer & Feld, L.L.P. or such other counsel as may be
chosen by the Majority Holders. The Holders shall be responsible for any of
their other out-of-pocket expenses incurred in connection with the registration
of the sale of their Registrable Securities.
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<PAGE> 10
SECTION 7. INDEMNIFICATION
(a) Indemnification by the Company. The Company agrees to indemnify
and hold harmless, to the fullest extent permitted by law, each of the Holders,
each Person, if any, who controls any Holder within the meaning of Section 15
of the Act or Section 20(a) of the Exchange Act and the respective officers,
directors, partners, employees, representatives and agents of each Holder or
any controlling Person, against any and all losses, liabilities, claims,
damages and expenses whatsoever (including but not limited to attorneys' fees
and any and all expenses whatsoever incurred in investigating, preparing or
defending against any litigation, commenced or threatened, or any claim
whatsoever, and any and all amounts paid in settlement of any claim or
litigation), joint or several, to which they or any of them may become subject
under the Act, the Exchange Act or otherwise, insofar as such losses,
liabilities, claims, damages or expenses (or actions in respect thereof) arise
out of or are based upon any untrue statement or alleged untrue statement of a
material fact contained in the Shelf Registration Statement or Prospectus, or
in any supplement thereto or amendment thereof, or arise out of or are based
upon the omission or alleged omission to state therein a material fact required
to be stated therein or necessary to make the statements therein, in the light
of the circumstances under which they were made, not misleading; provided,
however, that the Company will not be liable in any such case to the extent,
but only to the extent, that any such loss, liability, claim, damage or expense
arises out of or is based upon any such untrue statement or alleged untrue
statement or omission or alleged omission made therein in reliance upon and in
conformity with written information furnished to the Company by or on behalf of
any Holders expressly for use therein. This indemnity will be in addition to
any liability which the Company may otherwise have, including, under this
Agreement.
(b) Indemnification by the Holders. Each of the Holders agrees,
severally and not jointly, to indemnify and hold harmless the Company, each
Person, if any, who controls the Company within the meaning of Section 15 of
the Act or Section 20(a) of the Exchange Act and the respective officers,
directors, partners, employees, representatives and agents of the Company or
any such controlling Person, against any and all losses, liabilities, claims,
damages and expenses whatsoever (including but not limited to attorneys' fees
and any and all expenses whatsoever incurred in investigating, preparing or
defending against any litigation, commenced or threatened, or any claim
whatsoever and any and all amounts paid in settlement of any claim or
litigation), joint or several, to which they or any of them may become subject
under the Act, the Exchange Act or otherwise, insofar as such losses,
liabilities, claims, damages or expenses (or actions in respect thereof) arise
out of or are based upon any untrue statement or alleged untrue statement of a
material fact contained in the Shelf Registration Statement or Prospectus, or
in any amendment thereof or supplement thereto, or arise out of or are based
upon the omission or alleged omission to state therein a material fact required
to be stated therein or necessary to make the statements therein, in light of
the circumstances under which they were made, not misleading in each case to
the extent, but only to the extent, that any such loss, liability, claim,
damage or expense arises out of or is based upon any untrue statement or
alleged untrue statement or omission or alleged omission made therein in
reliance upon and in conformity with written information furnished to the
Company by or on behalf of such Holder expressly for use therein; provided,
however, that in no case shall any Holder be liable or responsible for any
amount in excess of the dollar amount of the proceeds received by such Holder
upon the sale of the Registrable Securities giving rise to such indemnification
obligation. This indemnity will be in addition to any liability which any
Holder may otherwise have, including under this Agreement.
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<PAGE> 11
(c) Indemnification Procedure. Promptly after receipt by an
indemnified party under subsection (a) or (b) above of notice of the
commencement of any action, such indemnified party shall, if a claim in respect
thereof is to be made against the indemnifying party under such subsection,
notify each party against whom indemnification is to be sought in writing of
the commencement thereof (but the failure so to notify an indemnifying party
shall not relieve it from any liability which it may have under this Section 7
except to the extent that it has been prejudiced in any material respect by
such failure or from any liability which it may otherwise have). In case any
such action is brought against any indemnified party, and it notifies an
indemnifying party of the commencement thereof, the indemnifying party will be
entitled to participate therein, and to the extent it may elect by written
notice delivered to the indemnified party promptly after receiving the
aforesaid notice from such indemnified party, to assume the defense thereof
with counsel reasonably satisfactory to such indemnified party. Notwithstanding
the foregoing, the indemnified party or parties shall have the right to employ
its or their own counsel in any such case, but the fees and expenses of such
counsel shall be at the expense of such indemnified party or parties unless (i)
the employment of such counsel shall have been authorized in writing by the
indemnifying parties in connection with the defense of such action, (ii) the
indemnifying parties shall not have employed counsel to take charge of the
defense of such action within a reasonable time after notice of commencement of
the action, or (iii) such indemnified party or parties shall have concluded,
upon the advice of counsel, that there may be defenses available to it or them
which are different from or additional to those available to one or all of the
indemnifying parties (in which case the indemnifying parties shall not have the
right to direct such different or additional defenses on behalf of the
indemnified party or parties, but shall retain the right to direct any common
defenses) in any of which events such fees and expenses of counsel shall be
borne by the indemnifying parties; provided, however, that the indemnifying
party under subsection (a) or (b) above, shall only be liable for the legal
expenses of one counsel (in addition to any local counsel) for all indemnified
parties in each jurisdiction in which any claim or action is brought. Anything
in this subsection to the contrary notwithstanding, an indemnifying party shall
not be liable for any settlement of any claim or action effected without its
written consent.
(d) Contribution. In order to provide for contribution in
circumstances in which the indemnification provided for in this Section 7 is
for any reason held to be unavailable or is insufficient (other than by reason
of the terms thereof) to hold harmless a party indemnified hereunder, the
Company, on the one hand, and each Holder, on the other hand, shall contribute
to the aggregate losses, claims, damages, liabilities and expenses of the
nature contemplated by such indemnification provision (including any
investigation, legal and other expenses incurred in connection with, and any
amount paid in settlement of, any action, suit or proceeding or any claims
asserted, but after deducting in the case of losses, claims, damages,
liabilities and expenses suffered by the Company any contribution received by
the Company from Persons, other than the Holders, who may also be liable for
contribution, including Persons who control the Company within the meaning of
Section 15 of the Act or Section 20(a) of the Exchange Act) to which the
Company and any Holder may be subject, in such proportion as is appropriate to
reflect the relative benefits received by the Company, on the one hand, and any
such Holder, on the other hand, or, if such allocation is not permitted by
applicable law or if indemnification is not available as a result of the
indemnifying party not having received notice as provided in this Section 7, in
such proportion as is appropriate to reflect not only the relative benefits
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<PAGE> 12
referred to above but also the relative fault of the Company, on the one hand,
and the Holders, on the other hand, in connection with the statements or
omissions which resulted in such losses, claims, damages, liabilities or
expenses, as well as any other relevant equitable considerations. The relative
benefits received by the Company, on the one hand, and any Holder, on the other
hand, shall be deemed to be in the same proportion as (x) the total proceeds
from the offering of the Units (net of discounts but before deducting expenses)
received by the Company and (y) the total proceeds received by such Holder upon
its sale of Registrable Securities which would otherwise give rise to the
indemnification obligation, respectively. The relative fault of the Company and
the Holders shall be determined by reference to, among other things, whether
the untrue or alleged untrue statement of a material fact or the omission or
alleged omission to state a material fact relates to information supplied or
which should have been supplied by the Company, on the one hand, or to
information supplied by the Holders, on the other hand, and the parties'
relative intent, knowledge, access to information and opportunity to correct or
prevent such statement or omission. The Company and each Holder agree that it
would not be just and equitable if contribution pursuant to this Section 7 were
determined by pro rata allocation or by any other method of allocation which
does not take into account the equitable considerations referred to above.
Notwithstanding the provisions of this Section 7, (i) no Holder shall be
required to contribute, in the aggregate, any amount in excess of the dollar
amount by which the proceeds received by such Holder with respect to the sale
of its Registrable Securities exceeds the amount of any damages which such
Holder has otherwise been required to pay by reason of such untrue statement or
alleged untrue statement or omission or alleged omission and (ii) no Person
guilty of fraudulent misrepresentation (within the meaning of Section 11(f) of
the Act) shall be entitled to contribution from any Person who was not guilty
of such fraudulent misrepresentation. For purposes of this Section 7, each
Person, if any, who controls a Holder within the meaning of Section 15 of the
Act or Section 20(a) of the Exchange Act and the respective officers,
directors, partners, employees, representatives and agents of a Holder or any
controlling Person shall have the same rights to contribution as such Holder,
and each Person, if any, who controls the Company within the meaning of Section
15 of the Act or Section 20(a) of the Exchange Act and the respective officers,
directors, partners, employees, representatives and agents of the Company, or
any such controlling Person shall have the same rights to contribution as the
Company, subject in each case to clauses (i) and (ii) of this Section 7(d). Any
party entitled to contribution will, promptly after receipt of notice of
commencement of any action, suit or proceeding against such party in respect of
which a claim for contribution may be made against another party or parties
under this Section 7, notify such party or parties from whom contribution may
be sought, but the failure to so notify such party or parties shall not relieve
the party or parties from whom contribution may be sought from any obligation
it or they may have under this Section 7 or otherwise.
SECTION 8. UNDERWRITTEN REGISTRATIONS
No Holder may participate in any Underwritten Registration hereunder
unless such Holder (a) agrees to sell such Holder's Registrable Securities on
the basis provided in any underwriting arrangements approved by the Persons
entitled hereunder to approve such arrangements and (b) completes and executes
all reasonable questionnaires, powers of attorney, indemnities, underwriting
agreements, lock-up letters and other documents required under the terms of
such underwriting arrangements.
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SECTION 9. SELECTION OF UNDERWRITERS
The Majority Holders may elect to sell their Warrants in an
Underwritten Offering by notifying the Company. Within 30 days after receiving
such notification, the Company shall amend the Shelf Registration Statement to
provide for the requested Underwritten Offering. In any such Underwritten
Offering the investment banker or investment bankers and manager or managers
that will administer the offering will be selected by the Majority Holders;
provided, that such investment bankers and managers must be reasonably
satisfactory to the Company (it being understood that Bear Stearns and Smith
Barney are reasonably satisfactory); such investment bankers and manager or
managers are referred to herein as the "Managing Underwriters."
SECTION 10. MISCELLANEOUS
(a) Remedies. The Company agrees that monetary damages would not be
adequate compensation for any loss incurred by reason of a breach by it of the
provisions of this Agreement and hereby agrees to waive the defense in any
action for specific performance that a remedy at law would be adequate.
(b) No Inconsistent Agreements. The Company will not on or after the
date of this Agreement enter into any agreement with respect to its securities
that is inconsistent with the rights granted to the Holders in this Agreement
or otherwise conflicts with the provisions hereof. The Company represents and
warrants that the rights granted to the Holders hereunder do not in any way
conflict with and are not inconsistent with the rights granted to the holders
of the Company's securities under any agreement in effect on the date hereof.
(c) Other Registration Rights. The Company may grant registration
rights that would permit any Person that is a third party the right to
piggyback on the Shelf Registration Statement, provided that (subject to any
contractual obligations of the Company in effect on the date hereof) if the
Managing Underwriter, if any, of such offering delivers an opinion to the
Holders that the total amount of securities which they and the holders of such
piggyback rights intend to include in the Shelf Registration Statement is so
large as to materially adversely affect the success of such offering (including
the price at which such securities can be sold), then only the amount, the
number or kind of securities to be offered for the account of holders of such
piggyback rights will be reduced to the extent necessary to reduce the total
amount of securities to be included in such offering to the amount, number or
kind recommended by the Managing Underwriter prior to any reduction in the
amount of Registrable Securities to be included.
(d) Amendments and Waivers. The provisions of this Agreement may not
be amended, modified or supplemented, and waivers or consents to or departures
from the provisions hereof may not be given unless the Company has obtained the
written consent of the Majority Holders of Registrable Securities.
(e) Notices. All notices and other communications provided for or
permitted hereunder shall be made in writing by hand-delivery, first-class mail
(registered or certified, return receipt requested), facsimile transmission,
telex, telecopier, or air courier guaranteeing overnight delivery:
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<PAGE> 14
(i) if to a Holder of Warrants, at the address
set forth on the records of the registrar under the Warrant Agreement,
with a copy to the Warrant Agent; and
(ii) if to the Company:
HighwayMaster Communications, Inc.
16479 Dallas Parkway
Suite 710
Dallas, Texas 75248
Phone No.: (972) 732-2500
Facsimile No.: (972) 930-7263
Attention: William C. Saunders
All such notices and communications shall be deemed to have been duly
given: at the time delivered by hand, if personally delivered; five Business
Days after being deposited in the mail, postage prepaid, if mailed; upon
receipt of a confirmation notice, if sent by facsimile transmission; when
answered back, if telexed; when receipt acknowledged, if telecopied; and on the
next Business Day, if timely delivered to an air courier guaranteeing overnight
delivery.
Copies of all such notices, demands or other communications shall be
concurrently delivered by the Person giving the same to the Warrant Agent at
the address specified in the Warrant Agreement.
(f) Successors and Assigns. This Agreement shall inure to the benefit
of and be binding upon the successors and assigns of each of the parties,
including without limitation and without the need for an express assignment,
subsequent Holders of Registrable Securities; provided, however, that this
Agreement shall not inure to the benefit of or be binding upon any Person that
is not a Holder.
(g) Counterparts. This Agreement may be executed in any number of
counterparts and by the parties hereto in separate counterparts, each of which
when so executed shall be deemed to be an original and all of which taken
together shall constitute one and the same agreement.
(h) Headings. The headings in this Agreement are for convenience
of reference only and shall not limit or otherwise affect the meaning hereof.
(i) Governing Law. THIS AGREEMENT SHALL BE GOVERNED BY AND
CONSTRUED IN ACCORDANCE WITH THE LAWS OF THE STATE OF NEW YORK, WITHOUT REGARD
TO THE CONFLICT OF LAW RULES THEREOF.
(j) Severability. In the event that any one or more of the provisions
contained herein, or the application thereof in any circumstance, is held
invalid, illegal or unenforceable, the validity, legality or enforceability of
any such provision in every other respect and of the remaining provisions
contained herein shall not be affected or impaired thereby.
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<PAGE> 15
(k) Entire Agreement. This Agreement together with the other Operative
Documents (as defined in the Purchase Agreement) is intended by the parties as
a final expression of their agreement and intended to be a complete and
exclusive statement of the agreement and understanding of the parties hereto in
respect of the subject matter contained herein. There are no restrictions,
promises, warranties or undertakings, other than those set forth or referred to
herein with respect to the registration rights granted by the Company with
respect to the Registrable Securities. This Agreement supersedes all prior
agreements and understandings between the parties with respect to such subject
matter.
IN WITNESS WHEREOF, the parties have executed this Agreement as of the
date first written above.
HIGHWAYMASTER COMMUNICATIONS, INC.
By: /S/ J. Philip McCormick
----------------------------------------
Name: J. Philip McCormick
--------------------------------------
Title: Executive Vice President and Chief
-------------------------------------
Financial Officer
BEAR, STEARNS & CO. INC.
By: /S/ J. Andrew Bugas
----------------------------------------
Name: J. .Andrew Bugas
-------------------------------------
Title: Senior Managing Director
-------------------------------------
SMITH BARNEY INC.
By: /S/ Michael Anderson
----------------------------------------
Name: Michael Andeson
--------------------------------------
Title: Managing Director
-------------------------------------
15
<PAGE> 1
EXHIBIT 10.20
HIGHWAYMASTER COMMUNICATIONS, INC.
HIGHWAYMASTER CORPORATION
125,000 Units
PURCHASE AGREEMENT
September 18, 1997
New York, New York
BEAR STEARNS & CO. INC.
SMITH BARNEY INC.
c/o Bear, Stearns & Co. Inc.
245 Park Avenue
New York, New York 10167
Ladies & Gentlemen:
HighwayMaster Communications, Inc., a Delaware corporation
(the "Company"), proposes to issue and sell to Bear, Stearns & Co. Inc. ("Bear
Stearns") and Smith Barney Inc. (together with Bear Stearns, the "Initial
Purchasers"), acting severally and not jointly, the respective number of units
(the "Units"), each consisting of $1,000 principal amount of 13 3/4% Senior
Notes due 2005 (the "Series A Notes") of the Company and one warrant (a
"Warrant") initially entitling the holder thereof to purchase 6.566 shares (the
"Warrant Shares") of the Company's common stock, par value $.01 per share (the
"Common Stock"), subject to the terms and conditions set forth herein. The
Series A Notes will be issued pursuant to an indenture (the "Indenture"), to be
dated the Closing Date (as defined below), among the Company, the Company's
wholly owned subsidiary HighwayMaster Corporation, a Delaware corporation
("HMC"), as guarantor, and Texas Commerce Bank, National Association, as
trustee (the "Trustee"). The Warrants are to be issued pursuant to a warrant
agreement (the "Warrant Agreement"), to be dated the Closing Date, between the
Company and Texas Commerce Bank, National Association, as warrant agent (the
"Warrant Agent").
1. ISSUANCE OF SECURITIES.
The Company proposes, upon the terms and subject to the
conditions set forth herein, to issue and sell to the Initial Purchasers
125,000 Units. The Series A Notes and the Series B Notes (as defined below)
issuable in exchange therefor are collectively referred to herein as the "Note
Securities." The Warrants and the Warrant Shares are collectively referred to
herein as the "Warrant Securities." The Note Securities and the
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<PAGE> 2
Warrant Securities are collectively referred to as the "Securities." The
proceeds to the Company from the sale to the Initial Purchasers of the Units
will be used as described under "Use of Proceeds" in the Offering Memorandum
(as defined below).
Upon original issuance thereof, and until such time as the
same is no longer required under the applicable requirements of the Securities
Act of 1933, as amended (the "Act"), the Securities (and all securities issued
in exchange therefor or in substitution thereof) shall bear the following
legend:
THIS SECURITY HAS NOT BEEN REGISTERED UNDER THE SECURITIES ACT OF
1933, AS AMENDED (THE "SECURITIES ACT"), OR ANY STATE SECURITIES LAWS.
NEITHER THIS SECURITY NOR ANY INTEREST OR PARTICIPATION HEREIN MAY BE
OFFERED, SOLD, ASSIGNED, TRANSFERRED, PLEDGED, ENCUMBERED OR OTHERWISE
DISPOSED OF IN THE ABSENCE OF SUCH REGISTRATION OR UNLESS SUCH
TRANSACTION IS EXEMPT FROM, OR NOT SUBJECT TO, REGISTRATION.
THE HOLDER OF THIS SECURITY BY ITS ACCEPTANCE HEREOF AGREES TO (A)
OFFER, SELL, PLEDGE OR OTHERWISE TRANSFER THIS SECURITY ONLY (1) TO
THE COMPANY, (2) PURSUANT TO A REGISTRATION STATEMENT WHICH HAS BEEN
DECLARED EFFECTIVE UNDER THE SECURITIES ACT, (3) TO A PERSON IT
REASONABLY BELIEVES IS A "QUALIFIED INSTITUTIONAL BUYER" AS DEFINED IN
RULE 144A IN A TRANSACTION MEETING THE REQUIREMENTS OF RULE 144A, (4)
PURSUANT TO OFFERS AND SALES TO NON-U.S. PERSONS THAT OCCUR OUTSIDE
THE UNITED STATES IN A TRANSACTION MEETING THE REQUIREMENTS OF RULE
904 OF REGULATION S UNDER THE SECURITIES ACT, (5) TO AN INSTITUTIONAL
"ACCREDITED INVESTOR" (AS DEFINED IN RULE 501(A)(1), (2), (3) OR (7)
OF REGULATION D UNDER THE SECURITIES ACT) (AN "IAI") THAT PRIOR TO
SUCH TRANSFER, FURNISHES TO THE [TRUSTEE* [WARRANT AGENT]** A SIGNED
LETTER CONTAINING CERTAIN REPRESENTATIONS AND AGREEMENTS RELATING TO
THE TRANSFER OF THIS SECURITY (THE FORM OF WHICH LETTER CAN BE
OBTAINED FROM THE [TRUSTEE]* [WARRANT AGENT]**) AND, IN THE CASE OF
ANY TRANSFER TO ANY IAI OF [SECURITIES WITH AN AGGREGATE PRINCIPAL
AMOUNT OF $100,000 OR LESS]* [SECURITIES ENTITLING THE HOLDER TO
PURCHASE 656.6 OR FEWER SHARES OF COMMON STOCK]**, AN OPINION OF
COUNSEL IF THE COMPANY SO REQUESTS OR (6) PURSUANT TO ANY OTHER
__________________________________
*In the case of the Notes
**In the case of the Warrants
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<PAGE> 3
AVAILABLE EXEMPTION FROM THE REGISTRATION REQUIREMENTS UNDER THE
SECURITIES ACT (AND BASED ON AN OPINION OF COUNSEL IF THE COMPANY SO
REQUESTS), SUBJECT IN EACH OF THE FOREGOING CASES TO APPLICABLE
SECURITIES LAWS OF ANY STATE OF THE UNITED STATES OR ANY OTHER
APPLICABLE JURISDICTION AND (B) THAT IT WILL, AND EACH SUBSEQUENT
HOLDER IS REQUIRED TO, NOTIFY ANY PURCHASER FROM IT OF THE SECURITY
EVIDENCED HEREBY OF THE RESALE RESTRICTIONS SET FORTH IN (A) ABOVE.
2. OFFERING.
The Units will be offered and sold to the Initial Purchasers
pursuant to an exemption from the registration requirements under the Act. The
Company has prepared a preliminary offering memorandum, dated August 28, 1997
(the "Preliminary Offering Memorandum"), and a final offering memorandum, dated
September 18, 1997 (the "Offering Memorandum"), relating to the Company and its
subsidiaries, and the issuance of the Units.
The Initial Purchasers have advised the Company that the
Initial Purchasers will make offers of the Units on the terms set forth in the
Offering Memorandum, as amended or supplemented, solely to (a) persons whom the
Initial Purchasers reasonably believe to be "qualified institutional buyers,"
as defined in Rule 144A under the Act ("QIBs"), and (b) persons whom the
Initial Purchasers reasonably believe to be non-U.S. persons in offers and
sales that occur outside the United States within the meaning of Regulation S
under the Act (the "Regulation S Investors"). The QIBs and the Regulation S
Investors are referred to herein as the "Eligible Purchasers." Sales to
Eligible Purchasers under this Agreement are referred to herein as "Exempt
Resales." The Initial Purchasers will offer the Units to such Eligible
Purchasers initially at a price equal to $1,000 per Unit. Such price may be
changed at any time without notice.
Holders (including subsequent transferees) of the Note
Securities will have the registration rights set forth in the exchange and
registration rights agreement relating thereto (the "Note Registration Rights
Agreement"), to be dated the Closing Date, in the form of Exhibit A hereto.
Pursuant to the Note Registration Rights Agreement, the Company will use its
best efforts to file with the Securities and Exchange Commission (the
"Commission"), to the extent provided therein (a) a registration statement
under the Act (the "Exchange Offer Registration Statement") relating to the 13
3/4% Senior Notes due 2005 (the "Series B Notes") in exchange for the Series A
Notes (the "Exchange Offer") and (b) a shelf registration statement pursuant to
Rule 415 under the Act (the "Note Shelf Registration Statement") relating to
the resale by holders of the Note Securities, and to use its best efforts to
cause such registration statements to be declared effective and to consummate
the Exchange Offer.
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<PAGE> 4
Holders (including subsequent transferees) of the Warrant
Securities will have the registration rights set forth in the warrant
registration rights agreement relating thereto (the "Warrant Registration
Rights Agreement"), to be dated the Closing Date, in the form of Exhibit B
hereto. Pursuant to the Warrant Registration Rights Agreement, the Company
will use its best efforts to file with the Commission, to the extent provided
therein a shelf registration statement pursuant to Rule 415 under the Act (the
"Warrant Shelf Registration Statement") relating to the resale by holders of
the Warrants and the issuance by the Company of the Warrant Shares, and to use
its best efforts to cause such registration statement to be declared effective.
The Note Registration Rights Agreement and the Warrant Registration Rights
Agreement are hereinafter collectively referred to as the "Registration Rights
Agreements." This Purchase Agreement (this "Agreement" or the "Purchase
Agreement"), the Securities, the Indenture, the Pledge Agreement (as defined in
the Indenture), the Note Registration Rights Agreement, the Warrant Agreement,
and the Warrant Registration Rights Agreement are hereinafter sometimes
referred to collectively as the "Operative Documents."
3. PURCHASE, SALE AND DELIVERY.
(a) On the basis of the representations, warranties and
covenants contained in this Agreement, and subject to its terms and conditions,
the Company agrees to issue and sell to each Initial Purchaser, and each
Initial Purchaser agrees, severally and not jointly, to purchase from the
Company, the number of Units set forth opposite its name on Schedule 3(a)
hereto. The Initial Purchasers shall pay a purchase price equal to $967.50 per
Unit.
(b) Delivery of, and payment of the purchase price for,
the Units shall be made at the offices of Akin, Gump, Strauss, Hauer & Feld,
L.L.P., 1700 Pacific Avenue, Suite 4100, Dallas, Texas 75201, or such other
location as may be mutually acceptable. Such delivery and payment shall be made
at 9:30 a.m. Dallas time on September 23, 1997 or at such other date and time
as shall be agreed upon by the Initial Purchasers and the Company. The time and
date of such delivery and the payment of the purchase price are herein called
the "Closing Date."
(c) On the Closing Date, (i) (A) one or more of the
Series A Notes that are part of the Units, registered in the name of Cede & Co.
as nominee of The Depository Trust Company ("DTC"), having an aggregate
principal amount of $125,000,000 less the aggregate principal amount of the
Series A Notes that are part of the Units to be resold in Exempt Resales to
Regulation S Investors and (B) one or more of the Series A Notes that are part
of the Units registered in the name of Cede & Co. for the accounts of the
Euroclear System and Cedel, S.A. having an aggregate principal amount equal to
the aggregate principal amount of the Series A Notes that are part of the Units
to be sold in Exempt Resales to Regulation S Investors (collectively, the
"Global Note"), and (ii) (A) one or more of the Warrants that are part of the
Units registered in the name of Cede & Co. as nominee of DTC for 125,000
Warrants less the aggregate number of Warrants that are part of the
4
<PAGE> 5
Units to be resold in Exempt Resales to Regulation S Investors and (B) one or
more of the Warrants registered in the name of Cede & Co. for the accounts of
the EuroClear System and Cedel, S.A. for the number of Warrants that are part
of the Units to be resold in Exempt Resales to Regulation S Investors
(collectively, the "Global Warrant"), shall be delivered by the Company to the
Initial Purchasers (or as the Initial Purchasers direct), against payment by
the Initial Purchasers of the purchase price therefor by wire transfer of same
day funds to an account or accounts designated by the Company, provided that
the Company shall give at least two business days' prior written notice to the
Initial Purchasers of the information required to effect such wire transfer.
The Global Note and the Global Warrant shall be made available to the Initial
Purchasers for inspection not later than 9:30 a.m. New York City time on the
business day immediately preceding the Closing Date.
4. AGREEMENTS OF THE COMPANY AND HMC.
The Company and HMC covenant and agree with the Initial
Purchasers as follows:
(a) To advise the Initial Purchasers promptly and, if
requested by the Initial Purchasers, confirm such advice in writing,
of (i) the issuance by any state securities commission of any stop
order suspending the qualification or exemption from qualification of
any of the Securities for offering or sale in any jurisdiction, or the
initiation of any proceeding for such purpose by any state securities
commission or other regulatory authority and (ii) the happening of any
event that makes any statement of a material fact made in the
Preliminary Offering Memorandum or the Offering Memorandum untrue or
that requires the making of any additions to or changes in the
Preliminary Offering Memorandum or the Offering Memorandum in order to
make the statements therein, in the light of the circumstances under
which they are made, not misleading. The Company shall use its best
efforts to prevent the issuance of any stop order or order suspending
the qualification or exemption of any of the Securities under any
state securities or Blue Sky laws and, if at any time any state
securities commission or other regulatory authority shall issue an
order suspending the qualification or exemption of any of the
Securities under any state securities or Blue Sky laws, the Company
shall use its best efforts to obtain the withdrawal or lifting of such
order at the earliest practicable time.
(b) To furnish the Initial Purchasers and those persons
identified by the Initial Purchasers to the Company, without charge,
as many copies of the Preliminary Offering Memorandum and the Offering
Memorandum, and any amendments or supplements thereto, as the Initial
Purchasers may request. The Company consents to the use of the
Preliminary Offering Memorandum and the Offering Memorandum, and any
amendments and supplements thereto required pursuant hereto, by the
Initial Purchasers in connection with Exempt Resales.
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<PAGE> 6
(c) Not to amend or supplement the Preliminary Offering
Memorandum or the Offering Memorandum prior to the Closing Date unless
the Initial Purchasers shall previously have been advised thereof and
shall not have objected thereto within a reasonable time after being
furnished a copy of such amendment or supplement. The Company shall
promptly prepare, upon the Initial Purchasers' request, any amendment
or supplement to the Preliminary Offering Memorandum or the Offering
Memorandum that the Initial Purchasers believe may be necessary or
advisable in connection with Exempt Resales.
(d) If, after the date hereof and prior to consummation
of any Exempt Resale, any event shall occur as a result of which, in
the judgment of the Company based on the advice of its counsel, it
becomes necessary or advisable to amend or supplement the Preliminary
Offering Memorandum or the Offering Memorandum in order to make the
statements of material fact therein, in the light of the circumstances
when such Offering Memorandum is delivered to an Eligible Purchaser
which is a prospective purchaser, not misleading, or if it is
necessary or advisable to amend or supplement the Preliminary Offering
Memorandum or the Offering Memorandum to comply with applicable law,
(i) to notify the Initial Purchasers and (ii) forthwith to prepare an
appropriate amendment or supplement to such Preliminary Offering
Memorandum or Offering Memorandum so that the statements therein as so
amended or supplemented will not, in the light of the circumstances
when it is so delivered, be misleading, or so that such Preliminary
Offering Memorandum or Offering Memorandum will comply with applicable
law.
(e) To cooperate with the Initial Purchasers and counsel
for the Initial Purchasers in connection with the qualification or
registration of the Securities under the securities or Blue Sky laws
of such jurisdictions as the Initial Purchasers may request and to
continue such qualification in effect so long as required for the
Exempt Resales; provided, however that the Company shall not be
required in connection therewith to register or qualify as a foreign
corporation where it is not now so qualified or to take any action
that would subject it to service of process in suits or taxation, in
each case in any jurisdiction where it is not now so subject.
(f) To use the proceeds from the sale of the Units in the
manner described in the Offering Memorandum under the caption "Use of
Proceeds."
(g) Not to claim voluntarily, and to resist actively any
attempts to claim, the benefit of any usury laws against the holders
of any Note Securities.
(h) To do and perform all things required to be done and
performed under this Agreement by it prior to the Closing Date and to
use its best efforts to satisfy all conditions precedent within its
control to the delivery of the Units.
(i) Not to sell, offer for sale or solicit offers to buy
or otherwise negotiate
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<PAGE> 7
in respect of any security (as defined in the Act) that would be
integrated with the sale of the Units in a manner that would require
the registration under the Act of the sale to the Initial Purchasers
or the Eligible Purchasers of the Units or to take any other action
that would result in the Exempt Resales not being exempt from
registration under the Act.
(j) For so long as any of the Securities remain
outstanding and during any period in which the Company is not subject
to Section 13 or 15(d) of the Securities Exchange Act of 1934, as
amended (the "Exchange Act"), to make available to any holder or
beneficial owner of Securities in connection with any sale thereof and
any prospective purchaser of such Securities from such holder or
beneficial owner, the information required by Rule 144A(d)(4) under
the Act.
(k) To cause the Exchange Offer to be made in accordance
with and subject to the terms set forth in the Note Registration
Rights Agreement on the appropriate form to permit Series B Notes to
be offered in a registered exchange for the Series A Notes and to
comply with all applicable federal and state securities laws in
connection with the Exchange Offer.
(l) To comply in all material respects with all of the
agreements set forth in the Operative Documents and in the
representation letter of the Company to DTC relating to the approval
of the Securities by DTC for "book-entry" transfer.
(m) To cooperate with the Initial Purchasers to effect
the inclusion of the Securities in the National Association of
Securities Dealers, Inc. ("NASD") Private Offering, Resales and
Trading through Automated Linkages ("PORTAL") market and to use its
best efforts to obtain approval of the Securities by DTC for
"book-entry" transfer.
(n) From the Closing Date to the later of (w) the second
anniversary of the Closing Date, (x) the consummation of the Exchange
Offer, (y) the expiration of the period in which the Company is
required to maintain the Note Shelf Registration Statement under the
Note Registration Rights Agreement, or (z) the expiration of the
period in which the Company is required to maintain the Warrant Shelf
Registration Statement under the Warrant Registration Rights
Agreement, to deliver without charge to the Initial Purchasers
promptly upon their becoming available, copies of (i) all reports or
other publicly available information that the Company shall mail or
otherwise make available to its stockholders and (ii) all reports,
financial statements and proxy or information statements filed by the
Company with the Commission or any national securities exchange and
such other publicly available information concerning the Company and
its subsidiaries including without limitation, press releases, as the
Initial Purchasers may reasonably request.
(o) Prior to the Closing Date, to furnish to the Initial
Purchasers, as soon
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<PAGE> 8
as they have been prepared by the Company, a copy of any unaudited
interim financial statements for any period subsequent to the periods
covered by the financial statements appearing in the Offering
Memorandum.
(p) Until the later of (x) the consummation of the
Exchange Offer, (y) the expiration of the period in which the Company
is required to maintain in effect the Note Shelf Registration
Statement under the Note Registration Rights Agreement, or (z) the
expiration of the period in which the Company is required to maintain
in effect the Warrant Shelf Registration Statement under the Warrant
Registration Rights Agreement, not to take, and not to permit any of
the Company's subsidiaries to take, directly or indirectly, any action
designed to, or that might reasonably be expected to, cause or result
in stabilization or manipulation of the price of any security of the
Company to facilitate the sale or resale of any Securities. Except as
permitted by the Act, the Company will not distribute any (i)
preliminary offering memorandum, including, without limitation, the
Preliminary Offering Memorandum, (ii) offering memorandum, including,
without limitation, the Offering Memorandum or (iii) other offering
material, in connection with the offering and sale of the Securities.
(q) Not to, and not to permit any of the Company's
subsidiaries to take, directly or indirectly, any action that could
cause the Company or any such subsidiary to be an "investment company"
or a company "controlled" by an "investment company" under the
Investment Company Act of 1940, as amended (the "Investment Company
Act") at any time that any of the Securities are outstanding.
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<PAGE> 9
5. REPRESENTATIONS AND WARRANTIES OF THE COMPANY AND
HMC.
The Company and HMC represent and warrant to the
Initial Purchasers that:
(a) The Preliminary Offering Memorandum and the Offering
Memorandum have been prepared in connection with the Exempt Resales.
The Preliminary Offering Memorandum and the Offering Memorandum do
not, and any supplement or amendment to them will not, contain any
untrue statement of a material fact or omit to state any material fact
required to be stated therein or necessary in order to make the
statements therein, in the light of the circumstances under which they
were made, not misleading, except that the representations and
warranties contained in this paragraph shall not apply to statements
in the Preliminary Offering Memorandum and the Offering Memorandum (or
any supplement or amendment thereto) made in reliance upon and in
conformity with information furnished to the Company in writing by the
Initial Purchasers expressly for use therein. No stop order preventing
the use of the Preliminary Offering Memorandum or the Offering
Memorandum, or any amendment or supplement thereto, or any order
asserting that any of the transactions contemplated by this Agreement
are subject to the registration requirements of the Act, has been
issued.
(b) The Company (i) has been duly organized and is
validly existing as a corporation in good standing under the laws of
the State of Delaware, (ii) has all requisite corporate power and
authority to carry on its business as it is currently being conducted
and as described in the Offering Memorandum and to own, lease and
operate its properties, and (iii) is duly qualified and in good
standing as a foreign corporation authorized to do business in each
jurisdiction in which the nature of its business or its ownership or
leasing of property requires such qualification, except where the
failure to be so qualified (A) could not, individually or in the
aggregate with other acts, omissions or circumstances, have an actual
or reasonably foreseeable prospective material adverse effect on the
properties, business, results of operations, financial condition, or
affairs of the Company and its subsidiaries taken as a whole, or (B)
could not, individually or in the aggregate with other acts, omissions
or circumstances, materially interfere with or materially adversely
affect the issuance of the Units pursuant hereto or the Company's and
HMC's ability to perform their obligations under this Agreement, any
other Operative Document or any of the transactions contemplated
thereby (any of the events set forth in clauses (A) or (B), a
"Material Adverse Effect").
(c) Each subsidiary of the Company is listed on Schedule
5(c) hereto. Each such subsidiary (i) has been duly organized and is
validly existing as a corporation in good standing under the laws of
the jurisdiction of its incorporation, (ii) has all requisite
corporate power and authority to carry on its business as it is
currently being conducted and as described in the Offering Memorandum
and to
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<PAGE> 10
own, lease and operate its properties, and (iii) is duly qualified and
in good standing as a foreign corporation authorized to do business in
each jurisdiction in which the nature of its business or its ownership
or leasing of property requires such qualification, except where the
failure to be so qualified would not have a Material Adverse Effect.
(d) All of the issued and outstanding shares of capital
stock of each subsidiary of the Company have been duly authorized,
validly issued and are fully paid and nonassessable and were not
issued in violation of any preemptive or similar rights. The Company
owns directly or indirectly all of the issued and outstanding shares
of capital stock of each of its subsidiaries. All such shares of
capital stock of each such subsidiary are owned by the Company free
and clear of any lien, encumbrance, claim, security interest,
restriction on transfer, stockholders' agreement, voting trust or
other restrictions, except for restrictions on transfer imposed by
applicable law and the Amended Stockholders' Agreement (as defined in
the Offering Memorandum). The Company does not directly or indirectly
own any shares of capital stock or any equity interest of any
corporation, firm, partnership, association or other entity, other
than the capital stock of the subsidiaries listed on Schedule 5(c).
(e) All of the issued and outstanding shares of capital
stock of the Company have been duly authorized, validly issued, and
are fully paid and nonassessable and were not issued in violation of
any preemptive or similar rights. On June 30, 1997, after giving pro
forma effect to the issuance and sale of the Units pursuant hereto and
the other transactions described therein, the Company would have had
an authorized and outstanding capitalization as set forth in the
Offering Memorandum under the caption "Capitalization," subject to the
notes and assumptions included therein. Neither the issuance nor the
exercise of the Warrants will cause any increase to the number of
shares of Common Stock into which any of the Company's convertible
securities, warrants, stock options, or similar rights are convertible
or exercisable, directly or indirectly, or any decrease to the
conversion or exercise price with respect thereto.
(f) Except as set forth in the Offering Memorandum, there
are not currently any outstanding subscriptions, rights, warrants,
calls, commitments of sale or options to acquire, or instruments
convertible into or exchangeable for, capital stock or other equity
interests of the Company or any of its subsidiaries that have been
issued by the Company or any of its subsidiaries.
(g) The Company and HMC have all requisite corporate
power and authority to execute, deliver and perform their obligations
under the Operative Documents and to consummate the transactions
contemplated hereby and thereby, including, without limitation, the
corporate power and authority to issue, sell and deliver the
Securities as provided herein and therein.
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<PAGE> 11
(h) When the Units are issued and delivered pursuant to
this Agreement, such Units, and the Series A Notes and Warrants of
which the Units consist, will not be of the same class (within the
meaning of Rule 144A under the Act) as any security of the Company
that is listed on a national securities exchange registered under
Section 6 of the Exchange Act, or that is quoted in a United States
automated inter-dealer quotation system.
(i) This Agreement has been duly and validly authorized,
executed and delivered by the Company and HMC and (assuming the due
authorization, execution and delivery of this Agreement by the Initial
Purchasers) is the legal, valid and binding agreement of the Company
and HMC, enforceable against the Company and HMC in accordance with
its terms, subject to applicable bankruptcy, insolvency, fraudulent
conveyance, reorganization or similar laws affecting the rights of
creditors generally and subject to general principles of equity,
regardless of whether such enforcement is sought in a proceeding in
equity or at law (the "Enforceability Exceptions") and subject to any
limitations on the enforceability thereof imposed by the applicable
provisions of federal or state securities laws or principles of public
policy underlying such laws.
(j) The Indenture has been duly and validly authorized by
the Company and HMC and, when duly executed and delivered by the
Company and HMC, will be the legal, valid and binding obligation of
the Company and HMC, enforceable against the Company and HMC in
accordance with its terms, subject to the Enforceability Exceptions.
The Offering Memorandum contains an accurate summary of the material
terms of the Indenture.
(k) The Pledge Agreement has been duly and validly
authorized by the Company and, when duly executed and delivered by the
Company, will be the legal, valid and binding obligation of the
Company, enforceable against the Company in accordance with its terms,
subject to the Enforceability Exceptions. The Offering Memorandum
contains an accurate summary of the material terms of the Pledge
Agreement.
(l) The Note Registration Rights Agreement has been duly
and validly authorized by the Company and HMC and, when duly executed
and delivered by the Company and HMC, will be the legal, valid and
binding obligation of the Company and HMC, enforceable against the
Company and HMC in accordance with its terms, subject to the
Enforceability Exceptions. The Offering Memorandum contains an
accurate summary of the material terms of the Note Registration Rights
Agreement.
(m) The Warrant Registration Rights Agreement has been
duly and validly authorized by the Company and, when duly executed and
delivered by the Company, will be the legal, valid and binding
obligation of the Company,
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<PAGE> 12
enforceable against the Company in accordance with its terms, subject
to the Enforceability Exceptions. The Offering Memorandum contains an
accurate summary of the material terms of the Warrant Registration
Rights Agreement.
(n) The Series A Notes have been duly and validly
authorized by the Company for issuance and sale to the Initial
Purchasers pursuant to this Agreement and, when issued and
authenticated in accordance with the terms of the Indenture and
delivered against payment for the Units of which they are a part in
accordance with the terms hereof and thereof, will be the legal, valid
and binding obligations of the Company, enforceable against the
Company in accordance with their terms and entitled to the benefits of
the Indenture, subject to the Enforceability Exceptions. The Offering
Memorandum contains an accurate summary of the material terms of the
Series A Notes.
(o) The Series B Notes have been duly and validly
authorized for issuance by the Company and, when issued and
authenticated in accordance with the terms of the Exchange Offer and
the Indenture, will be the legal, valid and binding obligations of the
Company, enforceable against the Company in accordance with their
terms and entitled to the benefits of the Indenture, subject to the
Enforceability Exceptions.
(p) The guarantee of the Series A Notes and Series B
Notes by HMC has been duly and validly authorized by HMC and, when
issued and authenticated in accordance with the terms of the
Indenture, will be the legal, valid and binding obligation of HMC,
enforceable against HMC in accordance with the terms of the Series A
Notes, the Series B Notes, and the Indenture, subject to the
Enforceability Exceptions.
(q) The Warrant Agreement has been duly and validly
authorized by the Company and, upon its execution, delivery and
performance by the Company and assuming due authorization, execution,
delivery and performance by the Warrant Agent, will be a legal, valid
and binding obligation of the Company, enforceable against the Company
in accordance with its terms, subject to the Enforceability
Exceptions. The Offering Memorandum contains an accurate summary of
the material terms of the Warrant Agreement.
(r) The Warrants have been duly and validly authorized by
the Company for issuance and sale to the Initial Purchasers pursuant
to this Agreement and, when issued and authenticated in accordance
with the terms of the Warrant Agreement and delivered against payment
for the Units of which they are a part in accordance with the terms
hereof and thereof, will be validly issued and the legal, valid and
binding obligations of the Company, subject to the Enforceability
Exceptions. The Company has duly reserved a sufficient number of its
shares of Common Stock for the issuance of the Warrant Shares upon the
exercise of the
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<PAGE> 13
Warrants. The Company has duly and validly authorized the issuance of
the Warrant Shares upon the exercise of the Warrants. Upon the
exercise of the Warrants and the payment of the exercise price
thereof, the respective Warrant Shares will be validly issued, fully
paid and nonassessable, and not issued in violation of any preemptive
or similar rights.
(s) Neither the Company nor any of its subsidiaries is
(i) in violation of its charter or bylaws, (ii) in default in the
performance of any bond, debenture, note, indenture, mortgage, deed of
trust or other agreement or instrument to which it is a party or by
which it is bound or to which any of its properties is subject, or
(iii) in violation of any local, state, federal or foreign law,
statute, ordinance, rule, regulation, judgment or court decree
applicable to it or any of its assets or properties (whether owned or
leased), including the Communications Act of 1934, as amended by the
Telecommunications Act of 1996 and otherwise, and the rules and
regulations promulgated thereunder (collectively, the "Communications
Act"), and any other statute, rule or regulation (the "Other
Telecommunication Laws") administered by the Federal Communications
Commission ("FCC") or the "state commissions" as defined in Section
3(t) of the Communications Act (the "State Telecommunications
Agencies"), except as disclosed in the Offering Memorandum and, except
in the case of clauses (ii) and (iii), for any such default or
violation that could not, individually or in the aggregate, reasonably
be expected to have a Material Adverse Effect. To the knowledge of
the Company after reasonable inquiry, there exists no condition that,
with notice or the passage of time or both, would constitute such a
default under any such document or instrument except for any such
default that could not, individually or in the aggregate with other
defaults, reasonably be expected to have a Material Adverse Effect.
(t) None of (i) the execution, delivery or performance by
the Company or HMC of this Agreement and the other Operative
Documents, (ii) the issuance and sale of the Securities, nor (iii) the
consummation by the Company and HMC of the transactions described in
the Offering Memorandum under the caption "Use of Proceeds," violates,
conflicts with or constitutes a breach of any of the terms or
provisions of, or a default under (or an event that with notice or the
lapse of time, or both, would constitute a default), or requires
consent (other than those consents that have been obtained) under, or
results in the imposition of a lien or encumbrance (except for
encumbrances arising under the Operative Documents) on any properties
of the Company or any of its subsidiaries, or an acceleration of any
indebtedness of the Company or any of its subsidiaries pursuant to,
(A) the charter or bylaws of the Company or any such subsidiary, (B)
any bond, debenture, note, indenture, mortgage, deed of trust or other
agreement or instrument to which the Company or any such subsidiary is
a party or by which the Company or any such subsidiary is bound or to
which any of their respective properties is subject other than the
Indenture and the other Operative Documents, (C) any statute, rule or
regulation applicable to the Company or any such subsidiary or their
respective
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<PAGE> 14
assets or properties, including but not limited to, the Communications
Act and Other Telecommunications Laws, or (D) any judgment, order or
decree of any court or governmental agency or authority having
jurisdiction over the Company or any such subsidiary or their
respective assets or properties, except in the cases of clauses (B),
(C) and (D), for any such violation, default, consent, imposition of a
lien or acceleration that could not, individually or in the aggregate,
be reasonably expected to have a Material Adverse Effect. Except as
may be required under applicable state securities or Blue Sky laws,
and except for the filing of registration statements under the Act,
and any other requirements of the Act or Exchange Act applicable in
connection with the transactions contemplated by the Registration
Rights Agreements, and qualification of the Indenture under the Trust
Indenture Act of 1939, as amended (the "Trust Indenture Act") in
connection with the Registration Rights Agreements, no consent,
approval, authorization or order of, or filing, registration,
qualification, license or permit of or with, any court or governmental
agency, body or administrative agency or any other person is required
for (1) the execution, delivery and performance by the Company and HMC
of this Agreement and the other Operative Documents or (2) the
issuance and sale of the Securities and the transactions contemplated
thereby, except such as have been obtained and made and except where
the failure to obtain such consents and waivers would not,
individually or in the aggregate, have a Material Adverse Effect.
(u) There is (i) no action, suit, investigation or
proceeding before or by any court, arbitrator or governmental agency,
body or official, domestic or foreign, now pending, or to the
knowledge of the Company and HMC after reasonable inquiry, threatened,
to which the Company or any of its subsidiaries is or may be a party
or to which the business or property of the Company or any of its
subsidiaries is or may be subject, (ii) no statute, rule, regulation
or order that has been enacted adopted or issued by any governmental
agency or that has been proposed by any governmental body, and (iii)
no injunction, restraining order or order of any nature by a federal
or state court or foreign court of competent jurisdiction to which the
Company or any of its subsidiaries is or may be subject or to which
the business, assets, or property of the Company or any of its
subsidiaries is or may be subject, that, in the case of clauses (i),
(ii) and (iii) above, (A) is required to be disclosed in the
Preliminary Offering Memorandum and the Offering Memorandum and that
is not so disclosed or (B) could reasonably be expected to,
individually or in the aggregate, have a Material Adverse Effect.
(v) No action has been taken and no statute, rule,
regulation, injunction or order has been enacted, adopted or issued by
any federal or state court of competent jurisdiction or by any
governmental agency that prevents or suspends the issuance or sale of
the Securities or prevents or suspends the use of the Offering
Memorandum; no injunction, restraining order or order of any nature by
a federal or state court of competent jurisdiction has been issued
that prevents the issuance of the Securities or prevents or suspends
the sale of the Securities in any
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<PAGE> 15
jurisdiction referred to in Section 4(e) hereof; and every request of
any securities authority or agency of any jurisdiction for additional
information has been complied with in all material respects.
(w) There is (i) no significant unfair labor practice
complaint pending against the Company or any of its subsidiaries, nor
to the knowledge of the Company and HMC after reasonable inquiry,
threatened against the Company or any of its subsidiaries, before the
National Labor Relations Board, any state or local labor relations
board or any foreign labor relations board, and no significant
grievance or significant arbitration proceeding arising out of or
under any collective bargaining agreement is so pending against the
Company or any of its subsidiaries, or to the knowledge of the Company
and HMC after reasonable inquiry, threatened against the Company or
any of its subsidiaries, (ii) no significant strike, labor dispute,
slowdown or stoppage pending against the Company or any of its
subsidiaries, nor to the knowledge of the Company and HMC after
reasonable inquiry, threatened against the Company or any of its
subsidiaries and (iii) no union organizing or union representation
question existing with respect to the employees of the Company or any
of its subsidiaries. No claim has been filed against the Company or
any of its subsidiaries alleging violation of (A) any federal, state
or local law or foreign law relating to discrimination in hiring,
promotion or pay of employees, (B) any applicable wage or hour laws or
(C) any provision of the Employee Retirement Income Security Act of
1974, as amended ("ERISA"), or the rules and regulations thereunder,
except as could not reasonably be expected to have a Material Adverse
Effect.
(x) Except as disclosed in the Offering Memorandum and
with such exceptions as could not reasonably be expected to have a
Material Adverse Effect, the Company and its subsidiaries own, possess
or have the right on either an exclusive or non-exclusive basis to use
all patents, patent rights, licenses (including all state, local or
other jurisdictional regulatory licenses), inventions, copyrights,
know-how (including trade secrets and other unpatented and/or
unpatentable proprietary or confidential information, software,
systems or procedures), trademarks, service marks and trade names,
computer programs, technical data and information (collectively, the
"Intellectual Property") presently used in connection with the
businesses now operated by them, free and clear of and without
violating any right, claimed right, charge, encumbrance, pledge,
security interest, restriction or lien of any kind of any other
person. Except as disclosed in the Offering Memorandum and with such
exceptions as could not reasonably be expected to have a Material
Adverse Effect, neither the Company nor any of its subsidiaries has
received any notice of infringement of or conflict with asserted
rights of others with respect to any of the foregoing. The use of the
Intellectual Property in connection with the business and operations
of the Company and its subsidiaries does not infringe on the rights of
any person, except for any infringement that could not reasonably be
expected to have a Material Adverse
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<PAGE> 16
Effect. The description of the patents and other intellectual
property rights of the Company set forth in the Offering Memorandum
under the captions "Risk Factors--AT&T Litigation," "Risk
Factors--Uncertainty Regarding Patents and Proprietary Rights,"
"Business--Patents and Proprietary Rights" and "Business--Legal
Proceedings" is accurate in all material respects.
(y) Each contract, agreement or arrangement to which the
Company or any of its subsidiaries is a party or by which any of them
is bound, or to which any of the property or assets of the Company or
any of its subsidiaries is subject and which is material to the actual
or reasonably foreseeable prospective properties, business, results of
operations, financial condition or affairs of the Company and its
subsidiaries has been duly and validly authorized, executed and
delivered by the Company or the respective subsidiary, as applicable;
neither the Company nor any of its subsidiaries is in breach or
default of any obligation, agreement, covenant or condition contained
in any such contract; none of such contracts, agreements or
arrangements has been assigned by the Company or any of its
subsidiaries, and the Company knows of no present condition or fact
which would prevent compliance by the Company or any of its
subsidiaries or any other party thereto with the terms of any such
contract, agreement or arrangement, except where the failure to comply
with the same could not reasonably be expected to have a Material
Adverse Effect; except as disclosed in the Offering Memorandum,
neither the Company nor any of its subsidiaries has any present
intention to exercise any right that it may have to cancel any such
contract, agreement or arrangement or otherwise to terminate its
rights and obligations thereunder, and the Company has no knowledge
that any other party to any such contract, agreement or arrangement
has any intention not to render full performance as contemplated by
the terms thereof, except where any such failure to perform such terms
could not reasonably be expected to have a Material Adverse Effect.
(z) Neither the Company nor any of its subsidiaries, nor
any of their respective officers, directors, employees, agents or
affiliates or any other person acting on their behalf has, directly or
indirectly, given or agreed to give any money, gift or similar benefit
to any customer, supplier, employee or agent of a customer or
supplier, official or employee of any governmental agency,
instrumentality of any government or any political party or candidate
for office (domestic or foreign) or other person who was, at the time,
in a position to help or hinder the business of the Company or any of
its subsidiaries (or assist the Company or any of its subsidiaries in
connection with any actual or proposed transaction) which could at the
time have subjected the Company or any of its subsidiaries to any
damage or penalty in any civil, criminal or governmental litigation or
proceeding (domestic or foreign), except for such damages or
penalties, either individually or in the aggregate, that could not
reasonably be expected to have a Material Adverse Effect.
(aa) Neither the Company nor any of its subsidiaries has
violated any
16
<PAGE> 17
foreign, federal, state or local law or regulation relating to the
protection of human health and safety, the environment or hazardous or
toxic substances or wastes, pollutants or contaminants ("Environmental
Laws"), except for such violations, either individually or in the
aggregate, that could not reasonably be expected to have a Material
Adverse Effect.
(bb) There is no alleged liability or potential liability
(including, without limitation, alleged or potential liability or
investigatory costs, cleanup costs, governmental response costs,
material resource damages, property damages, personal injuries or
penalties) of the Company or any of its subsidiaries arising out of,
based on or resulting from (i) the presence or release into the
environment of any Hazardous Material (as defined below) at any
location, whether or not owned by the Company or any of its
subsidiaries, as the case may be, or (ii) any violation or alleged
violation of any Environmental Law, which alleged or potential
liability is required to be disclosed in the Offering Memorandum other
than as disclosed therein, except, in the case of clauses (i) and (ii)
above, for such liability, either individually or in the aggregate,
that could not reasonably be expected to have a Material Adverse
Effect. The term "Hazardous Material" means (A) any "hazardous
substance" as defined by the Comprehensive Environmental Response,
Compensation and Liability Act of 1980, as amended, (B) any "hazardous
waste" as defined by the Resource Conservation and Recovery Act, as
amended, (C) any petroleum or petroleum product, (D) any
polychlorinated biphenyl, and (E) any pollutant or contaminant or
hazardous, dangerous or toxic chemical, material, waste or substance
regulated under or within the meaning of any other law relating to
protection of human health or the environment or imposing liability or
standards of conduct concerning any such chemical material, waste or
substance.
(cc) Except as disclosed in the Offering Memorandum, the
Company and each of its subsidiaries has such permits, licenses,
franchises and authorizations of governmental or regulatory
authorities ("permits"), including without limitation, under the
Communications Act, any Other Telecommunications Laws, or any
applicable Environmental Laws, as are necessary to own, lease and
operate its properties and to conduct its business, except for such
permits the absence of which, either individually or in the aggregate,
could not reasonably be expected to have a Material Adverse Effect.
The Company and each of its subsidiaries has fulfilled and performed
all of its obligations with respect to such permits and no event has
occurred which allows, or after notice or lapse of time would allow,
revocation or termination thereof or results in any other material
impairment of the rights of the holder of any such permit, and, except
as described in the Offering Memorandum, such permits contain no
restrictions that are materially burdensome to the Company or any of
its subsidiaries, as the case may be.
(dd) The Company and each of its subsidiaries has (i) good
and marketable title to all of the properties and assets described in
the Offering
17
<PAGE> 18
Memorandum as owned by it, free and clear of all liens, charges,
encumbrances and restrictions (except liens, charges, encumbrances and
restrictions that do not in the aggregate materially detract from the
value of such properties and assets or materially impair the use
thereof in the operation of the business of the Company and its
subsidiaries, taken as a whole) and (ii) peaceful and undisturbed
possession under all material leases to which any of them is a party
as lessee and each of which lease is valid and binding and no default
exists thereunder.
(ee) All federal tax returns and material state tax
returns required to be filed by the Company or any of its subsidiaries
in all jurisdictions have been so filed. All material taxes, including
withholding taxes, penalties and interest, assessments, fees and other
charges due or claimed to be due from such entities or that are due
and payable have been paid, other than those being contested in good
faith and for which adequate reserves have been provided. To the
knowledge of the Company and HMC after reasonable inquiry, there are
no material proposed additional tax assessments against the Company or
any of its subsidiaries, or the assets or property of the Company or
any of its subsidiaries.
(ff) Neither the Company nor any of its subsidiaries is an
"investment company" or a company "controlled" by an "investment
company" within the meaning of the Investment Company Act, and
following the Company's receipt of the proceeds from the issuance of
the Units, neither the Company nor any of its subsidiaries will be
such an "investment company" or company "controlled" by an investment
company at any time in the future because of the investment of such
proceeds.
(gg) There are no holders of securities of the Company who
have the right to request or demand that the Company register their
transfer of securities on either the Exchange Offer Registration
Statement or the Note Shelf Registration Statement. Except as
disclosed in the Offering Memorandum, there are no holders of
securities of the Company who have the right to request or demand that
the Company register their transfer of securities on the Warrant Shelf
Registration Statement.
(hh) The Company and each of its subsidiaries maintains a
system of internal accounting controls sufficient to provide
reasonable assurance that (i) transactions are executed in accordance
with management's general or specific authorizations, (ii)
transactions are recorded as necessary to permit preparation of
financial statements in conformity with generally accepted accounting
principles and to maintain accountability for assets, (iii) access to
assets is permitted only in accordance with management's general or
specific authorization and (iv) the recorded accountability for assets
is compared with the existing assets at reasonable intervals and
appropriate action is taken with respect thereto.
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<PAGE> 19
(ii) The Company and each of its subsidiaries maintains,
or the Company maintains on behalf of each of its subsidiaries,
insurance against losses and risks to their properties, operations,
personnel and businesses which is adequate in accordance with
customary industry practice to protect the Company and its
subsidiaries and their respective businesses. Neither the Company nor
any of its subsidiaries has received notice from any insurer or agent
of such insurer that substantial capital improvements or other
material expenditures will have to be made in order to continue such
insurance. All such insurance is outstanding and duly in force on the
date hereof and will be outstanding and duly in force on the Closing
Date on the terms in effect on the date hereof.
(jj) Neither the Company nor any of its subsidiaries has
(i) taken, directly or indirectly, any action designed to, or that
might reasonably be expected to, cause or result in stabilization or
manipulation of the price of any security of the Company to facilitate
the sale or resale of the Securities or (ii) since the date of the
Preliminary Offering Memorandum sold, bid for, purchased or paid any
person any compensation for soliciting purchases of the Securities or
paid or agreed to pay to any person any compensation for soliciting
another person to purchase any other securities of the Company.
(kk) No registration under the Act of the Units is
required for the sale of the Units to the Initial Purchasers as
contemplated hereby or for the Exempt Resales assuming (i) that the
Initial Purchasers are QIBs, (ii) that the purchasers who buy the
Units in the Exempt Resales are Eligible Purchasers, (iii) the
accuracy of the Initial Purchasers' representations set forth in
Section 6 hereof, and (iv) receipt by the purchasers to whom the
Initial Purchasers initially resell the Units of a copy of the
Offering Memorandum at or prior to the delivery of confirmation of
sale. No form of general solicitation or general advertising was used
by the Company or any of its subsidiaries or any of their
representatives (although no representation or warranty is made as to
actions taken by the Initial Purchasers and their representatives) in
connection with the offer and sale of any of the Units or in
connection with Exempt Resales, including, but not limited to,
articles, notices or other communications published in any newspaper,
magazine, or similar medium or broadcast over television or radio, or
any seminar or meeting whose attendees have been invited by any
general solicitation or general advertising. No securities of the same
class as the Units have been issued and sold by the Company or any of
its subsidiaries within the six month period immediately prior to the
date hereof.
(ll) The execution and delivery of this Agreement, the
other Operative Documents and the sale of the Units to be purchased by
the Eligible Purchasers will not involve any prohibited transaction
within the meaning of Section 406 of ERISA or Section 4975 of the
Internal Revenue Code of 1986. The representations made in the
preceding sentence are made in reliance upon and subject to the
accuracy of, and compliance with, the representations and covenants
made or deemed made
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<PAGE> 20
by the Eligible Purchasers as set forth in the Offering Memorandum
under the caption "Notice to Investors."
(mm) Subsequent to the respective dates as of which
information is given in the Offering Memorandum and up to the Closing
Date, except as set forth in the Offering Memorandum, (i) neither the
Company nor any of its subsidiaries has incurred any liabilities or
obligations, direct or contingent, except in the ordinary course of
business consistent with past practices, which are material,
individually or in the aggregate, to the Company and its subsidiaries,
taken as a whole, other than the possible draw upon the $5,000,000
interim financing made available by a stockholder of the Company and
described in the Offering Memorandum, nor entered into any material
transaction not in the ordinary course of business consistent with
past practices, (ii) there has not been, individually or in the
aggregate, any change or development of which the Company is aware
which could reasonably be expected to result in a Material Adverse
Effect and (iii) there has been no dividend or distribution of any
kind declared, paid or made by the Company or any of its subsidiaries
on any class of their capital stock.
(nn) None of the execution, delivery and performance of
this Agreement, the issuance and sale of the Units, the application of
the proceeds from the issuance and sale of the Units and the
consummation of the transactions contemplated thereby as set forth in
the Offering Memorandum, will violate Regulations G, T, U or X
promulgated by the Board of Governors of the Federal Reserve System or
analogous foreign laws and regulations.
(oo) The accountants who have issued a report on the
financial statements included as part of the Offering Memorandum are
independent accountants. The annual historical financial statements of
the Company included in the Offering Memorandum comply as to form in
all material respects with the requirements applicable to registration
statements on Form S-1 under the Act and present fairly in all
material respects the financial position and results of operations of
the Company at the respective dates and for the respective periods
indicated. Such financial statements have been prepared in accordance
with generally accepted accounting principles applied on a consistent
basis throughout the periods presented except as indicated in the
notes thereto. The pro forma adjustments and as adjusted information
included in the Offering Memorandum give effect to assumptions made on
a reasonable basis with respect to the proposed transactions
contemplated by the Offering Memorandum and this Agreement. The other
financial and statistical information and data included in the
Offering Memorandum, historical, as adjusted and pro forma, are
accurately presented on a basis consistent with the financial
statements included in the Offering Memorandum and the books and
records of the Company.
(pp) In connection with the issuance of the Series A Notes,
neither the
20
<PAGE> 21
Company nor HMC intends to, nor does it believe that it will, incur
debts beyond its ability to pay or refinance such debts as they
mature. After giving effect to the transactions contemplated by the
Offering Memorandum, the present fair market value of the assets of
the Company and its subsidiaries, taken as a whole, will exceed the
amount that will be required to be paid on or in respect of the
existing debts and other liabilities (including contingent
liabilities) of the Company and its subsidiaries when and as they
become absolute and matured. After giving effect to such
transactions, the assets of the Company and its subsidiaries, taken as
whole, will not constitute unreasonably small capital to carry out
their businesses as now conducted, including the capital needs of the
Company and its subsidiaries, taking into account the projected
capital requirements and capital availability.
(qq) Except pursuant to this Agreement, there are no
contracts, agreements or understandings between or among the Company
or any of its subsidiaries and any other person that would give rise
to a valid claim against the Company or any of its subsidiaries or the
Initial Purchasers for a brokerage commission, finder's fee or like
payment in connection with the issuance, purchase and sale of the
Units.
(rr) There exist no conditions that would constitute a
default by the Company or HMC (or an event which with notice or the
lapse of time, or both, would constitute a default) under any of the
Operative Documents.
(ss) Each certificate signed by any officer of the Company
or HMC and delivered to the Initial Purchasers or counsel for the
Initial Purchasers shall be deemed to be a representation and warranty
by the Company and HMC to the Initial Purchasers as to the matters
covered thereby.
(tt) Except as could not reasonably be expected to have a
Material Adverse Effect, the Company and its subsidiaries have not
violated or created a price matching event under any provision of any
agreement with any of their customers that provides that the Company
and its subsidiaries will not charge any other person a lower price
for a particular product or service than the price charged such
customer (the "Most Favored Nation Pricing Provisions").
(uu) The Company and HMC have provided to the Initial
Purchasers or counsel for the Initial Purchasers all documents that
would be required to be filed as exhibits to a Registration Statement
on Form S-1 registering the sale of the Units.
The Company and HMC acknowledge that the Initial Purchasers
and, for purposes of the opinions to be delivered to the Initial Purchasers
pursuant to Section 9 hereof, counsel to the Company and HMC and counsel to the
Initial Purchasers, will rely upon the accuracy and truth of the foregoing
representations as to factual matters and
21
<PAGE> 22
hereby consent to such reliance.
6. REPRESENTATIONS AND WARRANTIES OF THE INITIAL
PURCHASERS.
Each of the Initial Purchasers severally, but not jointly,
represents and warrants to the Company and HMC that:
(a) Such Initial Purchaser is a QIB, with such knowledge
and experience in financial and business matters as are necessary in
order to evaluate the merits and risks of an investment in the Units.
(b) Such Initial Purchaser (i) is not acquiring the
Units with a view to any distribution thereof that would violate the
Act or the securities laws of any state of the United States or any
other applicable jurisdiction and (ii) will be reoffering and
reselling the Units only to (A) QIBs in reliance on the exemption from
the registration requirements of the Act provided by Rule 144A and (B)
non-U.S. persons in offers and sales that occur outside the United
States within the meaning of Regulation S under the Act.
(c) No form of general solicitation or general
advertising has been or will be used in the United States by such
Initial Purchaser or any of its representatives in connection with the
Exempt Resales, including, but not limited to, articles, notices or
other communications published in any newspaper, magazine, or similar
medium or broadcast over television or radio, or any seminar or
meeting whose attendees have been invited by any general solicitation
or general advertising.
(d) Such Initial Purchaser agrees that, in connection
with the Exempt Resales, it will solicit offers to buy the Units only
from, and will offer to sell the Units only to Eligible Purchasers.
Such Initial Purchaser further agrees that it will offer to sell the
Units only to, and will solicit offers to buy the Units only from
Eligible Purchasers (i) that in purchasing such Units will be deemed
to have represented and agreed that they are purchasing the Units for
their own accounts or accounts with respect to which they exercise
sole investment discretion and that they or such accounts are Eligible
Purchasers; (ii) that acknowledge and agree that such Units will not
have been registered under the Act; and (iii) that agree (A) to offer,
sell, pledge or otherwise transfer such Units only (1) to the Company,
(2) pursuant to a registration statement which has been declared
effective under the Act, (3) to a person they reasonably believe is a
QIB in a transaction meeting the requirements of Rule 144A of the Act,
(4) pursuant to an offer and sale to a Regulation S Investor in a
transaction meeting the requirements of Rule 904 of Regulation S of
the Act, (5) to an IAI that (A) with respect to the Series A Notes,
prior to such transfer, furnishes to the Trustee a signed letter
containing certain representations and agreements relating to the
transfer of such Series A Notes (the form of which letter can be
obtained from the Trustee), and, in the case of any transfer to any
IAI of an
22
<PAGE> 23
aggregate principal amount of Series A Notes of $100,000 or less, an
opinion of counsel if the Company so requests, and (B) with respect to
the Warrants, prior to such transfer, furnishes to the Warrant Agent a
signed letter containing certain representations and agreements
relating to the transfer of such Warrants (the form of which letter
can be obtained from the Warrant Agent), and, in the case of any
transfer to any IAI of Warrants entitling the holder to purchase 656.6
or fewer shares of Common Stock, an opinion of counsel if the Company
so requests, or (6) pursuant to any other available exemption from the
registration requirements under the Act (and based on an opinion of
counsel if the Company so requests), subject in each of the foregoing
cases to applicable securities laws of any State of the United States
or any other applicable jurisdiction and (B) to notify any person
purchasing from them such Units of the resale restrictions set forth
in (A) above.
Such Initial Purchaser understands that the Company and HMC
and, for purposes of the opinions to be delivered to the Initial Purchasers
pursuant to Section 9 hereof, counsel to the Company and HMC and counsel to the
Initial Purchasers, will rely upon the accuracy and truth of the foregoing
representations as to factual matters and hereby consents to such reliance.
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<PAGE> 24
7. INDEMNIFICATION.
(a) The Company and HMC, jointly and not severally, shall
indemnify and hold harmless, to the fullest extent permitted by law, the
Initial Purchasers, each person, if any, who controls the Initial Purchasers
within the meaning of Section 15 of the Act or Section 20(a) of the Exchange
Act and the respective officers, directors, partners, employees,
representatives and agents of the Initial Purchasers or any controlling
persons, against any and all losses, liabilities, claims, damages and expenses
whatsoever (including but not limited to reasonable attorneys' fees and any and
all reasonable expenses whatsoever incurred in investigating, preparing or
defending against any litigation, commenced or threatened, or any claim
whatsoever, and any and all amounts paid in settlement of any claim or
litigation), joint or several, to which they or any of them may become subject
under the Act, the Exchange Act or otherwise, insofar as such losses,
liabilities, claims, damages or expenses (or actions in respect thereof) arise
out of or are based upon any untrue statement or alleged untrue statement of a
material fact contained in the Preliminary Offering Memorandum or the Offering
Memorandum, or in any supplement thereto or amendment thereof, or arise out of
or are based upon the omission or alleged omission to state therein a material
fact required to be stated therein or necessary to make the statements therein,
in the light of the circumstances under which they were made, not misleading;
provided, however, that the Company and HMC will not be liable in any such case
to the extent, but only to the extent, that any such loss, liability, claim,
damage or expense arises out of or is based upon any untrue statement or
alleged untrue statement or omission or alleged omission made (i) in the
Preliminary Offering Memorandum or the Offering Memorandum in reliance upon and
in conformity with written information furnished to the Company by or on behalf
of the Initial Purchasers expressly for use therein or (ii) in the Preliminary
Offering Memorandum or the Offering Memorandum, as the case may be, if a copy
of the Offering Memorandum (as then amended or supplemented) was not sent or
given by or on behalf of such Initial Purchasers to the person asserting any
such loss, claim, damage, liability or expense, at or prior to the written
confirmation of the sale of the Units and the Offering Memorandum (as then
amended or supplemented) corrected such untrue or alleged untrue statement or
such omission or alleged omission. This indemnity agreement will be in
addition to any liability which the Company and HMC may otherwise have,
including under this Agreement.
(b) The Initial Purchasers, severally but not jointly,
shall indemnify and hold harmless the Company, HMC, each person, if any, who
controls the Company within the meaning of Section 15 of the Act or Section
20(a) of the Exchange Act and the respective officers, directors, partners,
employees, representatives and agents of the Company, HMC or any controlling
persons, against any and all losses, liabilities, claims, damages, and expenses
whatsoever (including but not limited to reasonable attorneys' fees and any and
all reasonable expenses whatsoever incurred in investigating, preparing, or
defending against any litigation, commenced or threatened, or any claim
whatsoever, and any and all amounts paid in settlement of any claim or
litigation), joint or several, to which they may become subject under the Act,
the Exchange Act or otherwise, insofar as
24
<PAGE> 25
such losses, liabilities, claims, damages or expenses (or actions in respect
thereof) arise out of or are based upon any untrue statement or alleged untrue
statement of a material fact contained in the Preliminary Offering Memorandum
or the Offering Memorandum, or in any amendment thereof or supplement thereto,
or arise out of or are based upon the omission or alleged omission to state
therein a material fact required to be stated therein or necessary to make the
statements therein, in the light of the circumstances under which they were
made, not misleading, in each case to the extent, but only to the extent, that
any such loss, liability, claim, damage or expense arises out of or is based
upon any untrue statement or alleged untrue statement or omission or alleged
omission made therein in reliance upon and in conformity with written
information furnished to the Company by or on behalf of the Initial Purchasers
expressly for use therein; provided, however, that in no case shall the Initial
Purchasers be liable or responsible for any amount in excess of the discounts
and commissions received by the Initial Purchasers, as set forth on the cover
page of the Offering Memorandum. This indemnity will be in addition to any
liability which the Initial Purchasers may otherwise have, including under this
Agreement.
(c) Promptly after receipt by an indemnified party under
subsection (a) or (b) above of notice of the commencement of any action, such
indemnified party shall, if a claim in respect thereof is to be made against
the indemnifying party under such subsection, notify each party against whom
indemnification is to be sought in writing of the commencement thereof (but the
failure so to notify an indemnifying party shall not relieve it from any
liability which it may have under this Section 7, except to the extent that it
has been prejudiced in any material respect by such failure, or from any
liability which it may otherwise have). In case any such action is brought
against any indemnified party, and it notifies an indemnifying party of the
commencement thereof, the indemnifying party will be entitled to participate
therein, and to the extent it may elect by written notice delivered to the
indemnified party promptly after receiving the aforesaid notice from such
indemnified party, to assume the defense thereof with counsel reasonably
satisfactory to such indemnified party. Notwithstanding the foregoing, the
indemnified party or parties shall have the right to employ its or their own
counsel in any such case, but the fees and expenses of such counsel shall be at
the expense of such indemnified party or parties unless (i) the employment of
such counsel shall have been authorized in writing by the indemnifying parties
in connection with the defense of such action, (ii) the indemnifying parties
shall not have employed counsel to take charge of the defense of such action
within a reasonable time after notice of commencement of the action or (iii)
such indemnified party or parties shall have concluded, upon the advice of
counsel, that there may be defenses available to it or them which are different
from or additional to those available to one or all of the indemnifying parties
(in which case the indemnifying parties shall not have the right to direct such
different or additional defenses on behalf of the indemnified party or parties,
but shall retain any common defenses), in any of which events such fees and
expenses of counsel shall be borne by the indemnifying parties; provided,
however, that the indemnifying party under subsection (a) or (b) above, shall
only be liable for the legal expenses of one counsel (in addition to any local
counsel) for all indemnified parties in each jurisdiction in which any claim or
action is brought. Anything in this subsection to the
25
<PAGE> 26
contrary notwithstanding, an indemnifying party shall not be liable for any
settlement of any claim or action effected without its prior written consent.
26
<PAGE> 27
8. CONTRIBUTION.
In order to provide for contribution in circumstances in which
the indemnification provided for in Section 7 is for any reason held to be
unavailable or is insufficient (other than by reason of the express terms
thereof) to hold harmless a party indemnified thereunder, the Company and HMC
on the one hand, and the Initial Purchasers, on the other hand, shall
contribute to the aggregate losses, claims, damages, liabilities and expenses
of the nature contemplated by such indemnification provision (including any
investigation, legal and other expenses incurred in connection with, and any
amount paid in settlement of, any action, suit or proceeding or any claims
asserted, but after deducting in the case of losses, claims, damages,
liabilities and expenses suffered by the Company and HMC, any contribution
received by the Company or HMC from persons, other than the Initial Purchasers,
who may also be liable for contribution, including persons who control the
Company within the meaning of Section 15 of the Act or Section 20(a) of the
Exchange Act) to which the Company, HMC and the Initial Purchasers may be
subject, in such proportion as is appropriate to reflect the relative benefits
received by the Company and HMC, on the one hand, and the Initial Purchasers,
on the other hand, from the offering of the Units or, if such allocation is not
permitted by applicable law or indemnification is not available as a result of
the indemnifying party not having received notice as provided in Section 7, in
such proportion as is appropriate to reflect not only the relative benefits
referred to above but also the relative fault of the Company and HMC, on the
one hand, and the Initial Purchasers, on the other hand, in connection with the
statements or omissions which resulted in such losses, claims, damages,
liabilities or expenses, as well as any other relevant equitable
considerations. The relative benefits received by the Company and HMC, on the
one hand, and the Initial Purchasers, on the other hand, shall be deemed to be
in the same proportion as (x) the total proceeds from the offering of the Units
(net of discounts and commissions but before deducting expenses) received by
the Company and (y) the discounts and commissions received by the Initial
Purchasers, respectively, in each case as set forth in the table on the cover
page of the Offering Memorandum. The relative fault of the Company and HMC, on
the one hand, and of the Initial Purchasers, on the other hand, shall be
determined by reference to, among other things, whether the untrue or alleged
untrue statement of a material fact or the omission or alleged omission to
state a material fact relates to information supplied by the Company or HMC, on
the one hand, or the Initial Purchasers, on the other hand, and the parties'
relative intent, knowledge, access to information and opportunity to correct or
prevent such statement or omission. The Company, HMC and the Initial Purchasers
agree that it would not be just and equitable if contribution pursuant to this
Section 8 were determined by pro rata allocation or by any other method of
allocation which does not take into account the equitable considerations
referred to above. Notwithstanding the provisions of this Section 8, (i) in no
case shall the Initial Purchasers be required to contribute any amount in
excess of the amount by which the discounts and commissions applicable to the
Units purchased by the Initial Purchasers pursuant to this Agreement exceeds
the amount of any damages which the Initial Purchasers have otherwise been
required to pay by reason of any untrue or alleged untrue statement or omission
or alleged omission and (ii)
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<PAGE> 28
no person guilty of fraudulent misrepresentation (within the meaning of Section
11(f) of the Act) shall be entitled to contribution from any person who was not
guilty of such fraudulent misrepresentation. For purposes of this Section 8,
each person, if any, who controls the Initial Purchasers within the meaning of
Section 15 of the Act or Section 20(a) of the Exchange Act and the respective
officers, directors, partners, employees, representatives and agents of the
Initial Purchasers or any controlling persons shall have the same rights to
contribution as the Initial Purchasers, and each person, if any, who controls
the Company, within the meaning of Section 15 of the Act or Section 20(a) of
the Exchange Act and the respective officers, directors, partners, employees,
representatives and agents of the Company, HMC or any controlling persons shall
have the same rights to contribution as the Company and HMC, subject in each
case to clauses (i) and (ii) of this Section 8. Any party entitled to
contribution will, promptly after receipt of notice of commencement of any
action, suit or proceeding against such party in respect of which a claim for
contribution may be made against another party or parties under this Section 8,
notify such party or parties from whom contribution may be sought, but the
failure to so notify such party or parties shall not relieve the party or
parties from whom contribution may be sought from any obligation it or they may
have under this Section 8 or otherwise.
9. CONDITIONS OF INITIAL PURCHASERS' OBLIGATIONS.
The obligations of the Initial Purchasers to purchase and pay
for the Units, as provided herein, shall be subject to the following
conditions:
(a) All of the representations and warranties of the
Company and HMC contained in this Agreement shall be true and correct
on the date hereof and on the Closing Date with the same force and
effect as if made on and as of the date hereof and the Closing Date,
respectively. The Company and HMC shall have performed or complied
with all of the agreements herein contained and required to be
performed or complied with by them at or prior to the Closing Date.
(b) The Offering Memorandum shall have been printed and
copies distributed to the Initial Purchasers in New York as soon as
practicable after the date of this Agreement but not later than such
time as the Initial Purchasers reasonably request, and no stop order
suspending the qualification or exemption from qualification of the
Units in any jurisdiction referred to in Section 4(e) shall have been
issued and no proceeding for that purpose shall have been commenced or
shall be pending or threatened.
(c) No action shall have been taken and no statute,
rule, regulation or order shall have been enacted, adopted or issued
by any governmental agency which could, as of the Closing Date,
reasonably be expected to have a Material Adverse Effect; no action,
suit or proceeding shall have been commenced and be pending against or
affecting or threatened against, the Company or any of its
subsidiaries before any court or arbitrator or any governmental body,
agency or
28
<PAGE> 29
official that could reasonably be expected to result in a Material
Adverse Effect; and no stop order shall have been issued preventing
the use of the Offering Memorandum, or any amendment or supplement
thereto, or which could have a Material Adverse Effect.
(d) Since the dates as of which information is given in
the Offering Memorandum and other than as set forth in the Offering
Memorandum, (i) there shall not have been any material and adverse
change or any development that is reasonably likely to result in a
material and adverse change in the long-term debt, or material
increase in the short-term debt, of the Company or any of its
subsidiaries from that set forth in the Offering Memorandum, other
than the possible draw upon the $5,000,000 interim financing made
available by a stockholder of the Company and described in the
Offering Memorandum, (ii) no dividend or distribution of any kind
shall have been declared, paid or made by the Company or any of its
subsidiaries on any class of the Company's capital stock, and (iii)
neither the Company nor any of its subsidiaries shall have incurred
any liabilities or obligations other than in the ordinary course of
business consistent with past practices, direct or contingent, that
are material and adverse, individually or in the aggregate, to the
Company and its subsidiaries, taken as a whole, and that are required
to be disclosed on a balance sheet or notes thereto in accordance with
generally accepted accounting principles and are not disclosed on the
latest balance sheet or notes thereto included in the Offering
Memorandum. Since the date hereof and since the dates as of which
information is given in the Offering Memorandum there shall not have
occurred any material adverse change in the actual or reasonably
foreseeable prospective properties, business, results of operations,
financial condition, or affairs of the Company and its subsidiaries
taken as a whole.
(e) The Initial Purchasers shall have received a
certificate, dated the Closing Date, signed by the president and chief
executive officer and the chief financial officer of each of the
Company and HMC (i) confirming as of the Closing Date, the matters set
forth in paragraphs (a), (b), (c) and (d) of this Section 9, and (ii)
stating that as of the Closing Date, no facts have come to such
officers' attention that would cause such officers to believe that the
Offering Memorandum, as of its date or the Closing Date, contained an
untrue statement of a material fact or omitted 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.
(f) The Initial Purchasers shall have received on the
Closing Date (i) the opinion, dated the Closing Date, of Baker &
Botts, L.L.P., Dallas, Texas, counsel to the Company and HMC, to the
effect set forth in Exhibit C hereto, (ii) the opinion, dated the
Closing Date, of Kelley Drye & Warren LLP, special regulatory counsel
to the Company and HMC, to the effect set forth in Exhibit D hereto
and (iii) the opinion, dated the Closing Date, of Wesley E. Schlenker,
General Counsel of the
29
<PAGE> 30
Company and HMC, to the effect set forth in Exhibit E hereto. Such
opinions shall not be "accord" opinions.
(g) The Initial Purchasers shall have received on the
Closing Date the certificate of Texas Commerce Bank, National
Association, in its capacity as Trustee and Warrant Agent, to the
effect that (i) it is a national banking association or state
chartered bank or trust company and is duly incorporated and validly
existing in good standing under the laws of the jurisdiction in which
it is incorporated, (ii) it has the corporate power and authority
necessary to enter into the Indenture and authenticate or countersign
the Securities as Trustee and Warrant Agent thereunder, (iii) the
Indenture and the Warrant Agreement have been duly and validly
authorized, executed and delivered by it and are the legal, valid and
binding agreements of it enforceable against it in accordance with
their terms, (iv) the Series A Notes have been duly authenticated and
delivered by it pursuant to the terms of this Agreement and the
Indenture, and (v) the Warrants have been duly countersigned and
delivered by it pursuant to the terms of this Agreement and the
Warrant Agreement.
(h) The Initial Purchasers shall have received on the
Closing Date the opinion, dated the Closing Date, of Akin, Gump,
Strauss, Hauer & Feld, L.L.P., counsel to the Initial Purchasers,
covering such matters as are customarily covered in such opinions.
(i) At the time this Agreement is executed and at the
Closing Date the Initial Purchasers shall have received from Price
Waterhouse, L.L.P., independent public accountants for the Company and
HMC, dated as of the date of this Agreement and as of the Closing
Date, customary comfort letters addressed to the Initial Purchasers
and in form and substance previously agreed upon by the Initial
Purchasers and counsel to the Initial Purchasers with respect to the
financial statements and certain financial information of the Company
and its subsidiaries contained in the Offering Memorandum.
(j) The Company, HMC and the Trustee shall have entered
into the Indenture and the Initial Purchasers shall have received
counterparts, conformed as executed, thereof.
(k) The Company and the Trustee shall have entered into
the Pledge Agreement and the Initial Purchasers shall have received
counterparts, conformed as executed, thereof.
(l) The Company and HMC shall have entered into the Note
Registration Rights Agreement and the Initial Purchasers shall have
received counterparts, conformed as executed, thereof.
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<PAGE> 31
(m) The Company and the Warrant Agent shall have entered
into the Warrant Agreement and the Initial Purchasers shall have
received counterparts, conformed as executed, thereof.
(n) The Company shall have entered into the Warrant
Registration Rights Agreement and the Initial Purchasers shall have
received counterparts, conformed as executed, thereof.
(o) Akin, Gump, Strauss, Hauer & Feld, L.L.P. shall have
been furnished with such documents, in addition to those set forth
above, as they may reasonably require for the purpose of enabling them
to review or pass upon the matters referred to in this Section 9 and
in order to evidence the accuracy, completeness or satisfaction in all
material respects of any of the representations, warranties or
conditions herein contained.
(p) Prior to the Closing Date, the Company and HMC shall
have furnished to the Initial Purchasers such further information,
certificates and documents as the Initial Purchasers may reasonably
request.
All opinions, certificates, letters and other documents
required by this Section 9 to be delivered by the Company and HMC will be in
compliance with the provisions hereof only if they are reasonably satisfactory
in form and substance to the Initial Purchasers and their counsel. The Company
and HMC will furnish the Initial Purchasers with such conformed copies of such
opinions, certificates, letters and other documents as they shall reasonably
request.
10. INITIAL PURCHASERS' INFORMATION.
The Company, HMC and the Initial Purchasers severally
acknowledge that the statements with respect to the offering of the Units set
forth in (a) the last paragraph of the cover page, (b) the last paragraph on
page iv, and (c) the third paragraph, the fifth, sixth and seventh sentences of
the fourth paragraph (counting the cross-reference sentence as the second
sentence of such paragraph) the sixth paragraph and the seventh paragraph under
the caption "Plan of Distribution" in the Offering Memorandum constitute the
only information furnished in writing by the Initial Purchasers expressly for
use in the Offering Memorandum.
11. SURVIVAL OF REPRESENTATIONS AND AGREEMENTS.
All representations and warranties, covenants and agreements
of the Initial Purchasers, the Company and HMC contained in this Agreement,
including without limitation, the agreements contained in Sections 12(d) and
14, the indemnity agreements contained in Section 7 and the contribution
agreements contained in Section 8, shall remain operative and in full force and
effect regardless of any investigation made by or on
31
<PAGE> 32
behalf of the Initial Purchasers, any controlling person thereof or by or on
behalf of the Company, HMC or any controlling person thereof, and shall survive
delivery of and payment for the Units to and by the Initial Purchasers. The
agreements contained in Sections 12(d) and 14 shall survive the termination of
this Agreement, including any termination pursuant to Section 12.
12. EFFECTIVE DATE OF AGREEMENT; TERMINATION.
(a) This Agreement shall become effective upon execution
and delivery of a counterpart hereof by each of the parties hereto.
(b) The Initial Purchasers shall have the right to
terminate this Agreement at any time prior to the Closing Date by
notice to the Company and HMC from the Initial Purchasers, without
liability (other than with respect to Sections 7 and 8) on the Initial
Purchasers' part to the Company and HMC if, on or prior to such date,
(i) the Company or HMC shall have failed, refused or been unable to
perform in any material respect any agreement on its part to be
performed hereunder, (ii) any other condition to the obligations of
the Initial Purchasers hereunder as provided in Section 9 is not
fulfilled when and as required in any material respect, (iii) in the
reasonable judgment of the Initial Purchasers, any material adverse
change shall have occurred since the respective dates as of which
information is given in the Offering Memorandum in the actual or
reasonably foreseeable prospective properties, business, results of
operations, financial condition or affairs of the Company and its
subsidiaries, taken as a whole, other than as set forth in the
Offering Memorandum, or (iv)(A) any domestic or international event or
act or occurrence has materially disrupted, or in the reasonable
opinion of the Initial Purchasers will in the immediate future
materially disrupt, the market for the Company's securities or for
securities in general; or (B) trading in securities generally on
either of the New York or American Stock Exchanges shall have been
suspended or materially limited, or minimum or maximum prices for
trading shall have been established, or maximum ranges for prices for
securities shall have been required, on such exchange, or by such
exchange or other regulatory body or governmental authority having
jurisdiction; or (C) a banking moratorium shall have been declared by
federal or state authorities, or a moratorium in foreign exchange
trading by major international banks or persons shall have been
declared; or (D) there is an outbreak or escalation of armed
hostilities involving the United States on or after the date hereof,
or if there has been a declaration by the United States of a national
emergency or war, the effect of which shall be, in the Initial
Purchasers' reasonable judgment, to make it inadvisable or
impracticable to proceed with the offering or delivery of the Units on
the terms and in the manner contemplated in the Offering Memorandum;
or (E) there shall have been such a material adverse change in general
economic, political or financial conditions or if the effect of
international conditions on the financial markets in the United States
shall be such as, in the Initial Purchasers' reasonable judgment,
makes it inadvisable or
32
<PAGE> 33
impracticable to proceed with the offering or delivery of the Units as
contemplated thereby; or (F) (I) there shall have occurred a
downgrading in the rating accorded the Series A Notes by any
"nationally recognized statistical rating organization" as that term
is defined by the Commission for purposes of Rule 436(g)(2) of the
rules and regulations of the Commission under the Act or (II) any such
organization shall have publicly announced that it has under
surveillance or review (other than an announcement with positive
implications of a possible upgrading), its rating of the Series A
Notes or any other securities of the Company.
(c) Any notice of termination pursuant to this Section 12
shall be by telephone, telex, telephonic facsimile, or telegraph,
confirmed in writing by letter within three days thereof.
(d) If this Agreement shall be terminated pursuant to
Sections 12(b)(i), 12(b)(ii) or 12(b)(iv)(F) or if the sale of the
Units provided for herein is not consummated because any condition to
the obligations of the Initial Purchasers set forth herein is not
satisfied or because of any refusal, inability or failure on the part
of the Company or HMC to perform any agreement herein or comply with
any provision hereof, the Company and HMC will, jointly and not
severally, subject to demand by the Initial Purchasers, reimburse the
Initial Purchasers for all reasonable out-of-pocket expenses
(including the reasonable fees and expenses of Initial Purchasers'
counsel), incurred by the Initial Purchasers in connection herewith.
13. DEFAULTING INITIAL PURCHASERS.
(a) If, on the Closing Date, an Initial Purchaser
defaults in the performance of its obligations under this Agreement,
the non-defaulting Initial Purchaser may make arrangements for the
purchase of the Units by other persons satisfactory to the Company and
the non-defaulting Initial Purchaser, but if no such arrangements are
made within 36 hours after such default, this Agreement shall
terminate without liability on the part of the non-defaulting Initial
Purchaser or the Company, except that the Company will continue to be
liable for the payment of expenses only to the extent set forth in
Section 14. As used in this Agreement, the term "Initial Purchaser"
includes, for all purposes of this Agreement unless the context
otherwise requires, any party not listed in Schedule 3(a) hereto who,
pursuant to this Section 13, purchases Units which a defaulting
Initial Purchaser agreed but failed to purchase.
(b) Nothing contained herein shall relieve a defaulting
Initial Purchaser of any liability it may have to the Company or the
non-defaulting Initial Purchaser for damages caused by its default. If
other persons are obligated or agree to purchase the Units of a
defaulting Initial Purchaser, either the non-defaulting Initial
Purchaser or the Company may postpone the Closing Date for up to seven
full business days in order to effect any changes that in the opinion
of counsel for the Company or
33
<PAGE> 34
counsel for the Initial Purchasers may be necessary in the Offering
Memorandum or in any other document or arrangement and the Company
agrees to promptly make any amendment or supplement to the Offering
Memorandum that effects any such changes.
14. FEES AND EXPENSES.
Whether or not the transactions contemplated by this Agreement
are consummated or this Agreement becomes effective or is terminated, the
Company and HMC shall pay all costs, expenses, fees and taxes incurred by or on
their behalf in connection with this Agreement and the transactions
contemplated hereby and by the other Operative Documents, including without
limitation all costs, expenses, fees and taxes relating to: (a) the
preparation, printing, filing and distribution of the Preliminary Offering
Memorandum and the Offering Memorandum (including, without limitation,
financial statements) and all amendments and supplements thereto required
pursuant hereto, (b) the preparation (including, without limitation,
duplication costs) and delivery of this Agreement, the other Operative
Documents, all preliminary and final Blue Sky memoranda and all other
agreements, memoranda, correspondence and other documents prepared and
delivered in connection herewith and with the Exempt Resales, (c) the issuance,
transfer and delivery by the Company of the Units to the Initial Purchasers,
(d) the qualification or registration of the Securities for offer and sale
under the securities or Blue Sky laws of the jurisdictions referred to in
Section 4(e) above (including, without limitation, the cost of analyzing such
Blue Sky laws and printing and mailing any preliminary and final Blue Sky
Memorandum and the reasonable fees and disbursements of counsel to the Initial
Purchasers relating thereto up to a maximum of $5,000), (e) furnishing such
copies of the Preliminary Offering Memorandum and the Offering Memorandum, and
all amendments and supplements thereto, as may be requested for use in
connection with Exempt Resales, (f) the preparation of certificates for the
Securities (including, without limitation, printing and engraving thereof), (g)
the fees, disbursements and expenses of counsel to the Company and HMC and
their independent public accountants, (h) all expenses and listing fees in
connection with the application for quotation of the Securities in the PORTAL
market, (i) all fees and expenses (including fees and expenses of counsel to
the Company and HMC) of the Company and HMC in connection with the approval of
the Securities by DTC for "book-entry" transfer, (j) rating the Note Securities
by rating agencies, (k) the fees and expenses of the Trustee and its counsel in
connection with the Indenture and the Note Securities, (l) the fees and
expenses of the Warrant Agent and its counsel in connection with the Warrant
Agreement, the Warrants, and the Warrant Shares, (m) the performance by the
Company and HMC of their other obligations under this Agreement and the other
Operative Documents, (n) one half of the expense of a chartered aircraft that
the Initial Purchasers chartered in connection with a due diligence trip taken
by the Initial Purchasers, (o) "roadshow" travel and other expenses incurred by
the Company and HMC (including one-half of the expense of a chartered aircraft)
in connection with the marketing and sale of the Units and (p) the Exchange
Offer, the Exchange Offer Registration Statement, the Note Shelf Registration
Statement, and the Warrant Shelf
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<PAGE> 35
Registration Statement, including any items incidental thereto such as the fees
and expenses of accountants and counsel to the Company or other persons to the
extent provided in the Registration Rights Agreements, the Commission filing
fees for the registration statements, and the cost to reproduce and distribute
the prospectuses included in such registration statements.
15. NOTICE.
All communications hereunder, except as may be otherwise
specifically provided herein, shall be in writing and, if sent to the Initial
Purchasers shall be mailed, delivered, or sent by facsimile, to Bear, Steams &
Co. Inc., 245 Park Avenue, New York, New York 10167, Attention: Corporate
Finance Department, facsimile number (212) 272- 3092; and if sent to the
Company and HMC, shall be mailed, delivered or sent by facsimile to
HighwayMaster Communications, Inc., 16479 Dallas Parkway, Suite 710, Dallas,
Texas 75248, Attention: William C. Saunders, facsimile number (972) 930-7263;
provided, however, that any notice pursuant to Sections 7 or 8 shall be mailed,
delivered or sent by facsimile and confirmed in writing within three days
thereof.
16. PARTIES.
This Agreement shall inure solely to the benefit of, and shall
be binding upon, the Initial Purchasers, the Company, HMC and the controlling
persons and agents referred to in Sections 7 and 8, and their respective
successors and assigns, and no other person shall have or be construed to have
any legal or equitable right, remedy or claim under or in respect of or by
virtue of this Agreement or any provision herein contained. The term
"successors and assigns" shall not include a purchaser, in its capacity as
such, of Units from the Initial Purchasers.
17. CONSTRUCTION.
This Agreement shall be construed in accordance with the
internal laws of the State of New York. Time is of the essence in this
Agreement.
18. CAPTIONS.
The captions included in this Agreement are included solely
for convenience of reference and are not to be considered a part of this
Agreement.
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<PAGE> 36
19. SUBSIDIARIES AND PREDECESSORS.
For purposes of this Agreement, the "subsidiaries" of the Company
shall be all entities that the Company directly or indirectly controls at the
time to which the respective provision of this Agreement refers. In addition,
any representation and warranty concerning the Company or any subsidiary of the
Company concerning any liabilities, obligations, or violations of the Company
or such subsidiary shall be deemed to refer to the Company and each of its
predecessors or such subsidiary and each of its predecessors, respectively.
20. COUNTERPARTS.
This Agreement may be executed in various counterparts which
together shall constitute one and the same instrument.
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<PAGE> 37
If the foregoing correctly sets forth the understanding
between the Initial Purchasers, the Company and HMC, please so indicate in the
space provided below for that purpose, whereupon this letter shall constitute a
binding agreement among us.
Very truly yours,
HIGHWAYMASTER COMMUNICATIONS, INC.
By: /S/ J. PHILIP MCCORMICK
--------------------------------
Name: J. Philip McCormick
Title: Executive Vice President and
Chief Financial Officer
HIGHWAYMASTER CORPORATION
By: /S/ J. Philip McCormick
--------------------------------
Name: J. Philip McCormick
Title: Executive Vice President and
Chief Financial Officer
Accepted and agreed to as of
the date first above written:
BEAR STEARNS & CO. INC.
By: /S/ J. ANDREW BUGAS
----------------------------
Name: J. Andrew Bugas
Title: Senior Managing Director
SMITH BARNEY INC.
By: /S/ MICHAEL ANDERSON
- -------------------------------
Name: Michael Anderson
Title: Managing Director
37
<PAGE> 38
Schedule 3(a)
Purchase of Units
Initial Purchaser Number of Units
- ----------------- ---------------
Bear, Stearns & Co. Inc. 87,500
Smith Barney Inc. 37,500
------
Total 125,000
=======
Page Solo
<PAGE> 39
Schedule 5(c)
Subsidiaries
HighwayMaster Corporation, a Delaware corporation
Page Solo
<PAGE> 40
EXHIBIT A
Form of Note Registration Rights Agreement
A-1
<PAGE> 41
EXHIBIT B
Form of Warrant Registration Rights Agreement
B-1
<PAGE> 42
EXHIBIT C
Form of Opinion of Baker & Botts, L.L.P.
1. The Company has been duly incorporated and is validly existing
as a corporation in good standing under the laws of the State of Delaware. The
Company has all requisite corporate power and authority to carry on its
business as it is currently being conducted and as described in the Offering
Memorandum and to own, lease and operate its properties.
2. HMC has been duly incorporated and is validly existing as a
corporation in good standing under the laws of the State of Delaware. HMC has
all requisite corporate power and authority to carry on its business as it is
currently being conducted and as described in the Offering Memorandum and to
own, lease and operate its properties.
3. The Company and HMC have all requisite corporate power and
authority to execute, deliver and perform their obligations under the Operative
Documents and to consummate the transactions contemplated thereby, including,
without limitation, the corporate power and authority to issue, sell and
deliver the Securities as provided therein.
4. When the Units are issued and delivered pursuant to the
Purchase Agreement, such Units, and the Series A Notes and Warrants of which
the Units consist, will not be of the same class (within the meaning of Rule
144A under the Act) as any security of the Company that is listed on a national
securities exchange registered under Section 6 of the Exchange Act or that is
quoted in a United States automated inter-dealer quotation system.
5. The Purchase Agreement has been duly and validly authorized,
executed and delivered by the Company and HMC and (assuming the due
authorization, execution and delivery of the Purchase Agreement by the Initial
Purchasers), is the legal, valid and binding agreement of the Company and HMC,
enforceable against the Company and HMC in accordance with its terms, subject
to the Enforceability Exceptions and subject to any limitations on the
enforceability thereof imposed by the applicable provisions of federal or state
securities laws or principles of public policy underlying such laws. Such
counsel, however, shall not be required to opine upon the enforceability of the
indemnification and contribution provisions contained in the Purchase
Agreement.
6. The Indenture has been duly and validly authorized, executed
and delivered by the Company and HMC and (assuming the due authorization,
execution and delivery of the Indenture by the Trustee), will be the legal,
valid and binding obligation of the Company and HMC, enforceable against the
Company and HMC in accordance with its terms, subject to the Enforceability
Exceptions. As of the initial date of issuance of the Series A Notes, the
Indenture is not required to be qualified under the Trust Indenture Act.
Nevertheless, the Indenture conforms as to form in all material respects with
the
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<PAGE> 43
requirements of the Trust Indenture Act and the rules and regulations of the
Commission applicable to an indenture that is qualified thereunder.
7. The Pledge Agreement has been duly and validly authorized,
executed and delivered by the Company, and (assuming the due authorization,
execution and delivery of the Pledge Agreement by the Trustee) is the legal,
valid and binding obligation of the Company, enforceable against the Company in
accordance with its terms, subject to the Enforceability Exceptions.
8. The Note Registration Rights Agreement has been duly and
validly authorized, executed and delivered by the Company and HMC, and
(assuming the due authorization, execution and delivery of the Note
Registration Rights Agreement by the Initial Purchasers) is the legal, valid
and binding obligation of the Company and HMC, enforceable against the Company
and HMC in accordance with its terms, subject to the Enforceability Exceptions.
Such counsel, however, shall not be required to opine upon the enforceability
of the indemnification and contribution provisions contained in the Note
Registration Rights Agreement.
9. The Warrant Registration Rights Agreement has been duly and
validly authorized, executed and delivered by the Company, and (assuming the
due authorization, execution and delivery of the Warrant Registration Rights
Agreement by the Initial Purchasers) is the legal, valid and binding obligation
of the Company, enforceable against the Company in accordance with its terms,
subject to the Enforceability Exceptions. Such counsel, however, shall not be
required to opine upon the enforceability of the indemnification and
contribution provisions contained in the Warrant Registration Rights Agreement.
10. The Series A Notes have been duly and validly authorized by
the Company for issuance and sale to the Initial Purchasers pursuant to the
Purchase Agreement and, when issued and authenticated in accordance with the
terms of the Indenture and delivered against payment for the Units of which
they are a part in accordance with the terms of the Purchase Agreement and the
Indenture, will be the legal, valid and binding obligations of the Company,
enforceable against the Company in accordance with their terms and entitled to
the benefits of the Indenture, subject to the Enforceability Exceptions.
11. The Series B Notes have been duly and validly authorized for
issuance by the Company and, when issued and authenticated in accordance with
the terms of the Exchange Offer and the Indenture, will be the legal, valid and
binding obligations of the Company, enforceable against the Company in
accordance with their terms and entitled to the benefits of the Indenture,
subject to the Enforceability Exceptions.
12. The guarantee of the Series A Notes and Series B Notes by HMC
has been duly and validly authorized by HMC and, when issued and authenticated
in accordance with the terms of the Indenture, will be the legal, valid and
binding obligation of HMC
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<PAGE> 44
enforceable against HMC in accordance with their terms, subject to the
Enforceability Exceptions.
13. The Warrant Agreement has been duly and validly authorized,
executed and delivered by the Company, and (assuming the due authorization,
execution and delivery of the Warrant Agreement by the Warrant Agent) is the
legal, valid, and binding obligation of the Company, enforceable against the
Company in accordance with its terms, subject to the Enforceability Exceptions.
Such counsel, however, shall not be required to opine upon the enforceability
of the indemnification and contribution provisions contained in the Warrant
Agreement.
14. The Warrants have been duly and validly authorized by the
Company for issuance and sale to the Initial Purchasers pursuant to the
Purchase Agreement and, when issued and authenticated in accordance with the
terms of the Warrant Agreement and delivered against payment for the Units of
which they are a part in accordance with the terms of the Purchase Agreement
and the Warrant Agreement, will be validly issued and the legal, valid and
binding obligations of the Company, subject to the Enforceability Exceptions.
The Company has duly reserved a sufficient number of its shares of Common Stock
for the issuance of the 820,750 Warrant Shares upon the exercise of the
Warrants. The Company has duly and validly authorized the issuance of the
Warrant Shares upon the exercise of the Warrants. Upon the exercise of the
Warrants and the payment of the exercise price thereof, the respective Warrant
Shares will be validly issued, fully paid and nonassessable, and not issued in
violation of any preemptive or similar rights arising under the General
Corporation Law of the State of Delaware, the Certificate of Incorporation or
the Bylaws of the Company, or the documents listed in the schedule to such
counsel's opinion described in paragraph 15 below.
15. None of (a) the execution, delivery or performance by the
Company or HMC of the Purchase Agreement and the other Operative Documents, (b)
the issuance and sale of the Securities, nor (c) the consummation by the
Company and HMC of the transactions contemplated by the Operative Documents
violates, or constitutes a breach of any of the terms or provisions of, or a
default under (or an event that with notice or the lapse of time, or both,
would constitute a default), or requires consent (other than those consents
that have been obtained) under, or results in the imposition of a lien or
encumbrance (except for encumbrances arising under the Operative Documents) on
any properties of the Company or HMC, or an acceleration of any indebtedness of
the Company or HMC pursuant to: (i) the charter or bylaws of the Company or
HMC, (ii) any bond, debenture, note, indenture, mortgage, deed of trust or
other agreement or instrument to which the Company or HMC is a party or by
which the Company or HMC is bound or to which any of their respective
properties is subject, provided that such counsel may limit such opinion to
those bonds, debentures, notes, indentures, mortgages, deeds of trust, and
other agreements and instruments listed on a schedule to the opinion that
officers of the Company and HMC have certified as identifying each material
bond, debenture, note, indenture, mortgage, deed of trust, or other agreement
or instrument to which the
C-3
<PAGE> 45
Company or HMC is a party or by which the Company or HMC is bound or to which
any of their respective properties is subject, (iii) any existing statute, rule
or regulation of the United States, the State of Delaware (solely with respect
to the General Corporation Law of the State of Delaware), the State of New
York, or the State of Texas applicable to the Company or HMC, or (iv) to the
knowledge of such counsel, any judgment, order or decree of any court or
governmental agency or authority of competent jurisdiction that specifically
names the Company or HMC or states that it applies to any of their properties,
except in the cases of clauses (ii), (iii) and (iv), for any such violation,
default, consent, imposition of a lien or acceleration that could not,
individually or in the aggregate, be reasonably expected to have a Material
Adverse Effect. Except as may be required under applicable state securities or
Blue Sky laws, and except for the filing of registration statements under the
Act and any other requirements of the Act or Exchange Act applicable in
connection with the transactions contemplated by the Registration Rights
Agreements and qualification of the Indenture under the Trust Indenture Act in
connection with the Registration Rights Agreements, no consent, approval,
authorization or order of, or filing, registration, qualification, license or
permit of or with, any court or governmental agency of the United States, the
State of Delaware (solely with respect to the General Corporation Law of the
State of Delaware), the State of New York, or the State of Texas is required
for (1) the execution, delivery and performance by the Company and HMC of the
Purchase Agreement and the other Operative Documents or (2) the issuance and
sale of the Securities and the transactions contemplated thereby, except such
as have been obtained and made and except where the failure to obtain such
consents, approvals, authorizations or orders or make or obtain such filings,
registrations, qualifications, licenses or permits, would not, individually or
in the aggregate, reasonably be expected to have a Material Adverse Effect.
16. To the knowledge of such counsel, there is no action, suit,
investigation or proceeding before or by any court, arbitrator or governmental
agency, body or official now pending or threatened to which the Company or HMC
is a party or to which the business or property of the Company or HMC is
subject, that could, individually or in the aggregate, reasonably be expected
to (i) have a Material Adverse Effect, or (ii) prevent or suspend the issuance
or sale of the Securities or prevent or suspend the use of the Offering
Memorandum.
17. To the knowledge of such counsel, there are no holders of
securities of the Company or HMC who have the right to request or demand that
the Company or HMC register their transfer of securities on either the Exchange
Offer Registration Statement or the Note Shelf Registration Statement. To the
knowledge of such counsel, except as described in the Offering Memorandum,
there are no holders of securities of the Company or HMC who have the right to
request or demand that the Company or HMC register their transfer of securities
on the Warrant Shelf Registration Statement.
18. To the knowledge of such counsel, except as disclosed in the
Offering Memorandum, neither the Company nor any of its subsidiaries has
received any notice of
C-4
<PAGE> 46
infringement of or conflict with asserted rights of others with respect to any
Intellectual Property presently used in connection with their businesses,
except for any infringement that could not reasonably be expected to have a
Material Adverse Effect. The description of the patents and other intellectual
property rights of the Company set forth in the Offering Memorandum under the
captions "Risk Factors--AT&T Litigation," "Risk Factors--Uncertainty Regarding
Patents and Proprietary Rights," "Business--Patents and Proprietary Rights" and
"Business--Legal Proceedings" (to the extent that the information set forth
therein summarizes legal matters) is accurate in all material respects.
19. After giving effect to the sale of the Units and the
application of the net proceeds therefrom as described under the caption "Use
of Proceeds" in the Offering Memorandum, neither the Company nor HMC is an
"investment company" or a company "controlled" by an "investment company"
within the meaning of the Investment Company Act.
20. No registration under the Act of the Units is required for the
sale of the Units to the Initial Purchasers as contemplated by the Purchase
Agreement or for the Exempt Resales assuming (a) that the Initial Purchasers
are QIBs, (b) that the purchasers who buy the Units in the Exempt Resales are
Eligible Purchasers, (c) the accuracy of the Initial Purchasers'
representations as set forth in Section 6 of the Purchase Agreement, (d) the
accuracy of the Company's representations contained in the Purchase Agreement
as to factual matters, (e) receipt by the purchasers to whom the Initial
Purchasers initially resell the Units of a copy of the Offering Memorandum at
or prior to the delivery of confirmation of sale, and (f) that the certificates
representing the Series A Notes bear the legends contemplated by the Indenture
and the certificates representing the Warrants bear the legends contemplated by
the Warrant Agreement.
21. The Securities, the Indenture, the Pledge Agreement, the
Warrant Agreement, the Note Registration Rights Agreement, and the Warrant
Registration Rights Agreement, conform in all material respects to the
descriptions thereof contained in the Offering Memorandum.
22. The information set forth in the Offering Memorandum under the
caption "Business--Strategic Service Alliances of the Company" (to the extent
that the information set forth thereunder summarizes contractual arrangements
between the Company and certain third parties), under the caption
"Business--Legal Proceedings" (to the extent that the information set forth
thereunder summarizes legal documents or proceedings), and under the caption
"Certain U.S. Federal Tax Consequences" (to the extent that the information set
forth therein summarizes legal matters) has been reviewed by counsel and is
accurate in all material respects.
In addition, such counsel shall also have furnished to the Initial
Purchasers a written statement, in form and substance reasonably satisfactory
to the Initial Purchasers, to the effect that such counsel has participated in
conferences with officers and other
C-5
<PAGE> 47
representatives of the Company and HMC, representatives of the Initial
Purchasers, counsel to the Initial Purchasers and representatives of the
independent certified public accountants of the Company and HMC at which the
contents of the Offering Memorandum and related matters were discussed and
although such counsel is not passing upon and does not assume any
responsibility for the accuracy, completeness or fairness of the statements
contained in the Offering Memorandum, on the basis of the foregoing (relying as
to materiality to a large extent upon the statements of officers and other
representatives of the Company), no facts have come to such counsel's attention
that caused such counsel to believe that the Offering Memorandum (other than
the financial statements and related notes and other financial, accounting and
statistical data included therein, as to which no statement need be made), as
of its date or the Closing Date, contained an untrue statement of a material
fact or omitted 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.
In rendering such opinion, such counsel shall opine as to the General
Corporation Law of the State of Delaware, the laws of the State of New York,
the laws of the State of Texas and the federal laws of the United States,
provided that such counsel need not express any opinion regarding the laws of
any other jurisdiction or the Communications Act or the Other
Telecommunications Laws.
C-6
<PAGE> 48
EXHIBIT D
Form of Opinion of Kelley, Drye & Warren, L.L.P.
1. The Company and HMC do not hold any licenses for the use of
frequencies and neither of them has sought any other regulatory approval from
the FCC or any State Telecommunications Agency to conduct its business because
of its belief that it is not a common carrier. Even if the Company's or HMC's
belief as to its status were determined to be incorrect, such counsel knows of
no reason why the Company and HMC would be unable to comply with the
requirements of the FCC and of those states regulating such carriers. Counsel
is not herein providing any opinion as to whether either the Company or HMC are
or are not subject to regulation as a common carrier.
2. No authorization, approval or consent of, or registration or
filing with, the FCC is required for execution, delivery or performance by the
Company and HMC of the Purchase Agreement, the Indenture, the Pledge Agreement,
the Note Registration Rights Agreement, the Warrant Agreement or the Warrant
Registration Rights Agreement, or the consummation by the Company and HMC of
the transactions contemplated therein.
3. The execution, delivery and performance by the Company of the
Purchase Agreement and the consummation by the Company of the transactions
contemplated therein will not conflict with or constitute a breach or violation
of any term or provision of the Communications Act or any Other
Telecommunications Law.
4. The execution, delivery and performance by HMC of the Purchase
Agreement and the consummation by HMC of the transactions contemplated therein
will not conflict with or constitute a breach or violation of any term or
provision of the Communications Act or any Other Telecommunications Law
administered by the FCC.
5. Subject to paragraph 1 above, and except as disclosed in the
Offering Memorandum, to the best of counsel's knowledge, neither the Company
nor HMC has violated the Communications Act or any Other Telecommunications
Law.
6. No proceeding has been instituted or is pending, or to the
best knowledge of such counsel after reasonable inquiry and investigation, is
threatened or contemplated before the FCC against the Company or HMC and, to
the best knowledge of such counsel, no proceeding has been instituted or is
pending, threatened or contemplated before any State Telecommunications Agency
against the Company or HMC, which in each case, if the subject of an
unfavorable ruling, decision or finding, would have a Material Adverse Effect.
7. All statements in the Offering Memorandum under the captions
"Risk Factors--Uncertainty of Government Regulation" and "Business--Regulation"
(except those related to the Company's Canadian operations, as to which such
counsel need not express any opinion) are accurate in all material respects and
fairly present the information required to be set forth therein regarding the
Communications Act and Other
<PAGE> 49
Telecommunications Laws. Without limiting the generality of the foregoing, the
statements under such captions regarding the uncertain status of the Company as
a common carrier or a private carrier or enhanced services provider are
accurate and fairly presented.
D-2
<PAGE> 50
EXHIBIT E
Form of Opinion of Wesley E. Schlenker
1. To the knowledge of such counsel, the Company is duly
qualified and in good standing as a foreign corporation authorized to do
business in each jurisdiction in which the nature of its business or its
ownership or leasing of property requires such qualification, except where the
failure to be so qualified would not reasonably be expected to have a Material
Adverse Effect.
2. To the knowledge of such counsel, HMC is duly qualified and in
good standing as a foreign corporation authorized to do business in each
jurisdiction in which the nature of its business or its ownership or leasing of
property requires such qualification, except where the failure to be so
qualified would not reasonably be expected to have a Material Adverse Effect.
3. Except as described in the Offering Memorandum, neither the
Company nor HMC is (a) in violation of its charter or bylaws, (b) to the
knowledge of such counsel, in default of the performance of any bond,
debenture, note, indenture, mortgage, deed of trust or other agreement or
instrument to which the Company or HMC is a party or by which the Company or
HMC is bound or to which any of their respective properties is subject, or (c)
to the knowledge of such counsel, in violation of any local, state, federal or
foreign law, statute, ordinance, rule, regulation, judgment or court decree
applicable to it or any of its assets or properties (whether owned or leased),
provided that such counsel need not inquire concerning the substantive laws of
any jurisdiction except the federal laws of the United States, the law of the
State of Texas and the General Corporation Law of the State of Delaware when
rendering the opinion set forth in clause (c), and except in the case of
clauses (a), (b), and (c), for any such default or violation that could not,
individually or in the aggregate, reasonably be expected to have a Material
Adverse Effect. Except as described in the Offering Memorandum, to the
knowledge of such counsel, there exists no condition that, with notice or the
passage of time or both, would constitute such a default under any such
document or instrument except for any such default that could not, individually
or in the aggregate with other defaults, reasonably be expected to have a
Material Adverse Effect.
4. All of the issued and outstanding shares of capital stock of
HMC have been duly authorized, validly issued and are fully paid and
nonassessable and were not issued in violation of any preemptive or similar
rights. To the knowledge of such counsel, all of the issued and outstanding
shares of capital stock of HMC are owned by the Company free and clear of any
lien, encumbrance, claim, security interest, restriction on transfer,
stockholders' agreement, voting trust or other restrictions, except for
restrictions on transfer imposed by applicable law and the Amended
Stockholders' Agreement (as defined in the Offering Memorandum).
E-1
<PAGE> 51
5. All of the issued and outstanding shares of capital stock of
the Company have been duly authorized, validly issued, and are fully paid and
nonassessable and were not issued in violation of any preemptive or similar
rights. To the knowledge of such counsel, on June 30, 1997, the Company had
authorized and outstanding capital stock as set forth in the Offering
Memorandum under the caption "Capitalization," subject to the notes and
assumptions included therein.
6. To the knowledge of such counsel, except as disclosed in the
Offering Memorandum, there is (a) no statute, rule, regulation or order that
has been enacted, adopted or issued by any governmental agency or that has been
proposed by any governmental body, and (b) no injunction, restraining order or
order of any nature by a federal or state court or foreign court of competent
jurisdiction to which the Company or HMC is subject or to which the business,
assets, or property of the Company or HMC is subject, that could, individually
or in the aggregate, reasonably be expect to have a Material Adverse Effect.
7. If all material facts and issues of laws were properly
presented and argued, a court called upon to consider the issue should conclude
that the provisions of the agreement between Skinner Transfer Corporation and
HMC, dated August 14, 1996 (together with the related agreements between
Skinner Transfer Corporation and HMC), and the Addendum to Lease and Options to
Purchase Agreement between Contract Freighters, Inc. and HMC, effective as of
June 1, 1996 do not violate or create a price matching event under the Most
Favored Nation Pricing Provisions in any respect that could reasonably be
expected to result in the imposition of a material liability upon the Company
or HMC under any of the following agreements: (a) the Equipment Agreement
dated April 25, 1997 between Burlington Motor Carriers, Inc. and HMC, (b) the
Equipment Agreement dated April 10, 1997 between Wal-Mart Stores East, Inc. and
HMC, (c) the Purchase Agreement dated January 20, 1995 between Ryder Automotive
Carrier Group and HMC and Rider thereto, (d) the Equipment Agreement dated
October 18, 1996 between AmeriTruck Distribution Corporation and HMC, and (e)
the Lease and Options to Purchase Agreement dated May 31, 1994 between Contract
Freighters, Inc. and HMC including Addendum to Lease and Options to Purchase
Agreement between CFI and the HMC effective as of June 1, 1996.
In addition, such counsel shall also have furnished to the Initial
Purchasers a written statement, in form and substance reasonably satisfactory
to the Initial Purchasers, to the effect that such counsel has participated in
conferences with other officers and other representatives of the Company and
HMC, representatives of the Initial Purchasers, counsel to the Initial
Purchasers and representatives of the independent certified public accountants
of the Company and HMC at which the contents of the Offering Memorandum and
related matters were discussed, and although such counsel is not passing upon
and does not assume any responsibility for the accuracy, completeness or
fairness of the statements contained in the Offering Memorandum, on the basis
of the foregoing (relying as to materiality to a large extent upon the
statements of officers and other representatives
E-2
<PAGE> 52
of the Company), no facts have come to such counsel's attention that caused
such counsel to believe that the Offering Memorandum (other than the financial
statements and related notes and other financial, accounting and statistical
data included therein, as to which no statement need be made), as of its date
or the Closing Date, contained an untrue statement of a material fact or
omitted 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.
The opinion of such counsel shall state that it is limited to the
General Corporation Law of the State of Delaware, the laws of the State of
Texas and the federal laws of the United States. To the extent such opinions
relate to the laws of any jurisdiction other than the United States, the State
of Texas, or the State of Delaware (with respect to the Delaware General
Corporation Law), such counsel shall state that he has assumed that such laws
are identical to the laws of the State of Texas. In addition, such counsel
need not express any opinion regarding the Communications Act or the Other
Telecommunications Laws.
E-3
<PAGE> 1
EXHIBIT 23.1
CONSENT OF INDEPENDENT ACCOUNTANTS
We hereby consent to the use in the Prospectus constituting part of this
Registration Statement on Form S-4 of HighwayMaster Communications, Inc. of our
report dated February 10, 1997 relating to the financial statements of
HighwayMaster Communications, Inc., which appears in such Prospectus. We also
consent to the references to us under the heading "Experts" in such Prospectus.
PRICE WATERHOUSE LLP
Dallas, Texas
October 20, 1997
<PAGE> 1
EXHIBIT 25.1
SECURITIES AND EXCHANGE COMMISSION
Washington, D.C. 20549
-------------------------
F O R M T-1
STATEMENT OF ELIGIBILITY AND QUALIFICATION UNDER THE TRUST INDENTURE ACT
OF 1939 OF A CORPORATION
DESIGNATED TO ACT AS TRUSTEE
-------------------------
CHECK IF AN APPLICATION TO DETERMINE ELIGIBILITY
OF A TRUSTEE PURSUANT TO SECTION 305(b)(2)____.
TEXAS COMMERCE BANK NATIONAL ASSOCIATION
(Exact name of trustee as specified in its charter)
ORGANIZED UNDER THE LAWS OF 75-1992896
THE UNITED STATES OF AMERICA (I.R.S. employer
(State of incorporation identification no.)
if not a National Bank)
P.O. BOX 2320 75221-2320
DALLAS, TEXAS (Zip Code)
(Address of principal executive offices)
LEE BOOCKER
TEXAS COMMERCE BANK N A
600 TRAVIS
HOUSTON, TEXAS 77002
(713) 216-2448
(Name, address and telephone
number of agent for service)
------------------------------------------
HIGHWAYMASTER COMMUNICATIONS, INC.
HIGHWAYMASTER CORPORATION
(Exact name of obligors as specified in their charters)
DELAWARE 51-0352879
DELAWARE 51-0340340
(States or other jurisdictions of (I.R.S. employer
incorporation or organization) identification nos.)
16479 DALLAS PARKWAY, SUITE 710
DALLAS, TEXAS 75248
(Address of each obligor's principal executive offices) (Zip Code)
13 3/4% SENIOR NOTES
(Title of the indenture securities)
1
<PAGE> 2
ITEM 1. GENERAL INFORMATION.
Furnish the following information as to the Trustee:
(a) Name and address of each examining or supervising
authority to which it is subject.
<TABLE>
<CAPTION>
NAME ADDRESS
--------------------------------------------------------------
<S> <C>
Comptroller of the Currency Washington, D.C.
Federal Reserve Bank Dallas, Texas
Federal Deposit Insurance Corporation Washington, D.C.
National Bank Examiners Dallas, Texas
</TABLE>
(b) Whether it is authorized to exercise corporate trust
powers.
Yes.
ITEM 2. AFFILIATIONS WITH THE OBLIGOR.
If the obligor is an affiliate of the Trustee, describe each
such affiliation.
None.
ITEM 16. LIST OF EXHIBITS.
List below all exhibits filed as part of this statement of
eligibility:
Exhibit 1. A copy of the Articles of Association of the
Trustee as now in effect.
Exhibit 2. A copy of the certificate of authority of
the Trustee to commence business.
Exhibit 3. A copy of the authorization of the Trustee
to exercise corporate trust powers.
Exhibit 4. A copy of the existing bylaws of the
Trustee.
Exhibit 5. Not Applicable.
Exhibit 6. The consents of the United States
institutional trustees required by Section
321(b) of the Trust Indenture Act of 1939.
Exhibit 7. A copy of the latest report of condition
of the Trustee published pursuant to law or
the requirements of its supervising or
examining authority.
Exhibit 8. Not Applicable.
Exhibit 9. Not Applicable.
2
<PAGE> 3
Exhibit 1. Incorporated by reference to exhibit bearing
the same designation and previously filed
with the Securities and Exchange Commission
as exhibit to the Form S-3 File No.
333-34045.
Exhibit 2 Incorporated by reference to exhibit bearing
the same designation and previously filed
with the Securities and Exchange Commission
as exhibit to the Form S-3 File No.
333-34045.
Exhibit 3. Incorporated by reference to exhibit bearing
the same designation and previously filed
with the Securities and Exchange Commission
as exhibit to the Form S-3 File No.
333-34045.
Exhibit 4. Incorporated by reference to exhibit bearing
the same designation and previously filed
with the Securities and Exchange Commission
as exhibit to the Form S-3 File
No.333-34045.
Exhibit 6. Incorporated herewith.
Exhibit 7. Incorporated by reference to exhibit bearing
the same designation and previously filed
with the Securities and Exchange Commission
as exhibit to the Form S-3 File No.
333-34045.
The answer to Item 2 is based in part on information provided or
confirmed by the obligor. The accuracy and completeness of such information is
hereby disclaimed by the Trustee.
3
<PAGE> 4
SIGNATURE
Pursuant to the requirements of the Trust Indenture Act of 1939, the
Trustee, Texas Commerce Bank National Association, a national banking
association organized and existing under the laws of the United States of
America, has duly caused this statement of eligibility to be signed on its
behalf by the undersigned, thereunto duly authorized, all in the City of
Dallas, and State of Texas, on the 17th day of October 1997.
TEXAS COMMERCE BANK NATIONAL ASSOCIATION
By: /s/ JOHN G. JONES
-------------------------------------
Name: John G. Jones
Title: Vice President and Trust Officer
4
<PAGE> 5
EXHIBIT 6
Texas Commerce Bank National Association, as a condition to
qualification under the Trust Indenture Act of 1939, consents that reports of
examinations by federal, state, territorial, or district authorities may be
furnished by such authorities to the Securities and Exchange Commission of the
United States upon request of said Commission for said reports, as provided in
Section 321 of said Trust Indenture Act of 1939.
TEXAS COMMERCE BANK NATIONAL ASSOCIATION
By: /s/ JOHN G. JONES
-------------------------------------
Name: John G. Jones
Title: Vice President and Trust Officer
Date: October 17, 1997
5
