SECURITIES AND EXCHANGE COMMISSION
WASHINGTON, D.C. 20549
FORM 8-K
CURRENT REPORT
PURSUANT TO SECTION 13 OR 15(d)
OF THE SECURITIES EXCHANGE ACT OF 1934
Date of report (Date of earliest event reported) February 25, 1997
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Tel-Save Holdings, Inc.
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(Exact Name of Registrant as Specified in Charter)
Delaware
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(State or Other Jurisdiction of Incorporation)
0-26728
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(Commission File Number)
23-2827736
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(IRS Employer Identification Number)
6805 Route 202, New Hope, Pennsylvania 18938
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(Address of Principal Executive Offices)
(215) 862-1500
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(Registrant's Telephone Number, Including Area Code)
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(Former Name or Former Address, If Changed Since Last Report)
Item 5. Other Events
On February 25, 1997, Registrant announced that it and its operating
subsidiary, Tel-Save, Inc., had entered into a Telecommunications Marketing
Agreement (the "Agreement"), dated as of February 22, 1997 and effective as of
February 25, 1997, with America Online, Inc. ("AOL"), the terms of which are
described in Registrant's Current Report on Form 8-K filed with the Commission
on March 7, 1997 and the text of which was filed with the Commission on March
18, 1997 as Exhibit 10.32 to Registrant's Annual Report on Form 10-K for the
year ended December 31, 1996. Attached hereto as Exhibits 10.1 and 10.2 are
Nontransferable Warrants to Purchase Common Stock of Registrant (the "Warrants")
issued by Registrant to AOL in connection with the Agreement. Attached hereto as
Exhibit 10.3 is a Voting Trust Agreement in which AOL agrees to deposit the
shares of Registrant's Common Stock to be issued upon exercise of the Warrants
in a voting trust
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whose trustee shall be Registrant's Chairman, Chief Executive Officer and
controlling shareholder, Daniel Borislow. Attached hereto as Exhibit 10.4 is a
Credit Facility between Registrant and Merrill Lynch International Bank Limited,
under which Registrant received a $50 million margin advance to finance part of
a $100 million initial payment to AOL under the Agreement; the Company held a
U.S. Treasury Bill with a face value of $150 million as security for the margin
advance.
Item 7. Financial Statements, Pro Forma Financial Information
and Exhibits.
(c) Exhibits
10.1 Nontransferable Warrant to Purchase 5,000,000
Shares of Common Stock of Tel-Save Holdings,
Inc., dated as of February 22, 1997 and issued
to America Online, Inc.
10.2 Nontransferable Warrant to Purchase up to
7,000,000 Shares of Common Stock of Tel-Save
Holdings, Inc., dated as of February 22, 1997
and issued to America Online, Inc.
10.3 Voting Trust Agreement, dated as of February
22, 1997, among Daniel Borislow, America
Online, Inc. and Tel-Save Holdings, Inc.
10.4 Credit Facility, dated as of February 26,
1997, between Tel-Save Holdings, Inc. and
Merrill Lynch International Bank Limited.
SIGNATURES
Pursuant to the requirements of the Securities Exchange Act of 1934, the
registrant has duly caused this report to be signed on its behalf by the
undersigned hereunto duly authorized.
TEL-SAVE HOLDINGS, INC.
By: /s/ Aloysius T. Lawn, IV
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Aloysius T. Lawn, IV
General Counsel and
Secretary
Date: April 24, 1997
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EXHIBIT INDEX
10.1 Nontransferable Warrant to Purchase 5,000,000 Shares of
Common Stock of Tel-Save Holdings, Inc., dated as of
February 22, 1997 and issued to America Online, Inc.
10.2 Nontransferable Warrant to Purchase up to 7,000,000 Shares
of Common Stock of Tel-Save Holdings, Inc., dated as of
February 22, 1997 and issued to America Online, Inc.
10.3 Voting Trust Agreement, dated as of February 22, 1997,
among Daniel Borislow, America Online, Inc. and Tel-Save
Holdings, Inc.
10.4 Credit Facility, dated as of February 26, 1997, between
Tel-Save Holdings, Inc. and Merrill Lynch International
Bank Limited.
THIS WARRANT AND ANY SECURITIES ACQUIRED UPON THE EXERCISE OF
THIS WARRANT HAVE NOT BEEN REGISTERED UNDER THE SECURITIES ACT
OF 1933, AS AMENDED (THE "SECURITIES ACT"), OR UNDER ANY STATE
SECURITIES LAWS AND MAY NOT BE SOLD, TRANSFERRED OR ASSIGNED IN
THE ABSENCE OF SUCH REGISTRATION OR UNLESS TEL-SAVE HOLDINGS,
INC. RECEIVES AN OPINION OF COUNSEL REASONABLY ACCEPTABLE TO IT
THAT SUCH SALE, TRANSFER OR ASSIGNMENT IS EXEMPT FROM ANY
REGISTRATION AND PROSPECTUS DELIVERY REQUIREMENTS OF THE
SECURITIES ACT AND ANY APPLICABLE STATE SECURITIES LAWS. THIS
WARRANT AND ANY SECURITIES ACQUIRED UPON EXERCISE OF THE WARRANT
ARE SUBJECT TO THE TERMS AND CONDITIONS OF THE WARRANTHOLDER AND
STOCKHOLDERS AGREEMENT AND THE VOTING TRUST AGREEMENT, EACH
DATED AS OF FEBRUARY 22, 1997.
NONTRANSFERABLE WARRANT TO PURCHASE
COMMON STOCK OF
TEL-SAVE HOLDINGS, INC.
Date of Grant: As of February 22, 1997.
Void after 5:00 PM. Eastern Standard Time on
February 22, 2002
No. W-AOL-1
FOR VALUE RECEIVED, Tel-Save Holdings, Inc., a Delaware corporation
(together with its successors and assigns, the "Company") hereby certifies and
agrees that America Online, Inc., a Delaware corporation ("AOL" and, in its
capacity as the holder of this Warrant ("this Warrant"), together with its
permitted successors and assigns, the "Holder"), with its principal address at
22000 AOL Way, Dulles, Virginia 20166-9323, is entitled, subject to the terms,
conditions and adjustments hereof, to receive, in one or more exercises of this
Warrant, from time to time, from the Company such number of shares of Common
Stock, par value $.01 per share, of the Company (the "Common Stock") as is
determined under Paragraph 1 hereof, during the period commencing at 9:00 AM,
Eastern Standard Time on the date hereof (the "Commencement Date") and ending at
5:00 PM. Eastern Standard Time on the fifth anniversary of the date hereof (such
time on such date, the
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"Termination Date") and at such respective times and for such numbers of Warrant
Shares (as defined below) as are set forth in Paragraph 1 at an exercise price
per share (the "Exercise Price") of U.S. $15.50. The number of shares of Common
Stock issuable upon exercise of this Warrant, the number of shares vested and
the exercise price per share shall be subject to further adjustment from time to
time upon the occurrence of certain events as set forth below. This Warrant is
one of the "Warrants" referenced in, and issued in conjunction with, the
Telecommunications Marketing Agreement, dated as of the date hereof (the
"Marketing Agreement"), among the Company, Tel-Save, Inc. ("TS"), a Pennsylvania
corporation and wholly owned subsidiary of the Company and AOL.
The shares of Common Stock or any other shares or other units of
stock or other securities or property or any combination thereof receivable upon
exercise of this Warrant, as adjusted from time to time, are sometimes referred
to herein as the "Exercise Shares."
Anything else herein to the contrary notwithstanding, if the
"Effective Date" (as such term is defined in the Marketing Agreement) shall not
have occurred by March 6, 1997, this Warrant shall automatically expire and
shall be of no further force or effect.
1. Exercise of Warrant; Issuance of Exercise Shares.
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(a) Exercise of Warrant. This Warrant may be exercised as to the then
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remaining Warrant Shares that have vested as provided herein by the Holder in
whole or in part from time to time on or after the Commencement Date and until
and including the Termination Date as provided below. For purposes of this
Warrant, "Warrant Shares" shall mean 5,000,000 shares of Common Stock (subject
to adjustment as provided in Paragraph 6 hereof and to successive reduction upon
any exercise of this Warrant as provided below in this clause (a)), (i)
2,500,000 of which Warrant Shares are deemed for all purposes hereof to have
vested on the earlier of (a) the Commercial Launch Date (as such term is defined
in the Marketing Agreement) and (b) the first anniversary of the date hereof and
(ii) the remaining 2,500,000 of which Warrant Shares will be deemed for all
purposes hereof to have vested as of the first anniversary of the date hereof if
the Marketing Agreement shall not have been terminated on or before such date.
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Notwithstanding the previous sentence, all such Warrant Shares shall rest upon a
"change in control" of Holdings. For purposes of this paragraph (a), "change of
control" shall be deemed to have occurred upon the happening of any of the
following events:
(1) A person other than Dan Borislow or Gary McCulla is
elected by the Board of Directors of the Company to serve as the Company's
principal executive officer;
(2) During any period of twelve consecutive months,
individuals who at the beginning of such period constituted the Board of
Directors of the Company (together with any new or replacement directors whose
election by the Board of Directors or whose nomination for election by the
Company's stockholders was approved by a vote of at least 66-2/3% of the
directors then still in office who were either directors at the beginning of
such period or whose election or nomination for election was previously so
approved) cease for any reason to constitute a majority of the directors then in
office;
(3) Within any period of twelve consecutive months, any
"person" or "group" (each as defined in Section 13(d) of the Securities Exchange
Act of 1934, as amended (the "Exchange Act")), who or which was not an
"Affiliate" (as defined in the Exchange Act) of the Company at the beginning of
such period, becomes the "beneficial owner" (as defined in Rule 13d-3 under the
Exchange Act) of more than 50% of the total voting power of all classes of
voting stock of the Company; or
(4) Any merger, consolidation, sale of all or substantially
all of the assets of the Company or stock acquisition.
Following the Termination Date, in the absence of the exercise
hereof, the Holder shall have no rights herein to acquire any Exercise Shares
and this Warrant shall lapse as to such rights. This Warrant may be exercised on
any business day by delivering to the Company at its principal office, presently
located at the address of the Company set forth in Paragraph 9 hereof (or such
other office of the Company as shall theretofore have been designated by the
Company by written notice to the Holder), together with: (i) a completed and
executed irrevocable Notice of Warrant Exercise in the form set forth in
Appendix A hereto and made a part hereof, specifying therein the number of
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Warrant Shares (which shall not exceed the number thereof then remaining as to
which this Warrant is then exercisable and as to which no Notice of Warrant
Exercise has previously been given) with respect to which the Holder is then
exercising its rights hereunder, and (ii) subject, as indicated below, to the
consent or election of the Company, within two (2) business days after receipt
by the Company of such Notice of Warrant, delivery to the Company of the full
Exercise Price as follows:
(A) if the Company shall not have elected that such exercise shall be
a "net issuance exercise" as provided in clause (C) of this Paragraph, payment
of the full Exercise Price therefor in immediately available funds, in which
case the Company, pursuant to such Notice of Warrant Exercise from Holder (duly
completed, and in accordance with Subparagraph 1(c)), shall, upon receipt of
this Warrant and the original executed copy of such Notice of Warrant Exercise
and payment of such Exercise Price, issue, and deliver a certificate evidencing,
such number of Exercise Shares as to which this Warrant shall have been
exercised; or
(B) if the Company shall not have elected that such exercise shall be
a "net issuance exercise" as provided in clause (C) of this Paragraph, through
arrangements with a brokerage firm under which such brokerage firm, on behalf of
the Holder, shall pay the Company the Exercise Price and the Company, pursuant
to an irrevocable notice from the Holder (the form of which shall be
satisfactory to the Company), shall promptly deliver the Exercise Shares being
purchased to such firm; and
(C) if the Company shall, upon receipt of a Notice of Warrant
Exercise from the Holder as to Warrant Shares and in its sole discretion, so
elect, the Company may deliver a certificate evidencing such number of Exercise
Shares as shall equal the quotient of (x) the product of (1) the difference
between the Current Market Price (as defined in Subparagraph 6(e)) on the date
of delivery of such Notice of Warrant Exercise and the then Exercise Price,
multiplied by (2) the number of Warrant Shares specified in such Notice of
Warrant Exercise as to which this warrant is to be exercised, divided by (y) the
Current Market Price on the date of delivery of such Notice of Warrant Exercise
(a "net issuance exercise"), in which event no payment in cash of the Exercise
Price in respect
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of the Warrant Shares as to which such "net issuance exercise" applies need be
made.
Upon such exercise pursuant to a Notice of Warrant Exercise and
issuance of such Exercise Shares, the number of Warrant Shares automatically
shall be reduced by the number of Warrant Shares as to which this Warrant is to
be exercised specified in such Notice of Warrant Exercise.
In the event that this Warrant shall be duly exercised in part prior
to the Termination Date, the Company shall issue a new Warrant of like tenor
evidencing the rights of the Holder thereof with respect to the balance of the
Warrant Shares under the Warrant so surrendered.
No adjustments shall be made for any cash dividends on Exercise
Shares issuable upon exercise of this Warrant.
(b) Issuance of Exercise Shares; Delivery of Warrant Certificates.
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The Company at its expense shall, as soon as practicable and in any event within
three (3) business days, after the exercise of this Warrant, issue in the name
of the Holder (or such other person or persons, if any, as specifically
permitted under the terms hereof and as the Holder shall have designated in the
Notice of Warrant Exercise) one or more certificates representing the Exercise
Shares to which the Holder (or such other persons or persons) shall be entitled
upon such exercise under the terms hereof. Such certificate or certificates
shall be deemed to have been issued and the Holder (or such other person or
persons so permitted and designated) shall be deemed to have become the record
holder of the Exercise Shares as of the date of the due exercise of this Warrant
(including payment of the Exercise Price therefor).
(c) Exercise Shares Fully Paid and Non-assessable. The Company agrees
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and covenants that all Exercise Shares issued or delivered upon the due exercise
(including payment of the Exercise Price therefor) of this Warrant will, upon
issuance in accordance with the terms hereof, be duly authorized, validly
issued, fully paid and non-assessable and free and clear of all taxes (other
than those taxes that, pursuant to Paragraph 2 hereof, the Company shall not be
obligated to pay), liens, charges and security interests created by or in favor
of the Company with respect to the issuance thereof (other than the limitations
on such Exercise Shares imposed by applicable
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securities laws and limitations expressly included in this Warrant).
(d) Fractional Shares. The Company shall not be required to issue
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fractional shares of capital stock upon the exercise of this Warrant or to
deliver certificates that evidence fractional shares of capital stock. In the
event that any fraction of an Exercise Share would, except for the provisions of
this Subparagraph (d), be issuable upon the exercise of this Warrant, the
Company shall pay to the Holder exercising the Warrant an amount in cash equal
to such fraction multiplied by the Current Market Price of the Exercise Share.
2. Payment of Taxes. The Company will pay all documentary stamp taxes,
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original issue or similar taxes if any, attributable to the issuance of Exercise
Shares upon the exercise of this Warrant; provided, however, that the Company
shall not be required to pay any tax or taxes that may be payable in respect of
any transfer of this Warrant or any transfer involved in the issue of any
Warrant Certificates or any certificates for Exercise Shares in a name other
than that of the Holder of this Warrant, and the Company shall not be required
to issue or deliver such certificates unless or until the person or persons
requesting the issuance thereof shall have paid to the Company the amount of
such tax required to be withheld or shall have established to the reasonable
satisfaction of the Company that such tax has been paid.
3. Mutilated or Missing Warrant. In case this Warrant shall be
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mutilated, lost, stolen or destroyed, the Company may in its discretion issue,
in exchange and substitution for and upon cancellation of, this Warrant, if
mutilated, or in lieu of and in substitution for this Warrant if lost, stolen or
destroyed, a new Warrant of like tenor and in the same aggregate denomination
(but reflecting the number of Warrant Shares as to which this Warrant was then
exercisable), but only (i) in the case of loss, theft or destruction, upon
receipt of evidence reasonably satisfactory to the Company of such loss, theft
or destruction of this Warrant and, in the case of AOL as the Holder, AOL's
indemnity, and, in the case of any other Person as the holder, indemnity or
bond, if requested, in each case also reasonably satisfactory to the Company,
and (ii) in the case of mutilation, upon surrender of this
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Warrant. The applicant for such substitute Warrant shall also comply with such
other reasonable regulations and pay such other reasonable charges as the
Company or its counsel may prescribe.
4. Rights of Holder. The Holder shall not, by virtue of anything
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contained in this Warrant or otherwise, be entitled to any right whatsoever,
either in law or equity, of a stockholder of the Company, including, without
limitation, the right to receive dividends or to vote or to consent or to
receive notice as a shareholder in respect of the meetings of shareholders or
the election of directors of the Company or any other matter.
5. Notices of Corporate Action. In the event of a proposal by the
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Company (or of which the Company shall have knowledge) for:
(a) any taking by the Company of a record of the holders of
any class of securities for the purpose of determining the holders
thereof who are entitled to receive any dividend (other than a
regular periodic dividend payable in cash) or other distribution, or
any right to subscribe for, purchase or otherwise acquire any shares
of stock of any class or any other securities or property, or to
receive any other right, or
(b) any capital reorganization of the Company, any
reclassification or recapitalization of the capital stock of the
Company, any statutory exchange, consolidation or merger involving
the Company and any other Person or any transfer of all or
substantially all the assets of the Company to any other Person, or
(c) any voluntary or involuntary dissolution, liquidation or
winding-up of the Company,
the Company will deliver to the Holder a notice specifying (i) the date or
expected date on which any such record is to be taken for the purpose of such
dividend, distribution or right, and the amount and character of such dividend,
distribution or right, or (ii) the date or expected date on which any such
reorganization, reclassification, recapitalization, statutory exchange,
consolidation, merger, transfer, dissolution, liquidation or winding-up is
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to take place and the time, if any such time is to be fixed, as of which the
holders of record of Common Stock shall be entitled to exchange their shares of
Common Stock for the securities or other property deliverable upon such
reorganization, reclassification, recapitalization, statutory exchange,
consolidation, merger, transfer, dissolution, liquidation or winding-up. Such
notice shall with respect to Subparagraphs (a) and (b) hereof, be furnished at
least 20 days prior to the date therein specified and, with respect to
Subparagraph (c) hereof, be furnished promptly upon the commencement of any
event described therein.
6. Adjustment of Exercise Price, Warrant Shares and Exercise Shares. The
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Exercise Price, the number of Warrant Shares and the kind of Exercise Shares
issuable upon the exercise of this Warrant shall be subject to adjustment from
time to time upon the happening of certain events after the date hereof as
hereinafter provided. The Exercise Price in effect at any time, the number of
Warrant Shares and the kind of securities issuable upon exercise of this Warrant
shall be subject to adjustment as follows:
(a) If the Company shall after the date hereof pay a dividend or make
a distribution on its shares of Common Stock in shares of Common Stock, (ii)
subdivide or classify its outstanding Common Stock into a greater number of
shares, or (iii) combine or reclassify its outstanding Common Stock into a
smaller number of shares, the Exercise Price in effect at the time of the record
date for such dividend or distribution or of the effective date of such
subdivision, combination or reclassification shall be proportionally adjusted so
that the Holder of this Warrant exercised after such date shall be entitled to
receive the aggregate number and kind of shares that, if this Warrant had been
exercised by such Holder immediately prior to such date, such Holder would have
owned upon such exercise and been entitled to receive upon such dividend,
subdivision, combination or reclassification. For example, if the Company
declares a 2-for-1 stock dividend or stock split and the Exercise Price
immediately prior to such event was $5.00 per share, the adjusted Exercise Price
immediately after such event would be $2.50 per share. Such adjustment shall be
made successively whenever any event listed above shall occur.
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(b) In case the Company shall after the date hereof issue rights or
warrants to all holders of its Common Stock entitling them to subscribe for or
purchase shares of Common Stock (or securities convertible into Common Stock) at
a price (or having a conversion price per share) less than the Current Market
Price of the Common Stock (as defined in Subparagraph (e) of this Paragraph
below) on the record date mentioned below, the Exercise Price shall be adjusted
so that the same shall equal the price determined by multiplying the Exercise
Price in effect immediately prior to the date of such issuance by a fraction,
the numerator of which shall be the sum of the number of shares of Common Stock
outstanding on the record date mentioned below and the number of additional
shares of Common Stock that the aggregate offering price of the total number of
shares of Common Stock so offered (or the aggregate conversion price of the
convertible securities so offered) would purchase at the Current Market Price
per share of the Common Stock, and the denominator of which shall be the sum of
the number of shares of Common Stock outstanding on such record date and the
number of additional shares of Common Stock offered for subscription or
purchases (or into which the convertible securities so offered are convertible).
Such adjustment shall be made successively whenever such rights or warrants are
issued and shall become effective immediately after the record date for the
determination of shareholders entitled to receive such rights or warrants; and,
to the extent that shares of Common Stock are not delivered (or securities
convertible into Common Stock are not delivered) after the expiration of such
rights or warrants, the Exercise Price for Warrant Shares as to which no
exercise has been made shall be readjusted to the Exercise Price that would then
be in effect had the adjustment made upon the issuance of such rights or
warrants been made upon the basis of delivery of only the number of shares of
Common Stock (or securities convertible into Common Stock) actually delivered.
(c) If, after the date hereof, there shall be any reclassification,
capital reorganization or change of the Common Stock (other than as a result of
a subdivision, combination or stock dividend provided for in Subparagraphs (a)
and (b) above), or any consolidation of the Company with, or merger of the
Company into, another corporation or other business organization (other than a
consolidation or merger in which the Company is the continuing corporation and
that does not result in any reclassification or change of the outstanding Common
Stock), or any sale or conveyance
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to another corporation or other business organization of all or substantially
all of the assets of the Company (referred to in this Subparagraph (c) as a
"Reclassification"), then, as a condition of such Reclassification, lawful
provisions shall be made, and duly executed documents evidencing the same from
the Company or its successor shall be delivered to the Holder, so that the
Holder shall thereafter have the right to purchase, at a total price not to
exceed that payable upon the exercise of this Warrant in full, the kind and
amount of shares of stock and other securities and property receivable upon such
Reclassification by a holder of the number of shares of Common Stock that might
have been purchased by the Holder immediately prior to such Reclassification,
and in any such case appropriate provisions shall be made with respect to the
rights and interest of the Holder to the end that the provisions hereof
(including, without limitation, provisions for the adjustment of the Exercise
Price and the number of shares issuable hereunder) shall thereafter be
applicable in relation to any shares of stock or other securities and property
thereafter deliverable upon exercise hereof.
(d) Whenever the Exercise Price payable upon exercise of this Warrant
is adjusted pursuant to Subparagraphs (a), (b) and (c) above, the number of
Warrant Shares that have vested as of such time and the maximum number of
Warrant Shares that may then be issuable pursuant to this Warrant shall each
simultaneously be adjusted by multiplying (x) each such number by (y) a
fraction, the numerator of which is the Exercise Price in effect just prior to
such adjustment and the denominator of which is the Exercise Price, as adjusted.
(e) For the purpose of any computation in this Warrant, the Current
Market Price per share of Common Stock at any date shall be deemed to be the
average of the daily closing prices for 10 consecutive business days before such
date. The closing price for each day shall be the last sale price regular way
or, in case no such reported sale takes place on such day, the average of the
last reported bid and lowest reported asked prices as reported by NASDAQ, or
other similar organizations if NASDAQ is no longer reporting such information,
or if not so available, the fair market price as determined in good faith by the
Board of Directors.
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(f) No adjustment in the Exercise Price shall be required unless such
adjustment would require an increase or decrease of at least ten cents ($0.10)
in such price; provided, however, that any adjustments that by reason of this
Subparagraph (f) are not required to be made shall be carried forward and taken
into account in any subsequent adjustment required to be made hereunder. All
calculations under this Paragraph 6 shall be made to the nearest cent or to the
nearest one-hundredth of a share, as the case may be. Anything in this Paragraph
6 to the contrary notwithstanding, the Company shall be entitled, but shall not
be required, to make such additional reductions in the Exercise Price, in
addition to those required by this Paragraph 6, as it, in its sole discretion,
shall determine to be advisable in order that any dividend or distribution in
shares of Common Stock, subdivision, reclassification or combination of Common
Stock, issuance of warrants to purchase Common Stock or distribution of
evidences of indebtedness or other assets (excluding cash dividends) referred to
hereinabove in this Paragraph 6 hereafter made by the Company to the Holders of
its Common Stock shall not result in any tax to the Holders of its Common Stock
or securities convertible into Common Stock.
(g) Whenever the Exercise Price is adjusted as herein provided, the
Company shall promptly cause a notice, setting forth the adjusted Exercise Price
and adjusted number of Warrant Shares as to which a Notice of Warrant Exercise
may be given under this Warrant, to be mailed to the Holders, at their last
addresses appearing in the books of the Company, and shall cause a certified
copy thereof to be mailed to its transfer agent, if any. The Company may retain
a firm of independent certified public accountants selected by the Board of
Directors (who may be the regular accountants employed by the Company) to make
any computation required by this Paragraph 6, and a certificate signed by such
firm shall be conclusive evidence of the correctness of such adjustment.
(h) In the event that at any time, as a result of an adjustment made
pursuant to Subparagraph 6(a) above, the Holder of this Warrant thereafter shall
become entitled to receive any Exercise Shares of the Company, other than Common
Stock, thereafter the number of such other shares so receivable upon exercise of
this Warrant shall be subject to adjustment from time to time in a manner and on
terms as nearly equivalent as practicable to the provisions with
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respect to the Common Stock contained in Subparagraphs (a) to (f), inclusive, of
Paragraph 6 above.
(i) Irrespective of any adjustments in the Exercise Price, the number
of Warrant Shares or kind of Exercise Shares purchasable upon exercise of this
Warrant, Warrants theretofore or thereafter issued in exchange or substitution
for this Warrant or any part thereof may continue to express the same price and
number and kind of shares as are stated in this Warrant.
(j) Whenever the Exercise Price shall be adjusted as required by the
provisions hereof, the Company shall forthwith file in the custody of its
Secretary or an Assistant Secretary at its principal office and with its stock
transfer agent, if any, an officer's certificate showing the adjusted Exercise
Price determined as herein provided and, in the case of an Exercise Price
adjustment, setting forth in reasonable detail the facts requiring such
adjustment, including a statement of the number of additional shares of Common
Stock, if any, and such other facts as shall be necessary to show the reason for
and the manner of computing such adjustment. Each such officer's certificate
shall be made available at all reasonable times for inspection by the Holder and
the Company shall, forthwith after each such adjustment, mail a copy by
certified mail or such certificate to the Holder.
7. Restrictions on Transferability; Restrictive Legends;
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Indemnification.
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(a) Neither this Warrant nor the right to exercise this Warrant or to
receive Exercise Shares upon any such exercise may be sold, assigned or
transferred by the Holder, except that this Warrant and such rights may be
transferred, upon compliance with the other Subparagraphs of this Paragraph 7,
by AOL, as the Holder, to (i) any successor to AOL by reason of a merger,
consolidation or statutory exchange of AOL or any successor to all or
substantially all of AOL's assets if such successor assumes in writing this
Warrant and all of AOL's liabilities and obligations under the Marketing
Agreement; or (ii) any subsidiary or affiliate of AOL; provided that AOL owns
voting stock of such subsidiary or affiliate entitling AOL to at least 80% of
the voting power thereof in the election of directors. Any sale, assignment or
transfer of this
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Warrant in violation of this Paragraph 7 is null and void as of the time of such
transfer.
(b) No Exercise Share may be offered for sale or sold, or otherwise
transferred or sold in any transaction that would constitute a sale thereof
within the meaning of the Securities Act, unless (i) such security has been
registered for sale under the Securities Act and registered or qualified under
applicable state securities laws relating to the offer and sale of securities,
or (ii) an exemption from the registration requirements of the Securities Act
and the registration or qualifications requirements of all such state securities
laws are available and the Company shall have received an opinion of counsel
(which may be an opinion that covers multiple or all subsequent sales)
satisfactory to the Company that the proposed sale or other disposition of such
securities may be effected without registration under the Securities Act, such
counsel and such opinion to be reasonably satisfactory to the Company.
(c) Except as otherwise permitted by this Paragraph 7, this Warrant
and any Warrant issued upon direct or indirect transfer of or in substitution
for this Warrant or any part thereof shall be stamped or otherwise imprinted
with a legend substantially in the form of the legend with respect to transfer
limitation and securities acts at the head of this Warrant.
(d) Except as otherwise permitted by this Paragraph 7, each
certificate for an Exercise Share issued upon exercise of this Warrant or any
Warrant issued upon direct or indirect transfer of or in substitution for this
Warrant or any part thereof shall be stamped or otherwise imprinted with a
legend in substantially the following form:
The shares represented by this certificate are subject to
restrictions imposed by the federal Securities Act of 1933, as
amended, and applicable state securities laws. The shares may not be
sold or transferred in the absence of registration or an exemption
therefrom under such Securities Act of 1933 and such applicable state
securities laws. All shares represented by this Certificate are
subject to the terms and conditions of a Warrantholder and
Stockholders Agreement, dated as of February 22, 1997, and a Voting
Trust Agreement, dated as the same
13
<PAGE>
date both of which may be examined at the offices of Tel-Save
Holdings, Inc., New Hope, Pennsylvania.
(e) The Company shall, at the request of any registered holder of an
Exercise Share, exchange the certificate representing such security for a
certificate representing the same security not bearing the restrictive legend
required by Subparagraph 7(d) if the Exercise Shares may be sold or transferred
pursuant to the provisions of Rule 144(k) and, in the reasonable opinion of
counsel to the Company, such restrictive legend is no longer necessary.
(f) The Holder agrees to indemnify and hold harmless the Company
against any loss, damage, claim or liability arising solely from the disposition
of this Warrant or any Exercise Share held by such Holder or any interest
therein in violation of the provisions of this Subparagraph 7(b).
(g) The Holder of this Warrant is entitled to the benefit of such
registration rights in respect of the Shares of Common Stock issuable to such
Holder upon exercise of the Warrants as are set forth in the Warrantholder and
Stockholders Agreement, dated as of February 22, 1997, among the Company,
Tel-Save, Inc., a Pennsylvania corporation and wholly owned subsidiary of the
Company and the Holder.
8. Company Representations and Warranties. Company hereby represents and
--------------------------------------
warrants to AOL as follows:
(a) Due Organization; Good Standing. Company is a corporation duly
---------------------------------
organized, validly existing and in good standing under the laws of the State of
Delaware; and has the corporate power and authority to own its properties and
assets and to carry on its business as now conducted.
(b) Authorization. The execution, delivery and performance by Company
-------------
of this Warrant are within its corporate powers and have been duly authorized by
all necessary corporate action.
(c) No Conflict. The execution, delivery and performance by Company
-----------
of this Warrant do not contravene any provision of its charter or by-laws, and
do not conflict with, result in a breach of, or constitute a default under, any
agreement, instrument, covenant or other
14
<PAGE>
restriction to which the Company is a party or by which it or any of its assets
is bound.
(d) Enforceability. This Warrant is the legal, valid and binding
--------------
obligation of Company, enforceable against Company in accordance with its terms,
except as such enforceability may be limited by applicable bankruptcy,
insolvency, moratorium, reorganization, or other laws affecting creditors'
rights generally or by the availability of equitable remedies.
(e) Capitalization. As of February 13, 1997, the authorized equity
--------------
capitalization of Company consists of 100,000,000 shares of Common Stock, par
value $.01 per share, of which 62,887,998 shares were issued and outstanding,
10,503,800 shares were reserved for issuance upon the exercise of outstanding
options or warrants and no shares were held in treasury and 5,000,000 shares of
undesignated Preferred Stock, par value $.01 per share, of which no shares were
issued and outstanding. The Company agrees that, prior to the expiration of this
Warrant, the Company will at all times have authorized and in reserve, and will
keep available, solely for issuance or delivery upon the exercise of this
Warrant, the shares of the Common Stock and other securities and properties as
from time to time shall be receivable upon the exercise of this Warrant, the
shares of the Common Stock and other securities and properties as from time to
time shall be receivable upon the exercise of this Warrant. Upon issuance of the
shares of Common Stock upon exercise of this Warrant, such shares will have been
duly authorized and validly issued and will be fully paid and nonassessable
shares of Common Stock of the Company, and not subject to preemptive rights or
rights to first refusal.
(f) Commission Filings. Company has made available to AOL copies of
-------------------
Company's (i) Annual Report on Form 10-K for the fiscal year ended December 31,
1995, (ii) the Quarterly Reports on Form 10-Q for the quarters ended March 31,
June 30 and September 30, 1996, and (iii) filings by Company under the
Securities Act and other filings by Company under the Exchange Act, in each case
since January 1, 1996 and as filed with the SEC. Company has filed all reports,
registration statements and other documents (the "SEC Reports") required to be
filed under the Exchange Act and the rules and regulations thereunder, the SEC
Reports complied, in all material respects, with the requirements of the
Exchange Act, such compliance to be
15
<PAGE>
determined, to the extent applicable, in accordance with the standards applied
to the reports in the following two sentences. As of their respective dates, the
SEC Reports did not contain any untrue statement of a material fact or omit to
state a material fact required to be stated therein or necessary to make the
statements therein, in light of the circumstances under which they were made,
not misleading.
9. Notices. All notices or other communications under this Warrant shall
be in writing and shall be deemed to have been given if delivered by hand or
mailed by certified mail, postage prepaid, return receipt requested, or
delivered by facsimile transmission (which shall be followed by delivery of an
original copy), addressed as follows:
If to the Company:
Tel-Save Holdings, Inc.
6805 Route 202
New Hope, PA 18938
Facsimile No. 215-862-1083
with a copy to:
Aloysius T. Lawn, IV, Esquire
General Counsel and Secretary
Tel-Save Holdings, Inc.
6805 Route 202
New Hope, PA 18938
Facsimile No. 215-862-1085
and to the Holder:
American Online, Inc.
22000 AOL Way
Dulles, VA 20166
Attn: General Counsel
with a copy to: Head of Business Affairs
Facsimile No. 703-265-2208_________________________
Either of the Company or the Holder may from time to time change the
address or facsimile number to which notices to it are to be mailed hereunder by
notice in accordance with the provisions of this Paragraph 9.
16
<PAGE>
10. Supplements and Amendments. Except as otherwise provided herein, this
--------------------------
Warrant and any term hereof may be changed, waived, discharged or terminated
only by an instrument in writing signed by the party against which enforcement
of such change, waiver, discharge or termination is sought.
11. Severability. If for any reason any provision, paragraph or term of
------------
this Warrant is held to be invalid or unenforceable, all other valid provisions
herein shall remain in full force and effect and all terms, provisions and
paragraphs of this Warrant shall be deemed to be severable.
12. Governing Law. This Warrant shall be deemed to be a contract made
--------------
under the laws of the State of Delaware and for all purposes shall be governed
by and construed in accordance with the laws of said State.
13. Entire Agreement. This Warrant consists of all the terms and
-----------------
conditions contained herein and all documents incorporated herein specifically
by reference and constitutes the complete and exclusive statement of the
understandings between the parties and supersedes all proposals and prior
agreements (oral or written) between the parties relating to the rights and
obligations provided hereunder.
14. Headings; Construction. Paragraph and Subparagraph headings used
-----------------------
herein are included herein for conveniences of reference only and shall not
affect the construction of this Warrant nor constitute a part of this Warrant
for any other purpose. The words "herein," "hereof," "hereby," "hereto,"
"hereunder" and words of similar import refer to this Warrant as a whole and not
to any particular article, section, paragraph, subparagraph or other subdivision
of this Warrant. Defined terms shall include the plural and the singular as the
context shall require.
15. Consent and Acknowledgment of Holder. The terms and conditions of
--------------------------------------
this Warrant are agreed and consented to by the Holder, as evidenced by Holder's
signature on the line provided below. This Warrant shall bind and be enforceable
17
<PAGE>
by and against the Holder and such Holder's successors, heirs, estates,
representatives and assigns and the Company and its successors and assigns.
18
<PAGE>
IN WITNESS WHEREOF, the Company and the Holder have caused these
presents to be duly executed as of the day and year written above.
TEL-SAVE HOLDINGS, INC.
By:________________________
Name: Daniel Borislow
Title: Chairman & CEO
Accepted by:
AMERICA ONLINE, INC.
By: /s/ David M. Colburn
-----------------------------
Name: David M. Colburn
Title: Senior Vice-President
19
<PAGE>
APPENDIX A
NOTICE OF WARRANT EXERCISE
Pursuant to the attached Warrant ("Warrant"), by and between the
undersigned and Tel-Save Holdings, Inc., a Delaware corporation (the "Company"),
dated as of February 22, 1997, the undersigned hereby irrevocably elects to
exercise the Warrant with respect to ________________ Warrant Shares (as such
term is defined in the Warrant) as provided for therein.
The undersigned requests that a certificate for the Exercise Shares
be issued in the name of:
____________________________________
____________________________________
-------------------------------------------------------
(Please print name, address and social security number)
Dated: ____________________________________
Address: ____________________________________
____________________________________
____________________________________
Signature: ____________________________________
THIS WARRANT AND ANY SECURITIES ACQUIRED UPON THE EXERCISE OF
THIS WARRANT HAVE NOT BEEN REGISTERED UNDER THE SECURITIES ACT
OF 1933, AS AMENDED (THE "SECURITIES ACT"), OR UNDER ANY STATE
SECURITIES LAWS AND MAY NOT BE SOLD, TRANSFERRED OR ASSIGNED IN
THE ABSENCE OF SUCH REGISTRATION OR UNLESS TEL-SAVE HOLDINGS,
INC. RECEIVES AN OPINION OF COUNSEL REASONABLY ACCEPTABLE TO IT
THAT SUCH SALE, TRANSFER OR ASSIGNMENT IS EXEMPT FROM ANY
REGISTRATION AND PROSPECTUS DELIVERY REQUIREMENTS OF THE
SECURITIES ACT AND ANY APPLICABLE STATE SECURITIES LAWS. THIS
WARRANT AND ANY SECURITIES ACQUIRED UPON EXERCISE OF THE WARRANT
ARE SUBJECT TO THE TERMS AND CONDITIONS OF THE WARRANTHOLDER AND
STOCKHOLDERS AGREEMENT AND THE VOTING TRUST AGREEMENT, EACH
DATED AS OF FEBRUARY 22, 1997.
NONTRANSFERABLE WARRANT TO PURCHASE
COMMON STOCK OF
TEL-SAVE HOLDINGS, INC.
Date of Grant: As of February 22, 1997.
Void after 5:00 PM. Eastern Standard Time on
February 22, 2004
No. W-AOL-2
FOR VALUE RECEIVED, Tel-Save Holdings, Inc., a Delaware corporation
(together with its successors and assigns, the "Company") hereby certifies and
agrees that America Online, Inc., a Delaware corporation ("AOL" and, in its
capacity as the holder of this Warrant ("this Warrant"), together with its
permitted successors and assigns, the "Holder"), with its principal address at
22000 AOL Way, Dulles, Virginia 20166-9323, is entitled, subject to the terms,
conditions and adjustments hereof, to receive, in one or more exercises of this
Warrant, from time to time, from the Company such number of shares of Common
Stock, par value $.01 per share, of the Company (the "Common Stock") as is
determined under Paragraph 1 hereof, during the period commencing at 9:00 AM.,
Eastern Standard Time on the date hereof (the "Commencement Date") and ending at
5:00 PM. Eastern Standard Time on the seventh anniversary of the date hereof
(such time on such date, the
<PAGE>
"Termination Date") and at such respective times and for such numbers of Warrant
Shares (as defined below) as are set forth in Paragraph 1 at an exercise price
per share (the "Exercise Price") of U.S. $14.00. The number of shares of Common
Stock issuable upon exercise of this Warrant, the number of shares vested and
the exercise price per share shall be subject to further adjustment from time to
time upon the occurrence of certain events as set forth below. This Warrant is
one of the "Warrants" referenced in, and issued in conjunction with, the
Telecommunications Marketing Agreement, dated as of the date hereof (the
"Marketing Agreement"), among the Company, Tel-Save, Inc., a Pennsylvania
corporation and wholly owned subsidiary of the Company ("TS"), and AOL.
The shares of Common Stock or any other shares or other units of
stock or other securities or property or any combination thereof receivable upon
exercise of this Warrant, as adjusted from time to time, are sometimes referred
to herein as the "Exercise Shares."
Anything else herein to the contrary notwithstanding, if the
"Effective Date" (as such term is defined in the Marketing Agreement) shall not
have occurred by March 6, 1997, this Warrant automatically shall expire and
shall be of no further force or effect.
1. Exercise of Warrant; Issuance of Exercise Shares.
------------------------------------------------
(a) Exercise of Warrant. This Warrant may be exercised as to the then
-------------------
remaining Warrant Shares that have vested as provided herein by the Holder in
whole or in part from time to time on or after the Commencement Date and until
and including the Termination Date as provided below. For purposes of this
Warrant, "Warrant Shares" shall mean at any time such number of shares of Common
Stock as shall have vested as of such time as follows:
(i) such number of shares of Common Stock as shall equal the
product of the Vesting Multiplier (as defined below) times the number
(the "First Quarter Number") of End Users (as such term is defined in
the Marketing Agreement) for whom TS is providing Services (as such
term is defined in the Marketing Agreement) as of December 31, 1997
(the "First Vesting Date"), shall vest and shall be Warrant Shares
hereunder as of such First Vesting Date; and
2
<PAGE>
(ii) such number of additional shares of Common Stock as
shall equal the product of the Vesting Multiplier times the amount by
which (x) the number of End Users (each, a "Subsequent Quarter
Number") for whom TS is providing Services as of the last day of each
full calendar quarter (each, a "Subsequent Vesting Date") after the
First Vesting Date and on or before the earlier of (x) the last day
of the Term (as defined in the Marketing Agreement) or any Extension
Period (as defined in the Marketing Agreement) and (y) the last day
of the full calendar quarter in which the Marketing Agreement is
terminated prior to the end of such Term or Extension Period, exceeds
(y) the greater of the First Quarter Number and any prior Subsequent
Quarter Number, shall vest and shall be Warrant Shares hereunder as
of such Subsequent Vesting Date;
provided that in no event will the aggregate number of Warrant Shares exceed
7,000,000, subject to further adjustment as provided in Paragraph 6 hereof and
to successive reduction upon any exercise of this Warrant as provided below in
this clause (a). For purposes hereof, the "Vesting Multiplier" shall be two (2),
provided that, from and after the "Multiplier Adjustment Date" (as defined in
the Marketing Agreement), the Vesting Multiplier as in effect as of such Date
shall be doubled for purposes of subsequent vestings.
Following the Termination Date, in the absence of the exercise
hereof, the Holder shall have no rights herein to acquire any Exercise Shares
and this Warrant shall lapse as to such rights. This Warrant may be exercised on
any business day by delivering to the Company at its principal office, presently
located at the address of the Company set forth in Paragraph 9 hereof (or such
other office of the Company as shall theretofore have been designated by the
Company by written notice to the Holder), together with: (1) a completed and
executed irrevocable Notice of Warrant Exercise in the form set forth in
Appendix A hereto and made a part hereof, specifying therein the number of
Warrant Shares (which shall not exceed the number thereof then remaining as to
which this Warrant is then exercisable and as to which no Notice of Warrant
Exercise has previously been given) with respect to which the Holder is then
exercising its rights hereunder, and (2), subject, as indicated below, to the
consent or election of the Company, within two (2) business days after receipt
by the Company
3
<PAGE>
of such Notice of Warrant, delivery to the Company of the full Exercise Price as
follows:
(A) if the Company shall not have elected that such exercise shall be
a "net issuance exercise" as provided in clause (C) of this Paragraph, payment
in full of the Exercise Price therefor, in immediately available funds, in which
case the Company, pursuant to such Notice of Warrant Exercise from Holder, duly
completed, and in accordance with Subparagraph 1(c) hereof, shall, upon receipt
of this Warrant and the original executed copy of such Notice of Warrant
Exercise and payment of such Exercise Price, issue, and deliver a certificate
evidencing, such number of Exercise Shares as to which this Warrant shall have
been exercised;
(B) if the Company shall not have elected that such exercise shall be
a "net issuance exercise" as provided in clause (3) of this Paragraph,
arrangements with a brokerage firm under which such brokerage firm, on behalf of
the Holder, shall pay the Company the Exercise Price, and the Company, pursuant
to an irrevocable notice from the Holder (the form of which is satisfactory to
the Company), shall, upon receipt of this Warrant, such irrevocable notice and
payment of such Exercise Price, promptly deliver the Exercise Shares being
purchased to such firm; and
(C) if the Company shall, upon receipt of a Notice of Warrant
Exercise from the Holder as to Warrant Shares and in its sole discretion, so
elect, the Company may deliver a certificate evidencing such number of Exercise
Shares as shall equal the quotient of (x) the product of (i) the difference
between the Current Market Price (as defined in Subparagraph 6(e) hereof) on the
date of delivery of such Notice of Warrant Exercise and the then Exercise Price,
multiplied by (ii) the number of Warrant Shares specified in such Notice of
Warrant Exercise as to which this Warrant is to be exercised, divided by (y) the
Current Market Price on the date of delivery of such Notice of Warrant Exercise
(a "net issuance exercise"), in which event no payment in cash of the Exercise
Price in respect of the Warrant Shares as to which such "net issuance exercise"
applies need be made.
Upon such exercise pursuant to a Notice of Warrant Exercise and
issuance of such Exercise Shares, the number of Warrant Shares automatically
shall be reduced by the
4
<PAGE>
number of Warrant Shares as to which this Warrant is to be exercised specified
in such Notice of Warrant Exercise.
In the event that this Warrant shall be duly exercised in part prior
to the Termination Date, the Company shall issue a new Warrant of like tenor
evidencing the rights of the Holder thereof with respect to the balance of the
Warrant Shares under the Warrant so surrendered.
No adjustments shall be made for any cash dividends on Exercise
Shares issuable upon exercise of this Warrant.
(b) Issuance of Exercise Shares; Delivery of Warrant Certificates.
----------------------------------------------------------------
The Company shall, as soon as practicable and in any event within three (3)
business days after the exercise of this Warrant, issue in the name of the
Holder (or such other person or persons, if any, as specifically permitted under
the terms hereof and as the Holder shall have designated in the Notice of
Warrant Exercise) one or more certificates representing the Exercise Shares to
which the Holder (or such other persons or persons) shall be entitled upon such
exercise under the terms hereof. Such certificate or certificates shall be
deemed to have been issued and the Holder (or such other person or persons so
permitted and designated) shall be deemed to have become the record holder of
the Exercise Shares as of the date of the due exercise of this Warrant
(including payment of the Exercise Price therefor).
(c) Exercise Shares Fully Paid and Non-assessable. The Company agrees
---------------------------------------------
and covenants that all Exercise Shares issued or delivered upon the due exercise
(including payment of the Exercise Price therefor) of this Warrant will, upon
issuance in accordance with the terms hereof, be duly authorized, validly
issued, fully paid and non-assessable and free and clear of all taxes (other
than those taxes that, pursuant to Paragraph 2 hereof, the Company shall not be
obligated to pay), liens, charges and security interests created by or in favor
of the Company with respect to the issuance thereof (other than the limitations
on such Exercise Shares imposed by applicable securities laws and limitations
expressly included in this Warrant).
(d) Fractional Shares. The Company shall not be required to issue
------------------
fractional shares of capital stock upon the exercise of this Warrant or to
deliver certificates
5
<PAGE>
that evidence fractional shares of capital stock. In the event that any fraction
of an Exercise Share would, except for the provisions of this Subparagraph (d),
be issuable upon the exercise of this Warrant, the Company shall pay to the
Holder exercising the Warrant an amount in cash equal to such fraction
multiplied by the Current Market Price of the Exercise Share.
2. Payment of Taxes. The Company will pay all documentary stamp taxes
----------------
and original issue or similar taxes, if any, attributable to the issuance of
Exercise Shares upon the exercise of this Warrant; provided, however, that the
Company shall not be required to pay any tax or taxes that may be payable in
respect of any transfer of this Warrant or any transfer involved in the issue of
any Warrant Certificates or any certificates for Exercise Shares in a name other
than that of the Holder of this Warrant, and the Company shall not be required
to issue or deliver such certificates unless or until the person or persons
requesting the issuance thereof shall have paid to the Company the amount of
such tax required to be withheld or shall have established to the reasonable
satisfaction of the Company that such tax has been paid.
3. Mutilated or Missing Warrant. In case this Warrant shall be
-------------------------------
mutilated, lost, stolen or destroyed, the Company may in its discretion issue,
in exchange and substitution for and upon cancellation of, this Warrant, if
mutilated, or in lieu of and in substitution for this Warrant if lost, stolen or
destroyed, a new Warrant of like tenor and in the same aggregate denomination
(but reflecting the number of Warrant Shares as to which this Warrant was then
exercisable), but only (i) in the case of loss, theft or destruction, upon
receipt of evidence reasonably satisfactory to the Company of such loss, theft
or destruction of this Warrant and, in the case of AOL as the Holder, AOL's
indemnity, and, in the case of any other Person as the holder, indemnity or
bond, if requested, in each case also reasonably satisfactory to the Company,
and (ii) in the case of mutilation, upon surrender of this Warrant. The
applicant for such substitute Warrant shall also comply with such other
reasonable regulations and pay such other reasonable charges as the Company or
its counsel may prescribe.
6
<PAGE>
4. Rights of Holder. The Holder shall not, by virtue of anything
-----------------
contained in this Warrant or otherwise, be entitled to any right whatsoever,
either in law or equity, of a stockholder of the Company, including, without
limitation, the right to receive dividends or to vote or to consent or to
receive notice as a shareholder in respect of the meetings of shareholders or
the election of directors of the Company or any other matter.
5. Notices of Corporate Action. In the event of a proposal by the
------------------------------
Company (or of which the Company shall have knowledge) for:
(a) any taking by the Company of a record of the holders of any class
of securities for the purpose of determining the holders thereof who are
entitled to receive any dividend (other than a regular periodic dividend payable
in cash) or other distribution, or any right to subscribe for, purchase or
otherwise acquire any shares of stock of any class or any other securities or
property, or to receive any other right, or
(b) any capital reorganization of the Company, any reclassification
or recapitalization of the capital stock of the Company, any statutory exchange,
consolidation or merger involving the Company and any other Person or any
transfer of all or substantially all the assets of the Company to any other
Person, or
(c) any voluntary or involuntary dissolution, liquidation or
winding-up of the Company,
the Company will deliver to the Holder a notice specifying (i) the date or
expected date on which any such record is to be taken for the purpose of such
dividend, distribution or right, and the amount and character of such dividend,
distribution or right, or (ii) the date or expected date on which any such
reorganization, reclassification, recapitalization, statutory exchange,
consolidation, merger, transfer, dissolution, liquidation or winding-up is to
take place and the time, if any such time is to be fixed, as of which the
holders of record of Common Stock shall be entitled to exchange their shares of
Common Stock for the securities or other property deliverable upon such
reorganization, reclassification, recapitalization, statutory exchange,
consolidation, merger, transfer, dissolution, liquidation or winding-up. Such
notice shall
7
<PAGE>
with respect to Subparagraphs (a) and (b) hereof, be furnished at least 20 days
prior to the date therein specified and, with respect to Subparagraph (c)
hereof, be furnished promptly upon the commencement of any event described
therein.
6. Adjustment of Exercise Price, Warrant Shares and Exercise Shares. The
----------------------------------------------------------------
Exercise Price, the number of Warrant Shares, the Vesting Multiplier and the
kind of Exercise Shares issuable upon the exercise of this Warrant shall be
subject to adjustment from time to time upon the happening of certain events
after the date hereof as hereinafter provided. The Exercise Price in effect at
any time, the number of Warrant Shares and the kind of securities issuable upon
exercise of this Warrant shall be subject to adjustment as follows:
(a) If the Company shall after the date hereof (i) pay a dividend or
make a distribution on its shares of Common Stock in shares of Common Stock,
(ii) subdivide or classify its outstanding Common Stock into a greater number of
shares, or (iii) combine or reclassify its outstanding Common Stock into a
smaller number of shares, the Exercise Price in effect at the time of the record
date for such dividend or distribution or of the effective date of such
subdivision, combination or reclassification shall be proportionally adjusted so
that the Holder of this Warrant exercised after such date shall be entitled to
receive the aggregate number and kind of shares that, if this Warrant had been
exercised by such Holder immediately prior to such date, such Holder would have
owned upon such exercise and been entitled to receive upon such dividend,
subdivision, combination or reclassification. For example, if the Company
declares a 2-for-1 stock dividend or stock split and the Exercise Price
immediately prior to such event was $5.00 per share, the adjusted Exercise Price
immediately after such event would be $2.50 per share. Such adjustment shall be
made successively whenever any event listed above shall occur.
(b) In case the Company shall after the date hereof issue rights or
warrants to all holders of its Common Stock entitling them to subscribe for or
purchase shares of Common Stock (or securities convertible into Common Stock) at
a price (or having a conversion price per share) less than the Current Market
Price of the Common Stock (as defined in Subparagraph (e) of this Paragraph
below) on the
8
<PAGE>
record date mentioned below, the Exercise Price shall be adjusted so that the
same shall equal the price determined by multiplying the Exercise Price in
effect immediately prior to the date of such issuance by a fraction, the
numerator of which shall be the sum of the number of shares of Common Stock
outstanding on the record date mentioned below and the number of additional
shares of Common Stock that the aggregate offering price of the total number of
shares of Common Stock so offered (or the aggregate conversion price of the
convertible securities so offered) would purchase at the Current Market Price
per share of the Common Stock, and the denominator of which shall be the sum of
the number of shares of Common Stock outstanding on such record date and the
number of additional shares of Common Stock offered for subscription or
purchases (or into which the convertible securities so offered are convertible).
Such adjustment shall be made successively whenever such rights or warrants are
issued and shall become effective immediately after the record date for the
determination of shareholders entitled to receive such rights or warrants; and,
to the extent that shares of Common Stock are not delivered (or securities
convertible into Common Stock are not delivered) after the expiration of such
rights or warrants, the Exercise Price for Warrant Shares as to which no
exercise has been made shall be readjusted to the Exercise Price that would then
be in effect had the adjustment made upon the issuance of such rights or
warrants been made upon the basis of delivery of only the number of shares of
Common Stock (or securities convertible into Common Stock) actually delivered.
(c) If, after the date hereof, there shall be any reclassification,
capital reorganization or change of the Common Stock (other than as a result of
a subdivision, combination or stock dividend provided for in Subparagraph (a)
and (b) above), or any consolidation of the Company with, or merger of the
Company into, another corporation or other business organization (other than a
consolidation or merger in which the Company is the continuing corporation and
that does not result in any reclassification or change of the outstanding Common
Stock), or any sale or conveyance to another corporation or other business
organization of all or substantially all of the assets of the Company (referred
to in this Subparagraph (c) as a "Reclassification"), then, as a condition of
such Reclassification, lawful provisions shall be made, and duly executed
documents evidencing the same from the Company or its successor shall be
delivered to the Holder, so that the
9
<PAGE>
Holder shall thereafter have the right to purchase, at a total price not to
exceed that payable upon the exercise of this Warrant in full, the kind and
amount of shares of stock and other securities and property receivable upon such
Reclassification by a holder of the number of shares of Common Stock that might
have been purchased by the Holder immediately prior to such Reclassification,
and in any such case appropriate provisions shall be made with respect to the
rights and interest of the Holder to the end that the provisions hereof
(including, without limitation, provisions for the adjustment of the Exercise
Price and the number of shares issuable hereunder) shall thereafter be
applicable in relation to any shares of stock or other securities and property
thereafter deliverable upon exercise hereof.
(d) Whenever the Exercise Price payable upon exercise of this Warrant
is adjusted pursuant to Subparagraphs (a), (b) and (c) above, the number of
Warrant Shares that have vested as of such time, the maximum number of Warrant
Shares that may then be issuable pursuant to this Warrant and the then Vesting
Multiplier applicable to the calculation of the number of shares of Common Stock
that will vest after the date of such adjustment shall each simultaneously be
adjusted by multiplying (x) each such number and the Vesting Multiplier by (y) a
fraction, the numerator of which is the Exercise Price in effect just prior to
such adjustment and the denominator of which is the Exercise Price, as adjusted.
(e) For the purpose of any computation in this Warrant, the Current
Market Price per share of Common Stock at any date shall be deemed to be the
average of the daily closing prices for 10 consecutive business days before such
date. The closing price for each day shall be the last sale price regular way
or, in case no such reported sale takes place on such day, the average of the
last reported bid and lowest reported asked prices as reported by NASDAQ, or
other similar organizations if NASDAQ is no longer reporting such information,
or if not so available, the fair market price as determined in good faith by the
Board of Directors.
(f) No adjustment in the Exercise Price shall be required unless such
adjustment would require an increase or decrease of at least ten cents ($0.10)
in such price; provided, however, that any adjustments that by reason of this
Subparagraph (f) are not required to be made shall be
10
<PAGE>
carried forward and taken into account in any subsequent adjustment required to
be made hereunder. All calculations under this Paragraph 6 shall be made to the
nearest cent or to the nearest one-hundredth of a share, as the case may be.
Anything in this Paragraph 6 to the contrary notwithstanding, the Company shall
be entitled, but shall not be required, to make such additional reductions in
the Exercise Price, in addition to those required by this Paragraph 6, as it, in
its sole discretion, shall determine to be advisable in order that any dividend
or distribution in shares of Common Stock, subdivision, reclassification or
combination of Common Stock, issuance of warrants to purchase Common Stock or
distribution of evidences of indebtedness or other assets (excluding cash
dividends) referred to hereinabove in this Paragraph 6 hereafter made by the
Company to the Holders of its Common Stock shall not result in any tax to the
Holders of its Common Stock or securities convertible into Common Stock.
(g) Whenever the Exercise Price is adjusted as herein provided, the
Company shall promptly cause a notice, setting forth the adjusted Exercise Price
and adjusted number of Warrant Shares as to which a Notice of Warrant Exercise
may be given under this Warrant, to be mailed to the Holders, at their last
addresses appearing in the books of the Company, and shall cause a certified
copy thereof to be mailed to its transfer agent, if any. The Company may retain
a firm of independent certified public accountants selected by the Board of
Directors (who may be the regular accountants employed by the Company) to make
any computation required by this Paragraph 6, and a certificate signed by such
firm shall be conclusive evidence of the correctness of such adjustment.
(h) In the event that at any time, as a result of an adjustment made
pursuant to Subparagraph 6(a) above, the Holder of this Warrant thereafter shall
become entitled to receive any Exercise Shares of the Company, other than Common
Stock, thereafter the number of such other shares so receivable upon exercise of
this Warrant shall be subject to adjustment from time to time in a manner and on
terms as nearly equivalent as practicable to the provisions with respect to the
Common Stock contained in Subparagraphs (a) to (e), inclusive, of Paragraph 6
above.
(i) Irrespective of any adjustments in the Exercise Price, the number
of Warrant Shares or kind of Exercise Shares purchasable upon exercise of this
Warrant, Warrants
11
<PAGE>
theretofore or thereafter issued in exchange or substitution for this Warrant or
any part thereof may continue to express the same price and number and kind of
shares as are stated in this Warrant.
(j) Whenever the Exercise Price shall be adjusted as required by the
provisions hereof, the Company shall forthwith file in the custody of its
Secretary or an Assistant Secretary at its principal office and with its stock
transfer agent, if any, an officer's certificate showing the adjusted Exercise
Price determined as herein provided and, in the case of an Exercise Price
adjustment, setting forth in reasonable detail the facts requiring such
adjustment, including a statement of the number of additional shares of Common
Stock, if any, and such other facts as shall be necessary to show the reason for
and the manner of computing such adjustment. Each such officer's certificate
shall be made available at all reasonable times for inspection by the Holder and
the Company shall, forthwith after each such adjustment, mail a copy by
certified mail or such certificate to the Holder.
7. Restrictions on Transferability; Restrictive Legends; Indemnification
---------------------------------------------------------------------
(a) Neither this Warrant nor the right to exercise this Warrant or to
receive Exercise Shares upon any such exercise may be sold, assigned or
transferred by the Holder, except that this Warrant and such rights may be
transferred, upon compliance with the other Subparagraphs of this Paragraph 7,
by AOL, as the Holder, to (i) any successor to AOL by reason of a merger,
consolidation or statutory exchange of AOL or any successor to all or
substantially all of AOL's assets if such successor assumes in writing this
Warrant and all of AOL's liabilities and obligations under the Marketing
Agreement (ii) to any subsidiary or affiliate of AOL; provided that AOL owns
voting stock of such subsidiary or affiliate entitling AOL to at least 80% of
the voting powers thereof at the election of directors. Any sale, assignment or
transfer of this Warrant in violation of this Paragraph 7 is null and void as of
the time of such transfer.
(b) No Exercise Share may be offered for sale or sold, or otherwise
transferred or sold in any transaction that would constitute a sale thereof
within the meaning of the Securities Act, unless (i) such security has been
12
<PAGE>
registered for sale under the Securities Act and registered or qualified under
applicable state securities laws relating to the offer and sale of securities,
or (ii) an exemption from the registration requirements of the Securities Act
and the registration or qualifications requirements of all such state securities
laws are available and the Company shall have received an opinion of counsel
(which may be an opinion that covers multiple or all subsequent sales)
satisfactory to the Company that the proposed sale or other disposition of such
securities may be effected without registration under the Securities Act, such
counsel and such opinion to be reasonably satisfactory to the Company.
(c) Except as otherwise permitted by this Paragraph 7, this Warrant
and any Warrant issued upon direct or indirect transfer of or in substitution
for this Warrant or any part thereof shall be stamped or otherwise imprinted
with a legend substantially in the form of the legend with respect to transfer
limitation and securities acts at the head of this Warrant.
(d) Except as otherwise permitted by this Paragraph 7, each
certificate for an Exercise Share issued upon exercise of this Warrant or any
Warrant issued upon direct or indirect transfer of or in substitution for this
Warrant or any part thereof shall be stamped or otherwise imprinted with a
legend in substantially the following form:
The shares represented by this certificate are subject to
restrictions imposed by the federal Securities Act of 1933, as
amended, and applicable state securities laws. The shares may not be
sold or transferred in the absence of registration or an exemption
therefrom under such Securities Act of 1933 and such applicable state
securities laws. All shares represented by this certificate are
subject to the terms and conditions of a Warrantholder and
Stockholders Agreement, dated as of February 22, 1997, and a Voting
Trust Agreement, dated as of the same date, both of which may be
examined at the offices of Tel-Save Holdings, Inc., New Hope,
Pennsylvania.
(e) The Company shall, at the request of any registered holder of an
Exercise Share, exchange the certificate representing such security for a
certificate
13
<PAGE>
representing the same security not bearing the restrictive legend required by
Subparagraph 7(d) if the Exercise Shares may be sold or transferred pursuant to
the provisions of Rule 144(k) and, in the reasonable opinion of counsel to the
Company, such restrictive legend is no longer necessary.
(f) The Holder agrees to indemnify and hold harmless the Company
against any loss, damage, claim or liability arising solely from the disposition
of this Warrant or any Exercise Share held by such Holder or any interest
therein in violation of the provisions of this paragraph 7.
(g) The Holder of this Warrant is entitled to the benefit of such
registration rights in respect of the Shares of Common Stock issuable to such
Holder upon exercise of the Warrants as are set forth in the Warrantholder and
Stockholders Agreement, dated as of February 22, 1997, among the Company,
Tel-Save, Inc., a Pennsylvania corporation and wholly owned subsidiary of the
Company and the Holder.
8. Company Representations and Warranties. Company hereby represents and
--------------------------------------
warrants to AOL as follows:
(a) Due Organization; Good Standing. Company is a corporation duly
---------------------------------
organized, validly existing and in good standing under the laws of the State of
Delaware; and has the corporate power and authority to own its properties and
assets and to carry on its business as now conducted.
(b) Authorization. The execution, delivery and performance by Company
-------------
of this Warrant are within its corporate powers and have been duly authorized by
all necessary corporate action.
(c) No Conflict. The execution, delivery and performance by Company
-----------
of this Warrant do not contravene any provision of its charter or by-laws, and
do not conflict with, result in a breach of, or constitute a default under, any
agreement, instrument, covenant or other restriction to which the Company is a
party or by which it of any of its assets is bound.
(d) Enforceability. This Warrant is the legal, valid and binding
--------------
obligation of Company, enforceable against Company in accordance with its terms,
except as
14
<PAGE>
such enforceability may be limited by applicable bankruptcy, insolvency,
moratorium, reorganization, or other laws affecting creditors' rights generally
or by the availability of equitable remedies.
(e) Capitalization. As of February 13, 1997, the authorized equity
--------------
capitalization of Company consists of 100,000,000 shares of Common Stock, par
value $.01 per share, of which 62,887,998 shares were issued and outstanding,
10,503,800 shares were reserved for issuance upon the exercise of outstanding
options or warrants and no shares were held in treasury and 5,000,000 shares of
undesignated Preferred Stock, par value $.01 per share, of which no shares were
issued and outstanding. The Company agrees that, prior to the expiration of this
Warrant, the Company will at all times have authorized and in reserve, and will
keep available, solely for issuance or delivery upon the exercise of this
Warrant, the shares of the Common Stock and other securities and properties as
from time to time shall be receivable upon the exercise of this Warrant, the
shares of the Common Stock and other securities and properties as from time to
time shall be receivable upon the exercise of this Warrant. Upon issuance of the
shares of Common Stock upon exercise of this Warrant, such shares will have been
duly authorized and validly issued and will be fully paid and nonassessable
shares of Common Stock of the Company, and not subject to preemptive rights or
rights of first refusal.
(f) Commission Filings. Company has made available to AOL copies of
-------------------
Company's (i) Annual Report on Form 10-K for the fiscal year ended December 31,
1995, (ii) the Quarterly Reports on Form 10-Q for the quarters ended March 31,
June 30 and September 30, 1996, and (iii) filings by Company under the
Securities Act and other filings by Company under the Exchange Act, in each case
since January 1, 1996 and as filed with the SEC. Company has filed all reports,
registration statements and other documents (the "SEC Reports") required to be
filed under the Exchange Act and the rules and regulations thereunder, and all
SEC Reports complied, in all material respects, with the requirements of the
Exchange Act, such compliance to be determined, to the extent applicable, in
accordance with the standards applied to the reports in the following two
sentences. As of their respective dates, the SEC Reports did not contain any
untrue statement of a material fact or omit to state a material fact required to
be stated therein or necessary to make the statements therein, in
15
<PAGE>
light of the circumstances under which they were made, not misleading.
9. Notices. All notices or other communications under this Warrant shall
-------
be in writing and shall be deemed to have been given if delivered by hand or
mailed by certified mail, postage prepaid, return receipt requested, or
delivered by facsimile transmission (which shall be followed by delivery of an
original copy), addressed as follows:
If to the Company:
Tel-Save Holdings, Inc.
6805 Route 202
New Hope, PA 18938
Facsimile No. 215-862-1083
with a copy to:
Aloysius T. Lawn, IV, Esquire
General Counsel and Secretary
Tel-Save Holdings, Inc.
6805 Route 202
New Hope, PA 18938
Facsimile No. 215-862-1085
and to the Holder:
American Online, Inc.
22000 AOL Way
Dulles, VA 20166
Attn: General Counsel
with a copy to:
Head of Business Affairs
Facsimile No. 703-265-2208
Either of the Company or the Holder may from time to time change the
address or facsimile number to which notices to it are to be mailed hereunder by
notice in accordance with the provisions of this Paragraph 9.
10. Supplements and Amendments. Except as otherwise provided herein, this
Warrant and any term hereof may be
16
<PAGE>
changed, waived, discharged or terminated only by an instrument in writing
signed by the party against which enforcement of such change, waiver, discharge
or termination is sought.
11. Severability. If for any reason any provision, paragraph or term of
------------
this Warrant is held to be invalid or unenforceable, all other valid provisions
herein shall remain in full force and effect and all terms, provisions and
paragraphs of this Warrant shall be deemed to be severable.
12. Governing Law. This Warrant shall be deemed to be a contract made
--------------
under the laws of the State of Delaware and for all purposes shall be governed
by and construed in accordance with the laws of said State.
13. Entire Agreement. This Warrant consists of all the terms and
-----------------
conditions contained herein and all documents incorporated herein specifically
by reference and constitutes the complete and exclusive statement of the
understandings between the parties and supersedes all proposals and prior
agreements (oral or written) between the parties relating to the rights and
obligations provided hereunder.
14. Headings; Construction. Paragraph and Subparagraph headings used
-----------------------
herein are included herein for conveniences of reference only and shall not
affect the construction of this Warrant nor constitute a part of this Warrant
for any other purpose. The words "herein," "hereof," "hereby," "hereto,"
"hereunder" and words of similar import refer to this Warrant as a whole and not
to any particular article, section, paragraph, subparagraph or other subdivision
of this Warrant. Defined terms shall include the plural and the singular as the
context shall require.
15. Consent and Acknowledgment of Holder. The terms and conditions of
--------------------------------------
this Warrant are agreed and consented to by the Holder, as evidenced by Holder's
signature on the line provided below. This Warrant shall bind and be enforceable
by and against the Holder and such Holder's successors,
17
<PAGE>
heirs, estates, representatives and assigns and the Company and its successors
and assigns.
18
<PAGE>
IN WITNESS WHEREOF, the Company and the Holder have caused these
presents to be duly executed as of the day and year written above.
TEL-SAVE HOLDINGS, INC.
By:_______________________
Name: Daniel Borislow
Title: Chairman & CEO
Accepted by:
AMERICA ONLINE, INC.
By:____________________________
Name: David M. Colburn
Title: Senior Vice-President
19
<PAGE>
APPENDIX A
NOTICE OF WARRANT EXERCISE
Pursuant to the attached Warrant ("Warrant"), by and between the
undersigned and Tel-Save Holdings, Inc., a Delaware corporation (the "Company"),
dated as of February 22, 1997, the undersigned hereby irrevocably elects to
exercise the Warrant with respect to ________________ Warrant Shares (as such
term is defined in the Warrant) as provided for therein.
The undersigned requests that a certificate for the Exercise Shares
be issued in the name of:
____________________________________
____________________________________
-------------------------------------------------------
(Please print name, address and social security number)
Dated: ____________________________________
Address: ____________________________________
____________________________________
____________________________________
Signature: ____________________________________
VOTING TRUST AGREEMENT
----------------------
This VOTING TRUST AGREEMENT, dated as of February 22, 1997, among
DANIEL BORISLOW ("Trustee"), AMERICA ONLINE, INC., a Delaware corporation
("AOL") and TEL-SAVE HOLDINGS, INC., a Delaware corporation ("Holdings").
Capitalized terms used herein without definition shall have the meanings set
forth in the Marketing Agreement described in the first recital below.
W I T N E S S E T H:
WHEREAS, AOL, Tel-Save, Inc., a Pennsylvania corporation ("TS") and
Holdings have entered into a telecommunications marketing agreement (the
"Marketing Agreement"), dated as of February 22, 1997, pursuant to which AOL has
agreed to market telecommunications services to be provided by TS to customers
of AOL's online services on the terms and subject to the conditions set forth
therein;
WHEREAS, pursuant to the terms of the Marketing Agreement, Holdings
entered into two Warrant Agreements, each dated as of the date hereof (together
with each Additional Warrant described below, the "Warrants" or individually, a
"Warrant"), one giving AOL the right to acquire 5,000,000 shares of the common
stock, par value $.01 per share, of Holdings (the "Holdings Common Stock") on
the terms and subject to the conditions thereof, and the other giving AOL the
right to acquire up to 7,000,000 shares of Holdings Common Stock on the terms
and subject to the conditions thereof;
WHEREAS, upon the terms and conditions of the Marketing Agreement, in
connection with each of the first two Extension Periods elected by AOL, if any,
Holdings shall deliver to AOL an Additional Warrant to purchase up to 1,000,000
shares of Holdings Common Stock;
WHEREAS, pursuant to the terms and conditions of the Marketing
Agreement, AOL, TS and Holdings have entered into a Warrantholder and
Stockholders Agreement, dated as of the date hereof (the "Warrantholder and
Stockholder Agreement"), pursuant to which AOL has been granted certain
registration rights in connection with the Holdings Common Stock issuable
<PAGE>
to AOL pursuant to the exercise of the Warrants in accordance with its terms and
has agreed to certain restrictions on the resale of the Holdings Common Stock;
and
WHEREAS, AOL has agreed to give Trustee the right to vote all of the
shares of Holdings Common Stock to be issued to it upon exercise of its
Warrants, upon the terms and conditions set forth below.
NOW, THEREFORE, in consideration of the terms and conditions herein
contained, each of the parties, intending to be legally bound hereby, agree as
follows:
1. Creation of Voting Trust. Upon exercise of any of the Warrants by
------------------------
AOL, AOL agrees, subject to Section 3 below, that the certificates for those
shares of Holdings Common Stock issued upon such exercise will be registered in
the name of AOL and AOL shall immediately transfer and deposit with Trustee,
duly endorsed, or accompanied by duly executed stock powers in favor of Trustee
pursuant to Section 6 below, all such certificates for the purpose of vesting in
Trustee such rights and voting powers as are more fully set forth herein and
subject to the terms and conditions set forth herein. All voting securities of
Holdings received by AOL with respect to the Holdings Common Stock originally
transferred to Trustee, including, but not limited to, stock dividends, stock
splits, and other recapitalizations, shall likewise be held in trust with the
Trustee. Such voting securities of Holdings received with respect, and in
addition, to the Holdings Common Stock originally transferred to Trustee are
hereafter referred to collectively as the "Trust Stock."
(b) In exchange for such Trust Stock, Trustee shall issue to AOL (or
any transferee of AOL provided AOL gives written notice to Trustee of the name
and address of the transferee) voting trust certificates ("Trust Certificates"),
in the form attached hereto as Appendix 1. All distributions received with
respect to the Trust Stock that are not in the form of voting securities of
Holdings, including, but not limited to, cash dividends, cash distributions and
non-voting securities, shall be promptly transferred by Trustee to AOL or to the
then holder of the Trust Certificates if AOL has advised Trustee in writing of
any transfer of the
2
<PAGE>
Trust Certificates as provided above. Trustee hereby accepts his appointment as
voting trustee hereunder.
2. Power and Authority of Trustee. Trustee shall possess and be
---------------------------------
entitled to exercise all of the voting rights and voting powers of an absolute
owner of the Trust Stock including, but not limited to, the power to vote (i)
for election or removal of directors, (ii) for amendments to Holdings' Articles
of Incorporation or By-laws, and (iii) to merge, consolidate, liquidate or
dissolve Holdings or sell all or substantially all of the assets of Holdings.
Further, in connection with the election of a Company Designee(s) (as defined in
the Warrantholder and Stockholders Agreement), Trustee shall vote such Trust
Stock and any shares of Holdings Common Stock beneficially owned by Trustee in
favor of such Company Designee(s).
3. Term. The trust hereby created shall terminate upon the earlier to
----
occur of (i) Trustee ceasing to serve as either the Chief Executive Officer or
Chairman of the Board (and as Chairman is involved in the business affairs of
Holdings) of Holdings; (ii) the sale of all of the Trust Stock issued and
issuable to AOL upon exercise of its Warrants in accordance with the terms and
conditions hereof; and (iii) a "change of control" of Holdings. A "change of
control" shall be deemed to have occurred upon the happening of any of the
following events:
1. A person other than Mr. Borislow or Gary McCulla is
elected by the Board of Directors to serve as the Holdings' principal executive
officer;
2. During any period of twelve consecutive months,
individuals who at the beginning of such period constituted the Board of
Directors of Holdings (together with any new or replacement directors whose
election by the Board of Directors or whose nomination for election by Holdings'
stockholders was approved by a vote of at least 66-2/3% of the directors then
still in office who were either directors at the beginning of such period or
whose election or nomination for election was previously so approved) cease for
any reason to constitute a majority of the directors then in office;
3
<PAGE>
3. Within any period of twelve consecutive months, any
"person" or "group" (each as defined in Section 13(d) of the Securities Exchange
Act of 1934, as amended (the "Exchange Act")), who or which was not an
"Affiliate" (as defined in the Exchange Act) of Holdings at the beginning of
such period, becomes the "beneficial owner" (as defined in Rule 13d-3 under the
Exchange Act) of more than 50% of the total voting power of all classes of
voting stock of Holdings; or
4. Any merger, consolidation, sale of all or substantially
all of the assets of Holdings or stock acquisition.
Upon termination of this Agreement (either pursuant to this Section 3 or Section
4), the Trustee shall deliver certificates for the Trust Stock then held by the
Trustee to AOL or the then holders of the Trust Certificates.
4. AOL's Right to Sell Trust Stock. AOL shall have the right, at any
-------------------------------
time, to withdraw Trust Stock from the Voting Trust created hereunder if it
intends to immediately sell such stock, either privately or publicly; provided
that such sale is made pursuant to the terms and conditions of the Warrantholder
and Stockholders Agreement (including the provisions restricting the resale of
such Trust Stock) and not in violation of the provisions of subparagraph (b)
below. If AOL shall elect to exercise such right, the Voting Trustee shall use
all reasonable efforts to withdraw the Trust Stock from the Voting Trust as soon
as practicable to permit such sale; provided that if such sale is not effected,
AOL shall promptly return any such stock to the Voting Trust and such stock
shall, until such sale, continue to be Voting Stock.
(b) For the term of this Agreement, AOL shall not be permitted to do,
either directly or indirectly, any of the following:
(i) knowingly sell any of the Trust Stock to any person or group
(within the meaning of Section 13(d) of the Securities Exchange Act
of 1934, as amended and related rules (the "Exchange Act") who has
publicly indicated the desire or intention to acquire Holdings by
merger, consolidation or other form of business
4
<PAGE>
combination or to acquire any or all or substantially all of the
assets of Holdings;
(ii) knowingly become a member of a group other than with any
related person(s) for the purpose of acquiring, holding, disposing or
voting of securities of Holdings (within the meaning of Section 13(d)
of the Exchange Act and related rules);
unless, in the event of clause (i), Mr. Borislow shall have indicated his
intention to sell to such group and, in the case of clause (ii), the Board of
Directors of Holdings shall not have rejected the offer.
(c) Upon the sale of such Trust Stock in accordance with the terms
and conditions hereof, such stock shall cease to be Trust Stock.
5. Trustee's Duties and Immunities. In voting the shares of Trust
---------------------------------
Stock or in doing any act with respect to the control or management of Holdings
or its affairs, either in person or by proxy, Trustee shall act in good faith.
AOL hereby waives any conflict of interest that Trustee may personally have so
long as Trustee has acted in good faith. Trustee shall not be liable for any
error of judgment or mistake of law or other mistake, and shall not be
responsible for any act or omission with respect to his duties and
responsibilities as voting trustee, or for any losses that may result therefrom,
unless such losses can be proven by clear and convincing evidence to be the
result of willful misconduct, gross negligence or bad faith.
6. Endorsement. The certificates for shares of Holdings Common Stock
-----------
issued to AOL and transferred and assigned to Trustee hereunder shall be
endorsed as follows:
The shares represented by this certificate are subject to
restrictions imposed by the federal Securities Act of 1933, as
amended and applicable state securities laws. The shares may not
be sold or transferred in the absence of registration or an
exemption therefrom under such Securities Act of 1933 and such
applicable state securities laws.
5
<PAGE>
In addition, all shares represented by this certificate are
subject to a Warrantholder and Stockholder Agreement dated as of
February 22, 1997, and a Voting Trust Agreement, dated as of the
same date, both of which are at the office of Tel-Save Holdings,
Inc., New Hope, Pennsylvania.
7. Trustee's Indemnity. Trustee shall be entitled to be indemnified
--------------------
fully against all costs, charges, expenses and other liabilities properly
incurred by Trustee in the exercise of any power conferred upon him by these
presents; and AOL hereby covenants with Trustee that in the event that AOL shall
hold harmless and keep indemnified Trustee from all loss or damage that he may
sustain or be put to by reason of anything he may lawfully do in the execution
of this Agreement.
8. Appointment of Substitute Trustee. In the event that Trustee is
----------------------------------
unable for any reason to vote the Trust Stock, but continues to hold the office
of Chief Executive Officer or Chairman of the Board (and as Chairman is involved
in the business affairs of Holdings) of Holdings, Trustee shall appoint a
substitute Trustee (and give notice to AOL of such appointment), and any person
so appointed shall thereupon be vested with all the duties, powers and authority
of a Trustee hereunder as if originally named herein for the sole purpose of
casting a particular vote at the direction of Trustee.
9. Reports. Trustee is hereby authorized and instructed to prepare
-------
and file any reports with respect to the Trust Stock as may be required under
state or federal securities laws. AOL will cooperate in any way as may be
reasonably necessary for the preparation and filing of any such reports.
10. General. This Agreement contains the entire understanding and
-------
agreement of the parties with respect to the subject matter contained herein. No
amendment or supplement to this Agreement or waiver hereof shall be binding
unless reduced to writing and signed by all of the parties hereto. Words shall
be construed to be of such number and gender as the circumstances require. This
Agreement shall inure to the benefit of and be legally binding upon the parties
6
<PAGE>
hereto and the heirs, executors, administrators, successors, assigns, and
transferees of them and each of them. This Agreement shall be construed and
enforced in accordance with the laws of the State of Delaware applicable to
contracts made and to be performed solely in the State of Delaware. This
Agreement may be executed in one or more counterparts, each of which so executed
shall be deemed to be an original and such counterparts shall, together,
constitute and be one and the same document.
7
<PAGE>
IN WITNESS WHEREOF, the parties hereto have executed this Agreement
the day and year first above written.
TEL-SAVE HOLDINGS, INC. AMERICA ONLINE, INC.
By:_________________________
By:_________________________
Name: Daniel Borislow Name: David M. Colburn
Title: Chairman & CEO Title: Senior Vice-President
By:_________________________ DANIEL BORISLOW,
Voting Trustee
8
<PAGE>
Appendix 1
VOTING TRUST CERTIFICATE
TEL-SAVE HOLDINGS, INC.
(A Corporation in the State of Delaware)
No.___________________ _________ Common Shares
VOTING TRUST CERTIFICATE FOR SHARES OF COMMON STOCK
This is to certify that _______, (hereinafter call the "Holder") or
its transferor has deposited under the Voting Trust Agreement hereinafter
mentioned a certificate or certificates for ________ shares of Common Stock of
Tel-Save Holdings, Inc. (hereinafter called the "Corporation"), a corporation of
the State of Delaware, and until the termination of the said Voting Trust
Agreement is entitled to receive payments equal to the amount of dividends, if
any, received by the Trustee upon the shares of stock represented by this
certificate, less any taxes imposed thereon that the Trustee may be required to
pay thereon or to withhold therefrom under any present or future law affecting
the matter and also less the expenses of the Trustee. The shares of stock
deposited hereunder are shares of the only class of common stock of the
Corporation issued and outstanding at the date of the aforesaid Voting Trust
Agreement, and this certificate shall likewise represent any and all shares of
stock of said class or of any other class or classes which, upon any increase or
reclassification of the class of stock of the corporation, shares of which are
at the time deposited under said Voting Trust Agreement, shall be issued in lieu
of, or in respect of, the shares of stock so originally deposited, which stock
shall have been received by the Trustee on account of his ownership as Trustee
of the stock theretofore held by him under the said Voting Trust Agreement and
represented by this certificate.
Upon the termination of the Voting Trust Agreement, the holder, or
registered assigns, shall be entitled to receive a certificate or certificates
for the number of shares of stock of such class represented by this Voting Trust
Certificate. Until the actual delivery to the holder hereof of the stock
certificate or certificates represented or called for hereby, the Trustee shall
possess, and shall be entitled to
<PAGE>
exercise, all rights and powers of absolute owners and holders of record of said
stock deposited hereunder, including the right to vote for every purpose and to
consent to or waive any corporate act of the corporation of any kind; it being
expressly stipulated that no voting right, or right to give consents or waivers
in respect of such stock, passes to the holder hereof or such holder's assigns
by or under this certificate or by or under any agreement, express or implied.
This certificate is issued under and pursuant to, and the rights of
the holder hereof are subject to and limited by, the terms and conditions of a
Voting Trust Agreement, dated the ___ day of February 1997, and the duplicate
original of the Voting Trust Agreement has been filed in and will be found at
the office of the Corporation, Wilmington, Delaware. At all times during
business hours the Voting Trust Agreement is and will be open to inspection by
any stockholder of the corporation or his or her attorney.
Stock certificates shall be due for delivery and shall be delivered
by the Trustee at said office of the Corporation, in exchange for Voting Trust
Certificates, upon the termination of said Voting Trust Agreement, in accordance
with its provisions or in accordance with law.
In the event of the dissolution or total or partial liquidation of
the Corporation the money and other property received by the Trustee in respect
of the stock represented by this certificate shall be paid or delivered to the
holder of record hereof, but only upon surrender of this certificate in case of
dissolution or the presentation of this certificate for the notation thereon of
the distribution in case of a partial liquidation.
This certificate and the right, title and interest in and to the
shares of stock in respect of which this certificate is issued, are transferable
on the books of the Corporation by the registered holder hereof in person or by
attorney duly authorized, according to the rules established for that purpose by
the Corporation and on surrender hereof properly assigned; and until so
transferred the Corporation may treat the registered holder hereof as the owner
for all
2
<PAGE>
purposes whatsoever except that no delivery of stock certificates hereunder
shall be made without the surrender hereof.
As a condition of making or permitting any transfer or delivery of
stock certificates or Voting Trust Certificates, the Trustee may require the
payment of a sum sufficient to pay or reimburse him for any stamp tax or other
Governmental charge in connection therewith and for his expenses as Trustee.
IN WITNESS WHEREOF, the Trustee has signed this certificate this ____
day of February, 1997.
------------------------------
Daniel Borislow
3
February 26, 1997
Joseph A. Schenk
Chief Financial Officer
Tel-Save Holdings, Inc.
6805 Route 202
New Hope, PA 18938
FACILITY LETTER
Dear Mr. Schenk:
Pursuant to the terms of this letter (the "Letter") set out below, we, Merrill
Lynch International Bank Limited, (the "Bank") are prepared to make available to
you Tel-Save Holdings, Inc. (the "Client") the facility described below (the
"Facility"). The Facility will be subject to the terms and conditions set out in
the attached Terms Sheet. By execution of the Letter, the Client acknowledges
receipt of the Terms Sheet and agrees to be bound by the terms and conditions
herein and therein as they may be amended from time to time by the Bank. Terms
defined in the Terms Sheet have the same meaning in the Letter.
The proposed Facility comprises as:
a. credit facility to be drawn by Advances, which shall normally be in a
minimum amount of Five Hundred Thousand U.S. Dollars ($500,000.00), all in
an aggregate amount not exceeding One Hundred and Twenty Million U.S.
Dollars (USD $120,000,000).
With respect to the Facility, "Maturity Date" means March 1, 2002 (although the
Maturity Date may at the Bank's discretion be extended by notice from the Bank
for one or more successive periods) and "Spread" means:
0.625% per annum for all outstanding Advances. Client shall pay 0. 125% of
Spread on monthly basis (calculated to be 0.0104%) at inception of each Advance
and monthly thereafter on the total outstanding balance on the monthly
anniversary of the initial Advance. This 0.0104% charge shall be added to
outstanding loan balance on the date this charge is effected.
Where interest is calculated by reference to LIBOR, the Spread on an Advance
will be determined at the start of each of its Interest Periods, and where
interest is
<PAGE>
calculated by reference to Base Rate, the Spread will be determined monthly or,
in each case, at such other intervals as the Bank may determine.
The Bank operates a Client Complaints Procedure. If for any reason you should
have cause for concern or complaint you should contact the Manager, IPBG
Operations.
The offer of the Facility in the Letter will not be effective unless and until
the Facility is approved by the Bank, and the Agreement will not become
effective until the Letter is signed by all parties.
Please confirm your agreement to the above and your acceptance of the provisions
of the Letter and the Terms Sheet by completing, signing and returning the
enclosed copy of the Letter.
Yours faithfully,
For and on behalf of Merrill Lynch International Bank Limited
_____________________________________________________________
We hereby accept the Facility on the terms and conditions detailed in the Letter
and in the Terms Sheet attached thereto.
We have read those terms and conditions and in particular acknowledge that by
Clause 12 of the Terms Sheet we will be granting security over our assets in
favor of the Bank and other members of the Merrill Lynch Group and granting
other rights to them.
Pursuant to Clause 30 of the Terms Sheet our address for notices is:
Client:
Joseph A. Schenk
Tel-Save Holdings, Inc.
Chief Financial Officer
6805 Route 202
/s/ Joseph A. Schenk 3/11/97
- -------------------- -------
Joseph Schenk, CFO Dated
Telephone No.: (215) 862-1805
--------------
<PAGE>
I, the undersigned, hereby certify that, at a meeting of the Board of Directors
of Tel-Save Holdings, Inc. (the "Client") whose registered office is at 6805
Route 202, New Hope, PA 18938 duly convened and held on the 11 day of March,
1997, at which a duly constituted quorum of Directors was present and voting
throughout, resolutions were duly passed and entered in the Minute Book of the
Client and have not been modified or amended and are now in full force and
effect.
IT WAS RESOLVED:
1. That entering into a facility (the "Facility") offered by Merrill Lynch
International Bank Limited (the "Bank") in accordance with the Facility
Letter (the "Letter") and the attached Terms Sheet (which together form an
agreement between the Client, the Indemnifier (if any) named therein and
the Bank), under which the Bank is prepared to consider making available
Advances and/or issuing Letters of Credit and certain foreign exchange
facilities, is within the Client's purposes, authorities and powers and is
in the best interests of and to the advantage of the Client, and be
approved, and that Joseph A. Schenk, Kevin Kelly, Daniel Borislow (the
"Authorized Signatory"), who (if more than one Person) may act in all
respects and for all purposes singly without any co-signature or
countersigning, be Authorized to sign the Letter on behalf of the Client.
2. That the placing of funds and/or securities on deposit, and the opening of
an account or accounts with the Bank in one or more currencies, for the
purposes of the Facility, and in particular for collateralizing the
Facility, be approved and that the Authorized Signatory be Authorized from
time to time to deposit such funds and/or securities with the Bank and to
execute and/or deliver on behalf of the Client as its deed or otherwise any
documentation (including, without limitation, any power of attorney
authorising any member of the Merrill Lynch Group (as defined in the Terms
Sheet attached to the Letter) to open and operate any account or
sub-account in the name of the Client or otherwise) requested by the Bank
with respect thereto or (as the case may be) any such documentation be
executed and/or delivered on behalf of the Client as its deed by the
affixing of the seal of the Client together with the signature
<PAGE>
of any Director and countersignature of a second Director or the Secretary
or by the signatures of two Directors or a Director and the Secretary.
3. That the Authorized Signatory be Authorized:
A. to request from time to time the making of an Advance, the issue of a
Letter of Credit or the execution of a foreign exchange transaction
pursuant to the Facility; and
B. to give instructions (whether in writing, orally, by telex or
otherwise) to the Bank and/or to take such other action on behalf of
the Client as such Signatory may think fit in connection, with the
Facility, including the ability to increase or decrease the amount of
the Facility and agree any other amendment to the terms of the
Facility, all without additional specific approval by the Board,
and to execute and/or deliver on behalf of the Client any documentation
requested by the Bank with respect thereto and that all such actions shall be
binding on, and shall be approved and ratified by, the Client.
4. That the Client or any Authorized Signatory may from time to time issue
instructions, notices, demands or requests, either orally or in writing,
via any officer or employee of a member of the Merrill Lynch Group, and
such instructions, notices, demands or requests, when delivered to such
person in the name of and on behalf of the Client, shall be deemed to have
been made by the Client direct to the Bank, and the Bank shall be entitled
to rely on and shall not be liable for any action taken, or omitted to be
taken, in good faith pursuant to such instructions, notices, demands or
requests so deemed given by the Client or on any communication or document
believed by it to be genuine.
<PAGE>
This statement is furnished to assist you in understanding some of the potential
risks which may arise through the use of our lending and foreign exchange
facilities. You should also ensure that you are aware of the potential taxation
consequences of using these facilities and if you are in any doubt, seek the
advice of a professional advisor.
- --------------------------------------------------------------------------------
Leverage Borrowing for investment purposes is referred to as
leveraging. In order for a leveraging strategy to be
profitable, the return on the investment must exceed the
cost of the borrowed funds. A leveraging strategy amplifies
the potential gains or losses on an investment. The higher
the leverage, the greater the potential gains or losses.
- --------------------------------------------------------------------------------
Cross-Currency Borrowing a currency, other than the currency of investment,
Financing is referred to as cross-currency financing. The lower
financing costs of certain currencies can provide
potentially attractive returns. However, adverse currency
movements can not only eliminate such benefits, but also
result in substantial losses. Losses, as such, may occur if
the borrowed currency strengthens against the currency of
investment, resulting in a potential shortfall of funds for
repayment of the loan upon the liquidation of the
investment.
The use of leverage as part of a cross-currency financing
strategy may subject the return on the overall investment to
significant fluctuations; at times, resulting in substantial
incremental returns: at other times, resulting in
significant losses. Investors, therefore, must carefully
consider the investment risks inherent in leveraged
strategies, in cross-currency financing facilities, and in
combinations thereof, to determine if such are suitable,
with regard to their investment objectives.
<PAGE>
- --------------------------------------------------------------------------------
Foreign FX transactions are suitable only for persons familiar with
Exchange (FX) the nature of the currency markets, and who are also willing
to accept the financial risks inherent in trading one
currency versus one or more other currencies. In many
respects, FX trading is similar to speculative futures
trading, to the extent that it may involve a high degree of
leverage and significant market fluctuations. Investors,
therefore, must carefully consider whether such trading is
suitable with regard to their investment objectives.
- --------------------------------------------------------------------------------
Over the OTC FX Options involve a high degree of risk. Purchases may
Counter (OTC) result in the total loss of the option premium and related
Foreign transaction costs. Sales of put options may result in
Exchange (FX) substantial financial loss. Sales of call options may also
Options result in substantial financial loss, unless the seller
already owns the underlying foreign currency. OTC FX option
purchasers and sellers should also note that there may be
times when no market will be available for the liquidation
of their option positions.
Trading OTC FX options should only be done by persons with
significant experience in options trading and foreign
exchange markets, and for whom such trading is consistent
with their investment objectives.
- --------------------------------------------------------------------------------
I/We hereby acknowledge having read and understood the foregoing disclosure and
its application to various transactions, which respect to my relationship with
Merrill Lynch.
/s/ Joseph A. Schenk
- -------------------- -----------------------
Client Signature Indemnifier Signature
Tel-Save Holdings, Inc.
- ----------------------- -----------------------
Please print name Please print name
3/11/97
- ----------------------- -----------------------
Dated Dated
<PAGE>
The Collateral Schedule
Part I: Securities
Collateral Value
A B
Advance Maintenance
Class of Securities Level Level
Merrill Lynch Funds 50% 70%
Equities and Convertible Bonds
Convertible bonds/convertible
to US equities 50% 70%
Fully listed equities traded
on major exchanges or
marginable by Merrill
Lynch Pierce Fenner & Smith Inc. 50% 70%
Bonds
Fixed Income Bonds "BBB" or better 75% 85%
Part II: Cash Deposits
Collateral Value
A B
Advance Maintenance
Level Level
Deposits with Banks
Deposits with Merrill Lynch
International Bank Limited in
any freely convertible
currency 85% 90%
This Schedule is not binding and is for information purposes only. This Schedule
is subject to amendment at the Bank's discretion.
<PAGE>
1. DEFINITIONS
- --------------------------------------------------------------------------------
In this Terms Sheet:
ACCOUNTS means all or any Collateral Accounts or Collateral Deposit Accounts;
ADVANCE means an advance made or to be made by the Bank to the Client under the
Agreement or, as the case may be, the outstanding principal amount of any such
advance;
ADVANCE VALUE means at any date, the value of any item of Blocked Collateral
expressed as a Dollar Amount and determined by the Bank in accordance with
Clause 10 or (as appropriate) the available amount under any Collateral
Guarantee expressed as a Dollar Amount and determined by the Bank in accordance
with Clause 10 and "COLLATERAL ADVANCE VALUE" means, at any date, the aggregate
of the value (so determined) of all Blocked Collateral and the available amounts
(so determined) of all Collateral Guarantees;
AFFILIATE means, at any time, in relation to any Person, any other Person
controlling, controlled by, or under common control with, that Person;
BANK means Merrill Lynch International Bank Limited;
BASE RATE means the floating annual rate of interest determined by the Bank
based on a weighted average of rates on the second Business Day before the first
Business Day of each week at which the Bank offers deposits in the relevant
currency to leading banks in the London Inter Bank Market, and for terms of one
night, one week and one month, or if at any time such rate does not accurately
reflect the cost to the Bank of funding the relevant Advance or other amount,
the rate as determined by the Bank in good faith at the relevant time (such
floating annual rate to change when and as such base rate changes);
BLOCKED COLLATERAL means all Collateral which is for the time being held or
blocked by the Bank at its discretion for the purposes of the Agreement and
particularly for the purposes of determining Advance and Maintenance Values;
BUSINESS DAY means a day on which deposits in Dollars and any other relevant
currency may be dealt in on the London Inter Bank Market and banks are open in
London,
<PAGE>
New York City and, for the purposes of making payments in currencies other than
ECU, the principal financial centre of the country of each such other relevant
currency and, for the purposes of making payments in ECU, a day on which those
banks which operate a clearing system in ECU will clear payments in ECU through
such clearing system;
CLIENT means the Person(s) signing the acknowledgment on the Letter as Client
(or signing such other document identifying the Person(s) as Client and
delivering that document to the Bank) and to whom the Facility has been made
available, subject to the terms hereof,
CLOSE OUT an Open Contract means, in relation to a Foreign Exchange Contract or
an Option Contract, the making of a Foreign Exchange Contract or, as the case
may be, an Option Contract opposite to an Open Contract previously entered into
having or relating to the same Value Date and otherwise matching that Open
Contract. Where only a part of an Open Contract is Closed Out, the remaining
part thereof shall, for the purposes of the Agreement, be considered an Open
Contract;
COLLATERAL means all Securities, including all certificates, stock notes and
other documents relating thereto (and the claim in respect thereof) and cash
balances (and the debt owing in respect thereof) in or credited to the Accounts;
COLLATERAL ACCOUNT means the one or more accounts in the control of the Bank and
wholly or partly opened pursuant to, or used for the purposes of, the Agreement
with or through any other member of the Merrill Lynch Group in respect of
Securities purchased or owned by the Client and/or (as appropriate) the
Indemnifier, all such Collateral Accounts to be maintained under the complete
discretion of the Bank, with such title to reflect the respective interests of
the Bank and of the Client or (as appropriate) the Indemnifier;
COLLATERAL DEPOSIT ACCOUNT means the one or more deposit accounts wholly or
partly opened and/or maintained by the Client and/or (as appropriate) the
Indemnifier with the Bank and/or, as the case may be, by the Bank with a member
of the Merrill Lynch Group pursuant to, or used for the purposes of, the
Agreement (there being a separate account or, as the case may be, sub-account
for each currency in which deposits are made), all such Collateral Deposit
Accounts to be maintained under the complete discretion of the Bank, with such
title to
<PAGE>
reflect the respective interests of the Bank and of the Client or (as
appropriate) the Indemnifier;
COLLATERAL GUARANTEE means a letter of credit, guarantee, indemnity or bond the
benefit of which is available to the Bank in respect of the Client's and/or the
Indemnifier's obligations under the Agreement in form and substance (and in
particular having an expire date), and issued by a bank or financial
institution, satisfactory to the Bank at the Bank's discretion;
DOLLAR(s) and USD means the lawful currency of the United States of America;
DOLLAR AMOUNT means, at any date, the value expressed in Dollars of (as the case
may be) (1) an Advance, (2) any Letter of Credit Exposure, (3) any other amount
outstanding hereunder, (4) any Blocked Collateral or Collateral, or (5) the
available amount under any Collateral Guarantee (each of (1) to (5) being
recalculated, where in a currency other than Dollars, as at that date, at the
Bank's applicable spot rate of exchange for the purchase of Dollars with a
comparable amount of the relevant currency or, in the case of any Advance, to
the extent the Client's foreign exchange liabilities are hedged by an Open
Contract, at the rate of exchange fixed for the purposes of that Open Contract);
ECU means European Currency Units, being units of account for the time being
used in the European Monetary System;
EVENT OF DEFAULT means one of the events described in Clause 19;
FACILITY means any or all of the facilities for the making of Advances, the
entering into of Foreign Exchange Contracts and/or Option Contracts and the
Issuance of Letters of Credit as are specified in the Letter;
FOREIGN EXCHANGE CONTRACT means a contract entered into by the Bank with the
Client under the Agreement to buy or sell against one currency agreed between
the Client and the Bank an amount of another currency agreed between the Client
and the Bank for spot or forward settlement on a stated Value Date;
INDEMNIFIER means the Person(s) if any, signing the acknowledgment on the Letter
as Indemnifier (or signing
<PAGE>
such other document identifying the Person(s) as Indemnifier and delivering that
document to the Bank) and guaranteeing the obligations of the Client under the
Agreement;
INTEREST PERIOD means a period by reference to which interest is calculated
and/or payable on an Advance;
ISSUANCE includes issue, acceptance, negotiation, endorsement and confirmation
(and issued shall in relation to any Letter of Credit be construed accordingly);
the ownership of share capital, possession of voting powers, contract or
otherwise) by Merrill Lynch & Co., Inc. and/or any such company and/or one or
more of their Subsidiaries including, but not limited to, Merrill Lynch
International & Co.;
OPEN CONTRACT means a Foreign Exchange Contract and/or an Option Contract which
has not been terminated in accordance with Clause 16 or 20.A.2 or Closed Out;
OPTION CONTRACT means a contract entered into by the Bank with the Client under
the Agreement for the purchase from, or sale to, the Client of an option to
purchase or sell one currency against an amount of another currency on a stated
Value Date, at the rate of exchange agreed between the Bank and the Client;
PERSON(S) includes/include any individual, company, corporation, firm,
partnership, joint venture, association, Organisation, trust, state or agency of
a state (in each case, whether or not having separate legal personality);
RELEVANT DATE means (as the case may be) (1) the date of any payment pursuant to
Clause 7.A.3, (2) the date on which any losses, expenses, costs, damages,
claims, demands, charges or liabilities were made against or suffered, incurred
or sustained by the Bank (as determined by the Bank in its absolute discretion),
or (3) in the case of any other amount payable to the Bank hereunder, the date
of demand therefor by the Bank on the Client or, as the case may be, the
Indemnifier;
SCHEDULE means the Collateral Schedule attached to the Letter, or such other
document identified by the Bank as the Schedule, as the same may be amended
and/or supplemented from time to time;
<PAGE>
SECURITIES means securities and instruments (including but not limited to
options, futures and bearer securities and instruments) and other rights and
things, in possession or in action;
SUBSIDIARY means, at any time, in relation to a company, any other company which
is directly or indirectly controlled, or more than 50% of whose issued or
outstanding shares or stock having general voting power in ordinary
circumstances is beneficially owned, directly or indirectly, by that first
company;
SUM OUTSTANDING means, as at a particular date, the aggregate Dollar Amount of
all amounts (whether principal, accrued interest, fees or otherwise) outstanding
hereunder, as at that date, including in respect of foreign exchange
transactions unrealised and realised losses (less any unrealised profit and any
profit realised before the applicable Value Date) (where losses and profit are
as determined by the Bank) under the Agreement but not including any Letter of
Credit Exposure;
TAX includes any present or future tax, levy, impost, duty, charge, fee,
deduction or withholding of any nature and whatever called, by whomsoever, on
whomsoever and wherever imposed, levied, collected, withheld or assessed;
TAX ON OVERALL NET INCOME of the Bank shall be construed as a reference to tax
(other than tax deducted or withheld from any payment) imposed on the Bank by
the jurisdiction in which its principal office and/or the office through which
it is acting for the purpose of the Agreement is located on (1) its net income,
profits or gains worldwide, or (2) such of its net income, profits or gains as
arise in or relate to that jurisdiction;
VALUE DATE means the date of settlement of a Foreign Exchange Contract or, as
the case may be, pursuant to the exercise of an Option Contract.
In this Terms Sheet, references to the "AGREEMENT" or "THIS AGREEMENT" mean and
include (1) the Letter, (2) this Terms Sheet, (3) in the case of Foreign
Exchange Contracts and Option Contracts, all confirmations (if any) related
thereto, (4) in the case of Letters of Credit, the request for Issuance of any
Letter of Credit made to the Bank as referred to in Clause 6.A, and (5) any
other document identified by the Bank in writing to the Client and/or the
Indemnifier as being part of the
<PAGE>
"Agreement", all as renewed and/or amended from time to time, and it is
acknowledged and agreed that all Advances are made, all Foreign Exchange
Contracts and Option Contracts are entered into, and all Letters of Credit are
issued, in reliance on the fact that this Agreement forms a single agreement
between the parties, and that the parties would not otherwise make or do any of
the foregoing. The Schedule does not form part of the Agreement and, as set out
in Clause 28.E, is or may be provided for information only.
Headings shall be ignored in construing the Agreement.
2. PURPOSE
- --------------------------------------------------------------------------------
The Client shall use the Facility to finance the purchase of Securities, for the
repayment of Advances, to reduce amounts owing to the Bank in respect of Letters
of Credit or for such other lawful purposes as may be disclosed to or agreed by
the Bank.
3. TERM
- --------------------------------------------------------------------------------
Letter) or, if earlier, on 30 days' written notice given by the Bank to the
Client at any time. The Sum Outstanding may also be accelerated upon the
occurrence of Events of Default, and certain other matters, described in the
Agreement.
4. CONDITION PRECEDENT TO EACH ADVANCE
- --------------------------------------------------------------------------------
Without prejudice to (A) any other requirements of the Bank in relation to any
Advance, and (B) the right of the Bank to refuse to make an Advance in its
absolute discretion, Advances will be made as follows:
1. the Client may give to the Bank notice satisfactory to the
Bank not later than 12 noon (London time) on the third
Business Day before the proposed date (which must be a
Business Day) of the relevant Advance requesting the
advance of all or part of the unused part of the Facility;
or
2. the Client hereby requests and authorises the Bank at the
Bank's discretion to make Advances (without any further
request by the Client) for the purposes of financing
amounts payable by the
<PAGE>
Client to the Bank under the Agreement (including in
particular amounts payable under Clause 5.C or 7.A).
For this purpose, the unused part of the Facility shall be the amount of the
Facility, as specified in the Letter, or such other amount as the Bank shall
specify as the amount of the Facility from time to time, less the sum of (1) the
aggregate Dollar Amount (as at the proposed date of the Advance) of all
outstanding Advances and of the Total Letter of Credit Exposure, and (2) the
aggregate Dollar Amount (as at the proposed date of the Advance) of all
outstanding interest capitalised pursuant to Clause 17-E and (at the Bank's
discretion) of any other amount outstanding hereunder.
5. FOREIGN EXCHANGE
- --------------------------------------------------------------------------------
A. The Bank shall be entitled, but not bound, to act on
the request of the Client to enter into a Foreign
Exchange Contract and/or an Option Contract.
B. The Client shall pay to the Bank such premiums in
respect of Option Contracts in such currencies as the
Client and the Bank shall have agreed.
C. On each applicable Value Date (or any earlier date on
which the Foreign Exchange Contract or Option Contract
is terminated in accordance with Clause 16 or Closed
Out), any costs, expenses or losses to the Client
arising as a result of the Foreign Exchange Contract or
the Option Contract (or its exercise) shall be either
paid by the Client to the Bank on that date or (if so
determined by the Bank and subject always to the terms
hereof) paid by the Client on that date from the
proceeds of an Advance.
D. On each applicable Value Date (or any earlier date on
which the Foreign Exchange Contract or Option Contract
is terminated in accordance with Clause 16 or Closed
Out), any profits to the Client arising as a result of
the Foreign Exchange Contract or the Option Contract
(or its exercise) shall be credited by the Bank to an
appropriate Account.
<PAGE>
E. On the date on which any Foreign Exchange Contract or
Option Contract is Closed Out, the relevant Contracts
will automatically be discharged to the extent of the
Closing Out.
6. LETTERS OF CREDIT
- --------------------------------------------------------------------------------
A. The Bank shall be entitled, but not bound, to act on
any request for Issuance of a Letter of Credit made to
the Bank by the Client or by the Indemnifier for the
Client's account specifying the beneficiary, the amount
and the expiry date of such Letter of Credit and such
other information as may be required by the Bank.
B. Each of the Client and the Indemnifier agrees that:
B.1. the Bank shall be entitled to rely without further
enquiry on drafts and other documents presented under
any Letter of Credit which appear on their face to be
in compliance with the terms and conditions of that
Letter of Credit;
B.2. neither the Bank nor its correspondents shall be
responsible for performance by any beneficiary of its
obligations to the Indemnifier or the Client nor for
any loss or damage to any goods forming the subject of
any Letter of Credit, however caused, nor in the event
of any misdescription, misrepresentation, mistake,
error or irregularity as to the goods or quantity,
quality, nature, size or value thereof, or in the
drafts or other documents;
B.3. all directions and correspondence relating to Letters
of Credit are to be sent at the risk of the Client and
the Indemnifier, and the Bank shall not be liable or
responsible for any inaccuracy, interruption, error or
delay in transmission or delivery by post, telegraph or
cable or for the accuracy of any translation,
C. Subject to the law and customs and practices of trade
existing in the area where the relevant beneficiary is
located or to the extent it is otherwise agreed, or the
same is inconsistent herewith, each Letter of Credit
which is a "letter of credit", whether trade or
<PAGE>
documentary, clean or standby, shall be subject to, and
performance by the Bank, its correspondents and each
beneficiary of a Letter of Credit shall be governed by,
the Uniform Customs and Practice for Documentary
Credits (1993 Revision, ICC Publication No. 500 or its
subsequent revisions).
7. GUARANTEE AND INDEMNITIES
- --------------------------------------------------------------------------------
A. Each of the Client and the Indemnifier hereby
unconditionally and irrevocably:
A.1. agrees on demand to indemnify the Bank from and against
all losses, expenses, costs, actions, proceedings,
damages, claims, demands, charges or liabilities which
the Bank may at any time suffer, incur or sustain or
which may be brought, made or preferred against the
Bank in relation to or arising out of any Letter of
Credit (including, but not limited to, (a) any
payment(s) which may be payable by or claimed or
demanded from the Bank pursuant to a Letter of Credit,
(b) any taxes required to be paid by the Bank on
account of which it makes any deduction or withholding
from any such payment, and (c) any legal fees, together
with taxes thereon, incurred by the Bank);
A.2. authorises the Bank on first claim or demand to make
any payment which may be, or may appear or purport to
be, claimed or demanded from the Bank in relation to or
arising out of any Letter of Credit and to perform any
other obligations which it has, or appears to have, in
relation to or arising out of any Letter of Credit, in
each case without requiring or obtaining any evidence
or proof that the amount claimed or demanded is due and
payable and without any notice or reference to or the
agreement of or further authority from "he Client or
the Indemnifier;
A.3. agrees that any payment which the Bank shall make in
accordance or purported accordance with a Letter of
Credit shall be binding on the Client and the
Indemnifier and shall be accepted by the Client and the
Indemnifier as conclusive evidence of the Bank's
liability to make such payment (notwithstanding that
such
<PAGE>
payment may have been made after the stated period of
validity or expiry date of any Letter of Credit, unless
prior to such payment the relevant Letter of Credit
shall have been returned to the Bank or otherwise
entirely cancelled in a manner in form and substance
satisfactory to the Bank);
A.4. agrees to pay to the Bank on demand and in the currency
or currencies specified by the Bank any amount payable
to the Bank under A.1 above, together with interest
thereon in such currency(ies) from the Relevant Date to
the date on which the Bank shall have received all
amounts payable to it hereunder at the rate per annum
pursuant to Clause 17.F (or such other rate as may be
agreed from time to time); and
A.5. as security for its obligations under the Agreement and
any other agreement between it and the Bank or any
other member of the Merrill Lynch Group, irrevocably
authorises the Bank (for itself and as trustee of the
benefit of these authorisations for each other member
of the Merrill Lynch Group) to debit (without demand
on, notice or reference to, or further authority from,
it) any then existing account (including without
limitation the Collateral Account or Collateral Deposit
Account) of it with the Bank and/or such member with
the whole or any part of any amount payable to the Bank
under the Agreement and/or interest thereon pursuant to
A.4 above or 17.F below and/or any amount under any
other such agreement, whether or not any such account
shall be overdrawn or may become overdrawn by reason of
such debit and whether or not any such amount and/or
interest is payable in the same currency as that in
which any such account is denominated.
B. The Indemnifier hereby unconditionally and irrevocably
agrees with the Bank (for itself and as trustee of the
benefit of these agreements for each other member of
the Merrill Lynch Group) that:
B.1. if for any reason the Client does not pay any sum
payable by the Client as provided in the Agreement by
the time and on the date specified in the Agreement and
otherwise in the manner specified in the Agreement or
any other amount
<PAGE>
payable under any other agreement between the Client
and the Bank or any other member of the Merrill Lynch
Group (whether on the normal due date, on acceleration
or otherwise), the Indemnifier will pay that sum on the
due date and in the required manner;
B.2. as between the Indemnifier and the Bank but without
affecting the Client's obligations, the Indemnifier
shall be liable under B.1 above and B.5 below as if it
were the sole principal debtor and not merely a surety.
Accordingly, it shall not be discharged, nor shall its
liability be affected, by reason of:
B.2.a. any time, indulgence, waiver or consent at any time
given to the Client or any other Person,
B.2.b. any amendment to any other provision of the Agreement
or to any security or other agreement, guarantee or
indemnity,
B.2.c. the making or absence of any demand on the Client or
any other Person for payment,
B.2.d. the enforcement or absence of enforcement of the
Agreement or of any security or other agreement,
guarantee or indemnity,
B.2.e. the release of any such agreement, security, guarantee
or indemnity,
B.2.f. the death, incapacity, bankruptcy, insolvency,
winding-up, liquidation, administration, dissolution,
merger, amalgamation, reconstruction, reorganisation or
similar event of or with respect to the Client or any
other Person, or
B.2.g. the illegality, invalidity or unenforceability of or
any defect in any provision of the Agreement or any
other such agreement or any of the Client's obligations
under any of them or any other circumstance which might
otherwise constitute a legal or equitable discharge or
defence to it;
B.3. the obligations of the Indemnifier under B.1 above and
B.5 below are and will remain in full force and effect
by way of continuing security until the Facility has
terminated, the Sum
<PAGE>
Outstanding and all other sums expressed to be payable
to the Bank under the Agreement have been properly and
duly paid in full and the Total Letter of Credit
Exposure is zero. Furthermore, those obligations are
additional to, and not instead of, any security or
other agreement, guarantee or indemnity at any time
existing in favour of the Bank, whether from the
Client, the Indemnifier or otherwise. The Indemnifier
irrevocably waives all notices and demands whatsoever;
B.4. until the Facility has terminated, the Sum Outstanding
and all other sums expressed to be payable to the Bank
under the Agreement have been properly and duly paid in
full and the Total Letter of Credit Exposure is zero:
B.4.a. any right of the Indemnifier, by reason of performance
of any of its obligations under B.1 above or B.5 below,
to be indemnified by the Client or to take the benefit
of or enforce any security or other guarantee or
indemnity shall be exercised and enforced by the
Indemnifier only in such manner and on such terms as
the Bank may require; and
B.4.b. any amount received or recovered by the Indemnifier as
a result of any exercise of any such right shall be
held in trust for the Bank and immediately paid to the
Bank;
B.5. the Indemnifier shall on demand indemnify the Bank
against any funding or other cost, loss, expense or
liability (including loss of the Spread (as defined
below)) sustained or incurred by the Bank as a result
of the Bank being required for any reason to refund all
or part of any amount received or recovered by the Bank
in respect of any sum payable by the Client under the
Agreement and shall in any event pay to the Bank on
demand the amount so refunded by the Bank; and
B.6. amounts received or recovered by the Bank (otherwise
than as a result of a payment by the Client) in respect
of any sum payable by the Client under the Agreement
may at the discretion of the Bank reasonably exercised
be placed in a suspense account and kept there for such
reasonable period as the Bank may decide.
<PAGE>
C. As separate and alternative stipulations, the
Indemnifier unconditionally and irrevocably agrees:
C.1. that any sum expressed to be payable by the Client
under the Agreement which is for any reason (whether or
not now existing and whether or not now known or
becoming known to any party to the Agreement) not
recoverable from the Indemnifier on the basis of a
guarantee shall nevertheless be recoverable from it as
if it were the sole principal debtor and shall be paid
by it to the Bank on demand (the Indemnifier's
liability under this Agreement being liability for
payment, and not collection); and
C.2. as a primary obligation to indemnify the Bank against
any loss suffered by it as a result of any sum
expressed to be payable by the Client under the
Agreement not being paid by the time and on the date
specified in the Agreement and otherwise in the manner
specified in the Agreement or any payment obligation of
the Client under the Agreement being or becoming void,
voidable or unenforceable for any reason (whether or
not now existing and whether or not now known or
becoming known to any party to the Agreement),
the amount of that loss being the amount expressed to
be payable by the Client in respect of the relevant
sum.
D. The Indemnifier acknowledges that the Bank is entering
into the Agreement, and that all transactions by the
Bank under the Agreement are done, in reliance on the
guarantee, indemnities and other undertakings on the
part of the Indemnifier in the Agreement, and that the
Bank would not, in the absence of such guarantee,
indemnities and other undertakings on the part of the
Indemnifier in the Agreement, enter into the Agreement
with the Client or do any transactions with or for the
Client under the Agreement.
E. If the Indemnifier is an individual, the Bank has
separately advised the Indemnifier, and again gives
notice to the Indemnifier:
<PAGE>
E.1. that, by becoming party to the Agreement as
Indemnifier, and in particular by giving the guarantee
and indemnities in this Clause 7 and/or by providing
Collateral, the Indemnifier may become liable instead
of or as well as the Client;
E.2. that the Indemnifier's obligations, and in particular
its obligations under such guarantee and indemnities
and in respect of such Collateral, will be unlimited as
to amount; and
E.3. that the Indemnifier should in its own interests seek
independent legal advice before signing the Agreement
as Indemnifier.
8. ADVANCE VALUE
- --------------------------------------------------------------------------------
The Client and/or the Indemnifier shall deposit or transfer monies and/or
Securities (and all related documents as the Bank shall direct) with or to the
Bank for the credit of the Accounts and/or arrange the issue of Collateral
Guarantees the benefit of which is available to the Bank, so that:
A. In relation to Advances and Letters of Credit either:
A.1. as at the proposed date of each Advance and/or of
Issuance of each Letter of Credit, as the case may be,
the aggregate of the Dollar Amount of such Advance or,
as the case may be, of the Letter of Credit Exposure
under the relevant Letter of Credit, and the Sum
Outstanding together with the Total Letter of Credit
Exposure is not greater than the Collateral Advance
Value; or
A.2. the aggregate Advance Value of the Blocked Collateral
deposited and/or Collateral Guarantees issued
(specifically and solely in respect of that Advance or,
as the case may be, the Issuance of that Letter of
Credit) on, or within the three Business Days falling
before, the proposed date of that Advance or, as the
case may be, Issuance of that Letter of Credit is equal
to or exceeds the principal amount of the proposed
Advance or the Letter of Credit
<PAGE>
Exposure under the relevant Letter of Credit
respectively; and
B. in relation to Foreign Exchange Contracts and Option
Contracts, as at the proposed date of entry into the
relevant contract, and after giving effect thereto, the
Sum Outstanding together with the Total Letter of
Credit Exposure is not greater than the Collateral
Advance Value.
9. MAINTENANCE VALUE/LIQUIDATION PROCEDURES
- --------------------------------------------------------------------------------
A. If, at any date, the aggregate of the Sum Outstanding
and the Total Letter of Credit Exposure exceeds the
Collateral Maintenance Value, the Client and/or the
Indemnifier shall within two Business Days thereafter
deposit or transfer monies and/or Securities (and all
related documents as the Bank shall direct) with the
Bank for credit to the Accounts and/or arrange the
issue of Collateral Guarantees the benefit of which is
available to the Bank such that the Collateral
Maintenance Value equals or exceeds 105% of the
aggregate of the Sum Outstanding and the Total Letter
of Credit Exposure.
B. If the Client and/or the Indemnifier shall not have
complied with their obligations under A above within
the time there specified, then without prejudice to its
rights and remedies under Clause 19 or 20 or otherwise
under the Agreement, the Bank may at any time
thereafter, whether or not such noncompliance
continues, and without notice to the Client or the
Indemnifier:
B.1. exercise all or any of the rights which it would have
under Clause 20.A.2, 3 and 4 had an Event of Default
occurred; except that
B.2. at its absolute discretion instead of applying all or
any proceeds and/or cash balances as set out in Clause
20.A.4 pay and credit the same into an appropriate
Account.
C. If the Bank exercises any of its rights under B above
it shall within a reasonable period give
<PAGE>
notice thereof to the Client and the Indemnifier.
10. COLLATERAL VALUE CALCULATION
- --------------------------------------------------------------------------------
For the purpose of determining Advance and Maintenance Values hereunder, the
value of Blocked Collateral and Collateral Guarantees shall be calculated by the
Bank in its absolute discretion, in the case of (A) Securities, as a percentage
of the Dollar Amount of the fair market value (which shall exclude any unpaid
dividend or accrued interest thereon and which shall be determined by the Bank
in its absolute discretion) of such Securities, (B) cash balances, as a
percentage of the Dollar Amount of each deposit of each currency, and (C)
Collateral Guarantees, as a percentage of the Dollar Amount of the available
amount (which shall be determined by the Bank in its absolute discretion) of
each Collateral Guarantee. The percentages referred to above shall be fixed by,
and may be changed by, the Bank without notice to the Client or the Indemnifier
at or to such levels as (in its absolute discretion) it sees fit.
11. FEES
- --------------------------------------------------------------------------------
A. The arrangement and other fees (if any) specified in
the Letter shall be payable in such manner, in such
currencies and at such times as specified in the Letter
or as the Bank may otherwise allow.
B. In addition the Client shall at or before Issuance of
each Letter of Credit (or at such other times as the
Bank may allow) pay to the Bank such fees in such
currencies in respect of such Letter of Credit as the
Client (or the Indemnifier for the Client's account)
and the Bank shall have agreed.
12. SECURITY
- --------------------------------------------------------------------------------
A. Each of the Client and the Indemnifier, as continuing
security for the due performance of all its obligations
and payment of all its liabilities under or in
connection with the Agreement (whether present or
future, actual or contingent and ascertained or
unascertained, and including in the case of the
Indemnifier
<PAGE>
its guarantee in Clause 7) and under any other
agreement between it and the Bank or any other member
of the Merrill Lynch Group and as beneficial owner and
with full title guarantee, hereby:
A.1. charges by way of first fixed legal mortgage (in
priority to all other security whatsoever, whether
fixed or floating), and grants a continuing lien and
security interest in, in favour of the Bank all monies
(and all its right, title and interest in and to such
monies and the debt owing in respect thereof from time
to time standing to the credit of the Accounts, in
whatever currency and including any interest accrued or
accruing thereon;
A.2. pledges and charges by way of first fixed legal
mortgage (in priority to all other security whatsoever,
whether fixed or floating), and grants a continuing
lien and security interest in, in favour of the Bank
all its right, title and interest in and to all
Securities and all related documents deposited or
transferred by the Client or the Indemnifier for the
credit of the Collateral Account and all Securities
from time to time held therein or subject or credited
thereto and the claims in respect thereof and all
proceeds of any realisation or redemption of all such
Securities;
A.3. to the extent permitted by applicable law, pledges and
charges, and grants a continuing lien and security
interest in, in favour of the Bank all its right, title
and interest in and to all monies, debts, claims,
Securities and other property deposited with or owed or
owing by the Bank and/or any other member of the
Merrill Lynch Group; and
A.4. charges by way of first fixed legal mortgage (in
priority to all other security whatsoever, whether
fixed or floating), and grants a continuing lien and
security interest in, in favour of the Bank all its
rights and benefits under or in connection with the
Foreign Exchange Contracts, the Option Contracts and
utilisations of Securities under Clause 2 1, including
in particular all monies paid or payable in respect
thereof, all Securities delivered or deliverable in
respect thereof,
<PAGE>
and all other rights and benefits thereunder or in
connection therewith.
B. The security hereby created shall affect and include
all dividends, distributions and interest on the
Securities and other property hereby pledged or
charged, whether capital or income, and all property
distributed, paid, accruing or offered at any time on,
to, in respect of, or in substitution for, any
Securities or other property hereby pledged or charged.
C. The security hereby created shall be a continuing
security notwithstanding any intermediate payment or
settlement of account and, without prejudice to the
generality of the foregoing, shall continue in full
force and effect until the Bank has executed a formal
release of such security which it may do in its
absolute discretion from time to time in respect of the
whole or part only of the Collateral. Any withdrawal of
any of the Collateral shall operate as a release
thereof and the provisions of the Agreement shall
continue to apply to the remainder of the Collateral.
D. None of the monies from time to time standing to the
credit of the Accounts or payable in respect of the
Foreign Exchange Contracts or the Option Contracts (nor
the Client's or Indemnifier's right, title and interest
in and to such monies or the debt owing in respect
thereof) shall, until such time as the Facility has
terminated, the Sum Outstanding and all other sums
expressed to be payable to the Bank under the Agreement
have been properly and duly paid in full and the Total
Letter of Credit Exposure is zero, be capable of being
withdrawn, assigned, transferred or otherwise disposed
of or encumbered except with the Bank's prior written
consent or as otherwise specifically provided in the
Agreement. Any such consent of the Bank (and any
payment whether with or without such consent) shall
operate as a release of the relevant monies and the
provisions of the Agreement shall continue to apply to
the Accounts, the Foreign Exchange Contracts and the
Option Contracts, and the monies from time to time
standing to the credit
<PAGE>
thereof or, as the case may be, payable in respect
thereof.
E. Neither the Bank nor any of its agents,
representatives, correspondents or nominees shall have
any liability whatsoever for any failure to present any
Securities in the Accounts or other property hereby
pledged or charged for payment of any principal,
dividends, interest or any other amount payable in
respect thereof (whether at maturity, on redemption or
otherwise) or to ensure that any such amounts are paid,
received or collected, or to ensure that the correct
amounts (if any) arc paid, received or collected or for
any failure to take up any (or any offer of any
property paid, distributed, accruing or offered at any
time on, to, in respect of, or in substitution for, any
Securities in the Accounts or other property hereby
pledged or charged.
F. Each of the Client and the Indemnifier, at its expense,
will do or cause to be done all things which are either
necessary or requested by the Bank (1) to enable the
Bank to enjoy, exercise or enforce its rights as a
secured party under the Agreement and (2) to evidence,
and to establish and maintain the perfection and first
priority of, the Bank's security interest in the
Collateral. Without limiting the generality of the
foregoing, each of the Client and the Indemnifier, at
its expense, will execute and give or file, or both,
all notices and documents in such manner, to such
persons and at such places as may be requested by the
Bank to establish and maintain the perfection and first
priority of the Bank's security interest in the
Collateral. If it does not do so, the Bank may (but
shall not be obliged to) do so.
G. Each of the Client and the Indemnifier hereby by way of
security irrevocably appoints the Bank its attorney
(with full power of substitution), on its behalf and in
its name or otherwise, at such time and in such manner
as the attorney may in its absolute discretion
determine:
<PAGE>
G.1. to do anything which the Client or, as the case may be,
the Indemnifier is obliged to do (but has not done)
under the Agreement including, without limitation, to
execute charges over, transfers or assignments of, and
other instruments relating to, the Collateral; and
G.2. generally to exercise all or any of the rights,
discretions, remedies and powers of a secured party
under the Law of Property Act 1925, the Insolvency Act
1986 and the Uniform Commercial Code of the State of
New York,
and ratifies and confirms, and agrees to ratify and confirm, whatever any such
attorney shall do or purport to do in the exercise or purported exercise of this
power of attorney.
13. WITHDRAWALS
- --------------------------------------------------------------------------------
Until such time as the security hereby created shall become enforceable, and
provided that thereafter the aggregate of the Sum Outstanding and the Total
Letter of Credit Exposure does not exceed the Collateral Advance Value, the
Client and the Indemnifier may each request the withdrawal of any of the
Collateral provided by it and the Bank shall consider but shall have absolute
discretion whether or not to accede to any such request (and, in considering or
acceding to any such request by the Client or the Indemnifier, shall not be
obliged to have regard to the interests of the other(s) of them).
14. PAYMENTS
- --------------------------------------------------------------------------------
A.1. On each date on which an Advance is to be made the Bank
shall make the same available to the Client, subject to
Clause 4.2, before close of business at such account of
the Client as may be specified at the time of
requesting that Advance and which, in the case of
payments in ECU, shall be with a bank which is a member
of an ECU clearing system. The amount to be made
available shall be the amount in the relevant currency
so requested by the Client or, if the request is for
the equivalent in one currency of an amount in another
currency, the equivalent (as determined by the Bank) of
that amount in the relevant other currency,
<PAGE>
A.2. All payments due from the Client hereunder shall be
made to such account of the Bank as it shall notify to
the Client (which, in the case of payments in ECU,
shall be with a bank which is a member of an ECU
clearing system) and in the
currency in which they are due by such time in the
relevant financial centre as is necessary to ensure
that the Bank receives on the day in question:
A.2.a. in the case of Dollars, same day value funds; and
A.2.b. in the case of other currencies, such funds as may be
generally accepted for the settlement in the place of
payment of international payments in that currency.
B. All payments by the Client and the Indemnifier under
the Agreement shall be made free and clear of any
restrictions or conditions, without set-off or
counterclaim, and free and clear of, and (subject as
hereinafter provided) without any deduction or
withholding whether for or on account of tax or
otherwise. If any such deduction or withholding is
required by law to be made by the Client, the
Indemnifier or any other Person (whether or not a party
to, or on behalf of a party to, the Agreement) from any
sum paid or payable by, or received or receivable from,
the Client or the Indemnifier, the Client or, as the
case may be, the Indemnifier shall pay in the same
manner and at the same time such additional amounts as
will result in the Bank receiving and retaining (free
from any liability other than tax on its overall net
income) such net amount as would have been received by
it had no such deduction or withholding been required
to be made.
15. REPAYMENT
- --------------------------------------------------------------------------------
Each Advance shall be repaid by the Client in full and in the currency in which
it is denominated on the Maturity Date or on any earlier date of termination
pursuant to Clause 3, 20.A.1 or 24.C.4.b.
<PAGE>
16. PREPAYMENT
- --------------------------------------------------------------------------------
The Client may:
A. if it gives to the Bank not less than three Business
Days' prior notice (which shall be irrevocable) prepay
(1) any Advance on which interest is calculated by
reference to LIBOR on the last day of any Interest
Period relating thereto and (2) any Advance on which
interest is calculated by reference to Base Rate at any
time; and
B. if the Bank and the Client so agree, prepay any Advance
on which interest is calculated by reference to LIBOR
at any time, upon payment of such administration fee
and any amount payable in accordance with Clause
23.A.2.
Any such prepayment must be accompanied by accrued interest on the Advance
prepaid. Upon notice of or agreement for any such prepayment the Bank may (in
its absolute discretion) Close Out any Open Contract or, at the Bank's option,
terminate any Open Contract, whereupon the obligations of the Bank and the
Client to make payments to the other shall be cancelled and an amount of
compensation (calculated in accordance with Clause 20.A.2.a, b and c) shall
automatically become payable by the Client to the Bank in accordance with Clause
5.C or (as appropriate) fall to be credited by the Bank to the Client in
accordance with Clause 5.D.
17. INTEREST
- --------------------------------------------------------------------------------
A. Interest shall be calculated and payable on each
Advance by reference to successive Interest Periods. In
the case of each Advance its first Interest Period
shall begin on the proposed date of that Advance and
each subsequent one shall begin on the last day of the
previous one. Each Interest Period shall be of 1, 3, 6
or 12 months duration (or such other period as may be
agreed between the Client and the Bank) as selected by
the Client in a notice received by the Bank not later
than 12:00 noon (London time) on the third Business Day
before the first day of that Interest Period. However,
the Client may select an Interest Period of 12 months
or longer only if the Bank (in its absolute discretion)
agrees.
<PAGE>
If on the first day of any Interest Period it is
apparent that such Interest Period would otherwise
extend beyond the Maturity Date or the date (if any)
notified by the Bank under Clause 3 then such Interest
Period shall instead end on the Maturity Date or, as
the case may be, the date so notified and, subject
thereto, any Interest Period for which no effective
selection notice is received shall be of the same
duration as the previous Interest Period or, at the
Bank's option, of 3 months' duration.
B. The rate of interest applicable for a particular
Interest Period shall be the rate per annum equal to
the sum of:
B.1. the Spread (as specified in the Letter); and
B.2. LIBOR for that Interest Period (or, in relation to any
Interest Period of longer than 12 months, the rate per
annum, as determined by the Bank, at which the Bank
would raise funds in an amount comparable to and in the
currency of the relevant Advance and for that Interest
Period).
C. However, if the Client so elects, in relation to an
Advance to be denominated in Dollars or, if the Bank
(in its absolute discretion) agrees, any other
currency, in the request for that Advance pursuant to
Clause 4 that interest shall be calculated on that
Advance by reference to Base Rate, the provisions of A
and B above shall not apply and the rate of interest
applicable to that Advance shall be the rate per annum
equal to the sum of the Spread and the applicable Base
Rate.
D. On the last day of each Interest Period or, where
interest on any Advance is calculated by reference to
Base Rate, monthly (or at such other intervals as may
be determined by the Bank), the Client shall pay the
unpaid interest accrued during that Interest Period or,
as the case may be, the preceding month (or other
period so
<PAGE>
determined by the Bank), on the Advance to which it
relates, in the currency in which that Advance is
denominated and at the rate(s) applicable for that
Interest Period or, as the case may be, month (or other
period so determined by the Bank). However, in the case
of an Interest Period of more than 6 months, interest
shall be payable six-monthly from the date of the
relevant Advance (or at such other intervals as may be
determined by the Bank).
E. If the Bank (in its absolute discretion) so determines,
any unpaid interest may be added to the amount of the
Advance to which it relates (or, at the Bank's option
be treated as a separate Advance) and interest
calculated in accordance with B or, as the case may be,
C above shall thereafter be paid thereon.
F. Without prejudice to any other right or remedy to which
the Bank may be entitled by law, contract (including
the Agreement) or otherwise, if the Client or the
Indemnifier does not pay any sum payable hereunder when
due, it shall pay interest on the amount from time to
time outstanding in respect of that overdue sum for the
period beginning on its due date and ending on the date
of its receipt by the Bank (both before and after
judgment). Interest shall be calculated from time to
time at the rate per annum (as determined by the Bank)
equal to the sum of 1%, the Spread and the rate equal
to the Bank's cost of that overdue sum for such periods
as the Bank may from time to time select; such interest
shall be payable on demand. All interest payable under
this sub-clause which is not paid when due shall be
added to the overdue sum and itself bear interest
accordingly.
18. REPRESENTATIONS AND WARRANTIES
- --------------------------------------------------------------------------------
A. Each of the Client and the Indemnifier represents and
warrants to and agrees with the Bank that:
A.1. (if a legal Person)
A.1.a. each of them is a company, society or partnership duly
established and existing under the laws of the
jurisdiction of its incorporation or establishment and
has the power and authority to own its assets and to
conduct the business which it conducts;
<PAGE>
A.1.b. the entry into and performance under the Agreement and
the creation of the security created by the Agreement
by each of them will not violate or exceed any
borrowing, charging or other powers or restrictions
granted or imposed under any law to which it is
subject, its constitutional documents or any agreement,
undertaking or licence to which it is a party or which
is binding on it or its assets or (in the case of the
Indemnifier) result in its having an unreasonably small
capital or render it insolvent; and
A.1.c. no meeting has been convened for its winding-up,
liquidation, administration, dissolution, merger,
amalgamation, reconstruction or reorganisation or
similar event of or with respect to it, no such step is
intended by it and, so far as it is aware, no petition,
application or the like is outstanding for any of the
foregoing;
A.2. all acts, conditions and things required to be done,
fulfilled and performed in order to enable each of them
lawfully to enter into, exercise its rights and perform
its obligations under the Agreement and to ensure that
its obligations are legal, valid and binding have been
done, fulfilled and performed;
A.3. each of them has the power to enter into, exercise its
rights and perform and comply with its obligations
under the Agreement and has taken all necessary action
to authorise the execution, delivery and performance of
the Agreement;
A.4. each of them will:
A.4.a. obtain, make and maintain in effect all necessary
consents, registrations and the like of and with any
governmental or other regulatory body or authority
applicable to its obligations under the Agreement;
A.4.b. comply with the terms of the same and with all
applicable laws, regulations and directives or the like
(whether or not having the force of law) of such bodies
and authorities; and
<PAGE>
A.4.c. forthwith upon demand by the Bank, deliver to the Bank
copies of all such consents, registrations and, the
like or such other evidence of the existence of the
same and such evidence of compliance with the same and
with any such laws, regulations, directives and the
like as the Bank may reasonably require;
A. 5. their respective obligations under the Agreement are
binding and enforceable at law;
A.6. neither of them is in default under any agreement to
which it is a party or by which it or its assets may be
bound and no litigation, arbitration or administrative
proceedings are current or pending, which default,
litigation, arbitration or administrative proceedings
are material in the context of the Agreement;
A.7. each of them understands that (in the case of the
Client) the Issuance of a Letter of Credit for a
Person(s) other than the Client and (in the case of the
Indemnifier) the guarantee of the obligations of the
Client under the Agreement and (as appropriate) the
deposit of Collateral may result in its becoming liable
instead of or as well as that Person(s) or (as the case
may be) the Client, and acknowledges that it has taken
or will take such independent legal advice as it
considers appropriate;
A.8. the benefit which the Indemnifier receives from its
entry into the Agreement and the benefit which each of
the Client and the Indemnifier receives from the
Issuance of any Letter of Credit will be at least equal
to its liability with respect to the Agreement or (as
the case may be) that Letter of Credit;
A.9. it is not necessary or advisable in order to ensure the
validity, effectiveness, performance or enforceability
of the Agreement (including in particular the
perfection of the security created by the Agreement)
that any document be filed, registered or recorded in
any public office or elsewhere;
A.10. its payment obligations under the Agreement rank and
will at all times rank in point of priority at least
equally and rateably in all respects with all its other
indebtedness;
<PAGE>
A.11. all information disclosed to the Bank in connection
with the granting of the Facility or the operation of
the Agreement is true, complete and accurate in all
respects and does not omit any material facts or
circumstances which could make any of such information
misleading in any respect;
A.12. except by the Agreement, it has not assigned,
transferred or otherwise disposed of the Collateral
provided by it (or any of its rights, title and
interest in and to such Collateral), either in whole or
in part, nor agreed to do so, and will not at any time
do so or agree to do so, it is and will at all times be
the sole beneficial owner of the same, and it does and
will at all times fully guarantee title to the same,
and all such Collateral is or, as the case may be, will
be freely transferable without the need of any (or any
further) action on its part;
A.13. except for the security created by the Agreement, no
mortgage, charge, pledge, lien or other encumbrance or
security of any kind exists on or over the Collateral
provided by it (or its right title and interest to and
in such Collateral), either in whole or in part, nor
has it agreed to create any such mortgage, charge,
pledge, lien or other encumbrance or security nor will
it at any time do so or agree to do so; and
A.14. it will on demand duly pay any calls, subscription
monies and/or other monies payable on or with respect
to any of the Securities comprised in the Collateral
provided by it or, if the Bank pays the same (which it
shall not be obliged to do), shall on demand indemnify
the Bank against such payment.
B. Each of the Client and the Indemnifier represents and
warrants to the Bank that each of the representations
and warranties in A above will be correct and complied
with at all times and in all respects during the
continuance of the Facility and/or so long as any sum
remains payable under the Agreement and/or so long as
there is any Total Letter of
<PAGE>
Credit Exposure as if repeated then by reference
to the then existing circumstances.
19. EVENTS OF DEFAULT
- --------------------------------------------------------------------------------
It shall be an Event of Default if:
A. The Client or the Indemnifier does not pay any sum
payable by it under the Agreement or under any other
agreement with the Bank or with any other member of the
Merrill Lynch Group on its due date, or
B. The Client or the Indemnifier fails to provide
information and/or documents as requested by the Bank
pursuant to Clause 24.C.2.a or the Bank gives notice to
the Client or the Indemnifier pursuant to Clause
24.C.4.b; or
C. Any representation, warranty or statement by the Client
or the Indemnifier in the Agreement or in any document
delivered under it is not complied with or is or proves
to have been incorrect in any respect when made or, if
it had been made on any later date by reference to the
circumstances then existing, would have been incorrect
in any respect on that later date; or
D. The Client or the Indemnifier fails duly to perform any
one or more of its other obligations under the
Agreement or under any other agreement with the Bank or
with any other member of the Merrill Lynch Group; or
E. At any date, the aggregate Dollar Amount of the
aggregate of the Sum Outstanding and the Total Letter
of Credit Exposure exceeds 102.5% of the Collateral
Maintenance Value; or
F. Any provision of the Agreement which is material to the
interests of the Bank is not (or is claimed by the
Client or the Indemnifier not to be) in full force and
effect; or
G. The Bank determines or has reasonable grounds to
believe that the security (in whole or in part) created
by the Agreement is not or may not be in full force and
effect or does not or may not have the priority stated
in the Agreement; or
<PAGE>
H. The Bank determines or has reasonable grounds to
believe that it is or will become unlawful or contrary
to any directive or the like (whether or not having the
force of law) of any governmental or other regulatory
body or authority for the Client, the Indemnifier or
the Bank to carry out all or any of its obligations
hereunder; or
I. A claim, whether by distress, attachment, execution or
other legal process or otherwise, is made on or against
any item of Collateral by any third party; or
J. A claim, whether by distress, attachment, execution or
other legal process or otherwise, is made on or against
any other asset of the Client or the Indemnifier or (if
either or both is or are a body or bodies corporate)
any of their respective Affiliates and is not
discharged or stayed Within 7 days; or
K. Any step is taken or legal proceeding started by any
Person in the bankruptcy of the Client or the
Indemnifier or for the appointment of a receiver,
administrator, trustee or similar officer of the Client
or the Indemnifier or of any or all of the revenues and
assets of the Client or the Indemnifier or (if either
or both is or are a body or bodies corporate) the
winding-up, liquidation, administration, dissolution,
merger, amalgamation, reconstruction or reorganisation
or similar event of or with respect to the Client or
the Indemmnifier or any of their respective Affiliates
(except for the purpose of and followed by a
reconstruction, amalgamation or reorganisation on terms
approved by the Bank before that step is taken); or
L. Any indebtedness of the Client or the Indemnifier to
any member of the Merrill Lynch Group or any other
Person(s) in respect of monies borrowed or raised (1)
is not paid when due nor within any applicable grace
period in any agreement relating to that indebtedness,
or (2) becomes due and payable before its normal
maturity by reason of a default or event of default,
however described; or
<PAGE>
M. Any mortgage, charge, pledge, lien or other encumbrance
or security on or over any assets of the Client or the
Indemnifier or (if either or both is or are a body or
bodies corporate) any of their respective Affiliates
becomes enforceable and any step (including the taking
of possession or the appointment of a receiver, manager
or similar Person) is taken to enforce the same; or
N. The Client or the Indemnifier or (if either or both is
or are a body or bodies corporate) any of their
respective Affiliates is (or is, or could be, deemed by
law or a court to be) insolvent, is unable to pay its
debts as they fall due, stops, suspends or threatens to
stop or suspend payment of all or a material part of
its debts, begins negotiations or takes any proceeding
or other step with a view to readjustment, rescheduling
or deferral of all of its indebtedness or any part of
its indebtedness which it would or might otherwise be
unable to pay when due or proposes or makes a general
assignment or an arrangement or composition with or for
the benefit of creditors; or
O. If the Client and/or the Indemnifier is acting in the
capacity of trustee of a trust for the purposes hereof,
it or they cease to be appropriately authorised or such
trust comes or is brought to an end; or
P. (If an individual or individuals) the Client or the
Indemnifier (or, in the case of joint Clients or
Indemnifiers, the sole survivor thereof) dies or the
Client or the Indemnifier (or, in the case of joint
Clients or Indemnifiers, any of them) becomes or is
declared (by appropriate authority) incompetent or of
unsound mind; or
Q. The authority of any representative of the estate of a
deceased or incapacitated Client or Indemnifier is not
(or is claimed by any third party not to be) in full
force and effect; or
R. Any event occurs which under the laws of any relevant
jurisdiction has an effect equivalent to any of the
events referred to in this Clause 19; or
<PAGE>
S. The Bank determines that a material adverse change has
occurred in the financial condition, business,
operations or prospects of the Client or the
Indemnifier since the date of the Letter.
20. CANCELLATION, ACCELERATION AND ENFORCEMENT
- --------------------------------------------------------------------------------
The Client and the Indemnifier each agrees with the Bank (for itself and as
trustee of the benefit of the Client's and the Indemnifier's respective promises
for each other member of the Merrill Lynch Group) as follows:
A. At any time after an Event of Default occurs and
whether or not any Event of Default is continuing, the
Bank may, without prejudice to any other right or
remedy of the Bank, at law, by contract or otherwise:
A.1. by notice to the Client declare all Advances, accrued
interest thereon and any other sum then payable
hereunder (other than the Total Letter of Credit
Exposure) and/or declare an amount equal to the Total
Letter of Credit Exposure to be immediately due and
payable by the Client and the Indemnifier to Bank,
whereupon they shall become so due and payable, and/or
declare the Facility to be terminated, whereupon it
shall so terminate. Without prejudice to Clause 12 or
any other provision of the Agreement any amount so
received by the Bank in respect of the Total Letter of
Credit Exposure may be retained by the Bank for the
purpose of payment and/or paid in accordance or
purported accordance with the relevant Letter(s) of
Credit and/or retained by the Bank for the purpose of
application and/or applied by the Bank in or towards
satisfaction of the Client's obligations under or in
connection with the Agreement;
A.2. without further notice to the Client or the
Indemnifier, Close Out on the Client's behalf, all or
any Open Contracts (in whole or from time to time in
part) as the Bank in its sole discretion may determine,
whereupon any costs, expenses and losses arising as a
result shall be immediately due and payable by the
Client
<PAGE>
and the Indemnifier to the Bank, or, at the Bank's
option, terminate all or any Open Contracts (in whole
or from time to time in part) as the Bank in its sole
discretion may determine, whereupon the obligations of
the Bank and the Client to make payments to the other
shall to the extent of the termination be cancelled and
an amount of compensation (calculated by the Bank in
accordance with paragraphs A.2.a to A.2.c below) shall
automatically become immediately due and payable by the
Client to the Bank (or, subject as provided below, vice
versa):
A.2.a. the Bank shall ascertain in relation to each Open
Contract so terminated on the date of termination (the
"Calculation Date") the amount (if any) which would
fall to be paid to the Bank (expressed as a negative
amount) or which would have to be paid by the Bank
(expressed as a positive amount) if it were to enter
into a transaction in the foreign exchange market at or
about 11.00 a.m. (London time) on that Calculation Date
which would have the effect of Closing Out that Open
Contract;
A.2.b. if any such amount is in a currency other than Dollars,
it shall be converted by the Bank into Dollars at the
rate of exchange at which, at or about 11:00 a.m.
(London time) on the relevant Calculation Date, the
Bank could enter into a transaction on the foreign
exchange market to purchase or sell, as appropriate,
for delivery on the second Business Day after that
Calculation Date a comparable amount of that other
currency in exchange for Dollars;
A.2.c. the Bank shall then ascertain the difference between:
(i) the sum of the positive amounts ascertained
under A.2.a above (each converted where
applicable in accordance with A.2.b); and
(ii) the sum of the negative amounts ascertained
under A.2.a above (each converted where
applicable in accordance with A.2.b) together
with any costs and expenses arising as a
result of the termination.
<PAGE>
If the amount in (ii) exceeds the amount in (i) the
difference shall be due and payable by the Client to
the Bank. If the amount in (i) exceeds the amount in
(ii) the difference shall be paid by the Bank direct
into an appropriate Account or, subject to the proviso
in A.4 below, be due and payable by the Bank to the
Client;
A.2.d. it is agreed that the amount of compensation
recoverable by a party under Clause 9.B or 16 or this
Clause 20.A.2 is a reasonable pre-estimate of loss in
respect of Open Contracts and not a penalty. Such
amount is payable for the loss of bargain and, except
as otherwise provided in the Agreement, neither the
Bank nor the Client will be entitled to recover
additional damages as a consequence of such loss of
bargain;
A.3. without further notice to the Client or the
Indemnifier, demand payment and/or exercise all or any
of its other rights under or in connection with any
Collateral Guarantee;
A.4. without further notice to the Client or the Indemnifier
and without prejudice to any other right or remedy, to
the extent permitted by applicable law, terminate or
cancel any orders or instructions previously approved
by the Bank to sell or buy any Securities in or to be
deposited or transferred in any of the Accounts, and
dispose or procure the disposal, by sale or otherwise,
of any Securities or of any other property whatsoever
in respect of any one or more of the then existing
accounts of the Client or the Indemnifier with the Bank
or any or all other members of the Merrill Lynch Group
(including any Securities delivered or deliverable
under Clause 21), or otherwise realise or procure the
realisation of the same, at such time or times, in such
manner, on such terms and at such price or prices
(whether payable or deliverable immediately, on a
deferred basis or by installments) without being
responsible for any loss or diminution in price, as it
may think fit and further to exercise all the rights
and remedies of a secured party under the Law of
Property Act 1925, the Insolvency Act 1986 and the
Uniform
<PAGE>
Commercial Code of the State of New York, including the
right to take possession of, collect and get in all or
any part of the Collateral and to proceed forthwith to
sell, assign, give options to purchase, contract to
sell or otherwise dispose of and deliver the Collateral
or any part thereof in one or more parts at public or
private sale at any exchange or broker's board or at
any of the Bank's offices or elsewhere at such prices
and on such terms as the Bank deems appropriate, all
without demand for performance, advertisement or other
notice of any kind and apply the proceeds thereof, the
proceeds of any Collateral Guarantee and all cash
balances in the Accounts as follows:
A.4.a. first, in or towards payment of all amounts (including
costs, expenses, commissions and taxes) arising as a
result of such disposal;
A.4.b. secondly, in or towards payment and satisfaction of all
sums and liabilities due from the Client or the
Indemnifier to the Bank in respect of the Agreement or
on any other account in such order and manner as the
Bank may determine;
A.4.c. thirdly, in or towards payment and satisfaction of any
sums and liabilities due from the Client or the
Indemnifier to any other member of the Merrill Lynch
Group on any account in such order and manner as the
Bank may determine; and
A.4.d. fourthly, in payment of any surplus to the Client, the
Indemnifier or other Person entitled thereto.
Provided always that the Bank shall not be obliged to
apply any part of such proceeds in accordance with
sub-clause A.4.d or to pay any amount of compensation
in accordance with Clause 9.B or 20.A.2 above until all
liabilities (including future and contingent
liabilities) to, and/or amounts due to, the Bank under
the Agreement have been discharged to the satisfaction
of the Bank and until after it has exercised all
set-offs and other rights which it is expressed to be
entitled to make or exercise under the Agreement. Until
such time the proceeds and compensation shall be held
in
<PAGE>
or credited to an appropriate Account or such other
account with the Bank as the Bank may (in its absolute
discretion) decide.
Upon any disposal of any Securities or of other
property made or purported to be made under the
provisions of this Clause a certificate of any officer
or employee of the Bank that a default has occurred and
that the power of disposal has become exercisable shall
be conclusive evidence of that fact in favour of any
purchaser or other Person to whom any of the Securities
or other property may be transferred under such
disposal and the Client and the Indemnifier agree to
indemnify the Bank on a full indemnity basis against
any claim which may be made against it by any such
purchaser or Person by reason of any defect in title to
such Securities or other property;
A.5. initiate, defend or take part in, on behalf of the
Bank, any other member of the Merrill Lynch Group, the
Client and/or the Indemnifier, any legal proceedings
relating to the Collateral, any Collateral Guarantee,
the Agreement, any Advance or any Letter of Credit that
it may, in its absolute discretion, deem necessary;
A.6. make or take part in, on behalf of the Client and/or
the Indemnifier, any arrangement or composition with
creditors in relation to the Collateral, any Collateral
Guarantee, the Agreement, any Advance or any Letter of
Credit; and
A.7. do all such other acts and things as it may consider
necessary or desirable in connection with the
realisation of the Collateral, the Collateral
Guarantees and the security created by the Agreement.
B. In addition to any general lien, right to combine or
consolidate accounts, set-off or other similar right to
which it may be entitled by law, contract or otherwise,
the Bank and each other member of the Merrill Lynch
Group may at any time and without notice to the Client
or the Indemnifier debit any liabilities of the Client
or the Indemnifier to it or any other member of the
Merrill Lynch Group to any account of the Client or the
Indemnifier with
<PAGE>
such member (including without limitation in the case
of the Bank the Accounts) and combine or consolidate
all or any one or more of the then existing respective
accounts (including without limitation in the case of
the Bank the Accounts) of the Client and the
Indemnifier with, and liabilities of the Client or the
Indemnifier, respectively, to, it and/or any other
member of the Merrill Lynch Group and/or set off,
transfer or apply any sum or sums standing to the
credit of any one or more of the Client's or the
Indemnifier's respective accounts (including without
limitation in the case of the Bank the Accounts) in or
towards satisfaction of any of the respective
liabilities of the Client and the Indemnifier to it or
any other member of the Merrill Lynch Group, whether
such respective liabilities of the Client and the
Indemnifier be present or future, actual or contingent
primary or collateral and several or joint, and under
this Agreement or otherwise, this right being in
addition and without prejudice to any Securities or
other property whatsoever which the Bank or such other
member of the Merrill Lynch Group may now or hereafter
hold by way of security.
C. Any or all Securities or other property whatsoever held
in respect of any one or more of the then existing
respective accounts of the Client and the Indemnifier
with any or all members of the Merrill Lynch Group may
be sold or realised by or on the instructions of any
and each such member at any time and without notice to
the Client or the Indemnifier by such member whenever
in its discretion such member considers it necessary or
advisable and apply the proceeds thereof and any cash
balances in or towards payment and satisfaction of all
sums and liabilities of the Client and/or the
Indemnifier due or owing to such or any other member(s)
of the Merrill Lynch Group (and the provisions of A.4
above shall apply with any necessary modification).
D. The Bank (and any other member of the Merrill Lynch
Group) shall have authority to purchase one currency
with another for the purposes of Clauses 7.A.5 and
9.B.2 and this Clause 20.
<PAGE>
E. The security created by the Agreement shall be
enforceable upon and at any time after the occurrence
of an Event of Default (whether or not any Event of
Default is continuing at the relevant time). Section 93
and the restrictions in Section 103 of the Law of
Property Act 1925 shall not apply to the security
created by the Agreement.
21. BORROWING OF SECURITIES
- --------------------------------------------------------------------------------
A. Each of the Client and the Indemnifier hereby
authorises the Bank from time to time to lend to
itself, as principal or otherwise, or to others, any
Securities subject to the terms hereof, irrespective of
the sum Outstanding and/or the Total Letter of Credit
Exposure at the relevant time.
B. Securities so loaned by the Bank shall continue to be
taken into account in determining the Collateral
Advance and Collateral Maintenance Values and for all
other purposes of the Agreement.
C. Until such time as the Facility is terminated or the
security created by the Agreement shall become
enforceable, whichever may first occur, the Client or,
as the case may be, the Indemnifier shall (subject
always to the security created by and the provisions of
the Agreement) have all the incidents of ownership of
Securities loaned or transferred by the Bank hereunder,
including the right to transfer them to others.
D. Principal, capital, dividends, interest and other
amounts paid on loaned Securities will be automatically
credited to an appropriate Account. Likewise, if any
other property is distributed, offered or accrues on or
in respect of or in substitution for loaned Securities,
the same will automatically be credited to an
appropriate Account.
E. No losses, charges or expenses nor any gain or benefit
arising from the lending of Securities by the Bank
shall be borne by and/or benefit the Client or the
Indemnifier.
<PAGE>
F. Notwithstanding the use of expressions such as
"borrow", "loan" and the like in this Clause 21, title
to Securities so loaned shall pass, and the Bank shall
be obliged only to return equivalent Securities (which
shall be as determined by the Bank) and it is agreed in
relation to legal proceedings that neither the Client
nor the Indemnifier will seek specific performance of
the Bank's obligation to deliver, redeliver, credit or
return Securities, but without prejudice to any other
rights it may have.
22. ASSIGNMENT
- --------------------------------------------------------------------------------
A. The Agreement shall benefit and be binding on the
parties, their respective successors (but subject to
Clause 24) and any permitted assignee or transferee of
some or all of a party's rights or obligations under
the Agreement. The Bank shall after any such assignment
or transfer and to the extent (if at all) appropriate
or required hold the authorisations, promises and other
undertakings of the Client and the Indemnifier and the
security created by the Agreement for itself and as
trustee for each assignee and transferee. Any reference
in the Agreement to a party shall be construed
accordingly.
B. Neither the Client nor the Indemnifier may assign or
transfer all or part of its rights or obligations under
the Agreement.
C. The Bank may at any time assign all or part of its
rights and/or obligations under the Agreement to any
other member(s) of the Merrill Lynch Group or, with the
consents of the Client and the Indemnifier, such
consents not to be unreasonably withheld or delayed,
any other Person(s). Any such assignee of such rights
and obligations shall be entitled to the full benefit
of the Agreement to the same extent as if it were an
original party in respect of the rights or obligations
assigned or transferred to it.
D. The Bank may at any time change the office through
which it is acting for the purpose of the Agreement and
may at any time act for this purpose through more than
one office.
<PAGE>
E. The Bank may disclose to a potential assignee or
transferee or any other Person who has entered or
proposes to enter into contractual arrangements with
the Bank in relation to or concerning the Agreement
such information about the Client, the Indemnifier and
the Agreement as it may think fit.
23. MISCELLANEOUS INDEMNITIES
- --------------------------------------------------------------------------------
A. The Client and the Indemnifier shall on demand
indemnify the Bank against:
A.1. any cost or increased cost in maintaining the Facility,
the Accounts, all or any part of any Advance, any Open
Contract or any Letter of Credit or any other amount
outstanding under the Agreement or any reduction in the
effective return to the Bank under the Agreement or in
the rate of overall return on its capital below that
which it would have been able to achieve but for its
entering into or giving effect to the Agreement, in
each case, which, in the Bank's determination, is
sustained or incurred directly or indirectly as a
consequence of, or of compliance with, any present or
future law or regulation or any directive or the like
(whether or not having the force of law) of any
governmental or other regulatory body or authority
including any law, regulation, directive or the like
relating to reserve assets, liquidity or monetary
control or affecting the manner in which the Bank
allocates capital resources to its obligations under
the Agreement;
A.2. any funding and any other cost, expense or liability
(including loss of profit, legal fees and taxes)
sustained or incurred by the Bank (1) to render the
Agreement (including the security created by the
Agreement) enforceable and admissible in evidence in
England, (2) in connection with the administration of,
or in protecting or enforcing the Bank's rights under,
the Agreement and/or any amendment thereto, (3) as a
result of the occurrence or continuance of any Event of
Default (whether in connection with any act or thing
done as set out in Clause 20 or otherwise), or (4) as a
result of the receipt or recovery by the Bank
<PAGE>
of all or any part of an Advance (other than an Advance
interest on which is calculated by reference to Base
Rate) or an overdue sum otherwise than on the last day
of an Interest Period applicable to that Advance or, as
the case may be, a period selected by the Bank under
Clause 17.F and applicable to that overdue sum; and
A.3. any stamp, documentary, registration or similar tax
payable in connection with the entry into,
registration, performance, enforcement or admissibility
in evidence of the Agreement and/or any such amendment,
supplement or waiver, promptly and in any event before
any interest or penalty becomes payable, together with
any liability with respect to or resulting from any
delay in paying or omission to pay any such tax.
B. The currency specified by the Bank under Clause 7.A.4
in respect of any particular sum and otherwise the
currency in which any other sum is due under the
Agreement (the "Currency of Account") shall be the sole
currency of account and payment in respect of that sum.
Any amount received or recovered by the Bank in respect
of that sum in a Currency other than the appropriate
Currency of Account (whether as a result of, or of the
enforcement of, a judgment or order of a court of any
jurisdiction, in the bankruptcy or winding-up of the
Client or, as the case may be, the Indemnifier, the
realisation of any Collateral or otherwise) shall only
constitute a discharge to the Client or, as the case
may be, the Indemnifier, to the extent of the amount in
that Currency of Account which the Bank is able, in
accordance with its usual practice, to purchase with
the amount so received or recovered in that other
currency on the date of that receipt or recovery (or,
if it is not practicable to make that purchase on that
date on the first date on which it is practicable to do
so). If that amount in that Currency of Account is less
than the amount due to the Bank hereunder, the Client
and/or the Indemnifier shall, without prejudice to the
generality of A.2 above, indemnify it against any loss
sustained by it as a result. In any event, the Client
and/or
<PAGE>
the Indemnifier shall indemnify the Bank against the
cost of making any such purchase.
24. INTERPRETATION
- --------------------------------------------------------------------------------
A. Whenever two or more persons become parties to the
Agreement as Clients or as Indemnifiers, the words
"Client" and "Indemnifier", respectively shall, in each
Clause of the Agreement, mean and include each and all
of those Persons and (in the case of an individual)
shall mean and include the executors and administrators
or other legal representatives of that Person. In
addition, all duties, obligations and liabilities
assumed by or imposed upon the Client and the
Indemnifier, respectively under the Agreement shall
bind all such respective Persons jointly and each of
them severally. All duties, obligations and liabilities
assumed by or imposed on the Client and the Indemnifier
together under the Agreement shall be their joint and
several duties obligations and liabilities.
B. Where any instruction, notice, demand or request is to
be given by joint Clients or joint Indemnifiers it
shall be sufficient if such is given on behalf on the
joint Clients or joint Indemnifiers by one or more of
the joint Clients or joint Indemnifiers, respectively,
and the Bank may rely on such instruction, notice,
demand or request as if the same were given by each of
the joint Clients or joint Indemnifiers, respectively.
C. In the event of the death of any one of joint Clients
or of any one of joint Indemnifiers:
C.1. the surviving Client(s) or, as the case may be,
Indemnifier(s) shall forthwith give the Bank written
notice thereof;
C.2. the Bank shall have the right to determine whether the
Facility shall continue in the name of surviving
Client(s) or, as the case may be, with the guarantee of
the surviving Indemnifier(s) and in this regard may, at
the Client's (or surviving Client's) expense:
<PAGE>
C.2.a. request such information and/or documents from the
surviving Client(s) or, as the case may be, the
surviving Indemnifier(s) as it considers relevant and
the surviving Client(s) or, as the case may be, the
surviving Indemnifier(s) shall supply the same within
14 Business Days of the date of the Bank's request;
and/or
C.2.b. seek legal opinions from its own or the Client's or
Indemnifier's (or surviving Client's or Indemnifier's)
legal counsel as to such matters relevant to the
continuance of the Facility and/or any Letter(s) of
Credit as the Bank may request; and/or
C.2.c. take any action it may deem necessary or advisable with
respect thereto:
C.3. pending written notice from the Bank under C.4 below:
C.3.a. the surviving Client(s) and/or the representative(s) of
the estate of the deceased Client(s):
(i) may (x) make any repayment or prepayment of
any amount outstanding hereunder and/or (y)
Close Out any Open Contract;
(ii) may not request the making a new Advance or
the Issuance of any Letter of Credit or,
subject to (i) above, the entry into of a new
Foreign Exchange Contract or Option Contract;
and
C.3.b. the surviving Client(s) or, as the case may be,
Indemnifier(s) and/or the representative(s) of the
estate of the deceased Client(s) or, as the case may
be, Indemnifier(s):
(i) may, subject to Clause 13, sell any Securities
hereby pledged or charged by the Client or the
Indemnifier, respectively, provided that the
proceeds of such sale are credited to an
appropriate Account;
(ii) subject to (i) above, may not request any
withdrawal of Collateral;
<PAGE>
C.4. the Bank may, at any time after such event, by written
notice to the surviving Client(s) and the surviving
Indemnifier(s) declare that either:
C.4.a. the Facility shall continue unaffected, subject to the
terms of the Agreement, in the name of the surviving
Client(s) and the rights and obligations of the
surviving Indemnifier(s) shall in any event continue
unaffected, provided that the estate of the deceased
Client or, as the case may be, Indemnifier, shall not
be liable for any obligations under the Facility
incurred thereafter but those respective estates shall
remain liable to the Bank in respect of any sum or loss
in any way resulting from the completion of
transactions initiated, and all liabilities incurred,
before the date of such notice by the Bank; or
C.4.b. the Facility shall terminate, whereupon it shall so
terminate but in every other respect the Agreement
shall continue unaffected in the name of the surviving
Client) or, as the case may, with the guarantee of the
surviving Indemnifier(s) and the estate of the deceased
Client or, as the case may be, Indemnifier shall
continue to be liable jointly and severally with the
surviving Client(s) or, as the case may be,
Indemnifier(s) to the Bank for (i) all amounts
outstanding, (ii) all other obligations under the
Agreement and (iii) all liabilities incurred under the
Agreement at any time (whether before or after the date
of notice to the Bank pursuant to C.1. above) in
respect of Letters of Credit issued on or before but
not after the date of such notice to the Bank.
25. INFORMATION
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A. During the continuance of the Facility and for as long
as any sum remains payable to the Bank under the
Agreement and/or there is any Total Letter of Credit
Exposure, the Client and the Indemnifier shall each
immediately on request by the Bank furnish to the Bank
in form and substance satisfactory to the Bank such
documents and such financial and other information as
to its affairs and (in the case of a body or bodies
corporate) their respective
<PAGE>
Affiliates as may from time to time be requested by the
Bank.
B. Information about the Client, the Indemnifier and their
respective Affiliates (if applicable), including in
particular information about the Accounts and
information supplied by the Client or the Indemnifier
to the Bank, may be disclosed as required by any
present or future law or regulation or any directive or
the like (whether or not having the force of law) of
any governmental or other regulatory body or authority,
or made available to any other member of the Merrill
Lynch Group, for both marketing and other purposes.
26. REMEDIES AND WAIVERS
- --------------------------------------------------------------------------------
No failure by the Bank to exercise, and no delay by the Bank in exercising, any
right will operate as a waiver thereof, nor will any single or partial exercise
of any such right preclude any other or further exercise thereof or the exercise
of any other right. The authority to debit, charge and pledge and the right of
set-off and other rights and remedies provided in the Agreement are separate,
independent and cumulative and not exclusive of any other rights or remedies
(including any other security, right of set-off, lien, right to combine or
consolidate accounts or similar right to which the Bank is at any time entitled
anywhere, whether by operation of law, contract or otherwise).
27. PARTIAL INVALIDITY
- --------------------------------------------------------------------------------
If at any time any provision of the Agreement is or becomes illegal, invalid or
unenforceable in any respect under the law of any jurisdiction, neither the
legality, validity or enforceability of the remaining provisions of the
Agreement, nor the legality, validity or enforceability of such provision under
the law of any other jurisdiction, shall in any way be affected or impaired
thereby. If and to the extent that the security expressed to be created by the
Agreement is at any time and for any reason not effective as a fixed charge, it
shall instead take as a floating charge.
28. MISCELLANEOUS
- --------------------------------------------------------------------------------
A. All interest shall accrue from day to day and shall be
calculated on the basis of a 360 day year (365 days
where market practice dictates,
<PAGE>
as determined by the Bank in its absolute discretion)
and the number of days elapsed.
B. The certificate of an officer or employee of the Bank
or any member of the Merrill Lynch Group as to any sum
payable to it or any other member of the Merrill Lynch
Group shall be conclusive and binding on the Client
and/or, as the case may be, the Indemnifier.
C. All communications and documents under the Agreement
shall either be in English or accompanied by a
certified translation into English by a translator
acceptable to the Bank. If there is a conflict, the
English translation shall prevail over the original
language version.
D. The English text of this Terms Sheet is the original
authentic version and shall prevail if there is a
conflict between it and any translation into another
language.
E. The Schedule is provided to the Client and the
Indemnifier for information only. It does not form part
of the Agreement, and has no binding effect. The Bank
may (but is not obliged to) inform the Client and/or
the Indemnifier of any change to the information in the
Schedule. However, whether or not it does so shall not
affect the Bank's discretions under Clause 10 or
otherwise under the Agreement.
F. The Bank may at any time amend and/or supplement all or
any of the provisions of the Agreement. The Bank will
promptly give notice to the Client and the Indemnifier
of any such amendment and/or supplement. However, no
failure of the Bank to give (or of the Client or the
Indemnifier to receive) any such notice shall affect
the validity of the amendment or supplement in
question. Such notice shall be given not less than 30
days before the amendment or supplement in question is
to take effect, except that, if the Bank is of the
opinion that the amendment or supplement in question is
of a formal or technical nature or to correct a
manifest error, or is not materially prejudicial to the
interests of the Client or the Indemnifier, the
amendment or
<PAGE>
supplement in question may take effect sooner or
immediately.
29. SECURITY ADDITIONAL
- --------------------------------------------------------------------------------
The security hereby created shall be additional to any other indemnity,
guarantee or security held by the Bank at any time.
30. NOTICES
- --------------------------------------------------------------------------------
A. The Client, the Indemnifier and/or, the Bank may from
time to time issue instructions, notices, demands or
requests either orally or in writing (but in writing
only where so provided under the Agreement) via any
officer or employee of a member of the Merrill Lynch
Group and any such officer or employee shall have
authority from the Bank to give or receive on its
behalf such instructions, notices, demands or requests
which when delivered to or by such officer or employee
shall be deemed to have been made by the Client or the
Indemnifier, respectively direct to the Bank or made by
the Bank direct to the Client or the Indemnifier,
respectively (as the case may be). The Bank shall be
entitled to rely on and shall not be liable for any
action taken or omitted to be taken in good faith
pursuant to instructions, notices, demands or requests
so deemed given by the Client or the Indemnifier or on
any communication or document believed by it to be
genuine.
B. Each oral communication under the Agreement shall be
directed if to the Bank, to such officer(s) of the Bank
as it may notify to the Client and the Indemnifier from
time to time, and if to the Client or the Indemnifier,
to him or such representative(s) of it or him as may be
notified by it or him to the Bank from time to time.
Each written communication under the Agreement to the
Bank shall be addressed to it at its offices at 33
Chester Street, London, SWIX 7XD, attention: Client
Services (or such other address or attention as it may
notify to the Client and the Indemnifier), and to the
Client or the Indemnifier may be addressed to it at
such address as the Client or the
<PAGE>
Indemnifier (as the case may be) notifies to the Bank
in writing from time to time. Notices to the Bank will
not be effective until actually received by the Bank.
Notices to the Client or the Indemnifier shall be
deemed to have been received five days after being
posted and immediately in the case of a telex, fax or
oral communication.
31. GOVERNING LAW
- --------------------------------------------------------------------------------
A. The Agreement shall be governed by and construed in
accordance with English law.
B. In relation to any legal action or proceedings arising
out of or in connection with the Agreement
("Proceedings"), the Client and the Indemnifier each,
for the benefit of the Bank, irrevocably submits to the
jurisdiction of the courts of England and waives any
objection to Proceedings in such courts on the grounds
of venue or on the grounds that the Proceedings have
been brought in an inconvenient forum.
C. Nothing shall affect the right to serve process in any
manner permitted by law.
D. Each of the Client and the Indemnifier irrevocably and
generally consents in respect of any Proceedings
anywhere to the giving of any relief or the issue of
any process in connection with those Proceedings
including, without limitation, the making, enforcement
or execution against any of its assets whatsoever
(irrespective of their, use or intended use) of any
order or judgment which may be made or given in those
Proceedings, and agrees that, should the Bank take any
Proceedings anywhere (whether for an injunction,
specific performance, damages or otherwise), no
immunity (to the extent that it may at any time exist,
whether on the grounds of sovereignty or otherwise)
from those Proceedings, from attachment (whether in aid
of execution, before judgment or otherwise) of its
assets or from execution of judgment shall be claimed
by it or on its behalf or with respect to its assets,
any such immunity being irrevocably waived.
