As filed with the Securities and Exchange
Commission on November 7, 1997.
Registration No. 333-_____
UNITED STATES
SECURITIES AND EXCHANGE COMMISSION
WASHINGTON, D.C. 20549
FORM S-3
REGISTRATION STATEMENT
UNDER
THE SECURITIES ACT OF 1933
Tel-Save Holdings, Inc.
- --------------------------------------------------------------------------------
(Exact name of registrant as specified in its charter)
Delaware
- --------------------------------------------------------------------------------
(State or other jurisdiction of incorporation or
organization)
23-2827736
- --------------------------------------------------------------------------------
(I.R.S. Employee Identification Number)
6805 Route 202, New Hope, Pa. 18938 (215) 862-1500
- --------------------------------------------------------------------------------
(Address, including zip code, and telephone number,
including area code, of registrant's principal
executive offices)
Aloysius T. Lawn, IV
General Counsel and Secretary
Tel-Save Holdings, Inc.
6805 Route 202
New Hope, PA 18938
(215) 862-1500
- --------------------------------------------------------------------------------
(Name, address, including zip code, and telephone
number, including area code, of agent for
service)
Approximate date of commencement of proposed sale to the public:
From time to time after this Registration Statement becomes effective.
<PAGE>
If the only securities being registered on this Form are being
offered pursuant to dividend or interest reinvestment plans, please check the
following box. ( )
If any of the securities being registered on this Form are to be
offered on a delayed or continuous basis pursuant to Rule 415 under the
Securities Act of 1933 (as defined below), other than securities offered only in
connection with dividend or interest reinvestment plans, check the following
box. (x)
If this Form is filed to register additional securities for an
offering pursuant to Rule 462(b) under the Securities Act, please check the
following box and list the Securities Act registration statement number of the
earlier effective registration statement for the same offering. ( ) ___________
If this Form is a post-effective amendment filed pursuant to Rule
462(c) under the Securities Act, check the following box and list the Securities
Act registration statement number of the earlier effective registration
statement for the same offering. ( ) ____________
If delivery of the prospectus is expected to be made pursuant to
Rule 434, please check the following box. ( )
CALCULATION OF REGISTRATION FEE
- --------------------------------------------------------------------------------
Proposed
Maximum Proposed
Title of Each Principal Aggregate Maximum
Class of Amount To Be Offering Aggregate Amount of
Securities To Registered Price Offering Registration
Be Registered Per Unit(1) Price(1) Fee
- --------------------------------------------------------------------------------
4 1/2% $300,000,000 100% $300,000,000 $90,909.09
Convertible
Subordinated
Notes due 2002
- --------------------------------------------------------------------------------
Common 12,185,834
Stock(2)
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(1) Estimated solely for purposes of calculating the registration fee. The
actual offering price may be determined from time to time by the Selling
Holders in connection with the offer for resale of the securities
registered hereby.
<PAGE>
(2) Such number represents the maximum number of shares of Common Stock
issuable upon conversion of the 4 1/2% Convertible Subordinated Notes due
2002 registered hereby and, pursuant to Rule 416 under the Securities Act
of 1933, such indeterminate number of shares as may be issued from time
to time upon conversion of the Notes by reason of adjustment of the
conversion price in certain events.
THE REGISTRANT HEREBY AMENDS THIS REGISTRATION STATEMENT ON SUCH DATE OR DATES
AS MAY BE NECESSARY TO DELAY ITS EFFECTIVE DATE UNTIL THE REGISTRANT SHALL FILE
A FURTHER AMENDMENT WHICH SPECIFICALLY STATES THAT THIS REGISTRATION STATEMENT
SHALL THEREAFTER BECOME EFFECTIVE IN ACCORDANCE WITH SECTION 8(A) OF THE
SECURITIES ACT OR UNTIL THIS REGISTRATION STATEMENT SHALL BECOME EFFECTIVE ON
SUCH DATE AS THE SECURITIES AND EXCHANGE COMMISSION, ACTING PURSUANT TO SAID
SECTION 8(A), MAY DETERMINE.
<PAGE>
SUBJECT TO COMPLETION,
NOVEMBER 7, 1997
PROSPECTUS
TEL-SAVE HOLDINGS, INC.
$300,000,000 AGGREGATE PRINCIPAL AMOUNT OF
4 1/2% CONVERTIBLE SUBORDINATED NOTES DUE 2002
12,185,834 SHARES OF COMMON STOCK
This Prospectus relates to the offer and sale from time to time by
the holders named herein or by their transferees, pledgees, donees or successors
(collectively, the "Selling Holders") of up to $300,000,000 aggregate principal
amount of 4 1/2% Convertible Subordinated Notes due 2002 (the "Notes") of
Tel-Save Holdings, Inc. (the "Company") and up to 12,185,834 shares of common
stock, par value $.01 per share, of the Company (the "Common Stock") issuable
upon the conversion of the Notes in full (the "Shares" and, together with the
Notes, the "Securities").
The Notes are convertible, at the option of the holder thereof, at
any time after 90 days following the date of original issuance thereof and prior
to maturity, unless previously redeemed, into Common Stock at the conversion
price of $24.61875 per share, subject to adjustment in certain events. The
Common Stock is quoted on the Nasdaq National Market under the symbol "TALK." On
November 5, 1997, the last reported sale price of the Common Stock was $21 3/8.
The Notes will mature on September 15, 2002, and interest, at the
rate per annum set forth above, on the Notes will be paid semiannually on March
15 and September 15 of each year, commencing March 15, 1998.
The Notes are redeemable, in whole or in part, at the option of the
Company, at any time on or after September 15, 2000, at the redemption prices
set forth herein, together with accrued interest. The Notes do not provide for
any sinking fund. Upon a Designated Event (as defined herein), holders of the
Notes will have the right, subject to certain restrictions and conditions, to
require the Company to purchase all or any part of the Notes at a purchase price
equal to 101% of the principal amount thereof together with accrued and unpaid
interest to the date of purchase. See
<PAGE>
"DESCRIPTION OF THE NOTES -- Repurchase at the Option of Holders."
The Notes were issued and sold to the Initial Purchasers (as
defined herein) on September 3, 1997 (the "Original Offering") in transactions
exempt from the registration requirements of the Securities Act of 1933, as
amended (the "Securities Act"). The Initial Purchasers have advised the Company
that the Notes have been resold (i) in the United States to "Qualified
Institutional Buyers" in reliance on Rule 144A under the Securities Act or to
Institutional Accredited Investors that agreed in writing to comply with the
transfer restrictions and other conditions set forth in the Purchase Agreement,
and (ii) outside the United States in transactions complying with the provisions
of Regulation S under the Securities Act. The Company has filed the Registration
Statement of which this Prospectus is a part to satisfy its obligations under
the registration agreement, dated September 3, 1997, entered into with the
Initial Purchasers (the "Registration Agreement"). See "DESCRIPTION OF THE NOTES
- -- Registration Rights."
All of the Securities offered hereby are being offered for sale and
sold, from time to time, by the Selling Holders. The Company will receive no
part of the proceeds of sales made hereunder. The Company has agreed to bear
certain expenses incident to the registration of the Securities under federal or
state securities laws and to indemnify the Selling Holders against certain
liabilities, including liabilities under the Securities Act. None of the
Securities have been registered prior to the filing of the Registration
Statement of which this Prospectus is part.
The Securities may be offered for sale by the Selling Holders from
time to time in one or more transactions at fixed prices, at prevailing market
prices at the time of sale, at varying prices determined at the time of sale or
at negotiated prices. The Selling Holders may effect such transactions directly
or indirectly through underwriters, broker-dealers or agents acting on their
behalf, and in connection with such sales, such broker-dealers or agents may
receive compensation in the form of commissions, concessions, allowances or
discounts from the Selling Holders and/or the purchasers of the Securities for
whom they may act as agent or to whom they sell Securities as principal or both
(which commissions, concessions, allowances or discounts might be in excess of
customary amounts thereof). The Selling Holders and any underwriters,
broker-dealers or agents that participate in the distribution of the Securities
may be deemed to be
<PAGE>
"underwriters" within the meaning of the Securities Act, and any discounts,
commissions, concessions, allowances or other compensation received by them and
any profit realized on the sale of the Securities by them may be deemed to
constitute underwriting commissions, concessions, allowances or discounts under
the Securities Act. To the extent required, the names of any underwriters,
broker-dealers or agents, the amount and nature of any commissions, concessions,
allowances or discounts and any other required information with respect to any
particular offer of Securities by the Selling Holders will be set forth in a
Prospectus Supplement. See "PLAN OF DISTRIBUTION."
The Notes are unsecured obligations of the Company and are
subordinate in right of payment to all existing and future Senior Debt (as
defined herein) of the Company. The Notes also are structurally subordinated to
all liabilities of the Company's subsidiaries. As of August 29, 1997, the
Company had approximately $130 million in indebtedness that would have
constituted Senior Debt. In addition, as of June 30, 1997, the Company's
subsidiaries had liabilities of approximately $37.1 million. See "DESCRIPTION OF
THE NOTES -- Subordination of Notes."
The Company does not intend to apply for listing of the Notes on
any securities exchange or for the inclusion of the Notes on any automated
inter-dealer quotation system.
The Notes offered hereby will be represented by one or more Public
Global Notes registered in the name of The Depository Trust Company ("DTC") or
its nominee. Interest in the Public Global Notes will be shown on, and transfers
thereof will be effected only through, records maintained by DTC (with respect
to participants' interests) and its direct and indirect participants, including
the Euroclear System ("Euroclear") and Cedel Bank, Societe Anonyme ("Cedel
Bank"). Except under certain limited circumstances described herein, Notes in
definitive form will not be issued. See "DESCRIPTION OF NOTES."
PROSPECTIVE INVESTORS SHOULD CAREFULLY CONSIDER THE MATTERS
DISCUSSED UNDER "RISK FACTORS" BEGINNING ON PAGE 4.
THESE SECURITIES HAVE NOT BEEN APPROVED OR DISAPPROVED BY THE
SECURITIES AND EXCHANGE COMMISSION NOR HAS THE COMMISSION PASSED UPON THE
ACCURACY OR ADEQUACY OF THIS PROSPECTUS. ANY REPRESENTATION TO THE CONTRARY IS A
CRIMINAL OFFENSE.
<PAGE>
INFORMATION CONTAINED HEREIN IS SUBJECT TO COMPLETION OR AMENDMENT.
A REGISTRATION STATEMENT RELATING TO THESE SECURITIES HAS BEEN FILED WITH THE
SECURITIES AND EXCHANGE COMMISSION. THESE SECURITIES MAY NOT BE SOLD NOR MAY
OFFERS TO BUY BE ACCEPTED PRIOR TO THE TIME THE REGISTRATION STATEMENT BECOMES
EFFECTIVE. THIS PROSPECTUS SHALL NOT CONSTITUTE AN OFFER TO SELL OR THE
SOLICITATION OF AN OFFER TO BUY NOR SHALL THERE BE ANY SALE OF THESE SECURITIES
IN ANY STATE IN WHICH SUCH OFFER, SOLICITATION OR SALE WOULD BE UNLAWFUL PRIOR
TO REGISTRATION OR QUALIFICATION UNDER THE SECURITIES LAWS OF ANY SUCH STATE.
NO DEALER, SALESPERSON OR OTHER INDIVIDUAL HAS BEEN AUTHORIZED TO
GIVE ANY INFORMATION OR TO MAKE ANY REPRESENTATIONS OTHER THAN THOSE CONTAINED
IN OR INCORPORATED BY REFERENCE IN THIS PROSPECTUS IN CONNECTION WITH THE
OFFERING MADE BY THIS PROSPECTUS AND, IF GIVEN OR MADE, SUCH INFORMATION OR
REPRESENTATIONS MUST NOT BE RELIED UPON AS HAVING BEEN AUTHORIZED BY THE COMPANY
OR ANY OF ITS AGENTS. NEITHER THE DELIVERY OF THIS PROSPECTUS NOR ANY SALE MADE
HEREUNDER SHALL, UNDER ANY CIRCUMSTANCES, CREATE AN IMPLICATION THAT THERE HAS
BEEN NO CHANGE IN THE AFFAIRS OF THE COMPANY SINCE THE DATE AS OF WHICH
INFORMATION IS GIVEN IN THIS PROSPECTUS. THIS PROSPECTUS DOES NOT CONSTITUTE AN
OFFER OR SOLICITATION BY ANYONE IN ANY JURISDICTION IN WHICH THE PERSON MAKING
SUCH OFFER OR SOLICITATION IS NOT QUALIFIED TO DO SO OR TO ANY PERSON TO WHOM,
IT IS UNLAWFUL TO MAKE SUCH SOLICITATION.
<PAGE>
AVAILABLE INFORMATION
The Company is subject to the information reporting requirements of
the Securities Exchange Act of 1934, as amended (the "Exchange Act"), and in
accordance therewith files periodic reports, proxy statements and other
information with the Securities and Exchange Commission (the "Commission"). Such
reports, proxy statements and other information can be inspected and copied at
the public reference facilities maintained by the Commission at Room 1024,
Judiciary Plaza, 450 Fifth Street, N.W., Washington, D.C. 20549, and at the
regional offices of the Commission located at Seven World Trade Center, 13th
Floor, New York, New York 10048 and Northwestern Atrium Center, 500 West Madison
Street (Suite 1400), Chicago, Illinois 60661. Copies of all or part of such
materials may also be obtained at prescribed rates from the public reference
facilities maintained by the Commission at Room 1024, Judiciary Plaza, 450 Fifth
Street, N.W., Washington, D.C. 20549. In addition, the Commission maintains a
Web site at http://www.sec.gov that contains reports, proxy statements and other
information. Such material also can be inspected at the offices of the National
Association of Securities Dealers, Inc., 1735 K Street, N.W., Washington, D.C.
20006.
The Company has filed with the Commission a registration statement
(which term shall encompass any amendments thereto) on Form S-3 under the
Securities Act of 1933, as amended (the "Securities Act") with respect to the
securities offered hereby (the "Registration Statement"). This Prospectus, which
constitutes part of the Registration Statement, does not contain all of the
information set forth in the Registration Statement, certain items of which are
contained in exhibits to the Registration Statement as permitted by the rules
and regulations of the Commission. For further information with respect to the
Company and the securities offered by this Prospectus, reference is made to the
Registration Statement, including the exhibits thereto, and the financial
statements and notes thereto filed or incorporated by reference as a part
thereof, which are on file at the offices of the Commission and may be obtained
upon payment of the fee prescribed by the Commission, or may be examined without
charge at the offices of the Commission. Statements made in this Prospectus
concerning the contents of any document referred to herein are not necessarily
complete, and, in each such instance, are qualified in all respects by reference
to the applicable documents filed with the Commission. The Registration
Statement and the exhibits thereto filed by the Company with the Commission may
be inspected and copied at the locations described above.
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<PAGE>
INCORPORATION OF CERTAIN DOCUMENTS BY REFERENCE
The following documents filed by the Company with the Commission
pursuant to the Exchange Act (Commission File No. 0-26728) are incorporated
herein by reference:
a. the Company's Annual Report on Form 10-K for the year ended
December 31, 1996 and Amendments Nos. 1 and 2 thereto;
b. the Company's Quarterly Report on Form 10-Q for the quarters
ended March 31, 1997 and June 30, 1997; Amendments Nos. 1 and 2 to the Quarterly
Report on Form 10-Q for the quarter ended March 31, 1997; and Amendment No. 1 to
Quarterly Report on Form 10-Q for the quarter ended June 30, 1997;
c. Current Reports on Form 8-K dated March 6, 1997, April 24, 1997,
July 22, 1997, September 2, 1997, September 5, 1997, October 29, 1997, November
5, 1997 and November 7, 1997 and Current Reports on Form 8-K/A dated February 3,
1997, February 28, 1997 and August 15, 1997;
d. the description of the Company's capital stock contained in the
Company's Registration Statement on Form 8-A dated September 8, 1995;
e. the Consolidated Balance Sheets of Shared Technologies Fairchild
Inc. ("Shared Technologies") and subsidiaries as of December 31, 1996 and 1995
and the related Consolidated Statements of Operations, Stockholders' Equity and
Cash Flows for each of the years in the three-year period ended December 31,
1996, together with the Notes to the Financial Statements and the Reports of
Independent Public Accountants thereon, included in the Annual Report on Form
10-K for the year ended December 31, 1996 of Shared Technologies (Commission
File No. 0-17366); and
f. the Unaudited Pro Forma Combined Condensed Financial Statements
of the Company giving effect to the proposed merger of Shared Technologies with
and into a wholly-owned subsidiary of the Company, included on pages 76 through
93 of the Joint Proxy Statement/Prospectus, dated October 30, 1997, filed by the
Company (Commission File No. 0-26728) pursuant to Section 14 of the Exchange
Act.
All documents filed by the Company pursuant to Section 13(a),
13(c), 14 or 15(d) of the Exchange Act subsequent to the date of this Prospectus
and prior to
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the filing of a post-effective amendment that indicates the termination of this
offering shall be deemed to be incorporated in this Prospectus by reference and
to be a part hereof from the date of filing of such documents.
Any statements contained herein or in a document incorporated or
deemed to be incorporated by reference herein shall be deemed to be modified or
superseded for purposes of this Prospectus to the extent that a statement
contained herein or in any other subsequently filed document which also is or is
deemed to be incorporated by reference herein modifies or supersedes such
statement. Any such statement so modified or superseded shall not be deemed,
except as so modified or superseded, to constitute a part of this Prospectus.
The Company will provide, without charge to each person to whom
this Prospectus has been delivered, a copy of any or all of the documents
referred to above that have been or may be incorporated by reference herein
other than exhibits to such documents (unless such exhibits are specifically
incorporated by reference therein). Requests for such copies should be directed
to Tel-Save Holdings, Inc., 6805 Route 202, New Hope, Pennsylvania 18938
Attention: Aloysius T. Lawn, IV, General Counsel and Secretary. Telephone
requests may be directed to (215) 862-1500.
THIS PROSPECTUS CONTAINS AND INCORPORATES BY REFERENCE CERTAIN
FORWARD LOOKING STATEMENTS WITHIN THE MEANING OF THE PRIVATE SECURITIES
LITIGATION REFORM ACT OF 1995 WITH RESPECT TO THE FINANCIAL CONDITION, RESULTS
OF OPERATIONS AND BUSINESS OF THE COMPANY, INCLUDING, WITHOUT LIMITATION,
STATEMENTS HEREIN UNDER "RECENT DEVELOPMENTS" AND STATEMENTS UNDER THE CAPTION
"MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS OF
OPERATIONS" IN THE COMPANY'S ANNUAL AND QUARTERLY REPORTS. THESE FORWARD LOOKING
STATEMENTS INVOLVE CERTAIN RISKS AND UNCERTAINTIES. NO ASSURANCE CAN BE GIVEN
THAT ANY OF SUCH MATTERS WILL BE REALIZED. FACTORS THAT MAY CAUSE ACTUAL RESULTS
TO DIFFER MATERIALLY FROM THOSE CONTEMPLATED BY SUCH FORWARD LOOKING STATEMENTS
INCLUDE, AMONG OTHERS, THE FACTORS DISCUSSED IN THE SECTION HEREIN ENTITLED
"RISK FACTORS."
RISK FACTORS
PROPOSED SHARED TECHNOLOGIES MERGER
The Company has entered into an Agreement and Plan of Merger, dated
as of July 16, 1997 (the "Merger Agreement"), among the Company, TSHCo, Inc., a
Delaware
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corporation and wholly owned subsidiary of the Company ("Merger Sub"), and
Shared Technologies Fairchild Inc., a Delaware corporation ("Shared
Technologies"). Pursuant to the Merger Agreement, among other things, Shared
Technologies would be merged with and into Merger Sub and thereby become a
wholly-owned subsidiary of the Company, and the outstanding Shared Technologies
Common Stock (the "STF Common") would be converted into such number of shares of
the Company's Common Stock as equals the quotient (the "Exchange Ratio") of (a)
$11.25 plus the product of (x) .3 times (y) the amount, if any, by which the
average closing price per share of the Company's Common Stock on the Nasdaq
National Market for the fifteen consecutive trading days ending on the trading
day three trading days immediately preceding the date of the closing of the
Shared Technologies Merger (the "Closing Date Market Price") exceeds $20,
divided by (b) the Closing Date Market Price, provided that the Exchange Ratio
shall not exceed 1.125. As of November __, 1997, there were approximately 17.2
million shares of STF Common outstanding and approximately 7.9 million shares of
STF Common Stock reserved for issuance upon conversion or exercise of
outstanding Shared Technologies convertible preferred stock, warrants and stock
options. The consummation of the Shared Technologies Merger is subject to the
approval of the stockholders of both the Company and Shared Technologies, at a
meeting scheduled for December 1, 1997, as well as other conditions, including
termination of all applicable waiting periods under the Hart-Scott-Rodino
Antitrust Improvements Act, applicable federal and state regulatory approvals
and consents, the Shared Technologies Merger's qualifying as a pooling of
interests transaction for accounting purposes, the absence of injunctions or
other legal restraints preventing the consummation of the Shared Technologies
Merger and other closing conditions. There can be no assurance that the Shared
Technologies Merger will be consummated.
While the Company's management expects to realize operating
synergies and cost savings as a result of the Shared Technologies Merger, there
can be no assurance that the Company will achieve all of the benefits that
management expects to realize in connection with the Shared Technologies Merger
or that such benefits will occur within the time frame contemplated. Realization
of operating synergies and cost savings could be affected by a number of factors
beyond the Company's control, such as general economic conditions, increased
operating costs, the response of competitors or customers, regulatory
developments and delays in implementation. In addition, certain benefits are
dependent upon the Company's taking certain actions that
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will result in one-time charges or expenses. See "-- Some Future Potential
Charges."
The Shared Technologies Merger contemplates the integration of the
administrative, finance, sales and marketing organizations of STF and the
Company. STF is a significantly larger company, in terms of employees and
facilities managed and operated, than the Company and is engaged in a number of
businesses that are different than those in which the Company has historically
engaged. In addition, STF and its predecessors have also been involved in a
number of acquisitions in recent years, including the acquisition, in March,
1996, of Fairchild Industries, Inc., the operations and management of which are
still being integrated by STF. The integration of the businesses of the Company
and STF will require substantial attention from the Company's management team,
which will include STF employees who have not previously worked with the
Company. The retention of certain key STF personnel will be important for the
management of the STF business. Also, both STF's and the Company's customers
will need to be reassured that their services will continue uninterrupted. All
of these efforts will place significant pressure on the Company's existing
management, staff and other resources (see " -- Recent Rapid Growth; Ability to
Manage Growth", below). Moreover, integration of STF will require the Company's
senior management to oversee business in which they have limited or no direct
experience. The diversion of management attention, inability to satisfy the
foregoing needs and any other difficulties encountered in the transition process
could have an adverse effect on the Company's business, operating results or
financial condition.
DEPENDENCE ON AT&T AND LUCENT
The design for the Company's telecommunications network, which is
known as "OBN," "One Better Net" or "One Better Network," relies upon AT&T Corp.
("AT&T") transmission facilities, international long distance services and
operator services. If AT&T were to terminate the Company's use of AT&T's
transmission facilities, international long distance services or operator
services, the Company would seek to enter into similar arrangements with other
long distance providers. There can be no assurance that the terms of such
agreements would be favorable to the Company. The Company's current operations
and strategy with OBN emphasize the quality and functionality of the AT&T (now
Lucent Technologies, Inc., hereinafter "Lucent") manufactured equipment,
AT&T-provided transmission facilities and billing services, and AT&T operator
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services. Loss of the ability to market OBN emphasizing the quality of these
AT&T and Lucent-based services could have a material adverse effect on the
Company's results of operations and financial conditions.
The Company also will continue to depend on AT&T to provide the
AT&T telecommunication services that the Company resells directly to end users
and to independent long distance and marketing companies known as "partitions,"
which in turn resell the services on the AT&T network to end users. The
Company's ability to resell such services on the AT&T network depends upon
whether the Company can continue to maintain a favorable relationship with AT&T.
AT&T may terminate the provision of services under its tariffs for limited
reasons, including for nonpayment by the Company, for national defense purposes
or if the provision of services to the Company were to have a substantial
adverse impact on AT&T's network. While AT&T policy historically has been to
provide 30-day notice prior to termination of services, there are no specific
notice requirements with respect to such termination. Although the Company has
no specific contingency arrangements in place to provide service to end users if
AT&T were to discontinue its service to the Company, based upon discussions that
the Company has had with other long distance providers and based upon such
providers' published tariffs, the Company believes that it could negotiate and
obtain contracts with other long distance providers to resell long distance
services at rates comparable to its current contract tariffs with AT&T. If the
Company were to enter into contracts with another provider, however, the Company
believes it would take approximately 14 to 28 days to switch end users to that
provider. Although the Company believes it may have the right to switch end
users without their consent to such other providers, end users have the right to
discontinue such service at any time. Accordingly, the termination or
non-renewal of the Company's contract tariffs with AT&T or the loss of
telecommunication services from AT&T likely would have a material adverse effect
on the Company's results of operations and financial condition.
The Company uses billing services provided by AT&T and AT&T's College and
University Systems ("ACUS"). There can be no assurance that either AT&T or ACUS
will continue to offer billing services to the Company on terms acceptable to
the Company. AT&T has removed its name on bills for which it provides billing
services and could further obscure its role in providing billing services or
cease providing billing services altogether. Loss of the AT&T and ACUS billing
services or decreased awareness of the AT&T name could have a material adverse
effect on the Company's marketing strategy and retention
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of existing partitions and end users. The Company is developing its own
information systems in order to have its own billing capacity, including in
connection with its anticipated services under the AOL Agreement discussed
below, although the Company has not provided such direct billing services to end
users in the past.
AOL AGREEMENT
The Company entered into a Telecommunications Marketing Agreement
(the "AOL Agreement"), dated as of February 22, 1997 and effective as of
February 25, 1997, with America Online, Inc. ("AOL"), under which the Company
will provide long distance telecommunications services to be marketed by AOL to
all of the subscribers of AOL's online network. The Company made an initial
payment of $100 million to AOL at signing and agreed to provide marketing
payments to AOL based on a percentage of the Company's profits from the services
(between 50% and 70% depending on the level of revenues from the services). The
AOL Agreement provides that $43 million of the initial payment will be offset
and recoverable by the Company through reduction of such profit-based marketing
payments during the initial term of the AOL Agreement or, subject to certain
monthly reductions of the amount thereof, directly by AOL upon certain earlier
terminations of the AOL Agreement. The $57 million balance of the initial
payment is solely recoverable by offset against a percentage of such
profit-based marketing payments made after the first five years of the AOL
Agreement (when extended beyond the initial term) and by offset against a
percentage of AOL's share of the profits from the services after termination or
expiration of the AOL Agreement. Any portion of the $43 million not previously
repaid or reduced in amount would be added to the $57 million and would be
recoverable similarly. The Company service was launched on the AOL online
network on October 9, 1997 on a limited basis, with the general public promotion
of the service anticipated to begin late in the 1997 fourth quarter.
Also under the AOL Agreement, the Company issued to AOL at signing
two warrants to purchase shares of the Company Common Stock at a premium over
the market value of such stock on the issuance date. One warrant is for 5
million shares, at an exercise price of $15.50 per share, one-half of which
shares vested on October 9, 1997 when the Company service was launched on the
AOL online network in accordance with the AOL Agreement and the balance of which
will vest on the first anniversary of issuance if the AOL Agreement has not
terminated. The other warrant is for up to 7 million shares, at an exercise
price of $14.00 per share, which will vest, commencing December 31, 1997, based
on the number of
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subscribers to the services and would vest fully if there are at least 3.5
million such subscribers at any one time. The Company also agreed to issue to
AOL an additional warrant to purchase 1 million shares of the Company Common
Stock, at market value at the time of issuance, upon each of the first two
annual extensions by AOL of the term of the AOL Agreement, which warrants also
will vest based on the number of subscribers to the services.
The profitability of the AOL Agreement for the Company depends on
the Company's ability to develop in a timely fashion, and to continue to develop
and to maintain, online ordering, call detail, billing and customer services for
the AOL members, which will require, among other things, the ability to identify
and employ sufficient personnel qualified to provide the necessary programming;
the ability of the Company and AOL to work together effectively to develop
jointly the online marketing contemplated by the AOL Agreement; a rapid response
rate to online promotions to AOL's online subscribers, most of whom are expected
to be potential residential customers rather than business customers to which
Tel- Save has marketed historically; the Company's ability to expand OBN to
accommodate increased traffic levels; and AOL's ability to execute successfully
its publicly stated business plan and implement its announced network changes to
improve member access to its online service. Since the $100 million payment is
recoverable only through the profits from the services, to the extent that the
AOL Agreement is unsuccessful, such amount is subject to potential non-recovery
or limited recovery by the Company. The Company currently estimates that between
2% and 6% of AOL's customers will need to sign up for the Company's long
distance service in order for the Company to break even on its investment in the
AOL Agreement.
RECENT RAPID GROWTH; ABILITY TO MANAGE GROWTH
The Company began operations in 1989 (as Tel-Save, Inc.) as a
reseller of AT&T services. Over the past eight years, the Company has grown
dramatically, becoming a public company in 1995, with revenues in 1996 of $232
million and approximately 390 employees. Although the Company has experienced
significant growth in a relatively short period of time and regularly considers
growth opportunities through acquisitions, joint ventures and partnerships as
well as other business expansion opportunities, there can be no assurance that
the growth experienced by the Company will continue or that the Company will be
able to achieve the growth contemplated by its business strategy. This strategy
reflects significant changes
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from the Company's historical business and includes the Company's operation of
its own network, One Better Net or OBN, which has changed the Company from a
pure reseller of AT&T services to a switch-based provider (see "-- Risks Related
to OBN"); the AOL Agreement, for which the Company made a significant payment
(see "-- AOL Agreement") and that will require, among other things, additional
personnel, new billing capacity, a new marketing orientation to residential
customers and potential expansion of OBN capacity; the Shared Technologies
Merger, which involves the acquisition by the Company of a company that, in
terms of numbers of employees and facilities, is significantly larger than the
Company and that engages in a number of businesses in which the Company has no
experience (see "-- Proposed Shared Technologies Merger"). The Company's
strategy has also resulted in significant recent changes to its balance sheet
composition over the past several years, including significant debt incurred,
which has increased financial management requirements.
Implementation of the Company's strategy, including maintaining
(and, as appropriate, expanding) OBN, maintaining and supporting the existing
business with partitions, launching the AOL marketing approach and managing
customer accounts over the AOL online service and integrating the Shared
Technologies business into the Company's, is placing and will continue to place
significant demands on the Company's management, operational, financial and
other resources and will require the Company to enhance further its operations,
management, financial and information systems and controls and to expand, train
and manage its employee base in certain areas including customer service support
and financial and marketing and administrative resources. Success in this regard
depends, among other things, on the Company's ability to fund or finance
significant investments of resources for OBN expansion and to manage, attract
and retain qualified personnel (competition for whom is intense). There can be
no assurance that the Company will successfully manage its expanding operations
and, if the Company's management is unable to manage growth effectively, the
Company's business, operating results and financial condition would be
materially and adversely affected.
SOME POTENTIAL FUTURE CHARGES
Of the $100 million payment to AOL (plus the value of the 5 million
share AOL warrant, which is valued, subject to possible increase, at $9.1
million, and $.6 million of AOL Agreement-related costs), the Company
anticipates that, with the commercial launch of the Company service in early
October 1997, an aggregate
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of approximately $46 million will be charged to expense in the third and fourth
quarters of 1997 (an aggregate of $14.4 million was so charged in the first and
second quarters of 1997). The balance will be recognized ratably over the
balance of the term of the AOL Agreement, the initial term of which expires on
June 30, 2000, as advertising services are received. The AOL warrant for up to 7
million shares will be valued and charged to expense as and when subscribers to
the Company's services under the AOL Agreement sign-up and the shares under such
warrant vest. The amount of such charges, which could be significant, will be
based on the extent to which such AOL warrants vest and the market prices of the
Company Common Stock at the time of vesting and therefore such charges are not
currently determinable. Generally, the higher the market price of the Company
Common Stock at the time of vesting, the larger the amount of the charge will
be. The Company also anticipates that it will incur additional promotional
expenses in the 1997 fourth quarter and the 1998 first quarter in connection
with the general public promotion of its service under the AOL Agreement. If the
AOL Agreement should prove unsuccessful, any remaining amount of the total value
paid under the AOL Agreement could be written off earlier.
In connection with the Company's decision in October 1997 to
discontinue its internal telemarketing operations as part of its restructuring
of its sales and marketing efforts (see "-- Direct Telemarketing Risks"), the
Company will write-off approximately $25.2 million (pretax) in the 1997 fourth
quarter.
In connection with the Shared Technologies Merger, the Company
anticipates that it will record acquisition and transaction-related pre-tax
charges (including charges related to the Company's acquisition and, as of the
consummation of the Shared Technologies Merger, retirement of Shared
Technologies' Subordinated Notes) of approximately $60 million in the quarter in
which the Shared Technologies Merger is consummated, which is anticipated to be
in the 1997 fourth quarter. In addition, the Company anticipates that various
other special costs will be incurred in realizing some of the benefits of the
Shared Technologies Merger, including the costs of enhancing the direct sales
force of the combined companies and costs associated with systems modifications
and other integration-related charges after the Shared Technologies Merger.
While the exact timing, nature and amount of these other charges cannot be
predicted, the Company currently estimates that additional pretax charges in
connection with the consolidation and centralization of the facilities of Shared
Technologies and the related program of upgrading
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equipment and eliminating duplicative and obsolete equipment and incurred in
realizing some of the other benefits of the Shared Technologies Merger, will
range from $50.0 million to $70.0 million. These charges currently are
anticipated to be recorded during the 1997 fourth quarter and first half of
1998. It is also possible, as the Company proceeds with the integration of
Shared Technologies with the Company, that further charges may be incurred.
The Company granted an option to an executive officer to purchase
800,000 shares of Company Common Stock at an exercise price of $11.125 per
share. The option granted is subject to the approval of the Company stockholders
and is being submitted for approval at the Company's stockholders meeting
scheduled for December 1, 1997. Approval of the option grant will result in
compensation expense equal to the difference between the exercise price and the
market value of the Company Common Stock on the date of such approval; for
example, were the market value on the date of such approval to be $20 (the last
reported sale price of the Company Common Stock on November 4, 1997), such
compensation expense would be approximately $7,100,000. In addition, a newly
appointed executive officer, in connection with his employment, purchased
200,000 shares of Company Common Stock at a price of $4.25 per share from a
former executive officer of the Company. This purchase will result in
compensation expense in the fourth quarter of 1997 of approximately $3,400,000
based on the difference between the purchase price and market value of the
Company Common Stock on the date of purchase.
COMPETITION
The long distance telecommunications industry is highly competitive
and affected by the introduction of new services by, and the market activities
of, major industry participants. Competition in the long distance business is
based upon pricing, customer service, billing services and perceived quality.
The Company competes against various national and regional long distance
carriers and competes against the numerous companies in the long distance
telecommunications market that offer essentially the same services as the
Company. Several of the Company's competitors are substantially larger and have
greater financial, technical and marketing resources than the Company. The
Company's competitors that resell non-AT&T services do so at prices below that
which the Company can provide as an AT&T switchless reseller, although the
deployment of OBN enables the Company to be price competitive with non-AT&T
resellers at current industry pricing levels. The ability of the Company to
compete effectively in the telecommunications industry will depend upon the
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Company's continued ability to provide high quality services at prices generally
competitive with, or lower than, those charged by its competitors. Although the
Company believes that gross margins will improve as more customers are
provisioned on OBN, revenues could decline if competition for long distance
service forced the Company to offer services at greater discounts.
Changes in the regulation of the telecommunications industry may
impact the Company's competitive position. The Telecommunications Act of 1996
(the "Telecommunications Act") effectively opens up the long distance market to
competition from the Bell Operating Companies and Regional Holding Companies
(collectively, "RBOCs"). The entry of these well-capitalized and well-known
entities into the long distance market could significantly alter the competitive
environment in which the Company operates because of the established
relationship the RBOCs have with their local service customers (and the
likelihood that the RBOCs will take advantage of those relationships), as well
as the possibility of interpretations of the Telecommunications Act favorable to
the RBOCs, which may make it more difficult for other providers, such as the
Company, to compete to provide long distance services. Consolidation and
alliances across geographic regions (e.g., Bell Atlantic/Nynex and SBC
Communications Inc./Pacific Telesis Group domestically and BT/MCI and France
Telecom/Deutsche Telekom/Sprint internationally) and across industry segments
(e.g., WorldCom/MFS/UUNet) and other pending and possible deals (e.g.,
WorldCom/MCI and GTE/MCI) may also impact competition in the telecommunications
market and the position of the Company.
Although the basic rates of the three largest long distance
carriers -- AT&T, MCI Communications Corp. and Sprint Corporation -- have
historically increased, AT&T and other carriers have announced new price plans
and significant simplified rate structures aimed at residential customers (the
Company's primary target audience under the AOL contract), which may have the
impact of lowering overall long distance prices. There can be no assurance that
AT&T or other carriers will not make similar offerings available to the small to
medium-sized businesses that the Company serves. Although OBN is expected to
make the Company more price competitive, further reductions in long distance
prices charged by competitors still may have a material adverse impact on the
Company's profitability.
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MAINTENANCE OF END USER BASE
End users are not obligated to purchase any minimum usage amount
and can discontinue service, without penalty, at any time. There can be no
assurance that end users will continue to buy their long distance telephone
service through the Company or through "partitions," independent carriers and
marketing companies that purchase services from the Company. In the event that a
significant portion of the Company's end users decides to purchase long distance
service from another long distance service provider, there can be no assurance
that the Company will be able to replace its end user base from other sources.
Loss of a significant portion of the Company's end users would have a material
adverse effect on the Company's results of operations and financial condition.
A high level of customer attrition is inherent in the long distance
industry, and the Company's revenues are affected by such attrition. Attrition
is attributable to a variety of factors, including termination of customers by
the Company for non-payment and the initiatives of existing and new competitors
as they engage in, among other things, national advertising campaigns,
telemarketing programs and the issuance of cash or other forms of incentives.
DIRECT TELEMARKETING RISKS
In 1996, the Company began to telemarket its long distance service
directly to small and medium- sized businesses and, in December 1996, acquired
substantially all of the assets, and hired substantially all of the employees,
of American Business Alliance, Inc. ("ABA"), a switchless reseller of long
distance services and a partition of the Company, which acquisition
significantly increased the Company's direct telemarketing capabilities. A
portion of the acquisition price was accounted for as goodwill and was being
amortized over a 15-year period. In the second quarter of 1997, the Company
determined to change its business practice and deemphasize the use of direct
telemarketing to solicit customers for the Company as the carrier, and, in
October 1997, the Company decided to discontinue its internal telemarketing
operations, which were primarily conducted through the ABA business that it had
acquired, and focus on the development of a direct sales force. See "-- Some
Potential Future Charges." Both federal and state officials are tightening the
rules governing the telemarketing of telecommunications services and the
requirements imposed on carriers acquiring customers in that manner. Customer
complaints of unauthorized conversion or
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"slamming" are widespread in the long distance industry and are beginning to
occur with respect to newly-competitive local services. While the Company's
discontinuance of its internal telemarketing operations should reduce its
exposure to customer complaints and federal or state enforcement actions with
respect to telemarketing practices, certain state officials have made inquiries
with respect to the marketing of the Company's services and there is the risk of
enforcement actions by virtue of its direct telemarketing efforts and its
ongoing support of its customer/partitions.
RELIANCE ON INDEPENDENT CARRIER AND MARKETING COMPANIES;
LACK OF CONTROL OVER MARKETING ACTIVITIES
Historically, the Company has marketed its services primarily
through partitions, which generally have entered into non-exclusive agreements
with Tel-Save. Most partitions to date have made no minimum use or revenue
commitments to the Company under these agreements. If the Company were to lose
access to services on the AT&T network or billing services or experience
difficulties with OBN, the Company's agreements with partitions could be
adversely affected.
Certain marketing practices, including the methods and means to
convert a customer's long distance telephone service from one carrier to
another, have recently been subject to increased regulatory review at both the
federal and state levels. Provisions in the Company's partition agreements
mandate compliance by the partitions with applicable state and federal
regulations. Because the Company's partitions are independent carriers and
marketing companies, however, the Company is unable to control such partitions'
activities. The Company is also unable to predict the extent of its partitions'
compliance with applicable regulations or the effect of such increased
regulatory review. This increased regulatory review could also affect possible
future acquisitions of new business from new partitions or other resellers.
GOVERNMENT REGULATION
The Company is subject to regulation by the Federal Communications
Commission (the "FCC") and by various state public service and public utility
commissions as a non-dominant provider of long distance services. Under an FCC
order adopted on October 29, 1996, effectiveness of which has been suspended as
of the date hereof by a court order, the Company, its partitions and all other
non-dominant interexchange carriers would after nine months be required to
withdraw their tariffs for interstate service with the FCC. The
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Company and its partitions, however, are still required to file tariffs for
international service with the FCC and to obtain authority and file tariffs for
intrastate service provided in most of the states in which they market long
distance services. Changes in existing policies or regulations in any state or
by the FCC could materially adversely affect the Company's results of
operations, particularly if those policies make it more difficult to obtain
service from AT&T or other long distance companies at competitive rates, or
otherwise increase the cost and regulatory burdens of providing services. There
can be no assurance that the regulatory authorities in one or more states or the
FCC will not take action having an adverse effect on the business or financial
condition or results of operations of the Company. Regulatory action by the FCC
or the states also could adversely affect the partitions, or otherwise increase
the partitions' cost and regulatory burdens of providing long distance services.
The Company will also be subject to applicable regulatory standards for
marketing activities, and the increased FCC and state attention to certain
marketing practices could be significant to the Company.
Shared Technologies' services business is subject to specific
regulations in several states. Within various states, such regulations may
include limitations on the number of lines or PBX switches per system,
limitations of shared telecommunications systems to single buildings or building
complexes, requirements that such building complexes be under common ownership
or common ownership, management and control and the imposition of local exchange
access rates that may be higher than those for similar single-user PBX systems.
Shared Technologies' systems business is generally exempt from governmental
regulation with respect to marketing and sales. However, various regulatory
bodies, including the FCC, require that manufacturers of equipment obtain
certain certifications.
ADVERSE EFFECT OF RAPID CHANGE IN TECHNOLOGY AND SERVICE
The telecommunications industry has been characterized by rapid
technological change, frequent new service introductions and evolving industry
standards. The Company believes that its future success will depend on its
ability to anticipate such changes and to offer on a timely basis services that
meet these evolving standards. There can be no assurance that the Company will
have sufficient resources to make necessary investments or to introduce new
services that would satisfy an expanded range of partition and end user needs.
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RISKS RELATED TO OBN
In early 1997, the Company deployed its own nationwide
telecommunications network, One Better Net, or OBN. OBN currently provides
services to approximately 150,000 of the over 500,000 current end users of the
Company's services. Prior to the deployment of OBN, the Company marketed
services by emphasizing its use of AT&T's transmission facilities and switches
("AT&T network") and billing services. Although such marketing can continue for
services on the AT&T network that the Company resells, the Company has had to
reduce its emphasis on AT&T in marketing OBN, which makes less use of the AT&T
network. There can be no assurance that the Company will be able to continue to
market OBN successfully, even though OBN uses the Company-owned, AT&T (now
Lucent) manufactured switching equipment and AT&T transmission facilities and
employs the billing services of AT&T and ACUS. Failure to continue to market OBN
successfully would have a material adverse effect on the Company's financial
condition and results of operations. Additionally, there can be no assurance
that the Company will be able to maintain or secure future AT&T contract tariffs
or contracts for transmission at cost-effective rates. Further, to the extent
that the Company, rather than AT&T, is responsible for providing the Company's
telecommunications services, Tel- Save's potential liability increases if such
services are not provided.
OBN utilizes AT&T (now Lucent) manufactured 5ESS-2000 switching
equipment, which employs the new Digital Networking Unit-SONET (Synchronous
Optical Network) technology and initially utilized the 5E10 software, which was
recently upgraded to 5E11 software. While the 5ESS-2000 switches have operated
successfully in the local environment, the Digital Networking Unit-S0NET and
5E11 software offer new technologies that have not been used extensively, and
there can be no assurance that the switches will continue to function
effectively.
Additional management personnel and information systems are
required to support OBN, the costs of which have increased the Company's
overhead. In order for the Company to provide service over the OBN, the Company
must operate and be responsible for the maintenance of its own switching
equipment. While the Company has hired additional personnel with experience in
operating a switch-based provider, there can be no assurance that the Company
will be successful in operating as a switch-based provider. Moreover, the
Company must be able to expand OBN to add capacity as needed, which may
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require significant expenditures for hardware and software.
Operation as a switch-based provider subjects the Company to risk
of significant interruption in the provision of services on OBN in the event of
damage to the Company's facilities (switching equipment or connections to AT&T
transmission facilities) such as could be caused by fire or natural disaster.
Such interruptions or other difficulties in operating OBN could have a material
adverse effect on the Company's financial condition and results of operations.
CONTROL BY EXISTING STOCKHOLDERS; ANTI-TAKEOVER
CONSIDERATIONS
As of November 6, 1997, Mr. Borislow owned beneficially
approximately 38.0% of the outstanding Company Common Stock. Accordingly, Mr.
Borislow may have the ability to control the election of all of the members of
the Company Board of Directors and the outcome of corporate actions requiring
majority stockholder approval. Even as to corporate transactions in which
super-majority approval may be required, such as certain fundamental corporate
transactions, Mr. Borislow may have the ability to control the outcome of such
actions. It is anticipated that Mr. Borislow will continue to be the single
largest beneficial owner of the Company Common Stock after the issuance of
Company Common Stock upon consummation of the Shared Technologies Merger,
although his ownership percentage will be reduced.
The Company also has an authorized class of 5,000,000 shares of
preferred stock that may be issued by the Company Board of Directors on such
terms and with such rights, preferences and designations as the Board may
determine. Issuance of such preferred stock, depending upon the rights,
preferences and designations thereof, may have the effect of delaying, deterring
or preventing a change in control of the Company. In addition, the Delaware
General Corporation Law and other provisions of the Company's Restated
Certificate of Incorporation (the "Company Charter"), including the provision of
the Company Charter that provides that the Company Board of Directors be divided
into three classes, each of which is elected for three years, and the Company
Bylaws contain provisions that may have the effect of delaying or preventing a
change in control of the Company.
Such anti-takeover effects may deter a third party from acquiring
the Company or engaging in a similar transaction affecting control of the
Company in
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which the Company stockholders might receive a premium for their shares over the
then-current market value.
COMPANY SHARES ELIGIBLE FOR FUTURE SALE
Future sales of substantial amounts of Company Common Stock could
adversely affect the market price of Company Common Stock. As of October 8,
1997, Mr. Borislow owned of record or had dispositive power with respect to
23.3% of the outstanding Company Common Stock and a decision by Mr. Borislow to
sell his shares could adversely affect the market price of the Company Common
Stock.
As of October 8, 1997, there were outstanding options to purchase
8,388,108 shares of Company Common Stock held by employees, former employees or
directors of the Company. In addition, there were warrants to purchase up to
12,997,000 shares of Company Common Stock and 12,185,833 shares reserved for
issuance upon conversion of the Notes.
Upon effectiveness of the Shared Technologies Merger, and based on
the numbers of outstanding shares of STF Common and Shared Technologies' Series
I Convertible Preferred Stock outstanding as of October 8, 1997, up to
24,029,350 shares of Company Common Stock could be issued. In addition, Shared
Technologies options, convertible preferred stock and warrants outstanding as of
October 8, 1997 could be exercisable or convertible after the Shared
Technologies Merger into up to approximately 4.5 million shares of Company
Common Stock.
Paul Rosenberg, the holder of 7,440,000 shares of Company Common
Stock, has the right, under certain conditions, to participate in future
registrations of Company Common Stock and to cause the Company to register
certain shares of Company Common Stock owned by him. Holders of warrants also
have registration rights under certain conditions.
Sales of substantial amounts of Company Common Stock in the public
market, or the perception that such sales could occur, may adversely affect the
market price of the Company Common Stock.
FUTURE COMPANY TRANSACTIONS
If the amendment to the Company Charter increasing the number of
authorized shares of Company Common Stock from 100,000,000 to 300,000,000 is
approved at the Company's stockholders meeting scheduled for December 1, 1997,
the Company will be authorized to
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issue up to an aggregate of 300,000,000 shares of Company Common Stock. The
Company may use authorized and unissued shares of Company Common Stock for
various corporate purposes, including, but not limited to, acquisition
transactions, and such shares may be issued by the Company Board without further
stockholder action unless the issuance is in connection with a transaction for
which stockholder approval is otherwise required under the Company Charter,
applicable law, regulation or agreement.
On October 29, 1997, the Company, in a letter to the Chairman of
the Board of ACC Corp. ("ACC"), proposed for consideration by ACC a merger
transaction between the Company and ACC, in which ACC would be acquired by the
Company and ACC's stockholders would receive Company Common Stock in exchange
for their ACC common stock. As proposed in the letter and subsequently amended
to the date of this prospectus, the Company would exchange $50 in the Company
Common Stock for each share of ACC common stock. ACC is an international
telecommunications holding company whose common stock is traded on the NASDAQ
National Market under the symbol "ACCC". As of August 1, 1997, there were
approximately 16.8 million shares of ACC common stock reported to be
outstanding.
Any such transaction is subject, among other things, to the
satisfactory completion of due diligence reviews, the negotiation of a mutually
satisfactory agreement, approval thereof by the companies' respective boards of
directors, the transaction being accounted for as a pooling-of-interests
transaction, any necessary regulatory approvals and any necessary stockholder
approvals. The Company is unable to predict whether the ACC board of directors
will favorably consider the proposal or whether a mutually acceptable agreement
can be reached or the terms of any such agreement, should it be reached and
approved.
DEPENDENCE UPON KEY PERSONNEL
The success of the Company's operations during the foreseeable
future will depend largely upon the continued services of Daniel Borislow, the
Company's Chairman and Chief Executive Officer. Mr. Borislow has entered into an
employment agreement with the Company that contains non-competition covenants
that extend for a period of up to 18 months following termination of employment.
ABSENCE OF DIVIDENDS
The Company has not paid cash dividends since inception. The
Company currently intends to retain all
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future earnings for use in the operation of its business and, therefore, does
not anticipate paying any cash dividends in the foreseeable future. Furthermore,
the Company's existing bank credit facility restricts the payment of dividends
on the Company Common Stock.
ABSENCE OF PUBLIC MARKET FOR THE NOTES
The Notes constitute a new issue of securities, have no established
trading market and may not be widely distributed. Although the Initial
Purchasers have informed the Company that they currently intend to make a market
in the Notes as permitted by applicable laws and regulations, they are not
obligated to do so and may discontinue market making at any time without notice.
In addition, such market making activity will be subject to the limits imposed
by the Securities Act and the Exchange Act. The Company does not intend to list
the Notes on any securities exchange or to seek the admission thereof to trading
in the Nasdaq National Market. There can be no assurances as to the development
of any market or liquidity of any market that may develop for the Notes.
SUBORDINATION OF NOTES; HOLDING COMPANY STRUCTURE
The Notes are subordinate in right of payment to all current and
future Senior Debt (as defined herein) of the Company. Senior Debt includes
indebtedness (whether secured or unsecured) borrowed under the Company's $65
million credit facility (the "Credit Facility") or successor credit facilities
and substantially all other indebtedness of the Company, whether existing on or
created or incurred after the date the Notes are issued, that is not made
subordinate to or pari passu with the Notes by the instrument creating the
indebtedness. As of August 29, 1997, the Company had approximately $130 million
in indebtedness and other balance sheet liabilities of the Company's
subsidiaries to which the Notes are effectively subordinated was approximately
$37.1 million. The Indenture does not limit the amount of additional
indebtedness, including Senior Indebtedness, which the Company can create,
incur, assume or guarantee. By reason of the subordination of the Notes, if any
insolvency, bankruptcy, liquidation, reorganization, dissolution or winding up
of the business of the Company occurs, the assets of the Company will be
available to pay the amounts due on the Notes only after all the Senior Debt has
been paid in full.
The Company, as a holding company whose principal assets are the
shares of capital stock of its subsidiaries, does not generate any operating
revenues
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of its own. Consequently, it depends on dividends, advances and payments from
its subsidiaries to fund activities and meet its cash needs, including its debt
services requirements. The subsidiaries are separate and distinct legal entities
and have no obligation, contingent or otherwise, to pay any amounts due pursuant
to the Notes or to make funds available therefor. Their ability to pay dividends
or make other payments or advances to the Company will depend on their operating
results and will be subject to various business considerations and to applicable
state laws. In addition, holders of the Notes are effectively subordinated to
the claims of creditors of the Company's subsidiaries to the extent of the
assets of such subsidiaries. If any insolvency, bankruptcy, liquidation,
reorganization, dissolution or winding up of the business of any subsidiary of
the Company occurs, creditors of that subsidiary generally will have the right
to be paid in full before any distribution is made to the Company or the holders
of the notes.
Substantially all of the subsidiaries of the Company are parties
to, or have guaranteed the payment of the Company's obligations under, the
Credit Facility.
LIMITATIONS ON REPURCHASE OF NOTES IF A DESIGNATED EVENT
OCCURS
If a Designated Event, which consists of either a Change in Control
or a Termination of Trading (each as defined herein), occurs, each holder of the
Notes will have the right, at its option and subject to certain restrictions and
conditions, to require the Company to repurchase all or any part of the Notes at
a purchase price equal to 101% of the principal amount thereof plus accrued
interest to the repurchase date. The Company's ability to repurchase Notes
following a Designated Event (i) may be limited by the terms of the Senior Debt
and the subordination provisions of the Indenture and (ii) will depend on the
availability of sufficient funds and compliance with applicable securities laws.
Accordingly, no assurance can be given the Company will repurchase Notes
following a Designated Event. The term "Designated Event" is limited to certain
specified transactions and may not include other events, such as a highly
leveraged business combination or reorganization not involving a Designated
Event, that might adversely affect the financial condition of the Company. See
"DESCRIPTION OF THE NOTES."
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THE COMPANY
The Company, originally incorporated in 1989 as Tel-Save, Inc.,
provides long distance telephone service throughout the United States, primarily
to small and medium-sized businesses. For further information about the business
and operations of the Company, reference is made to the Company's reports
incorporated herein by reference. See "INCORPORATION OF CERTAIN DOCUMENTS BY
REFERENCE."
The principal executive offices of the Company are located at 6805
Route 202, New Hope, Pennsylvania 18938, and its telephone number is (215)
862-1500.
DESCRIPTION OF CAPITAL STOCK
As of the date of this Prospectus, the Company's authorized capital
stock consists of 100,000,000 shares of Common Stock, $.01 par value per share,
and 5,000,000 shares of undesignated Preferred Stock, $.01 par value per share.
As of October 8, 1997, 65,610,949 shares of Common Stock were issued and
outstanding. There were no shares of Preferred Stock designated or issued. For
further information about the Company's authorized capital stock, reference is
made to the Company's reports incorporated herein by reference. See
"INCORPORATION OF CERTAIN DOCUMENTS BY REFERENCE."
DESCRIPTION OF THE NOTES
GENERAL
The Notes were issued pursuant to an Indenture dated as of
September 9, 1997 (the "Indenture"), between the Company and First Trust of New
York, National Association, as trustee (the "Trustee"). A copy of the form of
the Indenture and the Registration Agreement were available from the Trustee or
the Company upon request by a registered holder of Notes. The following summary
of certain provisions of the Indenture and the Registration Agreement does not
purport to be complete and is qualified in its entirety by reference to the
Indenture and the Registration Agreement, including the definitions in the
Indenture of certain terms used in the following summary. The definitions of
certain terms used in the following summary are set forth below under "--Certain
Definitions."
The Notes are unsecured obligations of the Company, subordinated in
right of payment to all existing and future Senior Debt of the Company to the
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extent set forth in the Indenture. The Indenture does not limit the amount of
other Indebtedness or securities that may be issued by the Company or any of its
Subsidiaries.
The operations of the Company are conducted through its
Subsidiaries and, therefore, the Company is dependent upon the cash flow of its
Subsidiaries to meet its obligations, including its obligations under the Notes.
As a result, the Notes are effectively subordinated to all existing and future
Indebtedness and other liabilities and commitments of such Subsidiaries.
FORM, DENOMINATION AND REGISTRATION
The Notes have been issued in fully registered form, without
coupons, in denomination of $1,000 in principal amount and integral multiples
thereof.
Notes currently held by "qualified institutional buyers" as defined
in Rule 144A under the Securities Act or by persons who are not U.S. persons who
acquired such Notes in "offshore transactions" in reliance on Regulation S under
the Securities Act are currently evidenced by restricted global Notes (the
"Restricted Global Notes") which were deposited with, or on behalf of, DTC and
registered in the name of Cede and Co.
("Cede") as DTC's nominee.
Any purchaser (a "Public Holder") of Notes pursuant to this
Prospectus will receive a beneficial interest in an unrestricted global note
(the "Public Global Note") which will be deposited with, or on behalf of, DTC
and registered in the name of Cede as DTC's nominee. Except as set forth below,
the record ownership of the Public Global Note may be transferred in whole or in
part, only to another nominee of DTC or to a successor of DTC or its nominee.
A Public Holder may hold its interest in the Public Global Note
directly through DTC if such Public Holder is a participant in DTC, or
indirectly through organizations which are participants in DTC ("Participant" or
"Participants"). Transfers between Participants are effected in the ordinary way
in accordance with DTC rules and will be settled in same day funds.
Public Holders who are not Participants may beneficially own
interests in the Public Global Notes held by DTC only through Participants or
certain banks, brokers, dealers, trust companies and other parties that clear
through or maintain a custodial relationship with a Participant, either directly
or indirectly ("Indirect
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Participants"). So long as Cede, as the nominee of DTC, is the registered owner
of the Public Global Note, Cede for all purposes is considered the sole holder
of the Public Global Note.
Except in limited circumstances, owners of interests in the Notes
will not be entitled to receive physical delivery of Notes in definitive form.
See "Book Entry System; Delivery and Form -- DTC." No service charge will be
made for any registration of transfer or exchange of the Notes, but the Company
may require payment of a sum sufficient to cover any tax or other governmental
charge payable in connection therewith.
PRINCIPAL, MATURITY AND INTEREST
The Notes bear interest from September 9, 1997, at 4 1/2 percent
per annum and will mature on September 15, 2002.
Interest on the Notes will be payable semiannually on March 15 and
September 15 of each year (each an "Interest Payment Date"), commencing on March
15, 1998, to holders of record at the close of business on the March 1 or
September 1 (each a "Regular Record Date") immediately preceding such Interest
Payment Date. Interest will be computed on the basis of a 360-day year comprised
of twelve 30-day months.
Interest on the Notes will accrue from the most recent date to
which interest has been paid or, if no interest has been paid, from September 9,
1997.
Payment in respect of the Notes (including principal, premium, if
any, and interest) held of record by DTC (including Notes evidenced by the
Public Global Note) will be made in immediately available funds. Payments in
respect of the Notes held of record by holders other than DTC may, at the option
of the Company, be made by check and mailed to such holders of record as shown
on the Register for the Notes.
If a payment date is not a Business Day at a place of payment,
payment may be made at that place on the next succeeding Business Day, and no
interest shall accrue for the intervening period.
The Company has initially appointed the Trustee as its corporate
trust office in The City of New York as the Paying Agent and Conversion Agent.
The Company may at any time terminate the appointment of the Paying Agent or
Conversion Agent and appoint additional or other Paying Agents and Conversion
Agents, provided that
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until the Notes have been delivered to the Trustee for cancellation, or moneys
sufficient to pay the principal of, premium, if any, and interest on the Notes
have been made available for payment and either paid or returned to the Company
as provided in the Indenture, it will maintain an office or agency in New York,
New York for payments with respect to the Notes and for the surrender of Notes
for conversion. Notice of any such termination or appointment and of any change
in the office through which the Paying Agent or Conversion Agent will act will
be given in accordance with "--Notices" below.
OPTIONAL REDEMPTION
The Notes will not be subject to redemption prior to September 15,
2000 and will be redeemable on such date and thereafter at the option of the
Company, in whole or in part (in any integral multiple of $1,000), upon not less
than 30 nor more than 60 days prior notice by mail at the following redemption
prices (expressed as percentages of the principal amount), in each case,
together with accrued interest to the redemption date (subject to the right of
holders of record on the relevant record date to receive interest due on an
Interest Payment Date). If redeemed during the 12-month period beginning
September 15 of the years indicated, such redemption price shall be as
indicated:
YEAR REDEMPTION PRICE
- --------------------------------------------------------------------------------
2000........................ 101.80%
2001 and thereafter......... 100.90%
On or after the redemption date, interest will cease to accrue on the Notes, or
portion thereof, called for redemption.
MANDATORY REDEMPTION
The Company is not required to make mandatory redemption or sinking
fund payments with respect to the Notes.
REPURCHASE AT THE OPTION OF HOLDERS
Upon the occurrence of a Designated Event, each holder of Notes
shall have the right to require the Company to repurchase all or any part (equal
to $1,000 or an integral multiple thereof) of such holder's Notes pursuant to
the offer described below (the "Designated Event Offer") at a purchase price
equal to 101% of the principal amount thereof, together with accrued and unpaid
interest thereon to the Designated Event Payment Date (the "Designated Event
Payment"). Within 30 days
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following any Designated Event, the Company shall mail a notice to each holder
stating: (1) that the Designated Event Offer is being made pursuant to the
covenant described in this paragraph and that all Notes tendered will be
accepted for payment; (2) the purchase price and the purchase date, which shall
be no earlier than 30 days nor later than 40 days from the date such notice is
mailed (the "Designated Event Payment Date"); (3) that any Notes not tendered
will continue to accrue interest; (4) that, unless the Company defaults in the
payment of the Designated Event Payment, all Notes accepted for payment pursuant
to the Designated Event Offer shall cease to accrue interest after the
Designated Event Payment Date; (5) that holders electing to have any Notes
purchased pursuant to a Designated Event Offer will be required to surrender the
Notes, with the form entitled "Option of Holder to Elect Purchase" on the
reverse of the Notes completed, to a Paying Agent at the address specified in
the notice prior to the close of business on the third Business Day preceding
the Designated Event Payment Date; (6) that holders will be entitled to withdraw
their election if a Paying Agent receives, not later than the close of business
on the second Business Day preceding the Designated Event Payment Date, a
telegram, telex, facsimile transmission or letter setting forth the name of the
holder, the principal amount of Notes delivered for purchase, and a statement
that such holder is withdrawing his election to have such Notes purchased; and
(7) that holders whose Notes are being purchased only in part will be issued new
Notes equal in principal amount to the unpurchased portion of the Notes
surrendered, which unpurchased portion must be equal to $1,000 in principal
amount or an integral multiple thereof.
The Company will comply with the requirements of Rules 13e-4 and
14e-1 under the Exchange Act and any other securities laws and regulations
thereunder to the extent such laws and regulations are applicable in connection
with the repurchase of the Notes in connection with a Designated Event.
On the Designated Event Payment Date, the Company will, to the
extent lawful, (1) accept for payment Notes or portions thereof duly tendered
pursuant to the Designated Event Offer, (2) deposit with the Trustee or a Paying
Agent an amount equal to the Designated Event Payment in respect of all Notes or
portions thereof so tendered and (3) deliver or cause to be delivered to the
Trustee the Notes so accepted together with an Officers" Certificate identifying
the Notes or portions thereof tendered to the Company. The Trustee or a Paying
Agent shall promptly mail to each holder of Notes so accepted payment in an
amount equal to the purchase price for
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such Notes, and the Trustee shall promptly authenticate and mail to each holder
a new certificate representing a Note equal in principal amount to any
unpurchased portion of the Notes surrendered, if any; provided that each such
new certificate representing a Note shall be in a principal amount of $1,000 or
an integral multiple thereof. The Company will publicly announce the results of
the Designated Event Offer on or as soon as practicable after the Designated
Event Payment Date.
Except as described above with respect to a Designated Event, the
Indenture does not contain any other provisions that permit the holders of the
Notes to require that the Company repurchase or redeem the Notes in the event of
a takeover, recapitalization or similar restructuring.
The Designated Event purchase feature of the Notes may in certain
circumstances make more difficult or discourage a takeover of the Company, and,
thus, the removal of incumbent management. The Designated Event purchase
feature, however, is not the result of management's knowledge of any specific
effort to accumulate the Company's stock or to obtain control of the Company by
means of a merger, tender offer, solicitation or otherwise, or part of a plan by
management to adopt a series of anti-takeover provisions. Instead, the
Designated Event purchase feature is a result of negotiations between the
Company and the Initial Purchasers. Management has no current intention to
engage in a transaction involving a Designated Event, although it is possible
that the Company could decide to do so in the future. Subject to the limitations
on mergers, consolidations and sales of assets described herein, the Company
could, in the future, enter into certain transactions, including acquisitions,
refinancings or other recapitalizations, that would not constitute a Designated
Event under the Indenture, but that could increase the amount of indebtedness
(including Senior Debt) outstanding at such time or otherwise affect the
Company's capital structure or credit ratings. The payment of a Designated Event
Payment is subordinated to the prior payment of Senior Debt as described under
"--Subordination of Notes" below.
The Company's ability to repurchase Notes upon the occurrence of a
Designated Event is subject to limitations. If a Designated Event were to occur,
there can be no assurance that the Company would have sufficient financial
resources, or would be able to arrange financing, to pay the repurchase price
for all Notes tendered by holders thereof. In addition, the terms of certain of
the Company's existing debt
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<PAGE>
agreements and lease facilities prohibit the Company from purchasing any Notes
under certain circumstances and also identify certain events that would
constitute a Change in Control, as well as certain other events with respect to
the Company or certain of its subsidiaries, which would constitute an event of
default under such debt agreements and lease agreements. Any future credit
agreements or other agreements relating to Indebtedness of the Company
(including Senior Debt) may contain similar prohibitions or restrictions on the
Company's ability to effect a Designated Event Payment. In the event a
Designated Event occurs at a time when such prohibitions or restrictions are in
effect, the Company could seek the consent of its lenders to the purchase of
Notes or could attempt to refinance the borrowings that contain such
prohibition. If the Company does not obtain such a consent or repay such
borrowings, the Company will be effectively prohibited from purchasing Notes. In
such case, the Company's failure to purchase tendered Notes would constitute an
Event of Default under the Indenture whether or not such repurchase is permitted
by the subordination provisions of the Indenture. Any such default may, in turn,
cause a default under Senior Debt of the Company. As a result, in each case, any
repurchase of the Notes would, absent a waiver, be prohibited under the
subordination provisions of the Indenture until the Senior Debt is paid in full.
See "--Subordination of Notes" below and "Risk Factors--Subordination of Notes;
Holding Company Structure. "
A "Designated Event" will be deemed to have occurred upon a Change
of Control or Termination of Trading.
A "Change of Control" will be deemed to have occurred when: (i) any
"person" or "group" (as such terms are used in Section 13(d) and 14(d) of the
Exchange Act) is or becomes the "beneficial owner" (as defined in Rules 13d-3
and 13d-5 under the Exchange Act) of shares representing more than 50% of the
combined voting power of the then outstanding securities entitled to vote
generally in elections of directors of the Company ("Voting Stock"), (ii) the
Company consolidates with or merges into any other corporation, or any other
corporation merges into the Company, and, in the case of any such transaction,
the outstanding Common Stock of the Company is reclassified into or exchanged
for any other property or security, unless the stockholders of the Company
immediately before such transaction own, directly or indirectly immediately
following such transaction, at least a majority of the combined voting power of
the outstanding voting securities of the corporation resulting from such
transaction in
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substantially the same proportion as their ownership of the Voting Stock
immediately before such transaction, (iii) the Company conveys, transfers or
leases all or substantially all of its assets (other than to one or more
wholly-owned subsidiaries of the Company) or (iv) any time the Continuing
Directors do not constitute a majority of the Board of Directors of the Company
(or, if applicable, a successor corporation to the Company).
The definition of Change of Control includes a phrase relating to
the lease, transfer or conveyance of "all or substantially all" of the assets of
the Company. Although there is a developing body of case law interpreting the
phrase "substantially all," there is no precise established definition of the
phrase under applicable law. Accordingly, the ability of a holder of Notes to
require the Company to repurchase such Notes as a result of a lease, transfer or
conveyance of less than all of the assets of the Company to another person or
group may be uncertain.
"Continuing Directors" means, as of any date of determination, any
member of the Board of Directors of the Company who (i) was a member of such
Board of Directors on the date of the Indenture or (ii) was nominated for
election or elected to such Board of Directors with the approval of a majority
of the Continuing Directors who were members of such Board at the time of such
nomination or election.
A "Termination of Trading" will be deemed to have occurred if the
Common Stock (or other common stock into which the Notes are then convertible)
is neither listed for trading on a United States national securities exchange
nor approved for trading on an established automated over-the-counter trading
market in the United States.
SELECTION AND NOTICE
If less than all of Notes are to be redeemed at any time, selection
of Notes for redemption will be made by the Trustee in compliance with the
requirements of the principal national securities exchange, if any, on which the
notes are listed, or, if the Notes are not so listed, on a pro rata basis, by
lot or by such method as the Trustee shall deem fair and appropriate, provided
that no Notes of $1,000 or less shall be redeemed in part. Notice of redemption
shall be mailed by first class mail at least 30 but not more than 60 days before
the redemption date to each holder of Notes to be redeemed at its registered
address. If any Note is to be redeemed in part only, the notice of redemption
that relates to such Note shall state the portion of
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the principal amount thereof to be redeemed. A new Note in principal amount
equal to the unredeemed portion thereof will be issued in the name of the holder
thereof upon cancellation of the original Note. On and after the redemption
date, interest ceases to accrue on Notes or portions thereof called for
redemption.
REGISTRATION RIGHTS
The Company and the Initial Purchasers have entered into a
Registration Agreement, pursuant to which the Company filed with the Commission
on November 7, 1997, a registration statement on Form S-3 (the "Shelf
Registration Statement"), of which this Prospectus is a part, to cover resales
of Transfer Restricted Securities (as defined below) by the holders thereof who
satisfy certain conditions relating to the provision of information in
connection with the Shelf Registration Statement. Notwithstanding the foregoing,
the Company will be permitted to prohibit offers and sales of Transfer
Restricted Securities pursuant to the Shelf Registration Statement under certain
circumstances and subject to certain conditions (any period during which offers
and sales are prohibited being referred to as a "Suspension Period"). "Transfer
Restricted Securities" means each Note and each Share until the date on which
such Note or Share has been effectively registered under the Securities Act and
disposed of in accordance with the Shelf Registration Statement, the date on
which such Note or Share is distributed to the public pursuant to Rule 144 under
the Securities Act or the date on which such Note or Share may be sold or
transferred pursuant to Rule 144(k) (or any similar provision then in force).
Holders of the Transfer Restricted Securities not already included
under "SELLING HOLDERS" below will be required to deliver information to be used
in connection with, and to be named as Selling Holders in, the Shelf
Registration Statement and to provide any comments they may wish to make on the
Shelf Registration Statement within the time periods set forth in the
Registration Rights Agreement in order to have their Transfer Restricted
Securities included in the Shelf Registration Statement. The Transfer Restricted
Securities of any holder who elects not to include such securities in the Shelf
Registration Statement could be deemed to be less liquid than if such securities
were included in the Shelf Registration Statement. In addition, there can be no
assurance that the Company will be able to maintain an effective and current
registration statement as required. The absence of such a registration statement
may limit the holder's ability to sell such Transfer Restricted Securities or
adversely affect the price at which such Transfer Restricted Securities can be
sold.
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The Company will cause the Shelf Registration Statement to be
continuously effective under the Securities Act until the earliest of (a) the
second anniversary of September 9, 1997, (b) the date on which the Notes or the
Shares may be sold by non-affiliates of the Company pursuant to paragraph (k) of
Rule 144 (or any successor provision) promulgated by the Commission under the
Securities Act and (c) the date as of which all the Notes or Shares have been
sold pursuant to Shelf Registration Statement.
If the Company fails to keep the Shelf Registration Statement
continuously effective for the period specified above, then at such time as the
Shelf Registration Statement is no longer effective and on each date thereafter
that is the successive 30th day subsequent to such time and until the earliest
of (i) the date that the Shelf Registration Statement is again deemed effective,
(ii) the date that is the second anniversary of September 9, 1997 and (iii) the
date as of which the Notes and/or the Common Stock issuable upon conversion
thereof are sold pursuant to the Shelf Registration Statement, the per annum
interest rate on the Notes will increase by an additional 25 basis points;
provided, however, that the interest rate will not increase by more than 50
basis points pursuant to this sentence. The Company will be permitted to suspend
the use of this Prospectus which is a part of the Shelf Registration Statement
for a period not to exceed 30 days in any three-month period or for three
periods not to exceed an aggregate of 90 days in any twelve-month period under
certain circumstances relating to pending corporate developments, public filings
with the Commission and similar events.
The Company will provide or cause to be provided to each holder of
the Notes, or the Common Stock issuable upon conversion of the Notes, copies of
this Prospectus, which is a part of such Shelf Registration Statement, and take
certain other actions as are required to permit unrestricted resales of the
Notes or the Common Stock issuable upon conversion of the Notes. A holder of
Notes or the Shares that sells such Securities pursuant to the Shelf
Registration Statement will be required to be named as a selling security holder
in the related prospectus (or any supplement thereto) and to deliver a
prospectus to purchasers, will be subject to certain of the civil liability
provisions under the Securities Act in connection with such sales and will be
bound by the provisions of the Registration Agreement that are applicable to
such holder (including certain indemnification and contribution rights or
obligations).
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The foregoing summary of certain provisions of the Registration
Agreement does not purport to be complete and is subject to, and is qualified in
its entirety by reference to, the provisions of the Registration Agreement.
Copies of the Registration Agreement are available from the Company.
CONVERSION
The holder of any Note has the right, exercisable at any time after
90 days following the date of original issuance thereof and prior to the close
of business on the Business Day immediately preceding the maturity date of the
Notes, to convert the principal amount thereof (or any portion thereof that is
an integral multiple of $1,000) into shares of Common Stock at the conversion
price set forth on the cover page of this Offering Memorandum, subject to
adjustment as described below (the "Conversion Price"), except that if a Note is
called for redemption, the conversion right will terminate at the close of
business on the Business Day immediately preceding the date fixed for
redemption. Except as described below, no adjustment will be made on conversion
of any Notes for interest accrued thereon or for dividends on any Common Stock
issued. If Notes not called for redemption are converted after a record date for
the payment of interest and prior to the next succeeding Interest Payment Date,
such Notes must be accompanied by funds equal to the interest payable on such
succeeding Interest Payment Date on the principal amount so converted. No
fractional shares will be issued upon conversion but a cash adjustment will be
made for any fractional interest.
Beneficial owners of interests in a Note may exercise their right
of conversion by delivering to DTC the appropriate instruction form for
conversion pursuant to DTC's conversion program and, in the case of conversions
through Euroclear or Gedel Bank, in accordance with Euroclear's or Cedel Bank's
normal operating procedures when application has been made to make the
underlying Common Stock eligible for trading on Cedel Bank or Euroclear. To
convert a Note held in certificated form into shares of Common Stock, a holder
must (i) complete and manually sign the conversion notice on the back of the
Note (or complete and manually sign a facsimile thereof) and deliver such notice
to the Trustee in New York, New York, (ii) surrender the Note to the Trustee in
New York, New York, as the case may be, (iii) if required, furnish appropriate
endorsements and transfer documents, (iv) if required, pay all transfer or
similar taxes, and (v) if required, pay funds equal to interest payable on the
next interest
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payment date. Pursuant to the Indenture, the date on which all of the foregoing
requirements have been satisfied is the date of surrender for conversion. Such
notice of conversion can be obtained from the Trustee at its corporate trust
office or the office of the Conversion Agent. As promptly as practicable on or
after the conversion date, the Company will issue and deliver to the Trustee a
certificate or certificates for the number of full shares of Common Stock
issuable upon conversion, together with payment in lieu of any fraction of a
share in an amount determined as set forth below. Such certificate will be sent
by the Trustee to the Conversion Agent for delivery to the holder. Such Common
Stock issuable upon conversion of the Notes will be fully paid and
nonassessable. Any Note surrendered for conversion during the period from the
close of business on any Regular Record Date to the opening of business on the
next succeeding Interest Payment Date (except Notes called for redemption on a
redemption date or to be repurchased on a Designated Event Payment Date during
such period) must be accompanied by payment of an amount equal to the interest
payable on such Interest Payment Date on the principal amount of Notes being
surrendered for conversion. In the case of any Note which has been converted
after any Regular Record Date, but on or before the next Interest Payment Date,
interest on such Note shall be payable on such Interest Payment Date
notwithstanding such conversion. Such interest shall be paid to the holder of
such Note on such Regular Record Date. As a result, a holder that surrenders
Notes for conversion on a date that is not an Interest Payment Date will not
receive any interest for the period from the Interest Payment Date next
preceding the date of conversion to the date of conversion or for payment of
interest on Notes called are surrendered after a notice of redemption (except
for the payment of interest on Notes called for redemption on a redemption date
or to be repurchased on a Designated Event Payment Date between a Regular Record
Date and the Interest Payment Date to which it relates.) No other payment or
adjustment for interest, or for any dividends in respect of Common Stock, will
be made upon conversion. Holders of Common Stock issued upon conversion will not
be entitled to receive any dividends payable to holders of Common Stock as of
any record time before the close of business on the conversion date.
The Conversion Price is subject to adjustment upon the occurrence
of certain events, including: (i) the issuance of shares of Common Stock as a
dividend or distribution on the Common Stock; (ii) the subdivision or
combination of the outstanding Common Stock, (iii) the issuance to substantially
all holders of Common Stock of rights or warrants to subscribe for or purchase
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Common Stock (or securities convertible into Common Stock) at a price per share
less than the then Current Market Price per share, as defined; (iv) the
distribution of shares of capital stock of the Company (other than Common
Stock), evidences of indebtedness or other assets (excluding dividends in cash,
except as described in clause (v) below) to all holders of Common Stock; (v) the
distribution, by dividend or otherwise of cash to all holders of Common Stock in
an aggregate amount that, together with the aggregate of any other distributions
of cash that did not trigger a Conversion Price adjustment to all holders of its
Common Stock within the 12 months preceding the date fixed for determining the
stockholders entitled to such distribution and all Excess Payments in respect of
each tender offer or other negotiated transaction by the Company or any of its
Subsidiaries for Common Stock concluded within the preceding 12 months not
triggering a Conversion Price adjustment, exceeds 15% of the product of the
Current Market Price per share (determined as set forth below) on the date fixed
for the determination of stockholders entitled to receive such distribution
times the number of shares of Common Stock outstanding on such date; (vi)
payment of an Excess Payment in respect of a tender offer or other negotiated
transaction by the Company or any of its Subsidiaries for Common Stock, if the
aggregate amount of such Excess Payment, together with the aggregate amount of
cash distributions made with the preceding 12 months not triggering a Conversion
Price adjustment and all Excess Payments in respect of each tender offer or
other negotiated transaction by the Company or any of its Subsidiaries for
Common Stock concluded within the preceding 12 months not triggering a
Conversion Price adjustment, exceeds 15% of the product of the Current Market
Price per share (determined as set forth below) on the expiration of such tender
offer or the date of payment of such negotiated transaction consideration times
the number of shares of Common Stock outstanding on such date; and (vii) the
distribution to substantially all holders of Common Stock of rights or warrants
to subscribe for securities (other than those securities referred to in clause
(iii) above). In the event of a distribution to substantially all holders of
Common Stock of rights to subscribe for additional shares of the Company's
capital stock (other than those securities referred to in clause (iii) above),
the Company may, instead of making any adjustment in the Conversion Price, make
proper provision so that each holder of a Note who converts such Note after the
record date for such distribution and prior to the expiration or redemption of
such rights shall be entitled to receive upon such conversion, in addition to
shares of Common Stock, an appropriate number of such rights. No
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<PAGE>
adjustment of the Conversion Price will be made until cumulative adjustments
amount to one percent or more of the Conversion Price as last adjusted.
If the Company reclassifies or changes its outstanding Common
Stock, or consolidates with or merges into any person or transfers or leases all
or substantially all its assets, or is a party to a merger that reclassifies or
changes its outstanding Common Stock, the Notes will become convertible into the
kind and amount of securities, cash or other assets which the holders of the
Notes would have owned immediately after the transaction if the holders had
converted the Notes immediately before the effective date of the transaction.
The Indenture also provides that if rights, warrants or options
expire unexercised the Conversion Price shall be readjusted to take into account
the actual number of such warrants, rights or options which were exercised.
In the Indenture, the "Current Market Price" per share of Common
Stock on any date shall be deemed to be the average of the Daily Market Prices
for the shorter of (i) 30 consecutive Business Days ending on the last full
trading day on the exchange or market referred to in determining such Daily
Market Prices prior to the time of determination (as defined in the Indenture)
or (ii) the period commencing on the date next succeeding the first public
announcement of the issuance of such rights or warrants or such distribution
through such last full trading day prior to the time of determination.
"Excess Payment" means the excess of (A) the aggregate of the cash
and fair market value of other consideration paid by the Company or any of its
Subsidiaries with respect to the shares acquired in the tender offer or other
negotiated transaction over (B) the Daily Market Price on the Trading Day
immediately following the completion of the tender offer or other negotiated
transaction multiplied by the number of acquired shares.
The Company from time to time may to the extent permitted by law
reduce the Conversion Price by any amount for any period of at least 20 days
(each such reduction, an "Induced Conversion Adjustment"), in which case the
Company shall give at least 15 days' notice of such reduction, if the Board of
Directors has made a determination that such reduction would be in the best
interests of the Company, which determination shall be conclusive. The Company
may, at its option, make such
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reductions in the Conversion Price, in addition to those set forth above, as the
Board of Directors deems advisable to avoid or diminish any income tax to
holders of Common Stock resulting from any dividend or distribution of stock (or
rights to acquire stock) or from any event treated as such for income tax
purposes. See "CERTAIN U.S. FEDERAL INCOME TAX CONSIDERATIONS."
SUBORDINATION OF NOTES
The Notes are subordinate in right of payment to all existing and
future Senior Debt. The Indenture does not restrict the amount of Senior Debt or
other Indebtedness of the Company or any Subsidiary of the Company. In addition,
the Notes are structurally subordinated to all indebtedness and other
liabilities of the Company's subsidiaries.
The payment of the principal of, interest on or any other amounts
due on the Notes is subordinated in right of payment to the prior payment in
full of all Senior Debt of the Company. No payment on account of principal of,
redemption of, interest on or any other amounts due on the Notes, including,
without limitation, any payments on the Designated Event Offer, and no
redemption, purchase or other acquisition of the Notes may be made unless (i)
full payment of amounts then due on all Senior Debt have been made or duly
provided for pursuant to the terms of the instrument governing such Senior Debt,
and (ii) at the time for, or immediately after giving effect to, any such
payment, redemption, purchase or other acquisition, there shall not exist under
any Senior Debt or any agreement pursuant to which any Senior Debt has been
issued, any default which shall not have been cured or waived and which shall
have resulted in the full amount of such Senior Debt being declared due and
payable. In addition, the Indenture provides that if any of the holders of any
issue of Designated Senior Debt notify (the "Payment Blockage Notice") the
Company and the Trustee that a default has occurred giving the holders of such
Designated Senior Debt the right to accelerate the maturity thereof, no payment
on account of principal, redemption, interest or any other amounts due on the
Notes and no purchase, redemption or other acquisition of the Notes will be made
for the period (the "Payment Blockage Period") commencing on the date the
Payment Blockage Notice is received and ending on the earlier of (A) the date on
which such event of default shall have been cured or waived or (B) 180 days from
the date the Payment Blockage Notice is received. Notwithstanding the foregoing
(but subject to the provisions contained in the first sentence of this Section),
unless the holders of such Designated Senior Debt or the Representative of
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such holders shall have accelerated the maturity of such Designated Senior Debt,
the Company may resume payments on the Securities after the end of such Payment
Blockage Period. Not more than one Payment Blockage Notice may be given in any
consecutive 365-day period, irrespective of the number of defaults with respect
to Senior Debt during such period.
Upon any distribution of its assets in connection with any
dissolution, winding-up, liquidation or reorganization of the Company or
acceleration of the principal amount due on the Notes because of an Event of
Default, all Senior Debt must be paid in full before the holders of the Notes
are entitled to any payments whatsoever.
If payment of the Notes is accelerated because of an Event of
Default, the Company or the Trustee shall promptly notify the holders of Senior
Debt or the trustee(s) for such Senior Debt of the acceleration. The Company may
not pay the Notes until five business days after such holders or trustee(s) of
Senior Debt receive notice of such acceleration and, thereafter, may pay the
Notes only if the subordination provisions of the Indenture otherwise permit
payment at that time. As a result of these subordination provisions, in the
event of the Company's insolvency, holders of the Notes may recover ratably less
than general creditors of the Company.
MERGER, CONSOLIDATION OR SALE OF ASSETS
The Indenture provides that the Company may not consolidate or
merge with or into any Person (whether or not the Company is the surviving
corporation), or sell, assign, transfer, lease, convey or otherwise dispose of
all or substantially all of its properties or assets unless (i) (a) the Company
is the surviving or continuing corporation or (b) the Person formed by or
surviving any such consolidation or merger (if other than the Company) or the
Person which acquires by sale, assignment, transfer, lease, conveyance or other
disposition the properties and assets of the Company is a corporation organized
or existing under the laws of the United States, any state thereof or the
District of Columbia; (ii) the entity or Person formed by or surviving any such
consolidation or merger (if other than the Company) or the Person to which such
sale, assignment, transfer, lease, conveyance or other disposition will have
been made assumes all the Obligations of the Company, pursuant to a supplemental
indenture in a form reasonably satisfactory to the Trustee, under the Notes and
the Indenture; (iii) such sale, assignment, transfer, lease, conveyance or other
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disposition of all or substantially all of the Company's properties or assets
shall be as an entirety or virtually as an entirety to one Person and such
Person shall have assumed all the obligations of the Company, pursuant to a
supplemental indenture in a form reasonably satisfactory to the Trustee, under
the Notes and the Indenture; (iv) immediately after such transaction no Default
or Event of Default exists; and (v) the Company or such Person shall have
delivered to the Trustee an Officers' Certificate and an Opinion of Counsel,
each stating that such transaction and the supplemental indenture comply with
the Indenture and that all conditions precedent in the Indenture relating to
such transaction have been satisfied.
REPORTS
Whether or not required by the rules and regulations of the
Commission, so long as any Notes are outstanding, the Company will file with the
Commission and furnish to the holders of Notes all quarterly and annual
financial information required to be contained in a filing with the Commission
on Forms 10-Q and 10-K, including a "Management's Discussion and Analysis of
Financial Condition and Results of Operations" and, with respect to the annual
consolidated financial statements only, a report thereon by the Company's
independent auditors.
EVENTS OF DEFAULT AND REMEDIES
The Indenture provides that each of the following constitutes an
Event of Default: (i) default for 30 days in the payment when due of interest on
the Notes; (ii) default in payment when due of principal on the Notes; (iii)
failure by the Company to comply with the provisions described under "Repurchase
at the Option of Holders"; (iv) failure by the Company for 60 days after the
receipt of written notice to comply with certain other covenants and agreements
contained in the Indenture or the Notes; (v) default under any mortgage,
indenture or instrument under which there may be issued or by which there may be
secured or evidenced any Indebtedness for money borrowed by the Company or any
of its Material Subsidiaries (or the payment of which is guaranteed by the
Company or any of its Material Subsidiaries), which default (a) Is caused by a
failure to pay when due principal or interest on such Indebtedness within the
grace period provided in such Indebtedness (which failure continues beyond any
applicable grace period) (a "Payment Default") or (b) results in the
acceleration of such Indebtedness prior to its express maturity without such
acceleration being rescinded or annulled and, in each case, the principal
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amount of any such Indebtedness, together with the principal amount of any other
such Indebtedness under which there has been a Payment Default of the maturity
of which has been so accelerated, aggregates $10 million or more; (vi) failure
by the Company or any Material Subsidiary of the Company to pay final
non-appealable judgments (other than any judgment as to which a reputable
insurance company has accepted full liability) aggregating in excess of $5
million, which judgments are not stayed within 60 days after their entry; and
(vii) certain events of bankruptcy or insolvency with respect to the Company or
any of its Material Subsidiaries.
If any Event of Default occurs and is continuing, the Trustee or
the holders of at least 25% in principal amount of the then outstanding Notes
may declare all the Notes to be due and payable immediately. Notwithstanding the
foregoing, in the case of an Event of Default arising from certain events of
bankruptcy or insolvency, with respect to the Company or any Material
Subsidiary, all outstanding Notes will become due and payable without further
action or notice. Holders of the Notes may not enforce the Indenture or the
Notes except as provided in the Indenture. Subject to certain limitations,
holders of a majority in principal amount of the then outstanding Notes may
direct the Trustee in its exercise of any trust or power. The Trustee may
withhold from holders of the Notes notice of any continuing Default or Event of
Default (except a Default or Event of Default relating to the payment of
principal or interest) if it determines that withholding notice is in their
interest.
By notice to the Trustee, the holders of a majority in aggregate
principal amount of the Notes then outstanding may, on behalf of the holders of
all of the Notes, waive any existing Default or Event of Default and its
consequences under the Indenture except a continuing Default or Event of Default
in the payment of the Designated Event Payment or interest on, or the principal
of, the Notes.
The Company is required to deliver to the Trustee annually a
statement regarding compliance with the Indenture, and the Company is required,
upon becoming aware of any Default or Event of Default, to deliver to the
Trustee a statement specifying such Default or Event of Default.
TRANSFER AND EXCHANGE
The Company has initially appointed the Trustee as Registrar in New
York, New York. The Company reserves the right to vary or terminate the
appointment
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of the Registrar or to appoint additional or other Registrars or to approve any
change in the office through which the Registrar acts.
A holder may transfer or exchange Notes in accordance with the
Indenture. The Registrar may require a holder, among other things, to furnish
appropriate endorsements and transfer documents and the Company may require a
holder to pay any taxes and fees required by law or permitted by the Indenture.
The Company is not required to exchange or register the transfer of any Note
selected for redemption. Also, the Company is not required to exchange or
register the transfer of any Note for a period of 15 days before a selection of
Notes to be redeemed.
The registered holder of a Note will be treated as the owner of it
for all purposes.
AMENDMENT, SUPPLEMENT AND WAIVER
Except as provided in the next succeeding paragraph, the Indenture
or the Notes may be amended or supplemented with the consent of the holders of
at least a majority in principal amount of the then outstanding Notes (including
consents obtained in connection with a tender offer or exchange offer for
Notes), and any existing default or compliance with any provision of the
Indenture or the Notes may be waived with the consent of the holders of a
majority in principal amount of the then outstanding Notes (including consents
obtained in connection with a tender offer or exchange offer for Notes).
Without the consent of each holder affected, an amendment or waiver
may not (with respect to any Notes held by a nonconsenting holder of Notes) (i)
reduce the amount of Notes whose holders must consent to an amendment,
supplement or waiver, (ii) reduce the principal of or change the fixed maturity
of any Note or alter the provisions with respect to the redemption of the Notes,
(iii) reduce the rate of or change the time for payment of interest on any Note,
(iv) waive a default in the payment of principal of or interest on any Notes
(except a rescission of acceleration of the Notes by the holders of at least a
majority in aggregate principal amount of the Notes and a waiver of the payment
default that resulted from such acceleration), (v) make any Note payable in
money other than that stated in the Notes, (vi) make any change in the
provisions of the Indenture relating to waivers of past Defaults or the rights
of holders of Notes to receive payments of principal of or interest on the
Notes, (vii) waive a redemption payment with respect to any Note,
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(viii) impair the right to convert the Notes into Common Stock, (ix) modify the
conversion or subordination provisions of the Indenture in a manner adverse to
the holders of the Notes or (x) make any change in the foregoing amendment and
waiver provisions.
Notwithstanding the foregoing, without the consent of any holder of
Notes, the Company and the Trustee may amend or supplement the Indenture or the
Notes to cure any ambiguity, defect or inconsistency, to provide for
uncertificated Notes in addition to or in place of certificated Notes, to
provide for the assumption of the Company's obligations to holders of the Notes
in the case of a merger or consolidation, to make any change that would provide
any additional rights or benefits to the holders of the Notes or that does not
adversely affect the legal rights under the Indenture of any such holder, or to
comply with requirements of the Commission in order to qualify, or maintain the
qualification of, the Indenture under the Trust Indenture Act.
NOTICES
Notice to holders of the Notes will be given by mail to the
addresses of such holders as they appear in the Register (as defined). Such
notices will be deemed to have been given on the date of such mailing or on the
date of the first such publication, as the case may be.
GOVERNING LAW
The Indenture, the Notes and the Registration Agreement are
governed by and construed in accordance with the laws of the State of New York,
United States of America.
CONCERNING THE TRUSTEE
The Indenture contains certain limitations on the rights of the
Trustee, should it become a creditor of the Company, to obtain payment of claims
in certain cases, or to realize on certain property received in respect of any
such claim as security or otherwise. The Trustee will be permitted to engage in
other transactions; however, if it acquires any conflicting interest it must
eliminate such conflict within 90 days, apply to the Commission for permission
to continue or resign.
The holders of a majority in principal amount of the then
outstanding Notes will have the right to direct the time, method and place of
conducting any proceeding for exercising any remedy available to the Trustee,
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subject to certain exceptions. The Indenture provides that, in case an Event of
Default shall occur (which shall not be cured), the Trustee will be required, in
the exercise of its power, to use the degree of care of a prudent man in the
conduct of his own affairs. Subject to such provisions, the Trustee will be
under no obligation to exercise any of its rights or powers under the Indenture
at the request of any holder of Notes, unless such holder shall have offered to
the Trustee security and indemnity satisfactory to it against any loss,
liability or expense.
CERTAIN DEFINITIONS
Set forth below are certain defined terms used in the Indenture.
Reference is made to the Indenture for a full disclosure of all such terms, as
well as any other capitalized terms used herein for which no definition is
provided.
"Day" means any day that is not a Legal Holiday.
"Capital Stock" means any and all shares, interests,
participations, rights or other equivalents (however designated) of equity
interests in any entity, including, without limitation, corporate stock and
partnership interests.
"Default" means any event that is or, with the passage of time or
the giving of notice or both, would be an Event of Default.
"Designated Senior Debt" means (i) any Senior Debt which, as of the
date of the Indenture, has an aggregate principal amount outstanding of at least
$15 million and (ii) any Senior Debt which, at the date of determination, has an
aggregate principal amount outstanding of, or commitments to lend up to, at
least $15 million and is specifically designated by the Company in the
instrument evidencing or governing such Senior Debt as "Designated Senior Debtor
purposes of the Indenture.
"GAAP" means generally accepted accounting principles set forth in
the opinions and pronouncements of the Accounting Principles Board of the
American Institute of Certified Public Accountants and statements and
pronouncements of the Financial Accounting Standards Board or in such other
statements by such other entity as may be approved by a significant segment of
the accounting profession of the United States, which are in effect from time to
time.
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"Guarantee" means a guarantee (other than by endorsement of
negotiable instruments for collection in the ordinary course of business),
direct or indirect, in any manner (including, without limitation, letters of
credit and reimbursement agreements in respect thereof), of all or any part of
any Indebtedness.
"Indebtedness" means, with respect to any person, all obligations,
whether or not contingent, of such person (i) (a) for borrowed money (including,
but not limited to, any indebtedness secured by a security interest, mortgage or
other lien on the assets of such person which is (1) given to secure all or part
of the purchase price of property subject thereto, whether given to the vendor
of such property or to another, or (2) existing on property at the time of
acquisition thereof), (b) evidenced by a note, debenture, bond or other written
instrument, (c) under a lease required to be capitalized on the balance sheet of
the lessee under GAAP or under any lease or related document (including a
purchase agreement) which provides that such person is contractually obligated
to purchase or to cause a third party to purchase such leased property, (d) in
respect of letters of credit, bank guarantees or bankers' acceptances (including
reimbursement obligations with respect to any of the foregoing), (e) with
respect to Indebtedness secured by a mortgage, pledge, lien, encumbrance, charge
or adverse claim affecting title or resulting in an encumbrance to which the
property, or assets of such person are subject, whether or not the obligation
secured thereby shall have been assumed or guaranteed by or shall otherwise be
such person's legal liability, (f) in respect of the balance of deferred and
unpaid purchase price of any property or assets and (g) under interest rate or
currency swap agreements. cap, floor and collar agreements, spot and forward
contracts and similar agreements and arrangements; (ii) with respect to any
obligation of others of the type described in the preceding clause (i) or under
clause (iii) below assumed by or guaranteed in any manner by such person or in
effect guaranteed by such person through an agreement to purchase (including,
without limitation, "take or pay" and similar arrangements), contingent or
otherwise (and the obligations of such person under any such assumptions,
guarantees or other such arrangements); and (iii) any and all deferrals,
renewals, extensions, refinancings and refundings of, or amendments,
modifications or supplements to, any of the foregoing.
"Legal Holiday" means a Saturday, a Sunday or a day on which
banking institutions in the State of New York are not required to be open. If a
payment date is a Legal Holiday at a place of payment, payment may be
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made at that place on the next succeeding day that is not a Legal Holiday, and
no interest shall accrue for the intervening period. If any other operative date
for purposes of the Indenture shall occur on a Legal Holiday then for all
purposes the next succeeding day that is not a Legal Holiday shall be such
operative date.
"Material Subsidiary" means any Subsidiary of the Company which at
the date of determination is a "significant subsidiary" as defined in Rule
1-02(w) of Regulation S-X under the Securities Act and the Exchange Act (as such
Regulation is in effect on the date hereof).
"Obligations" means any principal, interest, penalties, fees,
indemnifications, reimbursements, damages, and other liabilities payable under
the documentation governing any Indebtedness.
"Person" means any individual, corporation, partnership, joint
venture, association, joint stock company, trust, unincorporated organization,
limited liability company or government or any agency or political subdivision
thereof.
"Representative" means the trustee, agent or representative (if
any) for an issue of Senior Debt.
"Senior Debt" means the principal of, interest on and other amounts
due on Indebtedness of the Company, whether outstanding on the date of the
Indenture or thereafter created, incurred, assumed or guaranteed by the Company;
unless, in the instrument creating or evidencing such Indebtedness or pursuant
to which such Indebtedness is outstanding, it is expressly provided that such
Indebtedness is not senior in right of payment to the Notes. Senior Debt
includes, with respect to the obligations described above, interest accruing,
pursuant to the terms of such Senior Debt, on or after the filing of any
petition in bankruptcy or for reorganization relating to the Company, whether or
not post-filing interest is allowed in such proceeding, at the rate specified in
the instrument governing the relevant obligation. Notwithstanding anything to
the contrary in the foregoing, Senior Debt shall not include: (a) Indebtedness
of or amounts owed by the Company for compensation to employees, or for goods,
services or materials purchased in the ordinary course of business; (b)
Indebtedness of the Company to a Subsidiary of the Company other than such
Indebtedness that would be subject to a prior claim by the lenders under the
Company's existing credit facilities; or (c) any liability for Federal, state,
local or other taxes owed or owing by the Company.
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"Subsidiary" of a person means any corporation, association or
other business entity of which more than 50% of the total voting power of shares
of Capital Stock entitled (without regard to the occurrence of any contingency)
to vote in the election of directors, managers or trustees thereof is at the
time owned or controlled, directly or indirectly, by that person or one or more
of the other Subsidiaries of that person or a combination thereof.
ABSENCE OF PUBLIC MARKET; TRANSFER RESTRICTIONS
Upon their original issuance, the Notes became eligible for trading
on the PORTAL Market. However, the Notes sold pursuant to this Prospectus will
no longer be eligible for trading on the PORTAL Market. There can be no
assurance that an active trading market for the Notes will develop or as to the
liquidity or sustainability of any such market, the ability of the holders to
sell their Notes or at what price holders of the Notes will be able to sell
their Notes. Future trading prices of the Notes will depend upon many factors
including, among other things, prevailing interest rates, the Company's
operating results, the price of the Common Stock and the market for similar
securities.
BOOK-ENTRY SYSTEM; DELIVERY AND FORM -- GENERAL
The Notes offered hereby will be represented by one or more fully
registered global securities (each a "Public Global Note"). The Public Global
Notes have been deposited with the Trustee as custodian for DTC and registered
in the name of Cede as DTC's nominee. For purposes of this Prospectus, "Public
Global Note" refers to the Public Global Note or Public Global Notes
representing the entire issue of Notes offered hereby. Except in the limited
circumstances described below, the Notes will not be issued in definitive
certificated form. The Public Global Note may be transferred, in whole and not
in part, only to another nominee of DTC.
The Company understands as follows with respect to the rules and
operating procedures of DTC, and with respect to secondary market trading of
Morgan Guaranty Trust Bank of New York, Brussels office, as operator for
Euroclear, and Cedel Bank, which effect transfers of interests in the Public
Global Note.
DTC
DTC is a limited purpose trust company organized under the New York
Banking Law, a "banking organization" within the meaning of the New York Banking
Law, a member
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of the Federal Reserve System, a "clearing corporation" within the meaning of
the New York Uniform Commercial Code and a "clearing agency" registered pursuant
to the provisions of Section 17A of the Exchange Act. DTC was created to hold
securities for its participants ("Participants") and to facilitate the clearance
and settlement of securities transactions, such as transfers and pledges,
between Participants through electronic computerized book-entry changes in the
accounts of its Participants, thereby eliminating the need for physical movement
of certificates. Participants include securities brokers and dealers, banks,
trust companies and clearing corporations and may include certain other
organizations. DTC is owned by a number of Participants and by the New York
Stock Exchange, Inc., the American Stock Exchange, Inc. and the National
Association of Securities Dealers, Inc. Indirect access to the DTC system also
is available to others such as banks, brokers, dealers and trust companies that
clear through or maintain a custodial relationship with a Participant, either
directly or indirectly ("Indirect Participants").
Persons who are not Participants may beneficially own Notes held by
DTC only through Participants or Indirect Participants (including Euroclear and
Cedel Bank). Beneficial ownership of Notes may be reflected (i) for investors
who are Participants, in the records of DTC, (ii) for investors holding through
a Participant, in the records of such Participant, whose aggregate interests on
behalf of all investors holding through such Participant will be reflected in
turn in the records of DTC, or (iii) for investors holding through an Indirect
Participant, in the records of such Indirect Participant, whose aggregate
interests on behalf of all investors holding through such Indirect Participant
will be reflected in turn in the records of a Participant. Accordingly,
transfers of beneficial ownership in a Public Global Note can only be effected
through DTC, a Participant or an Indirect Participant. Investors may also hold
beneficial interests in a Public Global Note directly through Euroclear or Cedel
Bank as an Indirect Participant in DTC, if they are participants in such
systems, or indirectly through organizations that are participants in such
systems. Euroclear and Cedel Bank hold beneficial interests in a Public Global
Note on behalf of their participants through customers' securities accounts in
their respective names on the books of their respective depositories, which in
turn hold such securities in customers' securities accounts in the depositories'
names on the books of DTC. The Chase Manhattan Bank, N.A. ("Chase") initially
will act as depository for Euroclear, and Citibank, N.A. ("Citibank") initially
will act as depository for Cedel Bank.
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Interests in the Public Global Note will be shown on, and transfers
thereof will be effected only through, records maintained by DTC and its
Participants. The Public Global Note will trade in DTC's SDFS System until
maturity, and secondary market trading activity for the Public Global Note will
therefor settle in immediately available funds. The laws of some states require
that certain persons take physical delivery in definitive form of securities.
Consequently, the ability to transfer beneficial interests in the Public Global
Note to such persons may be limited.
So long as Cede, as the nominee of DTC, is the registered owner of
the Public Global Note, Cede for all purposes will be considered the sole holder
of the Notes under the Indenture. Except as provided below, owners of beneficial
interests in the Public Global Note will not be entitled to have Notes
registered in their names, will not receive or be entitled to receive physical
delivery of Notes in definitive form, and will not be considered the holders
thereof under the Indenture. Accordingly, any person owning a beneficial
interest in the Public Global Note must rely on the procedures of DTC and, if
such person is not a Participant in DTC, on the procedures of the Participant
through which such person, directly or indirectly, owns its interest, to
exercise any rights of a holder of Notes.
Because DTC can only act on behalf of Participants, who in turn act
on behalf of Indirect Participants and certain banks, the ability of an owner of
a beneficial interest in Notes to pledge such Notes to persons or entities that
do not participate in the DTC system, or otherwise take actions in respect of
such Notes, may be affected by the lack of a physical certificate for such
Notes.
Payment of principal of and interest on the Notes will be made to
Cede, the nominee for DTC, as the registered owner of the Public Global Note.
Neither the Company nor the Trustee will have any responsibility or liability
for any aspect of the records relating to or payments made on account of
beneficial ownership interests in the Public Global Note or for maintaining,
supervising or reviewing any records relating to such beneficial ownership
interests.
Upon receipt of any payment of principal of or interest on the
Public Global Note, DTC will credit the Participants' accounts with payments in
amounts proportionate to their respective beneficial interests in the principal
amounts of the Public Global Note as shown on the records of DTC. Payments by
Participants
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to owners of beneficial interests in the Public Global Note held through such
Participants will be the responsibility of such Participants, as is now the case
with securities held for the accounts of customers registered in "street name."
Distributions with respect to beneficial interests in the Public Global Note
held through Euroclear or Cedel Bank will be credited to the cash accounts of
Euroclear participants or Cedel Bank participants in accordance with the
relevant system's rules and procedures, to the extent received by its
depository.
DTC will take any action permitted to be taken by a holder of Notes
only at the direction of one or more Participants to whose account with DTC the
Notes are credited and only in respect of such position of the aggregate
principal amount of the Notes as to which such Participant or Participants has
or have given such direction. The Trustee will act upon instructions received
from DTC in respect of the aggregate percentages of interests in the Notes
necessary for the Trustee to take action pursuant to the Indenture.
Although DTC has agreed to the foregoing procedures in order to
facilitate transfers of Notes among its Participants, it is under no obligation
to perform or continue to perform such procedures and such procedures may be
discontinued at any time. Neither the Company nor the Trustee will have any
responsibility for the performance by DTC or its Participants or Indirect
Participants of their respective obligations under the rules and procedures
governing their operations.
If an Event of Default has occurred and is continuing, or if DTC
notifies the Company that it is at any time unwilling or unable to continue as
depositary for any Public Global Note or if at any time DTC ceases to be a
"clearing corporation" registered under the Exchange Act and a successor
depositary is not appointed by the Company within 90 days of such notice, the
Company will issue individual certificated Notes in definitive form in exchange
for such Public Global Note. In addition, the Company may at any time determine
not to have the Notes represented by Public Global Notes. In any such instance,
an owner or a beneficial interest in a Public Global Note will be entitled to
physical delivery of individual certificated Notes in definitive form equal in
principal amount to such beneficial interest in such Public Global Notes and to
have all such certificated Notes registered in its name. Individual certificated
Notes so issued in definitive form will be issued in minimum denominations of
$1,000 and integral multiples thereof and will be issued in registered form
only, without coupons.
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SAME-DAY SETTLEMENT AND PAYMENT
Settlement for the Notes represented by a Public Global Note will
be made in immediately available funds. All payments of principal and interest
will be made by the Company in immediately available funds.
The Notes will trade in DTC's SDFS System until maturity, and
secondary market trading activity in the Notes will therefore be required by DTC
to settle in immediately available funds.
GLOBAL CLEARANCE AND SETTLEMENT
Although DTC, Euroclear and Cedel Bank have agreed to the
procedures provided below in order to facilitate transfers of Notes among
participants of DTC, Euroclear and Cedel Bank, they are under no obligation to
perform or continue to perform such procedures, and such procedures may be
modified or discontinued at any time. Neither the Company nor the Trustee will
have any responsibility for the performance by DTC, Euroclear or Cedel Bank or
their respective participants or indirect participants of their respective
obligations under the rules and procedures governing their operations.
EUROCLEAR AND CEDEL BANK
Euroclear and Cedel Bank each hold securities for participating
organizations and facilitate the clearance and settlement of securities
transactions between their respective participants by electronic book-entry
changes in the accounts of such participants. Euroclear and Cedel Bank provide
to their participants, among other things, services for safekeeping,
administration, clearance and settlement of internationally traded securities
and securities lending and borrowing. Euroclear and Cedel Bank also deal with
domestic securities markets in several countries through established depositary
and custodial relationships. Euroclear and Cedel Bank participants are financial
institutions such as underwriters, securities brokers and dealers, banks, trust
companies and certain other organizations. Indirect access to Euroclear and
Cedel Bank is also available to others such as banks, brokers, dealers and trust
companies that clear through or maintain a custodial relationship with a
Euroclear or Cedel Bank participant, either directly or indirectly.
SECONDARY MARKET TRADING
Because the purchaser determines the place of delivery, it is
important to establish at the time of
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trading any Notes where both the purchaser's and seller's accounts are located
to ensure that settlement can be made on the desired value date.
TRADING BETWEEN DTC PARTICIPANTS
Secondary market trading between DTC Participants (other than
depositories for Euroclear and Cedel Bank, respectively) will be settled using
the procedures applicable to U.S. corporate debt obligations in same-day funds.
TRADING BETWEEN EUROCLEAR AND/OR CEDEL BANK
PARTICIPANTS
Secondary market trading between Euroclear participants and/or
Cedel Bank participants will be settled using the procedures applicable to
conventional Eurobonds in same day funds.
TRADING BETWEEN DTC SELLER AND EUROCLEAR OR
CEDEL BANK PURCHASER
When Notes are to be transferred from the account of a DTC
Participant (other than Chase and Citibank as depositories for Euroclear and
Cedel Bank, respectively) to the account of a Euroclear participant or a Cedel
Bank participant, the purchaser must send instructions to Euroclear or Cedel
Bank through a participant at least one business day prior to settlement.
Euroclear or Cedel Bank, as the case may be, will instruct their respective
depositary to receive the Notes against payment. Payment will include interest
accrued on the Notes from and including the last payment date to and excluding
the settlement date, on the basis of a calendar year consisting of twelve 30-day
calendar months. For transactions settling on the 31st day of the month, payment
will include interest accrued to and excluding the first day of the following
month. Payment will then be made by the relevant depositary of Euroclear or
Cedel Bank to the DTC Participant's account against delivery of the Notes. After
settlement has been completed, the Notes will be credited to the respective
clearing system and by the clearing system, in accordance with its usual
procedures, to the Euroclear participant's or Cedel Bank participants's account.
Credit for the Notes will appear on the next day (European time) and cash debit
will be back-valued to, and the interest on the Notes will accrue from the value
date (which would be the preceding day when settlement occurs in New York). If
settlement is not completed on the intended value date (i.e., the trade fails),
the Euroclear or Cedel Bank cash debit will be valued instead as of the actual
settlement date.
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Euroclear participants and Cedel Bank participants will need to
make available to the respective clearing systems the funds necessary to process
same-day funds settlement. The most direct means of doing so is to pre-position
funds for settlement, either from cash on hand or existing lines of credit, as
they would for any settlement occurring within Euroclear or Cedel Bank. Under
this approach, they may take on credit exposure to Euroclear or Cedel Bank until
the Notes are credited to their accounts one day later.
As an alternative, if Euroclear or Cedel Bank has extended a line
of credit to them, participants can elect not to pre-position funds and allow
that credit line to be drawn upon to finance settlement. Under this procedure,
Euroclear participants or Cedel Bank participants purchasing Notes would incur
overdraft charges for one day, assuming they cleared the overdraft when the
Notes were credited to their accounts. However, interest on the Notes would
accrue from the value date. Therefore, in many cases, the investment income on
Notes earned during that one-day period may reduce or offset the amount of such
overdraft charges, although this result will depend on each participant's
particular cost of funds.
Because the settlement is taking place during New York business
hours, DTC Participants can employ their usual procedures for sending Notes to
the respective depositaries of Euroclear or Cedel Bank, as the case may be, for
the benefit of Euroclear participants or Cedel Bank participants. The sale
proceeds will be available to the DTC seller on the settlement date. Thus, to
the DTC Participant, a cross-market transaction will settle no differently than
a trade between two DTC Participants.
TRADING BETWEEN EUROCLEAR OR CEDEL BANK SELLER AND
DTC PURCHASER
Due to time zone differences in their favor, Euroclear participants
and Cedel Bank participants may employ their customary procedures for
transactions in which Notes are to be transferred by the respective clearing
system, through their respective depositaries to another DTC Participant. The
seller must send instructions to Euroclear or Cedel Bank through a participant
at least one business day prior to settlement. In these cases, Euroclear or
Cedel Bank will instruct their respective depositaries to credit the Notes to
the DTC Participant's account against payment. Payment will include interest
accrued on the
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Notes from and including the last payment date to and excluding the settlement
date on the basis of a calendar year consisting of twelve 30-day calendar
months. For transactions settling on the 31st day of the month, payment will
include interest accrued to and excluding the first day of the following month.
The payment will then be reflected in the account of the Euroclear participant
or Cedel Bank participant the following day, and receipt of the cash proceeds in
the Euroclear or Cedel Bank participant's account will be back-valued to the
value date (which would be the preceding day when settlement occurs in New
York). If the Euroclear participant or Cedel Bank participant has a line of
credit with its respective clearing system and elects to draw on such line of
credit in anticipation of receipt of the sale proceeds in its account, the
back-valuation will offset any overdraft charges incurred over that one-day
period. If settlement is not completed on the intended value date (i.e., the
trade fails), receipt of the cash proceeds in the Euroclear or Cedel Bank
participant's account would instead be valued as of the actual settlement date.
Finally, day traders that use Euroclear or Cedel Bank and that
purchase Notes from DTC Participants for credit to Euroclear participants or
Cedel Bank participants should note that these trades would automatically fail
on the sale side unless affirmative action were taken. At least three techniques
should be readily available to eliminate this potential problem:
1. borrowing through Euroclear or Cedel Bank for one day
(until the purchase side of the day trade is reflected in their
Euroclear account or Cedel Bank account) in accordance with the
clearing system's customary procedures;
2. borrowing the Notes in the United States from a DTC
Participant no later than one day prior to settlement, which would
give the Notes sufficient time to be reflected in the borrower's
Euroclear account or Cedel Bank account in order to settle the sale
side of the trade; or
3. staggering the value dates for the buy and sell sides of
the trade so that the value date for the purchase from the DTC
Participant is at least one day prior to the value date for the
sale to the Euroclear participant or Cedel Bank participant.
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CERTAIN U.S. FEDERAL INCOME TAX CONSEQUENCES
The following general discussion summarizes certain of the material
U.S. federal income tax consequences to a prospective holder of Notes from the
acquisition, ownership, disposition and conversion of the Notes. This discussion
is a summary for general information only and does not consider all aspect of
U.S. federal income tax that may be relevant to the purchase, ownership,
disposition and conversion of the Notes by a prospective investor in light of
that investor's particular circumstances. This discussion also deals only with
Notes held by a Holder as capital assets within the meaning of Section 1221 of
the U.S. Internal Revenue Code of 1986, as amended to the date hereof (the
"Code"). This summary does not address all of the tax consequences that may be
relevant to a holder of Notes, nor does it address the federal income tax
consequences to holders subject to special treatment under the federal income
tax laws, such as broker or dealers in securities of currencies, certain
securities traders, tax-exempt entities, banks, thrifts, insurance companies,
other financial institutions, persons that hold the Notes as a position in a
"straddle" or as part of a "synthetic security," "hedging," "conversion" or
other integrated instrument, persons that have a "functional currency" other
than the U.S. dollar, investors in pass-through entities and certain U.S.
expatriates. Further, this summary does not address (i) the income tax
consequences to shareholders in or partners or beneficiaries of, a holder of the
Notes, (ii) the United States federal alternative minimum tax consequences of
the purchase, ownership disposition or conversion of Notes, or (iii) any state,
local or foreign tax consequences of the purchase, ownership, disposition or
conversion of Notes.
This discussion is based upon the Code, existing and proposed
regulations thereunder, and current administrative rulings and court decisions.
All of the foregoing are subject to change, possibly on a retroactive basis, and
any such change could affect the continuing validity of this discussion.
PERSON CONSIDERING THE PURCHASES OF NOTES SHOULD CONSULT THEIR OWN
TAX ADVISORS CONCERNING THE APPLICATION OF FEDERAL INCOME TAXES LAWS, AS WELL AS
THE LAWS OF ANY STATE, LOCAL, OR FOREIGN TAXING JURISDICTION, TO THEIR
PARTICULAR SITUATIONS.
U.S. HOLDERS
For purposes of this discussion, "U.S. Holder" generally means (i)
a citizen or resident (as defined in
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770 1(b)(1) of the Code) of the United States, (ii) a corporation or partnership
created or organized under the laws of the United States or any political
subdivision thereof, (iii) an estate the income of which is includible in its
gross income for U.S. federal income tax purposes without regard to its source,
or (iv) a trust if a court within the United States is able to exercise primary
supervision over its administration and at least one United States fiduciary has
the authority to control all substantial decisions of the trust. Certain U.S.
federal income consequences relevant to a holder other than a U.S. Holder (a
"Non-U.S. Holder") are discussed separately below.
Stated Interest
Stated interest on a Note will generally be taxable to a U.S.
Holder as ordinary interest income at the time it is paid or accrued in
accordance with such holder's method of accounting for U.S. federal income tax
purposes. This general rule is based, in part, on the determination by the
Company that certain contingencies relating to the amount of interest and the
timing of principal payments on the Notes are "remote" within the meaning of
certain Treasury regulations.
In the event the Company is required to make Additional Interest
Payments, the Notes would be treated as reissued for OID purposes of the
Original Issue Discount ("OID") regulations and, depending on the facts at that
time, the deemed of reissued Notes may be treated as having OID that would be
accrued into a U.S. Holder's income as required by the applicable OID rules in
the Code and Treasury regulation. In the event that a Designated Event occurs
triggering the Holders rights to require repurchase of the Notes at more than
their stated principal amount, there may be additional consequences under the
OID rules.
Bond Premium
If a U.S. Holder purchases a Note at a cost greater than the Note's
principal amount plus the value of the conversion feature, the excess generally
is treated as amortizable bond premium. A U.S. Holder may elect to deduct such
amortizable bond premium (with a corresponding reduction in the U.S. Holder's
tax basis) over the remaining term of the Note (or a shorter period to the first
call date, if a smaller deduction would result) on an economic accrual basis.
The election would apply to all taxable debt instruments held by the U.S. Holder
at any time during the first taxable year to which the election applies and to
any such debt instruments which are later acquired by the U.S. Holder.
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The election may not be revoked without the consent of the Internal Revenue
Service ("IRS").
Market Discount
If a U.S. Holder purchases a Note for an amount that is less than
its principal amount, the amount of the difference will be treated as market
discount for U.S. federal income tax purposes, unless such difference is less
than a specified de minimis amount. Under the market discount rules, a U.S.
Holder must accrue market discount on a straight-line basis, or may elect to
accrue it on an economic accrual basis. A U.S. Holder will be required to treat
any principal payment on, or any amount received on the sale, exchange,
retirement or other disposition of, a Note as ordinary income to the extent of
accrued market discount which has not previously been included in income. In
addition, the U.S. Holder may be required to defer, until the maturity of the
Note or its earlier disposition in a taxable transaction, the deduction of a
portion of the interest expense of any indebtedness incurred or continued to
purchase or carry such.
A U.S. Holder of a Note acquired at a market discount may elect to
include market discount in income as interest as it accrues, in which case the
interest deferral rule would not apply. This election would apply to all bonds
with market discount acquired by the electing U.S. Holder on or after the first
day of the first taxable year to which the election applies and is separate from
the election concerning the rate of accrual described above. The election may be
revoked only with the consent of the IRS.
Sale or Redemption of the Notes
Upon the disposition of a Note by sale, exchange or redemption, the
U.S. Holder will generally recognize gain or loss equal to the difference, if
any, between (i) the amount realized on the disposition (other than amounts
attributable to accrued interest) and (ii) the U.S. Holder's tax basis in the
Note. A U.S. Holder's tax basis in a Note generally will equal the cost of the
Note to the U.S. Holder, increased by OID or market discount previously included
(or currently includible) in such holder's gross income to the date of
disposition, and reduced by any payments other than payments of qualified stated
interest made on such Note. When a Note is sold, disposed of or redeemed between
Interest Payment Dates, the portion of the amount realized on the disposition
that is attributable to interest accrued to the date of sale (i) must be
reported as interest income by a cash method investor
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and (ii) is received tax-free by an accrual method investor that has already
included the interest in income as it accrued.
Assuming the Note is held as a capital asset, such gain or loss
will generally constitute capital gain or loss and will be long-term capital
gain or loss if the U.S. Holder has held such Note for longer than one year.
Federal income tax rates on long-term capital gain received by individuals vary
based on the individual's income and the holding period for the asset. In
particular, different maximum tax rates apply to gains recognized by an
individual from the sale of (i) assets held for more than one year but no more
than 18 months and (ii) assets held for more than 18 months. Holders should
contact their tax advisors for more information or for the capital gains tax
rate applicable to particular Notes.
Conversion into Common Stock of the Company
In general, no gain or loss will be recognized for U.S. federal
income tax purposes upon a conversion of Notes into Common Stock. However, cash
paid in lieu of a fractional share of Common Stock will result in taxable gain
(or loss) to the extent that the amount of such cash exceeds (or is exceeded by)
the portion of the adjusted tax basis of the Note allocable to such fractional
share. The initial tax basis of Common Stock received on conversion of the Notes
will equal the adjusted tax basis of the converted Notes on the date of
conversion, reduced by the portion of such adjusted tax basis allocated to any
fractional share of Common Stock considered to be exchanged for cash. The
holding period for Common Stock received on conversion will include the period
during which the converted Notes were held.
Adjustment of Conversion Price
The conversion ratio of a Note is subject to adjustment under
certain circumstances. Section 305 of the Code and Treasury regulations issued
thereunder may treat U.S. Holders of the Notes as having received a constructive
distribution, resulting in ordinary income to the extent of the Company's
current and accumulated earnings and profits (as determined for U.S. federal
income tax purposes), if, and to the extent that certain adjustments of the
conversion ratio increase the proportionate interest of a U.S. Holder of the
Notes in the fully diluted share ownership of the Company, whether or not such
U.S. Holder exercises the conversion privilege. Moreover, if there is not a full
adjustment of the conversion ratio of the Notes to reflect a stock dividend or
other event that increases the proportionate
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interest of holders of outstanding Common Stock in the assets or earnings and
profits of the Company, then such increase in the proportionate interest of
holders of the Common Stock generally will be treated as a taxable distribution
to such holders with respect to their Common Stock.
Dividends Paid on the Shares
A U.S. Holder generally will be required to include in gross income
as ordinary dividend income the amount of any distributions paid on the Common
Stock to the extent that such distributions are paid out of the Company's
current or accumulated earnings and profits as determined for U.S. federal
income tax purposes. Distributions in excess of such earnings and profits will
be applied against and will reduce the U.S. Holder's tax basis in its Common
Stock and, to the extent in excess of such tax basis, will be treated as gain
from a sale or exchange of such Common Stock.
Disposition of Shares
Upon the sale or other disposition of Common Stock, a U.S. Holder
generally will recognize capital gain or loss equal to the difference between
the amount realized on the sale and such holder's adjusted tax basis in the
Common Stock. Gain or loss upon the disposition of the Common Stock will be
long-term if, at the time of the disposition, the holding period for the Common
Stock exceeds one year (which, in the case of Common Stock acquired upon
conversion of a Note, would include the period during which the converted Note
was held). Federal income tax rates on long-term capital gain received by
individuals vary based on the individual's income and the holding period for the
asset. See "--Sale or Redemption of the Notes" above. The deduction of capital
losses is subject to limitations for U.S. federal income tax purposes.
NON-U.S. HOLDERS
The following discussion is limited to the U.S. federal income tax
consequences relevant to a holder of a Note who or which is a Non-U.S. Holder.
This discussion does not deal with all aspects of U.S. federal
income and estate taxation that may be relevant to the purchase, ownership or
disposition of the Notes by any particular Non-U.S. Holder in light of that
holder's personal circumstances, including holding the Notes through a
partnership. For example, persons who are partners in foreign partnerships and
beneficiaries of foreign trusts or estates who are
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subject to U.S. federal income tax because of their own status, such as United
States residents or foreign persons engaged in a trade or business in the United
States, may be subject to U.S. federal income tax even though the entity is not
subject to such tax on the disposition of its Note.
Stated Interest
Under current United States federal income tax law, payment on a
Note or coupon by the Company or any paying agent to a holder that is a Non-U.S.
Holder will not be subject to withholding of U.S. federal income tax, provided
that, with respect to payments of interest, (i) the holder does not actually or
constructively own 10 percent or more of the combined voting power of all
classes of stock of the Company and is not a controlled foreign corporation
related to the Company through stock ownership and (ii) the beneficial owner
provides a statement signed under penalties of perjury that includes its name
and address and certifies (on an IRS Form W-8 or a substantially similar
substitute form) that it is a Non-U.S. Person in compliance with applicable
requirements.
Payments of interest on a Note that are effectively connected with
the conduct of a trade or business in the United States by a Non-U.S. Holder,
although exempt from the withholding tax, may be subject to graduated U.S.
federal income tax as if such amounts were earned by a U.S. Holder.
Sale or Redemption of Notes or Common Stock; Conversion
of Notes
Except as described below and subject to the discussion concerning
backup withholding, a Non-U.S. Holder generally will not be subject to
withholding of U.S. federal income tax with respect to any gain realized upon
the sale or redemption of Notes or Common Stock or on the conversion of a Note.
Further, a Non-U.S. Holder generally will not be subject to U.S. federal income
tax with respect to any such gain unless (i) the gain is effectively connected
with a U.S. trade or business of such Non-U.S. Person, (ii) subject to certain
exceptions, the Non-U.S. Holder is an individual who holds the Note as a capital
asset and is present in the United States for 183 days or more in the taxable
year of the disposition, or (iii) the Non-U.S. Holder is subject to tax pursuant
to the provisions of U.S. tax law applicable to certain U.S. expatriates.
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Dividends on Common Stock
Any distribution on Common Stock to a Non-U.S. Holder will
generally be subject to United States federal income tax withholding at a rate
of 30%, unless (i) a lower rate is provided by an applicable tax treaty or (ii)
the distribution is effectively connected with the conduct of a trade or
business in the United States by the Non-U.S. Holder. For either of these
exceptions to apply, the Non-U.S. Holder may be required to provide a properly
executed certificate claiming the benefits of a treaty or exemption (currently
Form 1001 or 4224, as applicable).
Federal Estate Tax
The Notes will not be includible in the estate of a Non-U.S. Holder
who is not domiciled in the United States if interest paid on the Notes at the
time of his or her death would have been exempt from U.S. federal income and
withholding tax as described under "Non-U.S. Holders-Stated Interest (without
regard to the requirement that a non-U.S. beneficial ownership statement has
been received). An individual Non-U.S. Holder who is treated as the owner of or
has made certain lifetime transfers of an interest in Common Stock will be
required to include the value thereof in his gross estate for U.S. Federal
estate tax purposes, and may be subject to U.S. Federal estate tax unless an
applicable estate tax treaty provides otherwise.
INFORMATION REPORTING
In general, information reporting requirements will apply to
payments made on, and proceeds from the sale of, the Notes held by a
noncorporate U.S. Holder within the United States. In addition, payments made
on, and payments of proceeds from the sale of, the Notes to or through the
United States office of a broker are subject to information reporting unless the
holder thereof certifies as to its non-United States status or otherwise
establishes an exemption from information reporting and backup withholding. See
"Backup Withholding."
BACKUP WITHHOLDING
Payments made on, and proceeds from the sale of, the Notes may be
subject to a "backup" withholding tax of 31% unless the holder complies with
certain identification or exemption requirements. Any amounts so withheld will
be allowed as a credit against the holder's income tax liability, or refunded,
provided the required information is provided to the IRS.
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NEW REGULATIONS RELATING TO WITHHOLDING AND INFORMATION
REPORTING
In October 1997, the IRS issued final regulations relating to
withholding, backup withholding and information reporting with respect to
payments made to Non-U.S. Persons. The regulations generally apply to payments
made after December 31, 1998. However, withholding certificates that are valid
under the present rules on December 31, 1998, remain valid until the earlier of
December 31, 1999 or the expiration date of the certificate under the present
rules (unless otherwise invalidated due to changes in the circumstances of the
person whose name is on the certificate).
When effective, the new regulations will streamline and, in some
cases, alter the types of statements and information that must be furnished to
claim a reduced rate of withholding. While various IRS forms (such as IRS Forms
1001 and 4224) currently are used to claim exemption from withholding or a
reduced withholding rate, the preamble to the regulations states that the IRS
intends most certifications to be made on revised Form W-8. The regulations also
clarify the duties of U.S. payors making payments to foreign persons and modify
the rules concerning withholding on payments made to Non-U.S. Persons through
foreign intermediaries.
With some exceptions, the new regulations treat a payment to a foreign
partnership as a payment directly to the partners. The regulations also
eliminate the address rule under which dividends paid to a foreign address were
presumed to be paid to a resident at that address and therefore eligible for the
benefit of any applicable tax treaty.
USE OF PROCEEDS
The Company will not receive any of the proceeds from the sale of
the Notes or Common Stock issuable upon conversion thereof offered by this
Prospectus.
SELLING HOLDERS
The Notes were originally issued by the Company to Salomon Brothers
Inc, Deutsche Morgan Grenfell Inc., Bear, Stearns & Co. Inc., Smith Barney Inc.,
Robertson, Stephens & Company LLC and First Union Capital Markets Corp.
(collectively, the "Initial Purchasers"). The Initial Purchasers subsequently
advised the Company that they resold the Notes, in transactions exempt from the
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registration requirements of the Securities Act (i) in the United States to
Qualified Institutional Buyers in reliance on Rule 144A under the Securities Act
or to Institutional Accredited Investors that agreed in writing to comply with
the transfer restrictions and other conditions set forth in the Purchase
Agreement, and (ii) outside the United States in transactions complying with the
provisions of Regulation S under the Securities Act. Each of the Selling Holders
is a direct or indirect transferee of an Initial Purchaser. The Selling Holders
(which term includes their transferees, pledgees, donees or their successors)
may from time to time offer and sell pursuant to this Prospectus any or all of
the Notes and Shares issued upon conversion of the Notes held by such Selling
Holders.
The following table sets forth information with respect to the
Selling Holders and the respective principal amounts of Notes beneficially owned
by each Selling Holder that may be offered pursuant to this Prospectus. Such
information has been obtained from the Selling Holders. The Shares into which
the Notes are convertible are also offered pursuant to this Prospectus, and the
formula for conversion is set forth herein under "DESCRIPTION OF THE NOTES --
Conversion." To the Company's knowledge, none of the Selling Holders has, or
within the past three years has had, any position, office or other material
relationship with the Company or any of its predecessors or affiliates. Because
the Selling Holders may offer all or some portion of the Notes or Shares
issuable upon conversion thereof pursuant to this Prospectus, no estimate can be
given as to the amount of the Notes or Shares issuable upon conversion thereof
that will be held by the Selling Holders upon termination of any such sales. In
addition, the Selling Holders identified below may have sold, transferred or
otherwise disposed of all or a portion of their Notes, since the date on which
they provided the information regarding their Notes (November 5 or 6, 1997), in
transactions exempt from the registration requirements of the Securities Act.
PRINCIPAL
PRINCIPAL AMOUNT OF
AMOUNT OF NOTES NOTES COVERED
SELLING HOLDER BENEFICIALLY BY THIS
NAME AND ADDRESS OWNED PROSPECTUS
---------------- --------------- --------------
AAM/Zazove Institutional $1,500,000 $1,500,000
Income Fund, L.P.
Allstate Insurance Company $4,500,000 $4,500,000
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Brown & Williamson Convertible $300,000 $300,000
Retirement Trust
CRW-C, L.P. $13,000,000 $13,000,000
Christian Science Trustees $150,000 $150,000
for Gifts and Endowments
Daiwa Europe Limited $1,500,000 $1,500,000
Declaration of Trust for $650,000 $650,000
the Defined Benefit Plan of
ICI American Holdings Inc.
Declaration of Trust for $450,000 $450,000
the Defined Benefit Plan of
Zeneca Holdings Inc.
Delaware State Employees $2,100,000 $2,100,000
Retirement Fund
First Church of Christ, $150,000 $150,000
Scientist -- Endowment
General Motors Employee $5,544,000 $5,544,000
Domestic Group Pension
Trust
General Motors Employees $7,300,000 $7,300,000
Domestic Group Trust
General Motors Foundation $203,000 $203,000
Inc.
Hillside Capital Incorporated $190,000 $190,000
Corporate Account
MainStay Convertible Fund $3,500,000 $3,500,000
J.W. McConnell Family $400,000 $400,000
Family Foundation
McMahan Securities Co., L.P. $1,000,000 $1,000,000
J.P. Morgan & Co. Incorporated $4,009,000 $4,009,000
Motors Insurance Corporation $1,253,000 $1,253,000
New York Life Separate $1,700,000 $1,700,000
Account #7
Public Employees' Retirement $114,500 $114,500
Association of Colorado
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Summer Hill Global Partners, L.P. $50,000 $50,000
The TCW Group, Inc. $9,970,000 $9,970,000
Thermo Electron Balanced $560,000 $560,000
Investment Fund
Van Kampen American $2,950,000 $2,950,000
Capital Harbor Fund
The foregoing list of Selling Holders does not include holders of
$___________ aggregate principal amount of Notes which have been registered for
future sale under the Registration Statement of which this Prospectus is a part.
Additional Selling Holders will be listed, together with the amount of Notes to
be offered by such holders, in one or more supplements to this Prospectus. Only
the Selling Holders listed in this Prospectus or in any supplement thereto (or
the transferees, pledgees or donees of such Selling Holders, or their
successors) will be entitled to offer their Notes by means of this Prospectus,
as supplemented from time to time.
PLAN OF DISTRIBUTION
The Securities offered hereby may be sold from time to time to
purchasers directly by the Selling Holders. Alternatively, the Selling Holders
may from time to time offer the Securities to or through underwriters,
broker-dealers or agents, who may receive compensation in the form of
commissions, concessions, allowances or discounts from the Selling Holders or
the purchasers of Securities for whom they may act as agents or to whom they
sell Securities as principal or both (which commissions, concessions, allowances
or discounts might be in excess of customary amounts thereof). The Selling
Holders and any underwriters, broker-dealers or agents that participate in the
distribution of Securities may be deemed to be "underwriters" within the meaning
of the Securities Act and any profit on the sale of Securities by them and any
commissions, concessions, allowances or discounts or other compensation received
by any such underwriter, broker-dealer or agent may be deemed to be underwriting
commissions, concessions, allowances or discounts under the Securities Act.
The Securities may be sold from time to time in one or more
transactions at fixed prices, at prevailing market prices at the time of sale,
at varying prices determined at the time of sale or at negotiated prices. The
sale of Securities may be effected in transactions (which may involve crosses or
block transactions) (i) on
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any national securities exchange or quotation service on which the Securities
may be listed or quoted at the time of sale, (ii) in the over-the-counter
market, (iii) in transactions otherwise than on such exchanges or in the
over-the-counter market or (iv) through the writing of options. At the time a
particular offering of the Securities is made, a Prospectus Supplement, if
required, will be distributed which will set forth the aggregate amount and type
of Securities being offered and the terms of the offering, including the name or
names of any underwriters, broker-dealers or agents, any discounts, commissions
and other terms constituting compensation from the Selling Holders and any
discounts, commissions or concessions allowed or reallowed or paid to
broker-dealers.
In connection with the distribution of the Securities, certain of
the Selling Holders may enter into hedging transactions with broker-dealers. In
connection with such transactions, broker-dealers may engage in short sales of
the Securities in the course of hedging the positions they assume with the
Selling Holders. The Selling Holders may also sell the Securities short and
redeliver the Securities to close out the short positions. The Selling Holders
may also enter into option or other transactions with broker-dealers which
require the delivery of the Securities to the broker-dealer. The Selling Holders
may also loan or pledge the Securities.
The Selling Holders will be subject to applicable provisions of the
Exchange Act and the rules and regulations thereunder, which provisions may
limit the timing of purchases and sales of any of the Securities by the Selling
Holders. The foregoing may affect the marketability of the Securities.
Pursuant to the Registration Agreement, all expenses of the
registration of the Securities will be paid by the Company, including, without
limitation, Commission filing fees and expenses of compliance with state
securities or "blue sky" laws, provided, however, that the Selling Holders will
pay all underwriting discounts and selling commissions, if any. The Selling
Holders will be indemnified by the Company against certain civil liabilities,
including certain liabilities under the Securities Act, or will be entitled to
contribution in connection therewith. The Company will be indemnified by the
Selling Holders against certain civil liabilities, including certain liabilities
under the Securities Act, or will be entitled to contribution in connection
therewith.
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LEGAL MATTERS
Aloysius T. Lawn, IV, the Company's General Counsel and Secretary,
will render an opinion to the effect that the Securities offered by this
Prospectus are duly authorized, validly issued, fully paid and non-assessable.
Mr. Lawn owns 180,000 shares of the Company's Common Stock and holds vested
options to purchase 60,000 shares at a price of $11.625 per share and 90,000
shares at a price of $10.56 per share.
EXPERTS
The consolidated financial statements and schedule of the Company
and subsidiaries incorporated by reference in this Prospectus have been audited
by BDO Seidman, LLP, independent certified public accountants, to the extent and
for the periods set forth in their reports incorporated herein by reference, and
are incorporated herein in reliance upon such reports given upon the authority
of said firm as experts in accounting and auditing.
The consolidated financial statements of Shared Technologies and
subsidiaries at December 31, 1996 and for the year ended December 31, 1996
incorporated by reference in this Prospectus have been audited by Arthur
Andersen LLP, independent certified public accountants, as indicated in their
report with respect thereto, and are incorporated by reference herein in
reliance upon the authority of said firm as experts in giving such reports.
The consolidated financial statements and schedule of Shared
Technologies and subsidiaries at December 31, 1995 and for each of the two years
in the period ended December 31, 1995 incorporated by reference in this
Prospectus have been audited by Rothstein, Kass & Company, P.C., independent
certified public accountants, as indicated in their report, which includes an
explanatory paragraph relating to the changing of the method of accounting for
its investment in one of its subsidiaries, with respect thereto, and are
incorporated by reference herein in reliance upon the authority of said firm as
experts in accounting and auditing.
66
<PAGE>
TABLE OF CONTENTS
Page
AVAILABLE INFORMATION.................................................... 2
INCORPORATION OF CERTAIN DOCUMENTS BY REFERENCE.......................... 3
RISK FACTORS............................................................. 4
THE COMPANY.............................................................. 23
DESCRIPTION OF CAPITAL STOCK............................................. 23
DESCRIPTION OF THE NOTES................................................. 23
CERTAIN U.S. FEDERAL INCOME TAX CONSEQUENCES............................. 54
USE OF PROCEEDS.......................................................... 61
SELLING HOLDERS.......................................................... 61
PLAN OF DISTRIBUTION..................................................... 64
LEGAL MATTERS............................................................ 66
EXPERTS.................................................................. 66
67
<PAGE>
PART II
INFORMATION NOT REQUIRED IN PROSPECTUS
Item 14. Other Expenses of Issuance and Distribution.
SEC registration . . . . . . . . . . . $ 90,909
Printing and engraving expenses . . . . ______*
Legal fees and expenses . . . . . . . . ______*
Accounting fees and expenses . . . . . ______*
Transfer agent and trustee fees . . . . ______*
Miscellaneous . . . . . . . . . . . . . ______*
Total . . . . . . . . . . . . . . . . . $ ______*
*Estimates
Item 15. Indemnification of Director and Officers.
The Delaware General Corporation Law provides, in substance, that
Delaware corporations shall have the power, under specified circumstances, to
indemnify their directors, officers, employees and agents in connection with
actions or suits by or in the right of the corporation, by reason of the fact
that they were or are such directors, officers, employees and agents, against
expenses (including attorneys' fees) and, in the case of actions, suits or
proceedings brought by third parties, against judgment, fines and amounts paid
in settlement actually and reasonably incurred in any such action, suit or
proceeding.
The Company's Bylaws also provide for indemnification to the
fullest extent permitted by the Delaware General Corporation Law. Reference is
made to the Company's Bylaws.
As permitted by the Delaware General Corporation Law, the Company's
Bylaws eliminate the personal liability of its directors to the Company and its
stockholders, in certain circumstances, for monetary damages arising from a
breach of the director's duty of care. Additionally, the Company has entered
into indemnification agreements with some of its directors and officers. These
agreements provide for indemnification to the fullest extent permitted by law
and, in certain respects, may provide greater protection than that specifically
provided for by provide
II-1
<PAGE>
indemnification for, among other things, conduct which is adjudged to be fraud,
deliberate dishonesty or willful misconduct.
The Company has purchased an insurance policy that purports to
insure the officers and directors against certain liabilities incurred by them
in the discharge of their functions as officers and directors.
Item 16. Exhibits.
Exhibit No. Description
4.1 Amended and Restated Certificate of Incorporation of the Company, as
amended (incorporated by reference to Exhibit 3.1 to the Company's
registration statement on Form S-4 (File No. 333-38943)).
4.2 Bylaws of the Company (incorporated by reference to Exhibit 3.2 to
the Company's registration statement on Form S-1 (File No.
33-94940)).
4.3 Indenture, dated September 9, 1997, between the Company and First
Trust of New York, National Association.
4.4 Registration Agreement, dated September 3, 1997, between the Company
and the Initial Purchasers.
5.1 Opinion of Aloysius T. Lawn, IV.
23.1 Consent of BDO Seidman, LLP.
23.2 Consent of Aloysius T. Lawn, IV (included as part of Exhibit 5.1).
23.3 Consent of Arthur Andersen LLP.
23.4 Consent of Rothstein, Kass & Company, P.C.
24.1 Power of Attorney (included as part of the signature page).
25.1 Statement of Eligibility of Trustee.
II-2
<PAGE>
Item 17. Undertakings.
(a) The undersigned registrant hereby undertakes:
(1) To file, during any period in which offers or sales are being
made, a post-effective amendment to this registration statement;
(i) To include any prospectus required by Section 10(a)(3) of the
Securities Act of 1933;
(ii) To reflect in the prospectus any facts or events arising after
the effective date of registration statement (or the most recent post-effective
amendment thereof) which, individually or in the aggregate, represents a
fundamental change in the information set forth in the registration statement.
Notwithstanding the foregoing, any increase or decrease in volume of securities
offered (if the total dollar value of securities offered would not exceed that
which was registered) and any deviation form the low or high and of the
estimated maximum offering range may be reflected in the form of prospectus
filed with the Commission pursuant to Rule 424(b) if, in the aggregate, the
changes in volume and price represent no more than 20 percent change in the
maximum aggregate offering price set forth in the "Calculation of Registration
Fee" table in the effective registration statement.
(iii) To include any material information with respect to the plan
of distribution not previously disclosed in the registration statement or any
material change to such information in the registration statement; provided,
however, that paragraphs (a)(1)(i) and (a)(1)(ii) do not apply if the
registration statement is on Form S-3, Form S-8 or Form F-3, and the information
required to be included in a post-effective amendment by those paragraphs is
contained in periodic reports filed with or furnished to the Commission by the
registrar pursuant to Section 13 or 15(d) of the Securities Exchange Act of 1934
that are incorporated by reference in the registration statement.
(2) That, for the purpose of determining any liability under the
Securities Act of 1933, each such post-effective amendment shall be deemed to be
a new registration statement relating to the securities offered therein, and the
offering of such securities at that time shall be deemed to be the initial bona
fide offering thereof.
II-3
<PAGE>
(3) To remove from the registration by means of a post- effective
amendment any of the securities being registered which remain unsold at the
termination of the offering.
(b) The undersigned registrant hereby undertakes that, for purposes
of determining any liability under the Securities Act of 1933, each filing of
the registrant's annual report pursuant to Section 13(a) or 15(d) of the
Securities Exchange Act of 1934 (and, where applicable, each filing of an
employee benefit plan's annual report pursuant to Section 15(d) of the
Securities Exchange Act of 1934) that is incorporated by reference in the
registration statement shall be deemed to be a new registration statement
relating to the securities offered therein, and the offering of such securities
at that time shall be deemed to be the initial bona fide offering thereof.
(c) Insofar as indemnification for liabilities arising under the
Securities Act of 1933 may be permitted to directors, officers and controlling
persons of the registrant pursuant to the foregoing provisions, or otherwise,
the registrant has been advised that in the opinion of the Securities and
Exchange Commission, such indemnification is against public policy as expressed
in the Act and is, therefore, unenforceable. In the event that a claim for
indemnification against such liabilities (other than the payment by the
registrant of expenses incurred or paid by a director, officer or controlling
person of the registrant in the successful defense of any action, suit or
proceeding) is asserted by such director, officer or controlling person in
connection with the securities being registered, the registrant will, unless in
the opinion of its counsel the matter has been settled by controlling precedent,
submit to a court of appropriate jurisdiction the question whether such
indemnification by it is against public policy as expressed in the Act and will
be governed by the final adjudication of such issue.
II-4
<PAGE>
SIGNATURES
Pursuant to the requirements of the Securities Act of 1933, the
Registrant certifies that it has reasonable grounds to believe that it meets all
the requirements for filing on Form S-3 and has duly caused this registration
statement to be signed on its behalf by the undersigned, thereunto duly
authorized, in the Township of Solebury, Commonwealth of Pennsylvania, on
November 7, 1997.
TEL-SAVE HOLDINGS, INC.
By: /s/ Daniel Borislow
-------------------------------
Daniel Borislow
Chairman of the Board of
Directors, Chief Executive
Officer and Director
KNOW ALL MEN BY THESE PRESENTS, that each person whose signature
appears below constitutes and appoints Daniel Borislow and Aloysius T. Lawn, IV,
and each of them, each with full power to act without the other, his true and
lawful attorney-in-fact and agent, each with full power of substitution and
resubstitution, for such person and in his name, place and stead, in any and all
capacities, to sign any or all further amendments or supplements (including
post-effective amendments) to this Form S-3 Registration Statement and to file
the same, with all exhibits thereto, and other documents in connection
therewith, with the Securities and Exchange Commission, granting unto each of
said attorneys-in-fact and agents full power and authority to do and perform
each and every act and thing requisite and necessary to be done in and about the
premises, as fully as to all intents and purposes as he might or could do in
person, hereby ratifying and confirming all that each of said attorneys-in-fact
and agents, or his substitutes, may lawfully do or cause to be done by virtue
thereof.
II-5
<PAGE>
Pursuant to the requirements of the Securities Act of 1933, this
registration statement has been signed by the following persons in the
capacities and on the dates indicated below:
Signature Title Date
- --------- ------ ----
/s/ Daniel Borislow Chairman of the Board November 7, 1997
- ------------------------ of Directors, Chief
Daniel Borislow Executive Officer and
Director (Principal
Executive Officer)
/s/ Gary W. McCulla President, Director November 7, 1997
- ------------------------ of Sales and
Gary W. McCulla Marketing and
Director
/s/ Emanuel J. DeMaio Chief Operations November 7, 1997
- ------------------------ Officer and Director
Emanuel J. DeMaio
/s/ George Farley Chief Financial November 7, 1997
- ------------------------ Officer, Treasurer
George Farley and Director
(Principal Financial
Officer)
/s/ Kevin R. Kelly Controller (Principal November 7, 1997
- ------------------------ Accounting Officer)
Kevin R. Kelly
/s/ Harold First Director November 7, 1997
- ------------------------
Harold First
/s/ Ronald R. Thoma Director November 7, 1997
- ------------------------
Ronald R. Thoma
II-6
<PAGE>
EXHIBIT INDEX
Exhibit No. Description
4.1 Amended and Restated Certificate of Incorporation of the Company, as
amended (incorporated by reference to Exhibit 4.1 to the Company's
registration statement on Form S-4 (File No. 333-38943)).
4.2 Bylaws of the Company (incorporated by reference to Exhibit 3.2 to the
Company's registration statement on Form S-1 (File No. 33-94940)).
4.3 Indenture, dated September 9, 1997, between the Company and First Trust
of New York, National Association.
4.4 Registration Agreement, dated September 3, 1997, between the Company and
the Initial Purchasers.
5.1 Opinion of Aloysius T. Lawn, IV.
23.1 Consent of BDO Seidman, LLP.
23.2 Consent of Aloysius T. Lawn, IV (included as part of Exhibit 5.1).
23.3 Consent of Arthur Andersen LLP.
23.4 Consent of Rothstein, Kass & Company, P.C.
24.1 Power of Attorney (included as part of the signature page).
25.1 Statement of Eligibility of Trustee.
II-7
================================================================================
TEL-SAVE HOLDINGS, INC.
TO
FIRST TRUST OF NEW YORK, NATIONAL ASSOCIATION
TRUSTEE
-----------
INDENTURE
DATED AS OF SEPTEMBER 9, 1997
4 1/2% CONVERTIBLE SUBORDINATED NOTES DUE 2002
================================================================================
<PAGE>
<TABLE>
<CAPTION>
TABLE OF CONTENTS
Page
ARTICLE I
Definitions and Incorporation by Reference
<S> <C>
SECTION 1.01. Definitions........................................................................................1
SECTION 1.02. Other Definitions..................................................................................6
SECTION 1.03. Incorporation by Reference of Trust Indenture Act..................................................7
SECTION 1.04. Rules of Construction..............................................................................8
ARTICLE II
The Securities
SECTION 2.01. Form and Dating....................................................................................8
SECTION 2.02. Execution, Authentication and Delivery............................................................10
SECTION 2.03. Registrar, Paying Agent and Conversion Agent......................................................10
SECTION 2.04. Paying Agent to Hold Money in Trust...............................................................11
SECTION 2.05. Noteholder Lists..................................................................................11
SECTION 2.06. Transfer and Exchange.............................................................................11
SECTION 2.07. Replacement Securities............................................................................14
SECTION 2.08. Outstanding Securities............................................................................14
SECTION 2.09. Treasury Securities...............................................................................15
SECTION 2.10. Temporary Securities; Exchange of Global Security for Certificated Securities.....................15
SECTION 2.11. Cancellation......................................................................................16
SECTION 2.12. Defaulted Interest................................................................................16
ARTICLE III
Redemption
SECTION 3.01. Notices to Trustee................................................................................16
SECTION 3.02. Selection of Securities to be Redeemed............................................................17
SECTION 3.03. Notice of Redemption..............................................................................17
SECTION 3.04. Effect of Notice of Redemption....................................................................18
SECTION 3.05. Deposit of Redemption Price.......................................................................18
SECTION 3.06. Securities Redeemed in Part.......................................................................18
SECTION 3.07. Optional Redemption...............................................................................18
SECTION 3.08. Designated Event Offer............................................................................19
</TABLE>
i
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<TABLE>
<CAPTION>
ARTICLE IV
Covenants
<S> <C>
SECTION 4.01. Payment of Securities.............................................................................21
SECTION 4.02. SEC Reports.......................................................................................21
SECTION 4.03. Compliance Certificate............................................................................21
SECTION 4.04. Stay, Extension and Usury Law.....................................................................22
SECTION 4.05. Corporate Existence...............................................................................22
SECTION 4.06. Taxes.............................................................................................23
SECTION 4.07. Designated Event..................................................................................23
ARTICLE V
Conversion
SECTION 5.01. Conversion Privilege..............................................................................23
SECTION 5.02. Conversion Procedure..............................................................................24
SECTION 5.03. Fractional Shares.................................................................................25
SECTION 5.04. Taxes on Conversion...............................................................................25
SECTION 5.05. Company to Provide Stock..........................................................................25
SECTION 5.06. Adjustment of Conversion Price....................................................................25
SECTION 5.07. No Adjustment.....................................................................................29
SECTION 5.08. Other Adjustments.................................................................................29
SECTION 5.09. Adjustments for Tax Purposes......................................................................29
SECTION 5.10. Adjustments by the Company........................................................................29
SECTION 5.11. Notice of Adjustment..............................................................................30
SECTION 5.12. Notice of Certain Transactions....................................................................30
SECTION 5.13. Effect of Reclassifications, Consolidations, Mergers or Sales on Conversion Privilege.............30
SECTION 5.14. Trustee's Disclaimer..............................................................................31
ARTICLE VI
Subordination
SECTION 6.01. Agreement to Subordinate..........................................................................32
SECTION 6.02. No Payment on Securities if Senior Debt in Default................................................32
SECTION 6.03. Distribution on Acceleration of Securities; Dissolution and Reorganization;
Subrogation of Securities.............................................................33
SECTION 6.04. Reliance by Senior Debt on Subordination Provisions...............................................36
SECTION 6.05. No Waiver of Subordination Provisions.............................................................36
SECTION 6.06. Trustee's Relation to Senior Debt.................................................................37
</TABLE>
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<TABLE>
<CAPTION>
<S> <C>
SECTION 6.07. Other Provisions Subject Hereto...................................................................38
ARTICLE VII
Successors
SECTION 7.01. Merger, Consolidation or Sale of Assets...........................................................38
SECTION 7.02. Successor Corporation Substituted.................................................................39
ARTICLE VIII
Defaults and Remedies
SECTION 8.01. Events of Default.................................................................................39
SECTION 8.02. Acceleration......................................................................................40
SECTION 8.03. Other Remedies....................................................................................41
SECTION 8.04. Waiver of Past Defaults...........................................................................41
SECTION 8.05. Control by Majority...............................................................................41
SECTION 8.06. Limitation on Suits...............................................................................41
SECTION 8.07. Rights of Noteholders to Receive Payment..........................................................42
SECTION 8.08. Collection Suit by Trustee........................................................................42
SECTION 8.09. Trustee May File Proofs of Claim..................................................................42
SECTION 8.10. Priorities........................................................................................43
SECTION 8.11. Undertaking for Costs.............................................................................43
ARTICLE IX
Trustee
SECTION 9.01. Duties of Trustee.................................................................................43
SECTION 9.02. Rights of Trustee.................................................................................44
SECTION 9.03. Individual Rights of Trustee......................................................................45
SECTION 9.04. Trustee's Disclaimer..............................................................................45
SECTION 9.05. Notice of Defaults................................................................................45
SECTION 9.06. Reports by Trustee to Noteholders.................................................................45
SECTION 9.07. Compensation and Indemnity........................................................................45
SECTION 9.08. Replacement of Trustee............................................................................46
SECTION 9.09. Successor Trustee by Merger, Etc..................................................................47
SECTION 9.10. Eligibility; Disqualification.....................................................................47
SECTION 9.11. Preferential Collection of Claims Against Company.................................................47
</TABLE>
iii
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<TABLE>
<CAPTION>
ARTICLE X
Discharge of Indenture
<S> <C>
SECTION 10.01. Termination of Company's Obligations.............................................................47
SECTION 10.02. Repayment to Company.............................................................................48
ARTICLE XI
Amendments, Supplements and Waivers
SECTION 11.01. Without Consent of Noteholders...................................................................48
SECTION 11.02. With Consent of Noteholders......................................................................49
SECTION 11.03. Compliance with Trust Indenture Act..............................................................50
SECTION 11.04. Revocation and Effect of Consents................................................................50
SECTION 11.05. Notation on or Exchange of Securities............................................................50
SECTION 11.06. Trustee Protected................................................................................51
ARTICLE XII
Miscellaneous
SECTION 12.01. Trust Indenture Act Controls.....................................................................51
SECTION 12.02. Notices..........................................................................................51
SECTION 12.03. Communication by Noteholders with Other Noteholders..............................................51
SECTION 12.04. Certificate and Opinion as to Conditions Precedent...............................................52
SECTION 12.05. Statements Required in Certificate or Opinion....................................................52
SECTION 12.06. Rules by Trustee and Agents......................................................................52
SECTION 12.07. Legal Holidays...................................................................................52
SECTION 12.08. No Recourse Against Others.......................................................................53
SECTION 12.09. Counterparts.....................................................................................53
SECTION 12.10. Variable Provisions..............................................................................53
SECTION 11.11. GOVERNING LAW....................................................................................54
SECTION 12.12. No Adverse Interpretation of Other Agreements....................................................54
SECTION 12.13. Successors.......................................................................................54
SECTION 12.14. Severability.....................................................................................54
SECTION 12.15. Table of Contents, Headings, Etc.................................................................54
</TABLE>
iv
<PAGE>
EXHIBIT A FORM OF CONVERTIBLE SUBORDINATED NOTE................... A-1
EXHIBIT B FORM OF TRANSFER CERTIFICATE............................ B-1
EXHIBIT C FORM OF ACCREDITED INVESTOR TRANSFEREE
CERTIFICATE.......................................... C-1
EXHIBIT D FORM OF REGISTRATION AGREEMENT.......................... E-1
v
<PAGE>
INDENTURE dated as of September 9, 1997 between Tel-Save
Holdings, Inc., a Delaware corporation (the "Company"), and First Trust of New
York, National Association, as trustee (the "Trustee").
Each party agrees as follows for the benefit of the other
party and for the equal and ratable benefit of the Noteholders of the Company's
4 1/2% Convertible Subordinated Notes Due 2002 (the "Securities"):
ARTICLE I
Definitions and Incorporation by Reference
SECTION 1.01. Definitions. "Affiliate" of any specified person
means any other person directly or indirectly controlling or controlled by or
under direct or indirect common control with such specified person. For the
purposes of this definition, "control" (including, with correlative meanings,
the terms "controlling", "controlled by" and "under common control with"), as
used with respect to any person, shall mean the possession, directly or
indirectly, of the power to direct or cause the direction of the management or
policies of such person, whether through the ownership of voting securities or
by agreement or otherwise.
"Agent" means any Registrar, Paying Agent or Conversion Agent.
"Board of Directors" means the Board of Directors of the
Company or any authorized committee of the Board.
"Board Resolution" means a copy of a resolution of the Board
of Directors certified by the Secretary or an Assistant Secretary of the Company
to be in full force and effect on the date of such certification and delivery to
the Trustee.
"Business Day" means any day that is not a Legal Holiday.
"Capital Stock" means any and all shares, interests,
participations, rights or other equivalents (however designated) of equity
interests in any entity, including, without limitation, corporate stock and
partnership interests.
"Change of Control" means any event where: (i) any "person" or
"group" (as such terms are used in Section 13(d) and 14(d) of the Exchange Act)
is or becomes the "beneficial owner" (as defined in Rules 13d-3 and 13d-5 under
the Exchange Act) of shares representing more than 50% of the combined voting
power of the then-outstanding securities entitled to vote generally in elections
of directors of the Company ("Voting Stock"), (ii) the Company consolidates with
or merges into any other corporation, or any other person merges into the
Company, and, in the case of any such transaction, the outstanding Common Stock
of the Company is reclassified into or exchanged for any other property or
security, unless the stockholders of the Company immediately before such
transaction own, directly or indirectly
<PAGE>
immediately following such transaction, at least a majority of the combined
voting power of the outstanding voting securities of the corporation resulting
from such transaction in substantially the same proportion as their ownership of
the Voting Stock immediately before such transaction, (iii) the Company conveys,
transfers or leases all or substantially all of its assets to any person (other
than to one or more wholly-owned subsidiaries of the Company) or (iv) any time
the Continuing Directors do not constitute a majority of the Board of Directors
of the Company (or, if applicable, a successor corporation to the Company).
"Common Stock" means the common stock of the Company as the
same exists at the date of the execution of this Indenture or as such stock may
be constituted from time to time.
"Company" means the party named as such above until a
successor replaces it in accordance with Article VII and thereafter means the
successor.
"Continuing Directors" means as of any date of determination,
any member of the Board of Directors of the Company who (i) was a member of such
Board of Directors on the date of this Indenture or (ii) was nominated for
election or elected to such Board of Directors with the approval of a majority
of the Continuing Directors who were members of such board at the time of such
nomination or election.
"Daily Market Price" means the price of a share of Common
Stock on the relevant date, determined (a) on the basis of the last reported
sale price regular way of the Common Stock as reported on the Nasdaq Stock
Market's National Market (the "NNM"), or if the Common Stock is not then listed
on the NNM, as reported on such national securities exchange upon which the
Common Stock is listed, or (b) if there is no such reported sale on the day in
question, on the basis of the average of the closing bid and asked quotations
regular way as so reported, or (c) if the Common Stock is not listed on the NNM
or on any national securities exchange, on the basis of the average of the high
bid and low asked quotations regular way on the day in question in the
over-the-counter market as reported by the National Association of Securities
Dealers Automated Quotation System, or if not so quoted, as reported by National
Quotation Bureau, Incorporated, or a similar organization.
"Default" means any event that is, or with the passage of time
or the giving of notice or both, would be an Event of Default.
"Depositary" means The Depository Trust Company, its nominees
and their respective successors.
"Designated Event" means the occurrence of a Change of Control
or a Termination of Trading.
"Designated Senior Debt" means (i) any Senior Debt which, as
of the date of this Indenture, has an aggregate principal amount outstanding of
at least $15 million, and (ii) any
2
<PAGE>
Senior Debt which, at the date of determination, has an aggregate principal
amount outstanding of, or commitments to lend up to, at least $15 million and is
specifically designated by the Company in the instrument evidencing or governing
such Senior Debt as "Designated Senior Debt" for purposes of this Indenture
(provided, that such instrument may place limitations and conditions on the
right of such Senior Debt to exercise the rights of Designated Senior Debt).
"Exchange Act" means the Securities Exchange Act of 1934, as
amended.
"GAAP" means generally accepted accounting principles set
forth in the opinions and pronouncements of the Accounting Principles Board of
the American Institute of Certified Public Accountants and statements and
pronouncements of the Financial Accounting Standards Board or in such other
statements by such other entity as approved by a significant segment of the
accounting profession, which are in effect from time to time.
"Global Securities Legend" means the legend labeled as such
and that is set forth in Exhibit A hereto.
"Guarantee" means a guarantee (other than by endorsement of
negotiable instruments for collection in the ordinary course of business),
direct or indirect, in any manner (including, without limitation, letters of
credit and reimbursement agreements in respect thereof), of all or any part of
any Indebtedness.
"Indebtedness" means, with respect to any person, all
obligations, whether or not contingent, of such person (i)(a) for borrowed money
(including, but not limited to, any indebtedness secured by a security interest,
mortgage or other lien on the assets of such person which is (1) given to secure
all or part of the purchase price of property subject thereto, whether given to
the vendor of such property or to another, or (2) existing on property at the
time of acquisition thereof), (b) evidenced by a note, debenture, bond or
written instrument, (c) under a lease required to be capitalized on the balance
sheet of the lessee under GAAP or under any lease or related document (including
a purchase agreement) which provides that such person is contractually obligated
to purchase or to cause a third party to purchase such leased property, (d) in
respect of letters of credit, bank guarantees or bankers' acceptances (including
reimbursement obligations with respect to any of the foregoing), (e) with
respect to Indebtedness secured by a mortgage, pledge, lien, encumbrance, charge
or adverse claim affecting title or resulting in an encumbrance to which the
property or assets of such person are subject, whether or not the obligation
secured thereby shall have been assumed or Guaranteed by or shall otherwise be
such person's legal liability, (f) in respect of the balance of the deferred and
unpaid purchase price of any property or assets, and (g) under interest rate or
currency swap agreements, cap, floor and collar agreements, spot and forward
contracts and similar agreements and arrangements; (ii) with respect to any
obligation of others of the type described in the preceding clause (i) or under
clause (iii) below assumed by or guaranteed in any manner by such person or in
effect guaranteed by such person through an agreement to purchase (including,
without limitation, "take or pay" and similar arrangements), contingent or
otherwise (and the obligations of such
3
<PAGE>
person under any such assumptions, guarantees or other such arrangements); and
(iii) any and all deferrals, renewals, extensions, refinancings and refundings
of, or amendments, modifications or supplements to, any of the foregoing.
"Indenture" means this Indenture as amended from time to time.
"Initial Purchasers" means Salomon Brothers Inc, Deutsche
Morgan Grenfell Inc. Bear, Stearns & Co. Inc., Smith Barney Inc., Robertson,
Stevens & Company LLC and First Union Capital Markets Corp.
Bear, Stearns & Co. Inc., Smith Barney Inc., Robertson,
Stephens & Company LLC and First Union Capital Markets Corp.
"Issuance Date" means the date on which the Securities are
first authenticated and issued.
"Material Subsidiary" means any Subsidiary of the Company
which, at the date of determination, is a "significant subsidiary" as defined in
Rule 1-02(w) of Regulation S-X under the Securities Act and the Exchange Act (as
such Regulation is in effect on the date hereof).
"Noteholder" or "holder" means a person in whose name a
Security is registered.
"Obligations" means any principal, interest, penalties, fees,
indemnifications, reimbursements, damages and other liabilities payable under
the documentation governing any Indebtedness.
"Offering Memorandum" means the offering memorandum relating
to the Securities dated September 3, 1997.
"Officers' Certificate" means a certificate signed by two
Officers, one of whom must be the Chairman of the Board, the Chief Executive
Officer, the President, the Chief Financial Officer or the Treasurer of the
Company. See Sections 12.04 and 12.05 hereof.
"Opinion of Counsel" means a written opinion from legal
counsel who is acceptable to the Trustee. The counsel may be an employee of or
counsel to the Company or the Trustee. See Sections 12.04 and 12.05 hereof.
"person" means any individual, corporation, partnership, joint
venture, association, joint stock company, trust, unincorporated organization or
government or any agency or political subdivision thereof.
"principal" of a debt security means the principal of the
security plus the premium, if any, on the security.
4
<PAGE>
"Registration Agreement" means the Registration Agreement
relating to the Securities dated September 3, 1997, between the Company and the
Initial Purchasers, a form of which is attached as Exhibit D hereto.
"Representative" means the trustee, agent or representative
(if any) for an issue of Senior Debt.
"Restricted Securities Legend" means the legend labeled as
such and that is set forth in Exhibit A hereto.
"SEC" means the Securities and Exchange Commission.
"Securities" means the Securities described in the preamble
above that are issued, authenticated and delivered under this Indenture.
"Securities Act" means the Securities Act of 1933, as amended.
"Senior Debt" means the principal of, interest on and other
amounts due on Indebtedness of the Company, whether outstanding on the date of
the Indenture or thereafter created, incurred, assumed or Guaranteed by the
Company; unless, in the instrument creating or evidencing or pursuant to which
Indebtedness is outstanding, it is expressly provided that such Indebtedness is
not senior in right of payment to the Securities. Senior Debt includes, with
respect to the obligations described above, interest accruing, pursuant to the
terms of such Senior Debt, on or after the filing of any petition in bankruptcy
or for reorganization relating to the Company, whether or not post-filing
interest is allowed in such proceeding, at the rate specified in the instrument
governing the relevant obligation. Notwithstanding anything to the contrary in
the foregoing, Senior Debt shall not include: (a) Indebtedness of or amounts
owed by the Company for compensation to employees, or for goods, services or
materials purchased in the ordinary course of business; (b) Indebtedness of the
Company to a Subsidiary of the Company; or (c) any liability for Federal, state,
local or other taxes owed or owing by the Company.
"Shelf Registration Statement" shall have the meaning set
forth in the Registration Agreement.
"Subsidiary" means any corporation, association or other
business entity of which more than 50% of the total voting power of shares of
Capital Stock entitled (without regard to the occurrence of any contingency) to
vote in the election of directors, managers or trustees thereof is at the time
owned or controlled, directly or indirectly, by any person or one or more of the
other Subsidiaries of that person or a combination thereof.
"Termination of Trading" means an event where the Common Stock
(or other securities into which the Securities are then convertible) is neither
listed for trading on a United
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States national securities exchange nor approved for trading on an established
automated over-the-counter trading market in the United States.
"TIA" means the Trust Indenture Act of 1939 (15 U.S. Code
ss.ss. 77aaa-77bbbb) as in effect on the date of execution of this Indenture.
"Trading Day" shall mean (A) if the applicable security is
listed or admitted for trading on the New York Stock Exchange or another
national securities exchange, a day on which the New York Stock Exchange or such
other national securities exchange is open for business, (B) if the applicable
security is quoted on the NNM, a day on which trades may be made thereon or (C)
if the applicable security is not so listed, admitted for trading or quoted, any
day other than a Saturday or Sunday or a day on which banking institutions in
the State of New York are authorized or obligated by law or executive order to
close.
"Trustee" means the party named as such above until a
successor replaces it in accordance with the applicable provisions of this
Indenture and thereafter means the successor.
"Trust Officer" means any officer or assistant officer of the
Trustee assigned by the Trustee to administer this Indenture.
SECTION 1.02. Other Definitions.
Defined in
Term Section
- ---- ----------
"Agent Members".................................................. 2.01
"Bankruptcy Law"................................................. 8.01
"Cedel Bank"..................................................... 2.01
"Commencement Date".............................................. 3.08
"Conversion Agent"............................................... 2.03
"Conversion Date"................................................ 5.02
"Conversion Price"............................................... 5.01
"Conversion Shares".............................................. 5.06
"Current Market.................................................. 5.06
"Custodian"...................................................... 8.01
"Designated Event Offer"......................................... 4.07
"Designated Event Payment"....................................... 4.07
"Designated Event Payment Date".................................. 3.08
"Distribution Date".............................................. 5.06
"Distribution Record Date"....................................... 5.06
"Excess Payment"................................................. 5.06
"Euroclear"...................................................... 2.01
"Event of Default"............................................... 8.01
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"Global Security"................................................ 2.01
"Legal Holiday".................................................. 12.07
"Non-Global Purchasers".......................................... 2.01
"Offer Amount"................................................... 3.08
"Officer"........................................................ 12.10
"Paying Agent"................................................... 2.03
"Payment Blockage Notice"........................................ 6.02
"Payment Blockage Period"........................................ 6.02
"Payment Default"................................................ 8.01
"Purchase Agreement"............................................. 2.01
"Purchase Date".................................................. 5.06
"QIBs"........................................................... 2.01
"Registrar"...................................................... 2.03
"Regulation S"................................................... 2.01
"Restricted Securities".......................................... 2.01
"Rights"......................................................... 5.06
"Rule 144A"...................................................... 2.01
"Tender Period".................................................. 3.08
SECTION 1.03. Incorporation by Reference of Trust Indenture
Act. Whenever this Indenture refers to a provision of the TIA, the provision is
incorporated by reference in and made a part of this Indenture.
The following TIA terms used in this Indenture have the
following meanings:
"indenture securities" means the Securities;
"indenture security holder" means a Noteholder;
"indenture to be qualified" means this Indenture;
"indenture trustee" or "institutional trustee" means the
Trustee; and
"obligor" on the Securities means the Company or any other
obligor on the Securities.
All other terms used in this Indenture that are defined by the
TIA, defined by TIA reference to another statute or defined by SEC rule under
the TIA have the meanings so assigned to them.
SECTION 1.04. Rules of Construction. Unless the context
otherwise requires:
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(a) a term has the meaning assigned to it;
(b) an accounting term not otherwise defined has the meaning
assigned to it in accordance with GAAP consistently applied;
(c) "or" is not exclusive;
(d) words in the singular include the plural, and words in the
plural include the singular; and
(e) provisions apply to successive events and transactions.
ARTICLE II
The Securities
SECTION 2.01. Form and Dating. The Securities and the
Trustee's certificate of authentication shall be substantially in the form of
Exhibit A which is hereby incorporated in and expressly made a part of this
Indenture.
The Securities may have notations, legends or endorsements
required by law, stock exchange rule, agreements to which the Company is
subject, if any, or usage (provided that any such notation, legend or
endorsement is in a form acceptable to the Company). The Company shall furnish
any such legend not contained in Exhibit A to the Trustee in writing. Each
Security shall be dated the date of its authentication. The terms and provisions
of the Securities set forth in Exhibit A are part of the terms of this Indenture
and to the extent applicable, the Company and the Trustee, by their execution
and delivery of this Indenture, expressly agree to such terms and provisions and
to be bound thereby.
(a) Global Securities. The Securities are being offered and
sold by the Company pursuant to a Purchase Agreement relating to the Securities,
dated September 3, 1997, among the Company and the Initial Purchasers (the
"Purchase Agreement").
Securities offered and sold (i) in reliance on Regulation S
under the Securities Act ("Regulation S") shall be issued in the form of one or
more permanent global Securities in definitive, fully registered form without
interest coupons with the Global Securities Legend set forth in Exhibit A hereto
or (ii) to Qualified Institutional Buyers ("QIBs") in reliance on Rule 144A
under the Securities Act ("Rule 144A"), each as provided in the Purchase
Agreement, shall be issued in the form of one or more permanent global
Securities in definitive, fully registered form without interest coupons with
the Global Securities Legend and Restricted Securities Legend set forth in
Exhibit A hereto (together, the "Global Securities"). Each Global Security shall
be deposited on behalf of the purchasers of the Securities represented thereby
with the Trustee, at its New York office, as custodian for the Depositary, and
registered in the name of the Depositary or a nominee of the Depositary (and, in
the case of Regulation S, for the accounts of
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designated agents holding on behalf of the Euroclear System ("Euroclear") or
Cedel Bank, societe anonyme ("Cedel Bank")), duly executed by the Company and
authenticated by the Trustee as hereinafter provided. The aggregate principal
amount of the Global Security may from time to time be increased or decreased by
adjustments made on the records of the Trustee and the Depositary or its nominee
as hereinafter provided.
(b) Book-Entry Provisions. This Section 2.01(b) shall apply
only to a Global Security deposited with or on behalf of the Depositary.
The Company shall execute and the Trustee shall, in accordance
with this Section 2.01(b) and the written order of the Company, authenticate and
deliver initially one or more Global Securities that (i) shall be registered in
the name of Cede & Co. or other nominee of such Depositary and (ii) shall be
delivered by the Trustee to such Depositary or pursuant to such Depositary's
instructions or held by the Trustee as custodian for the Depositary pursuant to
a FAST Balance Certificate Agreement between the Depositary and the Trustee.
Members of, or participants in, the Depositary ("Agent
Members") shall have no rights under this Indenture with respect to any Global
Security held on their behalf by the Depositary or by the Trustee as the
custodian of the Depositary or under such Global Security, and the Depositary
may be treated by the Company, the Trustee and any agent of the Company or the
Trustee as the absolute owner of such Global Security for all purposes
whatsoever. Notwithstanding the foregoing, nothing herein shall prevent the
Company, the Trustee or any agent of the Company or the Trustee from giving
effect to any written certification, proxy or other authorization furnished by
the Depositary or impair, as between the Depositary and its Agent Members, the
operation of customary practices of such Depositary governing the exercise of
the rights of a holder of a beneficial interest in any Global Security.
(c) Certificated Securities. Except as provided in Section
2.10, owners of beneficial interests in Global Securities will not be entitled
to receive physical delivery of certificated Securities. Purchasers of
Securities who are not QIBs and did not purchase Securities sold in reliance on
Regulation S under the Securities Act (referred to herein as the "Non-Global
Purchasers") will receive certificated Securities bearing the Restricted
Securities Legend set forth in Exhibit A hereto ("Restricted Securities").
Restricted Securities will bear the Restricted Securities Legend set forth on
Exhibit A unless removed in accordance with Section 2.06(b) hereof and may not
be exchanged for a Global Security, or interest therein, at any time.
After a transfer of any Securities during the period of the
effectiveness of a Shelf Registration Statement with respect to the Securities,
all requirements pertaining to legends on such Security will cease to apply, the
requirements requiring any such Security issued to certain holders to be issued
in global form will cease to apply, and a certificated Security without legends
will be available to the holder of such Securities.
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SECTION 2.02. Execution, Authentication and Delivery. Two
Officers shall sign the Securities for the Company by manual or facsimile
signature. The Company's seal shall be reproduced on the Securities.
If an Officer whose signature is on a Security no longer holds
that office at the time the Security is authenticated, the Security shall
nevertheless be valid.
A Security shall not be valid until authenticated by the
manual signature of an authorized officer of the Trustee. The signature shall be
conclusive evidence that the Security has been authenticated under this
Indenture.
Upon a written order of the Company signed by two Officers,
the Trustee shall authenticate the Securities for original issue up to an
aggregate principal amount of $300,000,000 and deliver such authenticated
securities as directed in such order. The aggregate principal amount of
Securities outstanding at any time shall not exceed such amount except as
provided in Section 2.07.
The Trustee may appoint one or more authenticating agents
acceptable to the Company to authenticate Securities. An authenticating agent
may authenticate Securities whenever the Trustee may do so. Each reference in
this Indenture to authentication by the Trustee includes authentication by such
agent. An authenticating agent has the same rights as an Agent to deal with the
Company or an Affiliate.
SECTION 2.03. Registrar, Paying Agent and Conversion Agent.
The Company shall maintain in the Borough of Manhattan, City of New York, State
of New York (i) an office or agency where Securities may be presented for
registration of transfer or for exchange (the "Registrar"), (ii) an office or
agency where Securities may be presented for payment (the "Paying Agent") and
(iii) an office or agency where Securities may be presented for conversion (the
"Conversion Agent"). The Registrar shall keep a register of the Securities and
of their transfer and exchange. The Company has initially appointed the Trustee
as its Registrar, Paying Agent and Conversion Agent in New York. The Company may
appoint one or more co-registrars, one or more additional paying agents and one
or more additional conversion agents in such other locations as it shall
determine. The term "Registrar" includes any co-registrar, the term "Paying
Agent" includes any additional paying agent and the term "Conversion Agent"
includes any additional conversion agent. The Company may change any Paying
Agent, Registrar or Conversion Agent without prior notice to any Noteholder. The
Company shall notify the Trustee of the name and address of any newly-appointed
Agent not a party to this Indenture. If the Company fails to appoint or maintain
another entity as Registrar, Paying Agent or Conversion Agent, the Trustee shall
act as such.
SECTION 2.04. Paying Agent to Hold Money in Trust. The Company
shall require each Paying Agent other than the Trustee to agree in writing that
the Paying Agent will hold in trust for the benefit of Noteholders or the
Trustee all money held by the Paying Agent for
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the payment of principal or interest on the Securities, and will notify the
Trustee of any default by the Company in making any such payment. While any such
default continues, the Trustee may require a Paying Agent to pay all money held
by it to the Trustee. The Company at any time may require a Paying Agent to pay
all money held by it to the Trustee and to account for any money disbursed by
it. Upon payment over to the Trustee, the Paying Agent (if other than the
Company or an Affiliate of the Company) shall have no further liability for the
money. If the Company or an Affiliate of the Company acts as Paying Agent, it
shall segregate and hold in a separate trust fund for the benefit of the
Noteholders all money held by it as Paying Agent.
SECTION 2.05. Noteholder Lists. The Trustee shall preserve in
as current a form as is reasonably practicable the most recent list available to
it of the names and addresses of Noteholders. If the Trustee is not the
Registrar, the Company shall furnish to the Trustee on or before each interest
payment date and at such other times as the Trustee may request in writing a
list in such form and as of such date as the Trustee may reasonably require of
the names and addresses of Noteholders.
SECTION 2.06. Transfer and Exchange. Where Securities are
presented to the Registrar with a request to register a transfer or to exchange
them for an equal principal amount of Securities of other denominations, such
Registrar shall register the transfer or make the exchange if its requirements
for such transactions are met. To permit registrations of transfers and
exchanges, the Company shall issue and the Trustee shall authenticate Securities
at the Registrar's request. No service charge shall be made for any registration
of transfer or exchange (except as otherwise expressly permitted herein), but
the Company may require payment of a sum sufficient to cover any transfer tax or
similar governmental charge payable in connection therewith (other than any such
transfer tax or similar governmental charge payable upon exchanges pursuant to
Sections 2.10, 3.06, 3.08, 5.02 or 11.05 hereof).
The Company shall not be required (i) to issue, register the
transfer of, or exchange Securities during a period beginning at the opening of
business 15 days before the day of any selection of Securities for redemption
under Section 3.02 hereof and ending at the close of business on the day of
selection, or (ii) to exchange or register the transfer of any Security so
selected for redemption in whole or in part, except the unredeemed portion of
any Security being redeemed in part.
(a) Notwithstanding any provision to the contrary herein, so
long as a Global Security remains outstanding and is held by or on behalf of the
Depositary, transfers of a Global Security, in whole or in part, or of any
beneficial interest therein, shall only be made in accordance with Section
2.01(b) and this Section 2.06(a); provided, however, that beneficial interests
in a Global Security may be transferred to persons who take delivery thereof in
the form of a beneficial interest in the same Global Security in accordance with
the transfer restrictions set
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forth under the heading "Notice to Investors" in the Offering Memorandum and, if
applicable, in the Restricted Securities Legend.
(i) Except for transfers or exchanges made in accordance with
any of clauses (ii) through (iv) of this Section 2.06(a), transfers of
a Global Security shall be limited to transfers of such Global Security
in whole, but not in part, to nominees of the Depositary or to a
successor of the Depositary or such successor's nominee.
(ii) Global Security to Restricted Security. If an owner of a
beneficial interest in a Global Security deposited with the Depositary
or with the Trustee as custodian for the Depositary wishes at any time
to transfer its interest in such Global Security to a person who is
required to take delivery thereof in the form of a Restricted Security,
such owner may, subject to the rules and procedures of Euroclear or
Cedel Bank, if applicable, and the Depositary, cause the exchange of
such interest for one or more Restricted Securities of any authorized
denomination or denominations and of the same aggregate principal
amount at maturity. Upon receipt by the Registrar of (1) instructions
from Euroclear or Cedel Bank, if applicable, and the Depositary
directing the Trustee to authenticate and deliver one or more
Restricted Securities of the same aggregate principal amount at
maturity as the beneficial interest in the Global Security to be
exchanged, such instructions to contain the name or names of the
designated transferee or transferees, the authorized denomination or
denominations of the Restricted Securities to be so issued and
appropriate delivery instructions, (2) a certificate substantially in
the form of Exhibit B attached hereto given by the owner of such
beneficial interest and stating that the person transferring such
interest in such Global Security reasonably believes that the person
acquiring the Restricted Securities for which such interest is being
exchanged is an institutional "accredited investor" (as defined in Rule
501(a)(1), (2), (3) or (7) of Regulation D under the Securities Act)
and is acquiring such Restricted Securities having an aggregate
principal amount of not less than $250,000 for its own account or for
one or more accounts as to which the transferee exercises sole
investment discretion, (3) a certificate in the form of Exhibit C
attached hereto given by the person acquiring the Restricted Securities
for which such interest is being exchanged, to the effect set forth
therein, and (4) such other certifications, legal opinions or other
information as the Company may reasonably require to confirm that such
transfer is being made pursuant to an exemption from, or in a
transaction not subject to, the registration requirements of the
Securities Act, then Euroclear or Cedel Bank, if applicable, or the
Registrar, as the case may be, will instruct the Depositary to reduce
or cause to be reduced such Global Security by the aggregate principal
amount at maturity of the beneficial interest therein to be exchanged
and to debit or cause to be debited from the account of the person
making such transfer the beneficial interest in the Global Security
that is being transferred, and concurrently with such reduction and
debit the Company shall execute, and the Trustee shall authenticate and
deliver, one or more Restricted Securities of the same aggregate
principal amount at maturity in accordance with the instructions
referred to above.
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(iii) Restricted Security to Restricted Security. If a holder
of a Restricted Security wishes at any time to transfer such Restricted
Security to a person who is required to take delivery thereof in the
form of a Restricted Security, such holder may, subject to the
restrictions on transfer set forth herein and in such Restricted
Security, cause the exchange of such Restricted Security for one or
more Restricted Securities of any authorized denomination or
denominations and of the same aggregate principal amount at maturity.
Upon receipt by the Registrar of (1) such Restricted Security, duly
endorsed as provided herein, (2) instructions from such holder
directing the Trustee to authenticate and deliver one or more
Restricted Securities of the same aggregate principal amount at
maturity as the Restricted Security to be exchanged, such instructions
to contain the name or names of the designated transferee or
transferees, the authorized denomination or denominations of the
Restricted Securities to be so issued and appropriate delivery
instructions, (3) a certificate from the holder of the Restricted
Security to be exchanged in the form of Exhibit B attached hereto, (4)
a certificate in the form of Exhibit C attached hereto given by the
person acquiring the Restricted Securities for which such interest is
being exchanged, to the effect set forth therein, and (5) such other
certifications, legal opinions or other information as the Company may
reasonably require to confirm that such transfer is being made pursuant
to an exemption from, or in a transaction not subject to, the
registration requirements of the Securities Act, then the Registrar,
shall cancel or cause to be canceled such Restricted Security and
concurrently therewith, the Company shall execute, and the Trustee
shall authenticate and deliver, one or more Restricted Securities of
the same aggregate principal amount at maturity, in accordance with the
instructions referred to above.
(iv) Other Exchanges. In the event that a Global Security is
exchanged for Securities in definitive registered form pursuant to
Section 2.10, prior to the effectiveness of a Shelf Registration
Statement with respect to such Securities, such Securities may be
exchanged only in accordance with such procedures as are substantially
consistent with the provisions of clauses (ii) and (iii) above
(including the certification requirements intended to ensure that such
transfers comply with Rule 144A or Regulation S under the Securities
Act, as the case may be) and such other procedures as may from time to
time be adopted by the Company.
(b) Except in connection with a Shelf Registration Statement
contemplated by and in accordance with the terms of the Registration Agreement,
if Securities are issued upon the registration of transfer, exchange or
replacement of Securities bearing the Restricted Securities Legend set forth in
Exhibit A hereto, or if a request is made to remove such Restricted Securities
Legend on Securities, the Securities so issued shall bear the Restricted
Securities Legend, or the Restricted Securities Legend shall not be removed, as
the case may be, unless there is delivered to the Company such satisfactory
evidence, which may include an opinion of counsel licensed to practice law in
the State of New York, as may be reasonably required by the Company, that
neither the legend nor the restrictions on transfer set forth therein are
required to ensure that
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transfers thereof comply with the provisions of Rule 144A, Rule 144 or
Regulation S under the Securities Act or, with respect to Restricted Securities,
that such Securities are not "restricted" within the meaning of Rule 144 under
the Securities Act. Upon provision to the Company of such satisfactory evidence,
the Trustee, at the written direction of the Company, shall authenticate and
deliver Securities that do not bear the legend.
(c) Neither the Trustee nor any Agent shall have any
responsibility for any actions taken or not taken by the Depositary.
SECTION 2.07. Replacement Securities. If the holder of a
Security claims that the Security has been lost, destroyed or wrongfully taken
or if such Security is mutilated and is surrendered to the Registrar, the
Company shall issue and the Trustee shall authenticate a replacement Security if
the Trustee's and the Company's requirements (as shall have been previously
communicated to the Trustee in a written letter of standing instruction) are
met. If required by the Trustee, the Registrar or the Company, an indemnity bond
must be sufficient in the judgment of each of the foregoing to protect the
Company, the Trustee, any Agent or any authenticating agent from any loss which
any of them may suffer if a Security is replaced. The Company may charge for its
expenses in replacing a Security.
In case any such mutilated, destroyed, lost or stolen Security
has become or is about to become due and payable, or is about to be redeemed or
purchased by the Company pursuant to Article III hereof or converted into shares
of Common Stock pursuant to Article V hereof, the Company in its discretion may,
instead of issuing a new Security, pay, redeem or convert such Security, as the
case may be.
Every replacement Security is an additional obligation of the
Company.
SECTION 2.08. Outstanding Securities. The Securities
outstanding at any time are all the Securities authenticated by the Trustee
except for those canceled by it, those delivered to it for cancellation, and
those described in this Section as not outstanding.
If a Security is replaced, paid, redeemed or converted
pursuant to Section 2.07 hereof, it ceases to be outstanding unless, in the case
of a replaced Security, the Trustee receives proof satisfactory to it that the
replaced Security is held by a bona fide purchaser.
If Securities are considered paid under Section 4.01 hereof,
they cease to be outstanding and interest on them ceases to accrue.
A Security does not cease to be outstanding because the
Company or an Affiliate of the Company holds the Security.
SECTION 2.09. Treasury Securities. In determining whether the
Noteholders of the required principal amount of Securities have concurred in any
direction, waiver or consent, Securities owned by the Company or an Affiliate of
the Company shall be considered as though
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they are not outstanding, except that for the purposes of determining whether
the Trustee shall be protected in relying on any such direction, waiver or
consent, only Securities which a Trust Officer knows are so owned shall be so
disregarded.
SECTION 2.10. Temporary Securities; Exchange of Global
Security for Certificated Securities. (a) Until definitive Securities are ready
for delivery, the Company may prepare and the Trustee shall authenticate
temporary Securities. Temporary Securities shall be substantially in the form of
definitive Securities but may have variations that the Company considers
appropriate for temporary Securities. Without unreasonable delay, the Company
shall prepare and the Trustee shall authenticate definitive Securities in
exchange for temporary Securities.
(b) A Global Security deposited with the Depositary or with
the Trustee as custodian for the Depositary pursuant to Section 2.01 shall be
transferred to the beneficial owners thereof in the form of certificated
securities only if such transfer complies with Section 2.06 and (i) the
Depositary notifies the Company that it is unwilling or unable to continue as
Depositary for such Global Security or if at any time such Depositary ceases to
be a "clearing agency" registered under the Exchange Act and a successor
Depositary is not appointed by the Company within 90 days of such notice, or
(ii) an Event of Default has occurred and is continuing.
(c) Any Global Security that is transferable to the beneficial
owners thereof in the form of certificated Securities pursuant to this Section
2.10 shall be surrendered by the Depositary to the Trustee located in the
Borough of Manhattan, The City of New York, to be so transferred, in whole or
from time to time in part, without charge, and the Trustee shall authenticate
and deliver, upon such transfer of each portion of such Global Security, an
equal aggregate principal amount at maturity of Securities of authorized
denominations in the form of certificated Securities. Any portion of a Global
Security transferred pursuant to this Section shall be executed, authenticated
and delivered only in denominations of $1,000 and any integral multiple thereof
and registered in such names as the Depositary shall direct. Any Securities in
the form of certificated Securities delivered in exchange for an interest in the
Global Security shall, except as otherwise provided by Section 2.06(b), bear the
Restricted Securities Legend set forth in Exhibit A hereto.
(d) Prior to any transfer pursuant to Section 2.10(b), the
registered holder of a Global Security may grant proxies and otherwise authorize
any person, including Agent Members and persons that may hold interests through
Agent Members, to take any action which a holder is entitled to take under this
Indenture or the Securities.
(e) In the event of the occurrence of either of the events
specified in Section 2.10(b), the Company will promptly make available to the
Trustee a reasonable supply of certificated Securities in definitive form
without interest coupons.
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SECTION 2.11. Cancellation. The Company at any time may
deliver Securities to the Registrar for cancellation. The Registrar, Paying
Agent and Conversion Agent shall forward to the Trustee any Securities
surrendered to them for registration of transfer, redemption, conversion,
exchange or payment. The Trustee shall promptly cancel all Securities
surrendered for registration of transfer, redemption, conversion, exchange,
payment, replacement or cancellation and shall destroy all canceled Securities
unless the Company otherwise directs. The Company may not issue new Securities
to replace Securities that it has paid or that have been delivered to the
Registrar for cancellation or that any holder has converted.
SECTION 2.12. Defaulted Interest. If the Company fails to make
a payment of interest on the Securities, it shall pay such defaulted interest
plus any interest payable on the defaulted interest, in any lawful manner. It
may pay such defaulted interest, plus any such interest payable on it, to the
persons who are Noteholders on a subsequent special record date. The Company
shall fix any such record date and payment date. At least 15 days before any
such record date, the Company shall mail to Noteholders a notice that states the
record date, payment date, and amount of such interest to be paid.
ARTICLE III
Redemption
SECTION 3.01. Notices to Trustee. If the Company elects to
redeem Securities pursuant to Section 3.07 hereof, it shall notify the Trustee
of the redemption date and the principal amount of Securities to be redeemed.
The Company shall give each notice provided for in this Section 3.01 at least 45
days before the redemption date (unless a shorter notice period shall be
satisfactory to the Trustee).
SECTION 3.02. Selection of Securities to be Redeemed. If less
than all the Securities are to be redeemed, the Trustee shall select the
Securities to be redeemed by a method that complies with the requirements of the
principal national securities exchange, if any, on which the Securities are
listed, or, if the Securities are not so listed, on a pro rata basis, by lot or
by such other method as the Trustee considers fair and appropriate. The Trustee
shall make the selection not more than 60 days and not less than 30 days before
the redemption date from Securities outstanding not previously called for
redemption. The Trustee may select for redemption portions of the principal of
Securities that have denominations larger than $1,000. Securities and portions
of them it selects shall be in amounts of $1,000 or integral multiples of
$1,000. Provisions of this Indenture that apply to Securities called for
redemption also apply to portions of Securities called for redemption. The
Trustee shall notify the Company promptly of the Securities or portions of
Securities to be called for redemption.
If any Security selected for partial redemption is converted
in part after such selection, the converted portion of such Security shall be
deemed (so far as may be) to be the portion to be selected for redemption. The
Securities (or portions thereof) so selected shall be
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deemed duly selected for redemption for all purposes hereof, notwithstanding
that any such Security is converted in whole or in part before the mailing of
the notice of redemption. Upon any redemption of less than all the Securities,
the Company and the Trustee may treat as outstanding any Securities surrendered
for conversion during the period 15 days next preceding the mailing of a notice
of redemption and need not treat as outstanding any Security authenticated and
delivered during such period in exchange for the unconverted portion of any
Security converted in part during such period.
SECTION 3.03. Notice of Redemption. At least 30 days but not
more than 60 days before a redemption date, the Company shall mail a notice of
redemption to each holder whose Securities are to be redeemed at such holder's
registered address.
The notice shall identify the Securities to be redeemed and
shall state:
(a) the redemption date;
(b) the redemption price;
(c) if any Security is being redeemed in part, the portion of
the principal amount of such Security to be redeemed and that, after
the redemption date, upon cancellation of such Security, a new Security
or Securities in principal amount equal to the unredeemed portion will
be issued in the name of the holder thereof;
(d) the name and address of the Paying Agent;
(e) that Securities called for redemption must be surrendered
to the Paying Agent to collect the redemption price plus accrued
interest;
(f) that, unless the Company defaults in making such
redemption payment or the Paying Agent is prohibited from making such
payment pursuant to the terms of this Indenture, by law or otherwise,
interest on Securities called for redemption ceases to accrue on and
after the redemption date; and
(g) the paragraph of the Securities pursuant to which the
Securities called for redemption are being redeemed.
Such notice shall also state the current Conversion Price and
the date on which the right to convert such Securities or portions thereof into
Common Stock of the Company will expire.
At the Company's request, the Trustee shall give notice of
redemption in the Company's name and at its expense.
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SECTION 3.04. Effect of Notice of Redemption. Once notice of
redemption is mailed, Securities called for redemption become due and payable on
the redemption date at the price set forth in the Security.
SECTION 3.05. Deposit of Redemption Price. On or before the
redemption date, the Company shall deposit with the Trustee or the Paying Agent
money sufficient to pay the redemption price of and accrued interest up to but
not including the redemption date on all Securities to be redeemed on that date
(subject to the right of holders of record on the relevant record date to
receive interest due on an interest payment date) unless theretofore converted
into Common Stock pursuant to the provisions hereof. The Trustee or such Paying
Agent shall return to the Company any money not required for that purpose.
SECTION 3.06. Securities Redeemed in Part. Upon surrender of a
Security that is redeemed in part, the Company shall issue and the Trustee shall
authenticate for the holder at the expense of the Company a new Security equal
in principal amount to the unredeemed portion of the Security surrendered.
SECTION 3.07. Optional Redemption. The Company may redeem all
or any portion of the Securities, upon the terms and at the redemption prices
set forth in each of the Securities. Any redemption pursuant to this Section
3.07 shall be made pursuant to the provisions of Section 3.01 through 3.06
hereof.
SECTION 3.08. Designated Event Offer. (a) In the event that,
pursuant to Section 4.07 hereof, the Company shall commence a Designated Event
Offer, the Company shall follow the procedures in this Section 3.08.
(b) The Designated Event Offer shall remain open for a period
specified by the Company which shall be no less than 30 calendar days and no
more than 40 calendar days following its commencement on the date of the mailing
of notice in accordance with Section 4.07(b) hereof (the "Commencement Date"),
except to the extent that a longer period is required by applicable law (the
"Tender Period"). Upon the expiration of the Tender Period (the "Designated
Event Payment Date"), the Company shall purchase the principal amount of
Securities required to be purchased pursuant to Section 4.07 hereof (the "Offer
Amount").
(c) If the Designated Event Payment Date is on or after an
interest payment record date and on or before the related interest payment date,
any accrued interest to the related interest payment date will be paid to the
person in whose name a Security is registered at the close of business on such
record date, and no additional interest will be payable to Noteholders who
tender Securities pursuant to the Designated Event Offer.
(d) The Company shall provide the Trustee with written notice
of the Designated Event Offer at least 10 Business Days before the Commencement
Date.
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(e) Subject to Section 4.07(b), on or before the Commencement
Date, the Company or the Trustee (at the request and expense of the Company)
shall send, by first class mail, a notice to each of the Noteholders, which
shall govern the terms of the Designated Event Offer and shall state:
(i) that the Designated Event Offer is being made pursuant to
this Section 3.08 and Section 4.07 hereof and that all Securities
tendered will be accepted for payment;
(ii) the Offer Amount, the purchase price (as determined in
accordance with Section 4.07 hereof), the length of time the Designated
Event Offer will remain open and the Designated Event Payment Date;
(iii) that any Security or portion thereof not tendered or
accepted for payment will continue to accrue interest;
(iv) that, unless the Company defaults in the payment of the
Designated Event Payment, any Security or portion thereof accepted for
payment pursuant to the Designated Event Offer shall cease to accrue
interest after the Designated Event Payment Date;
(v) that Noteholders electing to have a Security or portion
thereof purchased pursuant to any Designated Event Offer will be
required to surrender the Security, with the form entitled "Option of
Noteholder To Elect Purchase" on the reverse of the Security completed,
to the Paying Agent at the address specified in the notice prior to the
close of business on the third Business Day preceding the Designated
Event Payment Date;
(vi) that Noteholders will be entitled to withdraw their
election if the Paying Agent receives, not later than the close of
business on the second Business Day preceding the Designated Event
Payment Date, or such longer period as may be required by law, a letter
or a telegram, telex, facsimile transmission (receipt of which is
confirmed and promptly followed by a letter) setting forth the name of
the Noteholder, the principal amount of the Security or portion thereof
the Noteholder delivered for purchase and a statement that such
Noteholder is withdrawing his election to have the Security or portion
thereof purchased; and
(vii) that Noteholders whose Securities are being purchased
only in part will be issued new Securities equal in principal amount to
the unpurchased portion of the Securities surrendered, which
unpurchased portion must be equal to $1,000 in principal amount or an
integral multiple thereof.
In addition, the notice shall contain all instructions and
materials that the Company shall reasonably deem necessary to enable such
Noteholders to tender Securities pursuant to the Designated Event Offer.
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(f) At least one Business Day prior to the Designated Event
Payment Date, the Company shall irrevocably deposit with the Trustee or the
Paying Agent in immediately available funds an amount equal to the Offer Amount
to be held for payment in accordance with the terms of this Section 3.08. On the
Designated Event Payment Date, the Company shall, to the extent lawful, (i)
accept for payment the Securities or portions thereof tendered pursuant to the
Designated Event Offer, (ii) deliver or cause to be delivered to the Trustee
Securities so accepted and (iii) deliver to the Trustee an Officers' Certificate
stating such Securities or portions thereof have been accepted for payment by
the Company in accordance with the terms of this Section 3.08. The Paying Agent
shall promptly (but in any case not later than five calendar days after the
Designated Event Payment Date) mail or deliver to each tendering Noteholder an
amount equal to the purchase price of the Securities tendered by such
Noteholder, and the Trustee shall promptly authenticate and mail or deliver to
such Noteholders a new Security equal in principal amount to any unpurchased
portion of the Security surrendered, if any; provided, that each new Security
shall be in a principal amount of $1,000 or an integral multiple thereof. Any
Securities not so accepted shall be promptly mailed or delivered by or on behalf
of the Company to the holder thereof. The Company will publicly announce the
results of the Designated Event Offer on, or as soon as practicable after, the
Designated Event Payment Date.
(g) The Designated Event Offer shall be made by the Company in
compliance with all applicable provisions of the Exchange Act, and all
applicable tender offer rules promulgated thereunder, and shall include all
instructions and materials that the Company shall reasonably deem necessary to
enable such Noteholders to tender their Securities.
ARTICLE IV
Covenants
SECTION 4.01. Payment of Securities. The Company shall pay the
principal of and interest on the Securities on the dates and in the manner
provided in the Securities. Principal and interest shall be considered paid on
the date due if the Paying Agent (other than the Company or an Affiliate of the
Company) holds on that date money designated for and sufficient to pay all
principal and interest then due and such Paying Agent is not prohibited from
paying such money to the Noteholders on that date pursuant to the terms of this
Indenture. To the extent lawful, the Company shall pay interest (including
post-petition interest in any proceeding under any Bankruptcy Law) on overdue
installments of interest (without regard to any applicable grace period) at the
rate borne by the Securities, compounded semiannually.
SECTION 4.02. SEC Reports. Whether or not required by the
rules and regulations of the SEC, so long as any Securities are outstanding, the
Company will file with the SEC and furnish to the Trustee and to the holders of
Securities all quarterly and annual financial information required to be
contained in a filing with the SEC on Forms 10-Q and 10-K, including a
"Management's Discussion and Analysis of Financial Conditions and Results of
Operations"
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and, with respect to annual information only, a report thereon by the Company's
certified independent accountants.
SECTION 4.03. Compliance Certificate. The Company shall
deliver to the Trustee, within 120 days after the end of each fiscal year of the
Company, an Officers' Certificate stating that a review of the activities of the
Company and its subsidiaries during the preceding fiscal year has been made
under the supervision of the signing Officers with a view to determining whether
the Company has kept, observed, performed and fulfilled its obligations under,
and complied with the covenants and conditions contained in, this Indenture, and
further stating, as to each such Officer signing such certificate, that to the
best of such Officer's knowledge the Company has kept, observed, performed and
fulfilled each and every covenant, and complied with the covenants and
conditions contained in this Indenture and is not in default in the performance
or observance of any of the terms, provisions and conditions hereof (or, if a
Default or Event of Default shall have occurred, describing all such Defaults or
Events of Default of which such Officer may have knowledge) and that to the best
of such Officer's knowledge no event has occurred and remains in existence by
reason of which payments on account of the principal or of interest, if any, on
the Securities are prohibited.
One of the Officers signing such Officers' Certificate shall
be either the Company's principal executive officer, principal financial officer
or principal accounting officer.
The Company will, so long as any of the Securities are
outstanding, deliver to the Trustee, forthwith upon becoming aware of:
(a) any Default, Event of Default or default in the
performance of any covenant, agreement or condition contained in this
Indenture; or
(b) any event of default under any other mortgage, indenture
or instrument as that term is used in Section 8.01(e),
an Officers' Certificate specifying such Default, Event of Default or default.
Immediately upon the occurrence of any event giving rise to an
increase in the interest rate on the Securities in accordance with paragraph 11
of the form thereof or the termination of any such increase, the Company shall
give the Trustee notice of such increase or termination, of the interest rate
borne by the Securities after giving effect to such increase or termination and
of the event giving rise to such increase or termination (such notice to be
contained in an Officers' Certificate), and prior to receipt of such Officers'
Certificate the Trustee shall be entitled to assume that no such increase or
termination has occurred, as the case may be.
SECTION 4.04. Stay, Extension and Usury Law. The Company
covenants (to the extent that it may lawfully do so) that it will not at any
time insist upon, plead, or in any
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manner whatsoever claim or take the benefit or advantage of, any stay, extension
or usury law wherever enacted, now or at any time hereafter in force, which may
affect the covenants or the performance of this Indenture; and the Company (to
the extent it may lawfully do so) hereby expressly waives all benefit or
advantage of any such law, and covenants that it will not, by resort to any such
law, hinder, delay or impede the execution of any power herein granted to the
Trustee, but will suffer and permit the execution of every such power as though
no such law has been enacted.
SECTION 4.05. Corporate Existence. Except as provided in
Article VII hereof, the Company will do or cause to be done all things necessary
to preserve and keep in full force and effect its corporate existence and the
corporate, partnership or other existence of each Subsidiary of the Company in
accordance with the respective organizational documents of each Subsidiary and
the rights (charter and statutory), licenses and franchises of the Company and
its Subsidiaries; provided, however, that the Company shall not be required to
preserve any such right, license or franchise, or the corporate, partnership or
other existence of any Subsidiary, if the Board of Directors shall determine
that the preservation thereof is no longer desirable in the conduct of the
business of the Company and its Subsidiaries taken as a whole and that the loss
thereof is not adverse in any material respect to the Noteholders.
SECTION 4.06. Taxes. The Company shall, and shall cause each
of its Subsidiaries to, pay prior to delinquency all taxes, assessments and
governmental levies, except as contested in good faith and by appropriate
proceedings.
SECTION 4.07. Designated Event. (a) Upon the occurrence of a
Designated Event, each holder of Securities shall have the right, in accordance
with this Section 4.07 and Section 3.08 hereof, to require the Company to
repurchase all or any part (equal to $1,000 or an integral multiple thereof) of
such holder's Securities pursuant to the terms of Section 3.08 (the "Designated
Event Offer") at a purchase price equal to 101% of the principal amount thereof,
plus accrued and unpaid interest thereon to the Designated Event Payment Date
(the "Designated Event Payment").
(b) Within 30 days following any Designated Event, the Company
shall mail to each holder the notice provided by Section 3.08(e).
ARTICLE V
Conversion
SECTION 5.01. Conversion Privilege. A holder of a Security may
convert the principal amount thereof (or any portion thereof that is an integral
multiple of $1,000) into fully paid and nonassessable shares of Common Stock of
the Company at any time after 90 days following the Issuance Date and prior to
the close of business on the Business Day immediately preceding the maturity
date of the Security at the Conversion Price then in effect, except that,
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with respect to any Security called for redemption, such conversion right shall
terminate at the close of business on the Business Day immediately preceding the
redemption date (unless the Company shall default in making the redemption
payment when it becomes due, in which case the conversion right shall terminate
on the date such default is cured). The number of shares of Common Stock
issuable upon conversion of a Security is determined by dividing the principal
amount of the Security converted by the conversion price in effect on the
Conversion Date (the "Conversion Price").
The initial Conversion Price is stated in paragraph 10 of the
Securities and is subject to adjustment as provided in this Article V.
Provisions of this Indenture that apply to conversion of all
of a Security also apply to conversion of a portion of it. A holder of
Securities is not entitled to any rights of a holder of Common Stock until such
holder of Securities has converted such Securities into Common Stock, and only
to the extent that such Securities are deemed to have been converted into Common
Stock under this Article 5.
SECTION 5.02. Conversion Procedure. To convert a Security, a
holder must satisfy the requirements in paragraph 10 of the Securities. The date
on which the holder satisfies all of those requirements is the conversion date
(the "Conversion Date"). As soon as practicable after the Conversion Date, the
Company shall deliver to the holder through the Conversion Agent a certificate
for the number of whole shares of Common Stock issuable upon the conversion and
a check for any fractional share determined pursuant to Section 5.03. The person
in whose name the certificate is registered shall become the stockholder of
record on the Conversion Date and, as of such date, such person's rights as a
Noteholder with respect to the converted Security shall cease; provided,
however, that no surrender of a Security on any date when the stock transfer
books of the Company shall be closed shall be effective to constitute the person
entitled to receive the shares of Common Stock upon such conversion as the
stockholder of record of such shares of Common Stock on such date, but such
surrender shall be effective to constitute the person entitled to receive such
shares of Common Stock as the stockholder of record thereof for all purposes at
the close of business on the next succeeding day on which such stock transfer
books are open; provided further, however, that such conversion shall be at the
Conversion Price in effect on the date that such Security shall have been
surrendered for conversion, as if the stock transfer books of the Company had
not been closed.
No payment or adjustment will be made for accrued and unpaid
interest on a converted Security or for dividends or distributions on shares of
Common Stock issued upon conversion of a Security, but if any holder surrenders
a Security for conversion after the close of business on the record date for the
payment of an installment of interest and prior to the opening of business on
the next interest payment date, then, notwithstanding such conversion, the
interest payable on such interest payment date shall be paid to the holder of
such Security on such record date. In such event, unless such Security has been
called for redemption on or prior to such interest payment date, such Security,
when surrendered for conversion, must be accompanied by
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payment in funds
acceptable to the Company of an amount equal to the interest payable on such
interest payment date on the portion so converted.
If a holder converts more than one Security at the same time,
the number of whole shares of Common Stock issuable upon the conversion shall be
based on the total principal amount of Securities converted.
Upon surrender of a Security that is converted in part, the
Trustee shall authenticate for the holder a new Security equal in principal
amount to the unconverted portion of the Security surrendered.
SECTION 5.03. Fractional Shares. The Company will not issue
fractional shares of Common Stock upon conversion of a Security. In lieu
thereof, the Company will pay an amount in cash based upon the Daily Market
Price of the Common Stock on the trading day prior to the date of conversion.
SECTION 5.04. Taxes on Conversion. The issuance of
certificates for shares of Common Stock upon the conversion of any Security
shall be made without charge to the converting Noteholder for such certificates
or for any tax in respect of the issuance of such certificates, and such
certificates shall be issued in the respective names of, or in such names as may
be directed by, the holder or holders of the converted Security; provided,
however, that in the event that certificates for shares of Common Stock are to
be issued in a name other than the name of the holder of the Security converted,
such Security, when surrendered for conversion, shall be accompanied by an
instrument of assignment or transfer, in form satisfactory to the Company, duly
executed by the registered holder thereof or his duly authorized attorney; and
provided further, however, that the Company shall not be required to pay any tax
which may be payable in respect of any transfer involved in the issuance and
delivery of any such certificates in a name other than that of the holder of the
converted Security, 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 or shall have
established to the satisfaction of the Company that such tax has been paid or is
not applicable.
SECTION 5.05. Company to Provide Stock. The Company shall at
all times reserve and keep available, free from preemptive rights, out of its
authorized but unissued Common Stock, solely for the purpose of issuance upon
conversion of Securities as herein provided, a sufficient number of shares of
Common Stock to permit the conversion of all outstanding Securities for shares
of Common Stock.
All shares of Common Stock which may be issued upon conversion
of the Securities shall be duly authorized, validly issued, fully paid and
nonassessable when so issued.
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SECTION 5.06. Adjustment of Conversion Price. The Conversion
Price shall be subject to adjustment from time to time as follows:
(a) In case the Company shall (1) pay a dividend in shares of
Common Stock to holders of Common Stock, (2) make a distribution in shares of
Common Stock to holders of Common Stock, (3) subdivide its outstanding shares of
Common Stock into a greater number of shares of Common Stock or (4) combine its
outstanding shares of Common Stock into a smaller number of shares of Common
Stock, the Conversion Price in effect immediately prior to such action shall be
adjusted so that the holder of any Security thereafter surrendered for
conversion shall be entitled to receive the number of shares of Common Stock
which he would have owned immediately following such action had such Securities
been converted immediately prior thereto. Any adjustment made pursuant to this
subsection (a) shall become effective immediately after the record date in the
case of a dividend or distribution and shall become effective immediately after
the effective date in the case of a subdivision or combination.
(b) In case the Company shall issue rights or warrants to
substantially all holders of Common Stock entitling them (for a period
commencing no earlier than the record date for the determination of holders of
Common Stock entitled to receive such rights or warrants and expiring not more
than 45 days after such record date) to subscribe for or purchase shares of
Common Stock (or securities convertible into Common Stock) at a price per share
less than the Current Market Price (as determined pursuant to subsection (f)
below) of the Common Stock on such record date, the Conversion Price shall be
adjusted so that the same shall equal the price determined by multiplying the
Conversion Price in effect immediately prior to such record date by a fraction
of which the numerator shall be the number of shares of Common Stock outstanding
on such record date, plus the number of shares of Common Stock which the
aggregate offering price of the offered shares of Common Stock (or the aggregate
conversion price of the convertible securities so offered) would purchase at
such Current Market Price, and of which the denominator shall be the number of
shares of Common Stock outstanding on such record date plus the number of
additional shares of Common Stock offered (or into which the convertible
securities so offered are convertible). Such adjustments shall become effective
immediately after such record date.
(c) In case the Company shall distribute to all holders of
Common Stock shares of any class of Capital Stock of the Company other than
Common Stock, evidences of indebtedness or other assets (other than cash
dividends out of current or retained earnings), or shall distribute to
substantially all holders of Common Stock rights or warrants to subscribe for
securities (other than those Securities referred to in subsection (b) above),
then in each such case the Conversion Price shall be adjusted so that the same
shall equal the price determined by multiplying the Conversion Price in effect
immediately prior to the date of such distribution by a fraction of which the
numerator shall be the Current Market Price (determined as provided in
subsection (f) below) of the Common Stock on the record date mentioned below
less the then fair market value (as determined by the Board of Directors, whose
determination shall be conclusive evidence of such fair market value and
described in a Board Resolution) of the portion of the
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assets so distributed or of such subscription rights or warrants applicable to
one share of Common Stock, and of which the denominator shall be such Current
Market Price of the Common Stock. Such adjustment shall become effective
immediately after the record date for the determination of the holders of Common
Stock entitled to receive such distribution. Notwithstanding the foregoing, in
case the Company shall issue rights or warrants to subscribe for additional
shares of the Company's capital stock (other than those referred to in
subsection (b) above) ("Rights") to substantially all holders of Common Stock,
the Company may, in lieu of making any adjustment pursuant to this Section 5.06,
make proper provision so that each holder of a Security who converts such
Security (or any portion thereof) after the record date for such distribution
and prior to the expiration or redemption of the Rights shall be entitled to
receive upon such conversion, in addition to the shares of Common Stock issuable
upon such conversion (the "Conversion Shares"), a number of Rights to be
determined as follows: (i) if such conversion occurs on or prior to the date for
the distribution to the holders of Rights of separate certificates evidencing
such Rights (the "Distribution Date"), the same number of Rights to which a
holder of a number of shares of Common Stock equal to the number of Conversion
Shares is entitled at the time of such conversion in accordance with the terms
and provisions of and applicable to the Rights; and (ii) if such conversion
occurs after the Distribution Date, the same number of Rights to which a holder
of the number of shares of Common Stock into which the principal amount of the
Security so converted was convertible immediately prior to the Distribution Date
would have been entitled on the Distribution Date in accordance with the terms
and provisions of and applicable to the Rights.
(d) In case the Company shall, by dividend or otherwise, at
any time distribute to all holders of its Common Stock cash (including any
distributions of cash out of current or retained earnings of the Company but
excluding any cash that is distributed as part of a distribution requiring a
Conversion Price adjustment pursuant to paragraph (c) of this Section) in an
aggregate amount that, together with the sum of (x) the aggregate amount of any
other distributions to all holders of its Common Stock made in cash plus (y) all
Excess Payments, in each case made within the 12 months preceding the date fixed
for determining the stockholders entitled to such distribution (the
"Distribution Record Date") and in respect of which no Conversion Price
adjustment pursuant to paragraphs (c) or (e) of this Section or this paragraph
(d) has been made, exceeds 15% of the product of the Current Market Price per
share (determined as provided in paragraph (f) of this Section) of the Common
Stock on the Distribution Record Date multiplied by the number of shares of
Common Stock outstanding on the Distribution Record Date (excluding shares held
in the treasury of the Company), the Conversion Price shall be reduced so that
the same shall equal the price determined by multiplying such Conversion Price
in effect immediately prior to the effectiveness of the Conversion Price
reduction contemplated by this paragraph (d) by a fraction of which the
numerator shall be the Current Market Price per share (determined as provided in
paragraph (f) of this Section) of the Common Stock on the Distribution Record
Date less the amount of such cash and other consideration
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(including any Excess Payments) so distributed applicable to one share of Common
Stock (equal to the aggregate amount of such cash and other consideration
(including any Excess Payments) divided by the number of shares of Common Stock
outstanding on the Distribution Record Date) and the denominator shall be such
Current Market Price per share (determined as provided in paragraph (f) of this
Section) of the Common Stock on the Distribution Record Date, such reduction to
become effective immediately prior to the opening of business on the day
following the Distribution Record Date.
(e) In case a tender offer or other negotiated transaction
made by the Company or any Subsidiary of the Company for all or any portion of
the Common Stock shall be consummated, if an Excess Payment is made in respect
of such tender offer or other negotiated transaction and the amount of such
Excess Payment, together with the sum of (x) the aggregate amount of all Excess
Payments plus (y) the aggregate amount of all distributions to all holders of
the Common Stock made in cash (including any distributions of cash out of
current or retained earnings of the Company), in each case made within the 12
months preceding the date of payment of such current negotiated transaction
consideration or expiration of such current tender offer, as the case may be
(the "Purchase Date"), and as to which no adjustment pursuant to paragraph (c)
or paragraph (d) of this Section or this paragraph (e) has been made, exceeds
15% of the product of the Current Market Price per share (determined as provided
in paragraph (f) of this Section) of the Common Stock on the Purchase Date
multiplied by the number of shares of Common Stock outstanding (including any
tendered shares but excluding any shares held in the treasury of the Company or
any Subsidiary of the Company) on the Purchase Date, the Conversion Price shall
be reduced so that the same shall equal the price determined by multiplying such
Conversion Price in effect immediately prior to the effectiveness of the
Conversion Price reduction contemplated by this paragraph (e) by a fraction of
which the numerator shall be the Current Market Price per share (determined as
provided in paragraph (f) of this Section) of the Common Stock on the Purchase
Date less the amount of such Excess Payments and such cash distributions, if
any, applicable to one share of Common Stock (equal to the aggregate amount of
such Excess Payments and such cash distributions divided by the number of shares
of Common Stock outstanding on the Purchase Date) and the denominator shall be
such Current Market Price per share (determined as provided in paragraph (f) of
this Section) of the Common Stock on the Purchase Date, such reduction to become
effective immediately prior to the opening of business on the day following the
Purchase Date.
(f) The "Current Market Price" per share of Common Stock on
any date shall be deemed to be the average of the Daily Market Prices for the
shorter of (i) 30 consecutive Business Days ending on the last full Trading Day
on the exchange or market referred to in determining such Daily Market Prices
prior to the time of determination or (ii) the period commencing on the date
next succeeding the first public announcement of the issuance of such rights or
such warrants or such other distribution or such negotiated transaction through
such last full trading day on the exchange or market referred to in determining
such Daily Market Prices prior to the time of determination.
(g) "Excess Payment" means the excess of (A) the aggregate of
the cash and fair market value of other consideration paid by the Company or any
of its Subsidiaries with respect
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to the shares acquired in a tender offer or other negotiated transaction over
(B) the Daily Market Price on the Trading Day immediately following the
completion of such tender offer or other negotiated transaction multiplied by
the number of acquired shares.
(h) In any case in which this Section 5.06 shall require that
an adjustment be made immediately following a record date for an event, the
Company may elect to defer, until such event, issuing to the holder of any
Security converted after such record date the shares of Common Stock and other
Capital Stock of the Company issuable upon such conversion over and above the
shares of Common Stock and other Capital Stock of the Company issuable upon such
conversion only on the basis of the Conversion Price prior to adjustment; and,
in lieu of the shares the issuance of which is so deferred, the Company shall
issue or cause its transfer agents to issue due bills or other appropriate
evidence of the right to receive such shares.
SECTION 5.07. No Adjustment. No adjustment in the Conversion
Price shall be required until cumulative adjustments amount to 1% or more of the
Conversion Price as last adjusted; provided, however, that any adjustments which
by reason of this Section 5.07 are not required to be made shall be carried
forward and taken into account in any subsequent adjustment. All calculations
under this Article V shall be made to the nearest cent or to the nearest
one-hundredth of a share, as the case may be. No adjustment need be made for
rights to purchase Common Stock pursuant to a Company plan for reinvestment of
dividends or interest. No adjustment need be made for a change in the par value
or no par value of the Common Stock.
SECTION 5.08. Other Adjustments. (a) In the event that, as a
result of an adjustment made pursuant to Section 5.06 above, the holder of any
Security thereafter surrendered for conversion shall become entitled to receive
any shares of Capital Stock of the Company other than shares of its Common
Stock, thereafter the Conversion Price of such other shares so receivable upon
conversion of any Securities 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 Common Stock contained in this Article V.
(b) In the event that shares of Common Stock are not delivered
after the expiration of any of the rights or warrants referred to in Section
5.06(b) and Section 5.06(c) hereof, the Conversion Price shall be readjusted to
the Conversion Price which would otherwise be in effect had the adjustment made
upon the issuance of such rights or warrants been made on the basis of delivery
of only the number of shares of Common Stock actually delivered.
SECTION 5.09. Adjustments for Tax Purposes. The Company may,
at its option, make such reductions in the Conversion Price, in addition to
those required by Section 5.06 above, as it determines to be advisable in order
that any stock dividend, subdivision of shares, distribution of rights to
purchase stock or securities or distribution of securities convertible into or
exchangeable for stock made by the Company to its stockholders will not be
taxable to the recipients thereof.
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SECTION 5.10. Adjustments by the Company. The Company from
time to time may, to the extent permitted by law, reduce the Conversion Price by
any amount for any period of at least 20 days, in which case the Company shall
give at least 15 days' notice of such reduction in accordance with Section 5.11,
if the Board of Directors has made a determination that such reduction would be
in the best interests of the Company, which determination shall be conclusive.
SECTION 5.11. Notice of Adjustment. Whenever the Conversion
Price is adjusted, the Company shall promptly mail to Noteholders at the
addresses appearing on the Registrar's books a notice of the adjustment and file
with the Trustee an Officers' Certificate briefly stating the facts requiring
the adjustment and the manner of computing it. The certificate shall be
conclusive evidence of the correctness of such adjustment.
SECTION 5.12. Notice of Certain Transactions. In the event
that:
(1) the Company takes any action which would require an
adjustment in the Conversion Price;
(2) the Company takes any action that would require a
supplemental indenture pursuant to Section 5.13; or
(3) there is a dissolution or liquidation of the Company;
a holder of a Security may wish to convert such Security into shares of Common
Stock prior to the record date for or the effective date of the transaction so
that he may receive the rights, warrants, securities or assets which a holder of
shares of Common Stock on that date may receive. Therefore, the Company shall
mail to Noteholders at the addresses appearing on the Registrar's books and the
Trustee a notice stating the proposed record or effective date, as the case may
be. The Company shall mail the notice at least 15 days before such date;
however, failure to mail such notice or any defect therein shall not affect the
validity of any transaction referred to in clause (1), (2) or (3) of this
Section 5.12.
SECTION 5.13. Effect of Reclassifications, Consolidations,
Mergers or Sales on Conversion Privilege. If any of the following shall occur,
namely: (i) any reclassification or change of outstanding shares of Common Stock
issuable upon conversion of Securities (other than a change in par value, or
from par value to no par value, or from no par value to par value, or as a
result of a subdivision or combination), (ii) any consolidation or merger to
which the Company is a party other than a merger in which the Company is the
continuing corporation and which does not result in any reclassification of, or
change (other than a change in name, or par value, or from par value to no par
value, or from no par value to par value or as a result of a subdivision or
combination) in, outstanding shares of Common Stock or (iii) any sale or
conveyance of all or substantially all of the property or business of the
Company as an entirety, then the Company, or such successor or purchasing
corporation, as the case may be, shall, as a
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condition precedent to such reclassification, change, consolidation, merger,
sale or conveyance, execute and deliver to the Trustee a supplemental indenture
in form satisfactory to the Trustee providing that the holder of each Security
then outstanding shall have the right to convert such Security into the kind and
amount of shares of stock and other securities and property (including cash)
receivable upon such reclassification, change, consolidation, merger, sale or
conveyance by a holder of the number of shares of Common Stock deliverable upon
conversion of such Security immediately prior to such reclassification, change,
consolidation, merger, sale or conveyance. Such supplemental indenture shall
provide for adjustments of the Conversion Price which shall be as nearly
equivalent as may be practicable to the adjustments of the Conversion Price
provided for in this Article V. The foregoing, however, shall not in any way
affect the right a holder of a Security may otherwise have, pursuant to clause
(ii) of the last sentence of subsection (c) of Section 5.06, to receive Rights
upon conversion of a Security. If, in the case of any such consolidation,
merger, sale or conveyance, the stock or other securities and property
(including cash) receivable thereupon by a holder of Common Stock includes
shares of stock or other securities and property of a corporation other than the
successor or purchasing corporation, as the case may be, in such consolidation,
merger, sale or conveyance, then such supplemental indenture shall also be
executed by such other corporation and shall contain such additional provisions
to protect the interests of the holders of the Securities as the Board of
Directors of the Company shall reasonably consider necessary by reason of the
foregoing. The provision of this Section 5.13 shall similarly apply to
successive consolidations, mergers, sales or conveyances.
In the event the Company shall execute a supplemental
indenture pursuant to this Section 5.13, the Company shall promptly file with
the Trustee an Officers' Certificate briefly stating the reasons therefor, the
kind or amount of shares of stock or securities or property (including cash)
receivable by holders of the Securities upon the conversion of their Securities
after any such reclassification, change, consolidation, merger, sale or
conveyance and any adjustment to be made with respect thereto.
SECTION 5.14. Trustee's Disclaimer. The Trustee has no duty to
determine when an adjustment under this Article V should be made, how it should
be made or what such adjustment should be, but may accept as conclusive evidence
of the correctness of any such adjustment, and shall be protected in relying
upon the Officers' Certificate with respect thereto which the Company is
obligated to file with the Trustee pursuant to Section 5.11. The Trustee makes
no representation as to the validity or value of any securities or assets issued
upon conversion of Securities, and the Trustee shall not be responsible for the
Company's failure to comply with any provisions of this Article V.
The Trustee shall not be under any responsibility to determine
the correctness of any provisions contained in any supplemental indenture
executed pursuant to Section 5.13, but may accept as conclusive evidence of the
correctness thereof, and shall be protected in relying upon, the Officers'
Certificate with respect thereto which the Company is obligated to file with the
Trustee pursuant to Section 5.13.
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ARTICLE VI
Subordination
SECTION 6.01. Agreement to Subordinate. The Company, for
itself and its successors, and each Noteholder, by his acceptance of Securities,
agree that the payment of the principal of or interest on or any other amounts
due on the Securities is subordinated in right of payment, to the extent and in
the manner stated in this Article VI, to the prior payment in full of all
existing and future Senior Debt.
SECTION 6.02. No Payment on Securities if Senior Debt in
Default. Anything in this Indenture to the contrary notwithstanding, no payment
on account of principal of or redemption of, interest on or other amounts due on
the Securities (including the making of a deposit pursuant to Section 3.05), and
no redemption, purchase, or other acquisition of the Securities, shall be made
by or on behalf of the Company (i) unless full payment of amounts then due for
principal and interest and of all other amounts then due on all Senior Debt has
been made or duly provided for pursuant to the terms of the instrument governing
such Senior Debt, (ii) if, at the time of such payment, redemption, purchase or
other acquisition, or immediately after giving effect thereto, there shall exist
under any Senior Debt, or any agreement pursuant to which any Senior Debt is
issued, any default, which default shall not have been cured or waived and which
default shall have resulted in the full amount of such Senior Debt being
declared due and payable or (iii) if, at the time of such payment, redemption,
purchase or other acquisition, the Trustee shall have received written notice
from the Representative of the holders of Designated Senior Debt (a "Payment
Blockage Notice") that there exists under such Designated Senior Debt, or any
agreement pursuant to which such Designated Senior Debt is issued, any default,
which default shall not have been cured or waived, permitting the holders
thereof to declare any amounts of such Designated Senior Debt due and payable,
but only for the period (the "Payment Blockage Period") commencing on the date
of receipt of the Payment Blockage Notice and ending (unless earlier terminated
by notice given to the Trustee by the Representative of the holders of such
Designated Senior Debt) on the earlier of (a) the date on which such event of
default shall have been cured or waived or (b) 180 days from the receipt of the
Payment Blockage Notice. Notwithstanding the provisions described in the
immediately preceding sentence (other than in clauses (i) and (ii)), unless the
holders of such Designated Senior Debt or the Representative of such holders
shall have accelerated the maturity of such Designated Senior Debt, the Company
may resume payments on the Securities after the end of such Payment Blockage
Period. Not more than one Payment Blockage Notice may be given in any
consecutive 365-day period, irrespective of the number of defaults with respect
to Senior Debt during such period.
In the event that, notwithstanding the provisions of this
Section 6.02, payments are made by or on behalf of the Company in contravention
of the provisions of this Section 6.02, such payments shall be held by the
Trustee, any Paying Agent or the holders, as applicable, in trust for the
benefit of, and shall be paid over to and delivered to, the Representative of
the
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holders of Senior Debt or the trustee under the indenture or other agreement (if
any), pursuant to which any instruments evidencing any Senior Debt may have been
issued for application to the payment of all Senior Debt ratably according to
the aggregate amounts remaining unpaid to the extent necessary to pay all Senior
Debt in full in accordance with the terms of such Senior Debt, after giving
effect to any concurrent payment or distribution to or for the holders of Senior
Debt.
The Company shall give prompt written notice to the Trustee
and any Paying Agent of any default or event of default under any Senior Debt or
under any agreement pursuant to which any Senior Debt may have been issued.
SECTION 6.03. Distribution on Acceleration of Securities;
Dissolution and Reorganization; Subrogation of Securities. (a) If the Securities
are declared due and payable because of the occurrence of an Event of Default,
the Company shall give prompt written notice to the holders of all Senior Debt
or to the trustee(s) for such Senior Debt of such acceleration. The Company may
not pay the principal of or interest on or any other amounts due on the
Securities until five Business Days after such holders or trustee(s) of Senior
Debt receive such notice and, thereafter, the Company may pay the principal of
or interest on or any other amounts due on the Securities only if the provisions
of this Article VI permit such payment.
(b) Upon (i) any acceleration of the principal amount due on
the Securities because of an Event of Default or (ii) any direct or indirect
distribution of assets of the Company upon any dissolution, winding up,
liquidation or reorganization of the Company (whether in bankruptcy, insolvency
or receivership proceedings or upon an assignment for the benefit of creditors
or any other dissolution, winding up, liquidation or reorganization of the
Company):
(1) the holders of all Senior Debt shall first be entitled to
receive payment in full of the principal thereof, the interest thereon and any
other amounts due thereon before the holders are entitled to receive payment on
account of the principal of or interest on or any other amounts due on the
Securities;
(2) any payment or distribution of assets of the Company of
any kind or character, whether in cash, property or securities (other than
securities of the Company as reorganized or readjusted or securities of the
Company or any other corporation provided for by a plan of reorganization or
readjustment the payment of which is subordinate, at least to the extent
provided in this Article with respect to the Securities, to the payment in full
without diminution or modification by such plan of all Senior Debt), to which
the holders or the Trustee would be entitled (other than in respect of amounts
payable to the Trustee pursuant to Section 9.07) except for the provisions of
this Article, shall be paid by the liquidating trustee or agent or other person
making such a payment or distribution, directly to the holders of Senior Debt
(or their representative(s) or trustee(s) acting on their behalf), ratably
according to the aggregate amounts remaining unpaid on account of the principal
of or interest on and other amounts due on the Senior Debt held or represented
by each, to the extent necessary to make payment in full of all
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Senior Debt remaining unpaid, after giving effect to any concurrent payment or
distribution to the holders of such Senior Debt; and
(3) in the event that, notwithstanding the foregoing, any
payment or distribution of assets of the Company of any kind or character,
whether in cash, property or securities (other than securities of the Company as
reorganized or readjusted, or securities of the Company or any other corporation
provided for by a plan of reorganization or readjustment the payment of which is
subordinate, at least to the extent provided in this Article with respect to the
Securities, to the payment in full without diminution or modification by such
plan of Senior Debt), shall be received by the Trustee (other than in respect of
amounts payable to the Trustee pursuant to Section 9.07) or the holders before
all Senior Debt is paid in full, such payment or distribution shall be held in
trust for the benefit of, and be paid over to upon request by a holder of the
Senior Debt, the holders of the Senior Debt remaining unpaid (or their
representatives) or trustee(s) acting on their behalf, ratably as aforesaid, for
application to the payment of such Senior Debt until all such Senior Debt shall
have been paid in full, after giving effect to any concurrent payment or
distribution to the holders of such Senior Debt.
Subject to the payment in full of all Senior Debt, the holders
shall be subrogated to the rights of the holders of Senior Debt to receive
payments or distributions of cash, property or securities of the Company
applicable to the Senior Debt until the principal of and interest on the
Securities shall be paid in full and, for purposes of such subrogation, no such
payments or distributions to the holders of Senior Debt of cash, property or
securities which otherwise would have been payable or distributable to holders
shall, as between the Company, its creditors other than the holders of Senior
Debt, and the holders, be deemed to be a payment by the Company to or on account
of the Senior Debt, it being understood that the provisions of this Article are
and are intended solely for the purpose of defining the relative rights of the
holders, on the one hand, and the holders of Senior Debt, on the other hand.
Nothing contained in this Article or elsewhere in this
Indenture or in the Securities is intended to or shall (i) impair, as between
the Company and its creditors other than the holders of Senior Debt, the
obligation of the Company, which is absolute and unconditional, to pay to the
holders the principal of and interest on the Securities as and when the same
shall become due and payable in accordance with the terms of the Securities,
(ii) affect the relative rights of the holders and creditors of the Company
other than holders of Senior Debt or, as between the Company and the Trustee,
the obligations of the Company to the Trustee, or (iii) prevent the Trustee or
the holders from exercising all remedies otherwise permitted by applicable law
upon default under this Indenture, subject to the rights, if any, under this
Article of the holders of Senior Debt in respect of cash, property and
securities of the Company received upon the exercise of any such remedy.
Upon distribution of assets of the Company referred to in this
Article, the Trustee, subject to the provisions of Section 9.01 hereof, and the
holders shall be entitled to rely upon a certificate of the liquidating trustee
or agent or other person making any distribution to the
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Trustee or to the holders for the purpose of ascertaining the persons entitled
to participate in such distribution, the holders of the Senior Debt and other
indebtedness of the Company, the amount thereof or payable thereon, the amount
or amounts paid or distributed thereon and all other facts pertinent thereto or
to this Article. The Trustee, however, shall not be deemed to owe any fiduciary
duty to the holders of Senior Debt. Nothing contained in this Article or
elsewhere in this Indenture, or in any of the Securities, shall prevent the good
faith application by the Trustee of any moneys which were deposited with it
hereunder, prior to its receipt of written notice of facts which would prohibit
such application, for the purpose of the payment of or on account of the
principal of or interest on, the Securities unless, prior to the date on which
such application is made by the Trustee, the Trustee shall be charged with
actual notice under Section 6.03(d) hereof of the facts which would prohibit the
making of such application.
(c) The provisions of this Article shall not be applicable to
any cash, properties or securities received by the Trustee or by any holder when
received as a holder of Senior Debt and nothing in Section 9.11 hereof or
elsewhere in this Indenture shall deprive the Trustee or such holder of any of
its rights as such holder.
(d) The Company shall give prompt written notice to the
Trustee of any fact known to the Company which would prohibit the making of any
payment of money to or by the Trustee in respect of the Securities pursuant to
the provisions of this Article. The Trustee, subject to the provisions of
Section 9.01 hereof, shall be entitled to assume that no such fact exists unless
the Company or any holder of Senior Debt or any trustee therefor has given
notice thereof to the Trustee. Notwithstanding the provisions of this Article or
any other provisions of this Indenture, the Trustee shall not be charged with
knowledge of the existence of any fact which would prohibit the making of any
payment of moneys to or by the Trustee in respect of the Securities pursuant to
the provisions in this Article, unless, and until three Business Days after, the
Trustee shall have received written notice thereof from the Company or any
holder or holders of Senior Debt or from any trustee therefor; and, prior to the
receipt of any such written notice, the Trustee, subject to the provisions of
Section 9.01 hereof, shall be entitled in all respects conclusively to assume
that no such facts exist; provided that if on a date not less than three
Business Days immediately preceding the date upon which, by the terms hereof,
any such moneys may become payable for any purpose (including, without
limitation, the principal of or interest on any Security), the Trustee shall not
have received with respect to such moneys the notice provided for in this
Section 6.03(d), then anything herein contained to the contrary notwithstanding,
the Trustee shall have full power and authority to receive such moneys and to
apply the same to the purpose for which they were received, and shall not be
affected by any notice to the contrary which may be received by it on or after
such prior date.
The Trustee shall be entitled to rely conclusively on the
delivery to it of a written notice by a person representing himself to be a
holder of Senior Debt (or a trustee on behalf of such holder) to establish that
such notice has been given by a holder of Senior Debt (or a trustee on behalf of
any such holder or holders). In the event that the Trustee determines in good
faith that further evidence is required with respect to the right of any person
as a holder of Senior Debt
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to participate in any payment or distribution pursuant to this Article, the
Trustee may request such person to furnish evidence to the reasonable
satisfaction of the Trustee as to the amount of Senior Debt held by such person,
the extent to which such person is entitled to participate in such payment or
distribution and any other facts pertinent to the rights of such person under
this Article, and, if such evidence is not furnished, the Trustee may defer any
payment to such person pending judicial determination as to the right of such
person to receive such payment; nor shall the Trustee be charged with knowledge
or the curing or waiving of any default of the character specified in Section
6.02 hereof or that any event or any condition preventing any payment in respect
of the Securities shall have ceased to exist, unless and until the Trustee shall
have received written notice to such effect.
(e) The provisions of this Section 6.03 applicable to the
Trustee shall (unless the context requires otherwise) also apply to any Paying
Agent for the Company.
SECTION 6.04. Reliance by Senior Debt on Subordination
Provisions. Each holder of any Security by his acceptance thereof acknowledges
and agrees that the foregoing subordination provisions are, and are intended to
be, an inducement and a consideration for each holder of any Senior Debt,
whether such Senior Debt was created or acquired before or after the issuance of
the Securities, to acquire and continue to hold, or to continue to hold, such
Senior Debt, and such holder of Senior Debt shall be deemed conclusively to have
relied on such subordination provisions in acquiring and continuing to hold, or
in continuing to hold, such Senior Debt. Notice of any default in the payment of
any Senior Debt, except as expressly stated in this Article, and notice of
acceptance of the provisions hereof are hereby expressly waived. Except as
otherwise expressly provided herein, no waiver, forbearance or release by any
holder of Senior Debt under such Senior Debt or under this Article shall
constitute a release of any of the obligations or liabilities of the Trustee or
holders of the Securities provided in this Article.
SECTION 6.05. No Waiver of Subordination Provisions. Except as
otherwise expressly provided herein, no right of any present or future holder of
any Senior Debt to enforce subordination as herein provided shall at any time in
any way be prejudiced or impaired by any act or failure to act on the part of
the Company or by any act or failure to act, in good faith, by any such holder,
or by any noncompliance by the Company with the terms, provisions and covenants
of this Indenture, regardless of any knowledge thereof any such holder may have
or be otherwise charged with.
Without in any way limiting the generality of the foregoing
paragraph, the holders of Senior Debt may, at any time and from time to time,
without the consent of, or notice to, the Trustee or the holders of the
Securities, without incurring responsibility to the holders of the Securities
and without impairing or releasing the subordination provided in this Article VI
or the obligations hereunder of the holders of the Securities to the holders of
Senior Debt, do any one or more of the following: (i) change the manner, place
or terms of payment of, or renew or alter, Senior Debt, or otherwise amend or
supplement in any manner Senior Debt or any instrument evidencing the same or
any agreement under which Senior Debt is outstanding; (ii) sell,
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exchange, release or otherwise dispose of any property pledged, mortgaged or
otherwise securing Senior Debt; (iii) release any person liable in any manner
for the collection of Senior Debt; and (iv) exercise or refrain from exercising
any rights against the Company or any other person.
SECTION 6.06. Trustee's Relation to Senior Debt. The Trustee
in its individual capacity shall be entitled to all the rights set forth in this
Article in respect of any Senior Debt at any time held by it, to the same extent
as any holder of Senior Debt, and nothing in Section 9.11 hereof or elsewhere in
this Indenture shall deprive the Trustee of any of its rights as such holder.
Anything in this Indenture to the contrary notwithstanding, amounts payable to
the Trustee from time to time pursuant to Section 9.07 shall be treated for
purposes of this Article as if such amounts constituted Senior Debt hereunder.
With respect to the holders of Senior Debt, the Trustee
undertakes to perform or to observe only such of its covenants and obligations,
as are specifically set forth in this Article, and no implied covenants or
obligations with respect to the holders of Senior Debt shall be read into this
Indenture against the Trustee. The Trustee shall not owe any fiduciary duty to
the holders of Senior Debt but shall have only such obligations to such holders
as are expressly set forth in this Article.
Each holder of a Security by his acceptance thereof authorizes
and directs the Trustee on his behalf to take such action as may be necessary or
appropriate to effectuate the subordination provided in this Article and
appoints the Trustee his attorney-in-fact for any and all such purposes,
including, in the event of any dissolution, winding up or liquidation or
reorganization under any applicable bankruptcy law of the Company (whether in
bankruptcy, insolvency or receivership proceedings or otherwise), the timely
filing of a claim for the unpaid balance of such holder's Securities in the form
required in such proceedings and the causing of such claim to be approved. If
the Trustee does not file a claim or proof of debt in the form required in such
proceedings prior to 30 days before the expiration of the time to file such
claims or proofs, then any holder or holders of Senior Debt or their
representative or representatives shall have the right to demand, sue for,
collect, receive and receipt for the payments and distributions in respect of
the Securities which are required to be paid or delivered to the holders of
Senior Debt as provided in this Article and to file and prove all claims
therefor and to take all such other action in the name of the holders or
otherwise, as such holders of Senior Debt or representative thereof may
determine to be necessary or appropriate for the enforcement of the provisions
of this Article. Anything in this Indenture to the contrary notwithstanding,
amounts payable to the Trustee from time to time pursuant to Section 9.07 shall
be treated for purposes of this Article as if such amounts constituted Senior
Debt hereunder.
SECTION 6.07. Other Provisions Subject Hereto. Except as
expressly stated in this Article, notwithstanding anything contained in this
Indenture to the contrary, all the provisions of this Indenture and the
Securities are subject to the provisions of this Article. However, nothing in
this Article shall apply to or adversely affect the claims of, or payment to,
the Trustee pursuant to Section 9.07. Notwithstanding the foregoing, the failure
to make a
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payment on account of principal of or interest on the Securities by reason of
any provision of this Article VI shall not be construed as preventing the
occurrence of an Event of Default under Section 8.01.
ARTICLE VII
Successors
SECTION 7.01. Merger, Consolidation or Sale of Assets. The
Company may not consolidate or merge with or into any person (whether or not the
Company is the surviving corporation), or sell, assign, transfer, lease, convey
or otherwise dispose of all or substantially all of its properties or assets
unless:
(a) the Company is the surviving corporation or the Person
formed by or surviving any such consolidation or merger (if other than
the Company) or to which such sale, assignment, transfer, lease,
conveyance or other disposition shall have been made is a corporation
organized or existing under the laws of the United States, any state
thereof or the District of Columbia;
(b) the corporation formed by or surviving any such
consolidation or merger (if other than the Company) or the corporation
to which such sale, assignment, transfer, lease, conveyance or other
disposition will have been made assumes all the Obligations of the
Company, pursuant to a supplemental indenture in a form reasonably
satisfactory to the Trustee, under the Securities and the Indenture;
(c) any such sale, assignment, transfer, lease, conveyance or
other disposition of all or substantially all of the Company's
properties or assets shall be as an entirety or virtually as an
entirety to one corporation;
(d) immediately after such transaction no Default or Event of
Default exists; and
(e) the Company or such corporation shall have delivered to
the Trustee an Officers' Certificate and an Opinion of Counsel, each
stating that such transaction and the supplemental indenture comply
with the Indenture and that all conditions precedent in the Indenture
relating to such transaction have been satisfied.
SECTION 7.02. Successor Corporation Substituted. Upon any
consolidation or merger, or any sale, assignment, transfer, lease, conveyance or
other disposition of all or substantially all of the assets of the Company in
accordance with Section 7.01 hereof, the successor corporation formed by such
consolidation or into or with which the Company is merged or the corporation to
which such sale, assignment, transfer, lease, conveyance or other disposition is
made shall succeed to, and be substituted for and may exercise every right and
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power of, the Company under this Indenture with the same effect as if such
successor person has been named as the Company herein; provided, however, that
the predecessor Company in the case of a sale, assignment, transfer, lease,
conveyance or other disposition shall not be released from the obligation to pay
the principal of and interest on the Securities.
ARTICLE VIII
Defaults and Remedies
SECTION 8.01. Events of Default. An "Event of Default" occurs
if:
(a) the Company defaults in the payment of interest on any
Security when the same becomes due and payable, and the Default
continues for a period of 30 days after the date due and payable;
(b) the Company defaults in the payment of the principal of
any Security when the same becomes due and payable at maturity, upon
redemption or otherwise;
(c) the Company fails to observe or perform any covenant or
agreement contained in Section 4.07 hereof;
(d) the Company fails to observe or perform any other covenant
or agreement contained in this Indenture or the Securities required by
it to be performed and the Default continues for a period of 60 days
after the receipt of written notice from the Trustee to the Company or
from the holders of 25% in aggregate principal amount of the then
outstanding Securities to the Company and the Trustee stating that such
notice is a "Notice of Default";
(e) there is a default under any mortgage, indenture or
instrument under which there may be issued or by which there may be
secured or evidenced any Indebtedness for money borrowed by the Company
or any Material Subsidiary of the Company (or the payment of which is
guaranteed by the Company or any Material Subsidiary of the Company),
whether such Indebtedness or guarantee now exists or is created after
the Issuance Date, which default (i) is caused by a failure to pay when
due principal of or interest on such Indebtedness within the grace
period provided for in such Indebtedness (which failure continues
beyond any applicable grace period) (a "Payment Default") or (ii)
results in the acceleration of such Indebtedness prior to its express
maturity (without such acceleration being rescinded or annulled) and,
in each case, the principal amount of any such Indebtedness, together
with the principal amount of any other such Indebtedness under which
there is a Payment Default or the maturity of which has been so
accelerated, aggregates $10 million or more;
(f) a final, non-appealable judgment or final non-appealable
judgments (other than any judgment as to which a reputable insurance
company has accepted full liability)
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for the payment of money are entered by a court or courts of competent
jurisdiction against the Company or any Material Subsidiary of the
Company and remain undischarged for a period (during which execution
shall not be effectively stayed) of 60 days, provided that the
aggregate of all such judgments exceeds $5 million;
(g) the Company or any Material Subsidiary pursuant to or
within the meaning of any Bankruptcy Law: (i) commences a voluntary
case, (ii) consents to the entry of an order for relief against it in
an involuntary case in which it is the debtor, (iii) consents to the
appointment of a Custodian of it or for all or substantially all of its
property, (iv) makes a general assignment for the benefit of its
creditors, or (v) makes the admission in writing that it generally is
unable to pay its debts as the same become due; or
(h) a court of competent jurisdiction enters an order or
decree under any Bankruptcy Law that: (i) is for relief against the
Company or any Material Subsidiary of the Company in an involuntary
case, (ii) appoints a Custodian of the Company or any Material
Subsidiary of the Company or for all or substantially all of its
property, and the order or decree remains unstayed and in effect for 60
days or (iii) orders the liquidation of the Company or any Material
Subsidiary of the Company, and the order or decree remains unstayed and
in effect for 60 days.
The term "Bankruptcy Law" means Title 11, U.S. Code or any
similar Federal or state law for the relief of debtors. The term "Custodian"
means any receiver, trustee, assignee, liquidator or similar official under any
Bankruptcy Law.
SECTION 8.02. Acceleration. If an Event of Default (other than
an Event of Default specified in clauses (g) and (h) of Section 8.01 hereof)
occurs and is continuing, the Trustee by notice to the Company, or the
Noteholders of at least 25% in principal amount of the then-outstanding
Securities by notice to the Company and the Trustee, may declare all the
Securities to be due and payable. Upon such declaration, the principal of,
premium, if any, and accrued and unpaid interest on the Securities shall be due
and payable immediately. If an Event of Default specified in clause (g) or (h)
of Section 8.01 hereof occurs, such an amount shall ipso facto become and be
immediately due and payable without any declaration or other act on the part of
the Trustee or any Noteholder. The Noteholders of a majority in aggregate
principal amount of the then-outstanding Securities by notice to the Trustee may
rescind an acceleration and its consequences if the rescission would not
conflict with any judgment or decree, if all amounts payable to the Trustee
pursuant to Section 9.07 hereof have been paid and if all existing Events of
Default have been cured or waived except nonpayment of principal or interest
that has become due solely because of the acceleration.
SECTION 8.03. Other Remedies. If an Event of Default occurs
and is continuing, the Trustee may pursue any available remedy to collect the
payment of principal or
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interest on the Securities or to enforce the performance of any provision of the
Securities or this Indenture.
The Trustee may maintain a proceeding even if it does not
possess any of the Securities or does not produce any of them in the proceeding.
A delay or omission by the Trustee or any Noteholder in exercising any right or
remedy accruing upon an Event of Default shall not impair the right or remedy or
constitute a waiver of or acquiescence in the Event of Default. All remedies are
cumulative to the extent permitted by law.
SECTION 8.04. Waiver of Past Defaults. The Noteholders of a
majority in aggregate principal amount of the then-outstanding Securities by
notice to the Trustee may waive an existing Default or Event of Default and its
consequences except a continuing Default or Event of Default in the payment of
the Designated Event Payment or the principal of, or interest on, any Security.
When a Default or Event of Default is waived, it is cured and ceases; but no
such waiver shall extend to any subsequent or other Default or impair any right
consequent thereon.
SECTION 8.05. Control by Majority. The Noteholders of a
majority in principal amount of the then-outstanding Securities may direct the
time, method and place of conducting any proceeding for any remedy available to
the Trustee or exercising any trust or power conferred on it. However, the
Trustee may refuse to follow any direction that conflicts with law or this
Indenture, is unduly prejudicial to the rights of other Noteholders, or would
involve the Trustee in personal liability.
SECTION 8.06. Limitation on Suits. A Noteholder may pursue a
remedy with respect to this Indenture or the Securities only if:
(a) the Noteholder gives to the Trustee notice of a continuing
Event of Default;
(b) the Noteholders of at least 25% in principal amount of the
then-outstanding Securities make a request to the Trustee to pursue the
remedy;
(c) such Noteholder or Noteholders offer to the Trustee
indemnity satisfactory to the Trustee against any loss, liability or
expense;
(d) the Trustee does not comply with the request within 60
days after receipt of the request and the offer of indemnity; and
(e) during such 60-day period the Noteholders of a majority in
principal amount of the then-outstanding Securities do not give the
Trustee a direction inconsistent with the request.
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A Noteholder may not use this Indenture to prejudice the
rights of another Noteholder or to obtain a preference or priority over another
Noteholder.
SECTION 8.07. Rights of Noteholders to Receive Payment.
Notwithstanding any other provision of this Indenture, the right of any
Noteholder of a Security to receive payment of principal and interest on the
Security, on or after the respective due dates expressed in the Security, or to
bring suit for the enforcement of any such payment on or after such respective
dates, shall not be impaired or affected without the consent of the Noteholder
made pursuant to this Section.
SECTION 8.08. Collection Suit by Trustee. If an Event of
Default specified in Section 8.01(a) or (b) occurs and is continuing, the
Trustee may recover judgment in its own name and as trustee of an express trust
against the Company for the whole amount of principal and interest remaining
unpaid on the Securities and interest on overdue principal and interest and such
further amount as shall be sufficient to cover the costs and, to the extent
lawful, expenses of collection, including the reasonable compensation, expenses,
disbursements and advances of the Trustee, its agents and counsel.
SECTION 8.09. Trustee May File Proofs of Claim. The Trustee
may file such proofs of claim and other papers or documents as may be necessary
or advisable in order to have the claims of the Trustee and the Noteholders
allowed in any judicial proceedings relative to the Company, its creditors or
its property. Nothing contained herein shall be deemed to authorize the Trustee
to authorize or consent to or accept or adopt on behalf of any Noteholder any
plan of reorganization, arrangement, adjustment or composition affecting the
Securities or the rights of any Noteholder thereof, or to authorize the Trustee
to vote in respect of the claim of any Noteholder in any such proceeding.
SECTION 8.10. Priorities. If the Trustee collects any money
pursuant to this Article, it shall pay out the money in the following order:
First: to the Trustee for amounts due under Section 9.07
hereof;
Second: to the holders of Senior Debt to the extent required
by Article VI;
Third: to the Noteholders, for amounts due and unpaid on the
Securities for principal and interest, ratably, according to the
amounts due and payable on the Securities for principal and interest,
respectively; and
Fourth: to the Company.
Except as otherwise provided in Section 2.12 hereof, the
Trustee may fix a record date and payment date for any payment to Noteholders
made pursuant to this Section.
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SECTION 8.11. Undertaking for Costs. In any suit for the
enforcement of any right or remedy under this Indenture or in any suit against
the Trustee for any action taken or omitted by it as a Trustee, a court in its
discretion may require the filing by any party litigant in the suit of an
undertaking to pay the costs of the suit, and the court in its discretion may
assess reasonable costs, including reasonable attorneys' fees, against any party
litigant in the suit, having due regard to the merits and good faith of the
claims or defenses made by the party litigant. This Section does not apply to a
suit by the Trustee, a suit by a holder pursuant to Section 8.07 hereof, or a
suit by Noteholders of more than 10% in principal amount of the then-outstanding
Securities.
ARTICLE IX
Trustee
SECTION 9.01. Duties of Trustee. (a) If an Event of Default
has occurred and is continuing, the Trustee shall exercise such of the rights
and powers vested in it by this Indenture, and use the same degree of care and
skill in their exercise, as a prudent person would exercise or use under the
circumstances in the conduct of his or her own affairs.
(b) Except during the continuance of an Event of Default: (i)
the Trustee need perform only those duties that are specifically set forth in
this Indenture and no others and (ii) in the absence of bad faith on its part,
the Trustee may conclusively rely, as to the truth of the statements and the
correctness of the opinions expressed therein, upon certificates or opinions
furnished to the Trustee and, if required by the terms hereof, conforming to the
requirements of this Indenture. However, the Trustee shall examine the
certificates and opinions to determine whether or not they conform to the
requirements of this Indenture. During the continuance of an event of Default,
the Trustee may consult with its legal counsel and rely upon advice from such
counsel with respect to legal matters.
(c) The Trustee may not be relieved from liability for its own
negligent action, its own negligent failure to act, or its own willful
misconduct, except that: (i) this paragraph does not limit the effect of
paragraph (b) of this Section 9.01; (ii) the Trustee shall not be liable for any
error of judgment made in good faith by a Trust Officer, unless it is proved
that the Trustee was negligent in ascertaining the pertinent facts and (iii) the
Trustee shall not be liable with respect to any action it takes or omits to take
in good faith in accordance with a direction received by it pursuant to Section
8.05 hereof.
(d) Every provision of this Indenture that in any way relates
to the Trustee is subject to paragraphs (a), (b) and (c) of this Section 9.01.
(e) The Trustee may refuse to perform any duty or exercise any
right or power unless it receives indemnity satisfactory to it against any loss,
liability or expense.
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(f) The Trustee shall not be liable for interest on any money
received by it except as the Trustee may agree in writing with the Company.
Money held in trust by the Trustee need not be segregated from other funds
except to the extent required by law.
SECTION 9.02. Rights of Trustee. (a) The Trustee may rely on
any document believed by it to be genuine and to have been signed or presented
by the proper person. The Trustee need not investigate any fact or matter stated
in the document.
(b) Before the Trustee acts or refrains from acting, it may
require an Officers' Certificate or an Opinion of Counsel, or both. The Trustee
shall not be liable for any action it takes or omits to take in good faith in
reliance on such Officers' Certificate or Opinion of Counsel.
(c) The Trustee may act through agents and shall not be
responsible for the misconduct or negligence of any agent appointed with due
care.
(d) The Trustee shall not be liable for any action it takes or
omits to take in good faith which it believes to be authorized or within its
rights or powers.
(e) The Trustee shall not be charged with knowledge of any
Event of Default under subsection (c), (d), (e), (f), (g) or (h) of Section 8.01
unless either (1) a Trust Officer assigned to its corporate trust department
shall have actual knowledge thereof, or (2) the Trustee shall have received
notice thereof in accordance with Section 12.02 hereof from the Company or any
holder.
SECTION 9.03. Individual Rights of Trustee. The Trustee in its
individual or any other capacity may become the owner or pledgee of Securities
and may otherwise deal with the Company or an Affiliate with the same rights it
would have if it were not Trustee. Any Agent may do the same with like rights.
However, the Trustee is subject to Sections 9.10 and 9.11 hereof.
SECTION 9.04. Trustee's Disclaimer. The Trustee makes no
representation as to the validity or adequacy of this Indenture or the
Securities, it shall not be accountable for the Company's use of the proceeds
from the Securities, and it shall not be responsible for any statement of the
Company in the Indenture or any statement in the Securities (other than its
authentication) or for compliance by the Company with the Registration
Agreement.
SECTION 9.05. Notice of Defaults. If a Default or Event of
Default occurs and is continuing and if it is known to the Trustee, the Trustee
shall mail to Noteholders a notice of the Default or Event of Default within 90
days after it occurs. Except in the case of a Default or Event of Default in
payment on any Security, the Trustee may withhold the notice if and so long as a
committee of its Trust Officers in good faith determines that withholding the
notice is in the interests of Noteholders.
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SECTION 9.06. Reports by Trustee to Noteholders. Within 60
days after the reporting date stated in Section 12.10, the Trustee shall mail to
Noteholders a brief report dated as of such reporting date that complies with
TIA ss. 313(a) if and to the extent required by such ss. 313(a). The Trustee
also shall comply with TIA ss. 313(b)(2). The Trustee shall also transmit by
mail all reports as required by TIA ss. 313(c).
A copy of each report at the time of its mailing to
Noteholders shall be filed with the SEC and each stock exchange on which the
Securities are listed. The Company shall notify the Trustee when the Securities
are listed on any stock exchange.
SECTION 9.07. Compensation and Indemnity. The Company shall
pay to the Trustee from time to time reasonable compensation for its services
hereunder. The Trustee's compensation shall not be limited by any law on
compensation of a trustee of an express trust. The Company shall reimburse the
Trustee upon request for all reasonable disbursements, expenses and advances
incurred or made by it. Such disbursements and expenses may include the
reasonable disbursements, compensation and expenses of the Trustee's agents and
counsel.
The Company shall indemnify the Trustee against any loss or
liability incurred by it except as set forth in the next paragraph. The Trustee
shall notify the Company promptly of any claim for which it may seek indemnity.
The Company shall defend the claim and the Trustee shall cooperate in the
defense. The Trustee may have separate counsel and the Company shall pay the
reasonable fees, disbursements and expenses of such counsel. The Company need
not pay for any settlement made without its consent, which consent shall not be
unreasonably withheld.
The Company need not reimburse any expense or indemnify
against any loss or liability incurred by the Trustee through the Trustee's
negligence or bad faith.
To secure the Company's payment obligations in this Section,
the Trustee shall have a lien equivalent to that of Senior Debt and prior to the
Securities on all money or property held or collected by the Trustee, except
money or property held in trust to pay principal and interest on particular
Securities.
When the Trustee incurs expenses or renders services after an
Event of Default specified in Section 8.01(g) or (h) occurs, the expenses and
the compensation for the services are intended to constitute expenses of
administration under any Bankruptcy Law.
SECTION 9.08. Replacement of Trustee. A resignation or removal
of the Trustee and appointment of a successor Trustee shall become effective
only upon the successor Trustee's acceptance of appointment as provided in this
Section.
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The Trustee may resign by so notifying the Company. The
Noteholders of a majority in principal amount of the then-outstanding Securities
may remove the Trustee by so notifying the Trustee and the Company.
The Company may remove the Trustee if:
(a) the Trustee fails to comply with Section 9.10 hereof,
unless the Trustee's duty to resign is stayed as provided in TIA ss.
310(b);
(b) the Trustee is adjudged a bankrupt or an insolvent or an
order for relief is entered with respect to the Trustee under any
Bankruptcy Law;
(c) a Custodian or public officer takes charge of the Trustee
or its property; or
(d) the Trustee becomes incapable of acting.
If the Trustee resigns or is removed or if a vacancy exists in
the office of Trustee for any reason, the Company shall promptly appoint a
successor Trustee. Within one year after the successor Trustee takes office, the
Noteholders of a majority in principal amount of the then-outstanding Securities
may appoint a successor Trustee to replace the successor Trustee appointed by
the Company.
If a successor Trustee does not take office within 60 days
after the retiring Trustee resigns or is removed, the retiring Trustee, the
Company or the Noteholders of at least 10% in principal amount of the
then-outstanding Securities may petition any court of competent jurisdiction for
the appointment of a successor Trustee.
If the Trustee fails to comply with Section 9.10 hereof,
unless the Trustee's duty to resign is stayed as provided in TIA ss. 310(b), any
Noteholder who has been a bona fide holder of a Security for at least six months
may petition any court of competent jurisdiction for the removal of the Trustee
and the appointment of a successor Trustee.
A successor Trustee shall deliver a written acceptance of its
appointment to the retiring Trustee and to the Company. Thereupon the
resignation or removal of the retiring Trustee shall become effective, and the
successor Trustee shall have all the rights, powers and duties of the Trustee
under this Indenture. The successor Trustee shall mail a notice of its
succession to Noteholders. The retiring Trustee shall promptly transfer all
property held by it as Trustee to the successor Trustee, subject to the lien
provided for in Section 9.07 hereof. Notwithstanding the resignation or
replacement of the Trustee pursuant to this Section 9.08, the Company's
obligations under Section 9.07 hereof shall continue for the benefit of the
retiring trustee with respect to expenses and liabilities incurred by it prior
to such resignation or replacement.
SECTION 9.09. Successor Trustee by Merger, Etc. If the Trustee
consolidates, merges or converts into, or transfers all or substantially all of
its corporate trust business to,
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another corporation, the successor corporation without any further act shall be
the successor Trustee.
SECTION 9.10. Eligibility; Disqualification. This Indenture
shall always have a Trustee who satisfies the requirements of TIA ss. 310(a)(1)
and (5). The Trustee shall always have a combined capital and surplus as stated
in Section 12.10 hereof. The Trustee is subject to TIA ss. 310(b).
SECTION 9.11. Preferential Collection of Claims Against
Company. The Trustee is subject to TIA ss. 311(a), excluding any creditor
relationship listed in TIA ss. 311(b). A Trustee who has resigned or been
removed shall be subject to TIA ss. 311(a) to the extent indicated therein.
ARTICLE X
Discharge of Indenture
SECTION 10.01. Termination of Company's Obligations. This
Indenture shall cease to be of further effect (except that the Company's
obligations under Sections 9.07 and 10.02 hereof shall survive) when all
outstanding Securities theretofore authenticated and issued have been delivered
to the Trustee for cancellation and the Company has paid all sums payable
hereunder.
Thereupon, the Trustee upon request of the Company, shall
acknowledge in writing the discharge of the Company's obligations under this
Indenture, except for those surviving obligations specified above.
SECTION 10.02. Repayment to Company. The Trustee and the
Paying Agent shall promptly pay to the Company upon request any excess money or
securities held by them at any time.
The Trustee and the Paying Agent shall pay to the Company upon
written request any money held by them for the payment of principal or interest
that remains unclaimed for two years after the date upon which such payment
shall have become due; provided, however, that the Company shall have first
caused notice of such payment to the Company to be mailed to each Noteholder
entitled thereto no less than 30 days prior to such payment. After payment to
the Company, the Trustee and the Paying Agent shall have no further liability
with respect to such money and Noteholders entitled to the money must look to
the Company for payment as general creditors unless any applicable abandoned
property law designates another person.
ARTICLE XI
Amendments, Supplements and Waivers
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SECTION 11.01. Without Consent of Noteholders. The Company and
the Trustee may amend or supplement this Indenture or the Securities without the
consent of any Noteholder:
(a) to cure any ambiguity, defect or inconsistency;
(b) to comply with Sections 5.13 and 7.01 hereof;
(c) to provide for uncertificated Securities in addition to
certificated Securities;
(d) to make any change that does not adversely affect the
legal rights hereunder of any Noteholder;
(e) to qualify this Indenture under the TIA or to comply with
the requirements of the SEC in order to maintain the qualification of
the Indenture under the TIA; or
(f) to make any change that provides any additional rights or
benefits to the holders of Securities.
An amendment under this Section may not make any change that
adversely affects the rights under Article VI of any holder of Senior Debt then
outstanding unless the holders of such Senior Debt (or any group or
representative thereof authorized to give a consent) consent to such change.
SECTION 11.02. With Consent of Noteholders. Subject to Section
8.07 hereof, the Company and the Trustee may amend or supplement this Indenture
or the Securities with the written consent (including consents obtained in
connection with any tender or exchange offer for Securities) of the Noteholders
of at least a majority in principal amount of the then-outstanding Securities.
Subject to Sections 8.04 and 8.07 hereof, the Noteholders of a majority in
principal amount of the Securities then outstanding may also by their written
consent (including consents obtained in connection with any tender offer or
exchange offer for Securities) waive any existing Default as provided in Section
8.04 or waive compliance in a particular instance by the Company with any
provision of this Indenture or the Securities. However, without the consent of
each Noteholder affected, an amendment, supplement or waiver under this Section
may not (with respect to any Securities held by a nonconsenting Noteholder):
(a) reduce the amount of Securities whose Noteholders must
consent to an amendment, supplement or waiver;
(b) reduce the rate of or change the time for payment of
interest on any Security;
(c) reduce the principal of or change the fixed maturity of
any Security or alter the redemption provisions with respect thereto;
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(d) make any Security payable in money other than that stated
in the Security;
(e) make any change in Section 8.04, 8.07 or 11.02 hereof
(this sentence);
(f) waive a default in the payment of the Designated Event
Payment or principal of, or interest on, any Security (other than as
provided in Section 8.04);
(g) waive a redemption payment payable on any Security; or
(h) make any change that adversely affects the right of
Noteholders to convert Securities into Common Stock of the Company.
To secure a consent of the Noteholders under this Section
11.02, it shall not be necessary for the Noteholders to approve the particular
form of any proposed amendment, supplement or waiver, but it shall be sufficient
if such consent approves the substance thereof.
After an amendment, supplement or waiver under this Section
becomes effective, the Company shall mail to Noteholders a notice briefly
describing the amendment or waiver.
SECTION 11.03. Compliance with Trust Indenture Act. Every
amendment to this Indenture or the Securities shall be set forth in a
supplemental indenture that complies with the TIA as then in effect.
SECTION 11.04. Revocation and Effect of Consents. Until an
amendment, supplement or waiver becomes effective, a consent to it by a
Noteholder of a Security is a continuing consent by the Noteholder and every
subsequent Noteholder of a Security or portion of a Security that evidences the
same debt as the consenting Noteholder's Security, even if notation of the
consent is not made on any Security. However, any such Noteholder or subsequent
Noteholder may revoke the consent as to such Noteholder's Security or portion of
a Security if the Trustee receives the notice of revocation before the date on
which the Trustee receives an Officers' Certificate certifying that the
Noteholders of the requisite principal amount of Securities have consented to
the amendment, supplement or waiver.
The Company may, but shall not be obligated to, fix a record
date for the purpose of determining the Noteholders entitled to consent to any
amendment, supplement or waiver. If a record date is fixed, then notwithstanding
the provisions of the immediately preceding paragraph, those persons who were
Noteholders at such record date (or their duly designated proxies), and only
those persons, shall be entitled to consent to such amendment, supplement or
waiver or to revoke any consent previously given, whether or not such persons
continue to be Noteholders after such record date. No consent shall be valid or
effective for more than 90 days after such record date unless consents from
Noteholders of the principal amount of Securities required hereunder for such
amendment or waiver to be effective shall have also been given and not revoked
within such 90-day period.
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After an amendment, supplement or waiver becomes effective it
shall bind every Noteholder, unless it is of the type described in any of
clauses (a) through (h) of Section 11.02 hereof. In such case, the amendment or
waiver shall bind each Noteholder who has consented to it and every subsequent
Noteholder that evidences the same debt as the consenting Noteholder's Security.
SECTION 11.05. Notation on or Exchange of Securities. The
Trustee may place an appropriate notation about an amendment or waiver on any
Security thereafter authenticated. The Company in exchange for all Securities
may issue and the Trustee shall authenticate new Securities that reflect the
amendment or waiver.
SECTION 11.06. Trustee Protected. The Trustee shall sign all
supplemental indentures, except that the Trustee may, but need not, sign any
supplemental indenture that adversely affects its rights. As a condition to
executing, or accepting the additional trusts created by, any supplemental
indenture permitted by this Article or the modifications thereby of the trust
created by this Indenture, the Trustee shall be entitled to receive (in addition
to those documents required by Section 12.04), and (subject to Section 315 of
the TIA) shall be fully protected in relying upon, an Opinion of Counsel stating
that the execution of such supplemental indenture is authorized or permitted by
this Indenture.
ARTICLE XII
Miscellaneous
SECTION 12.01. Trust Indenture Act Controls. If any provision
of this Indenture limits, qualifies, or conflicts with another provision which
is automatically deemed to be incorporated in this Indenture by the TIA, the
incorporated provision shall control.
SECTION 12.02. Notices. Any notice or communication by the
Company or the Trustee to the other is duly given if in writing and delivered in
person or mailed by first-class mail to the other's address stated in Section
12.10 hereof. The Company or the Trustee by notice to the other may designate
additional or different addresses for subsequent notices or communications.
Any notice or communication to a Noteholder shall be mailed by
first-class mail to his address shown on the register kept by the Registrar.
Failure to mail a notice or communication to a Noteholder or any defect in it
shall not affect its sufficiency with respect to other Noteholders.
If a notice or communication is mailed in the manner provided
above within the time prescribed, it is duly given, whether or not the addressee
receives it.
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If the Company mails a notice or communication to Noteholders,
it shall mail a copy to the Trustee and each Agent at the same time.
All other notices or communications shall be in writing.
In case by reason of the suspension of regular mail service,
or by reason of any other cause, it shall be impossible to mail any notice as
required by the Indenture, then such method of notification as shall be made
with the approval of the Trustee shall constitute a sufficient mailing of such
notice.
SECTION 12.03. Communication by Noteholders with Other
Noteholders. Noteholders may communicate pursuant to TIA ss. 312(b) with other
Noteholders with respect to their rights under this Indenture or the Securities.
The Company, the Trustee, the Registrar and anyone else shall have the
protection of TIA ss. 312(c).
SECTION 12.04. Certificate and Opinion as to Conditions
Precedent. Upon any request or application by the Company to the Trustee to take
any action under this Indenture, the Company shall furnish to the Trustee:
(a) an Officers' Certificate stating that, in the opinion of
the signers, all conditions precedent, if any, provided for in this
Indenture relating to the proposed action have been complied with; and
(b) an Opinion of Counsel stating that, in the opinion of such
counsel, all such conditions precedent have been complied with.
SECTION 12.05. Statements Required in Certificate or Opinion.
Each certificate or opinion with respect to compliance with a condition or
covenant provided for in this Indenture (other than pursuant to Section 4.03)
shall include:
(a) a statement that the person signing such certificate or
rendering such opinion has read such covenant or condition;
(b) a brief statement as to the nature and scope of the
examination or investigation upon which the statements or opinions
contained in such certificate or opinion are based;
(c) a statement that, in the opinion of such person, such
person has made such examination or investigation as is necessary to
enable such person to express an informed opinion as to whether or not
such covenant or condition has been complied with; and
(d) a statement as to whether or not, in the opinion of such
person, such condition or covenant has been complied with.
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SECTION 12.06. Rules by Trustee and Agents. The Trustee may
make reasonable rules for action by, or a meeting of, Noteholders. The Registrar
or Paying Agent may make reasonable rules and set reasonable requirements for
its functions.
SECTION 12.07. Legal Holidays. A "Legal Holiday" is a
Saturday, a Sunday or a day on which banking institutions in the State of New
York are not required to be open. If a payment date is a Legal Holiday at a
place of payment, payment may be made at that place on the next succeeding day
that is not a Legal Holiday, and no interest shall accrue for the intervening
period. If any other operative date for purposes of this Indenture shall occur
on a Legal Holiday then for all purposes the next succeeding day that is not a
Legal Holiday shall be such operative date.
SECTION 12.08. No Recourse Against Others. A director,
Officer, employee or stockholder, as such, of the Company shall not have any
liability for any obligations of the Company under the Securities or the
Indenture or for any claim based on, in respect of or by reason of such
obligations or their creation. Each Noteholder by accepting a Security waives
and releases all such liability. The waiver and release are part of the
consideration for the issue of the Securities.
SECTION 12.09. Counterparts. This Indenture may be executed in
any number of counterparts and by the parties hereto in separate counterparts,
each of which when so executed shall be deemed to be an original and all of
which taken together shall constitute one and the same agreement.
SECTION 12.10. Variable Provisions. "Officer" means the
Chairman of the Board, the Chief Executive Officer, the President, any
Vice-President, the Chief Financial Officer, the Treasurer, the Secretary, any
Assistant Treasurer, any Assistant Secretary or the Controller of the Company.
The Company initially appoints the Trustee as Paying Agent,
Registrar and Conversion Agent, and the Trustee hereby accepts such appointments
The first certificate pursuant to Section 4.03 hereof shall be
for the fiscal year ending on December 31, 1997.
The reporting date for Section 9.06 hereof is April 15 of each
year. The first reporting date is April 15, 1998.
The Trustee shall always have a combined capital and surplus
of at least $50,000,000 as set forth in its most recent published annual report
of condition.
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The Company's address for purposes of the Indenture is:
Tel-Save Holdings, Inc.
6805 Route 202
New Hope, Pennsylvania 18938
The Trustee's address is:
First Trust of New York, National Association
100 Wall Street
New York, New York 10005
The Company or the Trustee may change its address for purposes
of this Indenture by written notice to the other.
SECTION 12.11. GOVERNING LAW. THE INTERNAL LAWS OF THE STATE
OF NEW YORK SHALL GOVERN THIS INDENTURE AND THE SECURITIES, WITHOUT REGARD TO
THE CONFLICT OF LAWS PROVISIONS THEREOF.
SECTION 12.12. No Adverse Interpretation of Other Agreements.
This Indenture may not be used to interpret another indenture, loan or debt
agreement of the Company or an Affiliate. Any such indenture, loan or debt
agreement may not be used to interpret this Indenture.
SECTION 12.13. Successors. All agreements of the Company in
this Indenture and the Securities shall bind its successor. All agreements of
the Trustee in this Indenture shall bind its successor.
SECTION 12.14. Severability. In case any provision in this
Indenture or in the Securities shall be invalid, illegal or unenforceable, the
validity, legality and enforceability of the remaining provisions shall not in
any way be affected or impaired thereby.
SECTION 12.15. Table of Contents, Headings, Etc. The Table of
Contents and headings of the Articles and Sections of this Indenture have been
inserted for convenience of reference only, are not to be considered a part
hereof, and shall in no way modify or restrict any of the terms or provisions
hereof.
52
<PAGE>
IN WITNESS WHEREOF, the parties hereto have caused this
Indenture to be duly executed, all as of the date first written above.
Tel-Save Holdings, Inc., as Company,
by
----------------------------
Name:
Title:
First Trust of New York, National
Association, as Trustee,
by
----------------------------
Name:
Title:
<PAGE>
STATE OF NEW YORK )
) ss.:
COUNTY OF NEW YORK )
Personally appeared before me, the undersigned authority in
and for the said county and state, on this day of September, 1997, within my
jurisdiction, the within named ____________________, who acknowledged that he is
a __________________ of ___________________, and that for and on behalf of the
said corporation, and as its act and deed he executed the above and foregoing
instrument, after first having been duly authorized by said corporation so to
do.
-----------------------------
NOTARY PUBLIC
[Notarial Seal]
<PAGE>
EXHIBIT A
FORM OF CONVERTIBLE SUBORDINATED NOTE
[FORM OF FACE OF NOTE]
[Global Securities Legend]
UNLESS THIS CERTIFICATE IS PRESENTED BY AN AUTHORIZED
REPRESENTATIVE OF THE DEPOSITORY TRUST COMPANY, A NEW YORK CORPORATION ("DTC"),
NEW YORK, NEW YORK, TO THE COMPANY OR ITS AGENT FOR REGISTRATION OF TRANSFER,
EXCHANGE OR PAYMENT, AND ANY CERTIFICATE ISSUED IS REGISTERED IN THE NAME OF
CEDE & CO. OR IN SUCH OTHER NAME AS IS REQUESTED BY AN AUTHORIZED REPRESENTATIVE
OF DTC (AND ANY PAYMENT IS MADE TO CEDE & CO., OR TO SUCH OTHER ENTITY AS IS
REQUESTED BY AN AUTHORIZED REPRESENTATIVE OF DTC) ANY TRANSFER, PLEDGE OR OTHER
USE HEREOF FOR VALUE OR OTHERWISE BY OR TO ANY PERSON IS WRONGFUL INASMUCH AS
THE REGISTERED OWNER HEREOF, CEDE & CO., HAS AN INTEREST HEREIN.
TRANSFERS OF THIS GLOBAL SECURITY SHALL BE LIMITED TO
TRANSFERS IN WHOLE, BUT NOT IN PART, TO NOMINEES OF DTC OR TO A SUCCESSOR
THEREOF OR SUCH SUCCESSOR'S NOMINEE AND TRANSFERS OF PORTIONS OF THIS GLOBAL
SECURITY SHALL BE LIMITED TO TRANSFERS MADE IN ACCORDANCE WITH THE RESTRICTIONS
SET FORTH IN THE INDENTURE REFERRED TO ON THE REVERSE HEREOF.
[Restricted Securities Legend]
THIS SECURITY HAS NOT BEEN REGISTERED UNDER THE SECURITIES ACT
OF 1933, AS AMENDED (THE "SECURITIES ACT"). THE HOLDER HEREOF, BY PURCHASING
THIS SECURITY, AGREES FOR THE BENEFIT OF THE COMPANY THAT THIS SECURITY MAY NOT
BE RESOLD, PLEDGED OR OTHERWISE TRANSFERRED (X) PRIOR TO THE SECOND ANNIVERSARY
OF THE ISSUANCE HEREOF (OR ANY PREDECESSOR SECURITY HERETO) OR (Y) BY ANY HOLDER
THAT WAS AN AFFILIATE OF THE COMPANY AT ANY TIME DURING THE THREE MONTHS
PRECEDING THE DATE OF SUCH TRANSFER, IN EITHER CASE, OTHER THAN (1) TO THE
COMPANY, (2) SO LONG AS THIS SECURITY IS ELIGIBLE FOR RESALE PURSUANT TO RULE
144A UNDER THE SECURITIES ACT ("RULE 144A"), TO A PERSON WHOM THE SELLER
REASONABLY BELIEVES IS A QUALIFIED INSTITUTIONAL BUYER WITHIN THE MEANING OF
RULE 144A, PURCHASING FOR ITS OWN ACCOUNT OR FOR THE ACCOUNT OF A QUALIFIED
INSTITUTIONAL BUYER TO WHOM NOTICE IS GIVEN THAT THE RESALE, PLEDGE OR OTHER
TRANSFER IS BEING MADE IN RELIANCE ON RULE 144A (AS INDICATED BY THE
A-1
<PAGE>
BOX CHECKED BY THE TRANSFEROR ON THE CERTIFICATE OF TRANSFER ON THE REVERSE OF
THIS SECURITY), (3) IN AN OFFSHORE TRANSACTION IN ACCORDANCE WITH REGULATION S
UNDER THE SECURITIES ACT (AS INDICATED BY THE BOX CHECKED BY THE TRANSFEROR ON
THE CERTIFICATE OF TRANSFER ON THE REVERSE OF THIS SECURITY), (4) TO AN
INSTITUTION THAT IS AN "ACCREDITED INVESTOR" AS DEFINED IN RULE 501(a)(1), (2),
(3) OR (7) UNDER THE SECURITIES ACT (AS INDICATED BY THE BOX CHECKED BY THE
TRANSFEROR ON THE CERTIFICATE OF TRANSFER ON THE REVERSE OF THIS SECURITY) THAT
IS ACQUIRING THIS SECURITY FOR INVESTMENT PURPOSES AND NOT FOR DISTRIBUTION, AND
A CERTIFICATE IN THE FORM ATTACHED TO THIS SECURITY IS DELIVERED BY THE
TRANSFEREE TO THE COMPANY AND THE TRUSTEE, (5) PURSUANT TO AN EXEMPTION FROM
REGISTRATION UNDER THE SECURITIES ACT PROVIDED BY RULE 144 (IF APPLICABLE) UNDER
THE SECURITIES ACT, OR (6) PURSUANT TO AN EFFECTIVE REGISTRATION STATEMENT UNDER
THE SECURITIES ACT, IN EACH CASE IN ACCORDANCE WITH ANY APPLICABLE SECURITIES
LAWS OF ANY STATE OF THE UNITED STATES. AN INSTITUTIONAL ACCREDITED INVESTOR
HOLDING THIS SECURITY AGREES THAT IT WILL FURNISH TO THE COMPANY AND THE TRUSTEE
SUCH CERTIFICATES AND OTHER INFORMATION AS THEY MAY REASONABLY REQUIRE TO
CONFIRM THAT ANY TRANSFER BY IT OF THIS SECURITY COMPLIES WITH THE FOREGOING
RESTRICTIONS. THE HOLDER HEREOF, BY PURCHASING THIS SECURITY, REPRESENTS AND
AGREES FOR THE BENEFIT OF THE COMPANY THAT IT IS (1) A QUALIFIED INSTITUTIONAL
BUYER WITHIN THE MEANING OF RULE 144A OR (2) AN INSTITUTION THAT IS AN
"ACCREDITED INVESTOR" AS DEFINED IN RULE 501(a)(1), (2), (3) OR (7) UNDER THE
SECURITIES ACT AND THAT IT IS HOLDING THIS SECURITY FOR INVESTMENT PURPOSES AND
NOT FOR DISTRIBUTION OR (3) A NON-U.S. PERSON OUTSIDE THE UNITED STATES WITHIN
THE MEANING OF (OR AN ACCOUNT SATISFYING THE REQUIREMENTS OF PARAGRAPH (o)(2) OF
RULE 902 UNDER) REGULATION S UNDER THE SECURITIES ACT.
A-2
<PAGE>
No. _________
Cusip No.
TEL-SAVE HOLDINGS, INC.
__% CONVERTIBLE SUBORDINATED NOTE
DUE 2002
TEL-SAVE HOLDINGS, INC.
Tel-Save Holdings, Inc., a Delaware corporation (the
"Company") promises to pay to ______________________________________________ or
registered assigns, the principal sum [indicated on Schedule A hereof]* [of
___________ Dollars]** on __________, 2002.
Interest Payment Dates: March ___ and September __, commencing March __, 1998.
Record Dates: ________ and __________.
Reference is hereby made to the further provisions of this
Convertible Note set forth on the reverse hereof which further provisions shall
for all purposes have the same effect as if set forth at this place.
- ------------------------
* Applicable to Global Securities only.
** Applicable to certificated Securities only.
A-3
<PAGE>
IN WITNESS WHEREOF, Tel-Save Holdings, Inc. has caused this
Convertible Note to be signed manually or by facsimile by its duly authorized
Officers and a facsimile of its corporate seal to be affixed hereto or imprinted
hereon.
Dated:__________________
TEL-SAVE HOLDINGS, INC.,
by
by
[Seal]
TRUSTEE'S CERTIFICATE OF
AUTHENTICATION
This is one of the
__% Convertible Subordinated Notes Due 2002
described in the within-
mentioned Indenture.
_____________, as Trustee,
by
Authorized Officer
A-4
<PAGE>
TEL-SAVE HOLDINGS, INC.
__% Convertible Subordinated Note Due 2002
1. Interest. TEL-SAVE HOLDINGS, INC., a Delaware corporation
(the "Company"), is the issuer of the __% Convertible Subordinated Notes Due
2002 (the "Convertible Notes"), of which this Convertible Note is a part. The
Company promises to pay interest on the Convertible Notes in cash semiannually
on each March___ and September___, commencing on March__, 1998, to holders of
record on the immediately preceding _________ and
- ---------.
Interest on the Convertible Notes will accrue from the most
recent date to which interest has been paid, or if no interest has been paid,
from __________, 1997. Interest will be computed on the basis of a 360-day year
of twelve 30-day months. To the extent lawful, the Company shall pay interest
(including post-petition interest in any proceeding under any Bankruptcy Law) on
overdue installments of interest (without regard to any applicable grace period)
at the rate borne by the Convertible Notes, compounded annually.
2. Method of Payment. The Company will pay interest on the
Convertible Notes (except defaulted interest) to the persons who are registered
holders of the Convertible Notes at the close of business on the record date for
the next interest payment date even though Convertible Notes are canceled after
the record date and on or before the interest payment date. The Noteholder
hereof must surrender Convertible Notes to a Paying Agent to collect principal
payments. The Company will pay principal and interest in money of the United
States that at the time of payment is legal tender for payment of public and
private debts. However, the Company may pay principal and interest by check
payable in such money. It may mail an interest check to a holders' registered
address.
3. Paying Agent and Registrar. The Trustee will act as Paying
Agent, Registrar and Conversion Agent. The Company may change any Paying Agent,
Registrar, or Conversion Agent without prior notice.
4. Indenture. The Company issued the Convertible Notes under
an indenture, dated as of September , 1997 (the "Indenture"), between the
Company and First Trust of New York, National Association, as Trustee. The terms
of the Convertible Notes include those stated in the Indenture and those made
part of the Indenture by the Trust Indenture Act of 1939 (15 U.S. Code ss.ss.
77aaa-77bbbb) as in effect on the date of the Indenture. The Convertible Notes
are subject to, and qualified by, all such terms, certain of which are
summarized hereon, and Noteholders are referred to the Indenture and such Act
for a statement of such terms. The Convertible Notes are general unsecured
obligations of the Company limited to an aggregate principal amount of
$___________. The Indenture does not limit the ability of the Company or any of
its Subsidiaries to incur indebtedness or to grant security interests or liens
in respect of their assets.
A-5
<PAGE>
5. Optional Redemption. The Convertible Notes are not
redeemable at the Company's option prior to _________, 2000. Thereafter, the
Convertible Notes will be subject to redemption at the option of the Company, in
whole or in part (in any integral multiple of $1,000), at the following
redemption prices (expressed as percentages of the principal amount), if
redeemed during the 12-month period beginning ____________ of the years
indicated:
Redemption
Year Price
- ---- -----
2000................................. %
2001................................. %
and at 100% at __________, 2002, in each case together with
accrued interest to the redemption date (subject to the right of holders of
record on the relevant record date to receive interest due on an interest
payment date). On or after the redemption date, interest will cease to accrue on
the Convertible Notes, or portion thereof, called for redemption.
6. Notice of Redemption. Notice of redemption will be mailed
at least 30 days but not more than 60 days before the redemption date to each
holder of the Convertible Notes to be redeemed at his address of record. The
Convertible Notes in denominations larger than $1,000 may be redeemed in part
but only in integral multiples of $1,000. In the event of a redemption of less
than all of the Convertible Notes, the Convertible Notes will be chosen for
redemption by the Trustee in accordance with the Indenture. Unless the Company
defaults in making such redemption payment, or a Paying Agent is prohibited from
making such payment pursuant to the Indenture, by law or otherwise, interest
ceases to accrue on the Convertible Notes or portions of them called for
redemption on and after the redemption date.
If this Convertible Note is redeemed subsequent to a record
date with respect to any interest payment date specified above and on or prior
to such interest payment date, then any accrued interest will be paid to the
person in whose name this Convertible Note is registered at the close of
business on such record date.
7. Mandatory Redemption. The Company will not be required to
make mandatory redemption payments with respect to the Convertible Notes. There
are no sinking fund payments with respect to the Convertible Notes.
8. Repurchase at Option of Holder. If there is a Designated
Event, the Company shall be required to offer to purchase on the Designated
Event Payment Date all outstanding Convertible Notes at a purchase price equal
to 101% of the principal amount thereof on the date of purchase, plus accrued
and unpaid interest to the Designated Event Payment Date. Holders of Convertible
Notes that are subject to an offer to purchase will receive a Designated Event
Offer from the Company prior to any related Designated Event Payment Date and
may elect to have such Convertible Notes or portions thereof in authorized
denominations purchased by completing the form entitled "Option of Noteholder To
Elect Purchase" appearing below. Noteholders have
A-6
<PAGE>
the right to withdraw their election by delivering a written notice of
withdrawal to the Company or the Paying Agent in accordance with the terms of
the Indenture.
9. Subordination. The payment of the principal of, interest on
or any other amounts due on the Convertible Notes is subordinated in right of
payment to all existing and future Senior Debt of the Company, as described in
the Indenture. Each Noteholder, by accepting a Convertible Note, agrees to such
subordination and authorizes and directs the Trustee on its behalf to take such
action as may be necessary or appropriate to effectuate the subordination so
provided and appoints the Trustee as its attorney-in-fact for such purpose.
10. Conversion. The holder of any Convertible Note has the
right, exercisable at any time after 90 days following the Issuance Date and
prior to the close of business (New York City time) on the Business Day
immediately preceding the date of the Convertible Note's maturity, to convert
the principal amount thereof (or any portion thereof that is an integral
multiple of $1,000) into shares of Common Stock at the initial Conversion Price
of $___ per share, subject to adjustment under certain circumstances, except
that if a Convertible Note is called for redemption, the conversion right will
terminate at the close of business (New York City time) on the Business Day
immediately preceding the date fixed for redemption.
To convert a Convertible Note, a holder must (1) complete and
sign a notice of election to convert substantially in the form set forth below,
(2) surrender the Convertible Note to a Conversion Agent, (3) furnish
appropriate endorsements or transfer documents if required by the Registrar or
Conversion Agent and (4) pay any transfer or similar tax, if required. Upon
conversion, no adjustment or payment will be made for interest or dividends, but
if any Noteholder surrenders a Convertible Note for conversion after the close
of business on the record date for the payment of an installment of interest and
prior to the opening of business on the next interest payment date, then,
notwithstanding such conversion, the interest payable on such interest payment
date will be paid to the registered holder of such Convertible Note on such
record date. In such event, unless such Security has been called for redemption
on or prior to such interest payment date, such Convertible Note, when
surrendered for conversion, must be accompanied by payment in funds acceptable
to the Company of an amount equal to the interest payable on such interest
payment date on the portion so converted. The number of shares of Common Stock
issuable upon conversion of a Convertible Note is determined by dividing the
principal amount of the Convertible Note converted by the Conversion Price in
effect on the Conversion Date. No fractional shares will be issued upon
conversion but a cash adjustment will be made for any fractional interest.
A Convertible Note in respect of which a holder has delivered
an "Option of Noteholder to Elect Purchase" form appearing below exercising the
option of such holder to require the Company to purchase such Convertible Note
may be converted only if the notice of exercise is withdrawn as provided above
and in accordance with the terms of the Indenture. The above description of
conversion of the Convertible Notes is qualified by reference to, and is subject
in its entirety by, the more complete description thereof contained in the
Indenture.
A-7
<PAGE>
11. Registration Agreement. The holder of this Convertible
Note is entitled to the benefits of a Registration Agreement, dated September ,
1997, between the Company and the Initial Purchasers (the "Registration
Agreement"). Pursuant to the Registration Agreement the Company has agreed for
the benefit of the holders of the Convertible Notes, that (i) it will, at its
cost, within 120 days after the closing of the sale of the Convertible Notes
(the "Closing"), file a shelf registration statement (the "Shelf Registration
Statement") with the Securities and Exchange Commission (the "Commission") with
respect to resales of the Convertible Notes and the Common Stock issuable upon
conversion thereof, (ii) within 180 days after the Closing, such Shelf
Registration Statement shall be declared effective by the Commission and (iii)
the Company will use its best efforts to keep such Shelf Registration Statement
continuously effective under the Securities Act until the earliest of (a) the
second anniversary of the date of the Closing, (b) the date on which the
Convertible Notes or the Common Stock issuable upon conversion thereof may be
sold pursuant to paragraph (k) of Rule 144 (or any successor provision)
promulgated by the Commission under the Securities Act and (c) the date as of
which all the Convertible Notes or the Common Stock issuable upon conversion
thereof have been sold pursuant to such Shelf Registration Statement (the "Shelf
Registration Period"). If the Company fails to comply with clause (i) above
then, at such time, the per annum interest rate on the Convertible Notes will
increase by 25 basis points. Such increase will remain in effect until the date
on which such Shelf Registration Statement is filed, on which date the interest
rate on the Convertible Notes will revert to the interest rate originally borne
by the Convertible Notes plus any increase in such interest rate pursuant to the
following sentence. If the Shelf Registration Statement is not declared
effective as provided in clause (ii) above, then, at such time and on each date
that would have been the successive 30th day following such time, the per annum
interest rate on the Convertible Notes (which interest rate will be the original
interest rate on the Convertible Notes plus any increase or increases in such
interest rate pursuant to the preceding sentence and this sentence) will
increase by an additional 25 basis points; provided that the interest rate will
not increase by more than 50 basis points pursuant to this sentence and will not
increase by more than 75 basis points pursuant to this sentence and the
preceding sentence. Such increase or increases will remain in effect until the
date on which such Shelf Registration Statement is declared effective, on which
date the interest rate on the Convertible Notes will revert to the interest rate
originally borne by the Convertible Notes. Pursuant to clause (iii) above,
however, if the Company fails to keep the Shelf Registration Statement
continuously effective for the period specified above, then at such time as the
Shelf Registration Statement is no longer effective and on each date thereafter
that is the successive 30th day subsequent to such time and until the earlier of
(i) the date that the Shelf Registration Statement is again deemed effective or
(ii) the termination of the Shelf Registration Period, the per annum interest
rate on the Convertible Notes will increase by an additional 25 basis points;
provided, however, that the interest rate will not increase by more than 50
basis points pursuant to this sentence.
Pursuant to the Registration Agreement, the Company may
suspend the use of the prospectus which is a part of the Shelf Registration
Statement for a period not to exceed 30 days in any three-month period or three
periods not to exceed an aggregate of 90 days in any twelve-
A-8
<PAGE>
month period under certain circumstances. The holders of Convertible Notes will
not be entitled to additional interest as set forth in the preceding paragraph
solely because of such suspension.
12. Denominations, Transfer, Exchange and Replacement. The
Convertible Notes are in registered form, without coupons, in denominations of
$1,000 and integral multiples of $1,000. The transfer of Convertible Notes may
be registered, and Convertible Notes may be exchanged, as provided in the
Indenture. The Registrar may require a Noteholder, among other things, to
furnish appropriate endorsements and transfer documents and to pay any taxes and
fees required by law or permitted by the Indenture. The Registrar need not
exchange or register the transfer of any Convertible Note or portion of a
Convertible Note selected for redemption (except the unredeemed portion of any
Convertible Note being redeemed in part). Also, it need not exchange or register
the transfer of any Convertible Note for a period of 15 days before a selection
of Convertible Notes to be redeemed. Replacement Convertible Notes for lost,
stolen or mutilated Convertible Notes may be issued in accordance with the terms
of the Indenture.
13. Persons Deemed Owners. The registered Noteholder of a
Convertible Note may be treated as its owner for all purposes.
14. Unclaimed Money. If money for the payment of principal or
interest remains unclaimed for two years, the Trustee and the Paying Agent shall
pay the money back to the Company at its request. After that, Noteholders of
Convertible Notes entitled to the money must look to the Company for payment,
unless an abandoned property law designates another person, and all liability of
the Trustee and such Paying Agent with respect to such money shall cease.
15. Defaults and Remedies. The Convertible Notes shall have
the Events of Default as set forth in Section 8.01 of the Indenture. Subject to
certain limitations in the Indenture, if an Event of Default occurs and is
continuing, the Trustee by notice to the Company or the Noteholders of at least
25% in aggregate principal amount of the then-outstanding Convertible Notes by
notice to the Company and the Trustee may declare all the Convertible Notes to
be due and payable immediately, except that in the case of an Event of Default
arising from certain events of bankruptcy or insolvency, all unpaid principal
and interest accrued on the Convertible Notes shall become due and payable
immediately without further action or notice. Upon acceleration as described in
either of the preceding sentences, the subordination provisions of the Indenture
preclude any payment being made to Noteholders for at least 5 Business Days
except as otherwise provided in the Indenture.
The Noteholders of a majority in principal amount of the
Convertible Notes then outstanding by written notice to the Trustee may rescind
an acceleration and its consequences if the rescission would not conflict with
any judgment or decree and if all existing Events of Default have been cured or
waived except nonpayment of principal or interest that has become due solely
because of the acceleration. Noteholders may not enforce the Indenture or the
Convertible Notes except as provided in the Indenture. Subject to certain
limitations, Noteholders of a majority in principal amount of the
then-outstanding Convertible Notes issued under the Indenture may direct the
Trustee in its exercise of any trust or power. The Company
A-9
<PAGE>
must furnish compliance certificates to the Trustee annually. The above
description of Events of Default and remedies is qualified by reference to, and
subject in its entirety by, the more complete description thereof contained in
the Indenture.
16. Amendments, Supplements and Waivers. Subject to certain
exceptions, the Indenture or the Convertible Notes may be amended or
supplemented with the consent of the Noteholders of at least a majority in
principal amount of the then-outstanding Convertible Notes (including consents
obtained in connection with a tender offer or exchange offer for Convertible
Notes), and any existing default may be waived with the consent of the
Noteholders of a majority in principal amount of the then-outstanding
Convertible Notes, including consents obtained in connection with a tender offer
or exchange offer for Convertible Notes. Without the consent of any Noteholder,
the Indenture or the Convertible Notes may be amended, among other things, to
cure any ambiguity, defect or inconsistency, to provide for assumption of the
Company's obligations to Noteholders, to make any change that does not adversely
affect the rights of any Noteholder, to qualify the Indenture under the TIA, or
to comply with the requirements of the SEC in order to maintain the
qualification of the Indenture under the TIA.
17. Trustee Dealings with the Company. The Trustee, in its
individual or any other capacity, may become the owner or pledgee of the
Convertible Notes and may otherwise deal with the Company or an Affiliate with
the same rights it would have, as if it were not Trustee, subject to certain
limitations provided for in the Indenture and in the TIA. Any Agent may do the
same with like rights.
18. No Recourse Against others. A director, Officer, employee
or stockholder, as such, of the Company shall not have any liability for any
obligations of the Company under the Convertible Notes or the Indenture or for
any claim based on, in respect of or by reason of such obligations or their
creation. Each Noteholder, by accepting a Convertible Note, waives and releases
all such liability. The waiver and release are part of the consideration for the
issue of the Convertible Notes.
19. Governing Law. THE INTERNAL LAWS OF THE STATE OF NEW YORK
SHALL GOVERN THE INDENTURE AND THE CONVERTIBLE NOTES WITHOUT REGARD TO CONFLICT
OF LAW PROVISIONS THEREOF.
20. Authentication. The Convertible Notes shall not be valid
until authenticated by the manual signature of an authorized officer of the
Trustee or an authenticating agent.
21. Abbreviations. Customary abbreviations may be used in the
name of a Noteholder or an assignee, such as: TEN COM (for tenants in common),
TEN ENT (for tenants by the entireties), JT TEN (for joint tenants with right of
survivorship and not as tenants in common), CUST (for Custodian), and U/G/M/A
(for Uniform Gifts to Minors Act).
22. Definitions. Capitalized terms not defined in this
Convertible Note have the meaning given to them in the Indenture.
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<PAGE>
The Company will furnish to any Noteholder of the Convertible
Notes upon written request and without charge a copy of the Indenture and the
Registration Agreement. Request may be made to:
Tel-Save Holdings, Inc.
Attn: General Counsel and Secretary
6805 Route 202
New Hope, Pennsylvania 18938
(215) 862-1500
A-11
<PAGE>
ASSIGNMENT FORM
To assign this Convertible Note, fill in the form below:
(I) or (we) assign and transfer this Convertible Note to
- -----------------------------------------------------------------------------
(Insert assignee's social security or tax I.D. no.)
- -----------------------------------------------------------------------------
- -----------------------------------------------------------------------------
- -----------------------------------------------------------------------------
(Print or type assignee's name, address and zip code)
and irrevocably appoint ________________________________________ agent to
transfer this Convertible Note on the books of the Company. The agent may
substitute another to act for him.
Your Signature: _____________________________________________
(Sign exactly as your name appears on the
other side of this Convertible Note)
Date: ___________________
Medallion Signature Guarantee: _____________________________
In connection with any transfer of any of the Convertible
Notes evidenced by this certificate occurring prior to the date that is two
years after the later of the date of original issuance of such Convertible Notes
and the last date, if any, on which such
A-12
<PAGE>
Convertible Notes were owned by the Company or any Affiliate of the Company, the
undersigned confirms that such Convertible Notes are being transferred:
CHECK ONE BOX BELOW
(1) [ ] to the Company; or
(2) [ ] pursuant to and in compliance with Rule 144A under the Securities
Act of 1933; or
(3) [ ] pursuant to and in compliance with Regulation S under the
Securities Act of 1933; or
(4) [ ] to an institutional "accredited investor" (as defined in Rule
501(a)(1), (2), (3) or (7) under the Securities Act of 1933) that
has furnished to the Trustee a signed letter containing certain
representations and agreements (the form of which letter can be
obtained from the Trustee); or
(5) [ ] pursuant to an exemption from registration under the Securities Act
of 1933 provided by Rule 144 thereunder.
Unless one of the boxes is checked, the Registrar will refuse to register
any of the Convertible Notes evidenced by this certificate in the name of
any person other than the registered holder thereof; provided, however, that
if box (3), (4) or (5) is checked, the Trustee may require, prior to
registering any such transfer of the Convertible Notes such legal opinions,
certifications and other information as the Company has reasonably requested
in writing, by delivery to the Trustee of a standing letter of instruction,
to confirm that such transfer is being made pursuant to an exemption from,
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<PAGE>
or in a transaction not subject to, the registration requirements of the
Securities Act of 1933.
--------------------------
Signature
Medallion Signature Guarantee:
- ------------------------ --------------------------
Signature
- --------------------------------------------------------------------------------
TO BE COMPLETED BY PURCHASER IF (2) ABOVE IS CHECKED.
The undersigned represents and warrants that it is purchasing
this Convertible Note for its own account or an account with respect to which it
exercises sole investment discretion and that it and any such account is a
"qualified institutional buyer" within the meaning of Rule 144A under the
Securities Act of 1933, and is aware that the sale to it is being made in
reliance on Rule 144A and acknowledges that it has received such information
regarding the Company as the undersigned has requested pursuant to Rule 144A or
has determined not to request such information and that it is aware that the
transferor is relying upon the undersigned's foregoing representations in order
to claim the exemption from registration provided by Rule 144A.
Dated:____________________ ___________________________
NOTICE: To be executed by
an executive officer
- -----------------------------
A-14
<PAGE>
[TO BE ATTACHED TO GLOBAL SECURITIES]
SCHEDULE A
The initial principal amount at maturity of this Global
Security shall be $ . The following increases or decreases in the principal
amount of this Global Security have been made:
<TABLE>
<CAPTION>
==============================================================================================================
Amount of increase
in Principal Amount
of this Global Amount of decrease in Principal Amount of Signature of
Security including Principal Amount of this Global Security authorized officer
Date Made upon exercise of this Global Security following such of Trustee or
over-allotment option decrease or increase Securities Custodian
<S> <C> <C> <C> <C>
- ----------------- ---------------------- ----------------------- ----------------------- ---------------------
- ----------------- ---------------------- ----------------------- ----------------------- ---------------------
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</TABLE>
A-15
<PAGE>
OPTION OF NOTEHOLDER TO ELECT PURCHASE
If you want to elect to have this Convertible Note or a
portion thereof repurchased by the Company pursuant to Section 3.08 or 4.07 of
the Indenture, check the box: |_|
If the purchase is in part, indicate the portion ($1,000 or
any integral multiple thereof) to be purchased: ____________
Your Signature: _____________________________________________
(Sign exactly as your name appears on the
other side of this Convertible Note)
Date: ____________
Medallion Signature Guarantee: _______________________
A-16
<PAGE>
ELECTION TO CONVERT
To Tel-Save Holdings, Inc.:
The undersigned owner of this Convertible Note hereby
irrevocably exercises the option to convert this Convertible Note, or the
portion below designated, into Common Stock of TEL-SAVE HOLDINGS, INC. in
accordance with the terms of the Indenture referred to in this Convertible Note,
and directs that the shares issuable and deliverable upon conversion, together
with any check in payment for fractional shares, be issued in the name of and
delivered to the undersigned, unless a different name has been indicated in the
assignment below. If shares are to be issued in the name of a person other than
the undersigned, the undersigned will pay all transfer taxes payable with
respect thereto.
The undersigned agrees to be bound by the terms of the
Registration Agreement relating to the Common Stock issuable upon conversion of
the Convertible Notes.
Date:
In whole ____ or Portion of Convertible Note to be
converted ($1,000 or any integral
multiple thereof):
$
--------------
Your Signature: ____________________________________
(Sign exactly as your name appears on
the other side of this Convertible
Note.)
Please Print or Typewrite Name and
Address, Including Zip Code, and
Social Security or other Identifying
Number
Medallion Signature Guarantee:*
-------------------------------
- ------------------------
* Signature must be guaranteed by a commercial bank, trust company or member
firm of the New York Stock Exchange
A-17
<PAGE>
EXHIBIT B
FORM OF TRANSFER CERTIFICATE FOR TRANSFER
FROM GLOBAL SECURITY OR RESTRICTED SECURITY
TO RESTRICTED SECURITY
(Transfers pursuant to ss. 2.06(a)(ii) or ss. 2.06(a)(iii) of the Indenture)
__________, as Registrar
Attn: [ ] Department
Re: Tel-Save Holdings, Inc. __% Convertible Subordinated Notes
Due 2002 (the "Convertible Notes")
Reference is hereby made to the Indenture dated as of
September __, 1997 (the "Indenture") between Tel-Save Holdings, Inc., as Issuer,
and First Trust of New York, National Association, as Trustee. Capitalized terms
used but not defined herein shall have the meanings given them in the Indenture.
This letter relates to U.S. $ aggregate principal
amount of Convertible Notes which are held [in the form of the [Restricted]
[Global] Security (CUSIP No. ) with the Depositary]* in the name of
[name of transferor] (the "Transferor") to effect the transfer of the
Securities.
In connection with such request, and in respect of such
Convertible Notes, the Transferor does hereby certify that such Convertible
Notes are being transferred in accordance with (i) the transfer restrictions set
forth in the Convertible Notes and (ii) to a transferee that the Transferor
reasonably believes is an institutional "accredited investor" (as defined in
Rule 501(a)(1), (2), (3) or (7) of Regulation D under the Securities Act of
1933, as amended) and is acquiring at least $250,000 principal amount of
Convertible Notes for its own account or for one or more accounts as to which
the transferee exercises sole investment discretion and (iii) in accordance with
applicable securities laws of any state of the United States.
[Name of Transferor],
by ________________________________
Name:
Title:
Dated:
cc: Tel-Save Holdings, Inc.
Attn: Secretary
- ------------------------------
* Insert, if appropriate.
B-1
<PAGE>
EXHIBIT C
FORM OF ACCREDITED INVESTOR TRANSFEREE CERTIFICATE
(Transfers pursuant to ss. 2.06(a)(ii) and ss. 2.06(a)(iii))
__________, as Registrar
Attn: [ ] Department
Re: Tel-Save Holdings, Inc.
__% Convertible Subordinated Notes
Due 2002 (the "Convertible Notes")
Reference is hereby made to the Indenture dated as of
September __, 1997 (the "Indenture") between Tel-Save Holdings, Inc., as Issuer,
and First Trust of New York, National Association, as Trustee. Capitalized terms
used but not defined herein shall have the meanings given them in the Indenture.
This letter relates to U.S. $________ aggregate principal
amount of Convertible Notes which are held in the form of the [Restricted]
[Global] Security (CUSIP No. _________) with the Depositary in the name of [name
of transferor] (the "Transferor") to effect the transfer of the Convertible
Notes to the undersigned.
In connection with such request, and in respect of such
Convertible Notes we confirm that:
1. We understand that the Convertible Notes have not been and
will not be registered under the U.S. Securities Act of 1933 (the
"Securities Act"), and are being sold to us in a transaction that is
exempt from the registration requirements of the Securities Act.
2. We are a corporation, partnership or other entity having
such knowledge and experience in financial and business matters as to
be capable of evaluating the merits and risks of an investment in the
Convertible Notes, and we are (or any account for which we are
purchasing under paragraph 4 below is) an institutional accredited
investor as defined in Rule 501(a)(1), (2), (3) or (7) under the
Securities Act, able to bear the economic risk of our proposed
investment in the Convertible Notes.
3. We are acquiring the Convertible Notes for our own account
(or for accounts as to which we exercise sole investment discretion and
have authority to make, and do make, the statements contained in this
letter) and not with a view to any
C-1
<PAGE>
distribution of the Convertible Notes, subject, nevertheless, to the
understanding that the disposition of our property shall at all times
be and remain within our control.
4. We are, and each account (if any) for which we are
purchasing Convertible Notes is, purchasing Convertible Notes having an
aggregate principal amount of not less than $250,000.
5. We understand that (a) the Convertible Notes will be
delivered to us in registered form only and that the certificate
delivered to us with respect to the Convertible Notes will bear a
legend substantially to the following effect:
"THIS SECURITY HAS NOT BEEN REGISTERED UNDER THE SECURITIES
ACT OF 1933, AS AMENDED (THE "SECURITIES ACT"). THE HOLDER HEREOF, BY PURCHASING
THIS SECURITY, AGREES FOR THE BENEFIT OF THE COMPANY THAT THIS SECURITY MAY NOT
BE RESOLD, PLEDGED OR OTHERWISE TRANSFERRED (X) PRIOR TO THE SECOND ANNIVERSARY
OF THE ISSUANCE HEREOF (OR ANY PREDECESSOR SECURITY HERETO) OR (Y) BY ANY HOLDER
THAT WAS AN AFFILIATE OF THE COMPANY AT ANY TIME DURING THE THREE MONTHS
PRECEDING THE DATE OF SUCH TRANSFER, IN EITHER CASE, OTHER THAN (1) TO THE
COMPANY, (2) SO LONG AS THIS SECURITY IS ELIGIBLE FOR RESALE PURSUANT TO RULE
144A UNDER THE SECURITIES ACT ("RULE 144A"), TO A PERSON WHOM THE SELLER
REASONABLY BELIEVES IS A QUALIFIED INSTITUTIONAL BUYER WITHIN THE MEANING OF
RULE 144A, PURCHASING FOR ITS OWN ACCOUNT OR FOR THE ACCOUNT OF A QUALIFIED
INSTITUTIONAL BUYER TO WHOM NOTICE IS GIVEN THAT THE RESALE, PLEDGE OR OTHER
TRANSFER IS BEING MADE IN RELIANCE ON RULE 144A (AS INDICATED BY THE BOX CHECKED
BY THE TRANSFEROR ON THE CERTIFICATE OF TRANSFER ON THE REVERSE OF THIS
SECURITY), (3) IN AN OFFSHORE TRANSACTION IN ACCORDANCE WITH REGULATION S UNDER
THE SECURITIES ACT (AS INDICATED BY THE BOX CHECKED BY THE TRANSFEROR ON THE
CERTIFICATE OF TRANSFER ON THE REVERSE OF THIS SECURITY), (4) TO AN INSTITUTION
THAT IS AN "ACCREDITED INVESTOR" AS DEFINED IN RULE 501(a)(1), (2), (3) OR (7)
UNDER THE SECURITIES ACT (AS INDICATED BY THE BOX CHECKED BY THE TRANSFEROR ON
THE CERTIFICATE OF TRANSFER ON THE REVERSE OF THIS SECURITY) THAT IS ACQUIRING
THIS SECURITY FOR INVESTMENT PURPOSES AND NOT FOR DISTRIBUTION, AND A
CERTIFICATE IN THE FORM ATTACHED TO THIS SECURITY IS DELIVERED BY THE TRANSFEREE
TO THE COMPANY AND THE TRUSTEE, (5) PURSUANT TO AN EXEMPTION FROM REGISTRATION
UNDER THE SECURITIES ACT PROVIDED BY RULE 144 (IF APPLICABLE) UNDER THE
SECURITIES ACT, OR (6) PURSUANT TO AN EFFECTIVE REGISTRATION STATEMENT UNDER THE
SECURITIES ACT, IN EACH CASE IN ACCORDANCE WITH ANY APPLICABLE
C-2
<PAGE>
SECURITIES LAWS OF ANY STATE OF THE UNITED STATES. AN INSTITUTIONAL ACCREDITED
INVESTOR HOLDING THIS SECURITY AGREES IT WILL FURNISH TO THE COMPANY AND THE
TRUSTEE SUCH CERTIFICATES AND OTHER INFORMATION AS THEY MAY REASONABLY REQUIRE
TO CONFIRM THAT ANY TRANSFER BY IT OF THIS SECURITY COMPLIES WITH THE FOREGOING
RESTRICTIONS. THE HOLDER HEREOF, BY PURCHASING THIS SECURITY, REPRESENTS AND
AGREES FOR THE BENEFIT OF THE COMPANY THAT IT IS (1) A QUALIFIED INSTITUTIONAL
BUYER WITHIN THE MEANING OF RULE 144A OR (2) AN INSTITUTION THAT IS AN
"ACCREDITED INVESTOR" AS DEFINED IN RULE 501(a)(1), (2), (3) OR (7) UNDER THE
SECURITIES ACT AND THAT IT IS HOLDING THIS SECURITY FOR INVESTMENT PURPOSES AND
NOT FOR DISTRIBUTION OR (3) A NON-U.S. PERSON OUTSIDE THE UNITED STATES WITHIN
THE MEANING OF (OR AN ACCOUNT SATISFYING THE REQUIREMENTS OF PARAGRAPH (o)(2) OF
RULE 902 UNDER) REGULATION S UNDER THE SECURITIES ACT."
and (b) such certificates will be reissued without the foregoing legend
only in accordance with the terms of the Indenture.
6. We agree that in the event that at some future time we wish
to dispose of any of the Convertible Notes, we will not do so unless
the Convertible Notes are being transferred:
(a) to the Company or any Subsidiary thereof;
(b) pursuant to and in compliance with Rule 144A under
the Securities Act;
(c) pursuant to and in compliance with Regulation S
under the Securities Act;
(d) to an institution that is an "accredited investor"
as defined in Rule 501(a)(1), (2), (3) or (7) under the
Securities Act, that is acquiring at least $250,000 principal
amount of the Convertible Notes for investment purposes and
not for distribution and that, prior to such transfer,
furnishes to the Trustee a signed letter containing certain
representations and agreements relating to the restrictions on
transfer of the Convertible Notes (the form of which letter
can be obtained from such Trustee);
(e) pursuant to an exemption from registration under
the Securities Act provided by Rule 144 under the Securities
Act; or
C-3
<PAGE>
(f) pursuant to an effective registration statement
under the Securities Act.
Very truly yours
[PURCHASER]
by __________________________
Name:
Title:
Dated:
cc: Tel-Save Holdings, Inc.
Attn: General Counsel and Secretary
6805 Route 202
New Hope, Pennsylvania 18938
Attn: Secretary
C-4
<PAGE>
EXHIBIT D
FORM OF REGISTRATION AGREEMENT
D-1
TEL-SAVE HOLDINGS, INC.
4.5% Convertible Subordinated Notes Due 2002
REGISTRATION AGREEMENT
New York, New York
September 3, 1997
Salomon Brothers Inc
Deutsche Morgan Grenfell Inc.
Bear, Stearns & Co. Inc.
Smith Barney Inc.
Robertson, Stephens & Company LLC
First Union Capital Markets Corp.
As Representatives of the Initial Purchasers Named in
Schedule I to the Purchase Agreement (as defined below)
Seven World Trade Center
New York, New York 10048
Ladies and Gentlemen:
Tel-Save Holdings, Inc., a Delaware corporation (the "Company"),
proposes to issue and sell (such issuance and sale, the "Initial Placement") to
you (the "Initial Purchasers"), upon the terms set forth in a purchase agreement
of even date herewith (the "Purchase Agreement"), $250,000,000 principal amount
(plus an additional $50,000,000 principal amount to cover over-allotments, if
any) of its 4.5% Convertible Subordinated Notes Due 2002 (the "Securities"). The
Securities will be convertible into shares of Common Stock, par value $0.01 per
share (the "Common Stock"), of the Company at the conversion price set forth in
the Final Memorandum. As an inducement to you to enter into the Purchase
Agreement and in satisfaction of a condition to your obligations thereunder, the
Company agrees with you, (i) for your benefit and (ii) for the benefit of the
holders from time to time of the Securities or the Common Stock issuable upon
conversion of the Securities (including you) (each of the foregoing, a "Holder"
and together, the "Holders"), as follows:
1. Definitions. Capitalized terms used herein without definition shall
have the respective meanings set forth in the Purchase Agreement. As used in
this Agreement, the following capitalized terms shall have the following
meanings:
"Act" means the Securities Act of 1933, as amended, and the rules and
regulations of the Commission promulgated thereunder.
"Affiliate" of any specified person means any other person that,
directly or indirectly, is in control of, is controlled by, or is under common
control with, such specified person. For purposes of this definition, control of
a person means the power, direct or indirect, to direct or cause the direction
of the management and policies of such person
<PAGE>
whether by contract or otherwise; and the terms "controlling" and "controlled"
have meanings correlative to the foregoing.
"Closing Date" has the meaning set forth in the Purchase Agreement.
"Commission" means the Securities and Exchange Commission.
"Exchange Act" means the Securities Exchange Act of 1934, as amended,
and the rules and regulations of the Commission promulgated thereunder.
"Final Memorandum" has the meaning set forth in the Purchase Agreement.
"Holder" has the meaning set forth in the preamble hereto.
"Indenture" means the Indenture relating to the Securities dated as of
September 9, 1997, between the Company and First Trust of New York, National
Association, as trustee, as the same may be amended from time to time in
accordance with the terms thereof.
"Initial Placement" has the meaning set forth in the preamble hereto.
"Initial Purchasers" has the meaning set forth in the preamble hereto.
"Majority Holders" means the Holders of a majority of the then
outstanding aggregate principal amount of Securities registered under a Shelf
Registration Statement; provided that Holders of Common Stock issued upon
conversion of Securities shall be deemed to be Holders of the aggregate
principal amount of Securities from which such Common Stock was converted.
"Managing Underwriters" means the Underwriter or Underwriters that
shall administer an Underwritten Offering.
"Prospectus" means the prospectus included in any Shelf Registration
Statement (including, without limitation, a prospectus that discloses
information previously omitted from a prospectus filed as part of an effective
registration statement in reliance upon Rule 430A under the Act), as amended or
supplemented by any prospectus supplement, with respect to the terms of the
offering of any portion of the Securities or Common Stock issuable upon
conversion thereof, covered by such Shelf Registration Statement, and all
amendments and supplements to such prospectus, including post-effective
amendments.
"Purchase Agreement" has the meaning set forth in the preamble hereto.
"Securities" has the meaning set forth in the preamble hereto.
"Shelf Registration" means a registration effected pursuant to Section
2 hereof.
2
<PAGE>
"Shelf Registration Period" has the meaning set forth in Section 2(b)
hereof.
"Shelf Registration Statement" means a "shelf" registration statement
of the Company pursuant to the provisions of Section 2 hereof which covers some
or all of the Securities and the Common Stock issuable upon conversion thereof,
as applicable, on an appropriate form under Rule 415 under the Act, or any
similar rule that may be adopted by the Commission, and all amendments and
supplements to such registration statement, including post-effective amendments,
in each case including the Prospectus contained therein, all exhibits thereto
and all material incorporated by reference therein.
"Trustee" means the trustee with respect to the Securities under the
Indenture.
"Underwriter" means any underwriter of Securities or Common Stock
issuable upon conversion thereof in connection with an offering thereof under a
Shelf Registration Statement.
"Underwritten Offering" means an offering in which the Securities or
Common Stock are sold to an Underwriter or with the assistance of an Underwriter
for reoffering to the public.
2. Shelf Registration; Suspension of Use of Prospectus.
(a) The Company shall prepare and, not later than 120 days following
the Closing Date, shall file with the Commission and thereafter, but no later
than 180 days following the Closing Date, shall cause to be declared effective
under the Act a Shelf Registration Statement relating to the offer and sale of
the Securities and the Common Stock issuable upon conversion thereof by the
Holders from time to time in accordance with the methods of distribution elected
by such Holders and set forth in such Shelf Registration Statement.
(b) The Company shall use its best efforts to keep the Shelf
Registration Statement continuously effective in order to permit the Prospectus
forming part thereof to be usable by Holders until the earliest of (i) the
second anniversary of the Closing Date, (ii) the date on which the Securities or
Common Stock issuable upon conversion thereof may be sold pursuant to paragraph
(k) of Rule 144 (or any successor provision) promulgated by the Commission under
the Act and (iii) such date as of which all the Securities or the Common Stock
issuable upon conversion thereof have been sold pursuant to the Shelf
Registration Statement (in any such case, such period being called the "Shelf
Registration Period"). The Company shall be deemed not to have used its best
efforts to keep the Shelf Registration Statement effective during the requisite
period if it voluntarily takes any action that would result in Holders of
Securities covered thereby not being able to offer and sell such Securities
during that period, unless such action is required (x) by applicable law or (y)
pursuant to Section 2(c)
3
<PAGE>
hereof, and, in either case, so long as the Company promptly thereafter complies
with the requirements of Section 3(i) hereof, if applicable.
(c) The Company may suspend the use of the Prospectus for a period not
to exceed 30 days in any three-month period or for three periods not to exceed
an aggregate of 90 days in any twelve-month period for valid business reasons,
to be determined by the Company in its sole reasonable judgment (not including
avoidance of the Company's obligations hereunder), including, without
limitation, the acquisition or divestiture of assets, public filings with the
Commission, pending corporate developments and similar events; provided that the
Company promptly thereafter complies with the requirements of Section 3(i)
hereof, if applicable.
3. Registration Procedures. In connection with any Shelf Registration
Statement, the following provisions shall apply:
(a) The Company shall furnish to you, prior to the filing thereof with
the Commission, a copy of any Shelf Registration Statement, and each amendment
thereof and each amendment or supplement, if any, to the Prospectus included
therein and shall use its best efforts to reflect in each such document, when so
filed with the Commission, such comments as Salomon Brothers Inc reasonably may
propose.
(b) The Company shall ensure that (i) any Shelf Registration Statement
and any amendment thereto and any Prospectus forming part thereof and any
amendment or supplement thereto comply in all material respects with the Act and
the rules and regulations thereunder, (ii) any Shelf Registration Statement and
any amendment thereto does not, when it becomes effective, contain an untrue
statement of a material fact or omit to state a material fact required to be
stated therein or necessary to make the statements therein not misleading and
(iii) any Prospectus forming part of any Shelf Registration Statement, and any
amendment or supplement to such Prospectus, does not include an untrue statement
of a material fact or omit to state a material fact necessary in order to make
the statements therein, in light of the circumstances under which they were
made, not misleading; provided that no representation or agreement is made
hereby with respect to information with respect to you, any Underwriter or any
Holder required to be included in any Shelf Registration or Prospectus pursuant
to the Act or the rules and regulations thereunder.
(c) (1) The Company shall advise you and the Holders and, if requested
by you or any such Holder, confirm such advice in writing:
(i) when a Shelf Registration Statement and any amendment thereto
has been filed with the Commission and when the Shelf Registration
Statement or any post-effective amendment thereto has become effective;
and
4
<PAGE>
(ii) of any request by the Commission for amendments or
supplements to the Shelf Registration Statement or the Prospectus
included therein or for additional information.
(2) The Company shall advise you and the Holders and, if requested by
you or any such Holder, confirm such advice in writing:
(i) of the issuance by the Commission of any stop order suspending
the effectiveness of the Shelf Registration Statement or the initiation
of any proceedings for that purpose;
(ii) of the receipt by the Company of any notification with
respect to the suspension of the qualification of the Securities
included in any Shelf Registration Statement for sale in any
jurisdiction or the initiation or threat of any proceeding for such
purpose; and
(iii) of the suspension of the use of the Prospectus pursuant to
Section 2(c) hereof or of the happening of any event that requires the
making of any changes in the Shelf Registration Statement or the
Prospectus so that, as of such date, the statements therein are not
misleading and do not omit to state a material fact required to be
stated therein or necessary to make the statements therein (in the case
of the Prospectus, in light of the circumstances under which they were
made) not misleading (which advice shall be accompanied by an
instruction to suspend the use of the Prospectus until the requisite
changes have been made).
(d) The Company shall use its best efforts to obtain the withdrawal of
any order suspending the effectiveness of any Shelf Registration Statement at
the earliest possible time.
(e) The Company shall furnish to each Holder of Securities or the
Common Stock issued upon conversion thereof included within the coverage of any
Shelf Registration Statement, without charge, at least one copy of such Shelf
Registration Statement and any post-effective amendment thereto, including
financial statements and schedules, and, if the Holder so requests in writing,
all exhibits (including those incorporated by reference).
(f) The Company shall, during the Shelf Registration Period, deliver to
each Holder of Securities or the Common Stock issued upon conversion thereof
included within the coverage of any Shelf Registration Statement, without
charge, as many copies of the Prospectus (including each preliminary Prospectus)
included in such Shelf Registration Statement and any amendment or supplement
thereto as such Holder may reasonably request; and the Company consents to the
use of the Prospectus or any amendment or supplement thereto by each of the
selling Holders in connection with the
5
<PAGE>
offering and sale of the Securities or the Common Stock issued upon conversion
thereof covered by the Prospectus or any amendment or supplement thereto.
(g) Prior to any offering of Securities or the Common Stock issued upon
conversion thereof pursuant to any Shelf Registration Statement, the Company
shall register or qualify or cooperate with the Holders of Securities or the
Common Stock issued upon conversion thereof included therein and their
respective counsel in connection with the registration or qualification of such
Securities or Common Stock for offer and sale under the securities or blue sky
laws of such jurisdictions as any such Holders reasonably request in writing and
do any and all other acts or things necessary or advisable to enable the offer
and sale in such jurisdictions of the Securities and the Common Stock issued
upon conversion thereof covered by such Shelf Registration Statement; provided,
however, that the Company will not be required to qualify generally to do
business in any jurisdiction where it is not then so qualified or to take any
action which would subject it to general service of process or to taxation in
any such jurisdiction where it is not then so subject.
(h) The Company shall cooperate with the Holders to facilitate the
timely preparation and delivery of certificates representing Securities or the
Common Stock issued upon conversion thereof to be sold pursuant to any Shelf
Registration Statement free of any restrictive legends and in such denominations
and registered in such names as Holders may request prior to sales of Securities
or the Common Stock issued upon conversion thereof pursuant to such Shelf
Registration Statement.
(i) Upon the occurrence of any event contemplated by paragraph
(c)(2)(iii) above, the Company shall promptly prepare a post-effective amendment
to any Shelf Registration Statement or an amendment or supplement to the related
Prospectus or file any other required document so that, as thereafter delivered
to purchasers of the Securities or the Common Stock issued upon conversion
thereof included therein, the Prospectus will not include an untrue statement of
a material fact or omit to state any material fact necessary to make the
statements therein, in the light of the circumstances under which they were
made, not misleading.
(j) The Company shall use its best efforts to cause The Depository
Trust Company ("DTC") on the first Business Day following the effective date of
any Shelf Registration Statement hereunder or as soon as possible thereafter to
remove (i) from any existing CUSIP number assigned to the Securities any
designation indicating that the Securities are "restricted securities", which
efforts shall include delivery to DTC of a letter executed by the Company
substantially in the form of Exhibit A hereto and (ii) any other stop or
restriction on DTC's system with respect to the Securities. In the event the
Company is unable to cause DTC to take actions described in the immediately
preceding sentence, the Company shall take such actions as Salomon Brothers Inc
may reasonably request to provide, as soon as practicable, a CUSIP number for
the Securities registered under such Shelf Registration Statement and to cause
such CUSIP number to be assigned to the Securities (or to the maximum aggregate
principal amount
6
<PAGE>
of the securities to which such number may be assigned). Upon compliance with
the foregoing requirements of this Section 3(j), the Company shall provide the
Trustee with global certificates for such Securities, in a form eligible for
deposit with The Depository Trust Company.
(k) The Company shall use its best efforts to comply with all
applicable rules and regulations of the Commission and shall make generally
available to its security holders as soon as practicable after the effective
date of the applicable Shelf Registration Statement an earnings statement
satisfying the provisions of Section 11(a) of the Act and Rule 158 promulgated
by the Commission thereunder.
(l) The Company shall use its best efforts to cause the Indenture to be
qualified under the Trust Indenture Act in a timely manner.
(m) The Company may require each Holder of Securities or the Common
Stock issued upon conversion thereof to be sold pursuant to any Shelf
Registration Statement to furnish to the Company such information regarding the
Holder and the distribution of such Securities or Common Stock as may, from time
to time, be required by the Act and the rules and regulations promulgated
thereunder, and the obligations of the Company to any Holder hereunder shall be
expressly conditioned on the compliance of such Holder with such request.
(n) The Company shall, if requested, use its best efforts to promptly
incorporate in a Prospectus supplement or post-effective amendment to a Shelf
Registration Statement (i) such information as the Majority Holders provide or,
if the Securities or Common Stock are being sold in an Underwritten Offering, as
the Managing Underwriters and the Majority Holders reasonably agree should be
included therein and provide to the Company in writing for inclusion in the
Shelf Registration Statement or Prospectus, and (ii) such information as a
Holder may provide from time to time to the Company in writing for inclusion in
a Prospectus or any Shelf Registration Statement concerning such Holder and the
distribution of such Holder's Securities and Common Stock and, in either case,
shall make all required filings of such Prospectus supplement or post-effective
amendment as soon as practible after being notified in writing of the matters to
be incorporated in such Prospectus supplement or post-effective amendment.
(o) The Company shall enter into such agreements (including
underwriting agreements) and take all other appropriate actions as may be
reasonably requested in order to expedite or facilitate the registration or the
disposition of the Securities or the Common Stock issuable upon conversion
thereof, and in connection therewith, if an underwriting agreement is entered
into, cause the same to contain indemnification provisions and procedures no
less favorable than those set forth in Section 5 (or such other provisions and
procedures acceptable to the Majority Holders and the Managing Underwriters, if
any, with respect to all parties to be indemnified pursuant to Section 5
7
<PAGE>
from Holders of Securities or the Common Stock issuable upon conversion thereof
to the Company).
(p) The Company shall (i) make reasonably available for inspection by
the Holders of Securities or the Common Stock issued upon conversion thereof to
be registered under a Shelf Registration Statement, any Underwriter
participating in any disposition pursuant to such Shelf Registration Statement,
and any attorney, accountant or other agent retained by the Holders or any such
Underwriter all relevant financial and other records, pertinent corporate
documents and properties of the Company and its subsidiaries; (ii) cause the
Company's officers, directors and employees to supply all relevant information
reasonably requested by the Holders or any such Underwriter, attorney,
accountant or agent in connection with any such Shelf Registration Statement as
is customary for similar due diligence examinations; provided, however, that any
information that is designated in writing by the Company, in its sole
discretion, as confidential at the time of delivery of such information shall be
kept confidential by the Holders or any such Underwriter, attorney, accountant
or agent, unless disclosure thereof is made in connection with a court
proceeding or required by law, or such information has become available to the
public generally through the Company or through a third party without an
accompanying obligation of confidentiality; (iii) make such representations and
warranties to the Holders of Securities or the Common Stock issued upon
conversion thereof registered thereunder and the Underwriters, if any, in form,
substance and scope as are customarily made by issuers to Underwriters and
covering matters including, but not limited to, those set forth in the Purchase
Agreement; (iv) obtain opinions of counsel to the Company and updates thereof
(which counsel and opinions, in form, scope and substance, shall be reasonably
satisfactory to the Managing Underwriters, if any) addressed to each selling
Holder and the Underwriters, if any, covering such matters as are customarily
covered in opinions requested in underwritten offerings and such other matters
as may be reasonably requested by such Holders and Underwriters; (v) obtain
"cold comfort" letters and updates thereof from the independent certified public
accountants of the Company (and, if necessary, any other independent certified
public accountants of any subsidiary of the Company or of any business acquired
by the Company for which financial statements and financial data are, or are
required to be, included in the Shelf Registration Statement), addressed to each
selling Holder of Securities or the Common Stock issued upon conversion thereof
registered thereunder (provided such Holder furnishes the accountants with such
representations as the accountants customarily require in similar situations)
and the Underwriters, if any, in customary form and covering matters of the type
customarily covered in "cold comfort" letters in connection with primary
underwritten offerings; and (vi) deliver such documents and certificates as may
be reasonably requested by the Majority Holders and the Managing Underwriters,
if any, including those to evidence compliance with Section 3(i) and with any
customary conditions contained in the underwriting agreement or other agreement
entered into by the Company. The foregoing actions set forth in clauses (iii),
(iv), (v) and (vi) of this Section 3 (p) shall be performed at (A) the
effectiveness of such Shelf Registration
8
<PAGE>
Statement and each post-effective amendment thereto and (B) each closing under
any underwriting or similar agreement as and to the extent required thereunder.
4. Registration Expenses. The Company shall bear all expenses incurred
in connection with the performance of its obligations under Sections 2 and 3
hereof and shall reimburse the Holders for the reasonable fees and disbursements
of one firm or counsel designated by the Majority Holders to act as counsel for
the Holders in connection therewith. Notwithstanding the provisions of this
Section 4, each Holder shall bear the expense of any broker's commission, agency
fee or Underwriter's discount or commission.
9
<PAGE>
5. Indemnification and Contribution.
(a) (i) In connection with any Shelf Registration Statement, the
Company agrees to indemnify and hold harmless each Holder of Securities or
Common Stock issued upon conversion thereof covered thereby (including the
Initial Purchasers), the directors, officers, employees and agents of each such
Holder and each person who controls any such Holder within the meaning of either
the Act or the Exchange Act against any and all losses, claims, damages or
liabilities, joint or several, to which they or any of them may become subject
under the Act, the Exchange Act or other Federal or state statutory law or
regulation, at common law or otherwise, insofar as such losses, claims, damages
or liabilities (or actions in respect thereof) arise out of or are based upon
any untrue statement or alleged untrue statement of a material fact contained in
the Shelf Registration Statement as originally filed or in any amendment
thereof, or in any preliminary Prospectus or Prospectus, or in any amendment
thereof or supplement thereto, or arise out of or are based upon the omission or
alleged omission to state therein a material fact required to be stated therein
or necessary to make the statements therein not misleading, and agrees to
reimburse each such indemnified party, as incurred, for any legal or other
expenses reasonably incurred by them in connection with investigating or
defending any such loss, claim, damage, liability or action; provided, however,
that the Company will not be liable in any case to the extent that any such
loss, claim, damage or liability arises out of or is based upon (A) any such
untrue statement or alleged untrue statement or omission or alleged omission
made therein in reliance upon and in conformity with written information
furnished to the Company by or on behalf of any such Holder or any Initial
Purchaser specifically for inclusion therein, (B) use of a Shelf Registration
Statement or the related Prospectus during a period when a stop order has been
issued in respect of such Shelf Registration or any proceedings for that purpose
have been initiated or use of a Prospectus when use of such Prospectus has been
suspended pursuant to Section 2(c); provided, further, in each case, that
Holders received prior notice of such stop order, initiation of proceedings or
suspension or (C) if the Holder fails to deliver a Prospectus or the then
current Prospectus. This indemnity agreement will be in addition to any
liability which the Company may otherwise have.
(ii) The Company also agrees to indemnify or contribute to Losses, as
provided in Section 5(d), of any Underwriters of Securities or the Common Stock
issued upon conversion thereof registered under a Shelf Registration Statement,
their officers and directors and each person who controls such Underwriters on
substantially the same basis as that of the indemnification of the Initial
Purchasers and the selling Holders provided in this Section 5(a) and shall, if
requested by any Holder, enter into an underwriting agreement reflecting such
agreement, as provided in Section 3(o) hereof.
(b) Each Holder of Securities or Common Stock issued upon conversion
thereof covered by a Shelf Registration Statement (including the Initial
Purchasers)
10
<PAGE>
severally agrees to indemnify and hold harmless (i) the Company, (ii) each of
its directors, (iii) each of its officers who signs such Shelf Registration
Statement and (iv) each person who controls the Company within the meaning of
either the Act or the Exchange Act to the same extent as the foregoing indemnity
from the Company to each such Holder, but only with reference to written
information relating to such Holder furnished to the Company by or on behalf of
such Holder specifically for inclusion in the documents referred to in the
foregoing indemnity. This indemnity agreement will be in addition to any
liability which any such Holder may otherwise have.
(c) Promptly after receipt by an indemnified party under this Section 5
of notice of the commencement of any action, such indemnified party will, if a
claim in respect thereof is to be made against the indemnifying party under this
Section 5, notify the indemnifying party in writing of the commencement thereof;
but the failure so to notify the indemnifying party (i) will not relieve it from
liability under paragraph (a) or (b) above unless and to the extent it did not
otherwise learn of such action and such failure results in the forfeiture by the
indemnifying party of substantial rights and defenses and (ii) will not, in any
event, relieve the indemnifying party from any obligations to any indemnified
party other than the indemnification obligation provided in paragraph (a) or (b)
above. The indemnifying party shall be entitled to appoint counsel of the
indemnifying party's choice at the indemnifying party's expense to represent the
indemnified party in any action for which indemnification is sought (in which
case the indemnifying party shall not thereafter be responsible for the fees and
expenses of any separate counsel retained by the indemnified party or parties
except as set forth below); provided, however, that such counsel shall be
reasonably satisfactory to the indemnified party. Notwithstanding the
indemnifying party's election to appoint counsel to represent the indemnified
party in an action, the indemnified party shall have the right to employ
separate counsel (including local counsel), and the indemnifying party shall
bear the reasonable fees, costs and expenses of such separate counsel (and local
counsel) if (i) the use of counsel chosen by the indemnifying party to represent
the indemnified party would present such counsel with a conflict of interest,
(ii) the actual or potential defendants in, or targets of, any such action
include both the indemnified party and the indemnifying party and the
indemnified party shall have reasonably concluded that there may be legal
defenses available to it and/or other indemnified parties which are different
from or additional to those available to the indemnifying party, (iii) the
indemnifying party shall not have employed counsel satisfactory to the
indemnified party to represent the indemnified party within a reasonable time
after notice of the institution of such action or (iv) the indemnifying party
shall authorize the indemnified party to employ separate counsel at the expense
of the indemnifying party; provided further, that the indemnifying party shall
not be responsible for the fees and expenses of more than one separate counsel
(together with appropriate local counsel) representing all the indemnified
parties under paragraph (a)(i), paragraph (a)(ii) or paragraph (b) above. An
indemnifying party will not, without the prior written consent of the
indemnified parties, settle or compromise or consent to the entry of any
judgment with respect to any pending or threatened claim, action, suit or
proceeding in
11
<PAGE>
respect of which indemnification or contribution may be sought hereunder
(whether or not the indemnified parties are actual or potential parties to such
claim or action) unless such settlement, compromise or consent includes an
unconditional release of each indemnified party from all liability arising out
of such claim, action, suit or proceeding.
(d) In the event that the indemnity provided in paragraph (a) or (b) of
this Section 5 is unavailable to or insufficient to hold harmless an indemnified
party for any reason, then each applicable indemnifying party, in lieu of
indemnifying such indemnified party, shall have a joint and several obligation
to contribute to the aggregate losses, claims, damages and liabilities
(including legal or other expenses reasonably incurred in connection with
investigating or defending same) (collectively "Losses") to which such
indemnified party may be subject in such proportion as is appropriate to reflect
the relative benefits received by such indemnifying party, on the one hand, and
such indemnified party, on the other hand, from the Initial Placement and the
Shelf Registration Statement which resulted in such Losses; provided, however,
that in no case shall the Initial Purchasers be responsible, in the aggregate,
for any amount in excess of the purchase discount or commission applicable to
such Security, as set forth on the cover page of the Final Memorandum, nor shall
any Underwriter be responsible for any amount in excess of the underwriting
discount or commission applicable to the Securities and Common Stock issued upon
conversion thereof purchased by such Underwriter under the Shelf Registration
Statement which resulted in such Losses. If the allocation provided by the
immediately preceding sentence is unavailable for any reason, the indemnifying
party and the indemnified party shall contribute in such proportion as is
appropriate to reflect not only such relative benefits but also the relative
fault of such indemnifying party, on the one hand, and such indemnified party,
on the other hand, in connection with the statements or omissions which resulted
in such Losses as well as any other relevant equitable considerations. Benefits
received by the Company shall be deemed to be equal to the sum of (x) the total
net proceeds from the Initial Placement (before deducting expenses) as set forth
on the cover page of the Final Memorandum and (y) the total amount of additional
interest which the Company was not required to pay as a result of registering
the Securities and Common Stock issued upon conversion thereof covered by the
Shelf Registration Statement which resulted in such Losses. Benefits received by
the Initial Purchasers shall be deemed to be equal to the total purchase
discounts and commissions as set forth on the cover page of the Final
Memorandum, and benefits received by any other Holders shall be deemed to be
equal to the value of receiving Securities or the Common Stock issuable upon
conversion thereof registered under the Act. Benefits received by any
Underwriter shall be deemed to be equal to the total underwriting discounts and
commissions, as set forth on the cover page of the Prospectus forming a part of
the Shelf Registration Statement which resulted in such Losses. Relative fault
shall be determined by reference to whether any alleged untrue statement or
omission relates to information provided by the indemnifying party, on the one
hand, or by the indemnified party, on the other hand. The parties agree that it
would not be just and
12
<PAGE>
equitable if contribution were determined by pro rata allocation or any other
method of allocation which does not take account of the equitable considerations
referred to above. Notwithstanding the provisions of this paragraph (d), no
person guilty of fraudulent misrepresentation (within the meaning of Section
11(f) of the Act) shall be entitled to contribution from any person who was not
guilty of such fraudulent misrepresentation. For purposes of this Section 5,
each person who controls a Holder within the meaning of either the Act or the
Exchange Act and each director, officer, employee and agent of such Holder shall
have the same rights to contribution as such Holder, and each person who
controls the Company within the meaning of either the Act or the Exchange Act,
each officer of the Company who shall have signed the Shelf Registration
Statement and each director of the Company shall have the same rights to
contribution as the Company, subject in each case to the applicable terms and
conditions of this paragraph (d).
(e) The provisions of this Section 5 will remain in full force and
effect, regardless of any investigation made by or on behalf of any Holder or
the Company or any of the officers, directors or controlling persons referred to
in Section 5 hereof, and will survive the sale by a Holder of Securities covered
by a Shelf Registration Statement.
6. Miscellaneous.
(a) No Inconsistent Agreements. The Company has not, as of the date
hereof, entered into nor shall it, on or after the date hereof, enter into, any
agreement with respect to its Securities that is inconsistent with the rights
granted to the Holders herein or otherwise conflicts with the provisions hereof.
(b) Amendments and Waivers. The provisions of this Agreement, including
the provisions of this sentence, may not be amended, qualified, modified or
supplemented, and waivers or consents to departures from the provisions hereof
may not be given, unless the Company has obtained the written consent of the
Majority Holders; provided that with respect to any matter that directly or
indirectly affects the rights of the Initial Purchasers hereunder, the Company
shall obtain the written consent of the Initial Purchasers against which such
amendment, qualification, supplement, waiver or consent is to be effective.
Notwithstanding the foregoing (except the foregoing proviso), a waiver or
consent to departure from the provisions hereof with respect to a matter that
relates exclusively to the rights of Holders whose Securities are being sold
pursuant to a Shelf Registration Statement and that does not directly or
indirectly affect the rights of other Holders may be given by the Majority
Holders, determined on the basis of Securities being sold rather than registered
under such Shelf Registration Statement.
13
<PAGE>
(c) Notices. All notices and other communications provided for or
permitted hereunder shall be made in writing by hand-delivery, first-class mail,
telex, telecopier, or air courier guaranteeing overnight delivery:
(1) if to you, initially at the address set forth in the
Purchase Agreement;
(2) if to any other Holder, at the most current address given
by such Holder to the Company in accordance with the provisions of
this Section 6(c), which address initially is, with respect to
each Holder, the address of such Holder maintained by the
Registrar under the Indenture, with a copy in like manner to
Salomon Brothers Inc; and
(3) if to the Company, initially at its address set forth in
the Purchase Agreement.
All such notices and communications shall be deemed to have been duly
given when received, if delivered by hand or air courier, and when sent, if sent
by first-class mail, telex or telecopier.
The Initial Purchasers or the Company by notice to the other may
designate additional or different addresses for subsequent notices or
communications.
(d) Successors and Assigns. This Agreement shall inure to the
benefit of and be binding upon the successors and assigns of each of
the parties, including, without the need for an express assignment or
any consent by the Company thereto, subsequent Holders. The Company
hereby agrees to extend the benefits of this Agreement to any Holder
and any such Holder may specifically enforce the provisions of this
Agreement as if an original party hereto.
(e) Counterparts. This agreement may be executed in any number of
counterparts and by the parties hereto in separate counterparts, each
of which when so executed shall be deemed to be an original and all of
which taken together shall constitute one and the same agreement.
(f) Headings. The headings in this agreement are for convenience
of reference only and shall not limit or otherwise affect the meaning
hereof.
(g) Governing Law. This agreement shall be governed by and
construed in accordance with the laws of the State of New York
applicable to agreements made and to be performed in said State,
without regard to the conflicts of law rules thereof.
(h) Severability. In the event that any one of more of the
provisions contained herein, or the application thereof in any
circumstances, is held invalid, illegal or unenforceable in any respect
for any reason, the validity, legality and enforceability of any such
provision in every other respect and of the remaining provisions hereof
14
<PAGE>
shall not be in any way impaired or affected thereby, it being intended
that all of the rights and privileges of the parties shall be
enforceable to the fullest extent permitted by law by law.
(i) Securities Held by the Company, etc. Whenever the consent or
approval of Holders of a specified percentage of principal amount of
Securities or the Common Stock issuable upon conversion thereof is
required hereunder, Securities or the Common Stock issued upon
conversion thereof held by the Company or its Affiliates (other than
subsequent Holders of Securities or the Common Stock issued upon
conversion thereof if such subsequent Holders are deemed to be
Affiliates solely by reason of their holdings of such Securities) shall
not be counted in determining whether such consent or approval was
given by the Holders of such required percentage.
15
<PAGE>
Please confirm that the foregoing correctly sets forth the agreement
between the Company and you.
Very truly yours,
TEL-SAVE HOLDINGS, INC.
-----------------------------
Name:
Title:
The foregoing Agreement is hereby confirmed and
accepted as of the date first above written.
SALOMON BROTHERS INC
DEUTSCHE MORGAN GRENFELL INC.
BEAR, STEARNS & CO. INC.
SMITH BARNEY INC.
ROBERTSON, STEPHENS & COMPANY, LLC
FIRST UNION CAPITAL MARKETS CORP.
For themselves and the other Initial
Purchasers named in Schedule I to the
Purchase Agreement.
BY: SALOMON BROTHERS INC
By _________________________
Name:
Title:
<PAGE>
EXHIBIT A
FORM OF LETTER TO BE PROVIDED BY ISSUER TO
THE DEPOSITORY TRUST COMPANY
The Depository Trust Company
7 Hanover Square, 23rd Floor
New York, NY 10004
Re: 4.5% Subordinated Convertible Notes Due 2002 (the "Securities")
of Tel-Save Holdings, Inc.
Ladies and Gentlemen:
Please be advised that the Securities and Exchange Commission has
declared effective a Registration Statement on Form S-3 under the Securities Act
of 1933, as amended, with regard to all of the Securities referenced above.
Accordingly, there is no longer any restriction as to whom such Securities may
be sold and any restrictions on the CUSIP designation are no longer appropriate
and may be removed. I understand that upon receipt of this letter, DTC will
remove any stop or restriction on its system with respect to this issue.
As always, please do not hesitate to call if we can of further
assistance.
Very truly yours,
Authorized Officer
Exhibit 5.1
November 7, 1997
Board of Directors
Tel-Save Holdings, Inc.
6805 Route 202
New Hope, Pennsylvania 18938
Re: Issuance of $300,000,000 Aggregate
Principal Amount of 4 1/2% Convertible
Subordinated Notes Due 2002 and
12,185,834 Shares of Common Stock by
Tel-Save Holdings, Inc.
Gentlemen:
I am general counsel of Tel-Save Holdings, Inc. (the "Company") and
have acted as such in connection with the Company's filing pursuant to the
Securities Act of 1933, as amended, of a registration statement on Form S-3 (the
"Registration Statement") relating to the offering for resale of up to
$300,000,000 aggregate principal amount of 4 1/2% Convertible Subordinated Notes
due 2002 (the "Notes") and 12,185,834 shares of the Company's common stock, par
value $.01 per share (the "Shares"), by the Selling Holders named in the
Registration Statement. You have requested my opinion as to certain matters with
respect to the Notes and Shares.
I have examined such corporate records of the Company, including
its Amended and Restated Certificate of Incorporation, its Bylaws, and
resolutions of the Company's board of directors (the "Board of Directors"), as
well as such other documents as I deemed necessary for rendering the opinion
hereinafter expressed.
On the basis of the foregoing, I am of the opinion that the Notes
have been duly authorized by the Board of Directors and are legally issued,
fully paid and nonassessable, and the Shares have been duly authorized by the
Board of Directors and, upon conversion of the Notes in accordance with their
terms, will be legally issued, fully paid and nonassessable.
<PAGE>
I hereby consent to the filing of this opinion as an exhibit to the
Registration Statement and to the use of my name therein.
Sincerely yours,
/s/ Aloysius T. Lawn, IV
------------------------
Aloysius T. Lawn, IV
General Counsel and
Secretary
Exhibit 23.1
CONSENT OF BDO SEIDMAN, LLP
Tel-Save Holdings, Inc.
New Hope, Pennsylvania
We hereby consent to the incorporation by reference in this Prospectus
constituting a part of this Registration Statement of our reports dated January
29, 1997 relating to the consolidated financial statements and schedule of
Tel-Save Holdings, Inc. and Subsidiaries (the "Company") appearing in the
Company's Annual Report on Form 10-K for the year ended December 31, 1996.
We also consent to the reference to us under the caption "Experts" in the
Prospectus.
/s/ BDO Seidman, LLP
- --------------------
BDO Seidman, LLP
New York, New York
November 5, 1997
Exhibit 23.3
CONSENT OF INDEPENDENT PUBLIC ACCOUNTANTS
As independent public accountants, we hereby consent to the incorporation by
reference in this Form S-3 Registration Statement of our report dated March 7,
1997 incorporated by reference in the Shared Technologies Fairchild, Inc. Form
10-K for the year ended December 31, 1996 and to all references to our Firm
included in this Form S-3 Registration Statement.
/s/Arthur Andersen LLP
ARTHUR ANDERSEN LLP
Washington, D.C.
November 5, 1997
Exhibit 23.4
CONSENT OF INDEPENDENT ACCOUNTANTS
We consent to the incorporation by reference in this Registration Statement on
Form S-3 of our report, which contains an explanatory paragraph relating to the
changing of the method of accounting for Shared Technologies Fairchild Inc.'s
investment in one of its subsidiaries, dated March 1, 1996 on our audits of the
consolidated financial statements and financial statement schedule of Shared
Technologies Fairchild Inc. as of December 31, 1995 and for the years ended
December 31, 1995 and 1994. We also consent to the reference to our firm under
the caption "Experts."
/s/ Rothstein, Kass & Company, P.C.
- -----------------------------------
Roseland, New Jersey
November 6, 1997
SECURITIES AND EXCHANGE COMMISSION
WASHINGTON, D. C. 20549
----------
FORM T - 1
STATEMENT OF ELIGIBILITY UNDER THE TRUST
INDENTURE ACT OF 1939 OF A CORPORATION
DESIGNATED TO ACT AS TRUSTEE
----------
CHECK IF AN APPLICATION TO DETERMINE ELIGIBILITY
OF A TRUSTEE PURSUANT TO SECTION 305 (b) (2) _________
FIRST TRUST OF NEW YORK, NATIONAL
ASSOCIATION (Exact name of trustee as
specified in its charter)
13-3781471
(I. R. S. Employer
Identification No.)
100 Wall Street, New York, NY 10005
(Address of principal executive offices) (Zip Code)
----------
FOR INFORMATION, CONTACT:
Dennis Calabrese, President
First Trust of New York, National Association
100 Wall Street, 16th Floor
New York, NY 10005
Telephone: (212) 361-2506
----------
TEL-SAVE HOLDINGS, INC.
(Exact name of obligor as specified in its charter)
Delaware 23-2827736
(State or other jurisdiction of (I. R. S. Employer
incorporation or organization) Identification No.)
6805 Route 202 18938
New Hope, PA
(Address of principal executive offices) (Zip Code)
----------
4 1/2% CONVERTIBLE SUBORDINATED NOTES DUE 2002
<PAGE>
Item 1. GENERAL INFORMATION.
Furnish the following information as to the trustee - -
(a) Name and address of each examining or supervising authority to which
it is subject.
Name Address
Comptroller of the Currency Washington, D. C.
(b) Whether it is authorized to exercise corporate trust powers.
Yes.
Item 2. AFFILIATIONS WITH THE OBLIGOR.
If the obligor is an affiliate of the trustee, describe each such
affiliation.
None.
Item 16. LIST OF EXHIBITS.
Exhibit 1. Articles of Association of First Trust of New York, National
Association, incorporated herein by reference to Exhibit 1 of
Form T-1, Registration No. 33-83774.
Exhibit 2. Certificate of Authority to Commence Business for First Trust
of New York, National Association, incorporated herein by
reference to Exhibit 2 of Form T-1, Registration No. 33-83774.
Exhibit 3. Authorization of the Trustee to exercise corporate trust powers
for First Trust of New York, National Association, incorporated
herein by reference to Exhibit 3 of Form T-1, Registration No.
33-83774.
Exhibit 4. By-Laws of First Trust of New York, National Association,
incorporated herein by reference to Exhibit 4 of Form T-1
Registration No. 333-34113.
Exhibit 5. Not applicable.
Exhibit 6. Consent of First Trust of New York, National Association,
required by Section 321(b) of the Act, incorporated herein by
reference to Exhibit 6 of Form T-1, Registration No. 33-83774.
Exhibit 7. Report of Condition of First Trust of New York, National
Association, as of the close of business on June 30, 1997,
published pursuant to law or the requirements of its
supervising or examining authority.
Exhibit 8. Not applicable.
Exhibit 9. Not applicable.
<PAGE>
SIGNATURE
Pursuant to the requirements of the Trust Indenture Act of
1939, as amended, the trustee, First Trust of New York, National Association, a
national banking association organized and existing under the laws of the United
States, has duly caused this statement of eligibility to be signed on its behalf
by the undersigned, thereunto duly authorized, all in The City of New York, and
State of New York, on the 6th day of November, 1997.
FIRST TRUST OF NEW YORK,
NATIONAL ASSOCIATION
By: /s/Glenn W. Andersen
------------------------
Glenn W. Andersen
Vice President
<PAGE>
FIRST TRUST OF NEW YORK, NATIONAL ASSOCIATION
STATEMENT OF FINANCIAL CONDITION
AS OF 6/30/97
($000'S)
6/30/97
-------
ASSETS
Cash and Due From Depository Institutions $35,121
Federal Reserve Stock 3,490
Fixed Assets 802
Intangible Assets 77,269
Other Assets 5,921
-------
TOTAL ASSETS $122,603
========
LIABILITIES
Other Liabilities 7,037
-------
TOTAL LIABILITIES 703
EQUITY
Common and Preferred Stock 1,000
Surplus 120,932
Undivided Profits (6,367)
-------
TOTAL EQUITY CAPITAL 115,565
TOTAL LIABILITIES AND EQUITY CAPITAL $122,603
=======
To the best of the undersigned's determination, as of this date the above
financial information is true and correct.
First Trust of New York, National Association
By: /s/ Glenn W. Andersen
---------------------------
Vice President
Date: November 6, 1997
