-----BEGIN PRIVACY-ENHANCED MESSAGE----- Proc-Type: 2001,MIC-CLEAR Originator-Name: webmaster@www.sec.gov Originator-Key-Asymmetric: MFgwCgYEVQgBAQICAf8DSgAwRwJAW2sNKK9AVtBzYZmr6aGjlWyK3XmZv3dTINen TWSM7vrzLADbmYQaionwg5sDW3P6oaM5D3tdezXMm7z1T+B+twIDAQAB MIC-Info: RSA-MD5,RSA, DGTv2l4Hfy4dOTXJqnbFQYb9Fek9+KMxrbzjI0MYdJwsMDz2MXdPAUmz8mGEORqF 67BA6W8IsmkN5j+J+P/DAQ== 0000892569-97-002087.txt : 19970807 0000892569-97-002087.hdr.sgml : 19970807 ACCESSION NUMBER: 0000892569-97-002087 CONFORMED SUBMISSION TYPE: 10-Q PUBLIC DOCUMENT COUNT: 8 CONFORMED PERIOD OF REPORT: 19970630 FILED AS OF DATE: 19970806 SROS: NASD FILER: COMPANY DATA: COMPANY CONFORMED NAME: IXC COMMUNICATIONS INC CENTRAL INDEX KEY: 0001009532 STANDARD INDUSTRIAL CLASSIFICATION: TELEPHONE COMMUNICATIONS (NO RADIO TELEPHONE) [4813] IRS NUMBER: 742644120 STATE OF INCORPORATION: DE FISCAL YEAR END: 1231 FILING VALUES: FORM TYPE: 10-Q SEC ACT: 1934 Act SEC FILE NUMBER: 000-20803 FILM NUMBER: 97651959 BUSINESS ADDRESS: STREET 1: 5000 PLAZA ON THE LAKE STREET 2: SUITE 200 CITY: AUSTIN STATE: TX ZIP: 79746-1050 BUSINESS PHONE: 5123281112 MAIL ADDRESS: STREET 1: 5000 PLAZA ON THE LAKE STREET 2: SUITE 200 CITY: AUSTIN STATE: TX ZIP: 79746-1050 10-Q 1 FORM 10-Q FOR THE QUARTER ENDED JUNE 30, 1997 1 ================================================================================ SECURITIES AND EXCHANGE COMMISSION WASHINGTON, D.C. 20549 ------------------------ FORM 10-Q ------------------------ [X] QUARTERLY REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934 FOR THE QUARTERLY PERIOD ENDED JUNE 30, 1997 OR [ ] TRANSITION REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934 FOR THE TRANSITION PERIOD FROM TO COMMISSION FILE NUMBER 0-20803 ------------------------ IXC COMMUNICATIONS, INC. (EXACT NAME OF REGISTRANT SPECIFIED IN ITS CHARTER) ------------------------ DELAWARE 75-2644120 (STATE OR OTHER JURISDICTION OF (I.R.S. EMPLOYER INCORPORATION OR ORGANIZATION) IDENTIFICATION NO.) 5000 PLAZA ON THE LAKE, SUITE 200, AUSTIN, TEXAS 78746 (ADDRESS OF PRINCIPAL EXECUTIVE OFFICES) (ZIP CODE)
(REGISTRANT'S TELEPHONE NUMBER, INCLUDING AREA CODE) (512) 328-1112 Indicate by check mark whether the registrant (1) has filed all reports required to be filed by Section 13 or 15(d) of the Securities Exchange Act of 1934 during the preceding 12 months (or for such shorter period that the registrant was required to file such reports), and (2) has been subject to such filing requirements for the past 90 days. Yes [X] No [ ] The number of shares of Common Stock, $.01 par value, outstanding (the only class of common stock of the Company outstanding) was 30,898,841 on July 31, 1997. ================================================================================ 2 IXC COMMUNICATIONS, INC. AND SUBSIDIARIES QUARTER ENDED JUNE 30, 1997 TABLE OF CONTENTS
PAGE ---- PART I. FINANCIAL INFORMATION Item 1. Condensed Consolidated Financial Statements (Unaudited) Condensed Consolidated Balance Sheets as of June 30, 1997 and December 31, 1996............................................ 3 Condensed Consolidated Statements of Operations for the Three and Six Months Ended June 30, 1997 and 1996.................. 4 Condensed Consolidated Statements of Cash Flows for the Six Months Ended June 30, 1997 and 1996.......................... 5 Notes to Condensed Consolidated Financial Statements......... 6 Item 2. Management's Discussion and Analysis of Financial Condition and Results of Operations.................................... 11 Item 3. Quantitative and Qualitative Disclosures About Market Risks........................................................ 16 PART II. OTHER INFORMATION Item 1. Legal Proceedings............................................ 17 Item 2. Changes in Securities........................................ 17 Item 3. Defaults Upon Senior Securities.............................. 17 Item 4. Submission of Matters to a Vote of Security Holders.......... 18 Item 5. Other Information............................................ 18 Item 6. Exhibits and Reports on Form 8-K............................. 19 SIGNATURE............................................................................ 22
2 3 IXC COMMUNICATIONS, INC. AND SUBSIDIARIES CONDENSED CONSOLIDATED BALANCE SHEETS (DOLLARS IN THOUSANDS, EXCEPT SHARE AND PER SHARE AMOUNTS)
JUNE 30, DECEMBER 31, 1997 1996 ----------- ------------ (UNAUDITED) (SEE NOTE 1) ASSETS Current assets: Cash and cash equivalents....................................... $ 40,974 $ 61,340 Accounts receivable and other receivables, net of allowance for doubtful accounts of $6,418 at June 30, 1997 and $4,030 at December 31, 1996............................................ 62,436 47,568 Other current assets............................................ 3,593 2,197 --------- -------- Total current assets.................................... 107,003 111,105 Property and equipment............................................ 493,643 337,742 Less: accumulated depreciation.................................... (87,804) (69,133) --------- -------- 405,839 268,609 Escrow under Senior Notes......................................... -- 51,412 Investment in unconsolidated subsidiary........................... 11,070 5,486 Deferred charges and other non-current assets..................... 28,988 22,539 --------- -------- Total assets............................................ $ 552,900 $459,151 ========= ======== LIABILITIES AND STOCKHOLDERS' EQUITY Current liabilities: Accounts payable and other current liabilities.................. $ 119,935 $ 74,945 Accrued interest................................................ 8,906 8,906 Current portion of long-term debt and capital lease obligations.................................................. 6,450 6,750 --------- -------- Total current liabilities............................... 135,291 90,601 Long-term debt and capital lease obligations, less current portion......................................................... 294,299 295,531 Other noncurrent liabilities...................................... 12,392 9,540 7 1/4% Junior Convertible Preferred Stock; $.01 par value; authorized -- 3,000,000 shares of all classes of Preferred Stock; 1,018,123 shares issued and outstanding (aggregate liquidation preference of $101,813, including dividends of $1,813, at June 30, 1997)....................................... 98,010 -- Stockholders' equity: 10% Junior Series 3 Cumulative Preferred Stock, $.01 par value; authorized -- 3,000,000 shares of all classes of Preferred Stock; 12,550 shares issued and outstanding (aggregate liquidation preference of $20,004 at June 30, 1997).......... 13 13 Common stock, $.01 par value; 100,000,000 shares authorized: shares issued and outstanding 30,799,560 at June 30, 1997 and 30,795,014 at December 31, 1996.............................. 308 308 Additional paid-in capital........................................ 121,551 123,434 Accumulated deficit............................................... (108,964) (60,276) --------- -------- Total stockholders' equity.............................. 12,908 63,479 --------- -------- Total liabilities and stockholders' equity.............. $ 552,900 $459,151 ========= ========
See accompanying notes. 3 4 IXC COMMUNICATIONS, INC. AND SUBSIDIARIES CONDENSED CONSOLIDATED STATEMENTS OF OPERATIONS (DOLLARS AND NUMBER OF SHARES IN THOUSANDS, EXCEPT PER SHARE AMOUNTS) (UNAUDITED)
THREE MONTHS SIX MONTHS ENDED JUNE 30, ENDED JUNE 30, --------------------- --------------------- 1997 1996 1997 1996 -------- -------- -------- -------- Net operating revenues: Private line................................ $ 38,494 $ 24,003 $ 69,363 $ 46,631 Switched long distance...................... 50,371 19,004 103,412 22,626 -------- -------- -------- -------- Net operating revenues.............. 88,865 43,007 172,775 69,257 Operating expenses: Cost of communication services.............. 74,150 31,643 143,132 47,243 Operations and administration............... 18,664 10,786 35,231 21,203 Depreciation and amortization............... 13,363 6,644 23,365 12,654 -------- -------- -------- -------- Operating loss...................... (17,312) (6,066) (28,953) (11,843) Interest income............................... 1,162 127 2,238 253 Interest income on escrow under Senior Notes....................................... -- 2,080 203 4,637 Interest expense.............................. (8,014) (9,490) (15,760) (19,360) Equity in net loss of unconsolidated subsidiaries................................ (4,532) (9) (6,351) (14) -------- -------- -------- -------- Loss before benefit for income taxes and minority interest........................... (28,696) (13,358) (48,623) (26,327) Benefit for income taxes...................... -- 1,402 252 2,765 Minority interest............................. (114) (111) (317) (204) -------- -------- -------- -------- Net loss...................................... (28,810) (12,067) (48,688) (23,766) Dividends applicable to preferred stock....... (2,288) (432) (2,758) (865) -------- -------- -------- -------- Net loss applicable to common and common equivalent stockholders..................... $(31,098) $(12,499) $(51,446) $(24,631) -------- -------- -------- -------- Net loss per common and common equivalent share....................................... $ (1.01) $ (0.50) $ (1.67) $ (0.99) ======== ======== ======== ======== Weighted average common and common equivalent shares...................................... 30,799 25,011 30,799 25,011 ======== ======== ======== ========
See accompanying notes. 4 5 IXC COMMUNICATIONS, INC. AND SUBSIDIARIES CONDENSED CONSOLIDATED STATEMENTS OF CASH FLOWS (DOLLARS IN THOUSANDS) (UNAUDITED)
FOR THE SIX MONTHS ENDED JUNE 30, --------------------------- 1997 1996 ----------- ----------- Net cash provided by (used in) operating activities............... $ (5,988) $ 812 Investing activities Release of funds from escrow under Senior Notes................. 69,428 36,525 Deposit into escrow under Senior Notes.......................... (18,152) -- Purchase of property and equipment.............................. (140,901) (32,783) --------- -------- Net cash provided by (used in) investing activities............... (89,625) 3,742 Financing activities Net proceeds from the sale of convertible preferred stock....... 96,197 -- Principal payments on long-term debt and capital lease obligations.................................................. (9,230) (5,137) Capital contribution to unconsolidated subsidiary............... (11,650) -- Other financing activities...................................... (70) (675) --------- -------- Net cash provided by (used in) financing activities............... 75,247 (5,812) --------- -------- Net decrease in cash and cash equivalents......................... (20,366) (1,258) Cash and cash equivalents at beginning of period.................. 61,340 6,915 --------- -------- Cash and cash equivalents at end of period........................ $ 40,974 $ 5,657 ========= ======== Supplemental disclosure of cash flow information: Cash paid (received) for: Interest..................................................... $ 18,518 $ 18,713 ========= ======== Taxes........................................................ $ 89 $ (884) ========= ========
See accompanying notes. 5 6 IXC COMMUNICATIONS, INC. AND SUBSIDIARIES NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS (UNAUDITED) 1. BASIS OF PRESENTATION AND SIGNIFICANT ACCOUNTING POLICIES The accompanying unaudited Condensed Consolidated Financial Statements have been prepared in accordance with generally accepted accounting principles for interim financial information and with the instructions to Form 10-Q and Article 10 of Regulation S-X. Accordingly, they do not include all of the information and notes required by generally accepted accounting principles for complete financial statements. In the opinion of management, all adjustments (consisting of normal recurring accruals) considered necessary for a fair presentation for the periods indicated have been included. Operating results for the three month and six month periods ended June 30, 1997 are not necessarily indicative of the results that may be expected for the year ended December 31, 1997. The Balance Sheet at December 31, 1996 has been derived from the audited financial statements at that date, but does not include all of the information and notes required by generally accepted accounting principles for complete financial statements. The accompanying financial statements should be read in conjunction with the audited consolidated financial statements (including the notes thereto) for the year ended December 31, 1996. 2. LOSS PER COMMON AND COMMON EQUIVALENT SHARE Loss per common and common equivalent share is based on net loss less preferred stock dividend requirements, divided by the weighted average common and common equivalent shares outstanding during the period. Outstanding options are included in the calculation to the extent they are dilutive. Loss per share on a fully diluted basis is not presented as the fully diluted effect is either antidilutive or not materially different from primary loss per common and common equivalent share, as computed. 3. INCOME TAXES The Company has determined that a valuation allowance should be applied against a portion of the deferred tax assets related to the net operating loss incurred in 1997 due to uncertainty regarding its realizability. The difference between the tax benefit recorded for the six months ended June 30, 1997 and the expected benefit at the federal statutory rate is primarily due to the valuation allowance applied against the deferred tax assets. 4. COMMITMENTS AND CONTINGENCIES During 1997, the Company has made and will continue to make material commitments related to the expansion of its network. During the first quarter of 1997, the Company entered into two agreements with major long distance carriers for the sale of dark fiber for approximately $219 million. Although these agreements provide for certain penalties if the Company does not complete construction of the defined routes within the time frame specified in the agreements, management does not anticipate that the Company will incur any substantial penalties under these provisions. On April 4, 1997 Tel-Central Communications, Inc. ("Tel-Central") filed a complaint against IXC Long Distance, Inc., one of the Company's subsidiaries, in the United States District Court in the Western District of Missouri, after the Company terminated service to Tel-Central for failure to pay for services. Tel-Central's complaint makes various state and federal law claims and seeks damages of over $100 million and asks for punitive damages of $100 million. The Company believes that Tel-Central's claims are without merit and that such complaint is part of an attempt by Tel-Central to avoid payment of its outstanding balance to the Company. On May 23, 1997, Tel-Central filed a voluntary Chapter 11 petition in bankruptcy. On May 30, 1997, the Company filed a motion to dismiss this action. The Tel-Central action is currently stayed as a result 6 7 IXC COMMUNICATIONS, INC. AND SUBSIDIARIES NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED) (UNAUDITED) of the Tel-Central's Chapter 11 bankruptcy proceeding. The Company believes that it is unlikely that this suit will result in any material liability to the Company. From time to time the Company is involved in various legal proceedings arising in the ordinary course of business, some of which are covered by insurance. In the opinion of the Company's management, none of the claims relating to such proceedings will have a material effect on the financial condition or results of operations of the Company. 5. STOCK OPTIONS During the quarter ended June 30, 1997, the Company granted 377,400 stock options under the 1996 Stock Plan. At June 30, 1997 stock options covering 2,059,426 shares of common stock were outstanding. 6. PROSPECTIVE ACCOUNTING CHANGES In February 1997, the FASB issued SFAS No. 128, "Earnings Per Share" ("SFAS No. 128"), which simplifies the calculation of earnings per share. Under SFAS No. 128, stock options and other equity instruments are excluded from the calculation of "basic earnings per share", which will replace primary earnings per share disclosures. SFAS No. 128 is effective for financial statements for periods ending after December 15, 1997. The Company believes that the future adoption of SFAS No. 128 will not have a significant impact on earnings per share disclosures for the periods presented. 7. CONVERTIBLE PREFERRED STOCK In April 1997 the Company issued $100 million of 7 1/4% Junior Convertible Preferred Stock Due 2007 ("Convertible Preferred Stock"). The net proceeds of approximately $96.2 million from the offering are being used to fund capital expenditures and general corporate purposes. The Convertible Preferred Stock and the common stock issuable upon conversion thereof have not been registered under the Securities Act of 1933 and may not be offered or sold in the United States absent registration or an applicable exemption from registration requirements. On March 31, 2007, the Convertible Preferred Stock must be redeemed by the Company at a price equal to the liquidation preference plus accrued and unpaid dividends; thus it is "mandatorily redeemable" and is not included in stockholders' equity. Dividends payable prior to or on June 30, 1999 are, at the option of the Company, payable in cash or through the issuance of additional shares of Convertible Preferred Stock equal to the dividend amount divided by the liquidation preference of such additional shares. The registration rights agreement entered into by the Company with the initial purchasers of the Convertible Preferred Stock requires that the Company file a shelf registration statement with the Securities and Exchange Commission ("SEC") for the benefit of the holders of the Convertible Preferred Stock, with respect to the Convertible Preferred Stock and the shares of common stock that may be issued upon conversion thereof. In the event such shelf registration statement is not declared effective by the SEC before September 1, 1997, the Convertible Preferred Stock will accrue dividends at a rate per annum of 7 3/4% until the shelf registration statement is declared effective. After March 31, 1999, to the extent and for so long as the Company is not permitted to pay cash dividends on the Convertible Preferred Stock by the terms of any then outstanding indebtedness or any other agreement or instrument to which the Company is subject, the Company will be required to pay dividends, which shall accrue at the rate per annum of 8 3/4%, through the issuance of additional shares of Convertible Preferred Stock. Payment of cash dividends on the Convertible Preferred Stock is not currently permitted under the indenture for the Company's 12% Senior Notes due 2005 until certain financial conditions have been met. During June 1997, the Company issued 18,123 additional shares of Convertible Preferred Stock in satisfaction of its June 1997 dividend requirements. 7 8 IXC COMMUNICATIONS, INC. AND SUBSIDIARIES NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED) (UNAUDITED) 8. SUBSEQUENT EVENT In July 1997 the Company announced an agreement with PSINet Inc. ("PSINet") to acquire PSINet's broad spectrum of Internet services for resale to its customers. Under the terms of the PSINet agreements, after consummation of the transaction, the Company will provide PSINet with an indefeasible right to use 10,000 miles of OC-48 transmission capacity on its Network over a 20-year period in exchange for 20% (post-issuance) of PSINet common stock. In addition, if the value of the PSINet common stock received by the Company is less than $240 million at the earlier of one year after the final delivery of the transmission capacity (scheduled for late-1999) or four years after closing, PSINet, at its option, will pay the Company cash and/or deliver additional PSINet common stock to bring the value of the Company's investment to $240 million. Upon delivery of the transmission capacity to PSINet, the Company will also receive a maintenance fee which, when all the capacity has been delivered, will be approximately $11.5 million per year. The Company expects to consummate the transactions contemplated by the PSINet agreements upon the satisfaction of certain conditions, including receipt of approval of PSINet stockholders. There can be no assurance that such conditions will be satisfied or that the PSINet transaction will be consummated. 9. FINANCIAL INFORMATION FOR SUBSIDIARY GUARANTORS AND NON-GUARANTOR SUBSIDIARIES The Company conducts a significant portion of its business through subsidiaries. The Senior Notes are unconditionally guaranteed, jointly and severally, by certain wholly-owned direct and indirect subsidiaries (the "Subsidiary Guarantors"). The obligations of each Subsidiary Guarantor are limited to the minimum extent necessary to prevent the guarantee from violating or becoming voidable under applicable law relating to fraudulent conveyance or fraudulent transfer or similar laws affecting the rights of creditors generally. Certain subsidiaries of the Company do not guarantee the Senior Notes (the "Non-Guarantor Subsidiaries"). The claims of creditors of Non-Guarantor Subsidiaries have priority over the rights of the Company to receive dividends or distributions from such subsidiaries. The equity method has been used by the Company with respect to investments in subsidiaries. The equity method has been used by Subsidiary Guarantors with respect to investments in Non-Guarantor Subsidiaries. Separate financial statements for Subsidiary Guarantors are not presented based on management's determination that they do not provide additional information that is material to investors. Presented below is condensed consolidating financial information for the Company, the Subsidiary Guarantors and the Non-Guarantor Subsidiaries as of and for the six months ended June 30, 1997. 8 9 IXC COMMUNICATIONS, INC. AND SUBSIDIARIES NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED) (UNAUDITED) 9. FINANCIAL INFORMATION FOR SUBSIDIARY GUARANTORS AND NON-GUARANTOR SUBSIDIARIES -- (CONTINUED) CONDENSED CONSOLIDATING BALANCE SHEET
JUNE 30, 1997 ------------------------------------------------------------------- NON- SUBSIDIARY GUARANTOR IXC GUARANTORS SUBSIDIARIES ELIMINATIONS CONSOLIDATED --------- ---------- ------------ ------------ ------------ (DOLLARS IN THOUSANDS) Current assets: Cash and cash equivalents............. $ 21,463 $ 17,117 $ 2,394 $ -- $ 40,974 Accounts receivable and other receivables, net................... -- 39,882 22,554 -- 62,436 Other current assets.................. 1,577 1,809 207 -- 3,593 --------- -------- -------- --------- --------- Total current assets.......... 23,040 58,808 25,155 -- 107,003 Property and equipment, net............. 7,978 353,817 44,304 (260) 405,839 Escrow under Senior Notes............... -- -- -- -- -- Due from affiliates..................... 414,305 (17,033) 18,059 (415,331) -- Deferred charges and other assets....... (44,093) (16,245) 25,346 75,050 40,058 --------- -------- -------- --------- --------- Total assets.................. $ 401,230 $379,347 $112,864 $ (340,541) $ 552,900 ========= ======== ======== ========= ========= Current liabilities: Accounts payable, accrued interest and other current liabilities.......... $ 10,533 $ 84,692 $ 33,624 $ (8) $ 128,841 Due to affiliate...................... 4,041 (4,060) 19 -- -- Current portion of long-term debt and capital lease obligations.......... -- 319 6,131 -- 6,450 --------- -------- -------- --------- --------- Total current liabilities..... 14,574 80,951 39,774 (8) 135,291 Long-term debt and capital lease obligations, less current portion..... 277,799 1,267 15,233 -- 294,299 Due to affiliates....................... (2,837) 338,202 79,966 (415,331) -- Other noncurrent liabilities............ 13 17,678 754 (6,053) 12,392 Convertible preferred stock............. 98,010 -- -- -- 98,010 Stockholders' equity (deficit): Preferred stock....................... 13 -- 2,585 (2,585) 13 Common stock.......................... 308 4 2 (6) 308 Additional paid-in capital............ 121,550 33,285 33,018 (66,302) 121,551 Retained earnings (accumulated deficit)........................... (108,200) (92,040) (58,468) 149,744 (108,964) --------- -------- -------- --------- --------- Total stockholders' equity (deficit)................... 13,671 (58,751) (22,863) 80,851 12,908 --------- -------- -------- --------- --------- Total liabilities and stockholders' equity (deficit)................... $ 401,230 $379,347 $112,864 $ (340,541) $ 552,900 ========= ======== ======== ========= =========
9 10 IXC COMMUNICATIONS, INC. AND SUBSIDIARIES NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED) (UNAUDITED) 9. FINANCIAL INFORMATION FOR SUBSIDIARY GUARANTORS AND NON-GUARANTOR SUBSIDIARIES -- (CONTINUED) CONDENSED CONSOLIDATING STATEMENT OF OPERATIONS
FOR THE SIX MONTHS ENDED JUNE 30, 1997 ------------------------------------------------------------------- NON- SUBSIDIARY GUARANTOR IXC GUARANTORS SUBSIDIARIES ELIMINATIONS CONSOLIDATED -------- ---------- ------------ ------------ ------------ (DOLLARS IN THOUSANDS) Net operating revenue: Private line........................................... $ 40 79,343 6,999 (17,019) 69,363 Switched long distance................................. -- 47,828 93,795 (38,211) 103,412 -------- -------- -------- -------- -------- Net operating revenues.......................... 40 127,171 100,794 (55,230) 172,775 Operating expenses: Cost of communication service.......................... -- 94,376 103,590 (54,834) 143,132 Operations and administration.......................... 96 23,758 11,773 (396) 35,231 Depreciation and amortization.......................... 726 16,941 5,741 (43) 23,365 -------- -------- -------- -------- -------- (782) (7,904) (20,310) 43 (28,953) Interest income.......................................... 20,265 5,392 625 (24,044) 2,238 Interest income on escrow under Senior Notes............. 203 -- -- 203 Interest expense......................................... (18,046) (17,460) (4,298) 24,044 (15,760) Equity in net loss of unconsolidated subsidiaries........ (49,879) (25,534) (4,914) 73,976 (6,351) -------- -------- -------- -------- -------- Loss before benefit (provision) for income taxes and minority interest...................................... (48,239) (45,506) (28,897) 74,019 (48,623) Benefit (provision) for income taxes................... (449) (85) 786 252 Minority Interest...................................... (317) (317) -------- -------- -------- -------- -------- Net loss................................................. $(48,688) $(45,591) $ (28,111) $ 73,702 $ (48,688) ======== ======== ======== ======== ========
CONDENSED CONSOLIDATING STATEMENT OF CASH FLOWS
FOR THE SIX MONTHS ENDED JUNE 30, 1997 ------------------------------------------------------------------- NON- SUBSIDIARY GUARANTOR IXC GUARANTORS SUBSIDIARIES ELIMINATIONS CONSOLIDATED -------- ---------- ------------ ------------ ------------ (DOLLARS IN THOUSANDS) Net cash provided by (used in) operating activities...... $ 4,360 $(10,994) $ 1,467 $ (821) $ (5,988) Investing activities: Release of funds from escrow under Senior Notes........ 69,428 69,428 Deposits into escrow under Senior Notes................ (18,152) -- -- (18,152) Purchase of property and equipment..................... (8,130) (120,330) (12,441) (140,901) -------- -------- -------- -------- -------- Net cash provided by (used) in, investing activities... 43,146 (120,330) (12,441) -- (89,625) Financing activities: Net proceeds from convertible preferred stock.......... 96,197 -- -- -- 96,197 Payments from (advance to) affiliates.................. (187,444) 159,728 27,716 -- -- Principal payments on long-term debt and capital lease obligations.......................................... (89) (2,933) (6,208) -- (9,230) Capital contribution to unconsolidated subsidiary...... -- (2,130) (9,520) -- (11,650) Other financing activities............................. (70) 3,231 (3,231) -- (70) -------- -------- -------- -------- -------- Net cash provided by (used in) financing activities.... (91,406) 157,896 8,757 -- 75,247 Net increase (decrease) in cash and cash equivalents... (43,900) 26,572 (2,217) (821) (20,366) Cash and cash equivalents at beginning of period....... 65,363 (9,455) 4,611 821 61,340 -------- -------- -------- -------- -------- Cash and cash equivalents at end of period............. $ 21,463 $ 17,117 $ 2,394 $ -- $ 40,974 ======== ======== ======== ======== ========
10 11 ITEM 2. MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS OF OPERATIONS Except for the historical information contained below, the matters discussed in this item are forward-looking statements that involve a number of risks and uncertainties. The Company's actual liquidity needs, capital resources and results may differ materially from the discussion set forth in the forward-looking statements. For a discussion of important factors that may cause the actual results, performance or achievements of the Company to be materially different from those expressed or implied by the forward-looking statements, see "Business -- Risk Factors" in the Company's Annual Report on Form 10-K for the fiscal year ended December 31, 1996. In light of such risks and uncertainties, there can be no assurance that the forward-looking information contained in this item will in fact transpire. THREE AND SIX MONTHS ENDED JUNE 30, 1997 COMPARED WITH THE THREE AND SIX MONTHS ENDED JUNE 30, 1996 Net operating revenue for the second quarter and year-to-date 1997 increased by 106.6% and 149.5% over the comparable 1996 periods, due mainly to the continuing implementation of the Company's switched services business. Revenue for the switched services business increased 165.1% and 357.0% for the 1997 second quarter and year-to-date over 1996. Billable minutes of use ("MOUs") increased over 1996 by 218.1% to 636.2 million minutes for the quarter and 432.7% to 1.2 billion minutes year-to-date. Revenue for the Company's private line business increased 60.4% for the quarter and 48.7% year-to-date over 1996 due to increased demand for capacity and the availability of additional capacity resulting from the Company's network expansion. Cost of communication services consists primarily of access charges paid to Local Exchange Carriers ("LECs") and transmission lease payments to, and exchanges with, other carriers. These costs increased 134.3% for the quarter and 203.0% year-to-date over 1996 due to additional leases supporting the Company's private line and switched services businesses, MOUs obtained from other carriers and access charges paid to LECs in connection with the switched services business. The Company has historically had a relatively low cost of communication services as a percentage of revenues because substantially all its revenues were derived from private line services, generally provided at a relatively low cost over its own network. Expenses in the switched services business are substantially greater than the private line business due to the relatively high cost of LEC access charges, leases for long distance circuits and MOUs obtained from other carriers. The Company expects its cost of communication services as a percentage of revenue to increase over historical results if the switched services revenue becomes a larger share of the Company's business. Operations and administration expenses for the quarter and year-to-date for 1997 have increased 73.0% and 66.2% over 1996 primarily as a result of costs associated with the Company's switched network. Although the Company has been successful in establishing its nationwide switched services business with significant revenues, EBITDA in the switched services business has fallen significantly below the Company's expectations. In the first half of 1997, the Company's EBITDA from switched services continued to be negative and the Company believes it is likely to remain negative for the balance of the year. The Company believes these results are due to two primary factors: First, the Company typically prices its interstate services to customers at a blended-average rate based upon the expected usage and mix of traffic between high-access-cost and low-access-cost LATAs. Certain of IXC's customers have generated switched traffic comprised of a substantially higher mix of minutes originating or terminating in high-access-cost LATAs than was anticipated at the time the customer contracts were negotiated and pricing established. Second, the Company configures its switched network to account for the expected traffic distribution of its customers. In certain areas, traffic volume has been higher than expected causing certain of the Company's switches to run at capacity and requiring the Company to overflow excess traffic onto other carriers' switched networks at a substantial cost. 11 12 The Company is attempting to improve EBITDA in the switched services business by: examining the traffic distributions of its customers; identifying customers generating an unprofitable mix of traffic, and where appropriate and as contractually allowed, adjusting contract terms; pre-screening new contract proposals to evaluate the financial impact of expected traffic distributions; including provisions in certain new contracts to assure reasonable traffic distributions; and adding switch capacity to reduce the cost of network overflow traffic. The Company is also developing procedures to better analyze its expected traffic patterns in order to enhance network efficiency. The Company believes that efforts to maintain a profitable mix of switched minutes may slow the growth rate of switched services revenue, but, coupled with anticipated reductions in leased circuit expense as the network is completed, would provide improvement in switched service operating results. Depreciation and amortization for the quarter and year-to-date for 1997 increased 101.1% and 84.6% over the comparable 1996 periods due to the increase in depreciable assets as a result of the Company's network expansion. Depreciation and amortization will continue to increase in conjunction with spending on capital assets to increase network capacity. Interest income for the quarter and year-to-date for 1997 decreased over 1996 by $1.0 million and $2.4 million as proceeds from the Company's 1996 and 1997 debt and equity placements were used to construct the Company's network and operate its business. Interest expense for the quarter and year-to-date periods decreased over 1996 by $1.5 million and $3.6 million. Total interest costs for the year-to-date 1997 period were $19.2 million, compared to $19.9 million for the comparable 1996 period. Capitalization of interest reduced interest expense by $3.4 million year-to-date in 1997 compared to $0.5 million in 1996. Equity in net loss of unconsolidated subsidiaries increased by $4.5 million for the second quarter and $6.3 million for the year-to-date 1997 over 1996 due to the increased losses in the Mexican telecommunications investment described below. Losses are expected to continue for this investment for the foreseeable future. The income tax benefit for the quarter and year-to-date for 1997 decreased by $1.4 million and $2.5 million over 1996. This decrease occurred because the tax benefit of the Company's losses are being fully reserved in 1997, whereas in 1996 the Company recognized tax benefits related to the favorable resolution of federal income tax examinations. The Company experienced a net loss of $48.7 million for the six months ended June 30, 1997 as compared to a net loss of $23.8 million for the six months ended June 30, 1996 as a result of the factors discussed above. LIQUIDITY AND CAPITAL RESOURCES The Company's private line operations have historically provided positive cash flow (even in years of net losses, as in 1993 and 1995), which has provided adequate liquidity to meet the Company's operational needs. However, the Company's capital expenditures and, since the issuance of the Company's 12 1/2% Senior Notes due 2005 (the "Senior Notes") in the fourth quarter of 1995, its interest expense have been financed with the proceeds of debt and equity securities. Cash used in operating activities was $6.0 million for the six months ended June 30, 1997 compared to cash provided by operations of $0.8 million in the comparable period of 1996, primarily as a result of network expansion and operational expenses associated with the development of the Company's switched services business. The Company's switched services business is expected to require cash to meet operating expenses until sufficient profitable traffic can be routed over the Company's owned network. Cash used in investing activities for the six months ended June 30, 1997 was $89.6 million compared to $3.7 million provided by investing activities for the six months ended June 30, 1996. This increase was primarily the result of increased purchases of property and equipment for the Company's fiber expansion in 12 13 1997. The Company's total capital expenditures were $140.9 million for the six months ended June 30, 1997, including capital expenditures relating to the construction of network routes and related equipment. Cash provided by financing activities increased to $75.2 million for the first six months of 1997 versus a use of cash of $5.8 million for the comparable period in 1996. This variance is primarily due to the $96.2 million in net proceeds provided by the issuance and sale of the Company's 7 1/4% Junior Convertible Preferred Stock Due 2007 (the "Convertible Preferred Stock") in April 1997, offset by $11.7 million of funding provided to the Company's Mexican telecommunications investment. The Company expects that its primary sources for cash over the next twelve months will be cash on hand, cash generated by operations, the proceeds if any, from offerings of debt and/or equity securities, the Proposed Credit Facility (as herein defined), the NTFC Equipment Facility (as herein defined), additional vendor financing the Company may seek and the anticipated proceeds of fiber sales. As of June 30, 1997, the Company had approximately $41.0 million in cash. The Company expects that during the remainder of 1997 and 1998 it will generate substantial additional cash from operations. On July 2, 1997, the Company announced that it expects EBITDA for 1997 will be in the range of $20-$30 million, and that it expects EBITDA for 1998 will be $125 million or more. The EBITDA estimates are based on a number of assumptions that, though considered reasonable by the Company, are inherently subject to significant economic and competitive uncertainties and contingencies beyond the control of the Company and upon assumptions with respect to future business decisions which are subject to change. Accordingly, there can be no assurance that the estimated EBITDA will be achieved, and actual results may vary materially from those estimated. Important factors that could cause actual estimated EBITDA results to differ materially from those in the forward-looking statements set forth above include, without limitation: (i) delays or cost overruns with respect to the network expansion; (ii) delays by the Company's contractors and partners in cost-saving arrangements in fulfilling their obligations; (iii) delays or higher-than-expected costs in obtaining rights-of-way; (iv) delays in the completion of the routes of the network expansion scheduled for completion in 1997; (v) an inability by the Company to continue to increase traffic on its switched network, particularly higher margin traffic; (vi) an inability by the Company to successfully commence service for new switched services on a cost-effective basis (including the provision of billing information in an accurate and timely manner) for volumes that it has not previously handled; (vii) the loss of one or more large customers; (viii) increases in expenses; (ix) decreases in the Company's rates caused by the competitive pressures and (x) the inability to complete the fiber sales discussed below. The Company seeks to supplement its sources of cash with debt and/or equity offerings in an aggregate amount of at least $100 million in the third or fourth quarter of 1997. The Company is engaged in discussions with potential lenders regarding a revolving credit facility (the "Proposed Credit Facility") under which it seeks to borrow up to a certain percentage of eligible accounts receivable. Although the total availability under the Proposed Credit Facility would vary from time to time according to the aggregate amount of eligible accounts receivable, the Company anticipates that the lender would impose a limit on borrowings under the facility. There can be no assurance that the Company will obtain such a facility. In addition in July 1997 the Company entered into a secured equipment financing facility with NTFC Capital Corporation, an affiliate of Northern Telecom Inc. ("Nortel") (the "NTFC Equipment Facility"), to provide up to $28 million in financing. The Company expects to borrow approximately $20 million under this agreement in the third quarter in connection with the purchase of certain equipment for use in its network. In February 1997, the Company and a carrier entered into a contract pursuant to which the carrier will purchase an indefeasible right to use fibers from Chicago to Los Angeles (the "Chicago-Los Angeles Fiber Sale") which following performance by the Company of its Obligations thereunder to the satisfaction of such carrier will result in proceeds to the Company of approximately $97.9 million. The Company expects to receive approximately one-half of the proceeds during 1997, with the balance expected to be paid in the first quarter of 1998. In February 1997, the Company entered into a contract with another carrier pursuant to which the carrier will purchase an indefeasible right to use fibers from Los Angeles to New York (the "New York-Los Angeles Fiber Sale") which entitles the Company to receive following performance by the 13 14 Company of its Obligations thereunder to the satisfaction of such carrier approximately $121.0 million. Assuming that the network expansion proceeds according to schedule, this amount will be due in January 1998. However, the carrier has the option to pay this amount over a period of up to 24 months commencing January 1998. The Company anticipates the following uses for its available cash: (i) the network fiber and optronic expansion and other capital expenditures; (ii) debt service; (iii) lease payments; (iv) funding its joint venture in Mexico; and (v) working capital. The Company anticipates that capital expenditures for calendar year 1997 will be approximately $400 million for construction of its network expansion and capacity upgrades, of which $140.9 million has been incurred through June 30, 1997. The Company anticipates that in the event customers require additional facilities or elements of the network expansion are accelerated into 1997, expenditures in 1997 may be increased. The preceding forward-looking statement regarding capital expenditures for 1997 are based on certain assumptions as to future events, many of which are not under the Company's control. Important factors which could increase or decrease the amount of the capital expenditures include construction delays or construction cost overruns, delays or higher than expected costs in obtaining rights-of-way, or changes in the scope of the network expansion and increased demands for capacity by the Company's customers. The Company expects to continue to make substantial capital expenditures during the remainder of 1997, in 1998 and thereafter. The Company frequently revises its estimates of capital expenditures because of the rapid growth of the Company's business and because the large, on-going network expansion is subject to changes in timing, design, route and capacity, and variances from expected costs. The Company is required to make interest payments in the amount of $35.6 million on the Senior Notes each year. The Company's EBITDA is currently insufficient to cover these debt service requirements. At June 30, 1997, the aggregate liquidation preference of the Series 3 Preferred Stock was approximately $20.0 million, including accrued and unpaid dividends. Such dividends accrue at an annual rate of 10% (based on the liquidation preference) plus interest. The Company is also required (except in certain limited circumstances) to pay quarterly cash dividends on the Convertible Preferred Stock (at an annual rate of 7 1/4%) beginning with the dividend payment required to be made on June 30, 1999 (prior to such time these dividends may at the Company's option be paid in cash or additional shares of Convertible Preferred Stock). Payment of cash dividends on the Convertible Preferred Stock is not currently permitted under the terms of the indenture (the "Indenture") for the Senior Notes until certain financial conditions have been met. Additionally, cash dividends cannot be paid on the Convertible Preferred Stock until all current and accrued dividends have been paid in cash on the Series 3 Preferred Stock. During June 1997, the Company issued 18,123 additional shares of Convertible Preferred Stock in satisfaction of its dividend requirements. The preceding forward-looking statements regarding the Company's sources of cash are based on certain assumptions as to future events, many of which are not within the Company's control. Important factors that could adversely affect the Company's ability to generate cash as discussed above include: (i) delays or cost overruns with respect to the network expansion; (ii) delays by the Company's contractors and partners in cost-saving arrangements in fulfilling their obligations; (iii) delays or higher-than-expected costs in obtaining rights-of-way; (iv) delays in the completion of the routes of the network expansion scheduled for completion in 1997; (v) an inability by the Company to continue to increase traffic on its switched network, in particular, higher margin traffic; (vi) an inability by the Company to successfully provide service for its switched services business on a cost-effective basis (including the provision of billing information in an accurate and timely manner) for volumes that it has not previously handled, (vii) the loss of one or more large customers; (viii) an inability to decrease expenses; (ix) decreases in the Company's rates caused by competitive pressures, among other unknown factors; and (x) an inability to successfully complete the Chicago-Los Angeles Fiber Sale or the New York-Los Angeles Fiber Sale. The ability of the Company to supplement cash through financing activities is subject to the ability of the Company to find willing buyers of debt or equity instruments on terms acceptable to the Company, market conditions generally, and, with respect to debt instruments, the Company's ability to obtain any required consents from the Company's existing bondholders. 14 15 The Company is indirectly participating in the development of a long distance network to engage in the telecommunications business in Mexico by Marca-Tel S.A. de C.V. ("Marca-Tel"). The Company indirectly owns 24.5% of Marca-Tel through its ownership of 50% of Progress International LLC ("Progress International"), which owns 49% of Marca-Tel. The remaining 51% of Marca-Tel is owned by a Mexican individual and Fomento Radio Beep, S.A. de C.V. The other 50% of Progress International is owned by Westel International, Inc. ("Westel"). Progress International has provided all the capital required from Marca-Tel shareholders in order to finance Marca-Tel. The Company and Westel have agreed to jointly contribute funds to Progress International. From inception to June 30, 1997, the Company has provided approximately $23.9 million of the $35.7 million contributed or loaned to Progress International. Substantially all of the funding of Progress International has been contributed to Marca-Tel. Although the Company cannot accurately predict the capital that will be required to implement the Marca-Tel business plan, it estimates that an additional $40.0 million (and possibly significantly more) will be required by Marca-Tel from its stockholders during the remainder of 1997 and 1998. The Company and Westel have pursued and are continuing to pursue selling equity interests in Progress International to one or more third parties who could assist Progress International with the funding of Marca-Tel. However, there can be no assurance that any such funding will be available on satisfactory terms or at all. The Company is currently, and may remain, the primary source of funds available to Progress International for investment in Marca-Tel. Since the ownership interests of the Company and Westel in Progress International are to be proportional to their respective capital contributions, the Company's percentage ownership of Progress International, and therefore its indirect ownership interest in Marca-Tel, could increase if it makes additional capital contributions which are not matched by Westel. The Indenture contains significant limitations on the amount the Company may invest in Progress International and other non-majority owned entities. Marca-Tel has deployed three switching centers and is constructing a fiber optic route linking Mexico's three major cities (Mexico City, Monterrey and Guadalajara), with interconnection to the Company's U.S. network at its border crossing at Reynosa/McAllen. Marca-Tel has entered into a turn-key contract with a major international supplier of telecommunications equipment for a portion of this build that provides for interim vendor financing for the equipment and fiber purchases as well as a portion of the construction work. The Company anticipates that Marca-Tel may be able to obtain additional funding through some combination of the following: (i) offerings of debt or equity securities; (ii) other incurrences of debt; (iii) joint venture arrangements with third parties; and (iv) additional vendor financing of equipment purchases. Initially, such sources of capital likely will not be adequate to meet the needs of Marca-Tel, and the Company anticipates that, until such sources are adequate to enable Marca-Tel to continue to pursue its business plan, it may be necessary for Progress International to fund the shortfall. The Company is not obligated to continue to fund Progress International; however, if the Company does not fund Progress International, or if Progress International does not fund Marca-Tel's needs, the Company's interest in Progress International, and thus its indirect interest in Marca-Tel, may be diluted or lost entirely. No assurance can be given that adequate funding sources will be available from Progress International or from third parties to implement Marca-Tel's business plan or, if implemented, that such business plan will be successful. The forward-looking statements set forth above with respect to the funding of Marca-Tel and the successful completion and operation of Marca-Tel's fiber optic system in Mexico are based on certain assumptions as to future events. Important factors that could adversely affect Marca-Tel's ability to achieve the results discussed above include that: (i) there will be no significant delays or cost overruns with respect to the network expansion; (ii) the Company's contractors and partners in cost-saving arrangements will perform their obligations; (iii) rights-of-way can be obtained in a timely, cost-effective basis; (iv) the routes of the network expansion scheduled for completion in 1997 are substantially completed on schedule; (v) Marca-Tel can successfully commence service for its switched services business on a cost effective basis (including the provision of billing information in an accurate and timely manner) for volumes that it has not previously handled; and (vi) Marca-Tel can obtain sufficient funds from the debt or equity offerings, joint venture arrangements, accounts, additional vendor financing, or otherwise. 15 16 Subsequent Event In July 1997 the Company announced an agreement with PSINet Inc. ("PSINet") to acquire PSINet's broad spectrum of Internet services for resale to its customers. Under the terms of the PSINet agreements, after consummation of the transaction, the Company will provide PSINet with an indefeasible right to use 10,000 miles of OC-48 transmission capacity on its Network over a 20-year period in exchange for 20% (post-issuance) of PSINet common stock. In addition, if the value of the PSINet common stock received by the Company is less than $240 million at the earlier of one year after the final delivery of the transmission capacity (scheduled for late-1999) or four years after closing, PSINet, at its option, will pay the Company cash and/or deliver additional PSINet common stock to bring the value of the Company's investment to $240 million. Upon delivery of the transmission capacity to PSINet, the Company will also receive a maintenance fee which, when all the capacity has been delivered, will be approximately $11.5 million per year. The Company expects to consummate the transactions contemplated by the PSINet agreements upon the satisfaction of certain conditions, including receipt of approval of PSINet stockholders. There can be no assurance that such conditions will be satisfied or that the PSINet transaction will be consummated. ITEM 3. QUANTITATIVE AND QUALITATIVE DISCLOSURES ABOUT MARKET RISKS Not Applicable. 16 17 PART II. OTHER INFORMATION ITEM 1. LEGAL PROCEEDINGS On April 4, 1997 Tel-Central Communications, Inc. ("Tel-Central") filed a complaint against IXC Long Distance, Inc., one of the Company's subsidiaries, in the United States District Court in the Western District of Missouri, after the Company terminated service to Tel-Central for failure to pay for services. Tel-Central's complaint makes various state and federal law claims and seeks damages of over $100 million and asks for punitive damages of $100 million. The Company believes that Tel-Central's claims are without merit and that the complaint is part of an attempt by Tel-Central to avoid payment of its outstanding balance to the Company. On May 23, 1997, Tel-Central file a voluntary Chapter 11 petition in bankruptcy. On May 30, 1997, the Company filed a motion to dismiss this action. The Tel-Central action is currently stayed as a result of the Tel-Central's Chapter 11 bankruptcy proceeding. The Company believes that it is unlikely that this suit will result in any material liability to the Company. ITEM 2. CHANGES IN SECURITIES On April 1, 1997, the Company issued and sold 1,000,000 shares of 7 1/4% Junior Convertible Preferred Stock Due 2007 (the "Convertible Preferred Stock") in a private placement to two initial purchasers, which shares were subsequently sold to "qualified institutional buyers" and certain "accredited investors" (as defined in the Securities Act of 1933, as amended). The Convertible Preferred Stock is convertible at the option of the holders, unless previously redeemed, at any time after May 31, 1997, into shares of Common Stock at a rate (subject to adjustment in certain events) of 4.263 shares of Common Stock for each share of Convertible Preferred Stock, equivalent to a conversion price of $23.46 for each share of Common Stock. Dividends on the Convertible Preferred Stock accrue at a rate per annum of 7 1/4% per share on the liquidation preference thereof of $100 per share ($7.25 per annum per share). Dividends payable prior to or on June 30, 1999, are, at the option of the Company, payable (i) in cash or (ii) through the issuance of additional shares of Convertible Preferred Stock equal to the dividend amount divided by the liquidation preference of such additional shares. The registration rights agreement entered into by the Company with the initial purchasers of the Convertible Preferred Stock requires that the Company file a shelf registration statement with the Securities Exchange Commission ("SEC") for the benefit of the holders of the Convertible Preferred Stock, with respect to the Convertible Preferred Stock and the shares of common stock that may be issued upon conversion thereof. In the event such shelf registration statement is not declared effective by the SEC before September 1, 1997, the Convertible Preferred Stock will accrue dividends at a rate per annum of 7 3/4% until the shelf registration statement is declared effective. After March 31, 1999, to the extent and for so long as the Company is not permitted to pay cash dividends on the Convertible Preferred Stock by the terms of any then outstanding indebtedness or any other agreement or instrument to which the Company is subject, the Company will be required to pay dividends, which shall accrue at the rate per annum of 8 3/4%, through the issuance of additional shares of Convertible Preferred Stock. Payment of cash dividends on the Convertible Preferred Stock is not currently permitted under the Indenture for the Company's 12% Senior Notes due 2005 until certain financial conditions have been met. The Convertible Preferred Stock ranks junior to the Series 3 Preferred Stock and senior to the Common Stock with respect to payment of dividends and amounts upon liquidation, dissolution and winding up. ITEM 3. DEFAULTS UPON SENIOR SECURITIES Not applicable 17 18 ITEM 4. SUBMISSION OF MATTERS TO A VOTE OF SECURITY HOLDERS The Company's Annual Meeting of Stockholders was held on May 6, 1997 for the purpose of electing directors (the Company's only proposal at the meeting). The following Directors, being all the Directors of the Company, were elected at the meeting, with the number of votes cast for or against each Director or withheld from each Director, abstentions and broker non-votes being set forth after his respective name:
VOTES AGAINST BROKER NAME VOTES FOR OR WITHHELD ABSTENTIONS NON-VOTES - --------------------------------------------- ----------- ------------- ----------- --------- Ralph J. Swett............................... 25,791,435 0 103,625 0 Richard D. Irwin+............................ 10,098.72 0 0 0 Wolfe H. Bragin.............................. 25,788,435 3,000 103,625 0 Carl W. McKinzie............................. 25,791,435 0 103,625 0 Phillip L. Williams.......................... 25,790,935 500 103,625 0 Joe C. Culp.................................. 25,791,435 0 103,625 0
- --------------- + Mr. Irwin was elected a Director by the Series 3 Preferred Stock. There are 12,550 shares of Series 3 Preferred Stock issued and outstanding. The Company furnished an Information Statement to stockholders of the Company pursuant to Rule 14c-2 under the Securities Exchange Act of 1934 (the "Exchange Act"), in connection with an amendment (the "Amendment") to the Restated Certificate of Incorporation, as amended (the "Certificate of Incorporation") of the Company to permit payment of dividends on the Convertible Preferred Stock with additional shares of Convertible Preferred Stock. The Amendment was approved by the Board. As required by the Delaware General Corporation Law (the "DGCL") and the Certificate of Incorporation, the Amendment was approved by the holders of a majority of the outstanding shares of Common Stock and Series 3 Preferred Stock, voting as a class, and three-quarters (3/4ths) of the outstanding shares of Series 3 Preferred Stock, voting as a class, by written consent in lieu of a meeting pursuant to Section 228(a) of the DGCL. The Amendment became effective upon the filing of a Certificate of Amendment of the Certificate of Incorporation with the Secretary of State of Delaware which, pursuant to Rule 14c-2 under the Exchange Act, did not take place until a date at least 20 days following the date on which the Information Statement was mailed to the stockholders of the Company. The Information Statement also served as notice to stockholders of an action taken by less than unanimous written consent as required by Section 228(d) of the DGCL. The Information Statement was mailed on or about June 2, 1997 to persons who were stockholders of record on May 6, 1997. ITEM 5. OTHER INFORMATION In January 1997, the Company entered into an agreement to purchase L.D. Services, Inc. ("LDS"), a long-distance switchless reseller with 1996 revenues of approximately $30.0 million. The agreement with LDS was terminated by the parties in June 1997 following action by a state regulatory commission. In July 1997 the Company announced an agreement with PSINet to acquire PSINet's broad spectrum of Internet services for resale to its customers. Under the terms of the PSINet agreements, after consummation of the transaction, the Company will provide PSINet with an indefeasible right to use 10,000 miles of OC-48 transmission capacity on its Network over a 20-year period in exchange for 20% (post-issuance) of PSINet common stock. In addition, if the value of the PSINet common stock received by the Company is less than $240 million at the earlier of one year after the final delivery of the transmission capacity (scheduled for late-1999) or four years after closing, PSINet, at its option, will pay the Company cash and/or deliver additional PSINet common stock to bring the value of the Company's investment to $240 million. Upon delivery of the transmission capacity to PSINet, the Company will also receive a maintenance fee which, when all the capacity has been delivered, will be approximately $11.5 million per year. The Company expects to consummate the transactions contemplated by the PSINet agreements upon the satisfaction of certain conditions, including receipt of approval of PSINet stockholders. There can be no assurance that such conditions will be satisfied or that the PSINet transaction will be consummated. 18 19 ITEM 6. EXHIBITS AND REPORTS ON FORM 8-K (A) EXHIBITS
EXHIBIT NUMBER DESCRIPTION - ------ --------------------------------------------------------------------------------- 3.1 + Restated Certificate of Incorporation of IXC Communications, Inc., as amended 3.2 Bylaws of IXC Communications, Inc., as amended (incorporated by reference to Exhibit 3.2 of IXC Communications, Inc. Quarterly Report on Form 10-Q for the quarter ended March 31, 1997 (the "10-Q")). 4.1 Specimen certificate representing shares of Common Stock of IXC Communications, Inc. (incorporated by reference to Exhibit 4.1 of IXC Communications, Inc. Registration Statement on Form S-1 filed with the Commission on May 20, 1996, as amended (File No. 333-4061) (the "S-1")). 4.2 Indenture dated as of October 5, 1995 by and among IXC Communications, Inc., on its behalf and as successor-in-interest to I-Link Holdings, Inc. and IXC Carrier Group, Inc., each of IXC Carrier, Inc., on its behalf and as successor-in-interest to I-Link, Inc., CTI Investments, Inc., Texas Microwave, Inc. and WTM Microwave, Inc., Atlantic States Microwave Transmission Company, Central States Microwave Transmission Company, Telcom Engineering, Inc., on its behalf and as successor-in-interest to SWTT Company and Microwave Network, Inc., Tower Communication Systems Corp., West Texas Microwave Company, Western States Microwave Transmission Company, Rio Grande Transmission, Inc., IXC Long Distance, Inc., Link Net International, Inc. (collectively, the "Guarantors") and IBJ Schroder Bank & Trust Company, as Trustee, with respect to the 12 1/2% Series A and Series B Senior Notes due 2005 (incorporated by reference to Exhibit 4.1 of IXC Communications, Inc.'s and each of the Guarantor's Registration Statement on Form S-4 filed with the Commission on April 1, 1996, as amended (File No. 333-2936) (the "S-4")). 4.3 Purchase Agreement dated October 5, 1995 by and among IXC Communications, Inc., and the Purchasers named therein (incorporated by reference to Exhibit 4.2 of the S-4). 4.4 A/B Exchange Registration Rights Agreement dated as of October 5, 1995 by and among IXC Communications, Inc., the Guarantors and the Purchasers named therein (incorporated by reference to Exhibit 4.3 of the S-4). 4.5 Escrow Account and Disbursement Agreement dated as of October 5, 1995 by and among IXC Communications, Inc., IBJ Schroder Bank & Trust Company, as Escrow Holder, and IBJ Schroder Bank & Trust Company, as Collateral Agent (incorporated by reference to Exhibit 4.4 of the S-4). 4.6 Escrow Account Security Agreement dated as of October 5, 1995 by and between IXC Communications, Inc. and IBJ Schroder Bank & Trust Company (incorporated by reference to Exhibit 4.5 of the S-4). 4.7 Form of 12 1/2% Series A Senior Notes due 2005 (incorporated by reference to Exhibit 4.6 of the S-4). 4.8 Form of 12 1/2% Series B Senior Notes due 2005 and Subsidiary Guarantee (incorporated by reference to Exhibit 4.8 of the S-1). 4.9 Amendment No. 1 to Indenture and Subsidiary Guarantee dated as of June 4, 1996 by and among IXC Communications, Inc., the Guarantors and the Trustee (incorporated by reference to Exhibit 4.11 of the S-1). 4.10 Stock Exchange Agreement dated as of June 10, 1996 by and between IXC Communications, Inc., and Trustees of General Electric Pension Trust ("GEPT") (incorporated by reference to Exhibit 4.12 of the S-1).
19 20
EXHIBIT NUMBER DESCRIPTION - ------ --------------------------------------------------------------------------------- 4.11 Registration Rights Agreement dated as of June 10, 1996 by and among IXC Communications, Inc., GEPT and certain stockholders of IXC Communications, Inc. (incorporated by reference to Exhibit 4.13 of the S-1). 4.12 Purchase Agreement dated as of March 25, 1997 by and among IXC Communications, Inc., Credit Suisse First Boston Corporation ("CS First Boston") and Dillon Read & Co. Inc. ("Dillon Read") incorporated by reference to Exhibit 4.12 of the 10-Q). 4.13 Registration Rights Agreement dated as of March 25, 1997 by and among IXC Communications, Inc., CS First Boston and Dillon Read (incorporated by reference to Exhibit 4.13 of the 10-Q). 4.14 Amendment to Registration Rights Agreement dated as of March 25, 1995 between IXC Communications, Inc. and GEPT (incorporated by reference to Exhibit 4.14 of the 10-Q). 4.15 + Registration Rights Agreement dated as of July 8, 1997 among IXC Communications, Inc. and each of William G. Rodi, Gordon Hutchins, Jr. and William F. Linsmeier. 4.16 + Registration Rights Agreement dated as of July 8, 1997 among IXC Communications, Inc. and each of William G. Rodi, Gordon Hutchins, Jr. and William F. Linsmeier. 10.1 Office Lease dated June 21, 1989 with USAA Real Estate Company, as amended (incorporated by reference to Exhibit 10.1 of the S-4). 10.2 Equipment Lease dated as of December 1, 1994 by and between DSC Finance Corporation and Switched Services Communications, L.L.C.; Assignment Agreement dated as of December 1, 1994 by and between Switched Services Communications, L.L.C. and DSC Finance Corporation; and Guaranty dated December 1, 1994 made in favor of DSC Finance Corporation by IXC Communications, Inc. (incorporated by reference to Exhibit 10.2 of the S-4). 10.3 Amended and Restated 1994 Stock Plan of IXC Communications, Inc., as amended. 10.4 Form of Non-Qualified Stock Option Agreement under the 1994 Stock Plan of IXC Communications, Inc. (incorporated by reference to Exhibit 10.4 of the S-4). 10.5 Form of IXC Communications, Inc. Restricted Stock Agreement (incorporated by reference to Exhibit 10.5 of the S-4). 10.6 Form of IXC Communications, Inc. Restricted Stock Agreement (incorporated by reference to Exhibit 10.6 of the S-4). 10.7 Amended and Restated Development Agreement by and between Intertech Management Group, Inc. and IXC Long Distance, Inc. (incorporated by reference to Exhibit 10.7 of the S-4). 10.8 Second Amended and Restated Service Agreement dated as of January 1, 1996 by and between Switched Services Communications, L.L.C. and Excel Telecommunications, Inc. (incorporated by reference to Exhibit 10.8 of the S-4). 10.9 Equipment Purchase Agreement dated as of January 16, 1996 by and between Siecor Corporation and IXC Carrier, Inc. (incorporated by reference to Exhibit 10.9 of the S-4). 10.10 1996 Stock Plan of IXC Communications, Inc., as amended. 10.11 IRU Agreement dated as of November 1995 between WorldCom, Inc. and IXC Carrier, Inc. (incorporated by reference to Exhibit 10.11 of the S-4). 10.12 Outside Directors' Phantom Stock Plan of IXC Communications, Inc., as amended. 10.13 Business Consultant and Management Agreement dated as of January 3, 1995 by and between IXC Communications, Inc. and Culp Communications Associates (incorporated by reference to Exhibit 10.13 of the S-1).
20 21
EXHIBIT NUMBER DESCRIPTION - ------ --------------------------------------------------------------------------------- 10.14 Employment Agreement dated December 28, 1995 by and between IXC Communications, Inc. and James F. Guthrie (incorporated by reference to Exhibit 10.14 of the S-1). 10.15 Employment Agreement dated August 28, 1995, by and between IXC Communications, Inc. and David J. Thomas (incorporated by reference to Exhibit 10.15 of the S-1). 10.16 Special Stock Plan of IXC Communications, Inc. 10.17 + Lease dated as of June 4, 1997 between IXC Communications, Inc. and Carramerica Realty, L.P. 10.18 + Loan and Security Agreement dated as of July 18, 1997 among IXC Communications, Inc., IXC Carrier, Inc. and NTFC Capital Corporation 10.19 * IRU and Stock Purchase Agreement dated as of July 22, 1997 between IXC Internet Services, Inc. and PSINet Inc. 10.20 * Joint Marketing and Services Agreement dated on July 22, 1997 between IXC Internet Services, Inc. and PSINet Inc. 11.1 + Statement of Computation of Earnings per Share. 27.1 + Financial Data Schedule.
- --------------- + Filed herewith. * To be filed by amendment. (B) REPORTS ON FORM 8-K. (1) Form 8-K dated April 1, 1997 and filed with the Commission on April 3, 1997 with respect to the Company's notice of offering of unregistered securities pursuant to Rule 135c(d) of the Securities Act of 1933, as amended, with respect to the sale of Convertible Preferred Stock, which occurred on April 1, 1997. 21 22 SIGNATURE Pursuant to the requirements of the Securities Exchange Act of 1934, the registrant has duly caused this report to be signed on its behalf by the undersigned thereunto duly authorized. IXC Communications, Inc., a Delaware corporation August 4, 1997 By: /s/ JAMES F. GUTHRIE ------------------------------------ James F. Guthrie Executive Vice President and Chief Financial Officer (Duly Authorized Officer and Principal Financial Officer) 22 EX-3.1 2 RESTATED CERTIFICATE OF INCORPORATION 1 EXHIBIT 3.1 RESTATED CERTIFICATE OF INCORPORATION, AS AMENDED Fiber Optic Communications, Inc., a corporation organized and existing under the laws of the State of Delaware, hereby certifies as follows: 1. The name of this corporation is Fiber Optic Communications, Inc. Fiber Optic Communications, Inc. was originally incorporated under the same name. The original Certificate of Incorporation of this corporation was filed with the Secretary of State of the State of Delaware on July 27, 1992. 2. Pursuant to Sections 242 and 245 of the General Corporation Law of the State of Delaware, this Restated Certificate of Incorporation has been duly adopted and restates, integrates and further amends the provisions of the Certificate of Incorporation of this corporation. 3. This Restated Certificate of Incorporation was duly consented to, and adopted by, the holders of (i) a majority of the outstanding shares of common stock, par value $.01 per share, of the Corporation and 10% Senior Series 1 Cumulative Redeemable Preferred Stock, par value $.01 per share, of this corporation ("Series 1 Preferred Stock"), consenting together as a class and by (ii) over three-fourths (3/4s) of the outstanding shares of Series 1 Preferred Stock, acting without a meeting by unanimous written consent pursuant to Section 228 of the General Corporation Law of the State of Delaware. 4. The text of the Restated Certificate of Incorporation as heretofore amended or supplemented is hereby restated and further amended to read in its entirety as follows: FIRST: The name of this corporation (the "Corporation") is "IXC Communications, Inc." SECOND: The address of the registered office of the Corporation in the State of Delaware is Corporation Trust Center, 1209 Orange Street, in the City of Wilmington, County of New Castle, Delaware 19801. The name of its registered agent at such address is The Corporation Trust Company. THIRD: The purpose of the Corporation is to engage in any lawful act or activity for which a corporation may now or hereafter be organized under the General Corporation Law of the State of Delaware as set forth in Title 8 of the Delaware Code. FOURTH: The total number of shares of stock which the Corporation shall have authority to issue is one hundred and three million (103,000,000) consisting of (i) one 1 2 hundred million (100,000,000) shares of common stock, par value $.01 per share, and (ii) three million (3,000,000) shares of preferred stock, par value $.01 per share. The preferred stock may be issued at any time, and from time to time, in one or more series pursuant hereto or to a resolution or resolutions providing for such issue duly adopted by the board of directors (the "Board") of the Corporation (authority to do so being hereby expressly vested in the Board), and such resolution or resolutions shall also set forth the voting powers, full or limited, or none, of each such series of preferred stock and shall fix the designations, preferences and relative, participating, optional or other special rights and qualifications, limitations or restrictions of each such series of preferred stock. Upon the filing of this Second Amendment to Restated Certificate of Incorporation which amends Article FOURTH to read as set forth above, and without any further action on the part of the holders thereof, each issued and outstanding share of common stock will be reclassified and changed into 0.8083 shares of common stock. FIFTH: The business and affairs of the Corporation shall be managed by and under the direction of the Board. The exact number of directors of the Corporation shall be fixed by or in the manner provided in the Bylaws of the Corporation (the "Bylaws"). SIXTH: In furtherance and not in limitation of the powers conferred by statute, the Board is expressly authorized: (a) to adopt, repeal, rescind, alter or amend in any respect the Bylaws, and to confer in the Bylaws powers and authorities upon the directors of the Corporation in addition to the powers and authorities expressly conferred upon them by statute; (b) from time to time to set apart out of any funds or assets of the Corporation available for dividends an amount or amounts to be reserved as working capital or for any other lawful purpose and to abolish any reserve so created and to determine whether any, and, if any, what part, of the surplus of the Corporation or its net profits applicable to dividends shall be declared in dividends and paid to its stockholders, and all rights of the holders of stock of the Corporation in respect of dividends shall be subject to the power of the Board so to do; (c) subject to the laws of the State of Delaware, from time to time to sell, lease or otherwise dispose of any part or parts of the properties of the Corporation and to cease to conduct the business connected therewith or again to resume the same, as it may deem best; and (d) in addition to the powers and authorities hereinbefore and by the laws of the State of Delaware conferred upon the Board, to execute all such powers and to do all acts and things as may be exercised or done by the Corporation; subject, nevertheless, to the express provisions of such laws, of the Restated Certificate of Incorporation of the Corporation and its Bylaws. 2 3 SEVENTH: Meetings of stockholders of the Corporation may be held within or without the State of Delaware, as the Bylaws provide. The books of the Corporation may be kept (subject to any provision of applicable law) outside the State of Delaware at such place or places as may be designated from time to time by the Board or in the Bylaws. EIGHTH: The Corporation reserves the right to adopt, repeal, rescind, alter or amend in any respect any provision contained in this Restated Certificate of Incorporation in the manner now or hereafter prescribed by applicable laws, and all rights conferred on stockholders herein are granted subject to this reservation. NINTH: The Corporation is to have perpetual existence. TENTH: A director of this Corporation shall not be personally liable to the Corporation or its stockholder for monetary damages for breach of fiduciary duty as a director, except for liability (i) for any breach of the director's duty of loyalty to the Corporation or its stockholders, (ii) for acts or omissions not in good faith or which involve intentional misconduct or a knowing violation of law, (iii) under Section 174 of the Delaware General Corporation Law, as the same exists or hereafter may be amended, or (iv) for any transaction from which the director derived an improper personal benefit. If the Delaware General Corporation Law hereafter is amended to authorize the further elimination or limitation of the liability of directors, then the liability of a director of the Corporation, in addition to the limitation on personal liability provided herein, shall be limited to the fullest extent permitted by the amended Delaware Corporation Law. No amendment to or repeal of this Article Tenth shall apply to or have any effect on the liability or alleged liability of any director of the Corporation for or with respect to any acts or omissions of such director occurring prior to such amendment or repeal. ELEVENTH: A. Designation of Two Series of Preferred Stock. There are hereby provided two series of preferred stock designated and to be known as "10% Senior Series 1 Cumulative Redeemable Preferred Stock" and "10% Junior Series 3 Cumulative Redeemable Preferred Stock." B. Definitions. As used in this Eleventh Article, the following terms shall have the meanings indicated: 1. "Common Stock" shall mean the common stock, $.01 par value per share, issued or to be issued by the Corporation. 2. "Original Issue Date" shall mean, with respect to any share of Series Preferred Stock, the date of the original issuance of such shares. 3 4 3. "Preferred Stock" shall mean the preferred stock, $.01 par value per share, issued or to be issued by the Corporation. 4. "Series 1 Preferred Stock" shall mean the 10% Senior Series 1 Cumulative Redeemable Preferred Stock, $.01 par value per share, issued or to be issued by the Corporation. 5. "Series 3 Preferred Stock" shall mean the 10% Junior Series 3 Cumulative Redeemable Preferred Stock, $.01 par value per share, issued or to be issued by the Corporation. 6. "Series Preferred Stock" shall mean, collectively, the Series 1 Preferred Stock and the Series 3 Preferred Stock. C. Number of Shares. The number of shares constituting the Series 1 Preferred Stock shall be 2,000. The number of shares constituting the Series 3 Preferred Stock shall be 12,550. D. Rights, Preferences, Privileges and Restrictions. The voting powers and relative rights, preferences, restrictions and other mattes relating to the Series Preferred Stock are as follows: 1. Dividends. (a) The holders of shares of Series 1 Preferred Stock then outstanding shall be entitled to receive, prior to the payment of any dividend on any other Preferred Stock of the Corporation or the Common Stock of the Corporation, when, as and if declared by the Board, out of funds legally available for the payment of dividends, cumulative dividends in an annual amount equal to $100 per share, plus an amount determined by applying a 10% annual rate, compounded annually, to any accrued but unpaid dividend amount from the last day of the period when such dividend accrues to the actual date of payment of such dividend, and no more. The holders of shares of Series 3 Preferred Stock then outstanding shall be entitled to receive, prior to the payment of any dividend on any other Preferred Stock of the Corporation (other than the Series 1 Preferred Stock) or the Common Stock of the Corporation, when as and if declared by the Board, out of funds legally available for the payment of dividends, cumulative dividends in an annual amount equal to $100 per share, plus an amount determined by applying a 10% annual rate, compounded annually, to any accrued but unpaid dividend amount from the last day of the period when such dividend accrues to the actual date of payment of such dividend, and no more; provided, however, that the Corporation may pay dividends on the Corporation's 7-1/4% Junior Convertible Preferred Stock due 2007 (the "Convertible Preferred Stock") with additional shares of Convertible Preferred Stock. Such dividends on the outstanding shares of Series Preferred Stock shall be payable on such date as the Board may from time to time determine (each such date being a "dividend payment date"). The Board may fix a record date for the determination of holders of shares of Series Preferred Stock entitled to receive payment of a dividend declared thereon, which record date shall not be more than sixty (60) days prior to the date fixed for 4 5 the payment thereof. Each such annual dividend shall be fully cumulative and shall accrue from day to day (whether or not declared) from the first day of each period in which such dividend may be payable as herein provided, except that the first annual dividend with respect to each share of Series Preferred Stock shall accrue from the Original Issue Date of such share or such other date as determined by the Board, except that dividends with respect to each share of Series 3 Preferred Stock shall accrue from August 14, 1992. Dividends, when, as and if declared, shall be payable in cash. (b) The holder of each outstanding fractional share of Series Preferred Stock shall be entitled to a ratably proportionate amount of all dividends accruing with respect to each outstanding share of Series Preferred Stock with the same Original Issue Date and all such dividends with respect to each such outstanding fractional share shall be fully cumulative and shall accrue (whether or not declared) and shall be payable in the same manner and at such times as provided for in Section 1(a). (c) All dividends paid with respect to the outstanding shares of Series Preferred Stock pursuant to Section 1(a) shall be paid pro rata to the holders of each class entitled thereto. Each Series 1 Preferred Stock holder's pro rata share of such dividends shall be calculated by multiplying the total dividends to be paid by the percentage of (i) the aggregate accrued but unpaid dividends to the date such payment is made on all issued and outstanding shares of Series 1 Preferred Stock represented by (ii) the aggregate accrued but unpaid dividends to the date such payment is made on all shares (including fractional shares) of Series 1 Preferred Stock held by such holder, and no more. Each Series 3 Preferred Stock holder's pro rata share of such dividends shall be calculated by multiplying the total dividends to be paid by the percentage of (i) the aggregate accrued but unpaid dividends to the date such payment is made on all issued and outstanding shares of Series 3 Preferred Stock represented by (ii) the aggregate accrued but unpaid dividends to the date such payment is made on all shares (including fractional shares) of Series 3 Preferred Stock held by such holder, and no more. 2. Liquidation Rights of Series Preferred Stock: (a) In the event of any liquidation, dissolution or winding up of the Corporation, whether voluntary or involuntary, the holders of outstanding shares of Series Preferred Stock shall be entitled to be paid out of the assets of the Corporation available for distribution to its stockholders, whether such assets are capital, surplus, or earnings, before any payment or declaration and setting apart for payment of any amount shall be made in respect of the outstanding shares of any other Preferred Stock of the Corporation or Common Stock of the Corporation, an amount equal to $1,000 per share of Series Preferred Stock then outstanding, plus all accrued but unpaid dividends thereon to the date such payment is actually made, and no more. If upon any liquidation, dissolution or winding up of the Corporation, whether voluntary or involuntary, the assets to be distributed among the holders of the outstanding shares of Series Preferred Stock shall be insufficient to permit the payment to such stockholders of the full preferential amounts set forth above, then 5 6 the entire assets of the Corporation to be distributed shall be distributed (i) first, ratably among the holders of outstanding shares of Series 1 Preferred Stock based on the full preferential amounts for the number of outstanding shares of Series 1 Preferred Stock held by each holder and (ii) second, ratably among the holders of outstanding shares of Series 3 Preferred Stock based on the full preferential amounts for the number of outstanding shares of Series 3 Preferred Stock held by each holder. The Corporation will mail written notice of such liquidation, dissolution or winding up, not less than sixty (60) days prior to the payment date stated therein, to each record holder of Series Preferred Stock. (b) A consolidation or merger of the Corporation with or into any other corporation or corporations or a sale of all or substantially all of the assets of the Corporation shall not be deemed to be a liquidation, dissolution, or winding up of the Corporation as those terms are used in this Section 2 unless such consolidation, merger or sale shall be in connection with a dissolution or winding up of the Corporation. (c) The payment of preferential amounts pursuant to this Section 2 with respect to each outstanding fractional share of Series 1 Preferred Stock shall be equal to a ratably proportionate amount of the preferential amount payable with respect to each outstanding share of Series 1 Preferred Stock with the same Original Issue Date. The payment of preferential amounts pursuant to this Section 2 with respect to each outstanding fractional share of Series 3 Preferred Stock shall be equal to the ratably proportionate amount of the preferential amount payable with respect to each outstanding share of Series 3 Preferred Stock with the same Original Issue Date. 3. Voluntary Redemption by the Corporation. (a) The Corporation, at the option of the Board, may at any time or from time to time redeem the outstanding shares of Series 1 Preferred Stock in whole or in part from any source of funds legally available therefor. The Corporation, at the option of the Board, may at any time or from time to time redeem the outstanding shares of Series 3 Preferred Stock in whole or in part from any source of funds legally available therefor, provided that there shall then be no outstanding shares of Series 1 Preferred Stock. (b) The redemption price for each outstanding share of Series Preferred Stock shall be equal to $1,000 plus an amount equal to any accrued and unpaid dividends on such share through the Redemption Date (as defined below), whether or not declared (the "Redemption Price"). (c) In the event of a redemption of only a part of the outstanding shares of a class of Series Preferred Stock, the Corporation shall effect such redemption pro rata according to the number of shares held by each holder of outstanding shares of such class of Series Preferred Stock. 6 7 (d) At least ten (10) days and not more than sixty (60) days prior to the date fixed for any redemption of shares of a class of Series Preferred Stock (the "Redemption Date"), written notice (the "Redemption Notice," and the class of Series Preferred Stock referenced in such Redemption Notice shall be referred to herein as the "Redeemed Stock") shall be sent, by registered mail, to each holder of record of the outstanding shares of Redeemed Stock at his or her mailing address last shown on the records of the Corporation. Any notice which is mailed in the manner herein provided shall be conclusively presumed to have been duly given, whether or not the holder received the notice, and failure duly to give the notice by mail, or any defect in the notice, to any holder of shares of such class of Series Preferred Stock designated for redemption shall not affect the validity of the proceedings for the redemption of any other shares of such class of Series Preferred Stock. The Redemption Notice shall state: (i) whether all or less than all of the outstanding shares of the class of Series Preferred Stock are to be redeemed and the total number of shares being redeemed; (ii) the number of outstanding shares of Redeemed Stock held by the holder which the Corporation intends to redeem; (iii) the Redemption Date and the Redemption Price; (iv) that from and after the Redemption Date, dividends shall cease to accrue; and (v) that the holder is to surrender to the Corporation, in the manner and at the place designated, the certificate or certificates representing the outstanding shares of Redeemed Stock to be redeemed. (e) On or before the Redemption Date, each holder of outstanding shares of Redeemed Stock shall surrender the certificate or certificates representing such shares to the Corporation, in the manner and at the place designated in the Redemption Notice, and thereupon the Redemption Price for such shares shall be payable to the order of the person whose name appears on such certificate or certificates as the owner thereof, and each surrendered certificate shall be cancelled and retired. In the event less than all of the shares represented by any such certificate or certificates are redeemed, a new certificate or certificates shall be issued representing the unredeemed shares. All shares of the class of Series Preferred Stock called for redemption will cease to accrue dividends as of the Redemption Date. After the Redemption Date, holders of such class of Series Preferred Stock shall no longer be treated as stockholders of the Corporation with respect to the shares of Series Preferred Stock being redeemed, except with respect to the right to receive the Redemption Price, without interest, upon the surrender of their respective certificates. 7 8 (f) The Corporation may, at its option, on or prior to the Redemption Date, deposit with its transfer agent or other redemption agent selected by the Board of Directors of the Corporation, as a trust fund, a sum sufficient to redeem the shares called for redemption, with irrevocable instructions and authority to such transfer agent or other redemption agent to give or complete the Redemption Notice and to pay to the respective holders of such shares, as evidenced by a list of such holders certified by an officer of the Corporation, the Redemption Price upon surrender of their respective share certificates. Such deposit shall be deemed to constitute full payment of such shares to their holders. In case the holders of any shares shall not, within five (5) years after such deposit, claim the amount deposited for redemption thereof, such transfer agent or other redemption agent shall, upon demand, pay over to the Corporation the balance of such amount so deposited and shall thereupon be relieved of all responsibility to the holders thereof. Any interest accrued on any funds so deposited shall belong to the Corporation, and shall be paid to it from time to time on demand. (g) All shares of Series 1 Preferred Stock which shall have been redeemed pursuant to this Section 3 shall thereupon be restored to the status of authorized but unissued shares of Series 1 Preferred Stock. (h) All shares of Series 3 Preferred Stock which shall have been redeemed pursuant to this Section 3 shall thereupon be restored to the status of authorized but unissued shares of Series 3 Preferred Stock. 4. Voting Rights. Except as otherwise provided herein or by the General Corporation Law of the State of Delaware, holders of outstanding shares of Series 1 Preferred Stock shall have no voting rights. At all meetings of the stockholders of the Corporation and in the case of any actions of stockholders in lieu of a meeting, each share of Series 3 Preferred Stock shall entitle the holder thereof to one vote. Except as otherwise provided herein or by the General Corporation Law of the State of Delaware, the holders of Common Stock and Series 3 Preferred Stock shall vote together as a single class, and neither the Common Stock nor Series 3 Preferred Stock shall be entitled to vote as a separate class on any matter to be voted on by shareholders of the Corporation, except that the holders of the Series 3 Preferred Stock shall be entitled to vote as a separate class to elect one member of the Board of Directors of the Corporation. 5. Restrictions and Limitations. Except as otherwise provided by the General Corporation Law of the State of Delaware, no amendment to this Restated Certificate of Incorporation shall be made by the Corporation which would change any of the terms, rights, preferences, privileges or restrictions provided herein so as to affect adversely any shares of Series Preferred Stock without the prior written consent of the holders of at least a majority of each of the Series 1 Preferred Stock and the Series 3 Preferred Stock entitled to vote thereon and outstanding at the time such action is taken; provided that no amendment will change (i) the rate or times at which or the manner in which dividends on any series of the Series Preferred Stock accrue or become payable, (ii) the preferences with 8 9 respect to dividends and liquidation payments set forth in Section 1 and 2 or (iii) the percentage of the holders of the Series Preferred Stock required to approve any changes described in clauses (i) or (ii) above, without the prior written consent of the holders of at least three-fourths (3/4s) of each of the Series 1 Preferred Stock and the Series 3 Preferred Stock, as applicable, then outstanding; and, provided further, that no change in the terms hereof may be accomplished by merger or consolidation of the Corporation with another corporation unless the Corporation has obtained the prior written consent of the holders of the applicable percentages of the Series 1 Preferred Stock and the Series 3 Preferred Stock then outstanding. IN WITNESS WHEREOF, the Corporation has caused this Restated Certificate of Incorporation to be signed and attested by its duly authorized officers this 31st day of January 1994. /s/ Ralph J. Swett ------------------------------- Ralph J. Swett, President Attest: /s/ John J. Willingham - ----------------------------- John J. Willingham, Secretary 9 10 CERTIFICATE OF OWNERSHIP AND MERGER MERGING IXC CARRIER GROUP, INC. INTO IXC COMMUNICATIONS, INC. (PURSUANT TO SECTION 253 OF THE GENERAL CORPORATION LAW OF DELAWARE) IXC Communications, Inc., a Delaware corporation (the "Corporation"), does hereby certify: FIRST: That the Corporation is incorporated pursuant to the General Corporation Law of the State of Delaware. SECOND: That the Corporation owns all of the outstanding shares of each class of the capital stock of IXC Carrier Group, Inc., a Delaware corporation (the "Merging Corporation"). THIRD: That the Corporation, by the following resolutions of its Board of Directors, duly adopted on the 6th day of October 1995, determined to merge into itself the Merging Corporation on the conditions set forth in such resolutions: "RESOLVED, that the Corporation merge into itself its subsidiary, IXC Carrier Group, Inc., a Delaware corporation, and assume all of said subsidiary's liabilities and obligations; FURTHER RESOLVED, that the President and Secretary of the Corporation be, and they hereby are, directed to make, execute and acknowledge a certificate of ownership and merger setting forth a copy of the resolutions to merge IXC Carrier Group, Inc. into the Corporation and to assume said subsidiary's liabilities and obligations and the date of adoption thereof and to file the same in the office of the Secretary of State of the State of Delaware and a certified copy thereof in the Office of the Recorder of Deeds of New Castle County; and FURTHER RESOLVED, that the effective date of such merger is November 30, 1995." IN WITNESS WHEREOF, the Corporation has caused its corporate seal to be affixed and this certificate to be signed by Ralph J. Swett, its President, and John J. Willingham, its Secretary, this 28th day of November 1995. IXC COMMUNICATIONS, INC., a Delaware corporation By: /s/ Ralph J. Swett -------------------------------- Ralph J. Swett, President ATTEST: By: /s/ John J. Willingham --------------------------------- John J. Willingham, Secretary [SEAL] 11 IN WITNESS WHEREOF, this Certificate has been signed on this Thirteenth day of March, 1997. IXC COMMUNICATIONS, INC. By: /s/ Ralph J. Swett ----------------------------------- Ralph J. Swett, Chairman, President and Chief Executive Officer Attested by: /s/ John J. Willingham - -------------------------------------- John J. Willingham, Senior Vice President and Assistant Secretary 30 12 EXECUTION COPY CERTIFICATE OF DESIGNATION OF THE POWERS, PREFERENCES AND RELATIVE, PARTICIPATING, OPTIONAL AND OTHER SPECIAL RIGHTS OF 7 1/4% JUNIOR CONVERTIBLE PREFERRED STOCK DUE 2007 AND QUALIFICATIONS, LIMITATIONS AND RESTRICTIONS THEREOF - ---------------------------------------------------------------------------- Pursuant to Section 151 of the General Corporation Law of the State of Delaware - ---------------------------------------------------------------------------- IXC Communications, Inc. (the "Company"), a corporation organized and existing under the General Corporation Law of the State of Delaware, does hereby certify that, pursuant to authority conferred upon the board of directors of the Corporation (the "Board of Directors") by its Restated Certificate of Incorporation (hereinafter referred to as the "Restated Certificate of Incorporation"), and pursuant to the provisions of Section 151 of the General Corporation Law of the State of Delaware, said Board of Directors, at a meeting duly called and held on March 28, 1997, duly approved and adopted the following resolution (the "Resolution"): RESOLVED that, pursuant to the authority vested in the Board of Directors by its Certificate of Incorporation, the Board of Directors does hereby create, authorize and provide for the issuance of 7 1/4% Junior Convertible Preferred Stock Due 2007, par value $.01 per share, with a stated value initially of $100 per share, consisting of up to 1,400,000 shares having the designation, preferences, relative, participating, optional and other special rights and the qualifications, limitations and restrictions thereof that are set forth in the Restated Certificate of Incorporation and in this Resolution as follows: (a) Designation. There is hereby created out of the authorized and unissued shares of Preferred Stock of the Company a series of Preferred Stock designated as the "7 1/4% Junior Convertible Preferred Stock Due 2007" (the "Convertible Preferred Stock"). The number of shares constituting the Convertible Preferred Stock shall be 1,400,000. The liquidation preference of the Convertible Preferred Stock shall be $100 per share (the "Liquidation Preference"). 13 (b) Rank. The Convertible Preferred Stock will, with respect to dividend rights and rights on liquidation, winding-up and dissolution, rank (i) senior to all classes of common stock and to each other class of Capital Stock or series of Preferred Stock established hereafter by the Board of Directors of the Company, the terms of which do not expressly provide that it ranks senior to, or on a parity with, the Convertible Preferred Stock as to dividend rights and rights on liquidation, winding-up and dissolution of the Company (collectively referred to, together with all classes of common stock of the Company, as "Junior Stock"); (ii) on a parity with each other class of Capital Stock or series of Preferred Stock established hereafter by the Board of Directors of the Company, the terms of which expressly provide that such class or series will rank on a parity with the Convertible Preferred Stock as to dividend rights and rights on liquidation, winding-up and dissolution (collectively referred to as "Parity Stock"); and (iii) junior to each share of Series 3 Preferred Stock now or hereafter outstanding and junior to each class of Capital Stock or series of Preferred Stock established hereafter by the Board of Directors of the Company, the terms of which hereafter established classes or series expressly provide that such class or series will rank senior to the Convertible Preferred Stock as to dividend rights or rights on liquidation, winding-up and dissolution of the Company (collectively referred to as "Senior Stock"). The Company may not authorize, create or increase the authorized amount of any class or series of Senior Stock without the approval of the holders of at least two-thirds of the shares of Convertible Preferred Stock then outstanding, voting or consenting, as the case may be, as one class. All claims of the holders of the Convertible Preferred Stock, including claims with respect to dividend payments, redemption payments, mandatory repurchase payments or rights upon liquidation, winding-up or dissolution, shall rank junior to the claims of the holders of any debt of the Company and all other creditors of the Company. (c) Dividends. (i) Holders of the outstanding shares of Convertible Preferred Stock will be entitled to receive, when, as and if declared by the Board of Directors of the Company, out of funds legally available therefor, dividends on each share of the Convertible Preferred Stock at a rate per annum equal to 7 1/4% of the Liquidation 2 14 Preference of such share payable quarterly (each such quarterly period being herein called a "Dividend Period"). In addition to the dividends described in the preceding sentence, holders of outstanding shares of Convertible Preferred Stock which are Transfer Restricted Securities will be entitled to additional dividends (the "Additional Dividends"), when, as and if declared by the Board of Directors of the Company, out of funds legally available therefor, with respect to the shares of Convertible Preferred Stock, which Additional Dividends shall accrue as follows if any of the following events occur (each such event in clauses (A) and (B) below being herein called a "Registration Default"): (A) if by August 31, 1997, the Shelf Registration Statement has not been declared effective by the Commission; or (B) if after the Shelf Registration Statement is declared effective (1) the Shelf Registration Statement thereafter ceases to be effective; or (2) the Shelf Registration Statement or the related prospectus ceases to be usable (in each case except as permitted below) in connection with resales of Transfer Restricted Securities in accordance with and during the periods specified herein because either (I) any event occurs as a result of which the related prospectus forming part of such Shelf Registration Statement would include any 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, or (II) it shall be necessary to amend such Shelf Registration Statement or supplement the related prospectus, to comply with the Securities Act or the Exchange Act or the respective rules thereunder. Additional Dividends shall accrue on the shares of Convertible Preferred Stock which are Transfer Restricted Securities from and including the date on which any such Registration Default shall occur, to but excluding the date on which all such Registration Defaults have been cured, at a rate of 7 3/4% per annum. A Registration Default referred to in clause (B) of paragraph (c)(i) shall be deemed not to have occurred and be continuing in relation to the Shelf Registration Statement or the related prospectus if (i) such Registration Default has occurred solely as a result of (x) the filing of a post-effective amendment to the Shelf Registration Statement to incorporate annual audited financial information with respect to the Company where such post-effective amendment is not yet effective and needs to be 3 15 declared effective to permit Holders to use the related prospectus or (y) other material events with respect to the Company that would need to be described in the Shelf Registration Statement or the related prospectus and (ii) in the case of clause (y), the Company proceeds promptly and in good faith to amend or supplement the Shelf Registration Statement and related prospectus to describe such events unless the Company has determined in good faith that there are material legal or commercial impediments in doing so; provided, however, that in any case if such Registration Default occurs for a continuous period in excess of 45 days, Additional Dividends shall be payable in accordance with the immediately preceding paragraphs of this paragraph (c)(i) from the day such Registration Default initially occurs until such Registration Default is cured. Any amounts of Additional Dividends due pursuant to clauses (A) or (B) of this paragraph (c)(i) or pursuant to the proviso contained in the preceding sentence will be payable on the regular dividend payment dates with respect to the Convertible Preferred Stock and on the same terms and conditions and subject to the same limitations as pertain at such time for the payment of regular dividends. The amount of Additional Dividends will be determined by multiplying the applicable Additional Dividends rate by the aggregate liquidation preference of the outstanding shares of Convertible Preferred Stock, multiplied by a fraction, the numerator of which is the number of days such Additional Dividend rate was applicable during such period (determined on the basis of a 360-day year comprised of twelve 30-day months), and the denominator of which is 360. All dividends on the Convertible Preferred Stock, including Additional Dividends, to the extent accrued, shall be cumulative, whether or not earned or declared, on a daily basis from the Issue Date or, in the case of additional shares of Convertible Preferred Stock issued in payment of a dividend, from the date of issuance of such additional shares of Convertible Preferred Stock, and shall be payable quarterly in arrears on March 31, June 30, September 30 and December 31 of each year (each a "Dividend Payment Date"), commencing on June 30, 1997 to holders of record on the March 15, June 15, September 15 and December 15 immediately preceding the relevant Dividend Payment Date. Any dividend on the Convertible Preferred Stock payable pursuant to this paragraph (c)(i) on or prior to March 31, 1999 shall be, at the option of the Company, payable (1) in cash or (2) through the issuance of a number of additional shares 4 16 (rounded to the nearest whole share) of Convertible Preferred Stock (the "Additional Shares") equal to the dividend amount divided by the Liquidation Preference of such Additional Shares. With respect to dividends accrued after March 31, 1999, all dividends shall be payable in cash; provided, however, that to the extent and for so long as the Company is prohibited by the terms of any of its indebtedness then outstanding or by the terms of the Series 3 Preferred Stock of the Company or any agreement or instrument to which the Company is then subject, from paying cash dividends on the Convertible Preferred Stock, such dividends will accrue on each share at the rate per annum equal to 8 3/4% of the Liquidation Preference per share (instead of the 7 1/4% rate set forth in the first paragraph of this paragraph (c)(i)) (together with any Additional Dividends then payable, which for purposes of this paragraph shall be payable at a rate of 0.50% over and above the 8 3/4% rate) payable through the issuance of a number of Additional Shares (rounded to the nearest whole share) equal to the dividend amount on such share divided by the Liquidation Preference of such Additional Shares on the relevant Dividend Payment Date. Except as provided herein, accrued and unpaid dividends, if any, will not bear interest or bear dividends thereon. (ii) All dividends paid with respect to shares of the Convertible Preferred Stock pursuant to paragraph (c)(i) shall be paid pro rata to the holders entitled thereto. (iii) No full dividends may be declared or paid or set apart for the payment of dividends by the Company on any Parity Stock for any period unless full cumulative dividends in respect of each Dividend Period ending on or before such period shall have been or contemporaneously are declared and paid (or are deemed declared and paid) in full or declared and, if payable in cash, a sum in cash sufficient for such payment set apart for such payment on the Convertible Preferred Stock. If full dividends are not so paid, the Convertible Preferred Stock will share dividends pro rata with the Parity Stock. (iv) The Company will not (A) declare, pay or set apart funds for the payment of any dividend or other distribution with respect to any Junior Stock or (B) redeem, purchase or otherwise acquire for consideration any Junior Stock through a sinking fund or otherwise, unless (1) all accrued and unpaid dividends with respect to the Convertible Preferred Stock and any Parity Stock at the time such 5 17 dividends are payable have been paid or funds have been set apart for payment of such dividends and (2) sufficient funds have been paid or set apart for the payment of the dividend for the current dividend period with respect to the Convertible Preferred Stock and any Parity Stock. As used herein, the term "dividend" does not include dividends payable solely in shares of Junior Stock on Junior Stock or in options, warrants or rights to holders of Junior Stock to subscribe or purchase any Junior Stock. (v) Dividends on account of arrears for any past Dividend Period and dividends in connection with any optional redemption may be declared and paid at any time, without reference to any regular Dividend Payment Date, to holders of record on such date, not more than 45 days prior to the payment thereof, as may be fixed by the Board of Directors of the Company. (vi) Dividends payable on the Convertible Preferred Stock for any period other than a Dividend Period shall be computed on the basis of a 360-day consisting year of twelve 30-day months and the actual number of days elapsed in the period for which payable. Dividends payable on the Convertible Preferred Stock for a full Dividend Period will be computed by dividing the per annum dividend rate by four. (vii) Certificates of Common Stock relating to Convertible Preferred Stock surrendered for conversion by a registered Holder during the period from the close of business on any regular record date next preceding any Dividend Payment Date to the opening of business on such Dividend Payment Date (except Convertible Preferred Shares called for redemption on a Redemption Date within such period) must be accompanied by payment in cash of an amount equal to the accrued but unpaid dividends thereon which such registered Holder is to receive on such Dividend Payment Date with respect to the Convertible Preferred Stock so surrendered. (d) Liquidation Preference. (i) Upon any voluntary or involuntary liquidation, dissolution or winding-up of the Company, holders of Convertible Preferred Stock will be entitled to be paid, out of the assets of the Company available for distribution to its stockholders, the Liquidation Preference of the outstanding shares of Convertible Preferred Stock, plus, without duplication, an amount in cash equal to all accumulated and unpaid dividends 6 18 (whether or not earned or declared and including Additional Dividends, if any,) thereon to the date fixed for liquidation, dissolution or winding-up (including an amount equal to a prorated dividend for the period from the last Dividend Payment Date to the date fixed for liquidation, dissolution or winding-up that would have been payable had the Convertible Preferred Stock been the subject of an Optional Redemption on such date) before any distribution is made on any Junior Stock. If, upon any voluntary or involuntary liquidation, dissolution or winding up of the Company, the amounts payable with respect to the Convertible Preferred Stock and all Parity Stock are not paid in full, the Convertible Preferred Stock and the Parity Stock will share equally and ratably (in proportion to the respective amounts that would be payable on such shares of Convertible Preferred Stock and the Parity Stock, respectively, if all amounts payable thereon had been paid in full) in any distribution of assets of the Company to which each is entitled. After payment of the full amount of the Liquidation Preference of the outstanding shares of Convertible Preferred Stock (and, if applicable, an amount equal to a prorated dividend), the holders of shares of Convertible Preferred Stock will not be entitled to any further participation in any distribution of assets of the Company. (ii) For the purposes of this paragraph (d), neither the sale, conveyance, exchange or transfer (for cash, shares of stock, securities or other consideration) of all or substantially all of the property or assets of the Company nor the consolidation or merger of the Company with or into one or more other entities shall be deemed to be a liquidation, dissolution or winding-up of the Company. (e) Redemption. (i) Optional Redemption. (A) The Convertible Preferred Stock shall not be redeemable prior to April 3, 2000. On or after April 3, 2000, each share of the Convertible Preferred Stock may be redeemed (subject to the legal availability of funds therefor) at any time, in whole or in part, at the option of the Company, at the redemption prices (expressed as a percentage of the Liquidation Preference of such share) set forth below, plus, without duplication, an amount in cash equal to all accrued and unpaid Liquidated Damages and all accrued and unpaid dividends to the date fixed for redemption (the "Optional Redemption Date") (including an amount in cash equal to a prorated dividend for the period from the Dividend Payment Date immediately prior to the Optional Redemption Date) (the 7 19 "Optional Redemption Price"). Notwithstanding the foregoing, prior to April 1, 2002, the Company shall only have the option to redeem shares of Convertible Preferred Stock if, during the period of 30 consecutive Trading Days ending on the Trading Day immediately preceding the date that the Redemption Notice is mailed to holders, the Closing Bid Price for the Common Stock exceeded 150% of the Conversion Price effective on the date of such Redemption Notice for at least 20 of such Trading Days. If redeemed during the 12-month period beginning April 1 of each of the years set forth below (or in the case of the year 2000, April 3), the Optional Redemption Price per share shall be the applicable percentage of the Liquidation Preference of such share set forth below plus, without duplication, in each case, an amount in cash equal to all accrued and unpaid Liquidated Damages and all accrued and unpaid dividends (including an amount equal to a prorated dividend from the immediately preceding Dividend Payment Date to the Optional Redemption Date), if any, to the Optional Redemption Date:
Year in which redemption occurs Percentage ------------------------------- ---------- 2000 . . . . . . . . . . . . . 104.83% 2001 . . . . . . . . . . . . . 104.03% 2002 . . . . . . . . . . . . . 103.22% 2003 . . . . . . . . . . . . . 102.42% 2004 . . . . . . . . . . . . . 101.61% 2005 . . . . . . . . . . . . . 100.81% 2006 . . . . . . . . . . . . . 100.00%
(B) In the event of a redemption of only a portion of the then outstanding shares of Convertible Preferred Stock, the Company shall effect such redemption on a pro rata basis, except that the Company may redeem all of the shares held by holders of fewer than 100 shares (or all of the shares held by holders who would hold less than 100 shares as a result of such redemption), as may be determined by the Company. (ii) Mandatory Redemption. Each share of the Convertible Preferred Stock (if not earlier redeemed or converted) shall be subject to mandatory redemption in whole (to the extent of lawfully available funds therefor) on March 31, 2007 (the "Mandatory Redemption Date") at a price equal to 100% of the Liquidation Preference of such share, plus, without duplication, all accrued and unpaid Liquidated Damages and accrued and unpaid dividends thereon (including 8 20 an amount equal to a prorated dividend thereon from the immediately preceding Dividend Payment Date to the Mandatory Redemption Date), if any, to the Mandatory Redemption Date (the "Mandatory Redemption Price"). (iii) Procedure for Redemption. (A) On and after the Optional Redemption Date or the Mandatory Redemption Date, as the case may be (the "Redemption Date"), unless the Company defaults in the payment of the applicable redemption price, dividends will cease to accumulate on shares of Convertible Preferred Stock called for redemption and all rights of holders of such shares will terminate except for the right to receive the Optional Redemption Price or the Mandatory Redemption Price, as the case may be, without interest; provided, however, that if a notice of redemption shall have been given as provided in paragraph (iii)(B) and the funds necessary for redemption (including an amount in respect of all dividends that will accrue to the Redemption Date) shall have been segregated and irrevocably set apart by the Company, in trust for the benefit of the holders of the shares called for redemption, then dividends shall cease to accumulate on the Redemption Date on the shares to be redeemed and, at the close of business on the day on which such funds are segregated and set apart, the holders of the shares to be redeemed shall, with respect to the shares to be redeemed, cease to be stockholders of the Company and shall be entitled only to receive the Optional Redemption Price or the Mandatory Redemption Price, as the case may be, for such shares without interest from the Redemption Date. (B) With respect to a redemption pursuant to paragraph (e)(i) or (e)(ii), the Company will send a written notice of redemption by first class mail to each holder of record of shares of Convertible Preferred Stock, not fewer than 15 days nor more than 60 days prior to the Redemption Date at its registered address (the "Redemption Notice"); provided, however, that no failure to give such notice nor any deficiency therein shall affect the validity of the procedure for the redemption of any shares of Convertible Preferred Stock to be redeemed except as to the holder or holders to whom the Company has failed to give said notice or except as to the holder or holders whose notice was defective. The Redemption Notice shall state: (1) whether the redemption is pursuant to paragraph (e)(i) or (e)(ii) hereof; 9 21 (2) the Optional Redemption Price or the Mandatory Redemption Price, as the case may be; (3) whether all or less than all the outstanding shares of the Convertible Preferred Stock are to be redeemed and the total number of shares of the Convertible Preferred Stock being redeemed; (4) the Redemption Date; (5) that the holder is to surrender to the Company, in the manner, at the place or places and at the price designated, his certificate or certificates representing the shares of Convertible Preferred Stock to be redeemed; and (6) that dividends on the shares of the Convertible Preferred Stock to be redeemed shall cease to accumulate on such Redemption Date unless the Company defaults in the payment of the Optional Redemption Price or the Mandatory Redemption Price, as the case may be. (C) Each holder of Convertible Preferred Stock shall surrender the certificate or certificates representing such shares of Convertible Preferred Stock to the Company, duly endorsed (or otherwise in proper form for transfer, as determined by the Company), in the manner and at the place designated in the Redemption Notice, and on the Redemption Date the full Optional Redemption Price or Mandatory Redemption Price, as the case may be, for such shares shall be payable in cash to the person whose name appears on such certificate or certificates as the owner thereof, and each surrendered certificate shall be canceled and retired. In the event that less than all of the shares represented by any such certificate are redeemed, a new certificate shall be issued representing the unredeemed shares. (f) Voting Rights. (i) The holders of Convertible Preferred Stock, except as otherwise required under Delaware law or as set forth in paragraphs (ii) and (iii) below, shall not be entitled or permitted to vote on any matter required or permitted to be voted upon by the stockholders of the Company. (ii) (A) If (1) dividends on the Convertible Preferred Stock are in arrears and unpaid for six or more Dividend Periods (whether or not consecutive) (a "Dividend 10 22 Default"); or (2) the Company fails to redeem the Convertible Preferred Stock on March 31, 2007, or fails to otherwise discharge any redemption obligation with respect to the Convertible Preferred Stock, then the number of directors constituting the Board of Directors of the Company will be increased by two and the Holders of the then outstanding shares of Convertible Preferred Stock (together with the holders of Parity Stock upon which like rights have been conferred and are exercisable), voting separately and as a class, shall have the right and power to elect such two additional directors. Each such event described in clauses (1) or (2) above is a "Voting Rights Triggering Event". A Voting Rights Triggering Event shall not be deemed to have occurred if at the time of such event there are less than 200,000 shares of Convertible Preferred Stock then outstanding. (B) The voting rights set forth in subparagraph (f)(ii)(A) above will continue until such time as (x) in the case of a Dividend Default, all dividends in arrears on the Convertible Preferred Stock are paid in full in cash, (y) in all other cases, any failure, breach or default giving rise to such Voting Rights Triggering Event is remedied or waived by the Holders of at least two-thirds of the shares of Convertible Preferred Stock then outstanding or (z) at any time there are less than 200,000 shares of Convertible Preferred Stock outstanding, at which time the term of any directors elected pursuant to the provisions of subparagraph (f)(ii)(A) above shall terminate and the number of directors constituting the Board of Directors shall be decreased by two (until the occurrence of any subsequent Voting Rights Triggering Event). At any time after voting power to elect directors shall have become vested and be continuing in the holders of Convertible Preferred Stock (together with the holders of Parity Stock upon which like rights have been conferred and are exercisable) pursuant to subparagraph (f)(ii)(A) hereof, or if vacancies shall exist in the offices of directors elected by such holders, a proper officer of the Company may, and upon the written request of the holders of record of at least 25% of the shares of Convertible Preferred Stock then outstanding or the holders of 25% of the shares of Parity Stock then outstanding upon which like rights have been confirmed and are exercisable addressed to the secretary of the Company shall, call a special meeting of the Holders of Convertible Preferred Stock and the holders of such Parity Stock for the purpose of electing the directors which such holders are entitled to elect pursuant to the terms hereof; 11 23 provided, however, that no such special meeting shall be called if the next annual meeting of stockholders of the Company is to be held within 60 days after the voting power to elect directors shall have become vested, in which case such meeting shall be deemed to have been called for such next annual meeting. If such meeting shall not be called by a proper officer of the Company within 20 days after personal service to the secretary of the Company at its principal executive offices, then the Holders of record of at least 25% of the outstanding shares of Convertible Preferred Stock or the holders of 25% of the shares of Parity Stock upon which like rights have been confirmed and are exercisable may designate in writing one of their members to call such meeting at the expense of the Company, and such meeting may be called by the person so designated upon the notice required for the annual meetings of stockholders of the Company and shall be held at the place for holding the annual meetings of stockholders. Any holder of Convertible Preferred Stock or such Parity Stock so designated shall have, and the Company shall provide, access to the lists of holders of Convertible Preferred Stock and the holders of such Parity Stock to be called pursuant to the provisions hereof. If no special meeting of the Holders of Convertible Preferred Stock and the holders of such Parity Stock is called as provided in this paragraph (f)(ii), then such meeting shall be deemed to have been called for the next annual meeting of stockholders of the Company or special meeting of the holders of any other capital stock of the Company. (C) At any meeting held for the purposes of electing directors at which the Holders of Convertible Preferred Stock (together with the holders of Parity Stock upon which like rights have been conferred and are exercisable) shall have the right, voting together as a separate class, to elect directors as aforesaid, the presence in person or by proxy of the holders of at least a majority in voting power of the outstanding shares of Convertible Preferred Stock (and such Parity Stock) shall be required to constitute a quorum thereof. (D) Any vacancy occurring in the office of a director elected by the Holders of Convertible Preferred Stock (and such Parity Stock) may be filled by the remaining director elected by the Holders of Convertible Preferred Stock (and such Parity Stock) unless and until such vacancy shall be filled by the Holders of Convertible Preferred Stock (and such Parity Stock). 12 24 (iii) (A) So long as any shares of the Convertible Preferred Stock are outstanding, the Company will not authorize, create or increase the authorized amount of any class or series of Senior Stock without the affirmative vote or consent of holders of at least two-thirds of the shares of Convertible Preferred Stock then outstanding, voting or consenting, as the case may be, as one class, given in person or by proxy, either in writing or by resolution adopted at an annual or special meeting (except that no such vote or consent shall be required for the issuance of additional shares of Series 3 Preferred Stock to be paid as dividends on such Series 3 Preferred Stock pursuant to the terms of such Series 3 Preferred Stock). (B) So long as any shares of the Convertible Preferred Stock are outstanding, the Company will not amend this Certificate of Designation so as to affect adversely the specified rights, preferences, privileges or voting rights of Holders of shares of Convertible Preferred Stock or to authorize the issuance of any additional shares of Convertible Preferred Stock (except to authorize the issuance of additional shares of Convertible Preferred Stock to be paid as dividends on the Convertible Preferred Stock, for which no consent shall be necessary) without the affirmative vote or consent of Holders of at least two-thirds of the issued and outstanding shares of Convertible Preferred Stock, voting or consenting, as the case may be, as one class, given in person or by proxy, either in writing or by resolution adopted at an annual or special meeting. (C) Except as set forth in paragraph (f)(iii)(A) or (B) above, (x) the creation, authorization or issuance of any shares of any Junior Stock, Parity Stock or Senior Stock, including the designation of a series of Convertible Preferred Stock, or (y) the increase or decrease in the amount of authorized Capital Stock of any class, including Preferred Stock, shall not require the consent of Holders of Convertible Preferred Stock and shall not be deemed to affect adversely the rights, preferences, privileges or voting rights of shares of Convertible Preferred Stock. (iv) In any case in which the Holders of Convertible Preferred Stock shall be entitled to vote pursuant to this paragraph (f) or pursuant to Delaware law, each Holder of Convertible Preferred Stock entitled to vote with respect to such matters shall be entitled to one vote for each share of Convertible Preferred Stock held. 13 25 (v) Except as required by law, the Holders of the Convertible Preferred Stock will not be entitled to vote on any merger or consolidation involving the Company or a sale of all or substantially all the assets of the Company. (g) Conversion. (i) At any time after 60 days from the Issue Date, at the option of the Holder thereof, any share of Convertible Preferred Stock may be converted at the Liquidation Preference thereof into fully paid and nonassessable Common Stock (calculated as to each conversion to the nearest 1/100 of a share), at the Conversion Price, determined as hereinafter provided, in effect at the time of conversion. Such conversion right shall expire at the close of business on the Mandatory Redemption Date. In case a share of Convertible Preferred Stock is called for optional redemption, such conversion right in respect of the share of Convertible Preferred Stock so called shall expire at the close of business on the applicable Optional Redemption Date, unless the Company defaults in making the payment due upon redemption. The price at which Common Stock shall be delivered upon conversion (herein called the "Conversion Price") shall be initially $23.46 per share of Common Stock. The Conversion Price shall be adjusted in certain instances as provided in paragraph (g)(iv) and paragraph (g)(v). (ii) In order to exercise the conversion privilege, the Holder of any share of Convertible Preferred Stock to be converted shall surrender the certificate for such share of Convertible Preferred Stock, duly endorsed or assigned to the Company or in blank, at the office of the Transfer Agent or at any office or agency of the Company maintained for that purpose, accompanied by written notice to the Company in the form of Exhibit B that the Holder elects to convert such share of Convertible Preferred Stock or, if fewer than all of the shares of Convertible Preferred Stock represented by a single share certificate are to be converted, the number of shares represented thereby to be converted. Except as provided in paragraph (c)(viii), no payment or adjustment shall be made upon any conversion on account of any dividends accrued on the shares of Convertible Preferred Stock surrendered for conversion or on account of any dividends on the Common Stock issued upon conversion. Such notice shall also contain the office or the address to which the Company should deliver shares of Common Stock issuable upon conversion (and any other payments or certificates related thereto). Except as 14 26 provided in paragraph (c)(viii), in no event shall the Company be obligated to pay any converting Holder any unpaid dividend, whether or not in arrears, on converted shares or any dividends on the shares of Common Stock issued upon such conversion. Shares of Convertible Preferred Stock shall be deemed to have been converted immediately prior to the close of business on the day of surrender of such shares of Convertible Preferred Stock for conversion in accordance with the foregoing provisions, and at such time the rights of the Holders of such shares of Convertible Preferred Stock as Holders shall cease, and the person or persons entitled to receive the Common Stock issuable upon conversion shall be treated for all purposes as the record holder or holders of such Common Stock at such time. As promptly as practicable on or after the conversion date, the Company shall issue and shall deliver to such office or agency as the converting Holder shall have designated in its written notice to the Company a certificate or certificates for the number of full Common Stock issuable upon conversion, together with payment in lieu of any fraction of a share, as provided in paragraph (g)(iii) hereof. In the case of any conversion of fewer than all the shares of Convertible Preferred Stock evidenced by a certificate, upon such conversion the Company shall execute and the Transfer Agent shall authenticate and deliver to the Holder thereof (at the address designated by such Holder), at the expense of the Company, a new certificate or certificates representing the number of unconverted shares of Convertible Preferred Stock. (iii) No fractional Common Stock shall be issued upon the conversion of a share of Convertible Preferred Stock. If more than one share of Convertible Preferred Stock shall be surrendered for conversion at one time by the same holder, the number of full shares of Common Stock which shall be issuable upon conversion thereof shall be computed on the basis of the aggregate shares of Convertible Preferred Stock so surrendered. Instead of any fractional share of Common Stock which would otherwise be issuable upon conversion of any share of Convertible Preferred Stock, the Company shall pay a cash adjustment in respect of such fraction in an amount equal to the same fraction of the closing price (as defined in paragraph (g)(iv)(7)) per share of Common Stock at the close of business on the Business Day prior to the day of conversion. 15 27 (iv) The Conversion Price shall be adjusted from time to time by the Company as follows: (1) If the Company shall hereafter pay a dividend or make a distribution in Common Stock to all holders of any outstanding class or series of Common Stock of the Company, the Conversion Price in effect at the opening of business on the date following the date fixed for the determination of shareholders entitled to receive such dividend or other distribution shall be reduced by multiplying such Conversion Price by a fraction of which the numerator shall be the number of shares of Common Stock outstanding at the close of business on the Record Date (as defined in paragraph (g)(iv)(7)) fixed for such determination and the denominator shall be the sum of such number of outstanding shares and the total number of shares constituting such dividend or other distribution, such reduction to become effective immediately after the opening of business on the day following the Record Date. If any dividend or distribution of the type described in this paragraph (g)(iv)(i) is declared but not so paid or made, the Conversion Price shall again be adjusted to the Conversion Price which would then be in effect if such dividend or distribution had not been declared. (2) If the Company shall offer or issue rights or warrants to all holders of its outstanding Common Stock entitling them to subscribe for or purchase Common Stock at a price per share less than the Current Market Price (as defined in paragraph (g)(iv)(7)) on the Record Date fixed for the determination of shareholders entitled to receive such rights or warrants, the Conversion Price shall be adjusted so that the same shall equal the price determined by multiplying the Conversion Price in effect at the opening of business on the date after such Record Date by a fraction of which the numerator shall be the number of shares of Common Stock outstanding at the close of business on the Record Date plus the number of shares of Common Stock which the aggregate offering price of the total number of shares of Common Stock subject to such rights or warrants would purchase at such Current Market Price and of which the denominator shall be the number of shares of Common Stock outstanding at the close of business on the Record Date plus the total number of additional shares of Common Stock subject to such 16 28 rights or warrants for subscription or purchase. Such adjustment shall become effective immediately after the opening of business on the day following the Record Date fixed for determination of shareholders entitled to purchase or receive such rights or warrants. To the extent that shares of Common Stock are not delivered pursuant to such rights or warrants, upon the expiration or termination of such rights or warrants the Conversion Price shall again be adjusted to be the Conversion Price which would then be in effect had the adjustments 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. If such rights or warrants are not so issued, the Conversion Price shall again be adjusted to be the Conversion Price which would then be in effect if such date fixed for the determination of shareholders entitled to receive such rights or warrants had not been fixed. In determining whether any rights or warrants entitle the holders to subscribe for or purchase Common Stock at less than such Current Market Price, and in determining the aggregate offering price of such shares of Common Stock, there shall be taken into account any consideration received for such rights or warrants, with the value of such consideration, if other than cash, to be determined by the Board of Directors. (3) If the outstanding shares of Common Stock shall be subdivided into a greater number of shares of Common Stock, the Conversion Price in effect at the opening of business on the day following the day upon which such subdivision becomes effective shall be proportionately reduced, and, conversely, if the outstanding shares of Common Stock shall be combined into a smaller number of shares of Common Stock, the Conversion Price in effect at the opening of business on the day following the day upon which such combination becomes effective shall be proportionately increased, such reduction or increase, as the case may be, to become effective immediately after the opening of business on the day following the day upon which such subdivision or combination becomes effective. (4) If the Company shall, by dividend or otherwise, distribute to all holders of its shares of Common Stock shares of any class of capital stock of the Company (other than any dividends or distributions 17 29 to which paragraph (g)(iv)(1) applies) or evidences of its indebtedness, cash or other assets (including securities, but excluding any rights or warrants of a type referred to in paragraph (g)(iv)(2) and excluding dividends and distributions paid exclusively in cash and excluding any capital stock, evidences of indebtedness, cash or assets distributed upon a merger or consolidation to which paragraph (g)(v) applies) (the foregoing hereinafter in this paragraph (g)(iv)(4) called the "Distributed Securities"), then, in each such case, the Conversion Price shall be reduced so that the same shall be equal to the price determined by multiplying the Conversion Price in effect immediately prior to the close of business on the Record Date (as defined in paragraph (g)(iv)(7)) with respect to such distribution by a fraction of which the numerator shall be the Current Market Price (determined as provided in paragraph (g)(iv)(7)) of the Common Stock on such date less the fair market value (as determined by the Board of Directors, whose determination shall be conclusive and described in a resolution of the Board of Directors) on such date of the portion of the Distributed Securities so distributed applicable to one share of Common Stock and the denominator shall be such Current Market Price, such reduction to become effective immediately prior to the opening of business on the day following the Record Date; provided, however, that, in the event the then fair market value (as so determined) of the portion of the Distributed Securities so distributed applicable to one share of Common Stock is equal to or greater than the Current Market Price on the Record Date, in lieu of the foregoing adjustment, adequate provision shall be made so that each holder of Convertible Preferred Stock shall have the right to receive upon conversion of a share of Convertible Preferred Stock (or any portion thereof) the amount of Distributed Securities such holder would have received had such holder converted such share of Convertible Preferred Stock (or portion thereof) immediately prior to such Record Date. If such dividend or distribution is not so paid or made, the Conversion Price shall again be adjusted to be the Conversion Price which would then be in effect if such dividend or distribution had not been declared. If the Board of Directors determines the fair market value of any distribution for purposes of this paragraph (g)(iv)(4) by reference to the actual or when issued trading market for any securities comprising all 18 30 or part of such distribution, it must in doing so consider the prices in such market over the same period used in computing the Current Market Price pursuant to paragraph (g)(iv)(7) to the extent possible. Rights or warrants distributed by the Company to all holders of Common Stock entitling the holders thereof to subscribe for or purchase shares of the Company's capital stock (either initially or under certain circumstances), which rights or warrants, until the occurrence of a specified event or events ("Dilution Trigger Event"): (i) are deemed to be transferred with such Common Stock; (ii) are not exercisable; and (iii) are also issued in respect of future issuances of Common Stock, shall be deemed not to have been distributed for purposes of this paragraph (g)(iv)(4) (and no adjustment to the Conversion Price under this paragraph (g)(iv)(4) shall be required) until the occurrence of the earliest Dilution Trigger Event, whereupon such rights and warrants shall be deemed to have been distributed and an appropriate adjustment to the Conversion Price under this paragraph (g)(iv)(4) shall be made. If any such rights or warrants, including any such existing rights or warrants distributed prior to the date hereof, are subject to subsequent events, upon the occurrence of each of which such rights or warrants shall become exercisable to purchase different securities, evidences of indebtedness or other assets, then the occurrence of each such event shall be deemed to be such date of issuance and record date with respect to new rights or warrants (and a termination or expiration of the existing rights or warrants without exercise by the holder thereof). In addition, in the event of any distribution (or deemed distribution) of rights or warrants, or any Dilution Trigger Event with respect thereto, that was counted for purposes of calculating a distribution amount for which an adjustment to the Conversion Price under this paragraph (g)(iv)(4) was made, (1) in the case of any such rights or warrants which shall all have been redeemed or repurchased without exercise by any holders thereof, the Conversion Price shall be readjusted upon such final redemption or repurchase to give effect to such distribution or Dilution Trigger Event, as the case may be, as though it were a cash distribution, equal to the per share redemption or repurchase price received by a holder or holders of Common Stock with respect to such rights or 19 31 warrants (assuming such holder had retained such rights or warrants), made to all holders of Common Stock as of the date of such redemption or repurchase, and (2) in the case of such rights or warrants which shall have expired or been terminated without exercise by any holders thereof, the Conversion Price shall be readjusted as if such rights and warrants had not been issued. Notwithstanding any other provision of this paragraph (g)(iv)(4) to the contrary, capital stock, rights, warrants, evidences of indebtedness, other securities, cash or other assets (including, without limitation, any rights distributed pursuant to any shareholder rights plan) shall be deemed not to have been distributed for purposes of this paragraph (g)(iv)(4) if the Company makes proper provision so that each holder of shares of Convertible Preferred Stock who converts a share of Convertible Preferred Stock (or any portion thereof) after the date fixed for determination of shareholders entitled to receive such distribution shall be entitled to receive upon such conversion, in addition to the Common Stock issuable upon such conversion, the amount and kind of such distributions that such holder would have been entitled to receive if such holder had, immediately prior to such determination date, converted such share of Convertible Preferred Stock into Common Stock. For purposes of this paragraph (g)(iv)(4) and paragraphs (g)(iv)(1) and (2), any dividend or distribution to which this paragraph (g)(iv)(4) is applicable that also includes Common Stock, or rights or warrants to subscribe for or purchase Common Stock to which paragraph (g)(iv)(2) applies (or both), shall be deemed instead to be (1) a dividend or distribution of the evidences of indebtedness, cash, assets, shares of capital stock, rights or warrants other than (A) such shares of Common Stock or (B) rights or warrants to which paragraph (g)(iv)(2) applies (and any Conversion Price reduction required by this paragraph (g)(iv)(4) with respect to such dividend or distribution shall then be made) immediately followed by (2) a dividend or distribution of such Common Stock or such rights or warrants (and any further Conversion Price reduction required by paragraph (g)(iv)(1) and (2) with respect to such dividend or distribution shall then be made), except that (1) the Record Date of such 20 32 dividend or distribution shall be substituted as "the Record Date fixed for the determination of stockholders entitled to receive such dividend or other distribution", "Record Date fixed for such determination" and "Record Date" within the meaning of paragraph (g)(iv)(1) and as "the Record Date fixed for the determination of shareholders entitled to receive such rights or warrants", "the date fixed for the determination of the shareholders entitled to receive such rights or warrants" and "such Record Date" within the meaning of paragraph (g)(iv)(2), and (2) any share of Common Stock included in such dividend or distribution shall not be deemed "outstanding at the close of business on the date fixed for such determination" within the meaning of paragraph (g)(iv)(1). (5) If the Company shall, by dividend or otherwise, distribute to all holders of its Common Stock cash (excluding any cash that is distributed upon a merger or consolidation to which paragraph (g)(v) applies or as part of a distribution referred to in paragraph (g)(iv)) in an aggregate amount that, combined together with (1) the aggregate amount of any other such distributions to all holders of its Common Stock made exclusively in cash within the 12 months preceding the date of payment of such distribution, and in respect of which no adjustment pursuant to this paragraph (g)(iv)(5) has been made, and (2) the aggregate of any cash plus the fair market value (as determined by the Board of Directors, whose determination shall be conclusive and described in a resolution of the Board of Directors) of consideration payable in respect of any tender offer by the Company or a Subsidiary of the Company for all or any portion of the Common Stock concluded within the 12 months preceding the date of payment of such distribution, and in respect of which no adjustment pursuant to paragraph (g)(iv)(4) has been made, exceeds 12.5% of the product of the Current Market Price (determined as provided in paragraph (g)(iv)(7)) on the Record Date with respect to such distribution times the number of shares of Common Stock outstanding on such date, then, and in each such case, immediately after the close of business on such date, the Conversion Price shall be reduced so that the same shall equal the price determined by multiplying the Conversion Price in effect immediately prior to the close of business on 21 33 such Record Date by a fraction (i) the numerator of which shall be equal to the Current Market Price on the Record Date less an amount equal to the quotient of (x) the excess of such combined amount over such 12.5% amount divided by (y) the number of shares of Common Stock outstanding on the Record Date and (ii) the denominator of which shall be equal to the Current Market Price on such Record Date; provided, however, that, if the portion of the cash so distributed applicable to one share of Common Stock is equal to or greater than the Current Market Price of the Common Stock on the Record Date, in lieu of the foregoing adjustment, adequate provision shall be made so that each holder of Convertible Preferred Stock shall have the right to receive upon conversion of a share of Convertible Preferred Stock (or any portion thereof) the amount of cash such holder would have received had such holder converted such share of Convertible Preferred Stock (or portion thereof) immediately prior to such Record Date. If such dividend or distribution is not so paid or made, the Conversion Price shall again be adjusted to be the Conversion Price which would then be in effect if such dividend or distribution had not been declared. (6) If a tender or exchange offer made by the Company or any of its Subsidiaries for all or any portion of the Common Stock expires and such tender or exchange offer (as amended upon the expiration thereof) requires the payment to shareholders (based on the acceptance (up to any maximum specified in the terms of the tender offer) of Purchased Shares (as defined below)) of an aggregate consideration having a fair market value (as determined by the Board of Directors, whose determination shall be conclusive and described in a resolution of the Board of Directors) that, combined together with (1) the aggregate of the cash plus the fair market value (as determined by the Board of Directors, whose determination shall be conclusive and described in a resolution of the Board of Directors), as of the expiration of such tender offer, of consideration payable in respect of any other tender offers, by the Company or any of its Subsidiaries for all or any portion of the Common Stock expiring within the 12 months preceding the expiration of such tender offer and in respect of which no adjustment pursuant to this paragraph (g)(iv)(6) has been made and (2) the aggregate amount of any distributions to all holders of 22 34 the Common Stock made exclusively in cash within 12 months preceding the expiration of such tender offer and in respect of which no adjustment pursuant to paragraph (g)(iv)(5) has been made, exceeds 12.5% of the product of the Current Market Price (determined as provided in paragraph (g)(iv)(7)) as of the last time (the "Expiration Time") tenders could have been made pursuant to such tender offer (as it may be amended) times the number of shares of Common Stock outstanding (including any tendered shares) at the Expiration Time, then, and in each such case, immediately prior to the opening of business on the day after the date of the Expiration Time, 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 close of business on the date of the Expiration Time by a fraction of which the numerator shall be the number of shares of Common Stock outstanding (including any tendered shares) at the Expiration Time multiplied by the Current Market Price of the Common Stock on the Trading Day next succeeding the Expiration Time and the denominator shall be the sum of (x) the fair market value (determined as aforesaid) of the aggregate consideration payable to shareholders based on the acceptance (up to any maximum specified in the terms of the tender offer) of all shares validly tendered and not withdrawn as of the Expiration Time (the shares deemed so accepted, up to any such maximum, being referred to as the "Purchased Shares") and (y) the product of the number of shares of Common Stock outstanding (less any Purchased Shares) at the Expiration Time and the Current Market Price of the Common Stock on the Trading Day next succeeding the Expiration Time, such reduction (if any) to become effective immediately prior to the opening of business on the day following the Expiration Time. If the Company is obligated to purchase shares pursuant to any such tender offer, but the Company is permanently prevented by applicable law from effecting any such purchases or all such purchases are rescinded, the Conversion Price shall again be adjusted to be the Conversion Price which would then be in effect if such tender offer had not been made. If the application of this paragraph (g)(iv)(6) to any tender offer would result in an increase in the Conversion Price, no adjustment shall be made for such tender offer under this paragraph (g)(iv)(6). 23 35 (7) For purposes of this paragraph (g)(iv), the following terms shall have the meaning indicated: "closing price" with respect to any securities on any day means the closing price on such day or, if no such sale takes place on such day, the average of the reported high and low prices on such day, in each case on The Nasdaq National Market or the New York Stock Exchange, as applicable, or, if such security is not listed or admitted to trading on such national market or exchange, on the principal national securities exchange or quotation system on which such security is quoted or listed or admitted to trading, or, if not quoted or listed or admitted to trading on any national securities exchange or quotation system, the average of the high and low prices of such security on the over-the-counter market on the day in question as reported by the National Quotation Bureau Incorporated or a similar generally accepted reporting service, or, if not so available, in such manner as furnished by any New York Stock Exchange member firm selected from time to time by the Board of Directors for that purpose, or a price determined in good faith by the Board of Directors, whose determination shall be conclusive and described in a resolution of the Board of Directors. "Current Market Price" means the average of the daily closing prices per share of Common Stock for the 10 consecutive trading days immediately prior to the date in question; provided, however, that (A) if the "ex" date (as hereinafter defined) for any event (other than the issuance or distribution requiring such computation) that requires an adjustment to the Conversion Price pursuant to paragraphs (g)(iv)(1), (2), (3), (4), (5) or (6) occurs during such 10 consecutive trading days, the closing price for each trading day prior to the "ex" date for such other event shall be adjusted by multiplying such closing price by the same fraction by which the Conversion Price is so required to be adjusted as a result of such other event, (B) if the "ex" date for any event (other than the issuance or distribution requiring such computation) that requires an adjustment to the Conversion Price pursuant to paragraphs (g)(iv)(1), (2), (3), (4), (5) or (6) occurs on or after the "ex" date for the issuance or distribution requiring such computation and prior to the day in question, the closing price for each trading day on and after the 24 36 "ex" date for such other event shall be adjusted by multiplying such closing price by the reciprocal of the fraction by which the Conversion Price is so required to be adjusted as a result of such other event and (C) if the "ex" date for the issuance or distribution requiring such computation is prior to the day in question, after taking into account any adjustment required pursuant to clause (A) or (B) of this proviso, the closing price for each trading day on or after such "ex" date shall be adjusted by adding thereto the amount of any cash and the fair market value (as determined by the Board of Directors in a manner consistent with any determination of such value for purposes of paragraphs (g)(iv)(4) or (5), whose determination shall be conclusive and described in a resolution of the Board of Directors) of the evidence of indebtedness, shares of capital stock or assets being distributed applicable to one Common Stock as of the close of business on the day before such "ex" date. For purposes of any computation under paragraph (g)(vi), the Current Market Price on any date shall be deemed to be the average of the daily closing prices per share of Common Stock for such day and the next two succeeding trading days; provided, however, that, if the "ex" date for any event (other than the tender offer requiring such computation) that requires an adjustment to the Conversion Price pursuant to paragraph (g)(iv)(1), (2), (3), (4), (5) or (6) occurs on or after the Expiration Time for the tender or exchange offer requiring such computation and prior to the day in question, the closing price for each trading day on and after the "ex" date for such other event shall be adjusted by multiplying such closing price by the reciprocal of the fraction by which the Conversion Price is so required to be adjusted as a result of such other event. For purposes of this paragraph, the term "ex" date (I) when used with respect to any issuance or distribution, means the first date on which the Common Stock trades regular way on the relevant exchange or in the relevant market from which the closing price was obtained without the right to receive such issuance or distribution, (II) when used with respect to any subdivision or combination of Common Stock, means the first date on which the Common Stock trades regular way on such exchange or in such market after the time at which such subdivision or combination becomes effective and (III) when used with respect to any tender or exchange offer means the first date on which the Common 25 37 Stock trades regular way on such exchange or in such market after the Expiration Time of such offer. Notwithstanding the foregoing, whenever successive adjustments to the Conversion Price are called for pursuant to this paragraph (g)(iv), such adjustments shall be made to the Current Market Price as may be necessary or appropriate to effectuate the intent of this paragraph (g)(iv) and to avoid unjust or inequitable results, as determined in good faith by the Board of Directors. "fair market value" shall mean the amount which a willing buyer would pay a willing seller in an arm's-length transaction. "Record Date" shall mean, with respect to any dividend, distribution or other transaction or event in which the holders of Common Stock have the right to receive any cash, securities or other property or in which the Common Stock (or other applicable security) is exchanged for or converted into any combination of cash, securities or other property, the date fixed for determination of shareholders entitled to receive such cash, securities or other property (whether such date is fixed by the Board of Directors or by statute, contract or otherwise). (8) No adjustment in the Conversion Price shall be required unless such adjustment would require an increase or decrease of at least 1% in such price; provided, however, that any adjustments which by reason of this paragraph (g)(iv)(8) are not required to be made shall be carried forward and taken into account in any subsequent adjustment. All calculations under this paragraph (g)(iv)(8) shall be made by the Company and 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 a change in the par value or no par value of the Common Stock. (9) Whenever the Conversion Price is adjusted as herein provided, the Company shall promptly file with the Transfer Agent an Officers' Certificate setting forth the Conversion Price after such adjustment and setting forth a brief statement of the facts requiring such adjustment. Promptly after delivery of such certificate, the Company shall prepare a notice of such adjustment of the Conversion Price setting forth the 26 38 adjusted Conversion Price and the date on which each adjustment becomes effective and shall mail such notice of such adjustment of the Conversion Price to each holder of Convertible Preferred Stock at such holder's last address appearing on the register of holders maintained for that purpose within 20 days of the effective date of such adjustment. Failure to deliver such notice shall not affect the legality or validity of any such adjustment. (10) In any case in which this paragraph (g)(iv) provides that an adjustment shall become effective immediately after a Record Date for an event, the Company may defer until the occurrence of such event issuing to the holder of any share of Convertible Preferred Stock converted after such Record Date and before the occurrence of such event the additional Common Stock issuable upon such conversion by reason of the adjustment required by such event over and above the Common Stock issuable upon such conversion before giving effect to such adjustment. (11) For purposes of this paragraph (g)(iv), the number of shares of Common Stock at any time outstanding shall not include shares held in the treasury of the Company but shall include shares issuable in respect of scrip certificates issued in lieu of fractions of Common Stock. The Company shall not pay any dividend or make any distribution on Common Stock held in the treasury of the Company. (v) In case of any consolidation of the Company with, or merger of the Company into, any other corporation, or in case of any merger of another corporation into the Company (other than a merger which does not result in any reclassification, conversion, exchange or cancellation of outstanding shares of Common Stock of the Company), or in case of any conveyance or transfer of the properties and assets of the Company substantially as an entirety, the holder of each share of Convertible Preferred Stock then outstanding shall have the right thereafter, during the period such Convertible Preferred Stock shall be convertible as specified in paragraph (g)(i), to convert such share of Convertible Preferred Stock only into the kind and amount of securities, cash and other property receivable upon such consolidation, merger, conveyance or transfer by a holder of the number of 27 39 shares of Common Stock of the Company into which such share of Convertible Preferred Stock might have been converted immediately prior to such consolidation, merger, conveyance or transfer, assuming such holder of Common Stock of the Company failed to exercise his rights of election, if any, as to the kind or amount of securities, cash and other property receivable upon such consolidation, merger, conveyance or transfer (provided that, if the kind or amount of securities, cash and other property receivable upon such consolidation, merger, conveyance or transfer is not the same for each share of Common Stock of the Company in respect of which such rights of election shall not have been exercised ("nonelecting share"), then for the purpose of this paragraph (g)(v) the kind and amount of securities, cash and other property receivable upon such consolidation, merger, conveyance or transfer by each nonelecting share shall be deemed to be the kind and amount so receivable per share by a plurality of the nonelecting shares). Such securities shall provide for adjustments which, for events subsequent to the effective date of the triggering event, shall be as nearly equivalent as may be practicable to the adjustments provided for in this paragraph (g)(v). The above provisions of this Section shall similarly apply to successive consolidations, mergers, conveyances or transfers. (vi) In case: (1) the Company shall declare a dividend (or any other distribution) on its Common Stock payable otherwise than in cash out of its earned surplus; or (2) the Company shall authorize the granting to all holders of its Common Stock of rights or warrants to subscribe for or purchase any shares of capital stock of any class or of any other rights; or (3) of any reclassification of the Common Stock of the Company (other than a subdivision or combination of its outstanding Common Stock), or of any consolidation or merger to which the Company is a party and for which approval of any shareholders of the Company is required, or the sale or transfer of all or substantially all the assets of the Company; or 28 40 (4) of the voluntary or involuntary dissolution, liquidation or winding up of the Company; then the Company shall cause to be filed with the Transfer Agent and at each office or agency maintained for the purpose of conversion of the Convertible Preferred Stock, and shall cause to be mailed to all holders at their last addresses as they shall appear in the Convertible Preferred Stock Register, at least 20 days (or 10 days in any case specified in clause (1) or (2) above) prior to the applicable date hereinafter specified, a notice stating (x) the date on which a record is to be taken for the purpose of such dividend, distribution, rights or warrants, or, if a record is not to be taken, the date as of which the holders of Common Stock of record to be entitled to such dividend, distribution, rights or warrants are to be determined or (y) the date on which such reclassification, consolidation, merger, sale, transfer, dissolution, liquidation or winding up is expected to become effective, and the date as of which it is expected that holders of Common Stock of record shall be entitled to exchange their Common Stock for securities, cash or other property deliverable upon such reclassification, consolidation, merger, sale, transfer, dissolution, liquidation or winding up. Failure to give the notice requested by this Section or any defect therein shall not affect the legality or validity of any dividend, distribution, right, warrant, reclassification, consolidation, merger, sale, transfer, dissolution, liquidation or winding up, or the vote upon any such action. (vii) The Company shall at all times reserve and keep available, free from preemptive rights, out of its authorized but unissued shares of Common Stock (or out of its authorized shares of Common Stock held in the treasury of the Company), for the purpose of effecting the conversion of the Convertible Preferred Stock, the full number of Common Stock then issuable upon the conversion of all outstanding shares of Convertible Preferred Stock. (viii) The Company will pay any and all document, stamp or similar issue or transfer taxes that may be payable in respect of the issue or delivery of Common Stock on conversion of the Convertible Preferred Stock pursuant hereto. The Company shall not, however, be required to pay any tax which may be payable in respect of any transfer involved in the issue and delivery of shares of Common Stock in a name other than that of the holder of the share of 29 41 Convertible Preferred Stock or the shares of Convertible Preferred Stock to be converted, and no such issue or delivery shall be made unless and until the Person requesting such issue has paid to the Company the amount of any such tax, or has established to the satisfaction of the Company that such tax has been paid. (ix) (1) Notwithstanding any other provision in the preceding paragraphs to the contrary, if any Change in Control occurs then, if the Company does not elect to make a Change in Control Offer, the Conversion Price in effect shall be adjusted immediately after such Change in Control as described below. In addition, in the event of a Common Stock Change in Control (as defined in this paragraph (g)(ix)), each share of the Convertible Preferred Stock shall be convertible solely into common stock of the kind received by holders of Common Stock as the result of such Common Stock Change in Control. For purposes of calculating any adjustment to be made pursuant to this paragraph in the event of a Change in Control, immediately after such Change in Control: (A) in the case of a Non-Stock Change in Control (as defined in this paragraph (g)(ix)), the Conversion Price shall thereupon become the lower of (x) the Conversion Price in effect immediately prior to such Non-Stock Change in Control, but after giving effect to any other prior adjustments, and (y) the result obtained by multiplying the greater of the Applicable Price (as defined in this paragraph (g)(ix)) or the then applicable Reference Market Price (as defined in this paragraph (g)(ix)) by a fraction of which the numerator shall be $100.00 and the denominator shall be the then current Optional Redemption Price per share; and (B) in the case of a Common Stock Change in Control, the Conversion Price in effect immediately prior to such Common Stock Change in Control, but after giving effect to any prior adjustments, shall thereupon be adjusted by multiplying such Conversion Price by a fraction, of which the numerator shall be the Purchaser Stock Price (as defined in this paragraph (g)(ix)) and the denominator shall be the Applicable Price; provided, however, that in the event of a Common Stock Change in Control in which (x) 100% of the value of the consideration received by a holder of Common Stock is common stock of the successor, acquiror, or other third 30 42 party (and cash, if any, is paid with respect to any fractional interests in such common stock resulting from such Common Stock Change in Control) and (y) all of the Common Stock will have been exchanged for, converted into, or acquired for, common stock (and cash with respect to fractional interests) of the successor, acquiror or other third party, the Conversion Price in effect immediately prior to such Common Stock Change in Control shall thereupon be adjusted by multiplying such Conversion Price by a fraction, of which the numerator shall be one (1) and the denominator shall be the number of shares of common stock of the successor, acquiror, or other third party received by a holder of one share of Common Stock as a result of such Common Stock Change in Control. (3) For purposes of this paragraph (ix), the following terms shall have the meanings indicated: "Applicable Price" means (i) in the event of a Non-Stock Change in Control in which the holders of the Common Stock receive only cash, the amount of cash received by the holder of one share of Common Stock and (ii) in the event of any other Non-Stock Change in Control or any Common Stock Change in Control, the average of the Closing Bid Prices for the Common Stock during the ten Trading Days prior to and including the record date for the determination of the holders of Common Stock entitled to receive cash, securities, property or other assets in connection with such Non-Stock Change in Control or Common Stock Change in Control or, if there is no such record date, the date upon which the holders of the Common Stock shall have the right to receive such cash, securities, property or other assets, in each case, as adjusted in good faith by the Board of Directors to appropriately reflect any of the events referred to in paragraph (g)(iv)(1) through (6). "Common Stock Change in Control" means any Change in Control in which more than 50% of the value (as determined in good faith by the Board of Directors of the Company) of the consideration received by holders of Common Stock consists of common stock that for each of the ten consecutive Trading Days referred to in the preceding paragraph has been admitted for listing or admitted for listing subject to notice of issuance on a national securities exchange or quoted on The Nasdaq 31 43 National Market; provided, however, that a Change in Control shall not be a Common Stock Change in Control unless either (i) the Company continues to exist after the occurrence of such Change in Control and the outstanding shares of Convertible Preferred Stock continue to exist as outstanding shares of Convertible Preferred Stock, or (ii) not later than the occurrence of such Change in Control, the outstanding shares of Convertible Preferred Stock are converted into or exchanged for shares of convertible preferred stock of a corporation succeeding to the business of the Company, which convertible preferred stock has powers, preferences and relative, participating, optional or other rights, and qualifications, limitations and restrictions, substantially similar to those of the Convertible Preferred Stock. "Non-Stock Change in Control" means any Change in Control other than a Common Stock Change in Control. "Purchaser Stock Price" means, with respect to any Common Stock Change in Control, the product of (i) the number of shares of common stock received in such Common Stock Change of Control for each share of Common Stock, and (ii) the average of the per share Closing Prices for the common stock received in such Common Stock Change in Control for the ten consecutive Trading Days prior to and including the record date for the determination of the holders of Common Stock entitled to receive such common stock, or if there is no such record date, the date upon which the holders of the Common Stock shall have the right to receive such common stock, in each case, as adjusted in good faith by the Board of Directors to appropriately reflect any of the events referred to in paragraph (g)(iv)(1) through (6); provided, however, that if no such Closing Prices exist, then the Purchaser Stock Price shall be set at a price determined in good faith by the Board of Directors of the Company. "Reference Market Price" shall initially mean $13.50 (which is an amount equal to 66-2/3% of the reported last sale price for the Common Stock on The Nasdaq National Market on March 25, 1997), and in the event of any adjustment to the conversion prices other than as a result of a Change in Control, the Reference Market Price shall also be adjusted so that the ratio of the Reference Market Price to the Conversion Price 32 44 after giving effect to any such adjustment shall always be the same as the ratio of $13.50 to the initial Conversion Price set forth in paragraph (g)(i). (h) Change in Control. (i) Upon the occurrence of a Change of Control (the date of such occurrence being the "Change in Control Date"), the Company shall be obligated to (1) purchase all or a portion of each holder's Convertible Preferred Stock in cash pursuant to the offer described in paragraph (h)(iii) (the "Change of Control Offer") at a purchase price equal to 100% of the Liquidation Preference, plus, without duplication, all accrued and unpaid Liquidated Damages and all accrued and unpaid dividends, if any, to the Change of Control Payment Date, including an amount in cash equal to a prorated dividend for the period from the Dividend Payment Date immediately prior to the Change of Control Payment Date to the Change of Control Payment Date or (2) adjust the conversion price as provided under paragraph (g)(ix). Notwithstanding the foregoing, the Company shall, prior to electing to make a Change of Control Offer, make an offer to redeem all outstanding shares of Series 3 Preferred Stock. (ii) Prior to the mailing of the notice referred to in paragraph (h)(iii), but in any event within 15 days following the date on which the Company knows or reasonably should have known that a Change in Control has occurred, the Company covenants that it shall promptly determine if the purchase of the Convertible Preferred Stock would violate or constitute a default under the Indenture or other indebtedness of the Company. (iii) Within 15 days following the date on which the Company knows or reasonably should have known that a Change in Control has occurred, the Company must send, by first-class mail, postage prepaid, a notice to each holder of Convertible Preferred Stock. Such notice shall state whether the Change of Control Offer would be permitted under the Indenture or other indebtedness of the Company, and if permitted, such notice shall contain all instructions and materials necessary to enable such holders to tender Convertible Preferred Stock pursuant to the Change of Control Offer. If the Change of Control Offer would be permitted under the Indenture or other indebtedness of the Company, such notice shall state: (A) that a Change of Control has occurred, that the Change of Control Offer is being made pursuant to 33 45 this paragraph (h) and that all Convertible Preferred Stock validly tendered and not withdrawn will be accepted for payment; (B) the purchase price (including the amount of accrued dividends, if any) and the purchase date (which must be no earlier than 30 days nor later than 75 days from the date such notice is mailed, other than as may be required by law) (the "Change of Control Payment Date"); (C) that any shares of Convertible Preferred Stock not tendered will continue to accrue dividends; (D) that, unless the Company defaults in making payment therefor, any share of Convertible Preferred Stock accepted for payment pursuant to the Change of Control Offer shall cease to accrue dividends after the Change of Control Payment Date; (E) that holders electing to have any shares of Convertible Preferred Stock purchased pursuant to a Change of Control Offer will be required to surrender such shares of Convertible Preferred Stock, properly endorsed for transfer, together with such other customary documents as the Company and the Transfer Agent may reasonably request to the Transfer Agent and registrar for the Convertible Preferred Stock at the address specified in the notice prior to the close of business on the Business Day prior to the Change of Control Payment Date; (F) that holders will be entitled to withdraw their election if the Company receives, not later than five Business Days prior to the Change of Control Payment Date, a telegram, a telex, facsimile transmission or letter setting forth the name of the holder, the number of shares of Convertible Preferred Stock the holder delivered for purchase and a statement that such holder is withdrawing his election to have such shares of Convertible Preferred Stock purchased; (G) that holders whose shares of Convertible Preferred Stock are purchased only in part will be issued a new certificate representing the unpurchased shares of Convertible Preferred Stock; and 34 46 (H) the circumstances and relevant facts regarding such Change of Control. If the Change of Control Offer would not be permitted under the Indenture or other indebtedness of the Company, such notice shall state the Conversion Price as adjusted pursuant to paragraph (g)(ix). (iv) The Company will comply with any tender offer rules under the Exchange Act which then may be applicable, including Rules 13e-4 and 14e-1, in connection with any offer required to be made by the Company to repurchase the shares of Convertible Preferred Stock as a result of a Change of Control. To the extent that the provisions of any securities laws or regulations conflict with provisions of this Certificate of Designation, the Company shall comply with the applicable securities laws and regulations and shall not be deemed to have breached its obligations under this Certificate of Designation by virtue thereof. (v) On the Change of Control Payment Date the Company shall (A) accept for payment the shares of Convertible Preferred Stock validly tendered pursuant to the Change of Control Offer, (B) pay to the holders of shares so accepted the purchase price therefor in cash and (C) cancel and retire each surrendered certificate. Unless the Company defaults in the payment for the shares of Convertible Preferred Stock tendered pursuant to the Change of Control Offer, dividends will cease to accrue with respect to the shares of Convertible Preferred Stock tendered and all rights of holders of such tendered shares will terminate, except for the right to receive payment therefor, on the Change of Control Payment Date. (vi) To accept the Change of Control Offer, the holder of a share of Convertible Preferred Stock shall deliver, on or before the 10th day prior to the Change of Control Payment Date, written notice to the Company (or an agent designated by the Company for such purpose) of such holder's acceptance, together with certificates evidencing the shares of Convertible Preferred Stock with respect to which the Change of Control Offer is being accepted, duly endorsed for transfer. (i) Reissuance of Convertible Preferred Stock. Shares of Convertible Preferred Stock that have been issued and reacquired in any manner, including shares purchased or redeemed or exchanged, shall not be reissued as shares of 35 47 Convertible Preferred Stock and shall (upon compliance with any applicable provisions of the laws of Delaware) have the status of authorized and unissued shares of Preferred Stock undesignated as to series and may be redesignated and reissued as part of any series of Preferred Stock; provided, however, that so long as any shares of Convertible Preferred Stock are outstanding, any issuance of such shares must be in compliance with the terms hereof. (j) Business Day. If any payment, redemption or exchange shall be required by the terms hereof to be made on a day that is not a Business Day, such payment, redemption or exchange shall be made on the immediately succeeding Business Day. (k) Limitation on Mergers and Asset Sales. The Company may not consolidate with or merge with or into, or convey, transfer or lease all or substantially all its assets to, any person unless: (1) the successor, transferee or lessee (if not the Company) is organized and existing under the laws of the United States of America or any State thereof or the District of Columbia and the Convertible Preferred Stock shall be converted into or exchanged for and shall become shares of such successor, transferee or lessee, having in respect of such successor, transferee or lessee substantially the same powers, preference and relative participating, optional or other special rights and the qualifications, limitations or restrictions thereon, that the Convertible Preferred Stock had immediately prior to such transaction; and (2) the Company delivers to the Transfer Agent an Officers' Certificate and an Opinion of Counsel stating that such consolidation, merger or transfer complies with this Certificate of Designation. The successor, transferee or lessee will be the successor company. (l) Certificates. (i) Form and Dating. The Convertible Preferred Stock and the Transfer Agent'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 Certificate of Designation. The Convertible Preferred Stock certificate 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). Each Convertible Preferred Stock certificate shall be dated the date of its authentication. The terms of the Convertible 36 48 Preferred Stock certificate set forth in Exhibit A are part of the terms of this Certificate of Designation. (A) Global Convertible Preferred Stock. The Convertible Preferred Stock sold in reliance on Rule 144A shall be issued initially in the form of one or more fully registered global certificates with the global securities legend and restricted securities legend set forth in Exhibit A hereto (the "Global Convertible Preferred Stock"), which shall be deposited on behalf of the purchasers represented thereby with the Transfer Agent, at its New York office, as custodian for DTC (or with such other custodian as DTC may direct), and registered in the name of DTC or a nominee of DTC, duly executed by the Company and authenticated by the Transfer Agent as hereinafter provided. The number of shares of Convertible Preferred Stock represented by Global Convertible Preferred Stock may from time to time be increased or decreased by adjustments made on the records of the Transfer Agent and DTC or its nominee as hereinafter provided. (B) Book-Entry Provisions. In the event Global Convertible Preferred Stock is deposited with or on behalf of DTC, the Company shall execute and the Transfer Agent shall authenticate and deliver initially one or more Global Convertible Preferred Stock certificates that (a) shall be registered in the name of DTC for such Global Convertible Preferred Stock or the nominee of DTC and (b) shall be delivered by the Transfer Agent to DTC or pursuant to DTC's instructions or held by the Transfer Agent as custodian for DTC. Members of, or participants in, DTC ("Agent Members") shall have no rights under this Certificate of Designation with respect to any Global Convertible Preferred Stock held on their behalf by DTC or by the Transfer Agent as the custodian of DTC or under such Global Convertible Preferred Stock, and DTC may be treated by the Company, the Transfer Agent and any agent of the Company or the Transfer Agent as the absolute owner of such Global Convertible Preferred Stock for all purposes whatsoever. Notwithstanding the foregoing, nothing herein shall prevent the Company, the Transfer Agent or any agent of the Company or the Transfer Agent from giving effect to any written certification, proxy or other authorization furnished by DTC or impair, as between DTC and its Agent Members, the operation of customary practices of DTC governing the 37 49 exercise of the rights of a holder of a beneficial interest in any Global Convertible Preferred Stock. (C) Certificated Convertible Preferred Stock. Convertible Preferred Stock initially sold to certain "accredited investors" (as defined in Rule 501(a)(1), (2), (3), (4), (5), (6) or (7) under the Securities Act) or sold in offshore transactions pursuant to Regulation S under the Securities Act will be issued in fully registered certificated form ("Certificated Convertible Preferred Stock"). Except as provided in this paragraph (l)(i) or in paragraph (l)(iii), owners of beneficial interests in Global Convertible Preferred Stock will not be entitled to receive physical delivery of Certificated Convertible Preferred Stock. After a transfer of any Convertible Preferred Stock during the period of the effectiveness of a Shelf Registration Statement with respect to such Convertible Preferred Stock, all requirements pertaining to legends on such Convertible Preferred Stock will cease to apply, the requirements requiring that any such Convertible Preferred Stock issued to Holders be issued in global form will cease to apply, and Certificated Convertible Preferred Stock without legends will be available to the transferee of the Holder of such Convertible Preferred Stock upon exchange of such transferring Holder's Convertible Preferred Stock or directions to transfer such Holder's interest in the Global Convertible Preferred Stock, as applicable. (ii) Execution and Authentication. Two Officers shall sign the Convertible Preferred Stock for the Company by manual or facsimile signature. The Company's seal shall be impressed, affixed, imprinted or reproduced on the Convertible Preferred Stock and may be in facsimile form. If an Officer whose signature is on Convertible Preferred Stock no longer holds that office at the time the Transfer Agent authenticates the Convertible Preferred Stock, the Convertible Preferred Stock shall be valid nevertheless. A Convertible Preferred Stock shall not be valid until an authorized signatory of the Transfer Agent manually signs the certificate of authentication on the Convertible Preferred Stock. The signature shall be conclusive evidence 38 50 that the Convertible Preferred Stock has been authenticated under this Certificate of Designation. The Transfer Agent shall authenticate and deliver 1,000,000 shares of Convertible Preferred Stock for original issue upon a written order of the Company signed by two Officers or by an Officer and either an Assistant Treasurer or an Assistant Secretary of the Company. In addition, the Transfer Agent shall authenticate and deliver, from time to time, Additional Shares for original issue upon order of the Company signed by two Officers or by an Officer or either an Assistant Treasurer or Assistant Secretary of the Company. Such orders shall specify the number of shares of Convertible Preferred Stock to be authenticated and the date on which the original issue of Convertible Preferred Stock is to be authenticated. The Transfer Agent may appoint an authenticating agent reasonably acceptable to the Company to authenticate the Convertible Preferred Stock. Unless limited by the terms of such appointment, an authenticating agent may authenticate Convertible Preferred Stock whenever the Transfer Agent may do so. Each reference in this Certificate of Designation to authentication by the Transfer Agent includes authentication by such agent. An authenticating agent has the same rights as the Transfer Agent or agent for service of notices and demands. (iii) Transfer and Exchange. (A) Transfer and Exchange of Certificated Convertible Preferred Stock. When Certificated Convertible Preferred Stock is presented to the Transfer Agent with a request to register the transfer of such Certificated Convertible Preferred Stock or to exchange such Certificated Convertible Preferred Stock for an equal number of shares of Certificated Convertible Preferred Stock of other authorized denominations, the Transfer Agent shall register the transfer or make the exchange as requested if its reasonable requirements for such transaction are met; provided, however, that the Certificated Convertible Preferred Stock surrendered for transfer or exchange: (1) shall be duly endorsed or accompanied by a written instrument of transfer in form reasonably satisfactory to the Company and the Transfer Agent, duly executed by the Holder thereof or its attorney duly authorized in writing; and 39 51 (2) in the case of Transfer Restricted Securities that are Certificated Convertible Preferred Stock, are being transferred or exchanged pursuant to an effective registration statement under the Securities Act or pursuant to clause (I), (II) or (III) below, and are accompanied by the following additional information and documents, as applicable: (I) if such Transfer Restricted Securities are being delivered to the Transfer Agent by a Holder for registration in the name of such Holder, without transfer, a certification from such Holder to that effect in substantially the form of Exhibit C hereto; or (II) if such Transfer Restricted Securities are being transferred to the Company or to a "qualified institutional buyer" ("QIB") in accordance with Rule 144A under the Securities Act or pursuant to an exemption from registration in accordance with Rule 144 or Regulation S under the Securities Act, a certification to that effect (in substantially the form of Exhibit C hereto); or (III) if such Transfer Restricted Securities are being transferred to an "accredited investor" as described in Rule 501(a)(1), (2), (3), (4), (5), (6) or (7) under the Securities Act that is acquiring the Securities for its own account, or for the account of such an accredited investor, in each case in a minimum principal amount of $100,000 for investment purposes and not with a view to, or for offer or sale in connection with, any distribution in violation of the Securities Act, or in reliance on another exemption from the registration requirements of the Securities Act: a certification to that effect in substantially the form of Exhibit C hereto, and if the Company or the Transfer Agent so requests, evidence reasonably satisfactory to them as to the compliance with the restrictions set forth in the legend set forth in paragraph (l)(iii)(G)(1) below. (B) Restrictions on Transfer of Certificated Convertible Preferred Stock for a Beneficial Interest in Global Convertible Preferred Stock. Certificated Convertible Preferred Stock may not be exchanged for a 40 52 beneficial interest in Global Convertible Preferred Stock except upon satisfaction of the requirements set forth below. Upon receipt by the Transfer Agent of Certificated Convertible Preferred Stock, duly endorsed or accompanied by appropriate instruments of transfer, in form satisfactory to the Transfer Agent, together with: (1) if such Certificated Convertible Preferred Stock is a Transfer Restricted Security, certification that such Certificated Convertible Preferred Stock is being transferred to a QIB in accordance with Rule 144A under the Securities Act; and (2) whether or not such Certificated Convertible Preferred Stock is a Transfer Restricted Security, written instructions directing the Transfer Agent to make, or to direct DTC to make, an adjustment on its books and records with respect to such Global Convertible Preferred Stock to reflect an increase in the number of shares of Convertible Preferred Stock represented by the Global Convertible Preferred Stock, then the Transfer Agent shall cancel such Certificated Convertible Preferred Stock and cause, or direct DTC to cause, in accordance with the standing instructions and procedures existing between DTC and the Transfer Agent, the number of shares of Convertible Preferred Stock represented by the Global Convertible Preferred Stock to be increased accordingly. If no Global Convertible Preferred Stock is then outstanding, the Company shall issue and the Transfer Agent shall authenticate, upon written order of the Company in the form of an Officers' Certificate, a new Global Convertible Preferred Stock representing the appropriate number of shares. (C) Transfer and Exchange of Global Convertible Preferred Stock. The transfer and exchange of Global Convertible Preferred Stock or beneficial interests therein shall be effected through DTC, in accordance with this Certificate of Designation (including applicable restrictions on transfer set forth herein, if any) and the procedures of DTC therefor. (D) Transfer of a Beneficial Interest in Global Convertible Preferred Stock for a Certificated Convertible Preferred Stock. 41 53 (1) Any person having a beneficial interest in Convertible Preferred Stock that is being transferred or exchanged pursuant to an effective registration statement under the Securities Act or pursuant to clause (I), (II) or (III) below may upon request, and if accompanied by the information specified below, exchange such beneficial interest for Certificated Convertible Preferred Stock representing the same number of shares of Convertible Preferred Stock. Upon receipt by the Transfer Agent of written instructions or such other form of instructions as is customary for DTC from DTC or its nominee on behalf of any person having a beneficial interest in Global Convertible Preferred Stock and upon receipt by the Transfer Agent of a written order or such other form of instructions as is customary for DTC or the person designated by DTC as having such a beneficial interest in a Transfer Restricted Security only, and upon the following additional information and documents (all of which may be submitted by facsimile): (I) if such beneficial interest is being transferred to the person designated by DTC as being the owner of a beneficial interest in Global Convertible Preferred Stock, a certification from such person to that effect (in substantially the form of Exhibit C hereto); (II) if such beneficial interest is being transferred to a QIB in accordance with Rule 144A under the Securities Act or pursuant to an exemption from registration in accordance with Rule 144 or Regulation S under the Securities Act, a certification to that effect (in substantially the form of Exhibit C hereto); or (III) if such beneficial interest is being transferred to an "accredited investor" as described in Rule 501(a)(1), (2), (3), (4), (5), (6) or (7) under the Securities Act that is acquiring the security for its own account, or for the account of such an accredited investor, in each case in a minimum principal amount of $100,000 for investment purposes and not with a view to, or for offer or sale in connection with, any distribution in violation of the Securities Act, or in reliance on another exemption from the registration requirements of the Securities Act, a 42 54 certification to that effect from the transferor (in substantially the form of Exhibit C hereto), and if the Company or the Transfer Agent so requests, evidence reasonably satisfactory to them as to the compliance with the restrictions set forth in the legend set forth in paragraph (l)(iii)(G)(1) below; then, the Transfer Agent or DTC, at the direction of the Transfer Agent, will cause, in accordance with the standing instructions and procedures existing between DTC and the Transfer Agent, the number of shares of Convertible Preferred Stock represented by Global Convertible Preferred Stock to be reduced on its books and records and, following such reduction, the Company will execute and the Transfer Agent will authenticate and deliver to the transferee Certificated Convertible Preferred Stock. (2) Certificated Convertible Preferred Stock issued in exchange for a beneficial interest in a Global Convertible Preferred Stock pursuant to this paragraph (l)(iii)(D) shall be registered in such names and in such authorized denominations as DTC, pursuant to instructions from its direct or indirect participants or otherwise, shall instruct the Transfer Agent. The Transfer Agent shall deliver such Certificated Convertible Preferred Stock to the persons in whose names such Convertible Preferred Stock are so registered in accordance with the instructions of DTC. (E) Restrictions on Transfer and Exchange of Global Convertible Preferred Stock. Notwithstanding any other provisions of this Certificate of Designation (other than the provisions set forth in paragraph (l)(iii)(F)), Global Convertible Preferred Stock may not be transferred as a whole except by DTC to a nominee of DTC or by a nominee of DTC to DTC or another nominee of DTC or by DTC or any such nominee to a successor depository or a nominee of such successor depository. (F) Authentication of Certificated Convertible Preferred Stock. If at any time: (1) DTC notifies the Company that DTC is unwilling or unable to continue as depository for the Global Convertible Preferred Stock and a successor depository for the Global Convertible Preferred Stock is not appointed by the Company within 90 days after delivery of such notice; 43 55 (2) DTC ceases to be a clearing agency registered under the Exchange Act; (3) there shall have occurred and be continuing a Voting Rights Triggering Event; or (4) the Company, in its sole discretion, notifies the Transfer Agent in writing that it elects to cause the issuance of Certificated Convertible Preferred Stock under this Certificate of Designation, then the Company will execute, and the Transfer Agent, upon receipt of a written order of the Company signed by two Officers or by an Officer and either an Assistant Treasurer or an Assistant Secretary of the Company requesting the authentication and delivery of Certificated Convertible Preferred Stock to the persons designated by the Company, will authenticate and deliver Certificated Convertible Preferred Stock equal to the number of shares of Convertible Preferred Stock represented by the Global Convertible Preferred Stock, in exchange for such Global Convertible Preferred Stock. (G) Legend. (1) Except as permitted by the following paragraph (2), each certificate evidencing the Global Convertible Preferred Stock and the Certificated Convertible Preferred Stock (and all Convertible Preferred Stock issued in exchange therefor or substitution thereof) shall bear a legend in substantially the following form: "THE SECURITY EVIDENCED HEREBY (OR ITS PREDECESSOR) (AND THE COMMON STOCK INTO WHICH THIS SECURITY IS CONVERTIBLE) WAS ORIGINALLY ISSUED IN A TRANSACTION EXEMPT FROM REGISTRATION UNDER SECTION 5 OF THE UNITED STATES SECURITIES ACT OF 1933 (THE "SECURITIES ACT") AND MAY NOT BE OFFERED, SOLD, PLEDGED OR OTHERWISE TRANSFERRED IN ABSENCE OF SUCH REGISTRATION OR AN APPLICABLE EXEMPTION THEREFROM. EACH PURCHASER OF THE SECURITY EVIDENCED HEREBY (OR THE COMMON STOCK INTO WHICH THIS SECURITY IS CONVERTIBLE) IS HEREBY NOTIFIED THAT THE SELLER MAY BE RELYING ON THE EXEMPTION FROM THE PROVISIONS OF SECTION 5 OF THE SECURITIES ACT PROVIDED BY RULE 144A THEREUNDER. THE HOLDER OF THE SECURITY EVIDENCED HEREBY (AND OF THE COMMON STOCK INTO WHICH THIS SECURITY IN CONVERTIBLE) AGREES FOR THE 44 56 BENEFIT OF THE COMPANY THAT (A) SUCH SECURITY (AND THE COMMON STOCK INTO WHICH THIS SECURITY IS CONVERTIBLE) MAY BE RESOLD, PLEDGED OR OTHERWISE TRANSFERRED, ONLY (1) TO A PERSON WHO THE SELLER REASONABLY BELIEVES IS A QUALIFIED INSTITUTIONAL BUYER WITHIN THE MEANING OF RULE 144A UNDER THE SECURITIES ACT PURCHASING FOR ITS OWN ACCOUNT OR FOR THE ACCOUNT OF A QUALIFIED INSTITUTIONAL BUYER IN A TRANSACTION MEETING THE REQUIREMENTS OF RULE 144A, (2) IN AN OFFSHORE TRANSACTION COMPLYING WITH RULE 904 OF REGULATION S UNDER THE SECURITIES ACT, (3) PURSUANT TO AN EXEMPTION FROM REGISTRATION UNDER THE SECURITIES ACT PROVIDED BY RULE 144 THEREUNDER (IF AVAILABLE), (4) TO THE COMPANY OR (5) PURSUANT TO AN EFFECTIVE REGISTRATION STATEMENT UNDER THE SECURITIES ACT AND (B) IN ACCORDANCE WITH ALL APPLICABLE SECURITIES LAWS OF THE STATES OF THE UNITED STATES." (2) Upon any sale or transfer of a Transfer Restricted Security (including any Transfer Restricted Security represented by Global Convertible Preferred Stock) pursuant to Rule 144 under the Securities Act or an effective registration statement under the Securities Act: (I) in the case of any Transfer Restricted Security that is a Certificated Convertible Preferred Stock, the Transfer Agent shall permit the Holder thereof to exchange such Transfer Restricted Security for a Certificated Convertible Preferred Stock that does not bear the legend set forth above and rescind any restriction on the transfer of such Transfer Restricted Security; and (II) in the case of any Transfer Restricted Security that is represented by a Global Convertible Preferred Stock, the Transfer Agent shall permit the Holder thereof to exchange such Transfer Restricted Security for a Certificated Convertible Preferred Stock Security that does not bear the legend set forth above and rescind any restriction on the transfer of such Transfer Restricted Security, if the Holder's request for such exchange was made in reliance on Rule 144 and the Holder certifies to that effect in writing to the Transfer Agent (such certification to be in the form set forth on the reverse of the Transfer Restricted Security). 45 57 (H) Cancellation or Adjustment of Global Convertible Preferred Stock. At such time as all beneficial interests in Global Convertible Preferred Stock have either been exchanged for Certificated Convertible Preferred Stock, redeemed, repurchased or canceled, such Global Convertible Preferred Stock shall be returned to DTC for cancellation or retained and canceled by the Transfer Agent. At any time prior to such cancellation, if any beneficial interest in Global Convertible Preferred Stock is exchanged for Certificated Convertible Preferred Stock, redeemed, repurchased or canceled, the number of shares of Convertible Preferred Stock represented by such Global Convertible Preferred Stock shall be reduced and an adjustment shall be made on the books and records of the Transfer Agent with respect to such Global Convertible Preferred Stock, by the Transfer Agent or DTC, to reflect such reduction. (I) Obligations with Respect to Transfers and Exchanges of Convertible Preferred Stock. (1) To permit registrations of transfers and exchanges, the Company shall execute and the Transfer Agent shall authenticate Certificated Convertible Preferred Stock and Global Convertible Preferred Stock as required pursuant to the provisions of this paragraph (iii). (2) All Certificated Convertible Preferred Stock and Global Convertible Preferred Stock issued upon any registration of transfer or exchange of Certificated Convertible Preferred Stock or Global Convertible Preferred Stock shall be the valid obligations of the Company, entitled to the same benefits under this Certificate of Designation as the Certificated Convertible Preferred Stock or Global Convertible Preferred Stock surrendered upon such registration of transfer or exchange. (3) Prior to due presentment for registration of transfer of any shares of Convertible Preferred Stock, the Transfer Agent and the Company may deem and treat the person in whose name such shares of Convertible Preferred Stock are registered as the absolute owner of such Convertible Preferred Stock and neither the Transfer Agent nor the Company shall be affected by notice to the contrary. (4) No service charge shall be made to a Holder for any registration of transfer or exchange upon surrender of any Convertible Preferred Stock 46 58 Certificate at the office of the Transfer Agent maintained for that purpose. However, the Company may require payment of a sum sufficient to cover any tax or other governmental charge that may be imposed in connection with any registration of transfer or exchange of Convertible Preferred Stock Certificates. (5) Upon any sale or transfer of shares of Convertible Preferred Stock (including any Convertible Preferred Stock represented by a Global Convertible Preferred Stock Certificate) pursuant to an effective registration statement under the Securities Act, pursuant to Rule 144 under the Securities Act or pursuant to an opinion of counsel reasonably satisfactory to the Company that no legend is required: (A) in the case of any Certificated Convertible Preferred Stock, the Transfer Agent shall permit the holder thereof to exchange such Convertible Preferred Stock for Certificated Convertible Preferred Stock that does not bear the legend set forth in paragraph (iii)(G) above and rescind any restriction on the transfer of such Convertible Preferred Stock; and (B) in the case of any Global Convertible Preferred Stock, such Convertible Preferred Stock shall not be required to bear the legend set forth in paragraph (iii)(G) above but shall continue to be subject to the provisions of paragraph (iii)(D) hereof; provided, however, that with respect to any request for an exchange of Convertible Preferred Stock that is represented by Global Convertible Preferred Stock for Certificated Convertible Preferred Stock that does not bear the legend set forth in paragraph (iii)(G) above in connection with a sale or transfer thereof pursuant to Rule 144 (and based upon an opinion of counsel if the Company so requests), the Holder thereof shall certify in writing to the Transfer Agent that such request is being made pursuant to Rule 144 (such certification to be substantially in the form of Exhibit C hereto). 47 59 (iv) Replacement Certificates. If a mutilated Convertible Preferred Stock certificate is surrendered to the Transfer Agent or if the Holder of a Convertible Preferred Stock certificate claims that the Convertible Preferred Stock certificate has been lost, destroyed or wrongfully taken, the Company shall issue and the Transfer Agent shall countersign a replacement Convertible Preferred Stock certificate if the reasonable requirements of the Transfer Agent and of Section 8-405 of the Uniform Commercial Code as in effect in the State of New York are met. If required by the Transfer Agent or the Company, such Holder shall furnish an indemnity bond sufficient in the judgment of the Company and the Transfer Agent to protect the Company and the Transfer Agent from any loss which either of them may suffer if a Convertible Preferred Stock certificate is replaced. The Company and the Transfer Agent may charge the Holder for their expenses in replacing a Convertible Preferred Stock certificate. (v) Temporary Certificates. Until definitive Convertible Preferred Stock certificates are ready for delivery, the Company may prepare and the Transfer Agent shall countersign temporary Convertible Preferred Stock certificates. Temporary Convertible Preferred Stock certificates shall be substantially in the form of definitive Convertible Preferred Stock certificates but may have variations that the Company considers appropriate for temporary Convertible Preferred Stock certificates. Without unreasonable delay, the Company shall prepare and the Transfer Agent shall countersign definitive Convertible Preferred Stock certificates and deliver them in exchange for temporary Convertible Preferred Stock certificates. (vi) Cancellation. (A) In the event the Company shall purchase or otherwise acquire Certificated Convertible Preferred Stock, the same shall thereupon be delivered to the Transfer Agent for cancellation. (B) At such time as all beneficial interests in Global Convertible Preferred Stock have either been exchanged for Certificated Convertible Preferred Stock, redeemed, repurchased or canceled, such Global Convertible Preferred Stock shall thereupon be delivered to the Transfer Agent for cancellation. (C) The Transfer Agent and no one else shall cancel and destroy all Convertible Preferred Stock certificates surrendered for transfer, exchange, replacement 48 60 or cancellation and deliver a certificate of such destruction to the Company unless the Company directs the Transfer Agent to deliver canceled Convertible Preferred Stock certificates to the Company. The Company may not issue new Convertible Preferred Stock certificates to replace Convertible Preferred Stock certificates to the extent they evidence Convertible Preferred Stock which the Company has purchased or otherwise acquired. (m) Additional Rights of Holders. In addition to the rights provided to Holders under this Certificate of Designation, Holders shall have the rights set forth in the Registration Rights Agreement. (o) Certain Definitions. As used in this Certificate of Designation, the following terms shall have the following meanings (and (1) terms defined in the singular have comparable meanings when used in the plural and vice versa, (2) "including" means including without limitation, (3) "or" is not exclusive and (4) an accounting term not otherwise defined has the meaning assigned to it in accordance with United States generally accepted accounting principles as in effect on the Issue Date and all accounting calculations will be determined in accordance with such principles), unless the content otherwise requires: "Business Day" means each day which is not a Legal Holiday. "capital stock" of any person means any and all shares, interests, rights to purchase, warrants, options, participation or other equivalents of or interests in (however designated) equity of such person, including any Preferred Stock, but excluding any debt securities convertible into or exchangeable for such equity. 49 61 "Change in Control" or "Change of Control" means: (i) the sale, lease, transfer, conveyance other disposition (other than by way of merger or consolidation), in one or a series of related transactions, of all or substantially all of the assets of the Company and its Subsidiaries taken as a whole to any "person" (as such term is used in Section 13(d)(3) of the Exchange Act), (ii) the adoption of a plan relating to the liquidation or dissolution of the Company, (iii) the consummation of any transaction (including, without limitation, any merger or consolidation) the result of which is that any "person" (as defined above), (other than officers, directors and stockholders of the Company and their affiliates on the date of this Certificate of Designation), becomes the beneficial owner (as determined in accordance with Rules 13d-3 and 13d-5 under the Exchange Act), directly or indirectly, of more than 50% of the voting stock of the Company or (iv) the first day on which a majority of the members of the board of directors (excluding the directors elected pursuant to paragraph (f) are not Continuing Directors. "Closing Bid Price" means on any day the last reported bid price on such day, or in case no bid takes place on such day, the average of the reported closing bid and asked prices, in each case on the Nasdaq National Market or, if the Common Stock is not quoted on such system, on the principal national securities exchange on which such stock is listed or admitted to trading, or if not listed or admitted to trading on any national securities exchange, the average of the closing bid and asked prices as furnished by any independent registered broker-dealer firm, selected by the Company for that purpose. "Continuing Directors" means, as of any date of determination, any member of the Board of Directors who (i) was a member of such Board of Directors on the date of this Certificate of Designation 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 of Directors at the time of such nomination or election. "Default" means any event which is, or after notice or passage of time or both would be, a Voting Rights Triggering Event. "DTC" means The Depository Trust Company. 50 62 "Exchange Act" means the Securities Exchange Act of 1934, as amended. "Holders" means the registered holders from time to time of the Convertible Preferred Stock. "Indenture" means the Indenture dated as of October 5, 1995 between the Company and IBJ Schroder Bank & Trust Company. "Issue Date" means the date on which the Convertible Preferred Stock is initially issued. "Legal Holiday" means a Saturday, a Sunday or a day on which banking institutions are not required to be open in the State of New York. "Liquidated Damages" means, with respect to any share of Convertible Preferred Stock, the Additional Dividends then accrued, if any, on such share pursuant to paragraph (c). "Officer" means the Chairman of the Board of Directors, the President, any Vice President, the Treasurer, the Secretary or any Assistant Secretary of the Company. "Officers' Certificate" means a certificate signed by two Officers. "Opinion of Counsel" means a written opinion from legal counsel who is acceptable to the Transfer Agent. The counsel may be an employee of or counsel to the Company or the Transfer Agent. "person" means any individual, corporation, partnership, joint venture, limited liability company, association, joint-stock company, trust, unincorporated organization, government or any agency or political subdivision thereof or any other entity. "Preferred Stock", as applied to the Capital Stock of any corporation, means Capital Stock of any class or classes (however designated) which is preferred as to the payment of dividends, or as to the distribution of assets upon any voluntary or involuntary liquidation or dissolution of such corporation, over shares of Capital Stock of any other class of such corporation. 51 63 "Registration Rights Agreement" means the Registration Rights Agreement dated March 25, 1997 among the Company, Credit Suisse First Boston Corporation and Dillon, Read & Co. Inc. with respect to the Convertible Preferred Stock. "SEC" or "Commission" means the Securities and Exchange Commission. "Securities Act" means the Securities Act of 1933. "Series 3 Preferred Stock" means the 10% Junior Series 3 Preferred Stock of the Company. "Shelf Registration Statement" means a shelf registration statement filed with the SEC to cover resales of Transfer Restricted Securities by holders thereof, as required by the Registration Rights Agreement. "Subsidiary" means any corporation, association, partnership, limited liability company or other business entity of which more than 50% of the total voting power of shares of capital stock or other interests 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 the Company, the Company and one or more Subsidiaries or one or more Subsidiaries and any partnership the sole general partner or the managing partner of which the Company or any Subsidiary or the only general partners of which are the Company and one or more Subsidiaries or one or more Subsidiaries. "Trading Day" means, in respect of any securities exchange or securities market, each Monday, Tuesday, Wednesday, Thursday and Friday, other than any day on which securities are not traded on the applicable securities exchange or in the applicable securities market. "Transfer Agent" means the transfer agent for the Convertible Preferred Stock appointed by the Company, which initially shall be ChaseMellon Shareholder Services, L.L.C. "Transfer Restricted Securities" means each share of Convertible Preferred Stock (or the shares of Common Stock into which such share of Convertible Preferred Stock is convertible) (including additional shares of Convertible Preferred Stock issued in payment of dividends on the 52 64 Convertible Preferred Stock, if any, as permitted in accordance with the terms hereof) until (i) the date on which such security has been effectively registered under the Securities Act and disposed of in accordance with the Shelf Registration Statement or (ii) the date on which such security is distributed to the public pursuant to Rule 144 under the Securities Act or is saleable pursuant to Rule 144(k) under the Securities Act (or any successor rule thereof) or would be saleable pursuant to Rule 144(k) under the Securities Act had it not been held by, or had it never been held by, an affiliate of the Company. "Voting Stock" of a corporation means all classes of Capital Stock of such corporation then outstanding and normally entitled to vote in the election of directors. 53 65 IN WITNESS WHEREOF, said IXC Communications, Inc., has caused this Certificate of Designation to be signed by John J. Willingham, its Senior Vice President and Chief Financial Officer, this 31st day of March, 1997. IXC COMMUNICATIONS, INC., by /s/ John J. Willingham ---------------------------------- Name: John J. Willingham Title: Senior Vice President and Chief Financial Officer 54 66 EXHIBIT A FORM OF CONVERTIBLE PREFERRED STOCK FACE OF SECURITY [THE SECURITY EVIDENCED HEREBY (OR ITS PREDECESSOR) (AND THE COMMON STOCK INTO WHICH THIS SECURITY IS CONVERTIBLE) WAS ORIGINALLY ISSUED IN A TRANSACTION EXEMPT FROM REGISTRATION UNDER SECTION 5 OF THE UNITED STATES SECURITIES ACT OF 1933 (THE "SECURITIES ACT") AND MAY NOT BE OFFERED, SOLD, PLEDGED OR OTHERWISE TRANSFERRED IN ABSENCE OF SUCH REGISTRATION OR AN APPLICABLE EXEMPTION THEREFROM. EACH PURCHASER OF THE SECURITY EVIDENCED HEREBY (OR THE COMMON STOCK INTO WHICH THIS SECURITY IS CONVERTIBLE) IS HEREBY NOTIFIED THAT THE SELLER MAY BE RELYING ON THE EXEMPTION FROM THE PROVISIONS OF SECTION 5 OF THE SECURITIES ACT PROVIDED BY RULE 144A THEREUNDER. THE HOLDER OF THE SECURITY EVIDENCED HEREBY (AND OF THE COMMON STOCK INTO WHICH THIS SECURITY IS CONVERTIBLE) AGREES FOR THE BENEFIT OF THE COMPANY THAT (A) SUCH SECURITY (AND THE COMMON STOCK INTO WHICH THIS SECURITY IS CONVERTIBLE) MAY BE RESOLD, PLEDGED OR OTHERWISE TRANSFERRED, ONLY (1) TO A PERSON WHO THE SELLER REASONABLY BELIEVES IS A QUALIFIED INSTITUTIONAL BUYER WITHIN THE MEANING OF RULE 144A UNDER THE SECURITIES ACT PURCHASING FOR ITS OWN ACCOUNT OR FOR THE ACCOUNT OF A QUALIFIED INSTITUTIONAL BUYER IN A TRANSACTION MEETING THE REQUIREMENTS OF RULE 144A, (2) IN AN OFFSHORE TRANSACTION COMPLYING WITH RULE 904 OF REGULATION S UNDER THE SECURITIES ACT, (3) PURSUANT TO AN EXEMPTION FROM REGISTRATION UNDER THE SECURITIES ACT PROVIDED BY RULE 144 THEREUNDER (IF AVAILABLE), (4) TO THE COMPANY OR (5) PURSUANT TO AN EFFECTIVE REGISTRATION STATEMENT UNDER THE SECURITIES ACT AND (B) IN ACCORDANCE WITH ALL APPLICABLE SECURITIES LAWS OF THE STATES OF THE UNITED STATES.]* [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 OF PAYMENT, AND ANY CERTIFICATE ISSUED IS REGISTERED IN THE NAME OF CEDE & CO. OR 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 __________________________________ * Subject to removal upon registration under the Securities Act of 1933 or otherwise when the security shall no longer be a restricted security. 67 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 CERTIFICATE OF DESIGNATION REFERRED TO BELOW.]** IN CONNECTION WITH ANY TRANSFER, THE HOLDER WILL DELIVER TO THE REGISTRAR AND TRANSFER AGENT SUCH CERTIFICATES AND OTHER INFORMATION AS SUCH REGISTRAR AND TRANSFER AGENT MAY REASONABLY REQUIRE TO CONFIRM THAT THE TRANSFER COMPLIES WITH THE FOREGOING RESTRICTIONS. Number of Shares of Convertible Certificate Number Preferred Stock [ ] [ ] CUSIP NO.: [ ] 7 1/4% Junior Convertible Preferred Stock Due 2007 (par value $0.01) (liquidation preference $100 per share of Convertible Preferred Stock) of IXC Communications, Inc. IXC Communications, Inc., a Delaware corporation (the "Company"), hereby certifies that [ ] (the "Holder") is the registered owner of fully paid and non-assessable preferred securities of the Company designated the 7 1/4% Junior Convertible Preferred Stock Due 2007 (par value $0.01) (liquidation preference $100 per share of Convertible Preferred Stock) (the "Convertible Preferred Stock"). The shares of Convertible Preferred Stock are transferable on the books and records of the Registrar, in person or by a duly authorized attorney, upon surrender of this certificate duly endorsed and in proper form for transfer. The designation, rights, privileges, __________________________________ ** Subject to removal if not a global security. 2 68 restrictions, preferences and other terms and provisions of the Convertible Preferred Stock represented hereby are issued and shall in all respects be subject to the provisions of the Certificate of Designation dated March [ ], 1997, as the same may be amended from time to time (the "Certificate of Designation"). Capitalized terms used herein but not defined shall have the meaning given them in the Certificate of Designation. The Company will provide a copy of the Certificate of Designation to a Holder without charge upon written request to the Company at its principal place of business. Reference is hereby made to select provisions of the Convertible Preferred Stock set forth on the reverse hereof, and to the Certificate of Designation, which select provisions and the Certificate of Designation shall for all purposes have the same effect as if set forth at this place. Upon receipt of this certificate, the Holder is bound by the Certificate of Designation and is entitled to the benefits thereunder. Unless the Transfer Agent's Certificate of Authentication hereon has been properly executed, these shares of Convertible Preferred Stock shall not be entitled to any benefit under the Certificate of Designation or be valid or obligatory for any purpose. IN WITNESS WHEREOF, the Company has executed this certificate this [ ] day of [ ], [ ]. IXC COMMUNICATIONS, INC., By: ------------------------------- Name: Title: [Seal] By: ------------------------------- Name: Title: 3 69 TRANSFER AGENT'S CERTIFICATE OF AUTHENTICATION This is one of the Convertible Preferred Stock referred to in the within mentioned Certificate of Designation. Dated: [ ], [ ] CHASEMELLON SHAREHOLDER SERVICES, L.L.C. as Transfer Agent, By: --------------------------- Authorized Signatory 4 70 REVERSE OF SECURITY Dividends on each share of Convertible Preferred Stock shall be payable at a rate per annum set forth in the face hereof or as provided in the Certificate of Designation (including Additional Dividends). The shares of Convertible Preferred Stock shall be redeemable as provided in the Certificate of Designation. The shares of Convertible Preferred Stock shall be convertible into the Company's Common Stock in the manner and according to the terms set forth in the Certificate of Designation. As required under Delaware law, the Company shall furnish to any Holder upon request and without charge, a full summary statement of the designations, voting rights preferences, limitations and special rights of the shares of each class or series authorized to be issued by the Company so far as they have been fixed and determined and the authority of the Board of Directors to fix and determine the designations, voting rights, preferences, limitations and special rights of the class and series of shares of the Company. 5 71 ASSIGNMENT FOR VALUE RECEIVED, the undersigned assigns and transfers the shares of Convertible Preferred Stock evidenced hereby to: ------------------------------ - ------------------------------------------------------------------------------- (Insert assignee's social security or tax identification number) - ------------------------------------------------------------------------------- (Insert address and zip code of assignee) and irrevocably appoints: - ------------------------------------------------------------------------------- - ------------------------------------------------------------------------------- agent to transfer the shares of Convertible Preferred Stock evidenced hereby on the books of the Transfer Agent and Registrar. The agent may substitute another to act for him or her. Date: ------------------------------ Signature: ------------------------- (Sign exactly as your name appears on the other side of this Convertible Preferred Stock Certificate) Signature Guarantee:*** ------------------------------------------------------ - ------------------------ *** (Signature must be guaranteed by an "eligible guarantor institution" that is, a bank, stockbroker, savings and loan association or credit union meeting the requirements of the Registrar, which requirements include membership or participation in the Securities Transfer Agents Medallion Program ("STAMP") or such other "signature guarantee program" as may be determined by the Registrar in addition to, or in substitution for, STAMP, all in accordance with the Securities Exchange Act of 1934, as amended.) 6 72 EXHIBIT B NOTICE OF CONVERSION (To be Executed by the Registered Holder in order to Convert the Convertible, Preferred Stock) The undersigned hereby irrevocably elects to convert (the "Conversion") shares of 7 1/4% Junior Convertible Preferred Stock (the "Convertible Preferred Stock"), represented by stock certificate No(s). _______________ (the "Convertible Preferred Stock Certificates") into shares of common stock ("Common Stock") of IXC Communications, Inc. (the "Company") according to the conditions of the Certificate of Designations, Preferences and Rights of the Convertible Preferred Stock (the "Certificate of Designation"), as of the date written 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 and is delivering herewith such certificates. No fee will be charged to the holder for any conversion, except for transfer taxes, if any. A copy of each Convertible Preferred Stock Certificate is attached hereto (or evidence of loss, theft or destruction thereof). The undersigned represents and warrants that all offers and sales by the undersigned of the shares of Common Stock issuable to the undersigned upon conversion of the Convertible Preferred Stock shall be made pursuant to registration of the Common Stock under the Securities Act of 1933 (the "Act"), or pursuant to any exemption from registration under the Act. Any holder, upon the exercise of its conversion rights in accordance with the terms of the Certificate of Designation and the Convertible Preferred Stock, agrees to be bound by the terms of the Registration Rights Agreement. Capitalized terms used but not defined herein shall have the meanings ascribed thereto in or pursuant to the Certificate of Designation. Date of Conversion: ________________________ Applicable Conversion Price: _______________ Number of shares of Convertible Preferred Stock to be Converted: ____________ 73 Number of shares of Common Stock to be Issued: _________________ Signature: _________________________________ Name: ______________________________________ Address:** _________________________________ Fax No.: ___________________________________ - ----------------------------- * The Company is not required to issue shares of Common Stock until the original Convertible Preferred Stock Certificate(s) (or evidence of loss, theft or destruction thereof) to be converted are received by the Company or its Transfer Agent. The Company shall issue and deliver shares of Common Stock to an overnight courier not later than three business days following receipt of the original Convertible Preferred Stock Certificate(s) to be converted. ** Address where shares of Common Stock and any other payments or certificates shall be sent by the Company. 2 74 EXHIBIT C CERTIFICATE TO BE DELIVERED UPON EXCHANGE OR REGISTRATION OF TRANSFER OF CONVERTIBLE PREFERRED STOCK Re: 7 1/4% Junior Convertible Preferred Stock Due 2007 (the "Convertible Preferred Stock") of IXC Communications, Inc. (the "Company") This Certificate relates to ____ shares of Convertible Preferred Stock held in [ ] */ book-entry or [ ] */ definitive form by _______________ (the "Transferor"). The Transferor*: [ ] has requested the Transfer Agent by written order to deliver in exchange for its beneficial interest in the Convertible Preferred Stock held by the depository shares of Convertible Preferred Stock in definitive, registered form equal to its beneficial interest in such Convertible Preferred Stock (or the portion thereof indicated above); or [ ] has requested the Transfer Agent by written order to exchange or register the transfer of Convertible Preferred Stock. In connection with such request and in respect of such Convertible Preferred Stock, the Transferor does hereby certify that the Transferor is familiar with the Certificate of Designation relating to the above captioned Convertible Preferred Stock and that the transfer of this Convertible Preferred Stock does not require registration under the Securities Act of 1933 (the "Securities Act") because */: [ ] Such Convertible Preferred Stock is being acquired for the Transferor's own account without transfer. [ ] Such Convertible Preferred Stock is being transferred to the Company. [ ] Such Convertible Preferred Stock is being transferred (i) to a qualified institutional buyer (as defined in Rule 144A under the Securities Act), in reliance on Rule 144A or (ii) pursuant to an exemption from registration in accordance with Rule 904 under the Securities Act (and, in the case of clause (ii), based on an opinion of counsel if the Company so requests and together __________________________________ */Please check applicable box. 75 with a certification in substantially the form of Exhibit E to the Certificate of Designation). [ ] Such Convertible Preferred Stock is being transferred to an accredited investor within the meaning of Rule 501(a)(1), (2), (3), (4), (5), (6) or (7) under the Securities Act pursuant to a private placement exemption from the registration requirements of the Securities Act (together with a certification in substantially the form of Exhibit D to the Certificate of Designation). [ ] Such Convertible Preferred Stock is being transferred in reliance on and in compliance with another exemption from the registration requirements of the Securities Act (and based on an opinion of counsel if the Company so requests). ------------------------------- [INSERT NAME OF TRANSFEROR] Date: By ------------------------------- ------------------------------- 2 76 EXHIBIT D FORM OF CERTIFICATE TO BE DELIVERED BY ACCREDITED INVESTORS _____________, _____ ChaseMellon Shareholder Services, L.L.C. Attention: [ ] Ladies and Gentlemen: In connection with our proposed purchase of certain 7 1/4% Junior Convertible Preferred Stock Due 2007 (the "Convertible Preferred Stock"), of IXC Communications, Inc., a Delaware corporation (the "Company"), we represent that: (i) we are an "accredited investor" within the meaning of Rule 501(a)(1),(2),(3),(4),(5),(6) or (7) under the Securities Act of 1933 (the "Securities Act") (an "Accredited Investor"), or an entity in which all of the equity owners are Accredited Investors; (ii) any purchase of Convertible Preferred Stock will be for our own account or for the account of one or more other Accredited Investors as to which we exercise sole investment discretion; (iii) we have such knowledge and experience in financial and business matters that we are capable of evaluating the merits and risks of purchasing Convertible Preferred Stock and we and any accounts for which we are acting are able to bear the economic risks of our or their investment; (iv) we are not acquiring Convertible Preferred Stock with a view to any distribution thereof in a transaction that would violate the Securities Act or the securities laws of any State of the United States or any other applicable jurisdiction; provided that the disposition of our property and the property of any accounts for which we are acting as fiduciary shall remain at all times without our control; and (v) we acknowledge that we have had access to such financial and other information, and have been afforded the opportunity to ask such questions of representatives of the Company and receive answers 77 thereto, as we deem necessary in connection with our decision to purchase Convertible Preferred Stock. We understand that the Convertible Preferred Stock has not been registered under the Securities Act, and we agree, on our own behalf and on behalf of each account for which we acquire any Convertible Preferred Stock, that such Convertible Preferred Stock may be offered, resold, pledged or otherwise transferred only (i) to a person whom we reasonably believe to be a qualified institutional buyer (as defined in Rule 144A under the Securities Act) in a transaction meeting the requirements of Rule 144A, in a transaction meeting the requirements of Rule 144 under the Securities Act, outside the United States to a foreign person in a transaction meeting the requirements of Rule 904 under the Securities Act (and, unless such transfer occurs in a transaction meeting the requirements of Rule 144A, based upon an opinion of counsel, if the Company so requests), (ii) to the Company or (iii) pursuant to an effective registration statement, and, in each case, in accordance with any applicable securities laws of any State of the United States or any other applicable jurisdiction. We understand that the registrar will not be required to accept for registration of transfer any shares of Convertible Preferred Stock, except upon presentation of evidence satisfactory to the Company that the foregoing restrictions on transfer have been complied with. We further understand that the Convertible Preferred Stock purchased by us will bear a legend reflecting the substance of this paragraph. We further agree to provide to any person acquiring any of the Convertible Preferred Stock from us a notice advising such person that resales of the Convertible Preferred Stock are restricted as stated herein. We acknowledge that you, the Company and others will rely upon our confirmations, acknowledgements and agreements set forth herein, and we agree to notify you promptly in writing if any of our representations or warranties herein ceases to be accurate and complete. 2 78 THIS LETTER SHALL BE GOVERNED BY, AND CONSTRUED IN ACCORDANCE WITH, THE LAWS OF THE STATE OF NEW YORK. Very truly yours, ------------------------------- (Name of Transferee) By: --------------------------- Name: Title: Address: 3 79 EXHIBIT E FORM OF CERTIFICATE TO BE DELIVERED IN CONNECTION WITH TRANSFERS PURSUANT TO REGULATION S __________, ____ ChaseMellon Shareholder Services, L.L.C. Attention: [ ] Ladies and Gentlemen: In connection with our proposed sale of certain 7 1/4% Junior Convertible Preferred Stock Due 2007 (the "Convertible Preferred Stock") of IXC Communications, Inc., a Delaware corporation ("the "Company"), we represent that: (i) the offer of the Convertible Preferred Stock was not made to a person in the United States; (ii) at the time the buy order was originated, the transferee was outside the United States or we and any person acting on our behalf reasonably believed that the transferee was outside the United States; (iii) no directed selling efforts have been made by us in the United States in contravention of the requirements of Rule 903(b) or Rule 904(b) of Regulation S under the Securities Act of 1933 (the "Securities Act"), as applicable; and (iv) the transaction is not part of a plan or scheme by us to evade the registration requirements of the Securities Act. You and the Company are entitled to rely upon this letter and you are irrevocably authorized to produce this letter or a copy hereof to any interested party in any administrative or legal proceedings or official inquiry with 80 respect to the matters covered hereby. Terms used in this certificate have the meanings set forth in Regulation S. Very truly yours, ---------------------------------- (Name of Transferor) By: ------------------------------- Name: Title: Address: 2 EX-4.15 3 REGISTRATION RIGHTS AGREEMENT DATED JULY 8, 1997 1 EXHIBIT 4.15 REGISTRATION RIGHTS AGREEMENT This REGISTRATION RIGHTS AGREEMENT (this "Agreement") is made and entered into as of this 8th day of July 1997, by and between IXC Communications, Inc., a Delaware corporation (the "Company"), and each of the shareholders listed on the signature page hereof: William G. Rodi, Gordon Hutchins, Jr. and William F. Linsmeier (collectively, the "Shareholders"). R E C I T A L S A. The Company, IXC Long Distance, Inc., a Delaware corporation ("IXC-LD"), the Shareholders, Telecom One, Inc., a Delaware corporation ("Telecom One"), and IXC-Telecom One Acquisition Corp., a Delaware corporation, have entered into a Stock Acquisition Agreement and Plan of Merger dated January 10, 1997 (the "Acquisition Agreement") pursuant to which IXC-LD, a wholly owned subsidiary of IXC, is acquiring from the Shareholders all of the issued and outstanding shares of capital stock of Telecom One (the "Telecom One Stock"). B. Pursuant to the terms of the Acquisition Agreement, the Company is obligated to issue to the Shareholders a number of shares of common stock, $.01 par value, of the Company (the "IXC Shares") as part of the consideration for the Telecom One Stock purchased by the Company, and the terms of the Acquisition Agreement require the Company to provide the Shareholders certain registration rights with respect to the IXC Shares. C. The Company and the Shareholders desire to enter into this Agreement which provides registration rights with respect to the Initial Share Amount, as such term is defined in the Acquisition Agreement. A G R E E M E N T In consideration of the foregoing recitals and the mutual covenants and conditions contained herein, the parties, intending to be legally bound, agree as follows: ARTICLE 1 DEFINITIONS 1.1 Certain Defined Terms. For purposes of this Agreement, the following terms shall have the following meanings: "Act" shall mean the Securities Act of 1933, as amended. "Commission" shall mean the Securities and Exchange Commission or any other federal agency at the time administering the Act. 2 "Holder" shall mean the Shareholders and any person beneficially owning Registerable Securities through permitted assignment thereof in accordance with Article 5, below. "Registerable Securities" for purposes of this Agreement, shall mean the IXC Shares representing the Initial Share Amount (and not the Final Share Amount) and any shares of the Company's common stock issued as a dividend or other distribution with respect to, or in exchange for or in replacement of the Initial Share Amount, excluding any Registerable Securities sold by a person in a transaction in which its, his or her rights under this Agreement are not assigned; provided further that shares which would otherwise constitute Registerable Securities shall cease to be so once they have been sold to the public. "Register," "registered" and "registration" refer to a registration effected by preparing and filing a registration statement in compliance with the Act and the declaration or ordering of effectiveness of such registration statement. 1.2 Other Defined Terms. All other capitalized terms used herein but which are not otherwise defined shall have the meanings given to them in the Acquisition Agreement. ARTICLE 2 SHELF REGISTRATION 2.1 Shelf Registration. On or before July 31, 1997 or 30 days after the Actual Closing Date, whichever is later, (such date is referred to as the "Initial Filing Date"), the Company shall prepare and file with the Commission, a registration statement on any appropriate form under the Act for an offering to be made on a continuous basis covering all of the Registerable Securities (the "Shelf Registration"). The Company shall use commercially reasonable efforts to cause the Shelf Registration to become effective under the Act on or about the date 45 days following the Initial Filing Date and, subject to Permitted Interruptions and/or Necessary Interruptions, the Company shall use its best efforts to keep the Shelf Registration continuously effective for the lesser of (a) a period of two years from the date on which the Shelf Registration becomes effective under the Act (the "Two Year Period"), (b) a period ending on the date upon which all Registerable Securities covered by the Shelf Registration have been sold, (c) a period ending on the date after which restrictions on sales of securities by persons other than affiliates pursuant to Commission Rule 144 (or any successor provision) terminate, or (d) a period ending on the date after which the Holders no longer own any of the Registerable Securities. The Company shall also, subject to Permitted Interruptions and/or Necessary Interruptions, supplement or make amendments to the Shelf Registration if required by the rules, regulations or instructions applicable to the registration form used by the Company or if otherwise required by the Act. Each of the Holders agrees to provide the Company with at least five business days notice prior to selling any Registrable Securities while the Shelf Registration remains effective. 2 3 2.2 Limitations on Rights. The Company shall not be required to prepare and file a registration statement with respect to the Registerable Securities pursuant to Section 2.1, above, which is effected more than two years after the date of this Agreement. ARTICLE 3 REGISTRATION PROCEDURES 3.1 General. If and when the Company is required by the provisions of this Agreement to effect, or use its best efforts to effect, the registration of shares of Registerable Securities, the Company shall: (a) Subject to Permitted Interruptions and/or Necessary Interruptions, prepare and file with the Commission, within the time period specified herein, a registration statement with respect to such shares and use its best efforts to cause such registration statement to become and remain effective for the periods provided herein; (b) Subject to Permitted Interruptions and/or Necessary Interruptions, prepare and file with the Commission such amendments and post-effective amendments to each registration statement as may be necessary to keep such registration statement continuously effective for the applicable period; and cause the related prospectus to be supplemented by any required prospectus supplement; (c) Use its best efforts to notify the Holders promptly (i) when a prospectus or any prospectus supplement or post-effective amendment related to such Registerable Securities has been filed, and, with respect to Registerable Securities, when the same has become effective, (ii) of the receipt of any comments from the Commission, (iii) of any request by the Commission for amendments or supplements to a registration statement or related prospectus or for additional information, (iv) of the issuance by the Commission of any stop order suspending the effectiveness of a registration statement of the initiation of any proceeding for that purpose, (v) of the receipt by the Company of any notification with respect to the suspension of the qualification or exemption from qualification of any of the Registerable Securities for sale in any jurisdiction of the United States of America or the initiation or threatening of any proceeding for such purpose, (vi) of the happening of any event (the nature and pendency of which need not be disclosed during a Permitted Interruption and/or Necessary Interruption) which makes any statement made in such registration statement or related prospectus or any document incorporated or deemed to be incorporated therein by reference untrue or which requires the making of changes in a registration statement or related prospectus so that such documents will not contain any untrue statement of material fact or omit to state any material fact required to be stated therein or necessary to make the statements therein, in light of the circumstances under which they were made, not misleading, and (vii) of the Company's reasonable determination that a post-effective amendment to a registration statement would be appropriate; 3 4 (d) Use its best efforts to obtain the withdrawal of any order suspending the effectiveness of a registration statement, or the lifting of any suspension of the qualification (or exemption from qualification) of any of the Registerable Securities for sale in any jurisdiction of the United States of America, at the earliest possible moment; (e) If reasonably requested by any Holder of Registerable Securities covered by a registration statement, (i) promptly incorporate in a prospectus supplement or post-effective amendment such information as such Holder reasonably requests to be included therein or as may be required by applicable law, (ii) make all required filings of such prospectus supplement or such post-effective amendment as soon as the Company has received notification of the matters to be incorporated in such prospectus supplement or post-effective amendment, and (iii) supplement or make amendments to any registration statement if reasonably requested by any Holder of Registerable Securities covered by such registrations statement or as may be required by applicable law; (f) Furnish to the Holders of Registerable Securities covered by the registration statement, without charge, at least one signed copy of the registration statement or statements and any post-effective amendment thereto, including financial statements and schedules, all documents incorporated therein by reference and all exhibits (including those previously furnished or incorporated by reference), at the earliest practicable time under the circumstances after the filing of such document; (g) Deliver to each Holder of Registerable Securities covered by a registration statement, without charge, as many copies of the prospectus or prospectuses (including each preliminary prospectus) and any amendment or supplement thereto as such person may reasonably request; the Company consents to the use of such prospectus or any amendment or supplement thereto by each of such Holders in connection with the offering and sale of Registerable Securities covered by such prospectus or any amendment or supplement thereto; (h) Prior to any public offering of Registerable Securities, to use its best efforts to register or qualify or cooperate with the Holders of Registerable Securities in connection with the registration or qualification (or exemption from such registration or qualification) of such Registerable Securities for offer and sale under the securities or blue sky laws of such state or local jurisdictions as any seller reasonably requests in writing; subject to the provisions herein regarding Permitted Interruptions and/or Necessary Interruptions, keep such registration or qualification (or exemption therefrom) effective during the period such registration statement is required to be kept effective and do any and all other acts or things necessary or advisable to enable the disposition in such jurisdiction of the Registerable Securities covered by the applicable registration statement; provided, however, the Company shall not be required to (i) qualify generally to do business in any jurisdiction where it is not then so qualified, (ii) take any action which could subject it to general service of process in any such jurisdiction where it is not then so subject, or (iii) subject itself to taxation in any such jurisdiction; 4 5 (i) Cooperate with the selling Holders of Registerable Securities to facilitate the timely preparation and delivery of certificates representing Registerable Securities to be sold, which certificates shall not bear any restrictive legends; (j) Subject to Permitted Interruptions and/or Necessary Interruptions, cause the Registerable Securities covered by the applicable registration statement to be registered with or approved by such other federal, state and local governmental regulatory agencies or authorities in the United States as may be necessary to enable the seller or sellers thereof to consummate the disposition of such Registerable Securities; and (k) Subject to Permitted Interruptions and/or Necessary Interruptions, upon the occurrence of any event contemplated by Section 3(c)(iii), 3(c)(vi) or 3(c)(vii), above, as promptly as practicable thereafter, prepare and file with the Commission a supplement or post-effective amendment to the applicable registration statement or a supplement to the related prospectus of any document incorporated therein by reference or file any other required document so that, as thereafter delivered to the purchasers of the Registerable Securities being sold thereunder, such prospectus will not contain an untrue statement of a material fact or omit to state a material fact required to be stated therein or necessary to make the statements therein, in light of the circumstances under which they were made, not misleading. 3.2 Registration Expenses. Except as provided below, all of the expenses incurred by the Company in effecting any registration requested pursuant to Section 2.1, above, including, without limitation, all registration and filing fees, printing expenses, expenses of compliance with Blue Sky laws (including, without limitation, fees and disbursements of underwriters counsel relating thereto), fees and disbursements of counsel for the Company, and expenses of any audits incidental to or required by any such registration ("Registration Expenses") shall be paid by the Company. In either event, notwithstanding anything in this Section 3.2 to the contrary, the Company shall have no obligation to pay or otherwise bear (a) any underwriting discounts or brokerage fees or commissions relating to the sale of Registerable Securities by the Holders, or (b) any Registration Expenses if the payment of such expenses by the Company is prohibited by the laws of a state in which such offering is qualified and only to the extent so prohibited, or (c) any expenses of any compliance with Blue Sky laws which pertains only to an individual Holder, or (d) any fees and disbursements of counsel for the Holders. ARTICLE 4 INDEMNIFICATION 4.1 Indemnification by the Company. The Company will indemnify, hold harmless and defend each Holder, its officers, directors, partners, legal counsel and accountants, and each person who controls a Holder within the meaning of Section 15 of the Act, against any and all expenses, claims, losses, damages and liabilities (or actions in 5 6 respect thereof), including any of the foregoing incurred in settlement of any litigation, commenced or threatened, arising out of or based on any untrue statement (or alleged untrue statement) of a material fact contained in any registration statement, prospectus, offering circular or other document, or any amendment or supplement thereof, incident to any registration or qualification of the Registrable Securities, or which arise out of or are based on any omission (or alleged omission) to state therein a material fact required to be stated therein or necessary to make the statements therein, in light of the circumstances in which they were made, not misleading, or any violation by the Company of any rule or regulation promulgated under the Act or any state securities laws applicable to the Company and relating to action or inaction required of the Company in connection with any such registration, qualification or compliance, and will reimburse each such indemnified party for any legal and any other expenses reasonably incurred by them in connection with investigating, preparing or defending any such claim, loss, damage, liability or action. The Company also shall indemnify any underwriter of the Registrable Securities, their officers, directors, partners, members and agents and each person who controls such underwriters on substantially the same basis as that of the indemnification of the Holders provided in this Section 4.1. The indemnity agreement contained in this Section 4.1 shall not apply to amounts paid in settlement of any such loss, claim, damage or liability or any action in respect thereof if such settlement is effected without the consent of the Company, which consent shall not be unreasonably withheld, nor shall the Company be liable to any Holder or its officers, directors, partners, members or agents in any such case for any loss, claim, damage, liability or any action in respect thereof to the extent that it arises solely from or is based solely upon and is in conformity with written information relating to such Holder furnished expressly for use in connection with such registration by such Holder or its agents, nor shall the Company be liable to any Holder for any such loss, claim, damage or liability or any action in respect thereof to the extent it arises solely from or is based solely upon (a) any untrue statement or alleged untrue statement of a material fact contained in any registration statement or prospectus relating to the Registrable Securities delivered by such Holder after the Company had provided written notice to such Holder that such registration statement or prospectus contained such untrue statement or alleged untrue statement of a material fact, (b) any omission or alleged omission to state therein a material fact required to be stated therein or necessary to make the statements therein not misleading after the Company had provided written notice to such Holder that such registration statement or prospectus contained such omission or alleged omission, or (c) the failure of such Holder to deliver any preliminary or final prospectus, or any amendments or supplements thereto, required under applicable securities laws, including the Act, to be so delivered, provided that a sufficient number of copies thereof had been timely provided by the Company to such Holder. 4.2 Indemnification by the Holders. Each Holder will, if Registrable Securities held by such Holder are included in the securities as to which such registration, qualification or compliance is being effected, indemnify the Company, and each of its 6 7 officers, directors, legal counsel and accountants, and each person who controls the Company within the meaning of Section 15 of the Act, against all claims, losses, damages and liabilities (or actions in respect thereof) arising out of or based on any untrue statement (or alleged untrue statement) of a material fact contained in any such registration statement, prospectus, offering circular or other document, or any omission (or alleged omission) to state therein a material fact required to be stated therein or necessary to make the statements therein not misleading, or any violation by the Holder of any rule or regulation promulgated under the Act or any state securities laws applicable to the Holder and relating to action or inaction required by the Holder in connection with any such registration, qualification or compliance, and will reimburse each such indemnified person for any legal or any other expenses reasonably incurred in connection with investigating or defending any such claim, loss, damage, liability or action, in each case to the extent, but only to the extent, that such untrue statement (or alleged omission) is made in such registration statement, prospectus, offering circular or other document in reliance upon and in conformity with written information furnished to the Company by an instrument duly executed by or on behalf of such Holder and stated to be specifically for use therein. Each Holder shall also indemnify and hold harmless any underwriter of the Registrable Securities, their officers, directors, partners, members and agents and each person who controls such underwriters on substantially the same basis as that of the indemnification of the Company provided in this Section 4.2; provided, however, that in no event shall any indemnity obligation under this Section 4.2 exceed the dollar amount of the net proceeds actually received by such Holder from the sale of Registrable Securities which gave rise to such indemnification obligations under such registration statement or prospectus. 4.3 Indemnification Procedures. Each person to be indemnified pursuant to this Article 4 (the "Indemnified Party") will, promptly after its receipt of written notice of the commencement of any action against such Indemnified Party in respect of which indemnity may be sought from an indemnifying person under this Article 4 (the "Indemnifying Party") notify the Indemnifying Party in writing of the commencement thereof, provided, however, that the failure of any person to give notice as provided herein shall not relieve the Indemnifying Party of its obligations under this Agreement except to the extent that such Indemnifying Party is actually materially and adversely prejudiced by such failure to give notice. If any such action shall be brought against any Indemnified Party and it shall notify an Indemnifying Party of the commencement thereof, the Indemnifying Party will be entitled to participate therein and, to the extent it may desire, jointly with any other Indemnifying Party similarly notified, to assume the defense thereof with counsel satisfactory to such Indemnified Party, and after notice from the Indemnifying Party to such Indemnified Party of its election so to assume the defense thereof, the Indemnifying Party will not be liable to such Indemnified Party under this Article 4 for any legal or other expenses subsequently incurred by such Indemnified Party in connection with the defense thereof other than reasonable costs of investigation unless (a) the Indemnified Party shall have employed counsel in an action in which the Indemnified Party and Indemnifying Party are both defendants and there is a conflict of interest between such parties that would prevent counsel from adequately representing both parties, (b) the Indemnifying Party shall not have 7 8 employed counsel satisfactory within the exercise of reasonable judgment of the Indemnified Party to represent the Indemnified Party within a reasonable time after the notice of the commencement of the action, or (c) the Indemnifying Party has authorized the employment of counsel for the Indemnified Party at the expense of the Indemnifying Party. The undertaking contained in this Section 4.3 shall be in addition to any liabilities which the Indemnifying Party may have pursuant to law. 4.4 Contribution Obligations. If the indemnification provided for in this Article 4 is held by a court of competent jurisdiction to be unavailable to an Indemnified Party with respect to any loss, liability, claim, damage or expense referred to therein, then the Indemnifying Party, in lieu of indemnifying such Indemnified Party thereunder, shall contribute to the amount paid or payable by such Indemnified Party as a result of such loss, liability, claim, damage or expense in such proportion as is appropriate to reflect the relative fault of the Indemnifying Party on the one hand and of the Indemnified Party on the other in connection with the statements, actions or omissions which resulted in such loss, liability, claim, damage or expense as well as any other relevant equitable considerations. The relative fault of the Indemnifying Party and of the Indemnified Party shall be determined by reference to, among other things, whether the untrue or alleged untrue statement of a material fact or the omission to state a material fact relates to information supplied by the Indemnifying Party or by the Indemnified Party and the parties' relative intent, knowledge, access to information and opportunity to correct or prevent such statement or omission. ARTICLE 5 TRANSFER OF REGISTRATION RIGHTS The rights to cause the Company to register securities granted to a Holder under Articles 2, above, may be transferred or assigned by such Holder to a transferee or assignee in connection with any transfer or assignment of Registerable Securities, provided that: (a) such transfer or assignment may otherwise be effected in accordance with applicable securities laws, (b) prompt written notice of such transfer or assignment is given to the Company, and (c) such transferee or assignee expressly agrees in a writing delivered to the Company to be bound by the provisions of this Agreement. 8 9 ARTICLE 6 DISCONTINUANCE OF DISPOSITION OF REGISTERABLE SECURITIES 6.1 Certain Discontinuances. Each Holder of Registrable Securities agrees by acquisition of such Registrable Securities that, upon receipt of any notice from the Company of the happening of any event of the kind described in Section 3(c)(iii), 3(c)(iv), 3(c)(v), 3(c)(vi) or 3(c)(vii), above, or a Permitted Interruption and/or Necessary Interruption, such Holder will forthwith discontinue disposition of any Registrable Securities covered by a registration statement or prospectus until such Holder's receipt of the copies of the supplemented or amended prospectus contemplated by Section 3(k), above, or until it is advised in writing (the "Advice") by the Company that the use of the applicable prospectus may be resumed, and has received copies of any additional or supplemental filings which are incorporated or deemed to be incorporated by reference in such prospectus. 6.2 Permitted Interruptions and Necessary Interruptions. Anything in this Agreement to the contrary notwithstanding, it is understood and agreed that the Company shall not be required to prepare or file a registration statement, amendment or post-effective amendment thereto or prospectus supplement or to supplement or amend any registration statement or otherwise facilitate the resale of Registrable Securities, and it shall be free voluntarily to take or omit to take any other action that would result in the impracticality of any such filing, supplement or amendment if such action is taken or omitted to be taken by the Company in good faith and for valid business reasons, including, without limitation, matters relating to acquisitions or divestitures, so long as the Company shall, as promptly as practicable thereafter, make such filing, supplement or amendment and, so long as the Company shall as promptly as is practicable thereafter, comply with the requirements of Section 3(k), above, if applicable (any period described in this Section 6.2 (other than a Necessary Interruption (defined below)) during which Holders of Registrable Securities are not able to sell such Registrable Securities under a registration statement is herein called a "Permitted Interruption"). The period between Permitted Interruptions shall not be less than 30 days; provided, however, that if any event occurs which would make the Registration Statement then in effect materially incorrect or misleading, the Company shall not be required to keep the Registration Statement effective as of such date and continuing for five business days thereafter and the Holders of Registrable Securities shall not sell such securities during such period (each such period is referred to as a "Necessary Interruption"). The Company hereby agrees to notify each of the Holders of Registrable Securities of the occurrence of, and the termination of, each Permitted Interruption and/or Necessary Interruption (the nature and pendency of which need not be disclosed during such Permitted Interruption and/or Necessary Interruption). Permitted Interruptions shall not extend beyond 45 days during the first year of the Two Year Period and 60 days during the second year of the Two Year Period. Notwithstanding the foregoing, there shall be no Permitted Interruptions during the 30-day period immediately following the date the Shelf Registration initially becomes effective. 9 10 6.3 Standoff or Lock-Up Agreement. Each Holder of Registerable Securities agrees in connection with any firmly underwritten public offering of the Company's common stock that, upon request of the Company or the underwriters managing any underwritten offering of the Company's securities, such Holder shall not sell, make any short sale of, loan, grant any option for the purchase of, or otherwise dispose of any Registerable Securities (other than those included in the registration) without the prior written consent of the Company or such underwriters, as the case may be, during the 14 days prior to, and during the 90-day period (the "Lock-up Period") beginning on, the effective date of the registration statement relating to such offering (except as part of such registration statement). In order to enforce the foregoing covenant, the Company may impose stop-transfer instructions with respect to the Registerable Securities until the end of such period. In the event any of Ralph J. Swett, John J. Willingham, Kenneth F. Hinther or John R. Fleming have entered into a lock-up agreement with such underwriters relating to such offering with a lock-up period longer than one day and shorter than 90 days, then such shorter period shall be the Lock-up Period. The Company shall not be required to keep any registration statement effective during any Lock-up Period. ARTICLE 7 TERMINATION OF REGISTRATION RIGHTS Notwithstanding any provision in this Agreement to the contrary, in no event shall any Holder be entitled to request registration or inclusion in any registration pursuant to Article 2, above, after the date on which all Registrable Securities held by such Holder may be sold under Commission Rule 144 during any 90-day period. ARTICLE 8 MISCELLANEOUS 8.1 Amendment. Any modification, amendment or waiver of this Agreement or any provision hereof shall be effective only if in writing and executed by the Holders of at least a majority of the Registrable Securities and the Company. 8.2 Governing Law. This Agreement shall be governed in all respects by the laws of the State of California without regard to its conflicts of laws principles. 8.3 Successors and Assigns. Except as otherwise expressly provided herein, the provisions hereof shall inure to the benefit of, and be binding upon, the successors, permitted assigns, heirs, executors and administrators of the parties hereto. 8.4 Notices. All notices and other communications required or permitted hereunder shall be made in accordance with the Acquisition Agreement. 10 11 8.5 Severability. If any provision of this Agreement shall be judicially determined to be invalid, illegal or unenforceable, the validity, legality and enforceability of the remaining provisions of this Agreement shall not in any way be affected or impaired thereby. 8.6 Entire Agreement. This Agreement, the Registration Rights Agreement with respect to the Final Share Amount and the Acquisition Agreement constitute the full and entire understanding and agreement between the parties with regard to the subject matter hereof. 8.7 Counterparts. This Agreement may be executed in any number of counterparts, each of which shall be an original, but all of which together shall constitute one instrument. [SIGNATURES ON FOLLOWING PAGE] 11 12 IN WITNESS WHEREOF, each of the parties has executed this Agreement as of the date first set forth above. IXC COMMUNICATIONS, INC., a Delaware corporation By: /s/ James F. Guthrie --------------------------------- Its: Executive Vice President THE "SHAREHOLDERS": /s/ William G. Rodi - ------------------------------------- William G. Rodi /s/ Gordon Hutchins, Jr. - ------------------------------------- Gordon Hutchins, Jr. /s/ William F. Linsmeier - ------------------------------------- William F. Linsmeier 12 EX-4.16 4 REGISTRATION RIGHT AGREEMENT DATED JULY 8, 1997 1 EXHIBIT 4.16 REGISTRATION RIGHTS AGREEMENT This REGISTRATION RIGHTS AGREEMENT (this "Agreement") is made and entered into as of this 8th day of July 1997, by and between IXC Communications, Inc., a Delaware corporation (the "Company"), and each of the shareholders listed on the signature page hereof: William G. Rodi, Gordon Hutchins, Jr. and William F. Linsmeier (collectively, the "Shareholders"). R E C I T A L S A. The Company, IXC Long Distance, Inc., a Delaware corporation ("IXC-LD"), the Shareholders, Telecom One, Inc., a Delaware corporation ("Telecom One"), and IXC-Telecom One Acquisition Corp., a Delaware corporation, have entered into a Stock Acquisition Agreement and Plan of Merger dated January 10, 1997 (the "Acquisition Agreement") pursuant to which IXC-LD, a wholly owned subsidiary of IXC, is acquiring from the Shareholders all of the issued and outstanding shares of capital stock of Telecom One (the "Telecom One Stock"). B. Pursuant to the terms of the Acquisition Agreement, the Company is obligated to issue to the Shareholders a number of shares of common stock, $.01 par value, of the Company (the "IXC Shares") as part of the consideration for the Telecom One Stock purchased by the Company, and the terms of the Acquisition Agreement require the Company to provide the Shareholders certain registration rights with respect to the IXC Shares. C. The Company and the Shareholders desire to enter into this Agreement which provides registration rights with respect to the Final Share Amount, as such term is defined in the Acquisition Agreement. A G R E E M E N T In consideration of the foregoing recitals and the mutual covenants and conditions contained herein, the parties, intending to be legally bound, agree as follows: ARTICLE 1 DEFINITIONS 1.1 Certain Defined Terms. For purposes of this Agreement, the following terms shall have the following meanings: "Act" shall mean the Securities Act of 1933, as amended. "Commission" shall mean the Securities and Exchange Commission or any other federal agency at the time administering the Act. 2 "Holder" shall mean the Shareholders and any person beneficially owning Registerable Securities through permitted assignment thereof in accordance with Article 5, below. "Registerable Securities" for purposes of this Agreement, shall mean the IXC Shares representing the Final Share Amount (and not the Initial Share Amount) and any shares of the Company's common stock issued as a dividend or other distribution with respect to, or in exchange for or in replacement of the Final Share Amount, excluding any Registerable Securities sold by a person in a transaction in which its, his or her rights under this Agreement are not assigned; provided further that shares which would otherwise constitute Registerable Securities shall cease to be so once they have been sold to the public. "Register," "registered" and "registration" refer to a registration effected by preparing and filing a registration statement in compliance with the Act and the declaration or ordering of effectiveness of such registration statement. 1.2 Other Defined Terms. All other capitalized terms used herein but which are not otherwise defined shall have the meanings given to them in the Acquisition Agreement. ARTICLE 2 SHELF REGISTRATION 2.1 Shelf Registration. Within 30 days after the payment of the Final Share Amount to the Stockholders, (such date is referred to as the "Second Filing Date"), the Company shall prepare and file with the Commission, a registration statement on any appropriate form under the Act for an offering to be made on a continuous basis covering all of the Registerable Securities (the "Shelf Registration"). The Company shall use commercially reasonable efforts to cause the Shelf Registration to become effective under the Act on or about the date 45 days following the Second Filing Date and, subject to Permitted Interruptions and/or Necessary Interruptions, the Company shall use its best efforts to keep the Shelf Registration continuously effective for the lesser of (a) a period of two years from the date on which the Shelf Registration becomes effective under the Act (the "Two Year Period"), (b) a period ending on the date upon which all Registerable Securities covered by the Shelf Registration have been sold, (c) a period ending on the date after which restrictions on sales of securities by persons other than affiliates pursuant to Commission Rule 144 (or any successor provision) terminate, or (d) a period ending on the date after which the Holders no longer own any of the Registerable Securities. The Company shall also, subject to Permitted Interruptions and/or Necessary Interruptions, supplement or make amendments to the Shelf Registration if required by the rules, regulations or instructions applicable to the registration form used by the Company or if otherwise required by the Act. Each of the Holders agrees to provide the Company with at least five business days notice prior to selling 2 3 any Registrable Securities into the public market while the Shelf Registration remains effective. 2.2 Limitations on Rights. The Company shall not be required to prepare and file a registration statement with respect to the Registerable Securities pursuant to Section 2.1, above, which is effected more than five years after the date of this Agreement. ARTICLE 3 REGISTRATION PROCEDURES 3.1 General. If and when the Company is required by the provisions of this Agreement to effect, or use its best efforts to effect, the registration of shares of Registerable Securities, the Company shall: (a) Subject to Permitted Interruptions and/or Necessary Interruptions, prepare and file with the Commission, within the time period specified herein, a registration statement with respect to such shares and use its best efforts to cause such registration statement to become and remain effective for the periods provided herein; (b) Subject to Permitted Interruptions and/or Necessary Interruptions, prepare and file with the Commission such amendments and post-effective amendments to each registration statement as may be necessary to keep such registration statement continuously effective for the applicable period; and cause the related prospectus to be supplemented by any required prospectus supplement; (c) Use its best efforts to notify the Holders promptly (i) when a prospectus or any prospectus supplement or post-effective amendment related to such Registerable Securities has been filed, and, with respect to Registerable Securities, when the same has become effective, (ii) of the receipt of any comments from the Commission, (iii) of any request by the Commission for amendments or supplements to a registration statement or related prospectus or for additional information, (iv) of the issuance by the Commission of any stop order suspending the effectiveness of a registration statement of the initiation of any proceeding for that purpose, (v) of the receipt by the Company of any notification with respect to the suspension of the qualification or exemption from qualification of any of the Registerable Securities for sale in any jurisdiction of the United States of America or the initiation or threatening of any proceeding for such purpose, (vi) of the happening of any event (the nature and pendency of which need not be disclosed during a Permitted Interruption and/or Necessary Interruption) which makes any statement made in such registration statement or related prospectus or any document incorporated or deemed to be incorporated therein by reference untrue or which requires the making of changes in a registration statement or related prospectus so that such documents will not contain any untrue statement of material fact or omit to state any material fact required to be stated therein or necessary to make the statements therein, in light of the circumstances under 3 4 which they were made, not misleading, and (vii) of the Company's reasonable determination that a post-effective amendment to a registration statement would be appropriate; (d) Use its best efforts to obtain the withdrawal of any order suspending the effectiveness of a registration statement, or the lifting of any suspension of the qualification (or exemption from qualification) of any of the Registerable Securities for sale in any jurisdiction of the United States of America, at the earliest possible moment; (e) If reasonably requested by any Holder of Registerable Securities covered by a registration statement, (i) promptly incorporate in a prospectus supplement or post-effective amendment such information as such Holder reasonably requests to be included therein or as may be required by applicable law, (ii) make all required filings of such prospectus supplement or such post-effective amendment as soon as the Company has received notification of the matters to be incorporated in such prospectus supplement or post-effective amendment, and (iii) supplement or make amendments to any registration statement if reasonably requested by any Holder of Registerable Securities covered by such registrations statement or as may be required by applicable law; (f) Furnish to the Holders of Registerable Securities covered by the registration statement, without charge, at least one signed copy of the registration statement or statements and any post-effective amendment thereto, including financial statements and schedules, all documents incorporated therein by reference and all exhibits (including those previously furnished or incorporated by reference), at the earliest practicable time under the circumstances after the filing of such document; (g) Deliver to each Holder of Registerable Securities covered by a registration statement, without charge, as many copies of the prospectus or prospectuses (including each preliminary prospectus) and any amendment or supplement thereto as such person may reasonably request; the Company consents to the use of such prospectus or any amendment or supplement thereto by each of such Holders in connection with the offering and sale of Registerable Securities covered by such prospectus or any amendment or supplement thereto; (h) Prior to any public offering of Registerable Securities, to use its best efforts to register or qualify or cooperate with the Holders of Registerable Securities in connection with the registration or qualification (or exemption from such registration or qualification) of such Registerable Securities for offer and sale under the securities or blue sky laws of such state or local jurisdictions as any seller reasonably requests in writing; subject to the provisions herein regarding Permitted Interruptions and/or Necessary Interruptions, keep such registration or qualification (or exemption therefrom) effective during the period such registration statement is required to be kept effective and do any and all other acts or things necessary or advisable to enable the disposition in such jurisdiction of the Registerable Securities covered by the applicable registration statement; provided, however, the Company shall not be required to (i) qualify generally to do business in any 4 5 jurisdiction where it is not then so qualified, (ii) take any action which could subject it to general service of process in any such jurisdiction where it is not then so subject, or (iii) subject itself to taxation in any such jurisdiction; (i) Cooperate with the selling Holders of Registerable Securities to facilitate the timely preparation and delivery of certificates representing Registerable Securities to be sold, which certificates shall not bear any restrictive legends; (j) Subject to Permitted Interruptions and/or Necessary Interruptions, cause the Registerable Securities covered by the applicable registration statement to be registered with or approved by such other federal, state and local governmental regulatory agencies or authorities in the United States as may be necessary to enable the seller or sellers thereof to consummate the disposition of such Registerable Securities; and (k) Subject to Permitted Interruptions and/or Necessary Interruptions, upon the occurrence of any event contemplated by Section 3(c)(iii), 3(c)(vi) or 3(c)(vii), above, as promptly as practicable thereafter, prepare and file with the Commission a supplement or post-effective amendment to the applicable registration statement or a supplement to the related prospectus of any document incorporated therein by reference or file any other required document so that, as thereafter delivered to the purchasers of the Registerable Securities being sold thereunder, such prospectus will not contain an untrue statement of a material fact or omit to state a material fact required to be stated therein or necessary to make the statements therein, in light of the circumstances under which they were made, not misleading. 3.2 Registration Expenses. Except as provided below, all of the expenses incurred by the Company in effecting any registration requested pursuant to Section 2.1, above, including, without limitation, all registration and filing fees, printing expenses, expenses of compliance with Blue Sky laws (including, without limitation, fees and disbursements of underwriters counsel relating thereto), fees and disbursements of counsel for the Company, and expenses of any audits incidental to or required by any such registration ("Registration Expenses") shall be paid by the Company. In either event, notwithstanding anything in this Section 3.2 to the contrary, the Company shall have no obligation to pay or otherwise bear (a) any underwriting discounts or brokerage fees or commissions relating to the sale of Registerable Securities by the Holders, or (b) any Registration Expenses if the payment of such expenses by the Company is prohibited by the laws of a state in which such offering is qualified and only to the extent so prohibited, or (c) any expenses of any compliance with Blue Sky laws which pertains only to an individual Holder, or (d) any fees and disbursements of counsel for the Holders. 5 6 ARTICLE 4 INDEMNIFICATION 4.1 Indemnification by the Company. The Company will indemnify, hold harmless and defend each Holder, its officers, directors, partners, legal counsel and accountants, and each person who controls a Holder within the meaning of Section 15 of the Act, against any and all expenses, claims, losses, damages and liabilities (or actions in respect thereof), including any of the foregoing incurred in settlement of any litigation, commenced or threatened, arising out of or based on any untrue statement (or alleged untrue statement) of a material fact contained in any registration statement, prospectus, offering circular or other document, or any amendment or supplement thereof, incident to any registration or qualification of the Registrable Securities, or which arise out of or are based on any omission (or alleged omission) to state therein a material fact required to be stated therein or necessary to make the statements therein, in light of the circumstances in which they were made, not misleading, or any violation by the Company of any rule or regulation promulgated under the Act or any state securities laws applicable to the Company and relating to action or inaction required of the Company in connection with any such registration, qualification or compliance, and will reimburse each such indemnified party for any legal and any other expenses reasonably incurred by them in connection with investigating, preparing or defending any such claim, loss, damage, liability or action. The Company also shall indemnify any underwriter of the Registrable Securities, their officers, directors, partners, members and agents and each person who controls such underwriters on substantially the same basis as that of the indemnification of the Holders provided in this Section 4.1. The indemnity agreement contained in this Section 4.1 shall not apply to amounts paid in settlement of any such loss, claim, damage or liability or any action in respect thereof if such settlement is effected without the consent of the Company, which consent shall not be unreasonably withheld, nor shall the Company be liable to any Holder or its officers, directors, partners, members or agents in any such case for any loss, claim, damage, liability or any action in respect thereof to the extent that it arises solely from or is based solely upon and is in conformity with written information relating to such Holder furnished expressly for use in connection with such registration by such Holder or its agents, nor shall the Company be liable to any Holder for any such loss, claim, damage or liability or any action in respect thereof to the extent it arises solely from or is based solely upon (a) any untrue statement or alleged untrue statement of a material fact contained in any registration statement or prospectus relating to the Registrable Securities delivered by such Holder after the Company had provided written notice to such Holder that such registration statement or prospectus contained such untrue statement or alleged untrue statement of a material fact, (b) any omission or alleged omission to state therein a material fact required to be stated therein or necessary to make the statements therein not misleading after the Company had provided written notice to such Holder that such registration statement or prospectus contained such omission or alleged omission, or (c) the failure of such Holder to deliver any preliminary or final prospectus, or any amendments or supplements thereto, 6 7 required under applicable securities laws, including the Act, to be so delivered, provided that a sufficient number of copies thereof had been timely provided by the Company to such Holder. 4.2 Indemnification by the Holders. Each Holder will, if Registrable Securities held by such Holder are included in the securities as to which such registration, qualification or compliance is being effected, indemnify the Company, and each of its officers, directors, legal counsel and accountants, and each person who controls the Company within the meaning of Section 15 of the Act, against all claims, losses, damages and liabilities (or actions in respect thereof) arising out of or based on any untrue statement (or alleged untrue statement) of a material fact contained in any such registration statement, prospectus, offering circular or other document, or any omission (or alleged omission) to state therein a material fact required to be stated therein or necessary to make the statements therein not misleading, or any violation by the Holder of any rule or regulation promulgated under the Act or any state securities laws applicable to the Holder and relating to action or inaction required by the Holder in connection with any such registration, qualification or compliance, and will reimburse each such indemnified person for any legal or any other expenses reasonably incurred in connection with investigating or defending any such claim, loss, damage, liability or action, in each case to the extent, but only to the extent, that such untrue statement (or alleged omission) is made in such registration statement, prospectus, offering circular or other document in reliance upon and in conformity with written information furnished to the Company by an instrument duly executed by or on behalf of such Holder and stated to be specifically for use therein. Each Holder shall also indemnify and hold harmless any underwriter of the Registrable Securities, their officers, directors, partners, members and agents and each person who controls such underwriters on substantially the same basis as that of the indemnification of the Company provided in this Section 4.2; provided, however, that in no event shall any indemnity obligation under this Section 4.2 exceed the dollar amount of the net proceeds actually received by such Holder from the sale of Registrable Securities which gave rise to such indemnification obligations under such registration statement or prospectus. 4.3 Indemnification Procedures. Each person to be indemnified pursuant to this Article 4 (the "Indemnified Party") will, promptly after its receipt of written notice of the commencement of any action against such Indemnified Party in respect of which indemnity may be sought from an indemnifying person under this Article 4 (the "Indemnifying Party") notify the Indemnifying Party in writing of the commencement thereof, provided, however, that the failure of any person to give notice as provided herein shall not relieve the Indemnifying Party of its obligations under this Agreement except to the extent that such Indemnifying Party is actually materially and adversely prejudiced by such failure to give notice. If any such action shall be brought against any Indemnified Party and it shall notify an Indemnifying Party of the commencement thereof, the Indemnifying Party will be entitled to participate therein and, to the extent it may desire, jointly with any other Indemnifying Party similarly notified, to assume the defense thereof with counsel satisfactory to such Indemnified Party, and after notice from the Indemnifying Party to such Indemnified 7 8 Party of its election so to assume the defense thereof, the Indemnifying Party will not be liable to such Indemnified Party under this Article 4 for any legal or other expenses subsequently incurred by such Indemnified Party in connection with the defense thereof other than reasonable costs of investigation unless (a) the Indemnified Party shall have employed counsel in an action in which the Indemnified Party and Indemnifying Party are both defendants and there is a conflict of interest between such parties that would prevent counsel from adequately representing both parties, (b) the Indemnifying Party shall not have employed counsel satisfactory within the exercise of reasonable judgment of the Indemnified Party to represent the Indemnified Party within a reasonable time after the notice of the commencement of the action, or (c) the Indemnifying Party has authorized the employment of counsel for the Indemnified Party at the expense of the Indemnifying Party. The undertaking contained in this Section 4.3 shall be in addition to any liabilities which the Indemnifying Party may have pursuant to law. 4.4 Contribution Obligations. If the indemnification provided for in this Article 4 is held by a court of competent jurisdiction to be unavailable to an Indemnified Party with respect to any loss, liability, claim, damage or expense referred to therein, then the Indemnifying Party, in lieu of indemnifying such Indemnified Party thereunder, shall contribute to the amount paid or payable by such Indemnified Party as a result of such loss, liability, claim, damage or expense in such proportion as is appropriate to reflect the relative fault of the Indemnifying Party on the one hand and of the Indemnified Party on the other in connection with the statements, actions or omissions which resulted in such loss, liability, claim, damage or expense as well as any other relevant equitable considerations. The relative fault of the Indemnifying Party and of the Indemnified Party shall be determined by reference to, among other things, whether the untrue or alleged untrue statement of a material fact or the omission to state a material fact relates to information supplied by the Indemnifying Party or by the Indemnified Party and the parties' relative intent, knowledge, access to information and opportunity to correct or prevent such statement or omission. ARTICLE 5 TRANSFER OF REGISTRATION RIGHTS The rights to cause the Company to register securities granted to a Holder under Articles 2, above, may be transferred or assigned by such Holder to a transferee or assignee in connection with any transfer or assignment of Registerable Securities, provided that: (a) such transfer or assignment may otherwise be effected in accordance with applicable securities laws, (b) prompt written notice of such transfer or assignment is given to the Company, and (c) such transferee or assignee expressly agrees in a writing delivered to the Company to be bound by the provisions of this Agreement. 8 9 ARTICLE 6 DISCONTINUANCE OF DISPOSITION OF REGISTERABLE SECURITIES 6.1 Certain Discontinuances. Each Holder of Registrable Securities agrees by acquisition of such Registrable Securities that, upon receipt of any notice from the Company of the happening of any event of the kind described in Section 3(c)(iii), 3(c)(iv), 3(c)(v), 3(c)(vi) or 3(c)(vii), above, or a Permitted Interruption and/or Necessary Interruption, such Holder will forthwith discontinue disposition of any Registrable Securities covered by a registration statement or prospectus until such Holder's receipt of the copies of the supplemented or amended prospectus contemplated by Section 3(k), above, or until it is advised in writing (the "Advice") by the Company that the use of the applicable prospectus may be resumed, and has received copies of any additional or supplemental filings which are incorporated or deemed to be incorporated by reference in such prospectus. 6.2 Permitted Interruptions and Necessary Interruptions. Anything in this Agreement to the contrary notwithstanding, it is understood and agreed that the Company shall not be required to prepare or file a registration statement, amendment or post-effective amendment thereto or prospectus supplement or to supplement or amend any registration statement or otherwise facilitate the resale of Registrable Securities, and it shall be free voluntarily to take or omit to take any other action that would result in the impracticality of any such filing, supplement or amendment if such action is taken or omitted to be taken by the Company in good faith and for valid business reasons, including, without limitation, matters relating to acquisitions or divestitures, so long as the Company shall, as promptly as practicable thereafter, make such filing, supplement or amendment and, so long as the Company shall as promptly as is practicable thereafter, comply with the requirements of Section 3(k), above, if applicable (any period described in this Section 6.2 (other than a Necessary Interruption (defined below)) during which Holders of Registrable Securities are not able to sell such Registrable Securities under a registration statement is herein called a "Permitted Interruption"). The period between Permitted Interruptions shall not be less than 30 days; provided, however, that if any event occurs which would make the Registration Statement then in effect materially incorrect or misleading, the Company shall not be required to keep the Registration Statement effective as of such date and continuing for five business days thereafter and the Holders of Registrable Securities shall not sell such securities during such period (each such period is referred to as a "Necessary Interruption"). The Company hereby agrees to notify each of the Holders of Registrable Securities of the occurrence of, and the termination of, each Permitted Interruption and/or Necessary Interruption (the nature and pendency of which need not be disclosed during such Permitted Interruption and/or Necessary Interruption). Permitted Interruptions shall not extend beyond 45 days during the first year of the Two Year Period and 60 days during the second year of the Two Year Period. Notwithstanding the foregoing, there shall be no Permitted Interruptions during the 30-day period immediately following the date the Shelf Registration initially becomes effective. 9 10 6.3 Standoff or Lock-Up Agreement. Each Holder of Registerable Securities agrees in connection with any firmly underwritten public offering of the Company's common stock that, upon request of the Company or the underwriters managing any underwritten offering of the Company's securities, such Holder shall not sell, make any short sale of, loan, grant any option for the purchase of, or otherwise dispose of any Registerable Securities (other than those included in the registration) without the prior written consent of the Company or such underwriters, as the case may be, during the 14 days prior to, and during the 90-day period (the "Lock-up Period") beginning on, the effective date of the registration statement relating to such offering (except as part of such registration statement). In order to enforce the foregoing covenant, the Company may impose stop-transfer instructions with respect to the Registerable Securities until the end of such period. In the event any of Ralph J. Swett, John J. Willingham, Kenneth F. Hinther or John R. Fleming have entered into a lock-up agreement with such underwriters relating to such offering with a lock-up period longer than one day and shorter than 90 days, then such shorter period shall be the Lock-up Period. The Company shall not be required to keep any registration statement effective during any Lock-up Period. ARTICLE 7 TERMINATION OF REGISTRATION RIGHTS Notwithstanding any provision in this Agreement to the contrary, in no event shall any Holder be entitled to request registration or inclusion in any registration pursuant to Article 2, above, after the date on which all Registrable Securities held by such Holder may be sold under Commission Rule 144 during any 90-day period. ARTICLE 8 MISCELLANEOUS 8.1 Amendment. Any modification, amendment or waiver of this Agreement or any provision hereof shall be effective only if in writing and executed by the Holders of at least a majority of the Registrable Securities and the Company. 8.2 Governing Law. This Agreement shall be governed in all respects by the laws of the State of California without regard to its conflicts of laws principles. 8.3 Successors and Assigns. Except as otherwise expressly provided herein, the provisions hereof shall inure to the benefit of, and be binding upon, the successors, permitted assigns, heirs, executors and administrators of the parties hereto. 8.4 Notices. All notices and other communications required or permitted hereunder shall be made in accordance with the Acquisition Agreement. 10 11 8.5 Severability. If any provision of this Agreement shall be judicially determined to be invalid, illegal or unenforceable, the validity, legality and enforceability of the remaining provisions of this Agreement shall not in any way be affected or impaired thereby. 8.6 Entire Agreement. This Agreement, the Registration Rights Agreement with respect to the Initial Share Amount and the Acquisition Agreement constitute the full and entire understanding and agreement between the parties with regard to the subject matter hereof. 8.7 Counterparts. This Agreement may be executed in any number of counterparts, each of which shall be an original, but all of which together shall constitute one instrument. [SIGNATURES ON FOLLOWING PAGE] 11 12 IN WITNESS WHEREOF, each of the parties has executed this Agreement as of the date first set forth above. IXC COMMUNICATIONS, INC., a Delaware corporation By: /s/ James F. Guthrie --------------------------------- Its: Executive Vice President ----------------------------- THE "SHAREHOLDERS": /s/ William G. Rodi - ----------------------------------- William G. Rodi /s/ Gordon Hutchins, Jr. - ----------------------------------- Gordon Hutchins, Jr. /s/ William F. Linsmeier - ----------------------------------- William F. Linsmeier 12 EX-10.17 5 LEASE JATED JUNE 4, 1997 1 EXHIBIT 10.17 ******************** LEASE CITY VIEW CENTRE, AUSTIN, TEXAS ******************** BETWEEN IXC COMMUNICATIONS, INC., A DELAWARE CORPORATION (TENANT) AND CARRAMERICA REALTY, L.P. (LANDLORD) 2 TABLE OF CONTENTS
Page 1. Lease Agreement . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 1 2. Rent . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 1 A. Types of Rent . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 1 (1) Base Rent . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 2 (2) Operating Cost Share Rent . . . . . . . . . . . . . . . . . . . . . 2 (3) Tax Share Rent . . . . . . . . . . . . . . . . . . . . . . . . . . 2 (4) Additional Rent . . . . . . . . . . . . . . . . . . . . . . . . . . 2 (5) Rent . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 2 B. Payment of Operating Cost Share Rent and Tax Share Rent . . . . . . . . . . . . . . 2 (1) Payment of Estimated Operating Cost Share Rent and Tax Share Rent . . . . . . . . . . . . . . . . . . . . . . 2 (2) Correction of Operating Cost Share Rent . . . . . . . . . . . . . . 2 (3) Correction of Tax Share Rent . . . . . . . . . . . . . . . . . . . 3 C. Definitions . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 3 (1) Included Operating Costs. . . . . . . . . . . . . . . . . . . . . . 3 (2) Excluded Operating Costs . . . . . . . . . . . . . . . . . . . . . 3 (3) Taxes . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 5 (4) Lease Year . . . . . . . . . . . . . . . . . . . . . . . . . . . . 5 (5) Fiscal Year . . . . . . . . . . . . . . . . . . . . . . . . . . . . 5 D. Computation of Base Rent and Rent Adjustments . . . . . . . . . . . . . . . . . . . 5 (1) Prorations . . . . . . . . . . . . . . . . . . . . . . . . . . . . 5 (2) Default Interest . . . . . . . . . . . . . . . . . . . . . . . . . 6 (3) Rent Adjustments . . . . . . . . . . . . . . . . . . . . . . . . . 6 (4) Books and Records . . . . . . . . . . . . . . . . . . . . . . . . . 6 (5) Miscellaneous . . . . . . . . . . . . . . . . . . . . . . . . . . . 6 3. Preparation and Condition of Premises; Possession and Surrender of Premises . . . . . . . . 6 A. Condition of Premises . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 6 B. Tenant's Possession . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 6 C. Maintenance . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 7 D. Ownership of Improvements . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 7 E. Removal at Termination . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 7 4. Project Services . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 7 A. Heating and Air Conditioning . . . . . . . . . . . . . . . . . . . . . . . . . . . . 7 B. Elevators . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 8 C. Electricity . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 8 D. Water . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 8 E. Janitorial Service . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 8 F. Interruption of Services . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 8 G. Building Security . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 8 5. Alterations and Repairs . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 9 A. Landlord's Consent and Conditions . . . . . . . . . . . . . . . . . . . . . . . . . 9 B. Damage to Systems . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 9 C. No Liens . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 10 6. Use of Premises . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 10
3 7. Governmental Requirements and Building Rules . . . . . . . . . . . . . . . . . . . . . . . . 10 8. Waiver of Claims; Indemnification; Insurance . . . . . . . . . . . . . . . . . . . . . . . . 11 A. Waiver of Claims . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 11 B. Indemnification . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 11 C. Tenant's Insurance . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 11 D. Insurance Certificates . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 12 E. Landlord's Insurance . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 12 9. Fire and Other Casualty . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 12 A. Termination . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 12 B. Restoration . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 12 10. Eminent Domain . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 12 11. Rights Reserved to Landlord . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 13 A. Name . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 13 B. Signs . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 13 C. Window Treatments . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 13 D. Keys . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 13 E. Access . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 13 F. Preparation for Reoccupancy . . . . . . . . . . . . . . . . . . . . . . . . . . . . 13 G. Heavy Articles . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 13 H. Show Premises . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 13 I. Use of Lockbox . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 13 J. Repairs and Alterations . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 14 K. Landlord's Agents . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 14 L. Building Services . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 14 M. Other Actions . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 14 12. Tenant's Default . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 14 A. Rent Default . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 14 B. Assignment/Sublease or Hazardous Substances Default . . . . . . . . . . . . . . . . 14 C. Other Performance Default . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 14 D. Credit Default . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 14 E. Vacation or Abandonment Default . . . . . . . . . . . . . . . . . . . . . . . . . . 15 13. Landlord Remedies . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 15 A. Termination of Lease or Possession . . . . . . . . . . . . . . . . . . . . . . . . . 15 B. Lease Termination Damages . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 15 C. Possession Termination Damages . . . . . . . . . . . . . . . . . . . . . . . . . . . 15 D. Landlord's Remedies Cumulative . . . . . . . . . . . . . . . . . . . . . . . . . . . 15 E. WAIVER OF TRIAL BY JURY . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 16 F. Litigation Costs . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 16 14. Surrender . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 16 15. Holdover . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 16 16. Subordination to Ground Leases and Mortgages . . . . . . . . . . . . . . . . . . . . . . . . 16 A. Subordination . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 16 B. Termination of Ground Lease or Foreclosure of Mortgage . . . . . . . . . . . . . . . 16 C. Security Deposit . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 17 D. Notice and Right to Cure . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 17 E. Definitions . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 17 17. Assignment and Sublease . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 17
ii 4 A. In General . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 17 B. Landlord's Consent . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 17 C. Procedure . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 18 D. Change of Ownership . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 18 E. Excess Payments . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 18 18. Conveyance by Landlord . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 18 19. Estoppel Certificate . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 18 20. Security Deposit . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 19 21. Force Majeure . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 19 22. Tenant's Personal Property and Fixtures . . . . . . . . . . . . . . . . . . . . . . . . . . 19 23. Notices . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 19 A. Landlord . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 19 B. Tenant . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 20 24. Quiet Possession . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 20 25. Real Estate Broker . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 20 26. MISCELLANEOUS . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 20 A. Successors and Assigns . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 20 B. Date Payments Are Due . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 20 C. Meaning of "Landlord", "Re-Entry", "including" and "Affiliate" . . . . . . . . . . . 20 D. Time of the Essence . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 21 E. No Option . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 21 F. Severability . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 21 G. Governing Law . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 21 H. Lease Modification . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 21 I. No Oral Modification . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 21 J. Right to Cure . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 21 K. Captions . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 21 L. Authority . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 21 M. Landlord's Enforcement of Remedies . . . . . . . . . . . . . . . . . . . . . . . . . 21 N. Entire Agreement . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 21 O. Landlord's Title . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 21 P. Light and Air Rights . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 22 Q. Singular and Plural . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 22 R. No Recording by Tenant . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 22 S. Exclusivity . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 22 T. Construction . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 22 U. Survival . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 22 V. Rent Not Based on Income . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 22 W. Building Manager and Service Providers . . . . . . . . . . . . . . . . . . . . . . . 22 X. Late Charge and Interest on Late Payments . . . . . . . . . . . . . . . . . . . . . 22 Y. Approvals . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 22
iii 5 27. Unrelated Business Income . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 22 28. Hazardous Substances . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 23 29. Exculpation . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 23
APPENDIX A - PLAN OF THE PREMISES APPENDIX B - RULES AND REGULATIONS APPENDIX C - TENANT IMPROVEMENT AGREEMENT APPENDIX D - MORTGAGES CURRENTLY AFFECTING THE PROJECT APPENDIX E - COMMENCEMENT DATE CONFIRMATION APPENDIX F - EXPANSION APPENDIX G - PREFERENTIAL RIGHT APPENDIX H - RENEWAL OPTION APPENDIX I - PARKING APPENDIX J - JANITORIAL SPECIFICATIONS iv 6 LEASE THIS LEASE (the "Lease") is made as of June 4, 1997, between CarrAmerica Realty, L.P. (the "Landlord") and the Tenant as named in the Schedule below. The term "Project" means the building (the "Building") to be known as "City View Centre" and the land (the "Land") located at 1120 South Capital of Texas Highway, Austin, Texas 78746. "Premises" means that part of the Project leased to Tenant described in the Schedule and outlined on Appendix A. The following schedule (the "Schedule") is an integral part of this Lease. Terms defined in this Schedule shall have the same meaning throughout the Lease. SCHEDULE 1. TENANT: IXC COMMUNICATIONS, INC. 2. PREMISES: See Appendix A. 3. RENTABLE SQUARE FEET OF THE PREMISES: 105,000 4. TENANT'S PROPORTIONATE SHARE: 82.0075% (based upon a total of 128,037 rentable square feet in the Building) 5. SECURITY DEPOSIT: First and last months Rent in the amount of $293,125.00 6. TENANT'S REAL ESTATE BROKER FOR THIS LEASE: CB Commercial Real Estate Group 7. LANDLORD'S REAL ESTATE BROKER FOR THIS LEASE: CRW Associates, Inc. 8. TENANT IMPROVEMENTS, IF ANY: See the Tenant Improvement Agreement attached hereto as Appendix C. 9. COMMENCEMENT DATE: December 1, 1997, but if the Premises are subject to new construction pursuant to Appendix C, then the Completion Date, as defined therein, if it is later; Landlord and Tenant shall execute a Commencement Date Confirmation substantially in the form of Appendix E promptly following the Commencement Date. 10. TERMINATION DATE/TERM: Eighty-four (84) months after the Commencement Date, or if the Commencement Date is not the first day of a month, then after the first day of the following month. 11. GUARANTOR: None 12. BASE RENT:
Annual Monthly Period Base Rent Base Rent - ------ --------- --------- Lease Years 1-5 $1,680,000.00 [$16.00/SF NNN] $ 140,000.00 Lease Years 6-7 $1,837,500.00 [$17.50/SF NNN] $ 153,125.00
The Base Rent is subject to adjustment upwards based on the increase in rentable square feet of the Premises as a result of the Expansion Space as outlined in Appendix F - Expansion. 1. Lease Agreement. On the terms stated in this Lease, Landlord leases the Premises to Tenant, and Tenant leases the Premises from Landlord, for the Term beginning on the Commencement Date and ending on the Termination Date unless extended or sooner terminated pursuant to this Lease. 2. Rent. A. Types of Rent. Tenant shall pay the following Rent in the form of a check to Landlord at the following address: 1 7 CARRAMERICA REALTY, L.P. t/a CITY VIEW CENTRE P.O. Box __________ Atlanta, GA 30384-0566 or in such other manner as Landlord may notify Tenant: (1) Base Rent in monthly installments in advance, the first monthly installment payable concurrently with the execution of this Lease and thereafter on or before the first day of each month of the Term in the amount set forth on the Schedule. (2) Operating Cost Share Rent in an amount equal to (a) all Variable Operating Costs and Tenant's Proportionate Share of all other Operating Costs incurred prior to the Second Expansion Date, and (b) after the Second Expansion Date (as defined in Appendix F), the Tenant's Proportionate Share of the Operating Costs, each paid monthly in advance pursuant to Section 2B of this Lease. Definitions of Operating Costs, Variable Operating Costs and Tenant's Proportionate Share, and the method for billing and payment of Operating Cost Share Rent are set forth in Sections 2B, 2C and 2D. (3) Tax Share Rent in an amount equal to the Tenant's Proportionate Share of the Taxes for the applicable fiscal year of this Lease, paid monthly in advance pursuant to Section 2B of this Lease. A definition of Taxes and the method for billing and payment of Tax Share Rent are set forth in Sections 2B, 2C and 2D. (4) Additional Rent in the amount of all costs, expenses, liabilities, and amounts which Tenant is required to pay under this Lease, excluding Base Rent, Operating Cost Share Rent, and Tax Share Rent, but including any interest for late payment of any item of Rent. (5) Rent as used in this Lease means Base Rent, Operating Cost Share Rent, Tax Share Rent and Additional Rent. Tenant's agreement to pay Rent is an independent covenant, with no right of setoff, deduction or counterclaim of any kind, except as expressly provided in this Lease. B. Payment of Operating Cost Share Rent and Tax Share Rent. (1) Payment of Estimated Operating Cost Share Rent and Tax Share Rent. Landlord shall estimate the Operating Costs and Taxes of the Project by April 1 of each fiscal year, or as soon as reasonably possible thereafter. Landlord may revise these estimates whenever it obtains more accurate information, such as the final real estate tax assessment or tax rate for the Project, but in no event more than twice per fiscal year. Within thirty (30) days after receiving the original or revised estimate from Landlord, Tenant shall pay Landlord one- twelfth (1/12th) of Tenant's Proportionate Share of this estimate, multiplied by the number of months that have elapsed in the applicable fiscal year to the date of such payment including the current month, minus payments previously made by Tenant for the months elapsed. On the first day of each month thereafter, Tenant shall pay Landlord one-twelfth (1/12th) of Tenant's Proportionate Share of this estimate, until a new estimate becomes applicable. (2) Correction of Operating Cost Share Rent. Landlord shall deliver to Tenant a report for the previous fiscal year (the "Operating Cost Report") by April 1 of each year, or as soon as reasonably possible thereafter, setting forth in detail with each category of expense itemized (a) the actual Operating Costs incurred, (b) the amount of Operating Cost Share Rent due from Tenant, and (c) the amount of Operating Cost Share Rent paid by Tenant. Within thirty (30) days after such delivery, Tenant shall pay to Landlord the amount due minus the amount paid. If the amount paid exceeds the amount due, Landlord 2 8 shall apply the excess to Tenant's payments of Operating Cost Share Rent next coming due, or if after the Termination Date, then within thirty (30) days after such delivery. (3) Correction of Tax Share Rent. Landlord shall deliver to Tenant a report for the previous fiscal year (the "Tax Report") by April 1 of each year, or as soon as reasonably possible thereafter, setting forth (a) the actual Taxes, (b) the amount of Tax Share Rent due from Tenant, and (c) the amount of Tax Share Rent paid by Tenant. Within thirty (30) days after such delivery, Tenant shall pay to Landlord the amount due from Tenant minus the amount paid by Tenant. If the amount paid exceeds the amount due, Landlord shall apply any excess as a credit against Tenant's payments of Tax Share Rent next coming due, or if after the Termination Date, then within thirty (30) days after such delivery. C. Definitions. (1) Included Operating Costs. "Operating Costs" means any expenses, costs and disbursements of any kind other than Taxes, paid or incurred by Landlord in connection with the management (up to a maximum of 2.5% of gross Building Rent per year), maintenance, operation, insurance, repair and other related activities in connection with any part of the Project and of the personal property, fixtures, machinery, equipment, systems and apparatus used in connection therewith, including the cost of providing those services required to be furnished by Landlord under this Lease. Operating Costs shall also include the costs of any capital improvements which reduce Operating Costs provided the annual amortized cost does not exceed the actual cost reasonably anticipated or improve safety, and those made to keep the Project in compliance with governmental requirements enacted after the Commencement Date applicable from time to time (collectively, "Included Capital Items"); provided, that the costs of any Included Capital Item shall be amortized by Landlord, together with an amount equal to interest at ten percent (10%) per annum, over the estimated useful life of such item and such amortized costs are only included in Operating Costs for that portion of the useful life of the Included Capital Item which falls with the Term. If the Project is not fully occupied during any portion of any fiscal year, Landlord may adjust (an "Equitable Adjustment") Operating Costs to equal what would have been incurred by Landlord had the Project been fully occupied. This Equitable Adjustment shall apply only to Operating Costs which are variable ("Variable Operating Costs") and therefore increase as occupancy of the Project increases. Landlord may incorporate the Equitable Adjustment in its estimates of Operating Costs. If Landlord does not furnish any particular service to a tenant other than Tenant who has undertaken to perform such service itself and whose cost would have constituted an Operating Cost, Operating Costs shall be increased by the amount which Landlord would have incurred if it had furnished the service to such tenant. In no event will Tenant be liable to Landlord for more than actual Operating Costs. (2) Excluded Operating Costs. Operating Costs shall not include: (a) costs, including permit, license, and inspection costs, of alterations of tenant premises or vacant space; (b) costs of capital improvements, including without limitation, improvements, equipment and tools as determined by GAAP, consistently applied, other than Included Capital Items; (c) interest and principal payments on mortgages or any other debt costs, or rental payments on any ground lease of the Project; 3 9 (d) real estate brokers' leasing commissions, attorneys' fees, and other costs and expenses incurred in connection with negotiations or disputes with prospective or actual tenants or litigation to collect rent; (e) legal fees, space planner fees and advertising expenses incurred with regard to leasing the Building or portions thereof; (f) any cost or expenditure for which Landlord is reimbursed, by insurance proceeds or otherwise, except by Operating Cost Share Rent; (g) the cost of any service furnished to any tenant of the Project which Landlord does not make available to Tenant; (h) depreciation (except on any Included Capital Items); (i) franchise, income taxes, or similar taxes imposed upon Landlord (relating to the ownership of the Building); (j) costs of correcting defects in construction of the Building (as opposed to the cost of normal repair, maintenance and replacement expected with the construction materials and equipment installed in the Building in light of their specifications) following the lapse of all warranties to Tenant; (k) legal and auditing fees which are for the benefit of Landlord such as collecting delinquent rents, preparing tax returns and other financial statements, and audits other than those incurred in connection with the preparation of reports required pursuant to Section 2B above; (l) the wages of any employee for services not related directly to the management, maintenance, operation and repair of the Building, except that the wages included in "Included Operation Costs" shall be prorated to reflect the time such employee actually spent on this Building versus other properties of Landlord; (m) fines, penalties and interest; (n) expenditures required by Landlord's knowing or intentional failure to comply with laws, statutes or ordinance; (o) overhead and profit paid to Landlord or to subsidiaries or affiliates of Landlord for services in the Building to the extent the same exceed the cost of such services rendered by unaffiliated third parties on a competitive basis; (p) Landlord's general corporate overhead and general administrative expenses; (q) rentals and other related expenses incurred in leasing air conditioning systems, elevators or other equipment ordinarily considered to be of a capital nature; (r) damage and repairs necessitated by the willful misconduct of Landlord or Landlord's employees, contractors or agents; (s) costs associated with the removal, testing abatement, containment or any remedy necessary because of existence of hazardous wastes on the Project based on laws in effect on the Commencement Date; 4 10 (t) expenditures incurred by Landlord for the repair of casualty damage to the Buildings to the extent the repairs are paid by applicable insurance proceeds; (u) any management fees in excess of 2.5% of gross revenues; and (v) costs associated with corrective or remedial work on any warranty claim made on Landlord. (3) Taxes. "Taxes" means any and all taxes, assessments and charges of any kind, general or special, ordinary or extraordinary, levied against the Project, which Landlord shall pay or become obligated to pay in connection with the ownership, leasing, renting, management, use, occupancy, control or operation of the Project or of the personal property, fixtures, machinery, equipment, systems and apparatus used in connection therewith. Taxes shall include real estate taxes, personal property taxes, sewer rents, water rents, special or general assessments, transit taxes, ad valorem taxes, and any tax levied on the rents hereunder or the interests of Landlord under this Lease (the "Rent Tax"). Taxes shall also include all fees and other costs and expenses paid by Landlord in reviewing any tax and in seeking a refund or reduction of any Taxes, whether or not the Landlord is ultimately successful. For any year, the amount to be included in Taxes (a) from taxes or assessments payable in installments, over the maximum allowable payment term, shall be the amount of the installments (with any interest) due and payable during such year, and (b) from all other Taxes, shall at Landlord's election be the amount accrued, assessed, or otherwise imposed for such year or the amount due and payable in such year. Any refund or other adjustment to any Taxes by the taxing authority, shall apply during the year in which the adjustment is made. Taxes shall not include any net income (except Rent Tax), capital, stock, succession, transfer, franchise, gift, estate or inheritance tax, except to the extent that such tax shall be imposed in lieu of any portion of Taxes. (4) Lease Year. "Lease Year" means each consecutive twelve-month period beginning with the Commencement Date, except that if the Commencement Date is not the first day of a calendar month, then the first Lease Year shall be the period from the Commencement Date through the final day of the twelve months after the first day of the following month, and each subsequent Lease Year shall be the twelve months following the prior Lease Year. (5) Fiscal Year. "Fiscal Year" means the calendar year, except that the first fiscal year and the last fiscal year of the Term may be a partial calendar year. D. Computation of Base Rent and Rent Adjustments. (1) Prorations. If this Lease begins on a day other than the first day of a month, the Base Rent, Operating Cost Share Rent and Tax Share Rent shall be prorated for such partial month based on the actual number of days in such month. If this Lease begins on a day other than the first day, or ends on a day other than the last day, of the fiscal year, Operating Cost Share Rent and Tax Share Rent shall be prorated for the applicable fiscal year. (2) Default Interest. Any sum due from Tenant to Landlord not paid when due shall bear interest from the date due until paid at fifteen percent (15%) per annum. 5 11 (3) Rent Adjustments. The square footage of (a) the Premises as mutually agreed to between Landlord and Tenant's architects upon completion of construction of the Building, and (b) the Building as set forth in the Schedule, are conclusively deemed to be the actual square footage thereof, without regard to any subsequent remeasurement of the Premises or the Building. If any Operating Cost paid in one fiscal year relates to more than one fiscal year, Landlord shall proportionately allocate such Operating Cost among the related fiscal years. (4) Books and Records. Landlord shall maintain books and records reflecting the Operating Costs and Taxes in accordance with GAAP accounting and management practices. Tenant and/or its certified public accountant shall have the right to inspect Landlord's records at Landlord's office upon at least seventy-two (72) hours' prior notice during normal business hours one hundred eighty (180) days following the respective delivery of the Operating Costs Report or the Tax Report. The results of any such inspection shall be kept strictly confidential by Tenant and its agents, and Tenant and/or its certified public accountant must agree, in their contract for such services, to such confidentiality restrictions and shall specifically agree that the results shall not be made available to any other tenant of the Building. Unless Tenant sends to Landlord any written exception to either such report within one hundred eighty (180) days, such report shall be deemed final and accepted by Tenant. Tenant shall pay the amount shown on both reports in the manner prescribed in this Lease, whether or not Tenant takes any such written exception, without any prejudice to such exception. If Tenant makes a timely exception, Landlord and Tenant shall cause a mutually acceptable independent certified public accountant to issue a final and conclusive resolution of Tenant's exception. Landlord shall pay the cost of such certification if Landlord's original determination of annual Operating Costs or Taxes overstated the amounts thereof by either (a) five percent (5%) or more in any one fiscal year, or (b) three percent (3%) per year for any two (2) fiscal years in a five (5) consecutive fiscal year period. Landlord and Tenant shall split the cost of such certification if such original determination is overstated by more than three percent (3%) but less than five percent (5%) in any one fiscal year. In all other cases, such certification shall be at Tenant's sole cost and expense. (5) Miscellaneous. So long as Tenant is in default of any obligation under this Lease beyond all applicable cure periods, Tenant shall not be entitled to any refund of any amount from Landlord. If this Lease is terminated for any reason prior to the annual determination of Operating Costs Share Rent or Tax Share Rent, either party shall pay the full amount due to the other within fifteen (15) days after Landlord's notice to Tenant of the amount when it is determined. Landlord may commingle any payments made with respect to Operating Costs Share Rent or Tax Share Rent, without payment of interest. 3. Preparation and Condition of Premises; Possession and Surrender of Premises. A. Condition of Premises. Except to the extent of the Tenant Improvements, the definition of the Base Building condition and any latent defect, Landlord is leasing the Premises to Tenant "as is", without any obligation to construct, alter, remodel, improve, repair or decorate any part of the Premises. Landlord shall cause the Premises to be completed in accordance with the Tenant Improvement Agreement attached as Appendix C. B. Tenant's Possession. Tenant's taking possession of any portion of the Premises shall be conclusive evidence that the portion of the Premises taken was in good order, repair and condition, except for punch list items and all latent defects. If Landlord authorizes Tenant to take possession of any part of the Premises prior to the Commencement Date for purposes of doing business, all terms of this Lease shall apply to such pre-Term possession, including Base Rent at the rate set forth for the First Lease Year in the Schedule prorated for any partial month. 6 12 C. Maintenance. Throughout the Term, Tenant shall maintain the Premises in their condition as of the Completion Date, loss or damage caused by the elements, ordinary wear, and fire and other casualty excepted, and at the termination of this Lease, or Tenant's right to possession, Tenant shall return the Premises to Landlord in broom-clean condition. To the extent Tenant fails to perform either obligation, Landlord may, but need not, restore the Premises to such condition and Tenant shall pay the cost thereof. D. Ownership of Improvements. All Work as defined in Section 5, partitions, hardware, equipment, machinery and all other improvements and all fixtures except trade fixtures, and any other item installed by Tenant at Tenant's expense, such as HVAC units or computer flooring, which are not reasonably necessary for the comfortable use and enjoyment of the Premises, constructed in the Premises by either Landlord or Tenant, shall become Landlord's property upon installation without compensation to Tenant, unless Landlord, at the time Landlord gives its consent to the performance of such construction, elects in writing that such Work and other improvements shall remain the property of Tenant, in which case such property shall be subject to the provisions of Section 3E below. E. Removal at Termination. Upon the termination of this Lease or Tenant's right of possession, Tenant shall remove from the Project its trade fixtures, furniture, moveable equipment and other personal property, any improvements which Landlord elects shall be the property of Tenant pursuant to Section 3D, and any improvements to any portion of the Project other than the Premises. If Tenant does not timely remove such property, then Tenant shall be conclusively presumed to have, at Landlord's election (i) conveyed such property to Landlord without compensation or (ii) abandoned such property, and Landlord may dispose of or store any part thereof in any manner at Tenant's sole cost, without waiving Landlord's right to claim from Tenant all expenses arising out of Tenant's failure to remove the property, and without liability to Tenant or any other person. Landlord shall have no duty to be a bailee of any such personal property. If Landlord elects abandonment, Tenant shall pay to Landlord, upon demand, any expenses incurred for disposition. Upon Tenant's removal of the property described in the first sentence of this subsection, Tenant shall repair and/or restore any damage or condition which resulted from the installation and/or removal of such property to a condition useable for general office use, except for normal wear and tear. 4. Project Services. Landlord shall furnish services as follows: A. Heating and Air Conditioning. If at any time after the Second Expansion Date the Premises contains less than one hundred percent (100%) of the net rentable square feet of the Building, (a) Landlord shall furnish heating and air conditioning to provide a comfortable temperature, in Landlord's reasonable judgment, for normal business operations, during the normal business hours of 7:00 a.m. to 6:00 p.m., Monday through Friday (excluding New Year's Day, Memorial Day, Fourth of July, Labor Day, Thanksgiving and Christmas) and 8:00 a.m. to 1:00 p.m. on Saturday, (b) if Tenant installs or has installed equipment which adversely affects the temperature maintained by the air conditioning system, Landlord shall first notify Tenant of the problem and may install supplementary air conditioning units in the Premises, and Tenant shall pay to Landlord upon demand as Additional Rent the cost of installation, operation and maintenance thereof, and (c) Landlord shall furnish heating and air conditioning after business hours provided Tenant provides Landlord reasonable prior notice and pays Landlord all then current charges for such additional heating or air conditioning. Prior to the Second Expansion Date, and at all times thereafter that the Premises contains one hundred percent (100%) of the net rentable square feet of the Building, the cost of all heating and air conditioning and any supplementary air conditioning equipment (i.e., other than pursuant to Base Building Plans) for the Building provided by Landlord shall be a Variable Operating Cost to be paid by Tenant, and provisions (a), (b), and (c) in this Paragraph shall not apply. 7 13 Tenant may provide a back-up generator and twenty-four hour air conditioning in portions of the Premises and/or outside the Premises in areas reasonably acceptable to the Landlord, at Tenant's sole cost and expense. B. Elevators. Prior to the Second Expansion Date, and at all times thereafter that the Premises contains 100% of the net rentable square feet of the Building, Landlord shall provide passenger elevator service on a 24-hour basis. In the event Tenant leases less than 100% of the net rentable square feet of the Building after the Second Expansion Date, Landlord shall provide passenger elevator service during normal business hours, except in the case of an emergency. Landlord shall provide freight elevator service, but if more than one tenant occupies the Building, only at Tenant's reasonable advance notice and request. C. Electricity. Landlord shall provide sufficient electricity to operate normal office equipment as per Base Building Plans (as defined in Appendix C). If any or all of Tenant's equipment requires electricity consumption in excess of that which is necessary to operate normal office equipment, such consumption shall be submetered by Tenant at Tenant's expense in the event the Premises does not include all the rentable square feet of the Building on or at any time after the Second Expansion Date. Alternatively and/or in addition, if any or all of Tenant's equipment requires electricity consumption in excess of the capacity of the Building and/or Premises, any additional electrical equipment shall be installed by Landlord at Tenant's expense. D. Water. Landlord shall furnish hot and cold tap water for drinking and toilet purposes. Tenant shall pay Landlord for water furnished as requested by Tenant for any other purpose as Additional Rent at reasonable rates fixed by Landlord. E. Janitorial Service. Landlord shall furnish janitorial service per the attached scope and schedule and Tenant shall have the right to supplement and/or modify such services. Any supplemental services shall be at Tenant's cost, and any reduction shall be credited on a pro rata basis to Tenant provided that Landlord reasonably approves of the quality of such janitorial services. F. Interruption of Services. If any of the Building equipment or machinery ceases to function properly for any cause, Landlord shall use reasonable diligence to repair the same promptly. Landlord's inability to furnish, to any extent, the Project services set forth in this Section 4, or any cessation thereof resulting form any causes, including any entry for repairs pursuant to this Lease, and any renovation, redecoration or rehabilitation of any area of the Building shall not render Landlord liable for damages to either person or property or for interruption or loss to Tenant's business, nor be construed as an eviction of Tenant, nor work an abatement of any portion of rent, nor relieve Tenant from fulfillment of any covenant or agreement hereof. However, in the event that an interruption of the Project services set forth in this Section 4 causes the Premises to be untenantable for a period of at least ten (10) consecutive business days, monthly Rent shall be abated proportionately. G. Building Security. Landlord shall provide reasonable after-hours security patrol and an electronic card key system based on specifications provided by Tenant. 5. Alterations and Repairs. A. Landlord's Consent and Conditions. Except as otherwise provided in the Appendix C, Tenant shall not make any improvements or alterations to the Premises (the "Work") without in each instance submitting plans and specifications for the Work to Landlord and obtaining Landlord's prior written consent (which consent shall not be unreasonably withheld, conditioned or delayed) UNLESS (a) THE COST THEREOF IS LESS THAN $50,000, (b) SUCH WORK DOES NOT IMPACT THE BASE STRUCTURAL COMPONENTS OR PRIMARY 8 14 SYSTEMS OF THE BUILDING, (c) SUCH WORK WILL NOT IMPACT ANY OTHER TENANT'S PREMISES, AND (D) SUCH WORK IS NOT VISIBLE FROM OUTSIDE THE PREMISES. Tenant shall pay Landlord's actual third party reasonable costs for review of the plans and all other items submitted by Tenant. Landlord will be deemed to be acting reasonably in withholding its consent for any Work which (a) impacts the base structural components or primary systems of the Building, (b) impacts any other tenant's premises, or (c) is visible from outside the Premises. Tenant shall reimburse Landlord for actual costs incurred for review of the plans and all other items submitted by Tenant. Tenant shall pay for the cost of all Work. All Work shall become the property of Landlord upon its installation, except for Tenant's trade fixtures and for items which Landlord requires Tenant to remove at Tenant's cost at the termination of the Lease pursuant to Section 3E. The following requirements shall apply to all Work: (1) Prior to commencement, Tenant shall furnish to Landlord building permits, certificates of insurance satisfactory to Landlord, and, at Landlord's request, security for payment of all costs. (2) Tenant shall perform all Work so as to reasonably maintain peace and harmony among other contractors serving the Project and shall reasonably avoid interference with other work to be performed or services to be rendered in the Project. (3) The Work shall be performed in a good and workmanlike manner, meeting the standard for construction and quality of materials in the building, and shall comply with all insurance requirements and all applicable governmental laws, ordinances, codes, and regulations ("Governmental Requirements"). (4) Tenant shall perform all Work so as to reasonably minimize or prevent disruption to other tenants, and Tenant shall comply with all reasonable requests of Landlord in response to complaints from other tenants. (5) Upon completion, Tenant shall furnish Landlord with contractor's affidavits and full and final statutory waivers of liens, as-built plans and specifications. B. Damage to Systems. If any part of the mechanical, electrical or other systems in the Premises shall be damaged, Tenant shall promptly notify Landlord, and Landlord shall diligently pursue repair such damage. Landlord may also at any reasonable time make any repairs or alterations which Landlord deems necessary for the safety or protection of the Project, or which Landlord is required to make by any court or pursuant to any Governmental Requirement. Tenant shall at its expense make all other repairs necessary to keep the Premises, and Tenant's fixtures and personal property, in good order, condition and repair, except ordinary wear and/or casualty damage; to the extent Tenant fails to do so, after written notification from Landlord and any applicable time period to cure, Landlord may make such repairs itself. The cost of any repairs made by Landlord on account of Tenant's default, or on account of the mis-use or neglect by Tenant or its invitees, contractors or agents anywhere in the Project, shall become Additional Rent payable by Tenant within thirty (30) days. C. No Liens. Tenant has no authority to cause or permit any lien or encumbrance of any kind to affect Landlord's interest in the Project; any such lien or encumbrance shall attach to Tenant's interest only. If any mechanic's lien shall be filed or claim of lien made for work or materials furnished to tenant, then Tenant shall at its expense within then (10) business days thereafter either discharge or contest the lien or claim. If Tenant contests the lien or claim, then Tenant shall (i) within such ten (10) business day period, provide Landlord adequate security for the lien or claim, (ii) contest the lien or claim 9 15 in good faith by appropriate proceedings that operate to stay its enforcement, and (iii) pay promptly any final adverse judgment entered in any such proceeding. If Tenant does not comply with these requirements, Landlord may discharge the lien or claim, and the amount paid, as well as attorney's fees and other expenses incurred by Landlord, shall become Additional Rent payable by Tenant within thirty (30) days. 6. Use of Premises. Tenant shall use the Premises only for the operation of a network control center and/or general office purposes (and any other legal uses directly related thereto provided such use is consistent with similar quality suburban building in Austin, Texas). Tenant shall not allow any use of the Premises which will negatively affect the cost of coverage of Landlord's insurance on the Project. Tenant shall not allow any inflammable or explosive liquids or materials to be kept on the Premises other than those typically used in normal office cleaning. Tenant shall not allow any use of the Premises which would cause the value or utility of any part of the Premises to diminish or would interfere with any other tenant or with the operation of the Project by Landlord. Tenant shall not permit any nuisance or waste upon the Premises, or allow any offensive noise or odor in or around the Premises. Tenant may have a diesel generator on the Premises provided it is not unreasonably noisy or odorous and it complies with all governmental regulations. Tenant may at its sole cost install, maintain, and from time to time replace a microwave or satellite dish (a "Dish") on the roof of the Building, provided that Tenant shall obtain Landlord's prior reasonable approval of the proposed size, weight and location of the Dish and method for fastening the Dish to the roof, and that Tenant will at its sole cost comply with all Governmental Requirements and the conditions of any bond or warranty maintained by Landlord on the roof. Landlord may supervise any roof penetration. Tenant shall repair any damage to the Building caused by Tenant's installation, maintenance, replacement, use or removal of the Dish. The Dish shall remain the property of Tenant, and Tenant may remove the Dish at its cost at any time during the Term. Tenant shall remove the Dish at its cost upon expiration or termination of the Lease. Tenant shall protect, defend, indemnify and hold harmless Landlord from and against claims, damages, liabilities, costs and expenses of every kind and nature, including attorneys' fees, incurred by or asserted against Landlord arising out of Tenant's installation, maintenance, replacement, use or removal of the Dish. If any governmental authority shall deem the Premises to be a "place of public accommodation" under the Americans with Disabilities Act or any other comparable law as a result of Tenant's use, Tenant shall either modify its use to cause such authority to rescind its designation or be responsible for any alterations, structural or otherwise, required to be made to the Building or the Premises under such laws, however, Tenant shall have the right to pursue appeal of such ruling prior to making any required changes to the Building or Premises if such right is otherwise allowed by law. 7. Governmental Requirements and Building Rules. Tenant shall comply with all Governmental Requirements applying to its use of the Premises. Tenant shall also comply with all reasonable rules established for the Project form time to time by Landlord which do not unreasonably interfere with the operation of Tenant's business, including its network control center. The present rules and regulations are contained in Appendix B. To the extent of any conflict between the Project rules and regulations and this Lease, this Lease shall control. Failure by another tenant to comply with the rules or failure by Landlord to enforce them shall not relieve Tenant of its obligation to comply with the rules or makem Landlord responsible to Tenant in any way. Landlord shall use reasonable efforts to apply the rules and regulations uniformly with respect to Tenant and tenants in the Building under leases containing rules and regulations similar to this Lease. Landlord shall place and keep the Building and all Building systems (including, but not limited to fire, safety, security, elevators, etc.) in compliance with all Government Requirements. 10 16 8. Waiver of Claims; Indemnification; Insurance. A. Waiver of Claims. To the extent permitted by law, Tenant waives any claims it may have against Landlord or its officers, directors, employees, agents or contractors for business interruption or damage to property sustained by Tenant as the result of any negligent (except grossly negligent) or other unintentional act or omission of Landlord. To the extend permitted by law, Landlord waives any claims it may have against Tenant or its officers, directors, employees, agents or contractors for loss of rents or damage to property sustained by Landlord as the result of any negligent (except grossly negligent) or unintentional act or omission of Tenant. B. Indemnification. Unless caused in whole or part by the gross negligence or willful misconduct of Landlord, its agents, employees or invitees, Tenant shall indemnify, defend and hold harmless Landlord and its officers, directors, employees, agents and contractors against any claims by any third party for injury to any person or damage to or loss of any property occurring in the Project and arising from the use of the Premises or from any other act or omission of Tenant or any of Tenant's employees, agents or contractors. Tenant's obligations under this section shall survive the termination of this Lease. C. Tenant's Insurance. Tenant shall maintain insurance as follows, with such other terms, coverages and insurers, as Landlord shall reasonably require from time to time: (1) Commercial General Liability Insurance, with (a) Contractual Liability including the indemnification provisions contained in this Lease, (b) a severability of interest endorsement, (c) limits of not less than Two Million Dollars ($2,000,000) combined single limit per occurrence and not less than Two Million Dollars ($2,000,000) in the aggregate for bodily injury, sickness or death, and property damage, and umbrella coverage of not less than Five Million Dollars ($5,000,000), and (d) Landlord and, if any, Landlord's building manager or agent, mortgagee and ground lessor named as additional insureds. (2) Insurance against "All Risks" of physical loss covering the replacement cost of all of Tenant's improvements, fixtures and personal property. Tenant waives all rights of subrogation, and Tenant's property insurance shall include a waiver of subrogation. (3) Worker's compensation or similar insurance in form and amounts required by law. Tenant shall cause any contractor of Tenant performing work on the Premises to maintain insurance as follows, with such other terms, coverages and insurers, as Landlord shall reasonably require from time to time: (1) Commercial General Liability Insurance, including contractor's liability coverage, contractual liability coverage, completed operations coverage, broad form property damage endorsement, and contractor's protective liability coverage, to afford protection with limits, for each occurrence, of not less than One Million Dollars ($1,000,000) with respect to personal injury, death or property damage. (2) Worker's compensation or similar insurance in form and amounts required by law. Tenant's insurance shall be primary and not contributory. The company or companies writing any insurance which Tenant is required to maintain under this Lease, as well as the form of such insurance, shall at all times be subject to Landlord's approval, and 11 17 any such company shall be licensed to do business in the state in which the Building is located and shall have a Best rating of A VI or better. D. Insurance Certificates. Tenant shall deliver to Landlord certificates evidencing all required insurance no later than five (5) days prior to the Commencement Date and each renewal date. Each certificate will provide for the thirty (30) days prior written notice of cancellation to Landlord, Tenant and any lien holder on the Project. E. Landlord's Insurance. Landlord shall maintain replacement cost "All-Risk" coverage insurance policies on the Building, and public liability insurance policies covering the common areas of the Building, each with such terms, coverages and conditions as are normally carried by reasonably prudent owners of properties similar to the Project. Landlord and Tenant waive all rights of subrogation, and the respective All-Risk coverage insurance policies carried by Landlord and Tenant shall contain enforceable waiver of subrogation endorsements. 9. Fire and Other Casualty. A. Termination. If a fire or other casualty causes substantial damage to the Building or the Premises, Landlord shall engage a registered architect to certify within one (1) month of the casualty to both Landlord and Tenant the amount of time needed to restore the Building and the Premises to tenantability, using standard working methods. If the time needed exceeds nine (9) months from the beginning of the restoration, or two (2) months therefrom if the restoration would begin during the last twelve (12) months of the Lease, then, either Landlord or Tenant may terminate this Lease by notice to the other party within ten (10) days after the notifying party's receipt of the architect's certificate. The termination shall be effective thirty (30) days from the date of the notice and Rent shall be paid by Tenant to that date, with a proportionable abatement of the space which is untenable as a result of the fire or casualty. B. Restoration. If a casualty causes damage to the Building or the Premises but his Lease is not terminated for any reason, then subject to the rights of any mortgagees or ground lessors, Landlord shall obtain the applicable insurance proceeds and diligently restore the Building and the Premises subject to current Governmental Requirements. Tenant shall replace its damaged Additional Improvements, personal property and fixtures. Rent shall be abated on a per diem basis during the restoration in proportion to Tenant's reduced use of the Premises which is untenantable, except to the extent that Tenant's negligence or intentional misconduct caused the casualty. 10. Eminent Domain. If a part of the Project is taken by eminent domain or deed in lieu thereof which is so substantial that the Premises cannot reasonably be used by Tenant for the operation of its business, then either party may terminate this Lease effective as of the date of the taking. Rent shall abate from the date of the taking in proportion to Tenant's reduced use of the Premises taken. The entire award for a taking of any kind shall be paid to Landlord, and Tenant shall have no right to share in the award. All obligations accrued to the date of the taking shall be performed by each party. Notwithstanding the foregoing to the contrary, Tenant shall have the right to seek a separate award for business interruption, relocation costs, lost property, etc., to the extent allowed by law. 11. Rights Reserved to Landlord. Landlord may exercise at any time any of the following rights respecting the operation of the Project without liability to the Tenant of any kind: A. Name. To change the name or street address of the Building or the suite number(s) of the Premises provided Landlord reimburses Tenant's reasonable costs, 12 18 not to exceed $15,000.00. During the Lease Term, Landlord will not name the Building after a direct competitor of Tenant. B. Signs. Provided such signs do not unreasonably interfere with Tenant's sign, to install and maintain any signs on the exterior and in the interior of the Building, and to approve at its sole discretion, prior to installation, any of Tenant's signs in the Premises visible from the common areas or the exterior of the Building, provided Tenant shall have the right to exterior building signage equivalent to the signage utilized on the adjacent Setting buildings. C. Window Treatments. To approve, at its reasonable discretion, prior to installation, any shades, blinds, ventilators or window treatments of any kind, as well as any lighting within the Premises that may be visible from the exterior of the Building or any interior common area. D. Keys. To retain and use at any time passkeys to enter the Premises or any door within the Premises, with the exception of any of Tenant secure areas and the network control center. Tenant shall indemnify and hold harmless Landlord, its employees, agents, independent contractors, and all other persons or entities acting on Landlord's behalf, from all loss, damage, cost and expense which results from Landlord's lack of access to the network control center and/or any forced entry thereto in the event of an emergency. Tenant shall not alter or add any lock or bolt, with the exception of any of Tenant secure areas and the network control center. E. Access. Upon prior reasonable notice to the parties reasonably designated by Tenant except for normal cleanup or in case of emergency, to have access to inspect the Premises, and to perform its obligations, or make repairs, alterations, additions or improvements, as permitted by this Lease. F. Preparation for Reoccupancy. To decorate, remodel, repair, alter or otherwise prepare the Premises for reoccupancy at any time after Tenant abandons the Premises without payment of Rent, without relieving Tenant of any obligation to pay Rent. G. Heavy Articles. To approve the weight, size, placement and time and manner of movement within the Building of any safe, central filing system or other heavy article of Tenant's property. Tenant shall move its property entirely at its own risk. H. Show Premises. To show the Premises to prospective purchasers, tenants, brokers, lenders, investors, rating agencies or others at any reasonable time (except Landlord may only show the Premises to prospective tenants and brokers if Tenant does not exercise its option to renew), provided that Landlord gives prior reasonable notice to the parties reasonably designated by Tenant and does not materially interfere with Tenant's use of the Premises. I. Use of Lockbox. To designate a lockbox collection agent for collections of amounts due Landlord. In that case, the date of payment of Rent or other sums shall be the date of the agent's receipt of such payment or the date of actual collection if payment is made in the form of a negotiable instrument thereafter dishonored upon presentment. However, Landlord may reject any payment for all purposes as of the date of receipt or actual collection by mailing to Tenant within 21 day after such receipt or collection a check equal to the amount sent by Tenant. J. Repairs and Alterations. Upon first notifying Tenant in writing as to the location and duration of the project, obtaining Tenant's reasonable approval to make repairs or alterations to the Project and in doing so transport any required material through the Premises, to close entrances, doors, corridors, elevators and other facilities in the Project, to open any ceiling in the Premises, or to temporarily suspend services or use of common areas 13 19 in the Building, provided that Tenant shall have the right to cause Landlord to reasonably reschedule any non-emergency work. Landlord may perform any such repairs or alterations during ordinary business hours, except that Tenant may require any Work in the Premises to be done after business hours if Tenant pays Landlord for overtime and any other expenses incurred. Landlord may do or permit any work on any nearby building, land, street, alley or way. All such work conducted by Landlord shall be done in such a manner as to minimize any material interference to Tenant's business. K. Landlord's Agents. If Tenant is in default under this Lease beyond any applicable cure periods, possession of Tenant's funds or negotiation of Tenant's negotiable instrument by any of Landlord's agents shall not waive any breach by Tenant or any remedies of Landlord under this Lease. L. Building Services. To install, use and maintain through the Premises, pipes, conduits, wires and ducts serving the Building, provided that such installation, use and maintenance does not unreasonably interfere with Tenant's use of the Premises. M. Other Actions. To take any other action which Landlord deems reasonable in connection with the operation, maintenance or preservation of the Building, provided however that all such actions shall be done ins such a manner so as to minimize any material interference with Tenant's business. 12. Tenant's Default. Any of the following shall constitute a default by Tenant: A. Rent Default. Tenant fails to pay either (a) any Base Rent when due, and in the case of only the first two (2) failures in any twelve consecutive months, either failure is not cured by the later of three (3) business days after written notice to Tenant or (b) any Additional Rent after the expiration of thirty days written demand by Landlord, and in the case of only the first two (2) failures in any twelve consecutive months, either failure is not cured by the later of three (3) business days after written notice to Tenant; B. Assignment/Sublease or Hazardous Substances Default. Tenant defaults in its obligations under Section 17 Assignment and Sublease or Section 28 Hazardous Substances; C. Other Performance Default. Tenant fails to perform any other obligation to Landlord under this Lease, and this failure continues for ten (10) days after written notice from Landlord, except that if Tenant begins to cure its failure within the ten (10) day period but cannot reasonably complete its cure within such period, then, so long as Tenant continues to diligently attempt to cure its failure, the ten (10) day period shall be extended to the duration of time as is reasonably necessary to complete the cure; D. Credit Default. One of the following credit defaults occurs: (1) Tenant commences any proceeding under any law relating to bankruptcy, insolvency, reorganization or relief of debts, or seeks appointment of a receiver, trustee, custodian or other similar official for the Tenant or for any substantial part of its property, or any such proceeding is commenced against Tenant and either remains undismissed for a period of thirty days or results in the entry of an order for relief against Tenant which is not fully stayed within seven days after entry; (2) Tenant becomes insolvent or bankrupt, does not generally pay its debts as they become due, or admits in writing its inability to pay its debts, or makes a general assignment for the benefit of creditors; 14 20 (3) Any third party obtains a levy or attachment under process of law against Tenant's leasehold interest. E. Vacation or Abandonment Default. Tenant vacates or abandons a majority of the Premises and is simultaneously in default under A, B, C and/or D above. 13. Landlord Remedies. A. Termination of Lease or Possession. If Tenant defaults, Landlord may elect by notice to Tenant either to terminate this Lease or to terminate Tenant's possession of the Premises without terminating this Lease. In either case, Tenant shall immediately vacate the Premises and deliver possession to Landlord, and Landlord may repossess the Premises and may, at Tenant's sole cost, remove any of Tenant's signs and any of its other property, without relinquishing its right to receive Rent or any other right against Tenant. B. Lease Termination Damages. If Landlord terminates the Lease, Tenant shall pay to Landlord all Rent due on or before the date of termination, plus Landlord's reasonable estimate of the aggregate Rent that would have been payable from the date of termination through the Termination Date, reduced by the rental value of the Premises calculated as of the date of termination for the same period, taking into account reletting expenses and market concessions, both discounted to present value at the rate of five percent (5%) per annum. If Landlord shall relet any part of the Premises for any part of such period before such present value amount shall have been paid by Tenant or finally determined by a court, then the amount of Rent payable pursuant to such reletting (taking into account any concessions) shall be deemed to be the reasonable rental value for that portion of the Premises relet during the period of the reletting. C. Possession Termination Damages. If Landlord terminates Tenant's right to possession without terminating the Lease and Landlord takes possession of the Premises itself, Landlord may relet any part of the Premises for such Rent, for such time, and upon such terms as Landlord in it sole discretion shall determine, without any obligation to do so prior to renting other vacant areas in the Building. Any proceeds from reletting the Premises shall first be applied to the expenses of reletting, including redecoration, repair, alteration, advertising, brokerage, legal, and other reasonably necessary expenses. If the reletting proceeds after payment of expenses are insufficient to pay the full amount of Rent under this Lease, Tenant shall pay such deficiency to Landlord monthly upon demand as it becomes due. Any excess proceeds shall be retained by Landlord. D. Landlord's Remedies Cumulative. All of Landlord's remedies under this Lease shall be in addition to all other remedies Landlord may have at law or in equity. Waiver by Landlord of any breach of any obligation by Tenant shall be effective only if it is in writing, and shall not be deemed a waiver of any other breach, or any subsequent breach of the same obligation. Landlord's acceptance of payment by Tenant shall not constitute a waiver of any breach by Tenant, and if the acceptance occurs after Landlord's notice to Tenant, or termination of the Lease or of Tenant's right to possession, the acceptance shall not affect such notice or termination. Acceptance of payment by Landlord after commencement of a legal proceeding or final judgment shall not affect such proceeding or judgment. Landlord may advance such monies and take such other actions for Tenant's account as reasonably may be required to cure or mitigate any default by Tenant. Tenant shall immediately reimburse Landlord for any such advance, and such sums shall bear interest at the default interest rate until paid. Section 26(Y) of this Lease shall not apply to this Section 13 and Landlord's right to exercise (or not exercise) any and/or all remedies shall be in Landlord's sole and absolute discretion. 15 21 E. WAIVER OF TRIAL BY JURY. EACH PARTY WAIVES TRIAL BY JURY IN THE EVENT OF ANY LEGAL PROCEEDING BROUGHT BY THE OTHER IN CONNECTION WITH THIS LEASE. EACH PARTY SHALL BRING ANY ACTION AGAINST THE OTHER IN CONNECTION WITH THIS LEASE IN A FEDERAL OR STATE COURT LOCATED IN TRAVIS COUNTY, TEXAS, CONSENTS TO THE JURISDICTION OF SUCH COURTS, AND WAIVES ANY RIGHT TO HAVE ANY PROCEEDING TRANSFERRED FROM SUCH COURTS ON THE GROUND OF IMPROPER VENUE OR INCONVENIENT FORUM. F. Litigation Costs. In the event litigation is filed regarding or relating to this Lease which results in a judgment, the non-prevailing party shall pay the prevailing party's reasonable attorneys' fees and other costs in enforcing this Lease. 14. Surrender. Upon termination of this lease or Tenant's right to possession, Tenant shall return the premises to Landlord in good order and condition, ordinary wear and fire and other casualty damage excepted. If Landlord requires Tenant to remove any alterations in accordance with Section 5 hereof, then Tenant shall remove the alterations in a good and workmanlike manner and restore the Premises to its condition prior to their installation, loss or damage caused by the elements and normal wear and tear excepted. 15. Holdover. If Tenant retains possession of any part of the Premises after the Term, Tenant shall become a month-to-month tenant for the entire Premises (or less than the entire Premises subject to Landlord approval, which approval is in Landlord's absolute and sole discretion), upon all of the terms of this Lease as might be applicable to such month-to-month tenancy, except that Tenant shall pay all Operating Cost Share Rent, Tax Share Rent and Base Rent at 100% of the last month's Base Rent for one month and thereafter at 120% of the Base Rent in effect during the last month of the Term, if with Landlord's written consent (which consent is in Landlord's sole and absolute discretion), or 150% of the Base Rent in effect during the last month of the Term, if without Landlord's written consent, computed on a monthly basis for each full or partial month Tenant remains in possession. Any amounts owing by Tenant pursuant to this Section 15 shall be prorated based on any portion of the premises not occupied by Tenant which has been leased and occupied by another tenant for the conduct of its business. Tenant shall also pay Landlord all of Landlord's direct and consequential damages. No acceptance of Rent or other payments by Landlord under these holdover provisions shall operate as a waiver of Landlord's right to regain possession or any other of Landlord's remedies. 16. Subordination to Ground Leases and Mortgages. A. Subordination. Provided that Tenant is provided a Non-Disturbance Agreement in a form reasonably satisfactory to Tenant, this Lease shall be subordinate to any present or future ground lease or mortgage respecting the Project, and any amendments to such ground lease or mortgage, at the election of the ground lessor or mortgagee as the case may be. If the Lease is subordinate to any mortgages or other encumbrances upon the execution hereof, Landlord shall deliver to Tenant prior to the Commencement Date a Non-Disturbance Agreement from the holders of any such superior mortgages or encumbrances in a form reasonably satisfactory to Tenant. B. Termination of Ground Lease or Foreclosure of Mortgage. If any ground lease is terminated or mortgage foreclosed or deed in lieu of foreclosure given and the ground lessor, mortgagee, or purchaser at a foreclosure sale shall thereby become the owner of the Project, Tenant shall attorn to such ground lessor or mortgagee or purchaser without any deduction or set off by Tenant, and this Lease shall continue in effect as a direct lease between Tenant and such ground lessor, mortgagee or purchaser. The ground lessor or mortgagee or purchaser shall be liable as Landlord only during the time such ground lessor or mortgagee or purchaser is the owner of the Project. At the request of Landlord, ground lessor 16 22 or mortgagee, Tenant shall execute and deliver within ten (10) days of the request any document furnished by the requesting party to evidence Tenant's agreement to attorn. C. Security Deposit. Any ground lessor or mortgagee shall be responsible for the return of any security deposit by Tenant only to the extent the security deposit is received by such ground lessor or mortgagee. D. Notice and Right to Cure. The Project is subject to any ground lease and mortgage identified with name and address of ground lessor or mortgagee in Appendix D to this Lease (as the same may be amended from time to time by written notice to Tenant). Tenant agrees to send by registered or certified mail to any ground lessor or mortgagee identified either in such Appendix or in any later notice from Landlord to Tenant a copy of any notice of default sent by Tenant to Landlord. If Landlord fails to cure such default within the required time period under this Lease, but ground lessor or mortgagee begins to cure within ten (10) days after such period and proceeds diligently to complete such cure, then ground lessor or mortgagee shall have such additional time as is necessary to complete such cure, including any time necessary to obtain possession if possession is necessary to cure, and Tenant shall not begin to enforce its remedies so long as the cure is being diligently pursued. E. Definitions. As used in this Section 16, "mortgage" shall include "trust deed" and "mortgagee" shall include "trustee", "mortgagee" shall include the mortgagee of any ground lessee, and "ground lessor", "mortgagee", and "purchaser at a foreclosure sale" shall include, in each case, all of its successors and assigns, however remote. 17. Assignment and Sublease. A. In General. Tenant shall not, without the prior consent of Landlord in each case, (i) make or allow any assignment or transfer, by operation of law or otherwise, of any part of Tenant's interest in this Lease, (ii) grant or allow any lien or encumbrance, by operation of law or otherwise, upon any part of Tenant's interest in this Lease, (iii) sublet any part of the premises, or (iv) permit anyone other than Tenant and its employees to occupy any part of the premises. Tenant shall remain primarily liable for all of its obligations under this Lease, notwithstanding any assignment or transfer. No consent granted by Landlord shall be deemed to be a consent to any subsequent assignment or transfer, lien or encumbrance, sublease or occupancy. Tenant shall pay all of Landlord's reasonable attorneys' fees and other expenses incurred in connection with any subsequent assignment or transfer, lien or encumbrance, sublease or occupancy. Tenant shall pay all of Landlord's reasonable attorneys' fees and other expenses incurred in connection with any consent requested by Tenant or in reviewing any proposed assignment or subletting, not to exceed $1,000.00 in each instance. Any assignment or transfer, grant of lien or encumbrance, or sublease or occupancy without Landlord's prior written consent shall be void. If Tenant shall assign this Lease or sublet the premises in its entirety any rights of Tenant to renew this Lease, extend the Term or to lease additional space in the Project will and cannot be transferred to the assignee or subtenant, all such rights being personal to the Tenant named herein. B. Landlord's Consent. Landlord will not unreasonably withhold, delay or condition its consent to any proposed assignment or subletting. It shall be reasonable for Landlord to withhold its consent to any assignment or sublease if (i) Tenant is in default under this Lease, (ii) the proposed assignee or sublessee is a tenant in the Project or an affiliate of such a tenant or a party that Landlord has identified as a prospective tenant in the Project, (iii) the financial responsibility, nature of business, and character of the proposed assignee or subtenant are not all reasonably satisfactory to Landlord, (iv) in the reasonable judgment of Landlord the purpose for which the assignee or subtenant intends to use the Premises (or a portion thereof) is not in keeping with Landlord's standards for the Building or are in violation of the terms of this Lease or any other leases in the Project, (v) the proposed 17 23 assignee or subtenant is a government entity, or (vi) the proposed assignment is for less than the entire Premises or for less than the remaining Term of the Lease. The foregoing shall not exclude any other reasonable basis for Landlord to withhold its consent. C. Procedure. Tenant shall notify Landlord of any proposed assignment or sublease at least fifteen (15) days prior to its proposed effective date. The notice shall include the name and address of the proposed assignee or subtenant, its corporate affiliates in the case of a corporation and its partners in a case of a partnership, a proposed copy of the proposed assignment or sublease, and reasonably sufficient information to permit Landlord to determine the financial responsibility and character of the proposed assignee or subtenant. As a condition to any effective assignment of this Lease, the assignee shall execute and deliver in form satisfactory to Landlord at least ten (10) days prior to the effective date of the assignment, an assumption of all of the obligations of Tenant under this Lease. As a condition to any effective sublease, subtenant shall execute and deliver in form satisfactory to Landlord at least five (5) days prior to the effective date of the sublease, an agreement to comply with all of Tenant's obligations under this Lease, prorated as to the sublease terms, and at Landlord's option, an agreement (except for the economic obligations which subtenant will undertake directly to Tenant) to attorn to Landlord under the terms of the sublease in the event this Lease terminates before the sublease expires. D. Change of Ownership. If no default on the part of Tenant has occurred and is continuing, Tenant may assign this Lease (including all renewal, preferential and expansion rights contained in this Lease) to an entity into which Tenant is merged or consolidated or to an entity to which substantially all of Tenant's assets are transferred, without first obtaining Landlord's written consent. If Tenant notifies Landlord at least ten (10) business days prior to the proposed transaction, providing information satisfactory to Landlord in order to determine the net worth both of the successor entity and of Tenant immediately prior to such assignment, and showing the net worth of the successor to be at least equal to the net worth of Tenant. E. Excess Payments. If Tenant shall assign this Lease or sublet any part of the Premises for consideration in excess of the pro-rata portion of Rent applicable to the space subject to the assignment or sublet, then Tenant shall pay to Landlord as Additional Rent 50% of any such excess immediately upon receipt. 18. Conveyance by Landlord. If Landlord shall at any time transfer its interest in the Project or this Lease, Landlord shall be released of any obligations occurring after such transfer, except the obligation to return to Tenant any security deposit not delivered to its transferee, and Tenant shall look solely to Landlord's successors for performance of such obligations. This Lease shall not be affected by any such transfer. 19. Estoppel Certificate. Each party shall, within ten (10) business days of receiving a request from the other party, execute, acknowledge in recordable form, and deliver to the other party or its designee a certificate stating, subject to a specific statement of any applicable exceptions, that the Lease as amended to date is in full force and effect, that the Tenant is paying Rent and other charges on a current basis, and that to the best of the knowledge of the certifying party, other than exceptions as noted, the other party has committed no uncured defaults and has no offsets or claims. The certifying party may also be required to state the date of commencement of payment of Rent, the Commencement Date, the Termination Date, the Base Rent, the current Operating Cost Share Rent and Tax Share Rent estimates, the status of any improvements required to be completed by Landlord, the amount of any security deposit, and such other matters as may be reasonably requested. Failure to deliver such statement within the time required set forth above and within the expiration of three (3) business days after a second written request shall be conclusive evidence against the non-certifying party that this Lease, with any amendments identified by the requesting party, is in full force and effect, that there are no uncured defaults by the requesting party, that not more than one month's Rent has been paid in advance, that the non-certifying party has not 18 24 paid any security deposit except as provided in this Lease, and that the non-certifying party has no claims or offsets against the requesting party. 20. Security Deposit. Tenant shall deposit with Landlord on the date of this Lease, security for the performance of all of its obligations in the amount set forth on the Schedule. If Tenant defaults under this Lease, Landlord may use any part of the Security Deposit to make any defaulted payment, to pay for Landlord's cure of any defaulted obligation, or to compensate Landlord for any loss or damage resulting from any default. To the extent any portion of the deposit is used, Tenant shall within five (5) days after demand from Landlord restore the deposit to its full amount. Landlord may keep the Security Deposit in its general funds and shall not be required to pay interest to Tenant on the deposit amount. If Tenant shall perform all of its obligations under this Lease and return the Premises to Landlord at the end of the Term, Landlord shall return all of the remaining Security Deposit to Tenant. The Security Deposit shall not serve as an advance payment of Rent or a measure of Landlord's damages for any default under this Lease. If Landlord transfers its interest in the Project or this Lease, Landlord may transfer the Security Deposit to its transferee. Upon such transfer and acknowledgement of receipt from such transferee, Landlord shall have no further obligation to return the Security Deposit to Tenant, and Tenant's right to the return of the Security Deposit shall apply solely against Landlord's transferee. 21. Force Majeure. Neither Landlord nor Tenant shall be in default under this Lease to the extent either or both is unable to perform either of its respective obligations on account of any strike or labor problem, energy shortage, governmental pre-emption or prescription, national emergency, or any other cause of any kind beyond the reasonable control of Landlord ("Force Majeure"), except for Tenant's obligation to pay Rent hereunder. 22. Tenant's Personal Property and Fixtures. Deleted. 23. Notices. All notices, consents, approvals and similar communications to be given by one party to the other under this Lease, shall be given in writing, mailed or personally delivered as follows: A. Landlord. To Landlord as follows: CarrAmerica Realty, L.P. t/a City View Centre ATTN: Market Officer First State Bank Building 400 W. 15th Street, Suite #1400 Austin, Texas 78701 512-472-5511 FAX with a copy to: CarrAmerica Realty Corporation 1700 Pennsylvania Avenue, N.W. Washington, D.C. 20006 Attn: Lease Administration or to such other person at such other address as Landlord may designate by notice to Tenant. 19 25 B. Tenant. To Tenant as follows: 1. Prior to Lease Commencement: IXC Communications, Inc. 5000 Plaza on the Lake, Suite 200 Austin, Texas 78746 ATTN: General Counsel w/copies to the Chief Financial Officer 2. After Lease Commencement: IXC Communications, Inc. 1120 S. Capital of Texas Highway Austin, Texas 78746 ATTN: General Counsel w/copies to the Chief Financial Officer or to such other person at such other address as Tenant may designate by notice to Landlord. Mailed notices shall be sent by United States certified or registered mail, or by a reputable national overnight courier service, postage prepaid. Mailed notices shall be deemed to have been given on the earlier of actual delivery or three (3) business days after posting in the United States mail in the case of registered or certified mail, and upon delivery in the case of overnight courier. 24. Quiet Possession. So long as Tenant shall perform all of its obligations under this Lease, Tenant shall enjoy peaceful and quiet possession of the Premises against any party claiming through the Landlord. 25. Real Estate Broker. Tenant represents to Landlord that Tenant has not dealt with any real estate broker with respect to this Lease except for any Tenant Real Estate Broker listed in the Schedule, and no other broker is in any way entitled to any broker's fees or other payment in connection with this Lease. Tenant shall indemnify and defend Landlord against any claims by any other broker or third party for any payment of any kind in connection with this Lease. Landlord agrees to compensate Tenant Real Estate Broker listed in the Schedule pursuant to a written commission agreement executed between Landlord and such Tenant Real Estate Broker. 26. MISCELLANEOUS. A. Successors and Assigns. Subject to the limits on Tenant's assignment contained in Section 17, the provisions of this Lease shall be binding upon and inure to the benefit of all successors and assigns of Landlord and Tenant. B. Date Payments Are Due. Except for payments to be made by Tenant under this Lease which are due upon demand, Tenant shall pay to Landlord any amount for which Landlord renders a statement of account within thirty (30) days of Tenant's receipt of Landlord's statement. C. Meaning of "Landlord", "Re-Entry", "including" and "Affiliate". The term "Landlord" means only the owner of the Project and the lessor's interest in this Lease from time to time. The words "re-entry" and "re-enter" are not restricted to their technical legal meaning. The words "including" and similar words shall mean "without limitation." The word "affiliate" shall mean a person or entity controlling, controlled by or under common control with the applicable entity. "Control" shall mean the power directly or 20 26 indirectly, by contract or otherwise, to direct the management and policies of the applicable entity. D. Time of the Essence. Time is of the essence of each provision of this Lease. E. No Option. This document shall not be effective for any purpose until it has been executed and delivered by both parties; execution and delivery by one party shall not create any option or other right in the other party. F. Severability. The unenforceability of any provision of this Lease shall not affect any other provision. G. Governing Law. This Lease shall be governed in all respects by the laws of the state of Texas. H. Lease Modification. Tenant agrees to modify this Lease in any way requested by a mortgagee which does not cause increased expense to Tenant or otherwise materially adversely affect Tenant's interests under this Lease or increase Tenant's obligations hereunder. I. No Oral Modification. No modification of this Lease shall be effective unless it is a written modification signed by both parties. J. Right to Cure. If Landlord shall default in the performance of any of its obligations under this Lease unless Landlord's violation or failure to perform any of those obligations continues for a period of 10 days after notice thereof has been delivered by Tenant to Landlord or, in cases where the violation or failure to perform cannot be corrected within 10 days, Landlord does not begin to correct the violation or failure to perform to completion within a reasonable time after receiving Tenant's notice, Tenant may, without prejudice to any of its rights under this Lease or in law or in equity, withhold payment of the Rent due and to accrue hereunder, up to a maximum of the lessor of: (a) one month of the then current Rent under this Lease, or (b) the extent necessary to cover the costs estimated by Tenant to cure such default, so long as Landlord remains in default. Pursuit of the foregoing remedies shall not preclude pursuit of any of the other remedies herein provided or any other remedies provided by law or in equity, nor shall pursuit of any remedy herein provided constitute an election of remedies or a forfeiture or waiver of any damages accruing to Tenant by reason of the violation of any of the terms, provisions and covenants herein contained. Landlord may cure any default by Tenant; any expenses incurred on behalf of Tenant or as a direct result of such breach shall become Additional Rent due from Tenant on demand by Landlord. K. Captions. The captions used in this Lease shall have no effect on the construction of this Lease. L. Authority. Landlord and Tenant each represents to the other that it has full power and authority to execute and perform this Lease. M. Landlord's Enforcement of Remedies. Landlord may enforce any of its remedies under this Lease either in its own name or through an agent. N. Entire Agreement. This Lease, together with all Appendices, constitutes the entire agreement between the parties. No representations or agreements of any kind have been made by either party which are not contained in this Lease. 21 27 O. Landlord's Title. Landlord's title shall always be paramount to the interest of the Tenant, and nothing in this Lease shall empower Tenant to do anything which might in any way impair Landlord's title. P. Light and Air Rights. Landlord does not grant in this Lease any rights to light and air in connection with Project. Landlord reserves to itself, the Land, the Building below the improved floor of each floor of the Premises, the Building above the ceiling of each floor of the Premises, the exterior of the Premises and the areas on the same floor outside the Premises, along with the areas within the Premises required for the installation and repair of utility lines and other items required to serve other tenants of the Building. Q. Singular and Plural. Wherever appropriate in this Lease, a singular term shall be construed to mean the plural where necessary, and a plural term the singular. For example, if at any time two parties shall constitute Landlord or Tenant, then the relevant term shall refer to both parties together. R. No Recording by Tenant. Tenant shall not record in any public records any memorandum or any portion of this Lease. S. Exclusivity. Landlord does not grant to Tenant in this Lease any exclusive right except the right to occupy its Premises. T. Construction. The rule of construction that ambiguities are resolved against the drafting party shall not apply to this Lease. The Lease shall be construed to effectuate the normal and reasonable expectations of a commercially sophisticated landlord and tenant. U. Survival. All obligations of Landlord and Tenant under this Lease shall survive the termination of this Lease. V. Rent Not Based on Income. No rent or other payment in respect of the Premises shall be based in any way upon net income or profits from the Premises. Tenant may not enter into or permit any sublease or license or other agreement in connection with the Premises which provides for a rental or other payment based on net income or profit. W. Building Manager and Service Providers. Landlord may perform any of its obligations under this Lease through its employees or third parties hired by the Landlord. X. Late Charge and Interest on Late Payments. Without limiting the provisions of Section 12A, if Tenant fails to pay any installment of Rent or other charge to be paid by Tenant pursuant to this Lease within five (5) business days after written notice by Landlord that the same is past due and payable, then Tenant shall pay a late charge equal to $250. In addition, interest shall be paid by Tenant to Landlord on any late payments of Rent from the date due until paid at the rate provided in Section 2D(2), except to the extent that Landlord is required by this Lease to provide written notice of such non-payment, in which event such interest shall accrue from the date such notice is provided. Such late charge and interest shall constitute additional Rent due and payable by Tenant to Landlord upon the date of payment of the delinquent payment referenced above. Y. Approvals. Unless expressly stated otherwise in this Lease, any approval or consent requested by either Landlord or Tenant from the other shall not be unreasonably withheld or delayed. Furthermore, except to the extent any right or action is expressly granted herein, neither Landlord nor Tenant shall take any action which is likely to frustrate the other's reasonable expectations concerning the benefits to be enjoyed under this Lease. 22 28 27. Unrelated Business Income. If Landlord is advised by its counsel at any time that any part of the payments by Tenant to Landlord under this Lease may be characterized as unrelated business income under the United States Internal Revenue Code and its regulations, then Tenant shall enter into any amendment proposed by Landlord to avoid such income, so long as the amendment does not require Tenant to make more payments or accept fewer services from Landlord, than this Lease provides. 28. Hazardous Substances. Other than small amounts of office supplies (i.e., toner), cleaning and janitorial items used in the ordinary course of Tenant's business, Tenant shall not cause or permit any Hazardous Substances to be brought upon, produced, stored, used, discharged or disposed of in or near the Project unless Landlord has consented to such storage or use in its sole discretion. "Hazardous Substances" include those hazardous substances described in the Comprehensive Environmental Response, Compensation and Liability Act of 1980, as amended, 42 U.S.C. Section 9601 et seq., the Resource Conservation and Recovery Act, as amended, 42 U.S.C. Section 6901 et seq., any other applicable federal, state or local law, and the regulations adopted under these laws. If any lender or governmental agency shall require testing for Hazardous Substances in the Premises, Tenant shall pay for such testing. Landlord represents and warrants that the Premises will be constructed free of all Hazardous Substances, and that Premises shall be maintained in compliance with all environmental laws, rules and regulations. If at any time during the Term or any renewals thereof, any Hazardous Substances are found to be present in the Premises, the Building, the common areas or on the land which were not caused or permitted by Tenant, Landlord will take all steps necessary to cure all violations in compliance with all applicable laws, rules, regulations and guidelines at Landlord's sole cost and at no cost to Tenant as more particularly set forth in the Lease and which may include the commencement of an operations and maintenance program if non-friable asbestos is ever discovered to be present in the Premises. 29. Exculpation. Landlord shall have no personal liability under this Lease; its liability shall be limited to its interest in the Project and/or any Security Deposit to the extent Landlord does not transfer it to any purchaser of the Project, and shall not extend to any other property or assets of the Landlord. In no event shall any officer, director, employee, agent, shareholder, partner, member or beneficiary of Landlord be personally liable for any of Landlord's obligations hereunder. IN WITNESS WHEREOF, the parties hereto have executed this Lease. TENANT: LANDLORD: IXC COMMUNICATIONS, INC., CARRAMERICA REALTY L.P., a Delaware Corporation t/a CITY VIEW CENTRE By: /s/ RALPH J. SWETT By: CARRAMERICA REALTY G.P. ---------------------------- HOLDINGS, INC., a Name: Ralph J. Swett Delaware Corporation, Title: Chairman of the Board its General Partner By: /s/ PHILIP L. HAWKINS ------------------------------ Name: Philip L. Hawkins Title: Managing Director 23 29 APPENDIX A PLAN OF THE PREMISES (attach floor plans depicting the Premises) APPENDIX A Page 1 of 1 30 APPENDIX B RULES AND REGULATIONS 1. Tenant shall not place anything, or allow anything to be placed near the glass of any window, door, partition or wall which may, in Landlord's reasonable judgment, appear unsightly from outside of the Project. 2. The Project directory shall be available to Tenant solely to display names and their location in the Project, which display shall be as directed by Landlord. 3. The sidewalks, halls, passages, exits, entrances, elevators and stairways shall not be obstructed by Tenant or used by Tenant for any purposes other than for ingress to end and egress from the Premises. Tenant shall lend its full cooperation to keep such areas free from all obstruction and in a clean and sightly condition and shall move all supplies, furniture and equipment as soon as received directly to the Premises and move all such items and waste being taken from the Premises (other than waste customarily removed by employees of the Building) directly to the shipping platform at or about the time arranged for removal therefrom. The halls, passages, exits, entrances, elevators, stairways, balconies and roof are not for the use of the general public and Landlord shall, in all cases, retain the right to control and prevent access thereto by all persons whose presence in the judgment of Landlord, reasonably exercised, shall be prejudicial to the safety, character, reputation and interests of the Project. 4. The toilet rooms, urinals, wash bowls and other apparatuses shall not be used for any purposes other than that for which they were constructed, and no foreign substance of any kind whatsoever shall be thrown therein, and to the extent caused by Tenant or its employees or invitees, the expense of any breakage, stoppage or damage resulting from the violation of this rule shall be borne by Tenant. 5. Tenant shall not cause any unnecessary janitorial labor or services by reason of Tenant's carelessness or indifference in the preservation of good order and cleanliness. 6. Tenant shall not install or operate any refrigerating, heating or air conditioning apparatus, or carry on any mechanical business without the prior written consent of Landlord, which consent shall not be unreasonably withheld; use the Premises for housing, lodging or sleeping purposes; or permit preparation or warming of food in the Premises (warming of coffee, beverages, and individual meals with employees and guests excepted). Tenant shall not occupy or use the Premises or permit the Premises to be occupied or used for any purpose, act or thing which is in violation of any Governmental Requirement or which may be dangerous to persons or property. 7. Tenant shall not bring upon, use or keep in the Premises or the Project any kerosene, gasoline or inflammable or combustible fluid or material, or any other articles deemed hazardous to persons or property, or use any method of heating or air conditioning other than that supplied by Landlord. 8. Landlord shall have sole power to direct electricians as to where and how telephone and other wires are to be introduced. No boring or cutting for wires is to be allowed without the consent of Landlord. The location of telephones, call boxes and other office equipment affixed to the Premises shall be subject to the approval of Landlord, which approval shall not be unreasonably withheld or delayed. APPENDIX B Page 1 of 3 31 9. Other than in Tenant's secure areas or the network control center, no additional locks shall be placed upon any doors, windows or transoms in or to the Premises. Other than in Tenant's secure areas or the network control center, Tenant shall not change existing locks or the mechanism thereof. Upon termination of the lease, Tenant shall deliver to Landlord all keys and passes for offices, rooms, parking lot and toilet rooms which shall have been furnished Tenant by Landlord. In the event of the loss of keys so furnished, Tenant shall pay Landlord's reasonable cost therefor. Tenant shall not make, or cause to be made, any such keys and shall order all such keys solely from Landlord and shall pay Landlord for any keys in addition to the two sets of keys originally furnished by Landlord for each lock. 10. Tenant shall not install linoleum, tile, carpet or other floor covering so that the same shall be affixed to the floor of the Premises in any manner except as approved by Landlord, which approval shall not be unreasonably withheld or delayed. 11. Tenant shall not take or permit to be taken in or out of other entrances of the Building, or take or permit on other elevators, any item normally taken in or out through the trucking concourse or service doors or in or on freight elevators. 12. Tenant shall cooperate fully with Landlord to assure the most effective operation of the Premises' or the Project's heating and air conditioning, and shall refrain from attempting to adjust any controls, other than room thermostats installed for Tenant's use. Tenant shall keep corridor doors closed. 13. Peddlers, solicitors and beggars shall be reported to the office of the Project or as Landlord otherwise requests. 14. No bicycle or other vehicle and no animals or pets shall be allowed in the Premises, halls, freight docks, or any other parts of the Building except that blind persons may be accompanied by "seeing eye" dogs. Tenant shall not make or permit any noise, vibration or odor to emanate from the Premises, or do anything therein tending to create, or maintain, a nuisance, or do any act tending to injure the reputation of the Building. 15. Tenant acknowledges that Building security problems may occur which may require the employment of extreme security measures in the day-to-day operation of the Project. Accordingly: (a) Landlord may, at any time, or from time to time, or for regularly scheduled time periods, as deemed advisable by Landlord and/or its agents, in their sole discretion, require that persons entering or leaving the Project or the Property identify themselves to watchmen or other employees designated by Landlord, by registration, identification or otherwise. (b) Tenant agrees that it and its employees will cooperate fully with Project employees in the implementation of any and all security procedures. (c) Such security measures shall be the sole responsibility of Landlord, and Tenant shall have no liability for any action taken by Landlord in connection therewith, it being understood that Landlord is not required to provide any security procedures and shall have no liability for such security procedures or the lack thereof. 16. Tenant shall not do or permit the manufacture, sale, purchase, of any fermented, intoxicating or alcoholic beverages without obtaining written consent of Landlord. APPENDIX B Page 2 of 3 32 17. Tenant shall not disturb the quiet enjoyment of any other tenant. 18. Tenant shall not provide any janitorial services or cleaning without Landlord's written consent which shall not be unreasonably withheld. 19. No equipment, mechanical ventilators, awnings, special shades or other forms of window covering shall be permitted either inside or outside the windows of the Premises without the prior written consent of Landlord, and then only at the expense and risk of Tenant, and they shall be of such shape, color, material, quality, design and make as may be approved by Landlord. 20. Tenant shall not during the term of this Lease canvas or solicit other tenants of the Building for any purpose. 21. Tenant shall not exhibit, sell or offer for sale, Rent or exchange in the Premises or at the Project any article, thing or service, except those ordinarily embraced within the use of the Premises specified in Section 6 of this Lease, without the prior written consent of Landlord. 22. Tenant shall not overload any floors in the Premises or any public corridors or elevators in the Building. 23. Except for the provisions of Article 5, Tenant shall not do any painting in the Premises, or mark, paint, cut or drill into, drive nails or screws into, or in any way deface any part of the Premises or the Building, outside or inside, without the prior written consent of Landlord. 24. Whenever Landlord's consent, approval or satisfaction is required under these Rules, then unless otherwise stated, any such consent, approval or satisfaction must be obtained in advance but such consent or approval will not be unreasonably denied or delayed. 25. Tenant and its employees shall reasonably cooperate in all fire drills conducted by Landlord in the Building. APPENDIX B Page 3 of 3 33 APPENDIX C TENANT IMPROVEMENT AGREEMENT 1. Tenant Improvements. The Building core and shell and all common areas of the Building (the "Base Building") shall be fully built out (including all men's and women's restrooms on all floors at Landlord's sole cost and expense with all finishes (including paint and carpet) complete per Landlord's Base Building plans dated February 16, 1997 (the "Base Building Plans"). Subsequent revisions to the Base Building Plans are to be submitted to Tenant for its review and approval, which approval shall not be unreasonably withheld or delayed. Landlord shall cause to be performed the improvements (the"Tenant Improvements") in the Premises provided for in the space plans and specifications prepared by Tenant's architect and agreed to by Landlord and Tenant (the "Plans"). The Tenant Improvements shall be performed by the Landlord's Base Building general contractor (the "Contractor") subject to the fee and general conditions negotiated between Tenant and the Contractor as described in Appendix C-1. The scope of work and cost will be added to the existing Base Building contact by change order and will be subject to all terms and conditions of the Base Building contract. Tenant and Landlord shall mutually select subcontractors and suppliers for the Tenant Improvements. Tenant shall have the right to receive copies of bids and proposals; to review and assist in the value engineering and selection of subcontractors and suppliers in the Tenant Improvements; and to consult on the construction of the Tenant Improvements. Tenant shall further have the right to contract directly with subcontractors and suppliers for specialty equipment not customarily included in general contracts for tenant improvements. Landlord shall use commercially reasonable efforts to cause the Tenant Improvements to be Substantially Completed (as defined below) on or before the Commencement Date specified in the Schedule to the Lease, subject to Tenant Delay (as defined in Section 3 hereof) and any Force Majeure (except that weather subject to Tenant Delay (as defined in Section 3 hereof) and any Force Majeure (except that weather delays shall not constitute Force Majeure after the Building is "weathered in"). Landlord will not change any supervisory fee for the Tenant Improvements as hereinafter defined. Tenant shall deliver to Landlord for its approval plans and specifications for any additional Tenant Improvements and/or changes, deletions and substitutions thereto (the "Change Orders"). Landlord shall have three (3) business days to review and approve said Change Orders and advise Tenant of the changes required. Tenant shall revise and redeliver the plans and specifications to Landlord within five (5) business days of Landlord's advice. The Contractor will provide to Tenant a cost estimate to complete the Change Orders, together with any anticipated schedule change and an itemized breakdown of costs and unit prices within three (3) business days of receipt of such information. Tenant shall approve or disapprove Contractor's estimates within three (3) business days of receipt of same. Tenant shall pay for all preparations and revisions of plans and specifications, and the construction of Change Orders if the same cause the cost of the Tenant Improvements to exceed the Landlord Contribution. 2. Landlord's Contribution. Tenant Improvements shall be built out under the Supervision of the Landlord with Tenant consultation. No fee for supervision shall be charged against the Landlord's Contribution by Landlord. The cost to build out the Tenant Improvements shall be at the Landlord's sole expense up to the amount of $22.00 per SF NRA times the total number of square feet of net rentable area contained therein based upon such agreed plans and specifications (the "Landlord's Contribution"). Building Standard items provided as part of the Base Building and not chargeable against the Landlord Contribution include: (a) Ceiling grid and tile--purchased and stocked but not installed. APPENDIX C Page 1 of 5 34 (b) 2x4 lay in light fixtures at a rate of 1/80 RSF purchased and stocked but not installed. (c) Sprinkler system installed with Chrome semi-recessed heads at a rate of 1 head per 225 SF. (d) HVAC system to include air handlers, internal and external zones and thermostats. Distribution ductwork and grills are chargeable to Landlord Contribution. (e) Mini blinds on exterior windows. Should Tenant desire to substitute for any of the above items, any other Tenant Improvements, and/or any common area materials and/or specifications, credit will be offered provided that such substitutions and requests for credits be received prior to June 15, 1997. Should such substitutions result in an increase in the cost of any of the above items, such increase in cost shall be chargeable to Landlord's Contribution. If the cost of Tenant Improvements does not exceed the Landlord's Contribution, the Landlord shall be entitled to retain the savings. If the cost of Tenant Improvements exceeds the Landlord's Contribution, Tenant shall pay for such excess costs in monthly progress payments (in accordance with Section 8 in this Appendix) during the construction period for Tenant Improvements. Tenant payments hereunder will be subject to customary pay application, retention and lien waiver provisions. 3. Commencement Date Delay. Commencement date shall be delayed until the tenant Improvements have been Substantially Completed, as defined below (the "Completion Date"), except to the extent that any delay which actually effects the critical path shall be caused by any one or more of the following (a "Tenant Delay"): (a) Tenant's request for Change Orders whether or not any such Change Orders are actually performed; or (b) Contractor's performance of any Change Orders; or (c) Tenant's request for materials, finishes or installations requiring unusually long lead times that were not identified by Tenant sufficiently early enough to meet the scheduled timetable; or (d) Tenant delay in making progress payments; or (e) Tenant's delay in providing, reviewing, revising or approving plans and specifications beyond the periods set forth herein; or (f) Tenant's delay in providing pricing set of documents by August 1, 1997, and compete construction documents suitable for permitting by July 15, 1997; or (g) Tenant delays for more than two (2) business days after receipt of a request for information by Landlord to provide the requested information; or (h) Any other act or omission by Tenant, its agents, contractors or persons employed by any of such persons. Landlord or Landlord's architect will promptly notify Tenant of delays. APPENDIX C Page 2 of 5 35 Notwithstanding the foregoing to the Contrary, Tenant shall have the right to pay premium costs associated with any change order so as to not cause a schedule delay. If the Commencement Date is delayed for any reason, then Landlord shall cause Landlord's Architect to certify the date on which the Tenant Improvements would have been substantially completed but for such Tenant Delay, or were in fact completed without any Tenant Delay. Disputes as to the validity of delays as judged by the Landlord or the Landlord's architect will be resolved by binding arbitration under the rules, procedures and guidelines of the American Arbitration Association. "Substantially Completed" shall mean the date upon which (a) Landlord has sufficiently completed all Tenant Improvements as shown ont he Plans (except for minor punch list items), (b) construction progress for the required work is sufficient to qualify the Premises for issuance of the Temporary Certificate of Occupancy for permanent occupancy, the Base Condition (to be defined by the Base Building Plans) is complete and in compliance with all applicable laws, and all of the Base Building Systems are operational to the extent necessary to service the Premises for the normal operation of Tenant's business, (d) Tenant has been provided with the number of parking privileges and spaces to which it is entitled under the Lease (e) prior to the date of Substantial Completion, Tenant and its vendors and subcontractors have been allowed access to the premises (and other required portions of the Base Building and site) in accordance with this Lease and a mutually agreed Tenant Improvement Schedule to allow Tenant to install its freestanding work stations, fixtures, furniture, equipment, telecommunication and computer cabling systems, satellite dish, backup generator and any other item necessary to the normal operation of Tenant's business in order to allow Tenant to occupy the Premises over two (2) consecutive weekends after the Premises are Substantially Completed. A "Punch List" of uncompleted items mutually agreed upon by Landlord and Tenant will be prepared prior to occupancy and mutually agreed upon by Landlord and Tenant. All items will be corrected or completed within four weeks after occupancy. 4. Access By Tenant Prior To Commencement of Term. Landlord shall permit Tenant and its agents to enter the Premises prior to the Commencement Date to prepare the Premises for Tenant's use and occupancy, including the installation of equipment, furniture, fixtures and all related cabling and electrical connections, without charge for the use of any Building Services (including but not limited to loading dock, parking or freight elevators). Landlord will make reasonable efforts to substantially complete and make available the network operations center area for vendor equipment installation and testing on approximately November 1, 1997. Tenant recognizes and agrees that Base Building core and shell will not be completed and that work will be ongoing in the Base Building and on the Land until completion on or about December 1, 1997. Any permission to enter the Premises constitutes a license only, conditioned upon Tenant's complying with the following agreements: (a) Landlord and Tenant agree to work in harmony and coordinate a mutually acceptable schedule to satisfy their respective needs with their respective agents, contractors, workmen, mechanics and suppliers and with other tenants and occupants of the Building. (b) Tenant agrees to obtain in advance Landlord's approval of the contractors proposed to be used by Tenant and depositing with Landlord in advance of any work (i) security satisfactory to Landlord for the completion thereof, and (ii) the general contractor's affidavit for the proposed work and the waivers of lien from the general contractor and all subcontractor and suppliers of material; and APPENDIX C Page 3 of 5 36 (c) Tenant agrees to furnish Landlord with such insurance as Landlord may reasonably require against liabilities which may arise out of such entry. Landlord shall not be liable in any way for any injury, loss or damage which may occur to any of Tenant's property or installations in the Premises prior to the Commencement Date, except in case of Landlord's or Landlord's general contractor and/or agents of Landlord's gross negligence or intentional misconduct. Tenant shall protect, defend, indemnify and save harmless Landlord from all liabilities, costs, damages, fees and expenses arising out of the activities of Tenant or its agents, contractors, suppliers or workmen in the Premises or the Building. Any entry and occupation permitted under this Section shall be governed by Section 5 and all other terms of the Lease. 5. Delay. In the event the Tenant Improvements are not Substantially Completed by the Commencement Date of December 1, 1997, or such later date caused by Force Majeure and/or Tenant Delay as referenced in Articles 1 and 3 of Appendix C, then Landlord will pay Tenant $3,000 per day until Tenant Improvements are Substantially Completed. 6. Move-In. Landlord shall arrange for the Premises to be thoroughly cleaned at Landlord's reasonable cost and expense prior to and immediately following the Tenant's move into the Premises. Tenant shall be responsible for removal and disposal of all trash and waste caused by Tenant's vendors and subcontractors. 7. Contractor Obligations. Any contact with the Contractor shall require that Contractor comply with the following requirements. (a) submit payment applications to Landlord and Tenant on a monthly basis, with the right of both Landlord and Tenant to review each payment application for conformance of work, review of schedules and values and work in place; (b) provide conditional and unconditional lien releases from any and all subcontractors and vendors in conjunction with the monthly payment applications; (c) provide due diligence review and assist Tenant in reviewing the Plans and existing conditions and provide feedback to Tenant's architect; (d) provide Landlord and Tenant copies of all contracts with subcontractors pertaining to Tenant Improvements or Change Orders; (e) provide full time supervision for the Project; (f) take all prudent actions, remedial or otherwise, to maintain the project schedule; (g) maintain all industry safety standards and other reasonable safety precautions in accordance with applicable law and provide Landlord and Tenant reasonable protection and assurance to prevent damage, injury and/or loss; (h) provide in detail within twelve (12) business days after receipt of the Plans, and itemized budget and an itemized project schedule; (i) provide and pay all labor, materials, equipment and machinery, water, heat, and utilities, transportation and other facilities and services necessary for proper execution of completion of the Tenant Improvements, whether temporary or permanent and whether or not incorporated or to be incorporated in the Tenant Improvements; except for utilities consumed in the equipment installation and turn-on tune up of network operations center from November 1, 1997 to December 1, 1997. APPENDIX C Page 4 of 5 37 (j) supervise and direct the Tenant Improvements using the Contractor's best skills and attention; (k) be fully responsible for and have control over construction means, methods, techniques, sequences and procedures for coordinating all portions of the Tenant Improvements under the contract; (l) take appropriate field measurements and verify field conditions before commencing construction of Tenant Improvements; and (m) review, approve and submit to Tenant's Architect show drawings, product data, samples and submittals required by the contract documents with promptness and in sequence as to cause no delay in the Tenant Improvements and project schedule for Tenant's Architect's review and comment, provided any such comments be referred to Contractor within four (4) business days. 8. Payment Procedure. Landlord and Tenant shall each pay their respective share of the Contractor's payment application within twenty (20) days of receipt of same. 9. Tenant Contracts. Tenant shall provide to Landlord (a) copies of any proposals, contracts, requests for payment, and partial or final lien releases for work on the Premises directly contracted by Tenant, and (b) prior to Tenant's occupancy for its intended purposes, final lien waivers in connection with any such work. 10. Miscellaneous. Terms used in this Appendix C shall have the meanings assigned to them in the Lease. The terms of this Appendix C are subject to the terms of the Lease. APPENDIX C Page 5 of 5 38 APPENDIX C-1 IXC COMMUNICATIONS, INC. GENERAL CONTRACTOR'S AGREEMENT FOR TENANT IMPROVEMENTS MAY 15, 1997 GENERAL CONDITIONS Items included in the proposed general conditions: $79,7000 Preconstruction Services Project Superintendent Project Manager Assistant Project Manager Project Office Filed Storage Shed Jobsite Security for Jobsite Office Temporary Fire Protection Field Office Supplies Temporary Toilets Final Cleanup (in conjunction with sub trades) Ice & Cups Temporary Water (Consumption charges only) Electrical for Construction (consumption charges only) Postage & Delivery Services Office Equipment Barricades for General Conditions Safety Inspections Telephone & Fax Services Computer Charges Miscellaneous Small Tools (for general conditions) Vehicle Rental for General Conditions Vehicle Fuel, Maintenance & Repair for General Conditions Vehicle Insurance for General Conditions Payroll Taxes for General Conditions Sales Taxes for General Conditions Project Accounting Services Jobsite Communications Final Power Costs Permit & Building Fees (excluded see below) Other items which cannot be quantified at this time: Insurance Other Than Identified Above - Builder's Risk charged at 21 cents per $1,000 dollar value. Performance & Payment Bond Premiums Permit & Building Fees (based on final price) Costs for Printing FEES AND OVERHEAD General Contractor's Fee and Overhead - 4.7% on the direct costs. CHANGE ORDER FEE A fee will not be accessed for the first $25,000 of dollars of Change Orders. After the net of $25,000 dollars of Change Orders has occurred, a General Conditions and Fee of 8% will be added on the direct costs. APPENDIX C-1 Page 1 of 1 39 APPENDIX D MORTGAGES CURRENTLY AFFECTING THE PROJECT None. APPENDIX D Page 1 of 1 40 APPENDIX E COMMENCEMENT DATE CONFIRMATION Landlord: CarrAmerica Realty, L.P. Tenant: IXC Communications, Inc. This Commencement Date Confirmation is made by Landlord and Tenant pursuant to that certain Lease dated as of __________, 199_ (the "Lease") for approximately ______________ SF NRA in the building commonly known as City View Centre (the "Premises"). This Confirmation is made pursuant to Item 9 of the Schedule to the Lease. 1. Lease Commencement Date, Termination Date. Landlord and Tenant hereby agree that the Commencement Date of the Lease is _________________, 199_, and the Termination Date of the Lease is _________________, ____. 2. Acceptance of Premises. Tenant has inspected the Premises and affirms that the Premises is acceptable in all respects in its current "as is" condition. 3. Incorporation. This Confirmation is incorporated into the Lease, and forms an integral part thereof. This Confirmation shall be construed and interpreted in accordance with the terms of the Lease for all purposes. TENANT: IXC Communications, Inc., a Delaware corporation By:_______________________________ Name:_____________________________ Title:____________________________ LANDLORD: CARRAMERICA REALTY L.P., t/a City View Centre By: CARRAMERICA REALTY G.P. HOLDINGS, INC., a Delaware Corporation, its General partner By:_______________________________ Name:_____________________________ Title:____________________________ APPENDIX E Page 1 of 1 41 APPENDIX F EXPANSION Beginning on or before the first day of the thirteenth (1th) month of the Lease Term, (the "First Expansion Date"), Tenant shall lease for the remaining Term approximately 11,899 (plus or minus 10%) additional square feet of rentable area in the Building, the location to be mutually agreed by Tenant and Landlord (the "First Expansion Space"). In addition, beginning on or before the first day of the nineteenth (19th) month of the Term (the "Second Expansion Date:"), Tenant shall lease for the remaining Term the balance of any unleased space in the Building (the "Second Expansion Space"). The Landlord shall promptly cause the First and Second Expansion Spaces (if not already so constructed) to be constructed and made ready for the Tenant's occupancy by the First or Second Expansion Date, as applicable, in accordance with the plans, specifications, and procedures referenced in Appendix C prepared by Graeber, Simmons & Cowan. If plans and specifications have not been agreed upon, Landlord and Tenant shall cooperate with each other to finalize such agreeable plans and specifications by not later than 60 days before the applicable Expansion Date. The Premises shall be built out in accordance with Appendix C, as applicable, except as otherwise provided in this Appendix F. As to all Expansion Space that is built out for the Tenant as provided above, the Tenant shall be required to accept and commence paying rent on the Expansion Space upon the date that is the sooner to occur of (a) the date that Tenant commences to occupy such space for its intended purposes, as opposed to occupancy for the purposes of completing the make ready of such space or (b) five (5) business days after the Landlord notifies the Tenant that such space is Substantially Completed and provides to Tenant either a Certificate of Occupancy or a certificate by the Landlord's or Tenant's Architect contractor of the project that the applicable Expansion Space is Substantially Completed, but in no event prior to the First Expansion Date or Second Expansion Date, as applicable, (c) or the First Expansion Date or Second Expansion Date, as applicable. The Base Rent Rate for each Expansion Space shall be the same as the Base Rent Rate of the initial Premises. APPENDIX F Page 1 of 1 42 APPENDIX G PREFERENTIAL RIGHTS During the Term and any renewal thereof, Tenant shall have a preferential right to lease (a "Preferential Right to Lease") any space which becomes available on the complex of buildings owned by Landlord (provided Landlord owns such space at the time) adjacent to the Building (collectively the "Preferential Space"), subject to and subordinate to any preexisting preferential, expansion or renewal rights to such Preferential Space belonging to Holt, Rinehart & Winston, pursuant to the following terms and conditions: 1. Prior to marketing any portion of the Preferential Space to any third party (except for existing lease rights held by Holt, Rinehart & Winston as the execution date of this Lease, Landlord shall notify the Tenant in writing of the availability of the Preferential Space, the date upon which the Preferential Space is expected to be made available to Tenant, and the market terms and conditions of the lease that Landlord proposes to offer to any interested tenant for such Preferential Space (the "Notice"). If exercised within the first Lease Year, Tenant may exercise any Preferential Right to Lease and include the Preferential Space under this Lease, upon the terms and conditions of this Lease (improvements to be constructed and costs to be prorated based on the month's remaining in the Lease Term as the Expansion Space), or upon the terms and conditions set forth in the Notice (the "Market Terms"). If Tenant exercises any Preferential Right to lease after the last day of the first Lease Year, then Tenant may exercise any Preferential to Lease and include the Preferential Space under this Lease upon the Market Terms. Tenant shall exercise any Preferential Right to Lease by delivering notice of Tenant's election on or before the tenth (10) business day after the date of Tenant's receipt of the Notice. 2. In the event Landlord does not receive notice of Tenant's election to lease the Preferential Space described in the Notice within the period provided above, the Landlord shall be free to lease such space to one or more third parties on the terms substantially as proposed to Tenant for the nine (9) month period following the end of the ten (10) day notice period, otherwise Tenant's Preferential Rights as to that particular space is restored. 3. Any dispute between Landlord and Tenant as to the Market Terms shall be resolved in accordance to the same procedure for determining renewal Market Base Rent Rates during any renewal term in accordance with Appendix H. APPENDIX G Page 1 of 1 43 APPENDIX H RENEWAL OPTION Tenant shall have the option to renew this Lease as to all or a portion of the Premises for two (2) additional terms of seven (7) years each by giving Landlord written notice of Tenant's desire to renew this Lease at least twelve (12) months but no more than fifteen (15) months prior to the expiration date of this Lease, or the first renewal option, as the case may be. The Base Rent during each additional term shall be one hundred percent (100%) of the Market Base Rent Rate (defined below) then in effect for comparable space. As used in this Lease Agreement, the term "Market Base Rent Rate" shall mean the average of the annual net Rent rates then being charged for space comparable to the space for which the Market Base Rent Rate is being determined, taking into consideration use, definition of net rentable area, quality, age and location of the applicable building, and the time the particular rate under consideration will become effective, but not accounting for tenant improvements or other concessions. If any renewal option is executed by Tenant hereunder, Landlord shall provide an allowance for refurbishment up to a maximum of $5.00 per square feet of net rentable area. Within fifteen (15) days of Landlord's receipt of Tenant's notice of its exercise of an option to extend the term of this Lease, Landlord shall give Tenant written notice of its calculation of Market Base Rent Rate as projected for the commencement date of the renewal term, and if such calculation is acceptable to Tenant it shall establish the Base Rent during the renewal term. In connection with the determination of Market Base Rent Rate, Landlord shall not be obligated to disclose the names of any tenants. If the calculation is not acceptable to Tenant, Tenant shall notify Landlord of such fact within ten (10) days of its receipt of the Landlord's calculation. Landlord and Tenant shall use their best efforts to agree on a calculation of the Market Base Rent Rate as projected for the commencement date for the applicable renewal term, but in the event they are unable to agree within fifteen (15) days of objection, the Landlord shall notify the Tenant within five (5) days after the expiration of such fifteen (15) day period of its selection of an MIA real estate appraiser (the "Landlord's Appraiser") to determine the Market Base Rent Rate. The Tenant shall then notify the Landlord in writing of its selection of an MIA real estate appraiser (the "Tenant's Appraiser") within five (5) days of its receipt of the notice of the selection of Landlord's Appraiser. Both Landlord's and Tenant's Appraiser must have at least five (5) years of full time experience in the Austin area in appraisal of first class multi-tenant office buildings. Both the Landlord's Appraiser and the Tenant's Appraiser shall meet within fifteen (15) days of the selection of the Tenant's Appraiser and determine the Market Base Rent Rate for the Leased Premises. If they are able to agree on a Market Base Rent Rate, such value shall be the Market Base Rent Rate during the applicable seven (7) year renewal term. In the event they are not able to agree on a Market Base Rent Rate, the Market Base Rent Rate shall be the average of their determinations provided that the difference between them is less than or equal to ten percent (10%) of the average of both determinations. If not within such ten percent (10%) difference, then the Landlord's Appraiser and the Tenant's Appraiser shall pick a third MIA appraiser who must pick only one of the appraisals within fifteen (15) days of selection, which shall then constitute the Market Base Rent Rate. The Landlord shall pay the cost of the appraisal prepared by the Landlord's Appraiser, the Tenant shall pay the cost of the appraisal prepared by the Tenant's Appraiser, and Landlord and Tenant shall split any third appraiser's cost 50/50. Except as provided above, all other terms and conditions of the Lease shall apply to any renewal term. APPENDIX H Page 1 of 1 44 APPENDIX I PARKING Tenant shall have the non-exclusive use of the parking lots for the parking of its employees', customers', invitees', and visitors' automobiles during business hours. Landlord shall provide Tenant at no cost to Tenant covered and surface parking for the entire Term of the lease and any renewals exercised pursuant to this Lease on a ratio of 1 space for every 250 net rentable square feet leased by Tenant, of which two hundred forty-one (241) will be covered parking spaces (which, upon written request, Landlord will mark "IXC Reserved" or equivalent) on the bottom level of the Building parking deck, provided that Landlord may, upon sixty (60) days prior written notice (to be given not later than September 1, 1997) to Tenant, recapture and relocate up to fifty (50) such spaces in the event and only to the extent Holt, Rinehart and Winston exercises any current right it may have to such spaces. Tenant agrees to (a) provide and continually update the name and automobile license numbers of each employee who will be parking in the Building parking lot, and (b) cooperate with any parking identification program including compelling its employees to display a "parking sticker" in a prominent location on the vehicle sticker. Landlord will install at its cost and expense a card-accessibility system at each motor vehicle point of entry in the parking deck. APPENDIX I Page 1 of 1 45 APPENDIX J JANITORIAL SPECIFICATIONS The janitorial specifications for the Building are attached. APPENDIX J Page 1 of 1 46 AMERICA LIST OF SPECIFICATIONS
Description Freq. OFFICE/ CARPET Empty all trash receptacles and replace liners as necessary. 260 Remove all collected trash to designated area; making sure no bags are leaking. 260 Dust all horizontal surfaces. 260 Dust high and low areas (e.g., pictures, clocks, partition tops, wood work etc.) 12 Fully vacuum all carpets from wall to wall. 52 Vacuum all carpeted traffic lane areas. 208 Using approved spotter, spot clean carpeted area. 260 Spot clean all walls, light switches and doors. 52 Spot clean telephones and sanitize receivers. 12 Spot clean all partition glass, doors glass, and side glass. 260 Using tank vacuum or back pack, vacuum corner edges and chairs then traffic vacuum all 12 carpeted areas. Clean all ceiling vents. 4 Dust all venetian blinds and window ledges. 12 Clean all baseboards. 4 Wash all wood walls using murphy's oil soap. After cleaning wipe with a wax product for 2 protection. Clean both sides of all doors and hardware. 1 OFFICE/ TILE Empty all trash receptacles and replace liners as necessary. 260 Remove all collected trash to designated area; making sure no bags are leaking. 260 Dust all horizontal surfaces. 260 Dust high and low areas (e.g., pictures, clocks, partition tops, wood work etc.) 12 Dust mop all hard surface floors with treated or electrostatic dust mop. 260 Mop all stains and spills, especially coffee and drink spills. 208 Damp mop entire area. 52 Spot clean all walls, light switches and doors. 52 Spot clean telephones and sanitize receivers. 12 Spot clean all partition glass, doors glass, and side glass. 260 Using tank vacuum or back pack, vacuum corners edges and chairs then traffic vacuum all tile 12 areas.
APPENDIX J Page 1 of 9 47 AMERICA LIST OF SPECIFICATIONS
Description Freq. Clean all ceiling vents. 4 Clean all baseboards. 4 Using approved spotter, spot clean carpeted area. 260 Spot clean all walls, light switches and doors. 52 Spot clean telephones and sanitize receivers. 12 Spot clean all partition glass, doors glass, and side glass. 260 Using tank vacuum or back pack, vacuum corners edges and chairs then traffic vacuum all 12 carpeted areas. Clean all ceiling vents. 4 Dust all venetian blinds and window ledges. 12 Clean all baseboards. 4 Wash all wood walls using murphy's oil soap. After cleaning wipe with a wax product for 2 protection. Clean both sides of all doors and hardware. 1 4 Buff out marble floors. EXAM ROOMS/ TILE Empty all trash receptacles and replace liners as necessary. 260 Remove all collected trash to designated area; making sure no bags are leaking. 260 Dust all horizontal surfaces. 260 Dust high and low areas (e.g., pictures, clocks, partition tops, wood work etc.) 12 Dust mop all hard surface floors with treated or electrostatic dust mop. 260 Damp mop entire area. 260 Spot clean all walls, light switches and doors. 52 Spot clean telephones and sanitize receivers. 12 Spot clean all partition glass, doors glass, and side glass. 260 Using tank vacuum or back pack, vacuum corners edges and chairs then traffic vacuum all tile 12 areas. Clean all ceiling vents. 4 Clean all baseboards. 4 Dust all venetian blinds and window ledges. 12 Wash all wood walls using murphy's oil soap. After cleaning wipe with a wax product for 2 protection. Clean both sides of all doors and hardware. 1
APPENDIX J Page 2 of 9 48 AMERICA LIST OF SPECIFICATIONS
Description Freq. Using a high speed floor machine spray buff all hard surface areas. 8 Machine scrub hard surface floor and apply one coat of polish, allow to dry, then buff; 3 making sure to wipe baseboards. Strip hard surface floor and recoat with three coats of floor polish; making sure to wipe 1 baseboards. ENTRY/ MARBLE Dust all horizontal surfaces. 260 Dust high and low areas (e.g., pictures, clocks, partition tops, wood work etc.) 52 Dust mop all hard surface floors with treated or electrostatic dust mop. 260 Damp mop entire area. 260 Spot clean all walls, light switches and doors. 260 Spot clean all partition glass, doors glass, and side glass. 260 Using tank vacuum or back pack, vacuum corners edges and chairs then traffic vacuum all 12 marble areas. Clean all ceiling vents. 4 Spot clean door glass and side glass. 260 Dust ceiling light lenses. 12 Clean all baseboards. 12 Empty all trash receptacles and replace liners, remove cig from sand and smooth. (interior 260 and exterior) Vacuum walk-off mats. (interior and exterior) 260 Clean both sides of all doors and hardware. 1 260 Maintain building exterior including metal work, entrance doors, building trim and exterior window frames and mullions. Clean tile entry panels, mailboxes and courier drop boxes. (interior or exterior) 12 Buff out marble floors. 4 ENTRY/ TILE Dust all horizontal surfaces. 260 Dust high and low areas (e.g., pictures, clocks, partition tops, wood work etc.) 52 Dust mop all hard surface floors with treated or electrostatic dust mop. 260 Damp mop entire area. 260
APPENDIX J Page 3 of 9 49 AMERICA LIST OF SPECIFICATIONS
Description Freq. Spot clean all walls, light switches and doors. 260 Spot clean all partition glass, doors glass, and side glass. 260 Using tank vacuum or back pack, vacuum corners edges and chairs then traffic vacuum all 12 marble areas. Clean all ceiling vents. 4 Spot clean door glass and side glass. 260 Dust ceiling light lenses. 12 Clean all baseboards. 12 Machine scrub hard surface floor; making sure to wipe baseboards. 4 Vacuum walk-off mats. (interior and exterior) 260 Clean both sides of all doors and hardware. 1 Empty all trash receptacles and replace liners, remove cig from sand and smooth. (interior 260 and exterior) Maintain building exterior including metal work, entrance doors, building trim and exterior 260 window frames and mullions. Clean tile entry panels, mailboxes and courier drop boxes. (interior or exterior) 12 KITCHEN/ TILE Empty all trash receptacles and replace liners as necessary. 260 Remove all collected trash to designated area; making sure no bags are leaking. 260 Dust all horizontal surfaces. 260 Dust high and low areas (e.g., pictures, clocks, partition tops, wood work etc.) 12 Dust mop all hard surface floors with treated or electrostatic dust mop. 260 Mop all stains and spills, especially coffee and drink spills. 208 Damp mop entire area. 52 Clean all sinks. 260 Clean coffee machine and damp wipe countertop. 260 Spot clean all walls, light switches and doors. 260 Using tank vacuum or back pack, vacuum corners edges and chairs then traffic vacuum all tile 12 areas. Clean all ceiling vents. 4 Clean all baseboards. 4 Clean both sides of all doors and hardware. 1
APPENDIX J Page 4 of 9 50 AMERICA LIST OF SPECIFICATIONS
Description Freq. Using a high speed floor machine spray buff all hard surface area. 8 Machine scrub hard surface floor and apply one coat of polish, allow to dry, then buff; 3 making sure to wipe baseboards. Strip hard surface floor and recoat with three coats of floor polish; making sure to wipe 1 baseboards. CORRIDOR/ CARPET Dust high and low areas (e.g., pictures, clocks, partition tops, wood work etc.) 52 Fully vacuum all carpets from wall to wall. 260 Using approved spotter, spot clean carpeted area. 260 Spot clean all walls, light switches and doors. 52 Spot clean all partition glass, doors glass, and side glass. 260 Spot clean all brass rails, elevator plates, doors, walls, phones, phone box, fixtures, and 260 glass. Clean all baseboards. 4 Clean all ceiling vents. 4 Clean and polish all drinking fountains. 260 Dust ceiling light lenses. 4 Extract carpets using an automatic extractor. 4 RESTROOMS/ TILE Clean and sanitize fixtures, mirrors, counters; polish chrome; mop floors; refill 260 dispensers; empty rubbish and spot clean partition. Dust and clean all return air vents. 12 Fully clean all showers. 52 Wash all restroom partitions on both sides and hardware. 12 Clean toilets and urinals with an acid based cleaner. 52 Machine scrub all restroom floors using germicidal detergent; making sure to wipe 4 baseboards. Clean both sides of all doors and hardware. 52 COMPUTER ROOM/ RAISED TILE Empty all trash receptacles and replace liners as necessary. 260
APPENDIX J Page 5 of 9 51 AMERICA LIST OF SPECIFICATIONS
Description Freq. Remove all collected trash to designated area; making sure no bags are leaking. 260 Dust mop all hard surface floors with treated or electrostatic dust mop. 260 ELEVATORS/ CARPET Completely clean and vacuum carpeted elevator and tracks. 260 Clean and polish metal elevator threshold plates and door tracks. 12 Spot clean all brass rails, elevator plates, doors, walls, phones, phone box, fixtures, and 260 glass. Using approved spotter, spot clean carpeted area. 260 ELEVATORS/ TILE Completely clean and damp mop hard floor elevator. 260 Clean and polish metal elevator threshold plates and door tracks. 260 Spot clean all brass rails, elevator plates, doors, walls, phones, phone box, fixtures, and 260 glass. STAIRWELL/ CONCRETE Police stairs and pick up litter. 260 Broom sweep stairs, dust railings and spot clean. 52
APPENDIX J Page 6 of 9 52 Other Contract Services 1. Janitor Closets, Equipment, and Materials shall be kept in a clean, neat, and orderly condition at all times. 2. Property Management shall be notified of any of the following: A. Defective or inoperative building equipment such as: Lights out, toilets stopped up, etc.. B. Security issues and/or Safety issues such as: Broken steps, Broken glass, and/or faulty locks, etc.. 3. Carpet cleaning for tenant occupied areas, shall be done on a request basis at a set price per/sq. ft., as an additional cost, plus all applicable taxes. 4. Carpet cleaning for corridors will be included in contract price, but to be listed as a separate line item. 5. An anti-static material shall be applied to all carpeting upon request for an additional price per/sq. ft., plus all applicable taxes. 6. Outside window washing shall be furnished at an additional price, per/sq. ft., or "By the Job", plus all applicable taxes. 7. Emergency cleaning will be accomplished, upon request for NO additional charge, if rectified in less than a 1 1/2 hours, with on hand equipment. 8. Construction clean is to be performed upon request for an additional price, per/sq. ft., plus all applicable taxes. 9. Pressure washing of sidewalks and garages will be done upon request, at a price per hour, or "By the Job", plus all applicable taxes. 10. Civil and criminal background checks will be performed on all employees prior to them being sent to the work site. 11. All medical area must be cleaned and disinfected nightly using a hospital grade disinfectant capable of killing HIV and Hepatitis B strains. Which is OSHA requirements. 12. All supervisors and employees working in any medical offices will be required to have been trained on established company procedure on the handling of bio-hazard materials and blood pathogen according to OSHA requirements. Hepatitis shots, MSDS sheets, and company procedures on bio-hazard materials and blood pathogen will be kept on sight at all times. 13. Cleaning company must be willing to participate in building recycling program, now and in the future. 14. All supplies cost, including paper supplies, to be included in the contract bid. All supplies must be of a like quality to what is being furnished at present time. 15. All marble floors are to be included in contract price, but to be listed as a separate line item. 53 16. All companies are required to supply property managers a periodic calendar of scheduled work to be performed in each building. With a copy to be kept at each site. EX-10.18 6 LOAN AD SECURITY AGREEMENT DATED JULY 18, 1997 1 EXHIBIT 10.18 LOAN AND SECURITY AGREEMENT This LOAN AND SECURITY AGREEMENT ("Agreement"), is dated as of July 18, 1997, by and between the following parties: LENDER/SECURED PARTY: NTFC CAPITAL CORPORATION, a Delaware corporation with offices at 220 Athens Way, Nashville, Tennessee 37228 and its assigns ("Lender") BORROWER/DEBTOR: IXC CARRIER, INC., a Nevada corporation with its principal place of business at 5000 Plaza on the Lake, Suite 200, Austin, Texas 78746 ("Borrower") GUARANTOR: IXC COMMUNICATIONS, INC., a Delaware corporation with its principal place of business at 5000 Plaza on the Lake, Suite 200, Austin, Texas 78746 ("Guarantor") This Loan and Security Agreement includes the general terms and conditions contained herein and all the exhibits and schedules attached hereto, all of which are incorporated herein. In the event of a conflict between the general terms and conditions and any schedule, the additional terms and conditions stated in the schedule shall control. By executing this Loan and Security Agreement, Lender agrees to make loans to Borrower, and Borrower agrees to borrow from Lender and to provide collateral to secure such loans, all on the terms and conditions set forth herein. IN WITNESS WHEREOF, the parties have executed this Loan and Security Agreement by their duly authorized representatives: LENDER: BORROWER: NTFC CAPITAL CORPORATION IXC CARRIER, INC. BY: /s/ LARRY MIDDLETON BY: /s/ JOHN J. WILLINGHAM ---------------------------- ---------------------------- TITLE: Secretary TITLE: Senior Vice President and Chief Executive Officer ---------------------------- ---------------------------- DATE: 7/18/97 DATE: 7/18/97 ----------------------------- ----------------------------- GUARANTOR: IXC COMMUNICATIONS, INC. BY: /s/ JOHN J. WILLINGHAM ---------------------------- TITLE: Senior Vice President and Chief Executive Officer ---------------------------- DATE: 7/18/97 ----------------------------- 2 TABLE OF CONTENTS
PAGE ---- ARTICLE 1: DEFINITIONS..................................................................... 1 1.01. Certain Definitions......................................................... 1 1.02. Accounting Principles; Subsidiaries......................................... 8 1.03. UCC Terms................................................................... 8 1.04. General Construction; Captions.............................................. 8 1.05. References to Documents and Laws............................................ 8 1.06. Currency.................................................................... 8 ARTICLE 2: ADVANCES........................................................................ 9 2.01. Commitment.................................................................. 9 2.02. Note and Payment Terms...................................................... 9 2.03. Procedures for Borrowing.................................................... 10 2.04. Prepayments................................................................. 11 2.05. Computation of Interest..................................................... 12 2.06. Payments.................................................................... 12 2.07. Indemnity................................................................... 12 2.08. Use of Proceeds............................................................. 12 2.09. Fees........................................................................ 13 2.10. Lender's Expenses........................................................... 13 2.11. Guaranty.................................................................... 13 ARTICLE 3: COLLATERAL AND SECURITY AGREEMENT............................................... 13 3.01. Grant of Security Interest.................................................. 13 3.02. Priority of Security Interests.............................................. 14 3.03. Further Documentation; Pledge of Instruments................................ 14 3.04. Further Identification of Collateral........................................ 14 3.05. Remedies.................................................................... 14 3.06. Standard of Care............................................................ 15 3.07. Advances to Protect Collateral.............................................. 15 3.08. License to Use.............................................................. 15 ARTICLE 4: REPRESENTATIONS AND WARRANTIES.................................................. 15 4.01. Organization and Qualification.............................................. 15 4.02. Authority and Authorization................................................. 15 4.03. Execution and Binding Effect................................................ 15 4.04. Governmental Authorizations................................................. 16 4.05. Regulatory Authorizations................................................... 16 4.06. Material Agreement; Absence of Conflicts.................................... 16 4.07. No Restrictions............................................................. 16 4.08. Financial Statements........................................................ 16 4.09. Financial Accounting Practices.............................................. 17 4.10. Accurate and Complete Disclosure............................................ 17 4.11. No Event of Default; Compliance with Material Agreements.................... 17 4.12. Litigation.................................................................. 17 4.13. Rights to Property.......................................................... 17 4.14. Financial Condition......................................................... 17
3 4.15. Taxes....................................................................... 18 4.16. No Material Adverse Change.................................................. 18 4.17. No Regulatory Event......................................................... 18 4.18. Trade Relations............................................................. 18 4.19. No Brokerage Fees........................................................... 18 4.20. Margin Stock; Regulation U.................................................. 18 4.21. Investment Company; Public Utility Holding Company.......................... 18 4.22. Personal Holding Company; Subchapter S...................................... 18 4.23. ERISA....................................................................... 18 4.24. Environmental Warranties.................................................... 19 4.25. Security Interests.......................................................... 19 4.26. Place of Business........................................................... 19 4.27. Location of Collateral...................................................... 19 4.28. Clear Title To Collateral................................................... 19 4.29. Assumed Names............................................................... 19 4.30. Transactions with Affiliates................................................ 19 4.31. NTI Supply Agreement........................................................ 19 ARTICLE 5: CONDITIONS OF CLOSING........................................................... 20 5.01. Closing Certificates........................................................ 20 5.02. Opinions of Counsel......................................................... 20 5.03. Closing Documents........................................................... 20 ARTICLE 6: CONDITIONS OF LENDING........................................................... 21 6.01. Conditions for Initial Advance.............................................. 21 6.02. Conditions for All Advances................................................. 21 6.03. Affirmation of Representations and Warranties............................... 23 6.04. Deadline for Funding Conditions............................................. 23 ARTICLE 7: AFFIRMATIVE COVENANTS........................................................... 23 7.01. Reporting and Information Requirements...................................... 23 7.02. Other Notices............................................................... 25 7.03. Notice of Pension-Related Events............................................ 25 7.04. Inspection Rights........................................................... 25 7.05. Preservation of Corporate Existence and Qualification....................... 26 7.06. Continuation of Business.................................................... 26 7.07. Insurance................................................................... 26 7.08. Payment of Taxes, Charges, Claims and Current Liabilities................... 27 7.09. Financial Accounting Practices.............................................. 28 7.10. Compliance with Laws........................................................ 28 7.11. Use of Proceeds............................................................. 28 7.12. Government Authorizations; Regulatory Authorizations........................ 28 7.13. Contracts and Franchises.................................................... 28 7.14. Consents.................................................................... 28 7.15. Financial Covenants......................................................... 28 7.16. Construction and Storage.................................................... 28 7.17. Upgrade Equipment........................................................... 29
4 ARTICLE 8: NEGATIVE COVENANTS.............................................................. 29 8.01. Additional Indebtedness..................................................... 29 8.02. Restrictions on Liens and Sale of Collateral................................ 29 8.03. Prohibition of Mergers, Acquisitions, Name, Office or Business Changes, Etc. 29 8.04. Limitation on Equity Payments............................................... 30 8.05. Removal of Collateral....................................................... 30 8.06. Assumed Names............................................................... 30 ARTICLE 9: EVENTS OF DEFAULT............................................................... 30 9.01. Events of Default........................................................... 30 9.02. Consequences of an Event of Default......................................... 33 9.03. Exercise of Rights.......................................................... 33 9.04. Rights of Secured Party; Possession or Sale of Collateral................... 33 9.05. Notices, Etc. Waived........................................................ 34 9.06. Additional Remedies......................................................... 34 9.07. Application of Proceeds..................................................... 35 9.08. Discontinuance of Proceedings............................................... 35 9.09. Power of Attorney........................................................... 35 9.10. Regulatory Matters.......................................................... 36 ARTICLE 10: GENERAL CONDITIONS/MISCELLANEOUS............................................... 36 10.01. Modifications and Waivers................................................... 36 10.02. Advances Not Implied Waivers................................................ 36 10.03. Deviation from Covenants.................................................... 37 10.04. Holidays.................................................................... 37 10.05. Records..................................................................... 37 10.06. Notices..................................................................... 37 10.07. FCC and PUC Approval........................................................ 38 10.08. Lender Sole Beneficiary..................................................... 38 10.09. Lender's Review of Information.............................................. 38 10.10. No Joint Venture............................................................ 38 10.11. Severability................................................................ 38 10.12. Rights Cumulative........................................................... 38 10.13. Duration; Survival.......................................................... 39 10.14. Governing Law............................................................... 39 10.15. Counterparts .............................................................. 39 10.16. Successors and Assigns...................................................... 39 10.17. Participation............................................................... 40 10.18. Time of Essence............................................................. 40 10.19. Disclosures and Confidentiality............................................. 40 10.20. Jurisdiction and Venue...................................................... 41 10.21. Jury Waiver................................................................. 41 10.22. Limitation on Liability..................................................... 42 10.23. Borrower Waivers............................................................ 42 10.24. Schedules................................................................... 42 10.25. Agreement to Govern......................................................... 42 10.26. Entire Agreement............................................................ 42
5 SCHEDULES TO LOAN AND SECURITY AGREEMENT Schedule 1 Borrower Information and Defined Terms Schedule 1.01 Landlord Consents Schedule 2.01 Maximum Advance Amounts Schedule 2.02 Payment Terms and Governing Law Schedule 2.09 Fees Schedule 4.04 Required Consents Schedule 4.05 Regulatory Authorizations Schedule 4.07 Restrictions on Indebtedness Schedule 4.08 Financial Statements Schedule 4.12 Pending Litigation Schedule 4.16 No Material Adverse Change Schedule 4.17 Regulatory Event Schedule 4.25 UCC Filing Offices Schedule 4.26 Principal Offices and Location of Collateral Schedule 4.29 Assumed Names Schedule 4.30 Transactions with Affiliates Schedule 6.02 Post-Closing Items Schedule 7.07 Insurance/Certificate Schedule 7.15 Financial Covenants
EXHIBITS TO LOAN AND SECURITY AGREEMENT Exhibit A Form of Note Exhibit B Form of Borrowing Certificate Exhibit C Form of Opinion of Counsel for Borrower and for Guarantor Exhibit D Form of Landlord's Consent Exhibit E Form of Environmental Certificate Exhibit F Form of Assignment and Acceptance Exhibit G Form of Certificate of Financial Condition Exhibit H Form of Guaranty
6 LOAN AND SECURITY AGREEMENT THIS LOAN AND SECURITY AGREEMENT ("Agreement") is dated as of July ____, 1997 by and between IXC CARRIER, INC., a Nevada corporation ("Borrower"), IXC COMMUNICATIONS, INC., a Delaware corporation ("Guarantor") and NTFC CAPITAL CORPORATION, a Delaware corporation ("Lender"), with offices at 220 Athens Way, Nashville, Tennessee 37228. B A C K G R O U N D: 1 Borrower has entered into the NTI Supply Agreement, as defined in Section 1.01 hereof, providing for Borrower's purchase of certain telecommunications equipment and the license of associated software, all as described therein, and has requested Lender to extend credit to Borrower to finance such purchase and license. 2 Lender is willing to extend such credit to Borrower upon the terms and conditions set forth in this Agreement. NOW, THEREFORE, in consideration of the premises and of the mutual covenants herein contained and intending to be legally bound hereby, the parties hereto agree as follows: ARTICLE 1: DEFINITIONS 1.01. Certain Definitions. Certain terms are defined on Schedule 1 hereto. In addition to other words and terms defined in the preamble hereof or elsewhere in this Agreement, or on the Schedules hereto, the following words and terms shall have the following meanings unless the context otherwise clearly requires: "Advance(s)": any advance or loan of funds made by Lender to Borrower pursuant to this Agreement. "Affiliate": as applied to any Person, any second Person directly or indirectly controlling, controlled by, or under common control with that Person, or related to such Person by blood, marriage or adoption, except for the Trustees of the General Electric Pension Trust, Grumman Hill Associates, Inc. and Grumman Hill Investments, L.P. For purposes of this definition and the definition of "Subsidiary", a Person shall be deemed to control another Person if such first Person possesses, directly or indirectly, the power to direct, or to cause the direction of, the management and policies of such other Person, whether through ownership of voting securities, by contract or otherwise. "Assignment": an Assignment and Acceptance in the form of Exhibit F hereto. "Basic Agreements": a collective reference to this Agreement, the Note, and the Security Documents. "Borrower": IXC Carrier, Inc., a Nevada corporation. "Borrowing Certificate": a certificate substantially in the form of Exhibit B hereto. 7 "Borrowing Date": any Business Day on which an Advance is made to Borrower hereunder. "Business Day": a day other than a Saturday, Sunday or other day on which commercial banks in Toronto, Canada or New York, New York are authorized or required by law to close. "Calendar Quarter": each three month period starting on each January 1, April 1, July 1, and October 1, during the term of this Agreement. "Cash": at any time, the cash, cash equivalents or marketable investment grade securities held by Borrower free of any claims or encumbrances. "Cash Flow": during any fiscal period of Guarantor, the sum of (i) net income (or loss) (which may be a positive or negative number) for such period, plus (ii) all non-cash items deducted in determining such net income (or loss), minus (iii) all non-cash items added in determining such net income (or loss) during such period, less (iv) any Equity Payments pursuant to Section 8.04 hereof. "Certificate of Financial Condition": certificates substantially in the form of Exhibit G hereto, one certificate to be executed by Borrower and one certificate to be executed by Guarantor. "Change in Control": means (a) any change in the direct or indirect control of, or the ability or right to control, a majority of the voting shares of common stock in the Borrower; or (b) a majority of the board of directors of the Guarantor shall consist of directors other than (i) directors holding office as of the Closing Date or (ii) directors whose election was recommended by such directors or subsequent directors so recommended. "Closing Date": July 18, 1997. "Code": the Internal Revenue Code of 1986, as amended from time to time. "Collateral": as defined in Section 3.01 hereof. "Commitment": as defined in Section 2.01 hereof. "Communications Law": any and all of (i) the Communications Act of 1934, as amended, and any similar or successor federal statute, and the rules and regulations of the FCC thereunder, (ii) any state law governing the provision of telecommunications services, and the rules and regulations of the PUC, all as the same may be in effect from time to time. "Consent": a consent to a collateral assignment of the NTI Supply Agreement or a Landlord Consent. "Contingent Obligation": as to any Person, any obligation of such Person guaranteeing, directly or indirectly, any Indebtedness, leases, dividends or other obligations ("primary obligations") of any other Person (the "primary obligor") in any manner, whether directly or indirectly, including, without limitation, any obligation of such Person, whether or not contingent, (a) to purchase any such primary obligation or any property constituting direct or indirect security therefor, (b) to advance or supply funds (i) for the purchase or payment of any such primary obligation or (ii) to maintain working capital or equity capital of the primary obligor or otherwise to maintain the net worth or solvency of the primary 2 8 obligor, (c) to purchase property, securities or services primarily for the purpose of assuring the owner of any such primary obligation of the ability of the primary obligor to make payment of such primary obligation or (d) otherwise to assure or hold harmless the owner of such primary obligation against loss in respect thereof. "Conversion Date": as defined on Schedule 2.02 hereto. "Debt Service": for any fiscal period of Guarantor, the sum of all principal and interest payments that Guarantor is required to make during such period on account of all of its Indebtedness including, without limitation, (a) amounts due during such period on account of capitalized leases, (b) the then current portion of any long-term Indebtedness, (c) amounts due on short-term Indebtedness, and (d) amounts due under this Agreement and the Note. "Debt Service Coverage Ratio": at the end of any fiscal period, the ratio of Guarantor's Cash Flow for such fiscal period to Guarantor's Debt Service for such fiscal period. "Default": any of the conditions or occurrences specified in Section 9.01, whether or not any requirement for the giving of notice, the lapse of time, or both, or any other condition has been satisfied. "Default Rate": a rate of interest equal to the lesser of (i) three percent (3%) over the Interest Rate, or (ii) the maximum permissible rate under applicable law in effect at any time. "ERISA": the Employee Retirement Income Security Act of 1974, as amended from time to time, and any successor statute. "Environmental Law": any current or future federal, state and local law (including common law), statute, regulation, ordinance, rulings, codes, judicial order, administrative order or terms of licenses or permits applicable to environmental conditions (including without limitation conditions relating to ambient air, surface water, groundwater, land surface or subsurface strata), including without limitation all such laws governing employment, the generation, use, storage, disposal or transportation of toxic or hazardous substances or wastes (including, without limitation, asbestos and petroleum products), the Comprehensive Environmental Response, Compensation and Liability Act, the Resource Conservation and Recovery Act, the Superfund Amendment and Reauthorization Act of 1986, the Toxic Substances Control Act, the Clean Air Act, the Water Pollution Control Act, the Hazardous Waste Management Act, the Mineral Lands and Leasing Act, the Surface Mining Control and Reclamation Act, U.S. Department of Transportation Regulations, and all similar state and local laws, regulations, all as now or hereafter amended. "Equipment": the equipment and licensed or sub-licensed software manufactured or supplied by NTI to Borrower at any time pursuant to the NTI Supply Agreement or any purchase order issued by Borrower to NTI which is acquired by Borrower with proceeds of any Advance (or for which Borrower is reimbursed from the proceeds of any Advance), including installation and construction services provided by NTI pursuant thereto, and any and all additions, substitutions, and replacements to or of any of the foregoing, together with all attachments, components, parts, improvements, upgrades, and accessions installed thereon or affixed thereto. "Equity Payment": any distribution of earnings or capital by a Person to any Owner of such Person, or any redemption of stock interests, either directly or indirectly, whether in cash or property or in obligations of the Borrower or Guarantor. 3 9 "Event of Default": any of the events specified in Section 9.01 hereof, provided that any requirement for the giving of notice, the lapse of time, or both, or any other condition, under Section 9.01 or otherwise, has been satisfied. "Financing Termination Date": as defined on Schedule 2.02 hereto. "FCC": the Federal Communications Commission of the United States of America, and any successor, in whole or in part, to its jurisdiction. "First Borrowing Date": the date of the first borrowing by Borrower hereunder. "GAAP": subject to Section 1.02 hereof, generally accepted accounting principles in the United States of America (as such principles may change from time to time) applied on a consistent basis (except for changes in application in which Borrower's and Guarantor's independent certified public accountants concur), applied both to classification of items and amounts. "General Intangibles": as defined in Section 3.01 hereof. "Governmental Actions": actions by any Governmental Authority. "Governmental Authority": the federal government, any state or political subdivision thereof, any city or municipal entity, and any entity exercising executive, legislative, judicial, regulatory or administrative functions of or pertaining to government. "Guarantor": IXC Communications, Inc., a Delaware corporation. "Guaranty": the Unconditional Guaranty Agreement dated the Closing Date, executed by Guarantor, pursuant to Section 2.11 hereof, substantially in the form of Exhibit H hereto. "Indebtedness": as to any Person, at a particular time, (a) indebtedness for borrowed money or for the deferred purchase price of property or services in respect of which such Person is liable, contingently or otherwise, as obligor, guarantor or otherwise, or in respect of which such Person otherwise assures a creditor against loss, (b) obligations under leases which shall have been or should be, in accordance with GAAP, recorded as capital leases in respect of which obligations such Person is liable, contingently or otherwise, as obligor, guarantor or otherwise, or in respect of which obligations such Person assures a creditor against loss, (c) obligations of such Person to purchase or repurchase accounts receivable, chattel paper or other payment rights sold or assigned by such Person, and (d) indebtedness or obligations of such Person under or with respect to letters of credit, notes, bonds or other debt instruments. "Indenture": the Indenture associated with the $285,000,000 in 12 1/2% Senior Notes Due 2005 issued by Guarantor on October 5, 1995. "Initial Payment Date": as defined on Schedule 2.02 hereto. "Interest Only Period": as defined on Schedule 2.02 hereto. "Interest Payment Date": as defined on Schedule 2.02 hereto. 4 10 "Interest Rate": as defined on Schedule 2.02 hereto. "Landlord Consent": a consent substantially in the form of Exhibit D hereto or in other form acceptable to Lender, for the locations reasonably requested by Lender as identified on Schedule 1.01 hereto, to be executed by the owner/landlord, sublessor and/or licensor (including carriers) of real property where the Collateral is or is to be located. "Law": any law (including common law), constitution, statute, regulation, rule, ordinance, order, injunction, writ, decree or award of any governmental body or court of competent jurisdiction or of any arbitrator (including but not limited to ERISA, the Code, the UCC, any applicable tax law, product safety law, occupational safety or health law, Communications Law, Environmental Law and/or securities laws). "Lender": NTFC Capital Corporation and its successors and assigns. "Lender's Expenses": as defined in Section 2.10 hereof. "Lien": any mortgage, pledge, hypothecation, lien (statutory or other), judgment lien, security interest, security agreement, charge or other encumbrance, or other security arrangement of any nature whatsoever, including, without limitation, any installment contract, conditional sale or other title retention arrangement, any sale of accounts receivable or chattel paper, and any assignment, deposit arrangement or lease intended as, or having the effect of, security and the filing of any financing statement under the UCC or comparable law of any jurisdiction. "Loan Documents": a collective reference to this Agreement, the Note, the Security Documents, the Closing Memorandum, any Assignment and all other documents, instruments, agreements and certificates evidencing or securing any advance hereunder or any obligation for the payment or performance thereof and/or executed and delivered in connection with any of the foregoing. "Material Adverse Effect" or "Material Adverse Change": a material adverse effect on, or material adverse change in, (i) the business, operations or financial condition of Borrower or Guarantor, (ii) the ability of Borrower or Guarantor to perform its obligations under this Agreement, the Note, or the other Loan Documents, or (iii) the Lender's ability to enforce the rights and remedies granted under this Agreement or the other Loan Documents, in all cases whether attributable to a single circumstance or event or an aggregation of circumstances or events. "Maturity Date": the date defined on Schedule 2.02 hereto. "Note": collectively, one or more promissory notes issued by Borrower to Lender pursuant to this Agreement, and all extensions, renewals, modifications, replacements, amendments, restatements and refinancings thereof. "NTI": Northern Telecom Inc., a Delaware corporation. "NTI Supply Agreement": the Supply Agreement No. IXC9501N dated June 17, 1996, between Borrower and NTI, together with any amendments or supplements thereto and all purchase orders and invoices issued pursuant thereto, all as approved by Lender. 5 11 "Obligations": all indebtedness, liabilities and obligations of Borrower or Guarantor to Lender of any class or nature, whether arising under or in connection with this Agreement and/or the other Loan Documents, whether now existing or hereafter incurred, direct or indirect, absolute or contingent, secured or unsecured, matured or unmatured, joint or several, whether for principal, interest, premiums, fees, expenses, lease obligations, indemnities or otherwise, including, without limitation, future advances of any sort, all future advances made by Lender for taxes, levies, insurance and/or repairs to or maintenance of the Collateral, the unpaid principal amount of, and accrued interest on, the Note, and any expenses of collection or protection of Lender's rights, including reasonable attorneys' fees. "Organizational Documents": the articles or certificate of incorporation and by-laws of a corporation and any other document governing the formation and conduct of business by such entity. "Owners": all presently existing and future shareholders of Borrower or Guarantor and all other Persons with ownership interests in Borrower or Guarantor. "Payment Date": as defined on Schedule 2.02 hereto. "PBGC": the Pension Benefit Guaranty Corporation established under Title IV of ERISA or any other governmental agency, department or instrumentality succeeding to its functions. "Permits": all consents, licenses, notices, approvals, authorizations, filings, orders, registrations, and permits required by any Governmental Authority for the construction and operation of the Equipment (excluding Regulatory Authorizations), issued or obtained as and when required in accordance with all Requirements of Law. "Permitted Encumbrances": the Liens permitted under Section 8.02 hereof. "Person": an individual, corporation, limited liability company, partnership, business or other trust, unincorporated association, joint venture, joint-stock company, Governmental Authority or any other entity. "Plan": any employee pension benefit plan to which Section 4021 of ERISA applies and (i) which is maintained for employees of Borrower or Guarantor or (ii) to which Borrower or Guarantor made, or was required to make, contributions at any time within the preceding five (5) years. "Proceeds": as defined in Section 3.01 hereof. "PUC": the public utilities commission for the state or any other jurisdiction in which the Borrower or Guarantor operates its telecommunications business or any portion of the Equipment is located, or any successor agency, and any successor, in whole or in part, to its functions or jurisdictions, and any other Persons specified as such on Schedule 1 hereto. "Regulatory Authorizations": all approvals, authorizations, licenses, filings, notices, registrations, consents, permits, exemptions, registrations, qualifications, designations, declarations, or other actions or undertakings now or hereafter made by, to or in respect of any telecommunications governmental or other regulatory authority, including, without limitation, any certificates of public convenience and all grants, approvals, licenses, filings and registrations from or to the FCC or PUC or under any Communications Law necessary in order to enable the Borrower to own, construct, maintain and operate 6 12 the Equipment, and any authorizations specified on Schedule 4.05 hereto. "Regulatory Event": any of the following events: (i) Lender becomes subject to regulation as a "carrier," a "telephone company," a "common carrier," a "public utility" or otherwise under any applicable law or governmental regulation, federal, state or local, solely as a result of the transactions contemplated by this Agreement and the other Loan Documents, or (ii) Borrower or Guarantor becomes subject to regulation by any Governmental Authority in any way that is materially different from the regulation existing at the Closing Date and that could materially adversely affect Borrower's or Guarantor's ability to perform its material obligations under the Loan Documents or Lender's rights thereunder, or (iii) the FCC or PUC issues an order revoking, denying or refusing to renew, or recommending the revocation, denial or non-renewal of, any Regulatory Authorization that could materially adversely affect Borrower's or Guarantor's ability to perform its material obligations under the Loan Documents or Lender's rights thereunder. "Reportable Event": (i) a reportable event described in Section 4043 of ERISA and regulations thereunder, (ii) a withdrawal by a substantial employer from a Plan to which more than one employer contributes, as referred to in Section 4063(b) of ERISA, or (iii) a cessation of operations at a facility causing more than twenty percent (20%) of Plan participants to be separated from employment, as referred to in Section 4062(f) of ERISA. "Required Consents": the Governmental Authority approvals or consents of other Persons required with respect to the Borrower's or Guarantor's execution, delivery and performance of this Agreement and the other Loan Documents, as described in Section 4.04 hereto. "Requirement of Law": as to any Person, the Organizational Documents of such Person, and any law, treaty, rule or regulation, or determination of an arbitrator or a court or other Governmental Authority, in each case applicable to or binding upon such Person or any of its properties or transactions or to which such Person or any of its property or transactions is subject, including without limitation, all applicable common law and equitable principles, all provisions of all applicable state and federal constitutions, statutes, rules, regulations and orders of governmental bodies, all Permits or Regulatory Authorizations issued to Borrower or Guarantor, all Communications Laws, and all Environmental Laws. "Responsible Officer": with respect to a corporation, its President or any Vice President or Treasurer; with respect to a partnership, its general partner (or the President, any Vice President or Treasurer of any corporate general partner, as applicable); with respect to a limited liability company, a member or manager (or the President, any Vice President or Treasurer of any corporate member or manager), or the President or any Vice President of any other Person. "SEC": the Securities and Exchange Commission. "Security Documents": this Agreement, the Landlord Consents, the Consents, the Guaranty, all financing statements, and any other documents granting, evidencing, or perfecting any security interest or Lien with respect to or securing any of the Obligations. "Site(s)": any of the sites where Equipment is or is to be located. "Software" and "Software Licenses": any software now or hereafter owned by, or licensed to, Borrower or with respect to which Borrower has or may have license or use rights. 7 13 "Subsidiary": as to any Person, any corporation or other entity that is an Affiliate of such Person and of which shares of stock or equity interests having ordinary voting power with respect to the election of one or more directors or other managers of such corporation are at the time directly or indirectly owned or controlled by such Person (regardless of any contingency which does or may suspend or dilute the voting rights of such class). "UCC": the Uniform Commercial Code as the same may from time to time be in effect in the State of Tennessee, or the Uniform Commercial Code of another jurisdiction, to the extent it may be required to apply to any item or items of Collateral. "Working Capital": unencumbered and unrestricted capital of Borrower or Guarantor available for general operational purposes after provision for all current liabilities. 1.02. Accounting Principles; Subsidiaries. Except as otherwise provided in this Agreement, all computations and determinations as to accounting or financial matters and all financial statements to be delivered pursuant to this Agreement shall be made and prepared in accordance with GAAP (including principles of consolidation where appropriate), consistently applied, and all accounting or financial terms shall have the meanings ascribed to such terms by GAAP. Any requirement to provide annual financial statements and quarterly reports pursuant to this Agreement may be satisfied by providing copies of reports filed with the SEC. All accounting and financial terms herein shall be deemed to include references to consolidation principles, and covenants, representations and agreements with respect to the Guarantor and its properties and activities shall be deemed to refer to the Guarantor and its consolidated Subsidiaries collectively. 1.03. UCC Terms. Except as otherwise provided or amplified (but not limited) herein, terms used in this Agreement that are defined in the UCC shall have the same meanings herein. 1.04. General Construction; Captions. All definitions and other terms used in this Agreement shall be equally applicable to the singular and plural forms thereof, and all references to any gender shall include all other genders. The words "hereof", "herein" and "hereunder" and words of similar import when used in this Agreement shall refer to this Agreement as a whole and not to any particular provision of this Agreement, and Section, subsection, schedule and exhibit references are to this Agreement unless otherwise specified. The captions and table of contents in this Agreement and the other Loan Documents are for convenience only, and in no way limit or amplify the provisions hereof. 1.05. References to Documents and Laws. All defined terms and references in this Agreement or the other Loan Documents with respect to any agreements, notes, instruments, certificates or other documents shall be deemed to refer to such documents and to any amendments, modifications, renewals, extensions, replacements, restatements, substitutions and supplements of and to such documents. All references to statutes and related regulations shall include any amendments thereof and any successor statutes and regulations. 1.06. Currency. All defined terms and references in this Agreement or the other Loan Documents with respect to Advances, payments, prepayments, specific dollar amounts, or any other currency transaction shall be deemed to be made in lawful money of the United States of America. 8 14 ARTICLE 2: ADVANCES 2.01. Commitment. Subject to the terms and conditions herein provided, and so long as no Event of Default has occurred and is continuing hereunder, Lender agrees to lend to Borrower from time to time before the Financing Termination Date, an aggregate principal amount not to exceed the amount set forth on Schedule 2.01 hereto as the maximum principal amount (the "Commitment"). All amounts advanced hereunder shall be used solely for Equipment and related services previously purchased from NTI, as identified on Schedule 2.01 hereto, or for the purchase of additional Equipment and related services from NTI, as identified on the Borrowing Certificate for each Advance. Amounts not exceeding the amount specified on Schedule 2.01 hereto may be used for legal fees, charges, expenses and closing costs and other expenses incurred by Borrower or incurred by Lender and payable by Borrower under Section 2.10 hereof. 2.02. Note and Payment Terms. (a) Promissory Note. The Advances shall be evidenced by the Note substantially in the form of Exhibit A hereto, with appropriate insertions. The Note shall be executed by Borrower, payable to the order of Lender, and shall evidence the obligation of Borrower to repay all principal amounts advanced under or pursuant to this Agreement, together with interest and all other amounts due thereunder. The Note shall be dated the Closing Date, have a stated maturity that is the Maturity Date, and bear interest at the Interest Rate from the First Borrowing Date until the Note or any amount thereunder is paid in full (whether on the Maturity Date, by acceleration or otherwise). All schedules attached to the Note shall be deemed a part thereof. Any such schedule may be amended by Lender from time to time to reflect changes in the amounts includable thereon, but the failure to attach or amend any schedule shall not diminish the obligation of Borrower to repay all amounts due hereunder or on the Note. (b) Interest Payments. Interest shall accrue on the principal amount outstanding on the Note for each separate Advance at the applicable Interest Rate for each Advance and shall be payable, in arrears, on each Interest Payment Date. Interest only shall be payable during the Interest Only Period, and thereafter all accrued interest shall be payable, in arrears, with the principal payments described below. (c) Principal Payments. On the Conversion Date, the Note shall automatically convert to a term certain of twenty (20) consecutive quarters, and principal shall be paid in twenty (20) equal consecutive quarterly installments, plus accrued interest, commencing on March 31, 1998 and on each Payment Date thereafter until the Maturity Date; provided, however, that the principal payment amounts shall be recalculated by Lender if any Advances are made hereunder after the Conversion Date, based on the aggregate amount of all Advances made at any time. The amount of each quarterly payment shall be calculated, at the outset, by amortizing the amount of all principal amounts outstanding on the Conversion Date. It is intended that the above amortization schedule will fully amortize the principal amounts advanced under the Note. The final payment shall be in an amount equal to all outstanding principal, accrued and unpaid interest, premiums, expenses, fees, penalties and all other unpaid charges due under the Note and this Agreement. (d) Late Payments and Default Rate. Notwithstanding the foregoing, if Borrower shall fail to pay within ten (10) days after the due date any principal amount or interest or other 9 15 amount payable under this Agreement or under the Note, Borrower shall pay to Lender, to defray the administrative costs of handling such late payments, an amount equal to interest on the amount unpaid, to the extent permitted under applicable law, at the Default Rate (instead of the Interest Rate), from the due date until such overdue principal amount, interest or other unpaid amount is paid in full (both before and after judgment) whether or not any notice of default in the payment thereof has been delivered under Section 9.01 hereof. In addition, but without duplication, upon the occurrence and during the continuance of an Event of Default, all outstanding amounts hereunder shall bear interest at the Default Rate (instead of the Interest Rate) until such amounts are paid in full or such Event of Default is waived in writing by Lender. (e) Excess Interest. Notwithstanding any provision of the Note, this Agreement or any other Loan Document to the contrary, it is the intent of Lender and Borrower that Lender or any subsequent holder of the Note shall never be entitled to receive, collect, reserve or apply, as interest, any amount in excess of the maximum rate of interest permitted to be charged by applicable Law, as amended or enacted from time to time. In the event Lender, or any subsequent holder of the Note, ever receives, collects, reserves or applies, as interest, any such excess, such amount which would be excessive interest shall be deemed a partial prepayment of principal and treated as such, or, if the principal indebtedness and all other amounts due are paid in full, any remaining excess funds shall immediately be applied to any other outstanding indebtedness of Borrower due to Lender, and if none is outstanding, shall be paid to Borrower. In determining whether or not the interest paid or payable, under any specific contingency, exceeds the highest lawful rate, Borrower and Lender shall, to the maximum extent permitted under applicable law, (a) exclude voluntary prepayments and the effects thereof as it may relate to any fees charged by Lender, and (b) amortize, prorate, allocate, and spread, in equal parts, the total amount of interest throughout the entire term of the indebtedness; provided that if the indebtedness is paid and performed in full prior to the end of the full contemplated term hereof, and if the interest received for the actual period of existence hereof exceeds the maximum lawful rate, Lender or any subsequent holder of any Note shall refund to Borrower the amount of such excess or credit the amount of such excess against the principal portion of the indebtedness, as of the date it was received, and, in such event, Lender shall not be subject to any penalties provided by any laws for contracting for, charging, reserving or receiving interest in excess of the maximum lawful rate. 2.03. Procedures for Borrowing. (a) Timing of Advances. Advances shall not be made more than once per month. Each Advance (other than the last Advance) shall be in an aggregate principal amount of not less than $100,000. No amounts may be borrowed hereunder on or after the Financing Termination Date. Lender is hereby authorized to retain from each Advance all amounts of Lender's Expenses accrued and unpaid by Borrower, for which invoices have been sent to Borrower at least five (5) Business Days before such Advance. In any event, all outstanding legal fees, charges and expenses not paid by Borrower prior to any Borrowing Date shall be paid before any Advance is made or concurrently with such Advance. (b) Borrowing Certificates. To request an Advance hereunder, Borrower shall send to Lender, at least ten (10) Business Days prior to the requested Borrowing Date, a completed Borrowing Certificate, along with invoices, a copy of the relevant Federal Reserve Statistical Release H.15 report quoting the applicable five (5) year constant maturity Treasury Bill rate, and 10 16 such other supporting documentation as Lender may reasonably request. Lender is hereby authorized to add to any Borrowing Certificate all amounts payable by Borrower to Lender in respect of legal fees, charges and expenses arising or incurred by Lender, to the extent such fees, charges and expenses have then been incurred or charged and may be paid from Advances. (c) Transmission of Advances. Advances shall be made by wire transfer to the account(s) specified in the applicable Borrowing Certificate, except that (i) proceeds of the Advances may be transmitted, at Lender's option, directly to an NTI account for payment of any unpaid NTI invoices, and (ii) Advances shall be made to Borrower only to the extent that Borrower provides Lender with satisfactory evidence that the amount of such Advance has been paid to NTI. No further authorization shall be necessary for any such direct disbursements, and each such Advance shall satisfy pro tanto the obligations of the Lender under this Agreement. (d) Borrowing Dates. Advances shall be made by Lender on the Borrowing Date specified in the applicable Borrowing Certificate if all conditions for such Advance have been satisfied, or on such later Business Day as all conditions for such Advance shall have been satisfied, as determined by Lender. (e) Advances After Default. At its option, after the occurrence and continuance of a Default, Lender may but shall not be obligated to make direct payment of a portion or all of an Advance to any Person (including without limitation NTI, suppliers, sub-contractors and materialmen) to whom Lender in good faith determines payment is due with respect to the Equipment, and any proceeds so disbursed by Lender shall be deemed disbursed as of the date on which the Person to whom payment is made receives the same. No further authorization from Borrower shall be necessary to warrant such direct payments, and the execution of this Loan Agreement by Borrower shall, and hereby does, constitute an irrevocable authorization and power of attorney so to make such direct payments hereunder. All such direct payments are Advances and shall satisfy pro tanto the obligations of Lender hereunder and shall be secured by the Security Documents as fully as if made directly to Borrower. 2.04. Prepayments. (a) Voluntary Prepayments. On or after the Conversion Date, the Borrower may, at its option, at any time and from time to time, prepay the Advances in whole or in part, upon at least four (4) Business Day's prior written notice to the Lender specifying the date and amount of prepayment, in a minimum amount of $250,000, plus the premium described below, and all accrued but unpaid interest thereon. Such notice shall be irrevocable and the principal amount specified in such notice shall be due and payable on the date specified together with accrued interest on the amount prepaid. Any such prepayment shall be subject to a prepayment premium equal to a percentage of the amount prepaid as follows: zero percent (0%) if prepayment is made on the Conversion Date, and with respect to any prepayment occurring after the Conversion Date, a prepayment premium equal to the excess, if any, of (a) the present value, as of the date of such prepayment, of all loan payments that, but for such prepayment, would have been payable after the date of the prepayment over (b) the principal amount of the note being prepaid. The present value calculated pursuant to clause (a) of the preceding sentence shall be determined by discounting the amounts of such installments from their respective payment dates to the date of the prepayment at a rate equal to the weighted average yield to maturity of the United States Treasury securities with a maturity equal to the then remaining average life of the Note plus one 11 17 half of one percent (1/2%). Amounts prepaid may not be reborrowed and shall be applied as provided in Section 2.04(c). Excess interest payments under Section 2.02(e) or prepayments made from insurance proceeds pursuant to Section 7.07(c) or with any condemnation proceeds shall not be subject to a prepayment premium. No voluntary prepayments shall be permitted prior to the Conversion Date. (b) [intentionally deleted] (c) Application of Prepayments. Any prepayments shall be applied first to interest, then to premium, then to expenses, and then to the installments of principal in reverse order of maturity. In addition, principal installments shall be applied to each separate Advance with the oldest Advance being prepaid first, until the remaining principal outstanding on each such Advance is fully prepaid. 2.05. Computation of Interest. Interest shall be expressed as an annual rate of interest, shall be compounded monthly, and shall be calculated daily on the basis of a 360-day year for the actual days elapsed in the period during which it accrues, at the applicable Interest Rate for each Advance. 2.06. Payments. All payments and prepayments to be made in respect of principal, interest, prepayment premiums or other amounts due from Borrower hereunder or under the Note shall be payable on or before 1:00 p.m., Nashville time, on the day when due, without presentment, demand, protest or notice of any kind, all of which are hereby expressly waived, and an action therefor shall immediately accrue. Such payments shall be made to Lender at Lender's office at 220 Athens Way, Nashville, Tennessee 37228-1399, or such other location specified in writing by Lender, in immediately available funds, without setoff, recoupment, counterclaims or any other deduction of any nature. 2.07. Indemnity. Borrower hereby indemnifies Lender against any losses, claims, penalties, expenses, actions, suits, obligations, liabilities and Liens (and all costs and expenses, including reasonable attorneys' fees incurred in connection therewith), that Lender has sustained or incurred or may sustain or incur in connection with any of the Collateral, or the enforcement, performance or administration of the Loan Documents, or as a consequence of any default by Borrower in the performance or observance of any covenant or condition contained in this Agreement or the Loan Documents, including without limitation, the breach of any representation or warranty, any failure of Borrower to pay when due (by acceleration or otherwise) any principal, interest, fee or any other amount due hereunder or under the Note, and any failure of Borrower to comply with all applicable Requirements of Law (collectively, "Claims") except to the extent of any Claims caused solely by Lender's gross negligence or willful misconduct. Borrower's obligations under this Section 2.07 shall be part of the Obligations and shall be secured by the Collateral. Borrower agrees that upon written notice by Lender of the assertion of any Claims, Borrower shall, at Lender's option, either assume full responsibility for, or reimburse Lender for the reasonable costs and expenses of, the defense thereof. Lender shall have no liability for consequential or incidental damages of any nature. The provisions of this Section 2.07 shall survive the termination of this Agreement and payment of the Obligations. 2.08. [Intentionally deleted]. 12 18 2.09. Fees. Borrower shall pay Lender the fees described on Schedule 2.09 hereto in connection with this Agreement. 2.10. Lender's Expenses. Borrower agrees (a) to pay or reimburse Lender for all its reasonable costs, fees, charges and expenses incurred or arising in connection with the negotiation, review, preparation and execution of this Agreement, the Loan Documents, any commitment or proposal letter, or any amendment, supplement, waiver, modification to, or restructuring of this Agreement, the Obligations or the other Loan Documents, including, without limitation, reasonable legal fees and disbursements, expenses, document charges and other charges and expenses of Lender, (b) to pay or reimburse Lender for all its reasonable costs, fees, charges and expenses incurred in connection with the administration of the Advances or the enforcement, protection or preservation of any rights under or in connection with this Agreement or any other Loan Documents, including, without limitation, reasonable legal fees and disbursements, audit fees and charges, and all out-of-pocket expenses, (c) to pay, indemnify, and to hold Lender harmless from, any and all recording and filing fees and taxes and any and all liabilities with respect to, or resulting from any delay in paying, stamp, excise and other taxes (excluding income and franchise taxes and taxes of similar nature), if any, which may be payable or determined to be payable in connection with the execution and delivery or recordation or filing of, or consummation of any of the transactions contemplated by, or any amendment, supplement or modification of, or any waiver or consent under or in respect of, this Agreement and the other Loan Documents. All of the amounts described in this Section are referred to collectively as the "Lender's Expenses", shall be payable upon Lender's demand, and shall accrue interest at the Interest Rate in effect when such demand is made from five (5) days after the date of demand until paid in full. All Lender's Expenses, and interest thereon, shall be part of the Obligations and shall be secured by the Collateral. The agreements in this Section 2.10 shall survive repayment of the Obligations. All Lender's Expenses that are outstanding on any Borrowing Date shall be paid before or with such advance. If Borrower has not paid to Lender the amount of all Lender's Expenses billed to Borrower at least five (5) Business Days before such Borrowing Date, Lender shall be authorized to retain from any Advance on such Borrowing Date the amount of such Lender's Expenses that remain unpaid. Borrower's obligation to pay Lender's Expenses shall not be limited by any limitation on the amount of the Commitment that may be designated as available for such purposes, and any amounts so designated shall be used to pay Lender's Expenses accrued at the time of any Advance before any of Borrower's legal fees or similar expenses. 2.11. Guaranty. The Guarantor shall unconditionally guarantee prompt and full payment of all the Obligations pursuant to the Guaranty. ARTICLE 3: COLLATERAL AND SECURITY AGREEMENT 3.01. Grant of Security Interest. Borrower (as debtor) hereby assigns to Lender as collateral, and grants to Lender (as secured party) a continuing security interest in and to, all of the Borrower's right, title and interest in and to the following property, whether now owned or hereafter acquired or arising, wherever located, together with all substitutions therefor and all accessions, replacements and renewals thereof, and in all proceeds thereof (collectively, the "Collateral"): (a) All the Equipment and Borrower's rights under the NTI Supply Agreement pertaining to such Equipment; (b) All general intangibles and intangible property constituting part of, or provided 13 19 by or through NTI in connection with, the Equipment, or necessary for the proper operation of the Equipment, including without limitation insurance proceeds and amounts due under insurance policies, licenses, license rights, rights in intellectual property, Software, Software Licenses, computer programming (including source codes, object codes and all other embodiments of computer programming or information), refunds, warranties and indemnification rights, and all amounts owed at any time to Borrower by Lender or NTI (collectively, "General Intangibles"); and (c) All proceeds and products of any of the foregoing, including without limitation (i) any and all proceeds of any insurance, indemnity, warranty or guaranty payable to the Borrower from time to time with respect to any of the Collateral, (ii) any and all payments (in any form whatsoever) made or due and payable to the Borrower from time to time in connection with any requisition, confiscation, condemnation, seizure or forfeiture of all or any part of the Collateral by any Governmental Authority (or any Person acting under color of governmental authority), and (iii) any and all cash proceeds and non-cash proceeds in the form of equipment, inventory, contracts, accounts, general intangibles, chattel paper, documents, instruments, securities, or other proceeds in connection with the collateral (collectively, "Proceeds"). 3.02. Priority of Security Interests. The security interests granted by Borrower to Lender are and shall be continuing and indefeasible first-priority security interests in the Collateral, subject to no Liens except for Liens permitted under Section 8.02 hereof. 3.03. Further Documentation; Pledge of Instruments. At any time and from time to time, upon the written request of the Lender, and at the sole expense of the Borrower, the Borrower shall promptly execute, deliver and record any documents, instruments, agreements and amendments, and take all such further action, as the Lender may reasonably deem desirable in obtaining the full benefits of this Agreement and of the rights and powers herein granted, including, without limitation, the filing of any financing statements or amendments under the UCC. Financing Statements or amendments thereto describing the Equipment being purchased with the proceeds of each Advance (or for which reimbursement is being requested) will be completed and filed at the time of such Advance. The Borrower also hereby authorizes the Lender to file any such financing statement or amendment thereto, without the signature of the Borrower, or with a copy or telecopy of the Borrower's signature, to the extent permitted by applicable law, or to execute any financing statement or amendment thereof on behalf of the Borrower as Borrower's attorney-in-fact. If any amount payable under or in connection with any of the Collateral shall be or become evidenced by any promissory note or other instrument or any certificated securities, such note, instrument or certificate shall be immediately pledged and delivered to the Lender hereunder, duly endorsed in a manner satisfactory to the Lender. 3.04. Further Identification of Collateral. Borrower shall furnish to the Lender from time to time statements and schedules further identifying and describing the Collateral and such other reports in connection with the Collateral as the Lender may reasonably request, all in reasonable detail. Borrower shall identify Equipment to be purchased with proceeds of each Advance on the Borrowing Certificate for such Advance. 3.05. Remedies. Lender shall have all the rights and remedies of a secured party under the UCC, and shall be entitled to exercise any and all remedies available under Article 9 hereof or otherwise available at law or in equity upon the occurrence of an Event of Default. 14 20 3.06. Standard of Care. Lender shall be deemed to have exercised reasonable care in the custody and preservation of any of the Collateral in its possession if it takes such action for that purpose as Borrower requests in writing, but Lender's failure to comply with any such request shall not of itself be deemed a failure to exercise reasonable care, and no failure of Lender to preserve or protect any rights with respect to such Collateral against prior parties, or to do any act with respect to the preservation of such Collateral not so requested by Borrower, shall be deemed a failure to exercise reasonable care in the custody or preservation of such Collateral. 3.07. Advances to Protect Collateral. All insurance expense and all expenses of protecting, storing, warehousing, insuring, handling, maintaining and shipping the Collateral (including, without limitation, all rent payable by Borrower to any landlord of any premises where any of the Collateral may be located), and, any and all taxes shall be borne and paid by Borrower. Lender may (but shall not be obligated to) make advances to preserve, protect or obtain any of the Collateral, including advances to pay taxes, insurance and the like, and all such advances shall become part of the Obligations owing to Lender hereunder and shall be payable to Lender on demand, with interest thereon from the date of such advance until paid at the Default Rate in effect on the date of such advance. 3.08. License to Use. Lender is hereby granted a license or other right to use, without charge, Borrower's labels, patents, copyrights, rights of use of any name, trade secrets, tradenames, trademarks and advertising matter, or any tangible or intangible property or rights of a similar nature, as it pertains to the Collateral, in advertising for sale and selling any Collateral, and Borrower's rights under all licenses and franchise agreements with respect to the Collateral shall inure to Lender's benefit. ARTICLE 4: REPRESENTATIONS AND WARRANTIES Borrower and Guarantor hereby represent and warrant to Lender as follows: 4.01. Organization and Qualification. Each of the Borrower and the Guarantor is duly organized, validly existing and in good standing as a corporation under the laws of its state of organization. Each of the Borrower and the Guarantor is duly qualified to do business and in good standing in each jurisdiction in which the failure to receive or retain such qualification would have a Material Adverse Effect. 4.02. Authority and Authorization. Each of the Borrower and the Guarantor has all requisite corporate right, power, authority and legal right to execute and deliver and perform its obligations under this Agreement, to make the borrowings provided for herein, and to execute and deliver and to perform its obligations under the Note. The Borrower's and the Guarantor's execution, delivery and performance of the Basic Agreements have been duly and validly authorized by all necessary corporate proceedings on the part of each of the Borrower and the Guarantor. 4.03. Execution and Binding Effect. This Agreement, the Note and all other Basic Agreements have been or will be duly and validly executed and delivered by the Borrower and the Guarantor, and constitute or, when executed and delivered will constitute, the legal, valid and binding obligations of Borrower and Guarantor enforceable in accordance with their respective terms, except as such enforceability may be limited by bankruptcy, insolvency, reorganization, receivership, moratorium or other laws affecting creditors' rights generally. 15 21 4.04. Governmental Authorizations. Except for the consents identified on Schedule 4.04 hereto (the "Required Consents"), no authorization, consent, approval, license, exemption or other action by, and no registration, qualification, designation, declaration or filing with, any Governmental Authority (other than the filing of financing statements and continuation statements) is or will be necessary in connection with execution and delivery of this Agreement, the Note or any other Loan Documents by Borrower or Guarantor, consummation of the transactions herein or therein contemplated, performance of or compliance by Borrower or Guarantor with the terms and conditions hereof or thereof or the legality, validity and enforceability hereof or thereof. 4.05. Regulatory Authorizations. Borrower or Guarantor holds all authorizations, permits and licenses required by the FCC or the PUC or any Communications Law for the construction and operation of the Borrower's and Guarantor's telecommunications system, and all such Regulatory Authorizations are either: in full force and effect, are subject to no further administrative or judicial review and are therefore final; or any Regulatory Authorizations that are not in full force and effect will not have a material adverse affect on the operations or financial condition of Borrower or Guarantor. Lender will not by reason of the execution, delivery and performance (other than the enforcement of remedies) of any of the Loan Documents, be subject to the regulation or control of either the FCC or the PUC. The Regulatory Authorizations are described on Schedule 4.05. 4.06. Material Agreement; Absence of Conflicts. The execution and delivery of this Agreement, the Note and the other Loan Documents, the consummation of the transactions herein or therein contemplated and the performance of or compliance with the terms and conditions hereof or thereof by Borrower and Guarantor will not (a) materially violate any applicable Law; (b) conflict with or result in a material breach of or a default under the Organizational Documents of the Borrower or the Guarantor or any agreement or instrument to which Borrower or Guarantor is a party or by which Borrower or Guarantor or its properties is bound; or (c) result in the creation or imposition of any Lien upon any property (now owned or hereafter acquired) of Borrower or Guarantor except as otherwise contemplated by this Agreement. 4.07. No Restrictions. Each of Borrower and Guarantor is not a party or subject to any contract, agreement, or restriction in its Organizational Documents that materially and adversely affects its business or the use or ownership of any of its properties or operation of its business, except as set forth on Schedule 4.07 hereto. Each of Borrower and Guarantor is not a party or subject to any contract or agreement which restricts its right or ability to incur Indebtedness, other than as set forth on Schedule 4.07, none of which prohibit the Borrower's or Guarantor's execution of or compliance with this Agreement. Neither Borrower nor Guarantor has agreed or consented to cause or permit in the future (upon the happening of a contingency or otherwise) any of the Collateral, whether now owned or hereafter acquired, to be subject to a Lien that is not a Permitted Encumbrance. 4.08. Financial Statements. Guarantor has furnished to Lender the most recent annual or quarterly financial statements of the Guarantor, certified by a Responsible Officer of the Guarantor, including balance sheets and related statements of income and retained earnings and changes in financial position, as described on Schedule 4.08 hereof. Such financial statements (including the notes thereto) present fairly the financial condition of Guarantor on a consolidated basis as of the end of such fiscal period and the results of its operations and the changes in its financial position for the fiscal period then ended, all in conformity with GAAP (except that quarterly reports may omit accompanying notes thereto and may be subject to year-end audit adjustments) applied on a basis consistent with that of the preceding fiscal period. Any projections and pro forma financial statements delivered by Guarantor to Lender were 16 22 prepared in good faith, based on reasonable assumptions, including without limitation, the cost of capital. 4.09. Financial Accounting Practices. Each of Borrower and Guarantor has made and kept books, records and accounts which, in reasonable detail, accurately and fairly reflect its respective transactions and dispositions of its assets, and shall maintain a system of internal accounting controls sufficient to provide reasonable assurances that (a) transactions are executed in accordance with management's general or specific authorization, (b) transactions are recorded as necessary (i) to permit preparation of financial statements in conformity with GAAP and (ii) to maintain accountability for assets, (c) access to assets is permitted only in accordance with management's general or specific authorization and (d) the recorded accountability for assets is compared with the existing assets at reasonable intervals and appropriate action is taken with respect to any differences. 4.10. Accurate and Complete Disclosure. No representation or warranty made by Borrower or Guarantor under this Agreement is false or misleading in any material respect (including by omission of material information necessary to make such representation or warranty) and no statement made by Borrower or Guarantor in any financial statement, certificate, report, exhibit or document furnished by Borrower or Guarantor to Lender pursuant to or in connection with this Agreement (including without limitation any filings with the Securities Exchange Commission, the FCC or the PUC) was false or misleading as of the date made in any material respect (including by omission of material information necessary to make such representation, warranty or statement not misleading). There are no facts that evidence or create a Material Adverse Effect, or, so far as the Borrower and Guarantor can now foresee, will evidence or create a Material Adverse Effect, which has not been set forth in the financial statements referred to in Section 4.08 hereof or otherwise disclosed in writing to the Lender prior to the First Borrowing Date. 4.11. No Event of Default; Compliance with Material Agreements. No event has occurred and is continuing and no condition exists which constitutes a Default or an Event of Default after giving effect to the Advance to be made on the First Borrowing Date. As of the date hereof, each of Borrower or Guarantor is not in violation of any term of its material agreements or instruments to which it is a party or by which it or its properties is bound. 4.12. Litigation. Except as set forth in Schedule 4.12, there is no pending action, suit or threatened proceeding by or before any Governmental Authority against or affecting Borrower or Guarantor or any of their properties, rights or licenses which if adversely decided would have a Material Adverse Effect. 4.13. Rights to Property; Intellectual Property. Borrower has good and marketable title, subject only to the Permitted Encumbrances, to the Collateral and to all personal and real property purported to be owned by it as reflected in the most recent balance sheet referred to in Section 4.08 hereof (except as sold or otherwise disposed of in the ordinary course of business as no longer used or useful in the conduct of the business). Borrower owns or possesses the right to use all patents, trademarks, service marks, trade names, copyrights, know-how, franchises, software and software licenses necessary for the operation of its business, free from burdensome restrictions. 4.14. Financial Condition. Each of Borrower's and Guarantor's financial condition is accurately described in the Certificate of Financial Condition executed by Borrower and Guarantor pursuant hereto. 17 23 4.15. Taxes. Each of Borrower's and Guarantor's federal tax identification numbers is set forth on Schedule 1 hereto. All tax returns required to be filed by Borrower or Guarantor have been properly prepared, executed and filed, and all taxes, assessments, fees and other governmental charges upon Borrower or Guarantor or upon any of its respective properties, incomes, sales or franchises which are shown to be due and payable thereon have been paid, other than taxes or assessments the validity or amount of which Borrower or Guarantor is contesting in good faith. The reserves and provisions for taxes on the books of Borrower and Guarantor are adequate for all open years and for its current fiscal period. 4.16. No Material Adverse Change. Since the date of the financial statements referenced in Section 4.08, there has been no Material Adverse Change and there exists no present condition or state of facts or circumstances which would have a Material Adverse Effect or prevent Borrower or Guarantor from conducting its business after the consummation of the transaction contemplated by this Agreement. 4.17. No Regulatory Event. No Regulatory Event has occurred and is continuing, except as described on Schedule 4.17 hereto. 4.18. Trade Relations. There exists no actual or threatened termination, cancellation or limitation of, or any modification or change in, the business relationship between Borrower or Guarantor and any carrier, any labor organizations, any customer or any group thereof whose agreements with Borrower or Guarantor or use of the Borrower's or Guarantor's Equipment individually or in the aggregate are material to the business of Borrower or Guarantor, or with any material supplier. 4.19. No Brokerage Fees. No brokerage or other fee, commission or compensation is to be paid by Borrower or Guarantor to any Person in connection with the loans to be made hereunder. Each of Borrower and Guarantor hereby indemnifies Lender against any claims brought against Lender for brokerage fees or commissions of any Person based on an agreement with Borrower or Guarantor and agrees to pay all expenses incurred by Lender in connection with the defense of any action or proceeding brought to collect any such brokerage fees or commissions. 4.20. Margin Stock; Regulation U. Neither Borrower nor Guarantor is engaged principally, or as one of its important activities, in the business of extending credit for the purpose of purchasing or carrying margin stock. The making of the Advances and the use of the proceeds thereof will not violate Regulations G, U or X of the Board of Governors of the Federal Reserve System. 4.21. Investment Company; Public Utility Holding Company. Each of Borrower and Guarantor is not an "investment company" or a "company controlled by an investment company" within the meaning of the Investment Company Act of 1940, as amended, or a "holding company," or a "subsidiary company" of a "holding company," or an "affiliate" of a "holding company" or of a "subsidiary company" of a "holding company," within the meaning of the Public Utility Holding Company Act of 1935, as amended. 4.22. Personal Holding Company; Subchapter S. Each of Borrower and Guarantor is not a "personal holding company" as defined in Section 542 of the Code, and Borrower is not a "Subchapter S" corporation within the meaning of the Code. 4.23. ERISA. (i) With respect to any Plan, there is no Reportable Event currently under consideration by the PBGC which may reasonably result in any material liability to the PBGC with respect to any Plan, (ii) no Plan has been terminated, (iii) no trustee has been appointed by any United 18 24 States District Court to administer any Plan, (iv) the PBGC has not instituted proceedings to terminate any Plan or to appoint a trustee to administer any such Plan, (v) neither the Borrower nor the Guarantor has withdrawn, completely or partially, from any Plan and (vi) neither the Borrower nor the Guarantor has incurred secondary liability for withdrawal liability payments under any Plan. 4.24. Environmental Warranties. Neither the Borrower nor the Guarantor is in violation of any Environmental Laws applicable to Borrower, Guarantor or their business or to the real or personal property owned, leased or operated by Borrower or Guarantor that will have a material adverse affect on the operations or financial condition of Borrower or Guarantor Neither Borrower nor Guarantor has received notice of, or is aware of, any violations or alleged violations, or any liability or asserted liability, under any such Environmental Laws that will have a material adverse affect on the operations or financial condition of Borrower or Guarantor. 4.25. Security Interests. The provisions of Article 3 hereof are effective to create in favor of Lender a legal, valid and enforceable Lien on or security interest in all of the Collateral, and, when the recordings and filings described on Schedule 4.25 hereto have been effected in the public offices listed on said Schedule 4.25, this Agreement will create a perfected first-priority security interest in all right, title, estate and interest of Borrower in the Collateral, and subject to no other Liens except for Permitted Encumbrances. All action necessary or desirable to protect and perfect such security interest in each item of the Collateral will have been duly taken prior to the First Borrowing Date. The recordings and filings shown on said Schedule 4.25 are all the actions necessary or advisable in order to establish, protect and perfect the interest of Lender in the Collateral. 4.26. Place of Business. The chief executive offices of Borrower and Guarantor are identified on Schedule 4.26 hereto. The Borrower's and Guarantor's principal places of business in the state(s) where the Equipment is located are identified on Schedule 4.26 hereto. The Borrower's records concerning the Collateral are kept at one or both of these addresses. 4.27. Location of Collateral. The Collateral is and will be kept at the locations identified on Schedule 4.26 hereto or such other locations as may be permitted under Section 8.05. 4.28. Clear Title To Collateral. The Borrower is the sole owner of each item of the Collateral, having good and marketable title thereto, free and clear of any and all Liens, claims, or rights of others, except for the security interest granted herein to the Lender and the other Permitted Encumbrances. 4.29. Assumed Names. Except as set forth on Schedule 4.29 hereto, Borrower or Guarantor does not conduct business under any assumed names or trade names, and has not conducted business under any other names, or any assumed names or trade names, at any time prior to the date hereof. 4.30. Transactions with Affiliates. No Affiliate and no officer, director or Owner of the Borrower or Guarantor or any individual related by blood, marriage, adoption or otherwise to any such officer, director or Owner or Guarantor, or any Person in which any such officer, director, Owner, Guarantor or individual related thereto owns any beneficial interest, is a party to any agreement, contract, commitment or transaction with the Borrower or Guarantor or has any material interest in any material property used by the Borrower or Guarantor, except as set forth on Schedule 4.30 hereto. 4.31. NTI Supply Agreement. The NTI Supply Agreement has been duly executed and delivered by the Borrower and NTI, is in full force and effect, and a true, correct and complete copy 19 25 thereof (including all annexes, attachments and amendments thereto) has been delivered to Lender, and there are no other side letters, waivers or other agreements affecting the terms thereof. ARTICLE 5: CONDITIONS OF CLOSING On or before the Closing Date, the following conditions shall have been satisfied: 5.01 Closing Certificates. A certificate of Borrower and a certificate of Guarantor signed by a duly authorized Responsible Officer, certifying as to (i) true copies of Organizational Documents of Borrower and Guarantor in effect on such date; (ii) true copies of all corporate action taken by Borrower and Guarantor and corporate action relative to this Agreement, the Note and the other Loan Documents; (iii) the names, true signatures and incumbency of the Responsible Officers of Borrower and Guarantor authorized to execute and deliver this Agreement, the Note and the other Loan Documents; (iv) Certificates of Good Standing (or equivalent certificate) for the Borrower and Guarantor, duly issued by the Secretary of State of each state in which the Borrower and Guarantor do business or intend to do business; and (v) such other matters as Lender shall request. 5.02 Opinions of Counsel. Lender shall have received a written opinion of counsel to Borrower, substantially in the form of Exhibit C hereto, dated as of the Closing Date and in form and substance satisfactory to Lender. 5.03. Closing Documents. Lender shall have received the following documents, all in form and substance satisfactory to Lender: (a) Agreement. This Agreement, duly executed by Borrower and Guarantor; (b) Note. The Note, duly executed by Borrower; (c) NTI Supply Agreement. A copy of the executed NTI Supply Agreement; (d) Insurance. Policies and certificates of insurance required by Section 7.07, accompanied by evidence of the payment of the premiums therefor; (e) Financial Statements. The financial statements described in Section 4.08 hereof; (f) Balance Sheet. The most recent quarterly consolidated balance sheet of the Guarantor filed with the SEC, certified by a Responsible Officer as fairly presenting the financial condition of the Guarantor. (g) Certificate of Financial Condition. A Certificate of Financial Condition duly executed by a Responsible Officer of the Borrower and a Responsible Officer of the Guarantor. (h) Guaranty. The Guaranty duly executed by Guarantor, together with a legal opinion of Guarantor's counsel in the form and substance satisfactory to Lender and such other supporting documentation as Lender may reasonably require. 20 26 (i) Map or Survey and Layout. A detailed map or survey describing in detail the Equipment by location by address or lot and block plat or mileage marker, the necessary physical spaces and locations owned or leased for operation of Equipment. (j) Environmental Matters. Duly executed Environmental Certificates, satisfactory to Lender, with respect to the locations of the Equipment, substantially in the form of Exhibit E hereto. ARTICLE 6: CONDITIONS OF LENDING 6.01. Conditions for Initial Advance. On or before the First Borrowing Date, the following conditions shall have been met to Lender's satisfaction: (a) Financing Statements. Lender shall have received all UCC-1 financing statements necessary to perfect the Liens granted hereby in form and substance satisfactory to Lender, each duly executed by Borrower, and duly recorded in all the offices identified on Schedule 4.25 hereto. (b) Pre-Funding Lien Searches. Lender shall have received satisfactory results of Lien searches in all jurisdictions reasonably determined by Lender to be appropriate reflecting the filing of financing statements in favor of Lender pursuant hereto and no other Liens other than Permitted Encumbrances on any of the Collateral. (c) Required Consents. Lender shall have received satisfactory evidence of the Borrower's or Guarantor's obtaining the Required Consents. (d) Fees. Lender shall have received the fee(s) described in Section 2.09 hereof. 6.02. Conditions for All Advances. The obligation of Lender to make any Advance hereunder is subject to the Borrower's and Guarantor's performance of its obligations hereunder on or before the date of such Advance, and to the satisfaction of the following further conditions on or before the Borrowing Date for any Advance, including the first Advance: (a) Filings, Registrations and Recordings. Any financing statements or other recordings required hereunder shall have been properly filed, registered or recorded in each office in each jurisdiction required in order to create in favor of the Lender a perfected first- priority Lien on the Collateral, subject to no other Lien; the Lender shall have received acknowledgment copies of all such filings, registrations and recordations stamped by the appropriate filing officer; and Lender shall have received results of searches of such filing offices, and satisfactory evidence that any other Liens (other than Permitted Encumbrances) on the Collateral have been duly released, that all necessary filing fees, recording fees, taxes and other expenses related to such filings, registrations and recordings have been paid in full. (b) Borrowing Certificate. Lender shall have received a duly executed Borrowing Certificate in the form of Exhibit B, including a detailed itemization of all costs of goods and 21 27 services to be paid with the proceeds of the Advance (or for which reimbursement is being requested) and accompanied by supporting documentation satisfactory to Lender, attached as Schedule 1 to the Borrowing Certificate. (c) Reporting Requirements. Borrower and Guarantor shall have provided Lender with all relevant reports and information required under Article 7 hereof. (d) No Regulatory Event. No Regulatory Event (in either Borrower's, Guarantor's or Lender's reasonable determination) shall have occurred and be continuing or would exist upon the consummation of transactions to occur on such Borrowing Date. (e) No Default or Event of Default. No Default or Event of Default shall have occurred and be continuing or would exist upon the consummation of transactions to occur on such Borrowing Date. (f) No Material Adverse Change. No Material Adverse Change shall have occurred, or would occur after giving effect to such Advance, since the date of the last financial statements delivered to Lender pursuant to Section 4.08 or 7.01 hereof. (g) Representations and Warranties. The representations and warranties contained in Article 4 hereof shall be true on and as of the date of each such Advance hereunder. (h) Lender's Expenses. All closing costs, and other Lender's Expenses shall have been paid in full, (or shall be paid first from such Advance as provided in Section 2.03 hereof). (i) Opinions. Lender shall have received from Borrower and Guarantor such opinions of counsel for the Borrower and Guarantor as may be reasonably acceptable to Lender in form and substance with respect to the perfection and priority of the Liens created by the Security Documents in each such jurisdictional location. (j) Details, Proceedings and Documents. All legal details and proceedings in connection with the transactions contemplated by this Agreement shall be reasonably satisfactory to Lender and Lender shall have received all such counterpart originals or certified or other copies of such documents and proceedings in connection with such transactions, in form and substance reasonably satisfactory to Lender, as Lender may from time to time request. (k) Consents. Lender shall have received all Consents duly executed by all parties and in form satisfactory to Lender. (l) Post-Closing Items. The post-closing items described on Schedule 6.02 hereto, if any, shall have been completed in the time permitted, and Borrower and Guarantor shall have provided Lender with satisfactory evidence thereof. (m) Financing Statements or Amendments. Lender shall have received executed financing statements or amendments required by Section 3.03 hereof. 22 28 6.03. Affirmation of Representations and Warranties. Any Borrowing Certificate or other request for any Advance hereunder shall constitute a representation and warranty that (a) the representations and warranties contained in Article 4 hereof are true and correct on and as of the date of such request with the same effect as though made on and as of the date of such request and (b) on the date of such request no Default or Event of Default has occurred and is continuing or exists or will occur or exist after giving effect to such Advance (for this purpose such Advance being deemed to have been made on the date of such request). Failure of Lender to receive notice from Borrower or Guarantor to the contrary before such Advance is made shall constitute a further representation and warranty by Borrower and Guarantor that (x) the representations and warranties of Borrower and Guarantor contained in the first sentence of this Section 6.03 are true and correct on and as of the date of such Advance with the same effect as though made on and as of the date of such Advance and (y) on the date of the Advance no Default or Event of Default has occurred and is continuing or exists or will occur or exist after giving effect to such Advance. 6.04. Deadline for Funding Conditions. Lender shall have no obligation to make any Advances hereunder if all of the conditions set forth in Article 5 and in Sections 6.01 and 6.02 hereof have not been fully satisfied, and the first Advance made hereunder, by the Financing Termination Date. ARTICLE 7: AFFIRMATIVE COVENANTS Each of Borrower and Guarantor hereby agrees that as long as the commitment hereunder remains in effect, the Note remains outstanding or unpaid or any other amount is owing to Lender hereunder or under any of the Loan Documents, Borrower and Guarantor shall keep and perform fully each and all of the following covenants: 7.01. Reporting and Information Requirements. (a) Annual Audit Reports. After the close of each fiscal year of Guarantor, at the time of filing annual reports with the Securities Exchange Commission ("SEC"), Guarantor shall furnish or cause to be furnished to Lender audited statements of income, statements of cash flow and retained earnings for such fiscal year and the Guarantor's balance sheet as of the close of such fiscal year, and notes to each, all in reasonable detail, and beginning with Guarantor's second full fiscal year setting forth in comparative form the corresponding figures for the preceding fiscal year, with such statements and balance sheet to be certified without qualification by independent certified public accountants of recognized national standing selected by Guarantor and reasonably satisfactory to Lender. (b) Quarterly Reports. After the end of each fiscal quarter, at the time of filing quarterly reports with the SEC, Guarantor shall furnish to Lender (i) unaudited consolidated statements of income, statements of cash flow and retained earnings for Guarantor for such quarter and for the period from the beginning of Guarantor's then current fiscal year to the end of such quarter, and an unaudited consolidated balance sheet of Guarantor as of the end of such quarter, all in reasonable detail and certified by a Responsible Officer of Guarantor as presenting fairly the financial position of Guarantor as of the end of such quarter and the results of its operations and the changes in its financial position for such quarter, in conformity with GAAP (except for accompanying notes thereto), subject to year-end audit adjustments, and (ii) upon 23 29 Lender's request, an aging of accounts payable and accounts receivable. (c) SEC Reports. Guarantor shall furnish to Lender copies of all other SEC filings at the time of filing such reports. (d) Compliance Certificates. Within sixty (60) days after the end of each Calendar Quarter, Borrower and Guarantor shall deliver to Lender a certificate dated as of the end of such Calendar Quarter, signed on behalf of Borrower and Guarantor by a Responsible Officer of Borrower and Guarantor (i) stating that as of the date thereof no Event of Default has occurred and is continuing or exists, or if an Event of Default has occurred and is continuing or exists, specifying in detail the nature and period of existence thereof and any action with respect thereto taken or contemplated to be taken by Borrower or Guarantor; (ii) stating that the signer has personally reviewed this Agreement and that such certificate is based on an examination made by or under the supervision of the signer sufficient to assure that such certificate is accurate; and (iii) calculating and certifying Borrower's and Guarantor's compliance with the financial covenants set forth in Section 7.15 hereof. (e) Accountants' Certificate. Each set of year-end audited consolidated statements and balance sheet delivered pursuant to Section 7.01(a) hereof shall be accompanied by a certificate or report dated the date of such statement and balance sheet by the accountants who certified such statements and balance sheet stating in substance that they have reviewed this Agreement and that in making the examination necessary for their certification of such statements and balance sheet they did not become aware of any Default, or if they did become so aware, such certificate or report shall state the nature and period of existence thereof. (f) Projections. If requested by Lender, Guarantor shall deliver to Lender within thirty (30) days prior to the beginning of each calendar year projections of its anticipated income, expenses, cash flow, assets and liabilities for each month or quarter of such calendar year, prepared in good faith and in a manner and format consistent with other financial statements provided by Guarantor to Lender. Such projections shall present fairly the anticipated financial condition of the Guarantor and shall be certified by a Responsible Officer of the Guarantor. Upon Lender's request, or following any material change in the Guarantor's financial condition or business, such reports shall be provided to Lender quarterly, within thirty (30) days prior to the beginning of each Calendar Quarter. (g) Amendments to Indenture. In the event that the Indenture is amended or supplemented, the Guarantor shall deliver to Lender a copy of the amendment or supplement to the Indenture within ten (10) days after the execution of such amendment or supplement. (h) Other Reports and Information. Promptly upon their becoming available to Borrower or Guarantor, Borrower or Guarantor shall deliver to Lender copies of (i) all regular or special reports or effective registration statements which Borrower or Guarantor shall file with Governmental Authorities, the FCC or the PUC (or any successor thereto) or any securities exchange, (ii) financial statements, material reports, and other information distributed by Borrower or Guarantor to its creditors or the financial community in general, and (iii) all press releases issued by or concerning Borrower or Guarantor or the Equipment. 24 30 (i) Further Information. Borrower or Guarantor will promptly furnish to Lender such other information (including any report by independent auditors) in such form as Lender may reasonably request. 7.02 Other Notices. Promptly upon a Responsible Officer of Borrower or Guarantor becoming aware of any of the following, Borrower or Guarantor shall give Lender notice thereof, together with a written statement of a Responsible Officer of Borrower or Guarantor setting forth the details thereof and any action with respect thereto taken or contemplated to be taken by Borrower or Guarantor: (a) a Default or Event of Default; (b) any Material Adverse Change; (c) a material default or breach by Borrower or Guarantor under any other contractual obligation to which it is a party or by which it or its properties is bound, if the consequences of such breach of default are material to the business, operations or financial condition of Borrower or Guarantor; (d) any event that the Borrower or Guarantor reasonably determines would constitute a Regulatory Event; (e) the commencement, existence or threat of any proceeding by or before any Governmental Authority against Borrower or Guarantor which, if adversely decided, would have a Material Adverse Effect; (f) Borrower's or Guarantor's receipt of any notice of violation of, or liability under, any Environmental Laws affecting Borrower or Guarantor or any of their properties; or (g) any Change in Control or any material change in the management of Borrower or Guarantor. 7.03. Notice of Pension-Related Events. The Borrower or Guarantor shall promptly furnish Lender with written notice upon the receipt by the Borrower or Guarantor or the administrator of any Plan of any notice, correspondence or other communication from the PBGC, the IRS, the Secretary of Treasury, the Department of Labor, or any other Person, as the case may be, relating to (i) any Reportable Event, (ii) any funding deficiency with respect to any Plan, (iii) any liability, either primary or secondary, with respect to complete or partial withdrawal from any Plan, (iv) proceedings to terminate any Plan or (v) the appointment of a trustee for any Plan. Such notice shall be accompanied by any pertinent documents including, but not limited to, the relevant notice, correspondence or other communication and a statement of a Responsible Officer of the Borrower or Guarantor describing the event or the action taken and the reasons therefor. 7.04. Inspection Rights. Borrower shall upon reasonable notice permit such persons as Lender may designate to visit and inspect the Collateral or any other properties of Borrower, to examine its books and records and take copies and extracts therefrom and discuss its respective affairs with its officers, employees and independent engineers at such times and as often as Lender may reasonably request. Borrower hereby authorizes such officers, employees, and independent engineers to discuss with Lender the affairs of Borrower. 25 31 7.05. Preservation of Corporate Existence and Qualification. Each of Borrower and Guarantor shall maintain its existence, good standing and rights in full force and effect in its jurisdiction of organization. Borrower and Guarantor shall qualify to do business and remain qualified and in good standing and shall obtain all necessary authorizations to do business in each jurisdiction in which failure to receive or retain such would have a Material Adverse Effect. 7.06. Continuation of Business. Borrower and Guarantor shall continue to engage predominantly in the telecommunications service business, which may include providing internet services, and shall acquire and maintain in full force and effect all rights, privileges, franchises and licenses necessary for the operation and maintenance of the Borrower's and Guarantor's telecommunications system (including, without limitation any license or authorization required by the FCC or any PUC). 7.07. Insurance. (a) Borrower shall provide and maintain or cause to be maintained at all times insurance in such forms and covering such risks and hazards and in such amounts and with an insurance corporation with a Best rating of "A" or above, licensed to do business in the states where the Equipment and the Borrower are located, as may be satisfactory to Lender, as shown on Schedule 7.07 hereto, and otherwise as may be required by the Security Documents. (b) Borrower shall cause (i) all liability insurance policies to name Lender as an additional insured, (ii) all physical damage insurance policies to contain a lender's or mortgagee's loss payable provision acceptable to Lender with respect to the Collateral, (iii) all insurance policies to provide that no assignment, cancellation, modification, reduction in amount or adverse change in coverage thereof shall be effective until at least thirty (30) days after receipt by Lender of written notice thereof, (iv) all insurance policies to insure the interests of Lender with respect to the Collateral regardless of any breach of or violation by Borrower of any warranties, declarations or conditions contained therein and (v) all insurance policies to provide that Lender shall have no obligation or liability for premiums, commissions, assessments or calls in connection with such insurance. Lender shall be under no obligation to verify the adequacy or existence of any insurance coverage. Borrower shall furnish Lender copies of, or acceptable certificates with respect to, all such policies prior to the Closing Date, and shall provide to Lender, at least thirty days prior to each policy expiration date, evidence of the insurance being maintained by Borrower in compliance with this Section 7.07(b). Certificates for insurance required under subsection (i) above shall be in ACORD Form 27 (attached hereto at Schedule 7.07), and all certificates shall be satisfactory in form and substance to Lender. (c) If the Collateral is partially or totally damaged or destroyed, Borrower shall give prompt notice to Lender, and all insurance proceeds, less the costs of collection thereof, shall be paid to or retained by Lender. Settlements, adjustments or compromises of any claims for loss, damage or destruction to the Collateral shall be made by Borrower as long as no Event of Default has occurred and is continuing, and otherwise shall be made solely by Lender. Borrower hereby authorizes and directs any affected insurance company to pay such proceeds directly to Lender, and to rely on Lender's statement as to whether an Event of Default has occurred. Borrower shall pay all costs of collection of insurance proceeds payable on account of such damage or destruction. If no Default or Event of Default has occurred and is continuing on the date the Collateral is partially or totally damaged or destroyed, Lender shall make available to Borrower the proceeds of any physical damage insurance actually paid to Lender in respect of such damage 26 32 or destruction of the Collateral (after deducting therefrom any sums retained by Lender in reimbursement for costs of collection) to pay the cost of restoration, and Borrower shall proceed promptly with the work of restoration of the Collateral and shall pursue the work of restoration diligently to completion. If any Default or Event of Default has occurred and is continuing either on the date of such damage or destruction or on the date such insurance proceeds are paid, or if any Default or Event of Default shall occur prior to completion of such work of restoration, then Lender, at its option, may apply such insurance proceeds in payment of any of the Obligations, in such order as Lender may elect in its sole discretion. Any insurance proceeds remaining after completion of work or restoration shall, at Lender's election, be applied in accordance with Section 2.04(c) hereof (but without prepayment premium), or paid over to Borrower. Upon completion of any restoration, Borrower shall deliver to Lender a certificate stating that the restoration has been duly completed and accounting for the use of any insurance proceeds in such restoration. 7.08. Payment of Taxes, Charges and Claims. Borrower or Guarantor shall pay or discharge: (a) on or prior to the date on which penalties thereto accrue, all taxes, assessments and other government charges or levies imposed upon it or any of its properties or income (including such as may arise under Section 4062, Section 4063 or Section 4064 of ERISA, or any similar provision of law); (b) on or prior to the date when due, all lawful claims of materialmen, mechanics, carriers, warehousemen, and other like persons which could result in creation of a Lien upon any such property; and (c) on or prior to the date when due, all other lawful claims which, if unpaid, might result in the creation of a Lien upon any such property (other than Permitted Encumbrances) or which, if unpaid, might give rise to a claim entitled to priority over general creditors of Borrower or Guarantor in a case under Title 11 (Bankruptcy) of the United States Code, as amended, or in any insolvency proceeding or dissolution or winding-up involving Borrower or Guarantor. Notwithstanding the foregoing, Borrower shall be entitled to contest or appeal the requirements of any Law or Governmental Authority or the payment of any tax, assessment, charge, levy or claim, or any judgment entered against the Borrower or Guarantor, or the creation of any carrier's, warehousemen's, mechanic's, materialmen's, repairmen's or other like Liens on the Collateral arising in the ordinary course of business (collectively, in this Section 7.08, the "requirements"), as long as (i) such requirements are being contested in good faith by appropriate proceedings diligently conducted; (ii) Borrower or Guarantor has given Lender written notice of such requirements and its intent to contest them, with supporting reasons for such contest, before the addition of any interest or penalties that may accrue on such requirements; (iii) Borrower or Guarantor maintains adequate cash reserves and makes other appropriate provisions as may be required by GAAP to provide for any liability arising from such requirements; (iv) the contesting of, or failure to comply with, such requirements does not in any way jeopardize the Borrower's or Guarantor's ability or authority to operate all or any part of the Collateral or the continuing priority of Lender's security interests in the Collateral; (vi) the contesting of, or failure to comply with, such requirements does not have a Material Adverse Effect; and (vii) any foreclosure, attachment, execution, sale or similar proceeding against the Borrower or Guarantor or any of its properties in connection with any such requirements is duly stayed by posting of a bond or security deposit or by other action sufficient under applicable law to stay such foreclosure, attachment, execution, 27 33 sale or other proceedings. 7.09. Financial Accounting Practices. Borrower or Guarantor shall make and keep books, records and accounts which, in reasonable detail, accurately and fairly reflect its transactions and dispositions of its assets and maintain a system of internal accounting controls sufficient to provide reasonable assurances that (a) transactions are executed in accordance with management's general or specific authorization, (b) transactions are recorded as necessary (i) to permit preparation of financial statements in conformity with GAAP and (ii) to maintain accountability for assets, (c) access to assets is permitted only in accordance with management's general or specific authorization and (d) the recorded accountability for assets is compared with the existing assets at reasonable intervals and appropriate action is taken with respect to any differences. 7.10. Compliance with Laws. Borrower and Guarantor shall comply in all respects with all Laws applicable to Borrower and Guarantor, provided that Borrower and Guarantor shall not be deemed to be in violation of this Section 7.10 as a result of any failure to comply which would not result in any liability or exposure to Lender or any fines, penalties, injunctive relief or other civil or criminal liabilities which, in the aggregate, would materially affect the business, operations or financial condition of Borrower or Guarantor or the ability of Borrower or Guarantor to perform its obligations under this Agreement or the Note. 7.11. Use of Proceeds. Borrower shall use the proceeds of Advances hereunder only as set forth in Section 2.01 hereof. 7.12. Government Authorizations; Regulatory Authorizations, Etc. Borrower and Guarantor shall at all times obtain and maintain in force all Regulatory Authorizations and all other authorizations, permits, consents, approvals, licenses, exemptions and other actions by, and all registrations, qualifications, designations, declarations and other filings with, any Governmental Authority necessary in connection with execution and delivery of this Agreement or the Note, consummation of the transactions herein or therein contemplated, performance of or compliance with the terms and conditions hereof or thereof or to ensure the legality, validity and enforceability hereof or thereof. 7.13. Contracts and Franchises. Borrower and Guarantor shall comply with all agreements or instruments to which it is a party or by which it or any of its properties (now owned or hereafter acquired) may be subject or bound and shall maintain any and all franchises it may have or hereafter acquire, provided that Borrower and Guarantor shall not be deemed to be in violation of this Section 7.13 as a result of any failure to comply with any agreement if such failure would not have Material Adverse Effect. 7.14. Consents. Borrower or Guarantor shall obtain such Landlord's Consents and other third party consents as Lender shall reasonably request to protect its Liens and its access to the Collateral. 7.15. Financial Covenants. Guarantor shall comply with the financial covenants set forth on Schedule 7.15 hereto. 7.16. Construction and Storage. The Collateral shall be installed and equipped in full compliance with the Requirements of Law affecting the Collateral except to the extent a failure to so comply would not have a Material Adverse Effect on the construction or operation of the Collateral. All Equipment financed with the proceeds of the Advances shall be safeguarded and stored until installed in 28 34 appropriate storage facilities owned or leased by Borrower. In the event of any cessation of construction for more than fifteen (15) successive calendar days, Borrower shall make adequate provision, reasonably acceptable to Lender, for the protection of all materials stored on site against deterioration, loss or damage. 7.17. Upgrade Equipment. Borrower shall maintain the Equipment in good working order and shall upgrade its software in accordance with industry practice. ARTICLE 8: NEGATIVE COVENANTS Each of Borrower and Guarantor hereby agrees that so long as the Commitment hereunder remains in effect or the Note remains outstanding and unpaid or any other amount is owing to Lender hereunder or under any of the Loan Documents, Borrower and Guarantor shall not directly or indirectly without prior written consent of Lender, do or permit to exist any of the following: 8.01. Additional Indebtedness. Create, incur, assume or suffer to exist at any one time any Indebtedness secured by a lien on the Collateral. 8.02. Restrictions on Liens and Sale of Collateral. Create or suffer to exist any Lien on the Collateral or any part thereof, whether superior or subordinate to the Lien of the Security Documents, or assign, convey, sell or otherwise dispose of or encumber its interest in the Collateral, or any part thereof (including, without limitation, execution of any lease), nor permit any such action to be taken, except for the following permitted dispositions and encumbrances (the "Permitted Encumbrances"): (i) the Lien created hereby and any purchase money Liens in favor of NTI created by the NTI Supply Agreement; (ii) Liens for taxes not yet due, or which are being contested in good faith and by appropriate proceedings in accordance with Section 7.08 hereof; (iii) carriers', warehousemen's, mechanics', materialmen's, repairmen's or other like Liens arising in the ordinary course of business which are overdue for a period not longer than sixty (60) days or which are being contested in good faith and by appropriate proceedings in accordance with Section 7.08 hereof; and (iv) judgment liens with respect to which execution has been stayed within ten (10) days by appropriate judicial proceedings and the posting of adequate security which may not be any of the Collateral. 8.03. Prohibition of Mergers, Acquisitions, Name, Office or Business Changes, Etc. (a) Enter into or become the subject of, any transaction of merger, acquisition or consolidation or liquidate, wind up or dissolve itself (or suffer any liquidation or dissolution), or convey, sell, lease, transfer or otherwise dispose of, in one transaction or a series of transactions, all or any substantial part of Borrower's or Guarantor's business or assets, whether now owned or hereafter acquired, unless the Guarantor is the surviving entity or the controlling corporation of the surviving or resulting entity. (b) Change its name or corporate structure without giving Lender at least thirty (30) days advance written notice of such change, and ensuring that any steps that Lender may deem necessary to continue the perfection and priority of Lender's security interests in the Collateral shall have been taken. (c) Cease to engage predominantly in the telecommunications service business (which may include providing internet services) or make any material change in any of Borrower's or 29 35 Guarantor's business objectives, purposes and operations. 8.04. Limitation on Equity Payments. Make any Equity Payment, except that, as long as no Default or Event of Default has occurred and is continuing, or would be caused thereby, and if no other provision contained herein will be violated by the disbursement of such Equity Payment, Borrower or Guarantor may make Equity Payments to the extent that such Equity Payments do not reduce Guarantor's Debt Service Coverage Ratio below 1.25:1.00 or Guarantor's Cash balance below $1,000,000.00, measured as of the day following such Equity Payment, or violate the covenants of Section 4.07 or Section 4.09 in the Indenture, as such sections may be amended from time to time, which are hereby incorporated into this Agreement by reference until all of the Guarantor's obligations under the Indenture are paid in full. In addition, Borrower may make Equity Payments to Guarantor or to any other Restricted Subsidiary (as that term is defined in the Indenture) at any time and such payments shall not be a violation of this provision. 8.05. Removal of Collateral. Remove or permit the removal of any material part of the Collateral (except for sales or leases of Inventory in the ordinary course of business) from the locations identified on Schedule 4.25, without giving Lender thirty (30) days prior written notice of such move and ensuring that any steps the Lender may deem necessary to continue the perfection and priority of Lender's security interest in the Collateral shall have been taken. 8.06. Assumed Names. Transact or engage in business under any assumed name, fictitious name, tradestyle or "d/b/a" except those identified on Schedule 4.29, without prior written notice to Lender. ARTICLE 9: EVENTS OF DEFAULT AND REMEDIES 9.01. Events of Default. An Event of Default shall mean the occurrence or existence of one or more of the following events or conditions (whatever the reason for such Event of Default and whether voluntary, involuntary or effected by operation of Law): (a) Payment Default. If Borrower fails to pay any sum, whether of principal or interest on the Note or any prepayment premiums, or any other amount due hereunder or under the Note within ten (10) calendar days after such amount becomes due; or (b) False Statement. If any statement, representation or warranty made by Borrower or Guarantor in any Loan Document or made in any financial statement, certificate, report, exhibit or document furnished to Lender pursuant to any Loan Document, proves to have been untrue, incomplete, false or misleading in any material respect as of the time when made (including by omission of material information necessary to make such representation, warranty or statement not misleading) and such untruth, falsity, misleading statement or omission shall not have been corrected or remedied to the satisfaction of Lender within twenty (20) calendar days after the earlier of Borrower's (or Guarantor's) knowledge thereof or receipt of written notice thereof from Lender; or (c) Covenant Defaults. If Borrower or Guarantor defaults in the performance or observance of any covenant or agreement in this Agreement, and such default continues for a 30 36 period of twenty (20) calendar days after the earlier of Borrower's or Guarantor's knowledge thereof or receipt of written notice from Lender thereof, except for specific Defaults listed elsewhere in this Section 9.01, as to which no notice or cure period shall apply unless specified; or (d) Failure of Conditions. If Borrower or Guarantor fails to meet any condition of lending under Article 6 hereof, and such condition is not waived by Lender; (e) Undischarged Judgments. If one or more judgments for the payment of money has been entered against Borrower or Guarantor in an amount in excess of $100,000, and such judgment or judgments have remained undischarged and unstayed for a period of thirty (30) calendar days, unless the validity thereof is contested in compliance with Section 7.08 hereof; or (f) Attachments, etc. If a writ or warrant of attachment, garnishment, execution, distraint or similar process has been issued against Borrower or Guarantor or any of its properties which has remained undischarged and unstayed for a period of thirty (30) consecutive days and is not being contested in compliance with Section 7.08 hereof; or (g) Default Under Third Party Agreements. If a default, or event or condition which with notice or lapse of time or both would become a default, occurs that gives the creditor the right to accelerate in respect of any other obligation of Borrower or Guarantor for borrowed money (including lease obligations)(in the present or in the future) in the amount of $100,000 in the aggregate, or under any two or more such other obligations of any amount; or (h) Dissolution; Discontinuance of Business, Etc. If Borrower or any Guarantor discontinues its usual business, dissolves, has its Organizational Document revoked, winds up or liquidates itself or its business; or (i) Involuntary Bankruptcy or Receivership Proceedings. If a receiver, custodian, liquidator, or trustee of Borrower or Guarantor or of any of its property(s) is appointed by the order or decree of any court or agency or supervisory authority having jurisdiction; or an order is entered adjudicating Borrower or Guarantor as bankrupt or insolvent; or any of the property of Borrower or Guarantor is sequestered by court order; or a petition is filed against Borrower or Guarantor under any state or federal bankruptcy, reorganization, arrangement, insolvency, readjustment of debt, dissolution, liquidation, or receivership law of any jurisdiction, whether now or hereafter in effect, provided, however, that the above events shall not be an Event of Default if Borrower or Guarantor successfully contests or appeals the above proceedings and all proceedings are dismissed or otherwise terminated within sixty (60) days; or (j) Voluntary Bankruptcy. If Borrower takes affirmative steps to prepare to file, or files, a petition in voluntary bankruptcy or to seek relief under any provision of any bankruptcy, reorganization, arrangement, insolvency, readjustment of debt, dissolution, or liquidation law of any jurisdiction, whether now or hereafter in effect, or consents to the filing of any petition against it under any such law; or 31 37 (k) Assignments for Benefit of Creditors, Etc. If Borrower or Guarantor makes an assignment for the benefit of creditors, or admits in writing its inability to pay its debts generally as they become due, or consents to the appointment of a receiver, trustee, or liquidator of itself or of all or any part of its properties; or (l) Non-compliance with Governmental Requirements. If Borrower or Guarantor fails to comply with any requirement of any Governmental Authority within twenty (20) calendar days after notice in writing of such requirement shall have been given to Borrower or Guarantor by such Governmental Authority, or such longer period of time permitted Borrower or Guarantor by such Governmental Authority, if such failure to comply will have a material adverse affect on the operations or financial condition of the Borrower or the Guarantor; or (m) Regulatory Authorizations. If any Regulatory Authorization in connection with this Agreement or any other Loan Document or any such Regulatory Authorization now or hereafter necessary or advisable to make this Agreement or the other Loan Documents legal, valid, enforceable and admissible in evidence or to permit Borrower or Guarantor to conduct its business is not obtained or has ceased to be in full force and effect or has been modified or amended or has been held to be illegal or invalid or is revoked or terminated, and is not being contested by Borrower or Guarantor in compliance with Section 7.08 hereof and Lender has reasonably determined in good faith (which determination shall be conclusive) that such event or occurrence may have a Material Adverse Effect or a material adverse effect on Lender's rights under this Agreement or any other Loan Documents; or (n) Damage or Destruction. If the proceeds of any physical damage insurance actually paid in respect of the partial or total damage or destruction of the Collateral are insufficient to cover the cost of the restoration thereof or if Lender determines that such damage or destruction is so extensive that repair or restoration cannot be expected within a time period short enough to prevent a Material Adverse Effect; (o) Consents. If Borrower or Guarantor fails to provide any Consent required hereunder and Lender determines in its sole discretion that such failure results in a material impairment of Lender's security for the Advances; or (p) Change in Control. If any Change in Control should occur without Lender's prior written consent, which shall not be withheld provided that the financial condition of the Borrower and Guarantor are not materially adversely affected thereby and no other Default or Event of Default occurs as a result thereof; or (q) ERISA Defaults. If, with respect to any Plan, (i) there has occurred a Reportable Event being considered by the PBGC which may reasonably result in any material liability to the PBGC with respect to any Plan, (ii) a Plan has been terminated, (iii) a trustee has been appointed by a United States District Court to administer a Plan, (iv) a PBGC or any other person has instituted proceedings to terminate a Plan or to appoint a trustee to administer any such Plan, (v) either the Borrower or the Guarantor has withdrawn, completely or partially, from any Plan (vi) either the Borrower or the Guarantor has incurred secondary liability for withdrawal liability payments under any Plan or (vii) a Plan has failed to meet the minimum funding standards established under the Code or ERISA; and, any such ERISA default will have a material adverse 32 38 affect on the operations or financial condition of the Borrower or the Guarantor; or (r) Defaults Under Other Loan Documents. If any default, misrepresentation or breach should occur under any Security Document or other Loan Document, including the Indenture, and is not cured or waived within the time permitted therein, or any such Loan Documents should cease to be in full force and effect, or any party thereto should assert any unenforceability of, or deny liability on, or admit inability to perform under, any such Loan Document. (s) Bulk Sale of All of Borrower's Assets. If Guarantor sells all or substantially all of the assets of the Borrower without Lender's prior written consent, which may be withheld in Lender's sole and absolute discretion. 9.02. Consequences of an Event of Default. If any Event of Default shall occur and be continuing or shall exist, Lender shall be under no further obligation to make Advances hereunder, any remaining commitment hereunder shall immediately terminate, with no further notice, and Lender may, by notice to Borrower, declare the unpaid principal amount of the Note, interest accrued thereon and all other amounts owing by Borrower hereunder or under the Note to be immediately due and payable without presentment, demand, protest or further notice of any kind, all of which are hereby expressly waived, and an action therefor shall immediately accrue. Such consequences shall occur automatically upon the occurrence of an Event of Default under Section 9.01 (h), (i), (j) or (k), without any notice or demand. Upon the occurrence of an Event of Default, Lender may, in its sole discretion, exercise any and all remedies available to it under this Article 9 or under any of the Loan Documents or under applicable law without further notice or period of grace or opportunity to cure. 9.03. Exercise of Rights. Subject to any requirements for FCC or other governmental approval upon the occurrence of any Event of Default, the rights, powers and privileges provided in this Section and all other remedies available to Lender under this Agreement or by statute or by rule of law may be exercised by Lender at any time from time to time whether or not the Obligations shall be due and payable, and whether or not Lender shall have instituted any foreclosure or other action for the enforcement of this Agreement or the Note. No failure to exercise nor any delay in exercising on the part of Lender, any right, remedy, power or privilege hereunder or under any of the other Loan Documents shall operate as a waiver thereof, nor shall any single or partial exercise of any right, power or privilege hereunder or thereunder preclude any other or future exercise thereof or the exercise of any other right, remedy, power or privilege. 9.04. Rights of Secured Party; Possession or Sale of Collateral. Without limiting the generality of the foregoing, Lender shall have all the rights and remedies of a secured party under the UCC, and Lender may, without demand and without advertisement or notice, all of which Borrower and Guarantor waive, at any time or times, sell and deliver any or all Collateral held by or for it at public or private sale, for cash, upon credit or otherwise, at such prices and upon such terms as Lender deems advisable, in its sole discretion, and/or collect, or enforce the collection of, the Collateral. Lender may be the purchaser at any such sale. Upon the occurrence of an Event of Default and upon Lender's request, Borrower or Guarantor shall assemble, at its own expense, any or all Equipment and other Collateral at a convenient place acceptable to Lender and shall pay to Lender or reimburse Lender for, on demand, all costs of collection of all amounts due, and enforcement of all rights hereunder, including reasonable 33 39 attorneys' fees and legal expenses, and expenses of any repairs to any realty or other property to which any of such Collateral may be affixed. Upon an Event of Default Lender may, to the fullest extent permitted by applicable law, without notice, advertisement, hearing or process of law of any kind, enter upon any premises where any of the Collateral may be located and take possession of and remove such Collateral. 9.05. Notices, Etc. Waived. Except as expressly provided in this Article 9, Borrower and Guarantor hereby expressly waive, to the fullest extent permitted by applicable law, presentment, demand, protest, any and all notices of any kind, advertisements, hearing or process of law in connection with the exercise by Lender of any of its rights and remedies upon the occurrence of an Event of Default. If any notification of intended disposition of any of the Collateral is required by law, such notification shall be deemed reasonably and properly given if given in accordance with Section 10.06 hereto at least ten (10) days before such disposition. 9.06. Additional Remedies. Lender's remedies upon the occurrence and during the continuance of an Event of Default shall include, in addition to, and not in lieu of, such remedies as are available at law or in equity or provided for in any of the Loan Documents, the following: (a) Foreclosure; Receivership. Lender shall be entitled to file one or more suits at law or in equity to collect the Obligations and/or to foreclose on Lender's Liens on and security interests created by this Agreement or the Security Documents. Lender may apply or require Borrower or Guarantor to apply for any necessary transfers, assignments, orders, consents or licenses in connection with the operation or abandonment of the Collateral or any part thereof, and the Lender shall also be entitled as a matter of right and without notice and without requiring bond (notice and bond being hereby waived), without regard to the solvency or insolvency of the Borrower or Guarantor at the time of application and without regard to the value of the Collateral at that time, to have a receiver appointed by a court of competent jurisdiction in order to manage, protect, and preserve the Collateral and to continue the operation of the business of Borrower or Guarantor, and to collect all revenues and profits thereof and apply the same to the payment of all expenses and other charges of such receivership until the sale or other final disposition of the Collateral. Borrower and Guarantor hereby consent to the appointment of such receiver. (b) Right to Cure. If Borrower or Guarantor fail in any material respect to perform or comply with any of their agreements contained herein or in any of the other Loan Documents, Lender may take whatever actions it may deem appropriate to perform or comply or otherwise cause performance or compliance with such agreement, all at the risk, cost and expense of Borrower and Guarantor. (c) Setoff. If the unpaid principal amount of the Note, interest accrued thereon or any other amount owing by Borrower hereunder or under the Note shall have become due and payable (by acceleration or otherwise), Lender shall have the right, in addition to all other rights and remedies available to it, without notice to Borrower, to setoff against and to appropriate and apply to such due and payable amounts any debt owing to, and any other funds held in any manner for the account of, Borrower by Lender. Such right shall exist whether or not Lender shall have given notice or made any demand hereunder or under the Note, whether or not such debt owing to or funds held for the account of Borrower is or are matured or unmatured, and regardless of the existence or adequacy of any collateral, guaranty or any other security, right 34 40 or remedy available to Lender. Borrower hereby consents to and confirms the foregoing arrangements and confirms Lender's rights of setoff. 9.07. Application of Proceeds. Any proceeds of any of the Collateral, received by Lender through sale or disposition of the Collateral or otherwise, may be applied by Lender toward the payment of the Obligations, including expenses in connection with the Collateral (including reasonable fees and legal expenses) in such order of application as Lender may from time to time elect. 9.08. Discontinuance of Proceedings. If Lender should proceed to enforce any right or remedy under this Agreement or any other Loan Document, and then discontinue or abandon such proceeding for any reason, all rights, powers and remedies of Lender hereunder shall continue as if no such proceeding had been taken. 9.09. Power of Attorney. For the purpose of carrying out the provisions and exercising the rights, powers and privileges granted by the Loan Documents, including, without limitation, this Article 9, each of Borrower and Guarantor hereby irrevocably constitutes and appoints Lender its true and lawful attorney-in-fact to execute, acknowledge and deliver any instruments and do and perform any acts such as are referred to in the Loan Documents, including, without limitation, this Article 9, in the name and on behalf of Borrower or Guarantor, from time to time in Lender's reasonable discretion after the occurrence and during the continuance of an Event of Default, in accordance with the Loan Documents and any statute or rule of law. This power of attorney is a power coupled with an interest and cannot be revoked. Borrower and Guarantor hereby ratify all that said attorney-in-fact shall lawfully do or cause to be done by virtue and in accordance with the terms hereof. Without limiting the generality of the foregoing, Lender may after the occurrence and during the continuance of an Event of Default do the following without notice to or assent by Borrower or Guarantor to accomplish the purposes of this Agreement: (a) upon failure of Borrower to timely pay or discharge taxes or Liens levied or placed on or threatened against the Collateral, effect any repairs or any insurance called for by the terms of this Agreement or any other Loan Document, and pay all or any part of the premiums therefor and the costs thereof; (b) (i) direct any party liable for any payment on any Collateral to make payment of any and all monies due and to become due thereunder directly to Lender or as Lender shall direct; (ii) in the name of Borrower or its own name or otherwise, take possession of and endorse and collect any checks, drafts, notes, acceptances, or other instruments for the payment of monies due under, or otherwise receive payment of and receipt for any and all monies, claims and other amounts due and to become due at any time in respect of or arising out of any Collateral; (iii) sign and endorse any invoices, freight or express bills, bills of lading, storage or warehouse receipts, drafts against debtors, assignments, verifications and notices in connection with the Collateral; (iv) commence and prosecute any suits, actions or proceedings at law or in equity in any court of competent jurisdiction to collect all or any of the Collateral and to enforce any other right in respect of any Collateral; (v) defend any suit, action or proceeding brought against Borrower with respect to any Collateral; (vi) settle, compromise or adjust any suit, action or proceeding described above upon commercially reasonable terms under the circumstances and, in connection therewith, give such discharges or releases as Lender may reasonably deem appropriate; and (vii) generally sell, use, operate, transfer, pledge, make any agreement with 35 41 respect to or otherwise deal with any of the Collateral as fully and completely as though Lender were the absolute owner thereof for all purposes, and, at Lender's option and Borrower's expense, at any time or from time to time after the occurrence and during the continuance of an Event of Default, all other acts and things that Lender reasonably deems necessary to protect, preserve or realize upon the Collateral and Lender's security interest therein, in order to effect the intent of this Agreement and the other Loan Documents all as fully and effectively as Borrower might do. 9.10. Regulatory Matters. Notwithstanding any provision to the contrary contained herein, Lender will not exercise any right or remedy under this Agreement that requires prior FCC or PUC approval without first obtaining such approval. If counsel to Lender reasonably determines that the consent of the FCC or PUC is required in connection with any of the actions that may be taken by Lender in the exercise of its rights hereunder or under any of the other Loan Documents, then Borrower or Guarantor, at their sole cost and expense, agree to use their best efforts to secure such consent and to cooperate with Lender in any action commenced by Lender to secure such consent. Upon the occurrence and during the continuation of an Event of Default Borrower and Guarantor shall promptly execute and/or cause the execution of all applications, certificates, instruments and other documents and papers that may be required in order to obtain any necessary governmental consent, approval or authorization, and if Borrower or Guarantor fails or refuses to execute such documents, the clerk of the court with jurisdiction may execute such documents on behalf of Borrower or Guarantor. ARTICLE 10: GENERAL CONDITIONS/MISCELLANEOUS The following conditions shall be applicable throughout the term of this Agreement: 10.01. Modifications and Waivers. This Agreement, the other Loan Documents, or any provision thereof may not be changed, waived or terminated orally, but only by an instrument in writing signed by the party against whom enforcement of the change, waiver or termination is sought. No action or course of dealing on the part of Lender, its officers, employees, consultants, or agents, nor any failure or delay by Lender with respect to exercising any right, power, or privilege of Lender under the Note, this Agreement, or any other Loan Document shall operate as a waiver thereof, except as otherwise provided in this Agreement. Any waiver shall be effective only to the extent and for the instance specifically identified in such writing, and shall not be deemed to imply any future waivers or other waivers. No amendment to the Loan Documents shall be effective without written agreement signed by Borrower, Guarantor and Lender. 10.02. Advances Not Implied Waivers. No waiver of the requirements contained in any Loan Document shall be effective unless in writing duly signed by Lender. No Advance hereunder shall constitute a waiver of any of the conditions of Lender's obligation to make further Advances nor, in the event Borrower or Guarantor is unable to satisfy any such condition, shall any waiver of such condition have the effect of precluding Lender from thereafter declaring such inability to be an Event of Default as herein provided. Any Advance made by Lender and any sums expended by Lender pursuant to the Loan Documents shall be deemed to have been made pursuant to this Agreement, notwithstanding the existence of an uncured Default or Event of Default. No Advance at a time when an Event of Default exists shall constitute a waiver of any right or remedy of Lender existing by reason of such Event of Default, including, without limitation, the right to accelerate the maturity of the Indebtedness evidenced by the Note or to foreclose the Lien on the Collateral or to refuse to make further advances hereunder. 36 42 10.03. Deviation from Covenants. The procedure to be followed by Borrower or Guarantor to obtain the consent of Lender to any deviation from the covenants contained in this Agreement or any other Loan Document shall be as follows: (a) Borrower or Guarantor shall send a written notice to Lender setting forth (i) the covenant(s) relevant to the matter, (ii) the requested deviation from the covenant(s) involved, and (iii) the reason for the requested deviation from the covenant(s); and (b) Lender, within a reasonable time, will send a written notice to Borrower or Guarantor, permitting or refusing the request, but in no event will any deviation from the covenants of this Agreement or any other Loan Document be effective without the express prior written consent of Lender. Lender's failure to provide such written notice shall be deemed a refusal of such request. 10.04. Holidays. Except as otherwise provided herein, whenever any payment or action to be made or taken hereunder or under the Note shall be stated to be due on a day which is not a Business Day, such payment or action shall be made or taken on the next following Business Day and such extension of time shall be included in computing interest or fees, if any, in connection with such payment or action. 10.05. Records. From time to time Lender may send Borrower statements of the unpaid principal amount of the Note, the unpaid interest accrued thereon, the Interest Rate or rates applicable to such unpaid principal amount, the duration of such applicability, and the amount of Advances remaining available under this Agreement, and each statement shall be deemed correct and conclusively binding on Borrower (absent manifest error) unless Borrower notifies Lender of an error in the statement in writing within thirty (30) days of the date of any such statement is provided to Borrower. 10.06. Notices. All notices, requests, demands, directions and other communications (collectively, "notices") required under the provisions of this Agreement or any other Loan Document shall be in writing (including communication by facsimile transmission) unless otherwise expressly permitted hereunder and shall be sent by hand, by registered or certified mail return receipt requested, by overnight courier service maintaining records of receipt, or by facsimile transmission with confirmation in writing mailed first-class, in all cases with charges prepaid, and any such properly given notice shall be effective upon the earlier of receipt or (i) when delivered by hand, or (ii) the third Business Day after being mailed, or (iii) the following Business Day if sent by overnight courier service, or (iv) when sent by facsimile, answer back received. All notices shall be addressed as follows: If to Borrower or Guarantor, to the Notice Address set forth on Schedule 1, with copies, if any, as set forth on Schedule 1. If to Lender: NTFC Capital Corporation 220 Athens Way Nashville, Tennessee 37228 Attention: Legal Department Telecopy: (615) 734-5283 37 43 With a copy to: NTFC Capital Corporation 220 Athens Way Nashville, Tennessee 37228 Attention: Manager, Credit Telecopy: (615) 734-5283 All notices shall be sent to the applicable party at the address stated above or in accordance with the last unrevoked written direction from such party to the other party hereto, given in accordance with the terms hereof. 10.07. FCC and PUC Approval. The exercise of any rights or remedies hereunder or under any other Loan Document by Lender that may require FCC or PUC approval shall be subject to obtaining such approval. Pending the receipt of any PUC or FCC approval, Borrower and Guarantor shall not do anything to delay, hinder, interfere with or obstruct the exercise of Lender's rights or remedies hereunder or the obtaining of such approvals. 10.08. Lender Sole Beneficiary. All conditions of the obligation of Lender to make any Advances hereunder are imposed solely and exclusively for the benefit of Lender and its assigns and no other Person shall have standing to require satisfaction of such conditions in accordance with their terms or be entitled to assume that Lender will refuse to make any Advances in the absence of strict compliance with any or all such conditions, and no Person shall under any circumstances be deemed to be a beneficiary of such conditions, any or all of which may be freely waived in whole or in part by Lender at any time if in its sole discretion it deems it advisable to do so. Inspections and approvals of the Equipment, and the workmanship and materials used therein impose no responsibility or liability of any nature whatsoever on Lender, and no Person shall, under any circumstances, be entitled to rely upon such inspections and approvals by Lender for any reason. Lender's sole obligation hereunder is to make the Advances if and to the extent required by this Agreement or the Notes. 10.09. Lender's Review of Information. Each of Borrower and Guarantor acknowledges and agrees that any review or analysis by Lender of financial information, operating information, marketing data or other information provided to Lender by or on behalf of Borrower and Guarantor at any time is and shall be conducted solely for Lender's benefit and internal use and that Lender is under no duty or obligation to make the results of such review or analysis available to Borrower and Guarantor. Borrower and Guarantor are not relying, and will not rely, on Lender for financial or business advice. 10.10. No Joint Venture. Nothing in any of the Loan Documents or in this Agreement shall be deemed to constitute any kind of partnership, joint venture or fiduciary relationship between the Lender and the Borrower or between the Lender and the Guarantor or any Owners. 10.11. Severability. The provisions of this Agreement are intended to be severable. If any provision of this Agreement or the other Loan Documents shall be held invalid or unenforceable in whole or in part in any jurisdiction such provision shall, as to such jurisdiction, be ineffective to the extent of such invalidity or unenforceability without in any manner affecting the validity or enforceability thereof in any other jurisdiction or the remaining provisions hereof or thereof in any jurisdiction. 10.12. Rights Cumulative. All rights, powers and remedies herein given to Lender are cumulative and not alternative, and are in addition to all statutes or rules of law. 38 44 10.13. Duration; Survival. All representations and warranties of Borrower and Guarantor contained herein or made in connection herewith shall survive the making of and shall not be waived by the execution and delivery of this Agreement and the other Loan Documents, any investigation by Lender, or the making of any Advances hereunder. All covenants and agreements of Borrower and Guarantor contained herein shall continue in full force and effect from and after the date hereof so long as it may borrow hereunder and until payment in full of the Notes, interest thereon, all fees and all other Obligations of Borrower and Guarantor. Without limitation, it is understood that all obligations of Borrower and Guarantor to make payments to or indemnify Lender shall survive the payment in full of the Notes and of all other Obligations. 10.14. Governing Law. This Agreement and the Notes and each of the other Loan Documents shall be governed by and construed and enforced in accordance with the internal laws of the State of Tennessee, except to the extent that the laws of jurisdictions where the Collateral is located may be required to apply to perfecting security interests in or exercising remedies with respect to the Collateral. 10.15. Counterparts. This Agreement may be executed in any number of counterparts (by facsimile transmission or otherwise) and by the different parties hereto on separate counterparts, each of which, when so executed, shall be deemed an original, but all such counterparts shall constitute but one and the same instrument. 10.16. Successors and Assigns. This Agreement shall be binding upon and inure to the benefit of Lender and Borrower and their respective successors and assigns; provided, however, that Borrower may not assign or transfer any of its rights or obligations hereunder or under the other Loan Documents (in whole or in part) without the prior written consent of Lender. Lender may assign, transfer or pledge any of its respective rights or obligations hereunder, including, without limitation, its lending obligation under the Commitment, or under the other Loan Documents pursuant to an Assignment to one or more commercial banks or other financial institutions without notice to or the prior written consent of Borrower. Upon receipt of written notice from Lender of such assignment, Borrower shall promptly acknowledge receipt thereof in writing. If Borrower is given written notice of any assignment, it shall perform its obligations with respect to this Agreement for the ratable benefit of the applicable assignee(s), and, if so directed, shall pay all amounts due or to become due hereunder directly to the applicable assignee(s) or to any other party designated by such assignee(s). Borrower shall not assert against any such assignee any set-off, defense or counterclaim that Borrower may have against Lender or any person other than such assignee. Borrower shall also execute and deliver to Lender such documentation as any such assignee may reasonably require, including but not limited to amended promissory notes and acknowledgment of or consent to the assignment which may require Borrower to make certain representations or reaffirmations as to some of the basic terms and covenants contained herein. Lender shall not be relieved of its obligations hereunder as a result of any such sale, assignment, transfer, grant or pledge, unless such assignee specifically assumes all or part of Lender's future obligations hereunder pursuant to an Assignment, a copy of which shall be delivered to Borrower and Guarantor, in which event after the date of such Assignment, Borrower's obligations to any such assignee shall be proportionately as set forth herein with respect to Lender, and Borrower shall not look to Lender to perform any of such assignee's obligations hereunder, including, without limitation, the portion of the Commitment so assigned, which arise after the date thereof. Any assignee shall be entitled to rely on Borrower's agreements as stated herein, as applicable, and shall be considered a third party beneficiary thereof. Except to the extent otherwise required by the context of this Agreement, the word "Lender" where used in this Agreement shall mean and include any holder of any Note originally issued to Lender hereunder, and any holders of replacement Notes, and any such holder of any Note shall be bound by 39 45 and have the benefits of this Agreement the same as if such holder had been a signatory hereto. 10.17. Participation. Lender shall have the right to enter into one or more assignment agreements, participation agreements, syndication agreements or similar agreements with one or more participating lenders or other parties approved by Lender on such terms and conditions as Lender shall deem advisable. Borrower and Guarantor shall furnish a sufficient number of copies of reports and certificates to Lender so that Lender and each participating lender shall receive a copy of each such document. 10.18. Time of Essence. Time is of the essence of this Agreement and the Note and the other Loan Documents. 10.19. Disclosures and Confidentiality. (a) Each of Borrower, Guarantor and Lender (the "party" or "parties") agrees that it will obtain written consent before using or generating any press release, advertisement, publicity materials or other publication in which the name or logo of a party or any of its Affiliates is used or may be reasonably inferred, and will not distribute any such materials in the absence of such prior written approval. (b) Each of the parties agrees that it will not, directly or indirectly, disclose to any third party the terms of this Agreement or the other Loan Documents or prior or future correspondence relating thereto, or the transactions contemplated hereby, or any other information regarding the parties learned during the course of negotiation thereof. The term "third party" shall exclude only the Borrower, the Guarantor, the Lender, their Affiliates and their respective attorney(s) and certified public accountant(s). This Section 10.19(b) shall not restrict the disclosure of information if such disclosure is required by law, by order of any court or by the order, rule or regulation of any administrative agency, including without limitation any requirements of the FCC, any PUC, or any state or federal securities commissions (the "Commissions"); provided, however, that, except for disclosures required by the FCC, PUC or Commissions, each party shall provide the other parties with advance notice of any such required disclosure of information so that each party may seek an appropriate protective order and/or waive compliance with this Section. The parties shall not oppose any action taken to obtain an appropriate protective order or other reliable assurance that the information will be accorded confidential treatment. The obligations set forth in this Section 10.19(b) shall survive the termination of this Agreement. (c) The disclosure of information by the parties will not be restricted under this Agreement if such information (i) has been or becomes published or is now, or in the future, in the public domain through (A) no fault of the parties, (B) disclosure other than unauthorized disclosure by the party to whom the information is disclosed, or (C) disclosure to third parties by the disclosing party without similar restriction; (ii) is property (other than proposal letters, commitment letters or other correspondence between the parties) within the legitimate possession of the receiving party prior to disclosure hereunder; (iii) subsequent to disclosure hereunder, is lawfully received from a third party having rights therein without restriction of the third party's or receiving party's rights to disseminate the information and without notice of any restriction against its further disclosure; (iv) is disclosed with the written approval of the other party; (v) is or becomes publicly available free of any obligation to keep it confidential. 40 46 (d) Each of Borrower and Guarantor authorizes Lender to discuss with and furnish to any Affiliate of the Lender, to any government or self-regulatory agency with jurisdiction over the Lender, to any other Governmental Authority or to any assignee, successor, participant, successor, or prospective assignee, successor or participant, all financial statements, audit reports and other information pertaining to the Borrower, the Guarantor and/or its Subsidiaries whether such information was provided by Borrower or Guarantor or prepared or obtained by the Lender or third parties. Neither the Lender nor any of its employees, officers, directors or agents makes any representation or warranty to any existing or prospective assignee, successor or participant regarding any audit reports or other analyses of Borrower or Guarantor that the Lender may distribute, whether such information was provided by Borrower or Guarantor or prepared or obtained by the Lender or third parties, nor shall the Lender or any of its employees, officers, directors or agents be liable to any Person receiving a copy of such reports or analyses for any inaccuracy or omission contained in such reports or analyses or relating thereto. (e) Every reference in this Agreement to disclosures of the parties to Lender (except the financial statements), to the extent that such references refer or are intended to refer to disclosures at or prior to the execution of this Agreement, shall be deemed strictly to refer only to written disclosures delivered to the parties concurrently with the execution of this Agreement and referred to specifically in the Loan Documents. The parties intend that such disclosures are to be limited to those presented in an orderly manner at the time of executing this Agreement and are not to be deemed to include expressly or impliedly any disclosures that previously may have been delivered from time to time to the parties, except to the extent that such previous disclosures are again presented to the parties in writing concurrently with the execution of this Agreement. 10.20. Jurisdiction and Venue. EACH OF THE BORROWER AND GUARANTOR HEREBY IRREVOCABLY CONSENTS TO THE JURISDICTION OF THE COURTS LOCATED IN DAVIDSON COUNTY, TENNESSEE, INCLUDING WITHOUT LIMITATION FEDERAL COURTS SITTING IN THE MIDDLE DISTRICT OF TENNESSEE AND THE CHANCERY COURT FOR DAVIDSON COUNTY, TENNESSEE, FOR ANY SUIT BROUGHT OR ACTION COMMENCED IN CONNECTION WITH THIS AGREEMENT, THE OTHER LOAN DOCUMENTS, OR THE OBLIGATIONS, AND AGREES NOT TO CONTEST VENUE OR JURISDICTION IN ANY SUCH COURTS. In any such litigation, each of Borrower and Guarantor waives personal service of any summons, complaint or other process, and agree that the service thereof may be made by certified or registered mail direct to Borrower and Guarantor at its address set forth in Section 10.06 hereof. Within thirty (30) days after such mailing, Borrower and Guarantor shall appear and answer to such summons, complaint or other process. Should Borrower and Guarantor fail to appear or answer within the said 30-day period, then such party shall be deemed in default and judgment may be entered against Borrower and Guarantor for the amount or other relief as demanded in any summons, complaint or other process so served. In the alternative, in its sole discretion, Lender may effect service upon Borrower and Guarantor in any other form or manner permitted by law. The choice of forum set forth herein shall not be deemed to preclude the enforcement of any judgment obtained in such forum or the taking of any action under this Agreement to enforce the same in any appropriate jurisdiction. 10.21. Jury Waiver. BORROWER, GUARANTOR AND LENDER HEREBY KNOWINGLY AND WILLINGLY WAIVE THEIR RIGHTS TO DEMAND A JURY TRIAL IN ANY ACTION OR PROCEEDING INVOLVING THIS AGREEMENT, ANY OTHER LOAN DOCUMENT, THE OBLIGATIONS, OR ANY RELATIONSHIP BETWEEN THE LENDER, GUARANTOR AND 41 47 BORROWER. EACH OF THE BORROWER AND GUARANTOR WARRANTS AND REPRESENTS THAT IT HAS REVIEWED THE FOREGOING WAIVERS WITH ITS LEGAL COUNSEL AND HAS KNOWINGLY AND VOLUNTARILY WAIVED ITS JURY TRIAL RIGHTS FOLLOWING CONSULTATION WITH LEGAL COUNSEL. IN THE EVENT OF LITIGATION, THIS AGREEMENT MAY BE FILED AS A WRITTEN CONSENT TO A TRIAL BY THE COURT. 10.22. Limitation on Liability. LENDER SHALL HAVE NO LIABILITY UNDER OR IN CONNECTION WITH THIS AGREEMENT OR ANY OF THE OTHER LOAN DOCUMENTS FOR SPECIAL, EXEMPLARY, PUNITIVE, INCIDENTAL, INDIRECT OR CONSEQUENTIAL DAMAGES OF ANY SORT IN ANY SUIT BROUGHT OR ACTION COMMENCED IN CONNECTION WITH THIS AGREEMENT, THE OTHER LOAN DOCUMENTS, OR THE OBLIGATIONS, AND, EXCEPT TO THE EXTENT PROHIBITED BY LAW, EACH PARTY WAIVES ANY RIGHT IT MAY HAVE TO CLAIM OR RECOVER IN ANY SUCH ACTION ANY SPECIAL, EXEMPLARY, PUNITIVE, INCIDENTAL, INDIRECT OR CONSEQUENTIAL DAMAGES OF ANY SORT OTHER THAN ACTUAL DAMAGES. 10.23. Borrower Waivers. To the fullest extent permitted by law, the Borrower hereby waives (i) presentment, demand and protest and notice of presentment, protest, default, non payment, maturity, release, compromise, settlement, extension or renewal of any or all commercial paper, accounts, contract rights, documents, instruments, chattel paper and guaranties at any time held by Lender on which the Borrower may in any way be liable and hereby ratifies and confirms whatever Lender may do in this regard; (ii) notice prior to taking possession or control of the Collateral or any bond or security which might be required by any court prior to allowing Lender to exercise any of Lender's remedies, including the issuance of an immediate writ of possession, except as expressly required in any of the Loan Documents; (iii) any marshalling of assets, or any right to compel Lender to resort first to any Collateral or other Persons before pursuing the Borrower for payment of the Obligations and any defenses based on suretyship or impairment of Collateral; (iv) the benefit of all valuation, appraisement and exemption laws; (v) any right to require Lender to terminate its security interest in the Collateral or in any other property of the Borrower until termination of this Agreement and the execution by the Borrower and by any person whose loans to the Borrower are used in whole or in part to satisfy the Obligations, of an agreement indemnifying Lender from any loss or damage Lender may incur as the result of dishonored or unsatisfied items of any account debtor applied to the Obligations; and (vi) notice of acceptance hereof. The Borrower acknowledges that the foregoing waivers are a material inducement to Lender's entering into this Agreement and that Lender is relying upon the foregoing waivers in its future dealings with the Borrower. 10.24. Schedules. The Schedules and Exhibits attached to this Agreement are an integral part hereof, and are hereby made a part of this Agreement. 10.25. Agreement to Govern. In case of any conflict between the terms of this Agreement and any of the other Loan Documents, the terms of this Agreement shall govern. 10.26. Entire Agreement. This Agreement, the other Loan Documents and other documents, agreements and certificates executed by the parties contemporaneously herewith or subsequent hereto constitute the entire agreement of the parties and supersede all prior understandings and agreements, written or oral, between the parties hereto relating to the subject matter hereof. Neither the Borrower nor 42 48 the Guarantor is entering into this Agreement in reliance on statements or representations made by any Person other than as set forth herein. [END OF GENERAL TERMS AND CONDITIONS. NEXT PAGE IS SCHEDULE 1.] [SIGNATURES ARE ON COVER PAGE.] 43 49 SCHEDULE 1 TO LOAN AND SECURITY AGREEMENT BORROWER AND GUARANTOR INFORMATION AND DEFINED TERMS BORROWER'S FEDERAL EMPLOYER/TAX IDENTIFICATION NUMBER: 95-3769651 BORROWER'S AND GUARANTOR'S CHIEF EXECUTIVE OFFICES (INCLUDING COUNTY): 5000 Plaza on the Lake, Suite 200 Austin, Travis County, Texas 78746-1050 BORROWER'S NOTICE ADDRESS: 5000 Plaza on the Lake, Suite 200 Austin, Texas 78746-1050 WITH COPIES TO: Riordan & McKinzie 695 Town Center Drive, Suite 1500 Costa Mesa, CA 92626 GUARANTOR'S NOTICE ADDRESS: 5000 Plaza on the Lake, Suite 200 Austin, Texas 78746-1050 WITH COPIES TO: Riordan & McKinzie 695 Town Center Drive, Suite 1500 Costa Mesa, CA 92626 "PUC": the term "PUC" shall include, without limitation, the Arizona Corporations Commission and the Oklahoma Corporations Commission. BORROWER'S INITIALS: _________ LENDER'S INITIALS: _________ 44 50 SCHEDULE 2.01 TO LOAN AND SECURITY AGREEMENT MAXIMUM ADVANCE AMOUNTS Maximum principal amount of all Advances: Twenty-Eight Million Dollars ($28,000,000.00) Maximum amount to be used for closing costs and legal fees: Fifty Thousand Dollars ($50,000.00)
Equipment and Related Services Purchased from NTI:
Invoice Invoice Equipment and Related Invoice Date Number Services Description Amount ---- ------ -------------------- ------
BORROWER'S INITIALS: _________ LENDER'S INITIALS: _________ 46 51 SCHEDULE 2.02 TO LOAN AND SECURITY AGREEMENT PAYMENT TERMS AND GOVERNING LAW "Conversion Date": the Financing Termination Date. "Financing Termination Date": December 31, 1997. "Initial Payment Date": March 31, 1998. "Interest Only Period": the period beginning on the First Borrowing Date and continuing through the Conversion Date. "Interest Payment Date": the last Business Day of each Calendar Quarter. "Interest Rate": a fixed interest rate equal to the lesser of (i) the five (5) year constant maturity Treasury Bill rate as quoted in the Federal Reserve Statistical Release H.15 report on the last business day of the week ending two weeks prior to the week of the Borrowing Date plus 320 basis points ("Interest Rate") expressed as an annual rate of interest, compounded monthly, and calculated on the basis of a 360-day year, or (ii) the maximum permissible rate under applicable law in effect at any time. So long as no event of default has occurred and is continuing, the Interest Rate applying to each Advance shall be reduced (on a one-time basis) by 75 basis points when the Guarantor's public debt rating as of any Payment Date equals or exceeds Standard and Poor's BBB- rating. So long as no event of default has occurred and is continuing, the Interest Rate applying to each Advance shall be reduced (on a one-time basis) by an additional 25 basis points when the Guarantor's public debt rating as of any Payment Date equals or exceeds Standard and Poor's BBB rating. If, after the Guarantor attains a BBB rating, the Guarantor's debt rating is subsequently downgraded from BBB (but not less than BBB-) as of any Payment Date, then the Interest Rate applying to each Advance will be increased by 25 basis points. If the Guarantor's debt rating is further downgraded as of any Payment Date below BBB-, then the Interest Rate applying to each Advance will be increased by an additional 75 basis points. "Maturity Date": December 31, 2002, on which date all outstanding principal, accrued and unpaid interest, premiums, expenses, fees, penalties and all other unpaid charges due under the Note and this Agreement shall be finally due and payable. "Payment Date": the Initial Payment Date and the last Business Day of each Calendar Quarter thereafter. BORROWER'S INITIALS: _________ LENDER'S INITIALS: _________ 47 52 SCHEDULE 2.09 TO LOAN AND SECURITY AGREEMENT FEES Legal Fees. The fees and disbursements of counsel to Lender in connection with this transaction. BORROWER'S INITIALS: _________ LENDER'S INITIALS: _________ 48 53 SCHEDULE 6.02 TO LOAN AND SECURITY AGREEMENT POST-CLOSING ITEMS POST-CLOSING, PRE-FUNDING CONDITIONS Without limiting the conditions set forth in this Agreement, Borrower must provide the following: 1. Filing of UCC-1 Financial Statements with requisite filing offices. 2. Lender must have received satisfactory post-closing lien searches from all applicable recording and filing offices reflecting the first priority of all of Lender's Liens on Collateral. 3. Borrower must comply with all of the Conditions of Lending in Article 6 of this Agreement. POST-CLOSING, POST-INITIAL FUNDING CONDITIONS Without limiting the conditions set forth in the Agreement, Borrower must provide the following Closing Documents that were not provided at closing: None BORROWER'S INITIALS: _________ LENDER'S INITIALS: _________ 59 54 SCHEDULE 7.15 TO LOAN AND SECURITY AGREEMENT FINANCIAL COVENANTS (a) Debt Service Coverage Ratio. Guarantor shall maintain at all times a Debt Service Coverage Ratio of not less than 1.25 to 1.00. (b) Minimum Cash Balance. Guarantor shall maintain at all times a Cash balance or immediately available lines of credit acceptable to Lender of not less than $1,000,000.00. (c) Senior Notes. Guarantor shall comply at all times with the covenants contained in Sections 4.07 and 4.09 in the Indenture, as amended from time to time, and such covenants are hereby incorporated into this Schedule and this Agreement by reference, until all of the Guarantor's obligations under the Indenture are paid in full. BORROWER'S INITIALS: _________ LENDER'S INITIALS: _________ 61 55 EXHIBIT A FORM OF PROMISSORY NOTE $28,000,000 (or such lesser amount as of _______, 1997 as may be advanced hereunder) FOR VALUE RECEIVED, IXC CARRIER, Inc., a Nevada corporation ("Borrower") promises and agrees to pay to the order of NTFC CAPITAL CORPORATION ("Lender"), its successors, assigns or any subsequent holder of this Note at its offices located at 220 Athens Way, Nashville, Tennessee, 37228-1399, or at such other place as may be designated in writing by Lender or its assigns, in lawful money of the United States of America in immediately available funds, Twenty-Eight Million Dollars ($28,000,000) or such lesser amounts advanced pursuant to Section 2.02 of the Loan Agreement (defined below), as noted on Schedule A hereto, together with interest thereon and other amounts due as provided below. Notations on the Schedules attached hereto are for convenience only, and the failure of the Lender to make any notation on any Schedule, or any incorrect notation by the Lender on any Schedule, shall not diminish the obligations of the Borrower under this Note. This Note shall mature on December 31, 2002 (the "Maturity Date"). This Note is issued pursuant to that certain Loan and Security Agreement dated as of , 1997 by and between Borrower, IXC Communications, Inc., and Lender (as it may be modified, amended or restated from time to time, the "Loan Agreement"). Any term not otherwise defined in this Note shall have the same meaning as in the Loan Agreement. Reference is made to the Loan Agreement, which, among other things, permits the acceleration of the maturity hereof upon the occurrence of certain events and for prepayments in certain circumstances and upon certain terms and conditions. This Note is secured by, among other things, the Collateral described in the Loan Agreement and the Security Documents. Each Advance hereunder shall bear interest from the date of each such Advance until such amount is due and payable (whether on any Payment Date, at the Maturity Date, by acceleration, or otherwise), at a fixed interest rate equal to the lesser of (i) the five (5) year constant maturity Treasury Bill rate as quoted in the Federal Reserve Statistical Release H.15 Report (or the equivalent of such Report) on the last business day of the week ending two weeks prior to the week of the Borrowing Date plus 320 basis points ("Interest Rate") expressed as an annual rate of interest, compounded monthly, and calculated on the basis of a 360-day year, or (ii) the maximum permissible rate under applicable law in effect at any time. So long as no event of default has occurred and is continuing, the Interest Rate applying to each Advance shall be reduced (on a one-time basis) by 75 basis points when the public debt rating of IXC Communications, Inc. (the "Guarantor") as of any Payment Date equals or exceeds Standard and Poor's BBB- rating. So long as no event of default has occurred and is continuing, the Interest Rate applying to each Advance shall be reduced (on a one-time basis) by an additional 25 basis points when the Guarantor's public debt rating as of any Payment Date equals or exceeds Standard and Poor's BBB rating. If, after the Guarantor attains a BBB rating, the Guarantor's debt rating is subsequently downgraded from BBB (but not less than BBB-) as of any Payment Date, then the Interest Rate applying to each Advance will be increased by 25 basis points. If the Guarantor's debt rating is further downgraded as of any Payment Date below BBB-, then the Interest Rate applying to each Advance will be increased by an additional 75 basis points. 56 Interest shall accrue on all principal amounts outstanding hereunder for each separate Advance at the applicable Interest Rate for each Advance and shall compound monthly and be payable quarterly in arrears through December 31, 1997 (the "Interest Only Period"). Following the end of the Interest Only Period, principal amounts outstanding hereunder and interest shall be paid as follows: Principal shall be paid in twenty (20) equal consecutive quarterly installments, plus accrued interest, commencing on March 31, 1998 (the "Initial Payment Date") and on the last Business Day of each Calendar Quarter thereafter (each, a "Payment Date") until the Maturity Date; provided, however, that the principal payment amounts shall be recalculated by Lender if any Advances are made hereunder after the Conversion Date, based on the aggregate amount of all Advances made at any time. The amount of each quarterly payment shall be calculated, at the outset, by amortizing the amount of all principal amounts outstanding on the last day of the Interest Only Period (the "Conversion Date"). It is intended that the above amortization schedule will fully amortize the principal amounts advanced under this Note. The final payment shall be in an amount equal to all outstanding principal, accrued and unpaid interest, premiums, expenses, fees, penalties and all other unpaid charges due under this Note and the Loan Agreement. This Note is subject to prepayment pursuant to Section 2.04 of the Loan Agreement. Any prepayments shall be applied first to interest, then to premium, then to expenses, and then to the installments of principal in reverse order of maturity. In addition, principal installments shall be applied to each separate Advance with the oldest Advance being prepaid first, until the remaining principal outstanding on each such Advance is fully prepaid. Notwithstanding the foregoing, if Borrower shall fail to pay within ten (10) days after the due date any principal amount or interest or other amount payable under this Note, upon written notice to Borrower in accordance with Section 2.02(d) of the Loan Agreement, Borrower shall pay to Lender, to defray the administrative costs of handling such late payments, an amount equal to interest on the amount unpaid, to the extent permitted under applicable law, at a rate equal to the lesser of three percent (3%) over the Interest Rate or the maximum permissible interest rate under applicable law (the "Default Rate") (instead of the Interest Rate), from the due date until such overdue principal amount, interest or other unpaid amount is paid in full (both before and after judgment). In addition, but without duplication, upon the occurrence and during the continuance of an Event of Default, all outstanding amounts hereunder shall bear interest at the Default Rate (instead of the Interest Rate) until such amounts are paid in full or such Event of Default is waived in writing by Lender. Notwithstanding any provision of this Note or the Loan Agreement to the contrary, it is the intent of the Lender and the Borrower that the Lender or any subsequent holder of this Note shall never be entitled to receive, collect, reserve or apply, as interest, any amount in excess of the maximum rate of interest permitted to be charged by applicable Law, as amended or enacted, from time to time. In the event Lender, or any subsequent holder of this Note, ever receives, collects, reserves or applies, as interest, any such excess, such amount which would be excessive interest shall be deemed a partial prepayment of principal and treated as such, or, if the principal indebtedness and all other amounts due are paid in full, any remaining excess funds shall immediately be applied to any other outstanding indebtedness of Borrower due to Lender, and if none is outstanding, shall be paid to Borrower. In determining whether or not the interest paid or payable, under any specific contingency, exceeds the highest lawful rate, the Borrower and the Lender shall, to the maximum extent permitted under applicable 2 57 law, (a) exclude voluntary prepayments and the effects thereof as it may relate to any fees charged by the Lender, and (b) amortize, prorate, allocate, and spread, in equal parts, the total amount of interest throughout the entire term of the indebtedness; provided that if the indebtedness is paid and performed in full prior to the end of the full contemplated term hereof, and if the interest received for the actual period of existence hereof exceeds the maximum lawful rate, the Lender or any subsequent holder of the Note shall refund to the Borrower the amount of such excess or credit the amount of such excess against the principal portion of the indebtedness, as of the date it was received, and, in such event, the Lender shall not be subject to any penalties provided by any laws for contracting for, charging, reserving or receiving interest in excess of the maximum lawful rate. Provided that no Event of Default has occurred and is continuing, Lender shall apply amounts received for payment under this Note first to interest, then to premium, then to undisputed expenses due Lender after written advice thereof to Borrower, then to principal in reverse chronological order. Upon the occurrence and continuation of an Event of Default, all amounts received for payment under this Note shall at the option of Lender be applied first to any unpaid expenses due Lender under this Note or under any other documents evidencing or securing the obligations of Borrower to Lender (upon written advice thereof to Borrower), then to any unpaid late charges due under the Loan Agreement, then to any unpaid interest accrued at the Default Rate (after the expiration of any applicable cure period, but retroactive to the due date of any uncured Event of Default under Section 9.01(a) of the Loan Agreement), then to all other accrued but unpaid interest due under this Note and finally to the reduction of outstanding principal due under this Note in reverse chronological order. Upon the occurrence of any one or more of the events specified in Section 9.01 of the Loan Agreement (provided that any requirement for the lapse of time, or any other condition, under Section 9.01 or otherwise, has been satisfied), (each, an "Event of Default"), all amounts then remaining unpaid on this Note shall be, or may be declared to be, immediately due and payable as provided in the Loan Agreement, without further notice, at the option of the Lender. Lender may waive any Event of Default before or after the same has been declared and restore this Note to full force and effect without impairing any rights hereunder, such right of waiver being a continuing one, but one waiver shall not imply any additional or subsequent waiver. Time is of the essence of this Note. Demand, presentment, notice and protest are expressly waived, except for notices to Borrower otherwise expressly required in the Loan Agreement or any other Loan Document. Borrower jointly and severally waives presentment for payment, protest, notice of protest, notice of nonpayment of this Note, demand and all legal diligence in enforcing collection, and hereby expressly consents to (i) any and all delays, extensions, renewals or other modifications of this Note or any waivers of any term hereof, (ii) any release or discharge by Lender of Borrower, (iii) any release, substitution or exchange of any security for the payment hereof, (iv) any failure to act (except failure to advance funds to the extent required under the Loan Agreement) on the part of Lender, and (vi) any indulgence shown by Lender from time to time (without notice or further assent from Borrower) and hereby agree that no such action, failure to act or failure to exercise any right or remedy by Lender shall in any way affect or impair the obligations of Borrower. Borrower hereby irrevocably consents to the jurisdiction of the courts located in Davidson County, Tennessee, including without limitation federal courts sitting in the middle district of Tennessee and the Circuit or Chancery courts for Davidson County, Tennessee, for any suit brought or action commenced in connection with this note, any documents executed or delivered in connection herewith, 3 58 including without limitation the loan agreement, or any relationship between lender and borrower, and agrees not to contest or challenge jurisdiction or venue in any such courts. Borrower irrevocably consents to the service of process of any such courts in any such action or proceeding by the mailing of copies thereof by registered or certified mail, postage prepaid, return receipt requested, to Borrower at the address opposite its signature below or to such other address as Borrower may have furnished to Lender in writing, and agrees that such service shall become effective thirty (30) days after such mailing. However, nothing herein shall affect the right of Lender or Borrower to serve process in any other manner permitted by law or to commence legal proceedings or otherwise proceed against Lender or Borrower in any other jurisdiction. Borrower hereby knowingly, willingly and irrevocably waives its rights to demand a jury trial in any action or proceeding involving this note, any documents executed or delivered in connection herewith including without limitation the loan agreement or any relationship between borrower and lender. Borrower agrees that lender may file an original counterpart or copy of this paragraph with any court as written evidence of borrower's express waiver of its right to trial by jury. In any action to enforce this note, Borrower hereby irrevocably and unconditionally waives, to the extent permitted by applicable law, any and all rights under the laws of any state to claim or recover any special, exemplary, punitive, consequential or other damages other than actual direct damages. In the event this Note is placed in the hands of one or more attorneys for collection or enforcement or protection of the holder's rights described herein or in the Loan Agreement or the other Loan Documents, and a court of competent jurisdiction does not render a judgement against Lender on this Note or the collection issue in dispute, the Borrower agrees to pay all reasonable attorneys' fees and all court and other out-of-pocket costs incurred by the holder hereof (each of which shall be due on demand unless disputed and in any event shall bear interest at the rate then payable hereunder from five (5) days after such demand is made until paid). This Note is governed by and shall be construed in accordance with the internal laws of the State of Tennessee. If any provision of this Note should for any reason be invalid or unenforceable, the remaining provisions hereof shall remain in full force and effect. This Note may not be changed, extended or terminated except in writing. No waiver of any term or provision hereof shall be valid unless in writing signed by Lender. Executed as of _____________________, 1997. IXC CARRIER, INC. By:_________________________________ Title:______________________________ 4 59 SCHEDULE A TO NOTE Initial Payment Date: March 31, 1998 Maturity Date: December 31, 2002
Amount Advanced Date Advanced Payment Amount Payment Date Interest Rate - --------------- ------------- -------------- ------------ --------- - --------------- ------------- -------------- ------------ --------- - --------------- ------------- -------------- ------------ --------- - --------------- ------------- -------------- ------------ --------- - --------------- ------------- -------------- ------------ --------- - --------------- ------------- -------------- ------------ --------- - --------------- ------------- -------------- ------------ --------- - --------------- ------------- -------------- ------------ ---------
5 60 EXHIBIT B FORM OF BORROWING CERTIFICATE Pursuant to Section 2.03(b) of the Loan and Security Agreement dated as of __________, 1997 between IXC CARRIER, INC., a Nevada corporation (the "Borrower"), IXC COMMUNICATIONS, INC., a Delaware corporation, and NTFC CAPITAL CORPORATION (the "Lender"), (as amended, modified or supplemented from time to time, the "Loan Agreement"), the undersigned Responsible Officer of the Borrower hereby certifies as set forth below. Capitalized terms used herein which are defined in the Loan Agreement shall have their defined meanings when used herein (unless otherwise indicated). 1. The Borrower hereby represents and warrants that its representations and warranties contained in Article 4 of the Loan Agreement are true and correct on and as of the date of this Certificate. 2. Immediately prior to and immediately after the making of the Advance requested hereunder, no Default or Event of Default has or will have occurred and will be continuing under the Loan Agreement. 3. All other applicable conditions of Article 6 of the Loan Agreement have been satisfied; all applicable covenants contained in Article 7 of the Loan Agreement have been met; and no violations of Article 8 have occurred and remain uncured. 4. The Borrowing Date on which the Advance is requested is _____________ ___, 199__. 5. The total amount of the Advance requested hereunder is $_____________, to be disbursed and allocated as follows: (a) $_____________, to be paid directly to NTI for the purchase by the Borrower of Equipment provided in accordance with the NTI Supply Agreement (evidenced by the copies of unpaid NTI invoices attached to this Certificate); and (b) $_____________, to be paid to the Borrower as reimbursement for amounts paid to NTI under the NTI Supply Agreement by Borrower, as evidenced by the attached invoices and copies of Borrower's cancelled checks in payment thereof. 6. The amount of the Advance described in 5(a) above (if any) is equal to the amount due and owing on the date hereof under the NTI Supply Agreement. 7. The Advance requested on the date hereof is for a proper purpose as set forth in Section 2.01 of the Loan Agreement. 8. The Equipment being purchased with proceeds of the Advance (or for which reimbursement is being requested) is described on Schedule 1 attached hereto. 9. A copy of the Federal Reserve Statistical Release H.15 report quoting the five (5) year constant maturity Treasury Bill rate on the last business day of the week ending two weeks prior to the week of the Borrowing Date is attached hereto. 61 10. Wire instructions for Advances to be disbursed to Borrower are as follows: Account Number: ____________________________ Account Name: ____________________________ Bank : ____________________________ ABA routing number: ____________________________ IN WITNESS WHEREOF, the undersigned has duly executed this Borrowing Certificate in the name of the Borrower as of the ___ day of __________, 199__. IXC CARRIER, INC. By:_________________________________________ Title:______________________________________ 62 EXHIBIT C FORM OF OPINION OF COUNSEL FOR CORPORATE BORROWER AND CORPORATE GUARANTOR [CLOSING DATE] NTFC Capital Corporation 220 Athens Way Nashville, Tennessee 37228 Export Development Corporation 151 O'Connor Ottawa, Canada K1A 1K3 Re: Equipment Loan and Security Agreement between NTFC Capital Corporation, IXC Carrier, Inc. and IXC Communications, Inc. Ladies and Gentlemen: We have acted as counsel to IXC Carrier, Inc., a Nevada corporation ("Borrower"), and IXC Communications, Inc., a Delaware corporation ("Guarantor") in connection with the preparation, execution and delivery of the Loan and Security Agreement (the "Loan Agreement") dated as of June , 1997, between the Borrower, the Guarantor and NTFC Capital Corporation ("Lender") and the transactions contemplated by the Loan Agreement. This opinion is being furnished to NTFC Capital Corporation pursuant to Section 5.02 of the Loan Agreement and to Export Development Corporation in its capacity as an assignee pursuant to that certain Assignment and Acceptance dated as of June ___, 1997. Capitalized terms used herein without definition have the same meanings as in the Loan Agreement. In furnishing our opinion, we have examined such agreements, certificates and other documents as we have deemed relevant and necessary as the basis for our opinion, including the Certificates of Incorporation and the By-laws of the Borrower and the Guarantor, each as amended to date. We have also examined executed counterparts of the Loan Agreement, the Note, the Security Documents, the NTI Purchase Agreement, the Guaranty, and all other Basic Agreements and other Loan Documents (collectively, the "Agreements"). We have relied as to factual matters on the representations and warranties of the Borrower and the Guarantor set forth in the Loan Agreement and the Guaranty. We have assumed the genuineness of all signatures (except those of the Borrower and the Guarantor) and conformity to original documents of all documents furnished to us as originals or photostatic copies. We are licensed to practice in the State of [California] [Texas], and we are familiar with the corporate laws of the State of Nevada, the Borrower's state of incorporation, and the corporate laws of the State of Delaware, the Guarantor's state of incorporation. Texas is the state in which (i) the Borrower was formed, (ii) the Borrower's chief executive offices are located, and (iii) the Equipment is or is to be located. We express no opinion as to any laws other than the state laws of [California] [Texas], the corporate laws of the states of Nevada and Delaware, and referenced federal law. On the basis of the foregoing, and having regard to such legal considerations as we have deemed relevant, we are of the opinion that: 1. The Borrower is a corporation duly organized, validly existing and in good standing under the laws of the State of Nevada, with full corporate power and authority to carry on its business, to own 63 or hold under lease its properties, and to enter into the Agreements to which it is a party and to carry out the terms thereof. It is fully qualified to conduct business and in good standing as a foreign corporation in the State of Texas and in every other state where such qualification is necessary. 2. The Guarantor is a corporation duly organized, validly existing and in good standing under the laws of the State of Delaware, with full corporate power and authority to carry on its business, to own or hold under lease its properties, and to enter into the Agreements to which it is a party and to carry out the terms thereof. It is fully qualified to conduct business and in good standing as a foreign corporation in every state where such qualification is necessary. 3. Each of the Agreements to which it is a party has been duly authorized, executed and delivered by the Borrower. Each of the Agreements to which it is a party constitutes a legal, valid and binding obligation of the Borrower enforceable in accordance with its respective terms except that such enforceability is subject to the effect of bankruptcy, insolvency, reorganization, moratorium, receivership or other similar laws relating to or affecting creditors' rights generally and the application of equitable principles (whether enforcement is sought in equity or at law), and except that certain of the remedial provisions contained in the Loan Agreement may be further limited or rendered unenforceable by other applicable laws (but we do not believe that such other laws and equitable principles make the remedies or procedures afforded by the Agreements inadequate for the practical realization of the benefits intended to be provided thereby). 4. Each of the Agreements to which it is a party has been duly authorized, executed and delivered by the Guarantor. Each of the Agreements to which it is a party constitutes a legal, valid and binding obligation of the Borrower enforceable in accordance with its respective terms except that such enforceability is subject to the effect of bankruptcy, insolvency, reorganization, moratorium, receivership or other similar laws relating to or affecting creditors' rights generally and the application of equitable principles (whether enforcement is sought in equity or at law), and except that certain of the remedial provisions contained in the Loan Agreement and the Guaranty may be further limited or rendered unenforceable by other applicable laws (but we do not believe that such other laws and equitable principles make the remedies or procedures afforded by the Agreements inadequate for the practical realization of the benefits intended to be provided thereby). 5. All consents and authorizations of, filings with and other acts by or in respect of, any federal or State Governmental Authority required for the due execution, delivery and performance by the Borrower and the Guarantor of the Agreements to which each is a party, or the legality, validity or enforceability thereof or the formation or operation of the Borrower and the Guarantor and their respective businesses have been obtained or performed and are in full force and effect. 6. The execution, delivery and performance of the Agreements to which Borrower or Guarantor are parties and the taking of actions contemplated thereby (i) do not and will not result in any violation of, or conflict with or constitute a default under, any term of the Borrower's or the Guarantor's Certificate of Incorporation or By-laws, each as amended to date, (ii) to the best of our knowledge, based on due inquiry, do not and will not conflict with or constitute a default under any agreement, instrument, order, judgment or decree to which the Borrower or the Guarantor or their respective properties are parties or subject, or (iii) do not and will not, except as contemplated by the Loan Documents, result in the creation of any lien, charge or encumbrance upon any of the capital stock or assets of the Borrower or the Guarantor. The Borrower's and the Guarantor's execution, delivery, performance of and compliance with the terms of the Agreements to which they are parties do not violate any provision of any applicable federal, state or local law, rule or regulation. 2 64 7. There is no action, suit, proceeding or arbitration (whether or not purportedly on behalf of the Borrower) pending or, to our knowledge, threatened against the Borrower, before any court, arbitrator or grand jury or any governmental body, agency or official or at law of any jurisdiction in which there is a reasonable possibility of an adverse decision which would materially and adversely affect the business, financial condition or properties of the Borrower taken as a whole, or the ability of the Borrower to perform its obligations under the Agreements to which it is a party. To our knowledge after due inquiry, the Borrower is not in default with respect to any judgment, order, writ, injunction, decree, rule or regulation of any court or governmental agency or instrumentality of any jurisdiction, a default under which would materially and adversely affect the business, financial condition or properties of the Borrower taken as a whole. 8. There is no action, suit, proceeding or arbitration (whether or not purportedly on behalf of the Guarantor) pending or, to our knowledge, threatened against the Guarantor, before any court, arbitrator or grand jury or any governmental body, agency or official or at law of any jurisdiction in which there is a reasonable possibility of an adverse decision which would materially and adversely affect the business, financial condition or properties of the Guarantor taken as a whole, or the ability of the Guarantor to perform its obligations under the Agreements to which it is a party. To our knowledge after due inquiry, the Guarantor is not in default with respect to any judgment, order, writ, injunction, decree, rule or regulation of any court or governmental agency or instrumentality of any jurisdiction, a default under which would materially and adversely affect the business, financial condition or properties of the Guarantor taken as a whole. 9. The Borrower is not an "investment company" or a company "controlled" by an "investment company," within the meaning of the Investment Company Act of 1940, as amended, or a "holding company," or a "subsidiary company" of a "holding company," or an "affiliate" of a "holding company" or of a "subsidiary company" of a "holding company," within the meaning of the Public Utility Holding Company Act of 1935, as amended. 10. To the best of our knowledge based on due inquiry, the Borrower has no Subsidiaries at the date hereof. 11. Courts in the State of Texas, applying Texas choice of law principles should honor the choice of the parties to have the internal laws of the State of Tennessee apply to this transaction, except to the extent the Texas Uniform Commercial Code applies to this transaction. 12. If the laws of the State of Texas were applied, the Interest Rate, Default Rate, fees, premiums and other amounts that the Borrower will be required to pay under the terms of the Agreements do not violate any State of Texas usury laws or laws limiting the lawfully chargeable amounts of such interest, fees, premiums or other charges, either individually or in the aggregate.* 13. The Loan Agreement is effective to create in favor of Lender a legal, valid and enforceable security interest in all right, title and interest of the Borrower in the Collateral in which a security interest may be created under Article 9 of the Uniform Commercial Code as adopted in the State of Texas (the "UCC"). The Borrower's Financing Statements, copies of which are attached hereto as Exhibit A, are in appropriate form for filing pursuant to the UCC. Upon the filing of the Financing Statements in the offices indicated in Exhibit B hereto, the Loan Agreement will constitute a fully perfected lien on, and security interest in, all rights, title and interest of the Borrower in all of the Collateral described in the Loan Agreement in which a security interest may be perfected under Article - -------- * These opinions may be rendered by separate Texas counsel. 3 65 9 of the UCC, subject to no other liens. No other filing is necessary in order to perfect the priority of the Collateral described in the Loan Agreement over subsequently recorded liens or security interests, including interests of owners and encumbrancers of any real property where any of the Collateral may be located.* 14. We have conducted a UCC-11 search dated __________, of the UCC records in the Office of the Secretary of State of the State of Texas. Solely in reliance on the results of that search, a copy of which is Exhibit C hereto, the Lender will have a first priority security interest in the Collateral when the Form UCC-1 Financing Statements in the form attached hereto are filed as indicated in Paragraph 11 above. The first-priority security interest of the Lender in and to the Collateral will not be affected or impaired by the terms of any loan agreement or indenture or any other contract, agreement or instrument to which the Borrower is a party, or under which it is bound.* 15. Under the laws of the State of Texas, there is no requirement that Lender qualify to do business in that State, comply with the provisions of any foreign lender statute or pay any state or local tax in that State in its capacity as mortgagee or secured party in order to carry out the transactions contemplated by, receive the benefits provided by, or enforce the provisions of, the Security Documents. Except for nominal recording and filing fees, no recording, filing, stamp, transfer, privilege, intangibles or other tax must be paid in connection with the execution, delivery, filing, recordation or enforcement of the Financing Statements, or the other Agreements.* This opinion is rendered only for the benefit of NTFC Capital Corporation and Export Development Corporation and their respective successors and assigns, and may not be relied upon by other parties without our prior written consent. Very truly yours, 66 EXHIBIT A TO OPINION OF COUNSEL FOR BORROWER COPIES OF BORROWER'S FINANCING STATEMENTS SEE ATTACHED. 5 67 FORM OF LANDLORD'S CONSENT THIS LANDLORD'S CONSENT ("Consent"), made and entered into this ___ day of _________, 1997, by ____________, ("Landlord") in favor of NTFC CAPITAL CORPORATION, a Delaware corporation ("Lender"). BACKGROUND: A. Landlord is the owner of certain real property located in __________ County, ________, being more particularly described on Exhibit A attached hereto (the "Premises"). B. The Premises have been leased to _____________ ("Lessee") by Lease Agreement dated __________ (the "Lease") a memorandum of which is attached hereto as Exhibit B and is of record at Book __________, Page __________, in the Office of the [Recorder of Deeds] for __________ County, ___________. C. Lender will be extending loans and other financial accommodations to IXC Carrier, Inc. ("Borrower") for the purpose of financing Borrower's acquisition of certain telecommunications equipment (the "Equipment"), part of which may be located on the Premises. D. As a condition to extending such loans and other financial accommodations, Lender has required, among other things, that Borrower grant to Lender security interests in the Equipment whether now owned or hereafter acquired ("Collateral"), a portion of which Collateral is and may hereafter be located on or about the Premises. NOW, THEREFORE, in order to induce Lender to continue to extend financial accommodations to Borrower, and for other good and valuable consideration, the receipt and sufficiency of which are hereby acknowledged, Landlord hereby agrees with Lender as follows: 1. Landlord agrees that Lender's security interests and liens in the Collateral shall be superior to any title or interest which the Landlord may at any time have therein, and, during the term of this Agreement, Landlord will not assert against any of the Collateral any title or any statutory, common law, contractual or possessory lien, including, without limitation, rights of levy or distraint for rent, all of which Landlord hereby subordinates in favor of Lender. 2. Landlord hereby agrees that none of the Collateral is subject to the Lease and hereby disclaims any and all right, title, interest or claim in or to the Collateral and any cash or non-cash proceeds of the Collateral (except with respect to the subordinated landlord lien referred to in Section 1 above). The Collateral may be affixed to or used in conjunction with the Premises, but shall remain the Lessee's personal property, subject to Lender's lien, at all times. Landlord agrees not to impound or remove any of the Collateral from the Premises as long as this Consent is in effect, except as set forth herein. 3. Landlord agrees that Lender may enter upon the Premises at any time or times, 68 during normal business hours, with reasonable advance notice to Landlord, to inspect or to remove the Collateral therefrom, without charge, except for reimbursement for any physical damage to the Premises caused by such removal. Landlord will not hinder Lender's actions in enforcing its liens and remedies with respect to the Collateral. Landlord agrees that Lender may conduct public or private sales of the Collateral at the Premises and that interested parties will be permitted access to the Premises during normal business hours, with reasonable advance notice to Landlord, for the purpose of inspecting the Collateral prior to any such sale. 4. Landlord agrees that as long as Landlord receives in a timely fashion all rental payments as and when due, and as long as the obligations of the Lessee to maintain the Premises are being fulfilled (whether by Lessee or, at Lender's option, by Lender or any designee of Lender), Landlord will not terminate the Lease or take any action to impound or remove the Collateral or to require Lessee, Lender or Lender's designee to surrender possession of the Premises until termination of the Lease. 5. In the event that Lessee defaults in its obligations under the Lease, Landlord hereby agrees to give Lender written notice of default under the Lease, at the same time and in the same manner as such notice is given to Lessee and further agrees to allow the Collateral to remain on the Premises for a reasonable time not less than ninety (90) days, during which time Lender may, at its discretion, remove, sell or otherwise dispose of such Lender's Collateral as Lender may elect, as long as Landlord receives the rental payments due under the Lease, and as long as Lessee's obligations to maintain the Premises are being fulfilled. 6. Landlord states that the Lease is presently in full force and effect, that all rentals have been paid up to date, and that the Lease is not in default. 7. This Consent shall remain in full force and effect until all obligations of Lessee to Lender have been paid and satisfied in full and Lender has terminated its financing agreements with Lessee. 8. The provisions of this Consent may not be modified or terminated orally, and shall be binding upon the successors and assigns of the Landlord, and upon any successor owner or transferee of the Premises and shall inure to the benefit of the Lender and its successors and assigns. Notwithstanding any other provision of this Consent or the Lease to the contrary, all of Lender's right, title and interest in and to the Lease and any obligations thereunder may be assigned and transferred to an affiliate or successor of Lender without notice to Landlord, and to other parties with notice to Landlord. 9. All notices shall be in writing and shall be mailed by first class registered or certified mail, postage prepaid, as follows: (a) If to Lender: NTFC Capital Corporation 220 Athens Way Nashville, Tennessee 37228 Attention: Vice President, Marketing 2 69 (b) If to Landlord: _________________________ _________________________ _________________________ Attention: ______________ 10. This Landlord's Consent may be recorded in any appropriate locations. 11. This document shall in all respects be governed by and construed in accordance with the laws of the State in which the Premises are located. IN WITNESS WHEREOF, Landlord has executed this Landlord's Waiver and Consent on the date first above written. LANDLORD: ________________________________________ By:_____________________________________ Title:__________________________________ 3 70 [FORM OF NOTARY ACKNOWLEDGEMENT] [SAMPLE: VARIABLE BY STATE AND TYPE OF ENTITY] [CORPORATION] STATE OF ________________) COUNTY OF _______________) Before me, ____________ , a Notary Public of said County and State, personally appeared ____________, with whom I am personally acquainted (or proved to me on the basis of satisfactory evidence), and who, upon oath, acknowledged himself/herself to be ____________ (or other officer authorized to execute the instrument) of _________________, the within named bargainor, a corporation, and that he/she as such _____________________executed the foregoing instrument for the purposes therein contained, by signing the name of the corporation by himself/herself as ___________________. Witness my hand and seal, at Office in ____________________, this ______ day of ________________, 19______ . ---------------------------- Notary Public My Commission Expires:____________ This Document Prepared By: ________________________________________ ________________________________________ ________________________________________ After Recording Return To: ________________________________________ ________________________________________ ________________________________________ 4 71 EXHIBIT A TO LANDLORD'S WAIVER AND CONSENT Property Description 5 72 EXHIBIT E FORM OF ENVIRONMENTAL CERTIFICATE In connection with the loans from NTFC Capital Corporation ("Lender") to IXC Carrier, Inc. ("Borrower") pursuant to the Loan and Security Agreement dated as of July __, 1997, between the Lender, the Borrower, and IXC Communications, Inc. ("Guarantor") (the "Loan Agreement"), the Borrower and the Guarantor hereby certify to, and agree with, the Lender as follows: 1. Neither the Borrower nor the Guarantor has actual knowledge of (a) the presence of any hazardous Substances (as herein defined) on any of the real property owned, leased or operated by the Borrower or Guarantor, or anticipated to be necessary to be acquired by the Borrower or Guarantor, on which any Equipment financed with proceeds of the Loan Agreement will be located (the "Property"); (b) any spills, releases, discharges, or disposal of Hazardous Substances that have occurred or are presently occurring on or onto the Property; or (c) any spills or disposal of Hazardous Substances that have occurred or are occurring off the Property as a result of any construction on or operation and use of the Property. 2. To the best of the Borrower's and Guarantor's knowledge, the Property and any previous or current operation concerning the Property are not in violation of any applicable Environmental Law (as defined below), and neither the Borrower nor the Guarantor has knowledge or has received any notice from any governmental body, citizens' group, employee or other Person claiming that the Property or operations or uses of the Property have or may result in any violation of any Environmental Law or asserting that any Person has any environmental liability with respect to the Property, or requiring or calling attention to the need for, any work, repairs, construction, reclamation, alterations or installation on or in connection with the Property in order to comply with any Environmental Law with which the Borrower or Guarantor has not complied (collectively, "Environmental Claims"). If there are any such notices with which the Borrower or Guarantor has complied, the Borrower or Guarantor shall provide the Lender with copies thereof. If the Borrower or Guarantor receives any such notice or any other notice, it will immediately provide a copy to the Lender. 3. To the best of the Borrower's and the Guarantor's knowledge, no litigation, claim, action, investigation or administrative proceeding in respect of any Environmental Law is pending or is proposed, threatened or anticipated with respect to the Property or the use and operation thereof. 4. The Borrower and the Guarantor jointly and severally agree to indemnify and hold the Lender harmless from and against any and all claims, demands, damages, losses, liens, liabilities, interest, penalties, fines, lawsuits, and other proceedings, costs and expenses (including, without limitation, reasonable attorneys' fees and testing, assessment, investigation and audit costs), arising directly or indirectly from or out of, or in any way connected with (a) the presence or suspected presence of any Hazardous Substances on the Property; (b) any violation or alleged violation of any Environmental Law, whether attributable to events occurring before or after the Borrower's or the Guarantor's acquisition of an interest in the Property, or (c) any inaccuracy in the certifications contained herein. The Borrower and the Guarantor agree that the Lender shall be entitled to require further information and/or to request that the Borrower or Guarantor conduct environmental assessments or audits (at the Borrower's or Guarantor's expense) if the Lender has reason to suspect any environmental problems with the Property. In any such event, the Borrower or Guarantor shall cooperate fully with the Lender and its agents, and shall deliver to the Lender any environmental reports and information relating to the Property that the Borrower or Guarantor may have. All obligations of the Borrower or the Guarantor under this Certificate shall be part of the "Obligations," 1 73 as defined in the Loan Agreement and shall survive termination of the Loan Agreement and payment of the rest of the Obligations. 5. This Certificate shall be binding upon the Borrower and the Guarantor and their respective heirs, legal representatives, successors and assigns, and shall inure to the benefit of and may be relied upon by the Lender, its successors and assigns. All of the Lender's right, title and interest in this Certificate may be assigned in accordance with the terms of the Loan Agreement. 6. The term "Environmental Law" means any current or future federal, state and local law (including common law), statute, regulation, ordinance, rulings, codes, judicial order, administrative order or terms of licenses or permits applicable to environmental conditions in, on, under or around the Premises, including without limitation, the Comprehensive Environmental Response, Compensation and Liability Act, the Resource Conservation and Recovery Act, the Superfund Amendment and Reauthorization Act of 1986, the Toxic Substances Control Act, the Clean Air Act, the Clean Water Act, and the Hazardous Waste Management Act, all as now or hereafter amended. The term "release" means any spilling, leaking, pumping, pouring, emitting, emptying, discharging, injecting, escaping, leaching, dumping or disposing into the environment. The term "environment" means any surface or groundwater, drinking water supply, land, surface or subsurface strata or the ambient air. The term "Hazardous Substance" means any substance or material defined or designated as hazardous or toxic waste, hazardous or toxic material, a hazardous or toxic substance, or infectious material, substance or waste or other similar term by any Environmental Law, including without limitation, asbestos in friable form, petroleum products, mining wastes, fly ash and agricultural chemical products. Further, the terms "release," "environment" and "hazardous substance" shall have any additional meanings as defined by any such Environmental Laws. Finally, to the extent that any applicable state laws establish a meaning for "release" or "hazardous substance" which is broader than as defined above, such broader meaning shall apply. IN WITNESS WHEREOF, the undersigned has executed this Certificate as of this ___ day of July, 1997. IXC COMMUNICATIONS, INC. IXC CARRIER, INC. By: By: --------------------------- ---------------------------- Title: Title: ------------------------ ------------------------- 2 74 STATE OF _________________ ) COUNTY OF ________________ ) Before me, ____________________, a Notary Public of said County and State, personally appeared ____________________, with whom I am personally acquainted (or proved to me on the basis of satisfactory evidence), and who, upon oath, acknowledged himself/herself to be _____________ (or other officer authorized to execute the instrument) of _______________, the within named bargainor, a corporation, and that he/she as such ________________ executed the foregoing instrument for the purposes therein contained, by signing the name of the corporation by himself/herself as __________________. Witness my hand and seal, at Office in __________________________, this ___ day of ___________________, 19___. ___________________________________ My Commission Expires:________________ Notary Public Before me, __________________, a Notary Public of said County and State, personally appeared ____________________, with whom I am personally acquainted (or proved to me on the basis of satisfactory evidence), and who, upon oath, acknowledged himself/herself to be ___________________ (or other officer authorized to execute the instrument) of ____________________, the within named bargainor, a corporation, and that he/she as such _______________________ executed the foregoing instrument for the purposes therein contained, by signing the name of the corporation by himself/herself as ___________________. Witness my hand and seal, at Office in __________________________, this ___ day of ___________________, 19___. ___________________________________ My Commission Expires:________________ Notary Public 3 75 EXHIBIT F FORM OF ASSIGNMENT AND ACCEPTANCE Reference is made to the Loan and Security Agreement dated as of July 18, 1997 (as in effect on the date hereof, the "Loan Agreement"), among IXC Carrier, Inc. ("Borrower"), IXC Communications, Inc. ("Guarantor"), and NTFC Capital Corporation. Terms defined in the Loan Agreement are used herein with the same meanings unless otherwise defined. NTFC Capital Corporation ("Assignor") hereby sells and assigns, without recourse, to Export Development Corporation ("Assignee"), and Assignee hereby purchases and assumes, without recourse, from Assignor, effective as of the Assignment Date set forth on Schedule A hereto, the Proportionate Share of the Commitment set forth on Schedule A hereto, together with the Proportionate Share of the Assignor's rights and interests in, to and under the Loan Agreement and the other Loan Documents represented (the "Assigned Interest"), all as set forth herein. The Assigned Interest includes the Proportionate Share of principal owing to the Assignor on the applicable Assignment Date as set forth on Schedule A hereto, and the right to receive interest and other payments in respect of such Proportionate Share of principal amounts as they come due, subject to the Assignor's finder's fee referenced below. After the Assignment Date, Assignee shall fund its Proportionate Share of the Advances made to the Borrower under the Loan Agreement. Assignor represents and warrants that it is the sole legal and beneficial owner, free and clear of any claims, liens or encumbrances, of the Assigned Interest, the Assignor has not created any adverse claim upon the Assigned Interest, and the interest is free and clear of any adverse claim. Assignor also represents and warrants that it has provided to Assignee a true and correct copy of the Loan Agreement (including the Schedules and forms of Exhibits attached thereto), and that all Conditions of Closing and applicable Conditions of Lending (including the post-closing items, if any, on Schedule 6.02 of the Loan Agreement) have been satisfied or waived with the written approval of Assignee. Assignor further represents and warrants to Assignee that to Assignor's knowledge, no Event of Default or condition or event which with the passage of time, the giving of notice or both would constitute an Event of Default, exists and is continuing under the Loan Agreement or the other Loan Documents. From and after the applicable Assignment Date, the Assignee shall have the right to receive all payments due upon the applicable Assigned Interest and arising from the proceeds of the sale of any Collateral or otherwise upon the exercise of remedies available to the Lender in accordance with the provisions of the Loan Agreement and the other Loan Documents (the "Payments"), but without recourse against the Assignor. Assignee shall pay Assignor a "finder's fee" equal to twenty-five basis points (.25%) of Assignee's Proportionate Share of each Advance. Such finder's fee shall be paid by Assignee within two (2) Business Days following Assignee's receipt of the first interest payment made in connection with such Advance. 76 Assignor shall require the Borrower to execute two replacement Notes, evidencing the retained interest of the Assignor and the Assigned Interest, respectively, and to deliver such replacement Notes upon the surrender to the Borrower of the original Note. The Assignor further represents and warrants that Assignee has no obligation to fund advances or to make loans in excess of the Proportionate Share of the Commitment set forth on Schedule A hereto. From and after the Assignment Date, (i) the Assignee shall be a party to and be bound by the provisions of the Loan Agreement, and to the extent of the Assigned Interest, have the rights and obligations of a Lender thereunder and under the other Loan Documents and (ii) the Assignor shall, to the extent of the Assigned Interest, relinquish its rights and be released from its obligations under the Loan Agreement, except as provided herein. All demands, notices, requests, consents, and communications hereunder shall be in writing and shall be deemed to have been duly given if personally delivered by courier services, messenger, or telecopy at, or if duly deposited in the mails, by certified or registered mail, postage prepaid - return receipt requested, to the following addresses, or such other addresses as may be furnished hereafter by notice in writing, to the following parties: (A) in the case of the Assignee: Export Development Corporation 151 O'Connor Ottawa, Canada K1A 1K3 Telephone: (613) 598-3034 Facsimile: (613) 598-6858 (B) in the case of Assignor: NTFC Capital Corporation NTFC Capital Corporation 220 Athens Way 14131 Midway Road Nashville, TN 37228 Suite 630 Attn: Lawrence W. Middleton Dallas, TX 75244 Telephone: (615) 734-5272 Attn: Brett Woodard Facsimile: (615) 734-5283 Telephone: (972) 341-2756 Facsimile: (972) 341-2755 2 77 This Assignment and Acceptance may be executed in counterparts and shall be governed by and construed in accordance with the laws of the State of Tennessee. The terms set forth above are hereby agreed to as of the ___ day of _________, ____. NTFC CAPITAL CORPORATION, as Assignor By:_____________________________________ Name:___________________________________ Title:__________________________________ EXPORT DEVELOPMENT CORPORATION, as Assignee By:_____________________________________ Name:___________________________________ Title:__________________________________ 3 78 SCHEDULE A TO ASSIGNMENT AND ACCEPTANCE Name of Assignor: NTFC Capital Corporation Name and address of Assignee: Export Development Corporation 151 O'Connor Ottawa, Canada K1A 1K3 Effective Date of Assignment: July 18, 1997 Assigned Interest i) Principal Amount of Advances Assigned: USD -0- ii) Percentage of Unfunded Commitments Assigned: Assigned to Assignee: 71.428571% Retained by Assignor: 28.571429% Total: 100 % ------- 4 79 EXHIBIT G FORM OF CERTIFICATE OF FINANCIAL CONDITION IXC Carrier, Inc. a Nevada corporation (the "Borrower"), acting by and through its Senior Vice President and Chief Financial Officer, and IXC Communications, Inc., a Delaware corporation (the "Guarantor"), acting by and through its Senior Vice President and Chief Financial Officer, provide this Certificate in connection with that certain Loan and Security Agreement of even date herewith executed between NTFC Capital Corporation ("Lender"), Borrower and Guarantor (the "Loan Agreement"), pursuant to which the Lender has agreed to make loans to the Borrower in the maximum aggregate principal amount of $28,000,000.00, as evidenced by certain promissory notes issued by Borrower to the order of the Lender or its assigns. Borrower and Guarantor hereby certify to Lender: 1. Capitalized terms used herein and not otherwise defined herein are used as defined in the Loan Agreement. 2. The financial statements and all other documents relating to the Guarantor's present or projected future financial condition provided to the Lender in connection with the Loan Agreement have been prepared by or prepared under the supervision of a Responsible Officer of the Guarantor, with due diligence and in full awareness of the reliance of the Lender on the information contained therein in reaching its decision to make the Advances. The financial statements are the most recent annual or quarterly financial statements of the Guarantor, and such financial statements are in conformity with GAAP (except that quarterly reports may omit accompanying notes thereto and may be subject to year-end audit adjustments). 3. The Borrower believes that, as a result of the Advances and any obligations incurred in connection therewith and the other transactions contemplated by the Loan Agreement, it has not incurred and will not incur debts beyond its ability to satisfy them as they mature, and will have a positive cash flow after paying all of its anticipated indebtedness when due, including the obligations due to the Lender under the Loan Documents. 4. After giving effect to the Advances and the obligations incurred in connection therewith and the other transactions contemplated by the Loan Agreement, the Borrower anticipates that it will have sufficient proceeds from its operating cash flow in the ordinary course of business, sufficient to pay its interest expense and current maturities of long-term indebtedness when due. The Borrower expects its cash flow to be sufficient to provide the cash needed to repay existing long-term indebtedness as such matures. 5. Immediately after giving effect to the transactions contemplated by the Loan Agreement and the other Loan Documents, the fair saleable value of the assets of the Borrower will exceed the aggregate amount of all of the Borrower's then outstanding indebtedness. 6. Based on the present and anticipated needs for capital of the business conducted, or anticipated to be conducted in the future, by the Borrower, and after giving effect to the Advances, the Borrower will not be left with unreasonably small capital to finance the needs and anticipated needs of such business. 80 IN WITNESS WHEREOF, the Borrower and the Guarantor have caused the execution of this Certificate this ____ day of _____________, 1997. IXC CARRIER, INC. By: --------------------------------, Senior Vice President IXC COMMUNICATIONS, INC. By: --------------------------------, Senior Vice President 2 81 EXHIBIT H FORM OF UNCONDITIONAL GUARANTY AGREEMENT THIS UNCONDITIONAL GUARANTY AGREEMENT (the "Guaranty"), dated as of July __, 1997, made by IXC COMMUNICATIONS, INC., a Delaware corporation (the "Guarantor"), in favor of NTFC CAPITAL CORPORATION, a Delaware corporation (the "Lender"), and any assignee of the Lender. RECITALS: A. Guarantor desires to induce the Lender to enter that certain Loan and Security Agreement dated as of July __, 1997 (the "Loan Agreement"), by and between Lender, Guarantor, and IXC Carrier, Inc., a Nevada corporation ("Borrower") which is a wholly owned subsidiary of the Guarantor, to finance the acquisition of Equipment, as hereinafter defined, pursuant to the terms of the Loan Agreement. Such financings shall be referred to herein from time to time as the "Loans". B. The Lender is willing to enter into the Loan Agreement, and advance the Loans, subject to the terms and conditions set forth in the Loan Agreement and the other Loan Documents, as hereinafter defined, (as amended, modified, supplemented or replaced from time to time) but only so long as Guarantor unconditionally guarantees the timely performance and payment by Borrower of each and every obligation under the Loan Documents, subject only to the limitations stated herein. C. Guarantor acknowledges that the Lender would not be willing to enter into the Loan Documents without the guaranty by Guarantor under the terms of this Guaranty. D. Guarantor owns one hundred percent (100%) of the outstanding capital stock of Borrower, and Guarantor expects to increase its business, and the business of its other direct and indirect Affiliates, through the use of the Equipment by Borrower and will receive direct and indirect benefit from the Lender's extension of credit to Borrower. NOW, THEREFORE, in order to induce the Lender to enter into the Loan Documents with Borrower and for other good and valuable consideration, the receipt and adequacy of which are hereby acknowledged, Guarantor hereby agrees as follows: TERMS: ARTICLE I DEFINITIONS SECTION 1.1. Certain Terms. The following terms (whether or not underscored) when used in this Guaranty, including its preamble and recitals, shall have the following meanings (such definitions to be equally applicable to the singular and plural forms thereof): "Equipment" has the meaning assigned to that term in the Loan Agreement. "Guaranteed Obligations" has the meaning assigned to that term in Section 2.1 hereof. "Guarantor" has the meaning assigned to that term in the preamble hereof, and its 82 successors and permitted assigns, and shall include without limitation: (i) the Guarantor as debtor-in-possession or any trustee in any bankruptcy proceeding; (ii) any trustee, receiver, custodian, conservator, or other similar appointee over Guarantor or over any of Guarantor's property pursuant to any court proceeding of any kind or otherwise; and (iii) any successor person. "Guaranty" means this Unconditional Guaranty Agreement, as the same may be amended, supplemented, amended and restated or otherwise modified from time to time. "Borrower" has the meaning assigned to that term in the first recital hereto, and its successors and assigns, and includes without limitation: (i) the Borrower as debtor-in-possession or any trustee in any bankruptcy proceeding; (ii) any trustee, receiver, custodian, conservator, or other similar appointee over Borrower or over any of Borrower's property pursuant to any court proceeding of any kind or otherwise; and (iii) any successor person. "Loan Agreement" has the meaning assigned to that term in the first recital hereto. "Loans" has the meaning assigned to that term in the first recital hereto. "Loan Documents" has the meaning assigned to that term in the Loan Agreement. SECTION 1.2. Loan Documents Definitions. Unless otherwise defined herein or the context otherwise requires, terms used in this Guaranty, including its preamble and recitals, have the meanings provided in the Loan Documents. ARTICLE II GUARANTY SECTION 2.1. Guaranty. Guarantor hereby unconditionally and irrevocably guarantees, subject to the limitations expressed herein, the full and prompt payment when due, whether at stated maturity, by acceleration or otherwise (including, without limitation, all amounts which would have become due but for the operation of the automatic stay under Section 362(a) of the Federal Bankruptcy Code, 11 U.S.C. 362(a)), of any and all indebtedness and obligations of any kind and character whatsoever of Borrower to the Lender and any and all extensions, renewals and replacements of such indebtedness, arising under any of the Loan Documents including, but not limited to, the Loan Agreement, the Note, or any other document executed by Borrower in connection therewith, or of Guarantor hereunder, whether such indebtedness is: (i) characterized as the payment of principal, interest, premiums, fees, costs, expenses, lease obligations, indemnities, or otherwise; (ii) presently existing or hereafter incurred or arising; (iii) from time to time reduced and thereafter increased or entirely extinguished and thereafter reincurred; (iv) foreseen or unforeseen, direct or indirect, absolute or contingent, primary or secondary, secured or unsecured, matured or unmatured, of the same class or type or of different classes or types; (v) created by or arising under contract, tort, guaranty, overdraft, recovery of 2 83 avoided payments or otherwise; (vi) contracted for by Borrower alone or jointly and severally with another or others; (vii) incurred by Borrower prior to, during, or after any filing by Borrower or against Borrower of any petition or request for liquidation, reorganization, arrangement, adjudication as a bankrupt, relief as a debtor, or other relief under bankruptcy, insolvency, or similar laws now or hereafter in affect in the United States of America or any state or territory thereof or any foreign jurisdiction, and notwithstanding Borrower's legal status as a debtor or a debtor-in-possession or Borrower's discharge in any such proceeding; (viii) created or incurred with or without notice to Guarantor; and/or (ix) for future advances of any sort, including, without limitation, future advances made by Lender for taxes, levies, insurance and/or repairs to or maintenance of the Collateral or for expenses of collection or protection of Lender's rights, including reasonable attorney's fees. The foregoing obligations are referred to herein collectively as the "Guaranteed Obligations." This Guaranty constitutes a guaranty of payment when due and not merely of collection, and Guarantor specifically agrees that it shall not be necessary or required that the Lender or any holder of any Loan exercise any right, assert any claim or demand or enforce any remedy whatsoever against the Borrower before or as a condition to the Guaranteed Obligations of any Guarantor hereunder. SECTION 2.2. Acceleration of Guaranty. Guarantor agrees that, in the event of the dissolution or insolvency of the Borrower or Guarantor, or the inability or failure of the Borrower or Guarantor to pay debts as they become due, or an assignment by the Borrower or Guarantor for the benefit of creditors, or the commencement of any case or proceeding in respect of the Borrower or Guarantor under any bankruptcy, insolvency or similar laws, and if such event shall occur at a time when any of the Guaranteed Obligations of the Borrower may not then be due and payable, Guarantor will pay to the Lender forthwith the full amount which would be payable hereunder by Guarantor if all such Guaranteed Obligations were then due and payable. SECTION 2.3. Guaranty Absolute. This Guaranty shall be construed as a continuing, absolute, unconditional and irrevocable guarantee of payment and shall remain in full force and effect until all Guaranteed Obligations of the Borrower have been paid in full, all obligations of Guarantor hereunder have been paid in full and all Loan Documents shall have terminated. Guarantor guarantees that the Guaranteed Obligations will be paid strictly in accordance with the terms of the Loan Agreement, and that all other Guaranteed Obligations shall be paid strictly in accordance with the terms of the Loan Documents, regardless of any law, regulation or order now or hereafter in effect in any jurisdiction affecting any of such terms or the rights of the Lender with respect thereto. The liability of Guarantor under this Guaranty shall be absolute and unconditional irrespective of: (a) any lack of validity, legality or enforceability of the Loan Agreement, the Note, any other Loan Document or any other agreement or instrument relating to any thereof; (b) any change in the time, manner or place of payment of, or in any other term of, all or any of the Guaranteed Obligations, or any compromise, renewal, extension, acceleration or release with respect thereto, or any other amendment or waiver of or any consent to departure from the Loan Agreement, any Schedule or any other Loan Document; (c) any addition, exchange, release or non-perfection of any collateral, or any release 3 84 or amendment or waiver of or consent to departure from any other guaranty, for all or any of the Guaranteed Obligations; (d) the failure of the Lender or any holder of a Loan Document: (i) to assert any claim or demand or to enforce any right or remedy against the Borrower or any other person or entity (including any other guarantor) under the provisions of the Loan Agreement, any Schedule or any other Loan Document or otherwise, or (ii) to exercise any right or remedy against any other guarantor of, or collateral securing, any Guaranteed Obligations of the Borrower; (e) any amendment to, rescission, waiver, or other modification of, or any consent to departure from, any of the terms of the Loan Agreement, any Schedule, or any other Loan Document; (f) any defense, set-off or counter-claim which may at any time be available to or be asserted by the Borrower against the Lender; (g) any reduction, limitation, impairment or termination of the Guaranteed Obligations of the Borrower for any reason, including any claim of waiver, release, surrender, alteration or compromise, and shall not be subject to (and Guarantor hereby waives any right to or claim of) any defense or setoff, counterclaim, recoupment or termination whatsoever by reason of the invalidity, illegality, non-genuineness, irregularity, compromise, unenforceability of, or any other event or occurrence affecting, the Guaranteed Obligations of the Borrower or otherwise; or (h) any other circumstance which might otherwise constitute a defense available to, or a legal or equitable discharge of, the Borrower or Guarantor. SECTION 2.4. Reinstatement, etc. Guarantor agrees that this Guaranty shall continue to be effective or be reinstated, as the case may be, if at any time any payment (in whole or in part) of any of the Guaranteed Obligations is rescinded or must otherwise be restored by any the Lender or any holder of any Loan Document, upon the insolvency, bankruptcy or reorganization of the Borrower or otherwise, all as though such payment had not been made. SECTION 2.5. Waiver. Guarantor hereby waives promptness, diligence, notice of acceptance and any other notice with respect to any of the Guaranteed Obligations and this Guaranty and any requirement that the Lender protect, secure, perfect or insure any security interest or lien or any property subject thereto or exhaust any right or take any action against the Borrower or any other person or entity (including any other guarantor) or any collateral. SECTION 2.6. Waiver of Subrogation. Guarantor hereby irrevocably waives any claim or other rights which it may now or hereafter acquire against the Borrower that arise from the existence, payment, performance or enforcement of Guarantor's obligations under this Guaranty or any other Loan Document, including any right of subrogation, reimbursement, exoneration, or indemnification, any right to participate in any claim or remedy of the Lender against the Borrower or any collateral which the Lender now has or hereafter acquires, whether or not such claim, remedy or right arises in equity, or under contract, statute or common law, including the right to take or receive from the Borrower, directly or indirectly, in cash or other property or by set-off or in any manner, payment or security on account of such claim or other rights. If any amount shall be paid to Guarantor in violation of the preceding sentence and the Guaranteed Obligations shall not have been paid in cash in full and the Loan Documents 4 85 have not been terminated, such amount shall be deemed to have been paid to Guarantor for the benefit of, and held in trust for, the Lender, and shall forthwith be paid to the Lender to be credited and applied upon the Guaranteed Obligations, whether matured or unmatured. Guarantor acknowledges that it will receive direct and indirect benefits from the financing arrangements contemplated by the Loan Agreement and the other Loan Documents and that the waiver set forth in this Section is knowingly made in contemplation of such benefits. SECTION 2.7. Successors, Transferees and Assigns; Transfers of Loans, etc. This Guaranty shall: (a) be binding upon Guarantor, and its successors, transferees and assigns; and (b) inure to the benefit of and be enforceable by the Lender and its successors, transferees and assigns. Without limiting the generality of clause (b), to the extent the Lender assigns or otherwise transfers (in whole or in part) any Loan or Loan Documents held by it to any other person or entity, and such other person or entity shall thereupon become vested with the corresponding rights and benefits granted to the Lender under this Guaranty. ARTICLE III REPRESENTATIONS AND WARRANTIES SECTION 3.1. Representations and Warranties. Guarantor hereby represents and warrants to the Lender as follows: (a) Guarantor is a corporation duly organized, validly existing and in good standing under the laws of its state of incorporation and has full corporate power and authority to enter into this Guaranty and to carry out the transactions contemplated hereby and thereby. (b) The execution and delivery by Guarantor of this Guaranty and the consummation by Guarantor of the transactions contemplated hereby have been duly authorized by Guarantor. This Guaranty has been duly executed and delivered by Guarantor and constitutes the legal, valid and binding obligation of Guarantor enforceable against Guarantor in accordance with its terms, subject, as to enforcement only, to bankruptcy, insolvency, reorganization, moratorium or similar laws at the time in effect affecting the enforceability of the rights of creditors generally. (c) The execution and delivery of this Guaranty and the consummation by Guarantor of the transactions contemplated hereby have not resulted, and will not (with or without the lapse of time or the giving of notice or both) result, (i) in any breach of any of the terms or provisions of, or constitute a default under, the charter or bylaws of Guarantor, any agreement, license or other instrument, any law, rule or regulation or any judgment, decree or order of any court to which Guarantor is a party or by which its property may be bound, or (ii) in the creation or imposition of any claim, lien charge or encumbrance of any-nature whatsoever upon, or give to others any claim, interest or right, with respect to any of the properties, assets, contracts or licenses of Guarantor. 5 86 ARTICLE IV MISCELLANEOUS SECTION 4.1. Loan Document. This Guaranty is a Loan Document executed pursuant to the Loan Agreement and shall (unless otherwise expressly indicated herein) constitute a Guaranteed Obligation. SECTION 4.2. Binding on Successors, Transferees and Assigns; Assignment. In addition to, and not in limitation of Section 2.7, this Guaranty shall be binding upon Guarantor and its successors, permitted transferees and permitted assigns and shall inure to the benefit of and be enforceable by the Lender and its successors, transferees and assigns (to the full extent provided pursuant to Section 2.7); provided, however, that Guarantor may not transfer or assign any of its obligations hereunder without the prior written consent of the Lender, unless the assignment is part of a transaction of merger, acquisition or consolidation, and the Guarantor is either the surviving entity or the controlling corporation of the surviving or resulting entity. In any event, no assignment will operate to relieve Guarantor of its obligations hereunder. SECTION 4.3. Amendments, Etc. No amendment or waiver of any provision of this Guaranty nor consent to any departure by Guarantor therefrom shall in any event be effective unless the same shall be in writing and signed by the Lender and Guarantor, and then such waiver or consent shall be effective only in the specific instance and for the specific purpose for which given. SECTION 4.4. Addresses for Notices. All notices and other communications provided for hereunder shall be in writing or by facsimile transmission and, if to Guarantor, mailed, given by facsimile transmission or delivered to it, addressed to it at _____________________________ (facsimile number (____) ___________), and if to the Lender, mailed, telexed, given by facsimile transmission or delivered to it, addressed to it at 220 Athens Way, Nashville, Tennessee 37228, Attention: Legal Department (facsimile number (615) 734-5283), with a copy to the Lender Corporation, 220 Athens Way, Nashville, Tennessee 37228, Attention: Manager, Credit, (facsimile number (615) 734-5110), or as to each party at such other address as shall be designated by such party in a written notice to each other party complying as to delivery with the terms of this Section. Any notice, if mailed and properly addressed with postage prepaid, shall be deemed given when received; any notice,'if transmitted by facsimile transmission or delivery, shall be deemed given when received. SECTION 4.5. No Waiver; Remedies. No failure on the part of the Lender to exercise, and no delay in exercising, any right hereunder shall operate as a waiver thereof; nor shall any single or partial exercise of any right hereunder preclude any other or further exercise thereof or the exercise of any other right. The remedies herein provided are cumulative and not exclusive of any remedies provided by law or equity. SECTION 4.6. Continuing Guaranty. This Guaranty is a continuing guaranty and shall (a) remain in full force and effect until final payment in full of the Guaranteed Obligations and all other amounts payable under this Guaranty, subject to reinstatement in accordance with Section 2.4 hereof, (b) be binding upon Guarantor, its successors and permitted assigns, and (c) inure to the benefit of and be enforceable by the Lender for its benefit and the benefit of the Lender and its successors, transferees and assigns. SECTION 4.7. Severability. Any provision of this Guaranty which is prohibited or unenforceable in any jurisdiction shall, as to such jurisdiction, be ineffective to the extent of such prohibition or unenforceability without invalidating the remaining provisions of this Guaranty or affecting the validity or enforceability of such provisions in any other jurisdiction. 6 87 SECTION 4.8. Consent to Jurisdiction and Venue; Waivers. (a) GUARANTOR HEREBY IRREVOCABLY CONSENTS TO THE JURISDICTION OF THE FEDERAL COURTS SITTING IN THE MIDDLE DISTRICT OF TENNESSEE, AND IF NO FEDERAL JURISDICTION EXISTS, TO THE JURISDICTION AND VENUE OF THE STATE COURTS OF TENNESSEE FOR ANY SUIT BROUGHT OR ACTION COMMENCED IN CONNECTION WITH THIS AGREEMENT, THE OTHER LOAN DOCUMENTS, OR THE OBLIGATIONS, AND AGREES NOT TO CONTEST VENUE OR JURISDICTION IN ANY SUCH COURTS. IN ANY SUCH LITIGATION, GUARANTOR WAIVES PERSONAL SERVICE OF ANY SUMMONS, COMPLAINT OR OTHER PROCESS, AND AGREES THAT THE SERVICE THEREOF MAY BE MADE BY CERTIFIED OR REGISTERED MAIL DIRECT TO GUARANTOR AT ITS ADDRESS SET FORTH IN SECTION 10.06 HEREOF. IN THE ALTERNATIVE, IN ITS SOLE DISCRETION, LENDER MAY EFFECT SERVICE UPON GUARANTOR IN ANY OTHER FORM OR MANNER PERMITTED BY LAW. THE CHOICE OF FORUM SET FORTH HEREIN SHALL NOT BE DEEMED TO PRECLUDE THE ENFORCEMENT OF ANY JUDGMENT OBTAINED IN SUCH FORUM OR THE TAKING OF ANY ACTION UNDER THIS AGREEMENT TO ENFORCE THE SAME IN ANY APPROPRIATE JURISDICTION. (b) GUARANTOR AND LENDER HEREBY KNOWINGLY AND WILLINGLY WAIVE THEIR RESPECTIVE RIGHTS TO DEMAND A JURY TRIAL IN ANY ACTION OR PROCEEDING INVOLVING THIS GUARANTY, ANY OTHER LOAN DOCUMENT, THE GUARANTEED OBLIGATIONS, OR ANY RELATIONSHIP BETWEEN THE LENDER AND GUARANTOR. GUARANTOR WARRANTS AND REPRESENTS THAT IT HAS REVIEWED THE FOREGOING WAIVERS WITH ITS LEGAL COUNSEL AND HAS KNOWINGLY AND VOLUNTARILY WAIVED ITS JURY TRIAL RIGHTS FOLLOWING CONSULTATION WITH LEGAL COUNSEL. IN THE EVENT OF LITIGATION, THIS AGREEMENT MAY BE FILED AS A WRITTEN CONSENT TO A TRIAL BY THE COURT. (c) THE LENDER SHALL HAVE NO LIABILITY UNDER OR IN CONNECTION WITH THIS AGREEMENT OR ANY OF THE OTHER LOAN DOCUMENTS FOR SPECIAL, EXEMPLARY, PUNITIVE, INCIDENTAL, INDIRECT OR CONSEQUENTIAL DAMAGES OF ANY SORT IN ANY SUIT BROUGHT OR ACTION COMMENCED IN CONNECTION WITH THIS GUARANTY, THE OTHER LOAN DOCUMENTS, OR THE GUARANTIED OBLIGATIONS, AND, EXCEPT TO THE EXTENT PROHIBITED BY LAW, EACH PARTY WAIVES ANY RIGHT IT MAY HAVE TO CLAIM OR RECOVER IN ANY SUCH ACTION ANY SPECIAL, EXEMPLARY, PUNITIVE, INCIDENTAL, INDIRECT OR CONSEQUENTIAL DAMAGES OF ANY SORT OTHER THAN ACTUAL DAMAGES. (d) TO THE EXTENT THAT GUARANTOR HAS OR HEREAFTER MAY ACQUIRE ANY IMMUNITY FROM JURISDICTION OF ANY COURT OR FROM ANY LEGAL PROCESS (WHETHER THROUGH SERVICE OR NOTICE, ATTACHMENT PRIOR TO JUDGMENT, ATTACHMENT IN AID OF EXECUTION, EXECUTION OR OTHERWISE) WITH RESPECT TO ITSELF OR TO ITS PROPERTY, GUARANTOR HEREBY IRREVOCABLY WAIVES SUCH IMMUNITY IN RESPECT OF ITS OBLIGATIONS UNDER THIS GUARANTY. (e) BY EXECUTING THIS GUARANTY, GUARANTOR HEREBY IRREVOCABLY AND UNCONDITIONALLY WAIVES ANY OBJECTION WHICH IT MAY NOW OR HEREAFTER HAVE TO THE LAYING OF VENUE OF ANY OF THE AFORESAID ACTIONS OR PROCEEDINGS ARISING OUT OF OR IN CONNECTION WITH THIS GUARANTY BROUGHT IN ANY OF THE AFORESAID COURTS, AND HEREBY FURTHER IRREVOCABLY AND UNCONDITIONALLY WAIVES AND AGREES 7 88 NOT TO PLEAD ANY CLAIM THAT ANY SUCH ACTION OR PROCEEDING BROUGHT IN ANY SUCH COURT HAS BEEN BROUGHT IN AN INCONVENIENT FORUM. SECTION 4.9. Governing Law. This Guaranty shall be governed by and construed in accordance with the internal laws of the State of Tennessee. IN WITNESS WHEREOF, Guarantor has caused this Guaranty to be duly executed and delivered by its officer thereunto duly authorized as of the date first above written, and the Lender has accepted it by its duly authorized officer. IXC COMMUNICATIONS, INC. By:___________________________________ Title:________________________________ NTFC CAPITAL CORPORATION By:___________________________________ Title:________________________________ 8 EX-11.1 7 COMPUTATION OF EARNING (LOSS) PER SHARE 1 EXHIBIT 11.1 IXC COMMUNICATIONS, INC. AND SUBSIDIARIES COMPUTATION OF EARNINGS (LOSS) PER COMMON SHARE FOR THE THREE MONTH AND SIX MONTH PERIODS ENDED JUNE 30, 1997 AND 1996 (IN THOUSANDS, EXCEPT PER SHARE AMOUNTS) (UNAUDITED)
THREE MONTHS ENDED SIX MONTHS ENDED JUNE 30, JUNE 30, ------------------- ------------------- 1997 1996 1997 1996 -------- -------- -------- -------- EARNINGS Net income (loss)................................. $(28,810) $(12,067) $(48,688) $(23,766) Less: Dividends applicable to preferred stock........................................ (2,288) (432) (2,758) (865) -------- -------- -------- -------- Net income (loss) applicable to common stockholders................................... $(31,098) (12,499) $(51,446) $(24,631) ======== ======== ======== ======== PRIMARY Weighted average number of shares outstanding..... 30,799 24,335 30,799 24,335 Add: Effect, for periods including and prior to the initial public offering (IPO), of common stock options issued within one year of the IPO............................................ -- 833 -- 833 Less: Assumed repurchase of shares under the treasury stock method.......................... -- (157) -- (157) -------- -------- -------- -------- Number of shares used to compute earnings (loss) applicable to common shareholders.............. 30,799 25,011 30,799 25,011 ======== ======== ======== ======== FULLY DILUTED Weighted average number of shares outstanding..... 30,799 24,335 30,799 24,335 Add: Effect, for periods including and prior to the IPO, of common stock options issued within one year of the IPO............................ -- 833 -- 833 Less: Assumed repurchase of shares under the treasury stock method.......................... -- (157) -- (157) -------- -------- -------- -------- Number of shares used to compute earnings (loss) applicable to common shareholders.............. 30,799 25,011 30,799 25,011 ======== ======== ======== ======== PRIMARY LOSS PER COMMON AND COMMON EQUIVALENT SHARE.......................................... $ (1.01) (0.50) $ (1.67) $ (0.99) ======== ======== ======== ======== FULLY DILUTED LOSS PER COMMON AND COMMON EQUIVALENT SHARE............................... $ (1.01) $ (0.50) $ (1.67) $ (0.99) ======== ======== ======== ========
EX-27.1 8 FINANCIAL DATA SCHEDULE
5 6-MOS DEC-31-1997 JAN-01-1997 JUN-30-1997 40,974,000 0 68,854,000 6,418,000 0 107,003,000 493,643,000 87,804,000 552,900,000 135,291,000 285,000,000 98,010,000 12,550 308,000 12,587,000 552,900,000 0 172,775,000 0 143,132,000 58,596,000 0 15,760,000 (48,940) 252,000 (48,688) 0 0 0 (48,688) (1.67) (1.67)
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