-----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, FT2eBPy67cV0AesHvyDkMA7H8ufbGq+k4T1kCsY8fWCKnch9C8gd4T3YK1C/b3t1 +a5ksgoj5e0iKOijs8oMYg== 0000892569-99-002282.txt : 19990817 0000892569-99-002282.hdr.sgml : 19990817 ACCESSION NUMBER: 0000892569-99-002282 CONFORMED SUBMISSION TYPE: 10-Q PUBLIC DOCUMENT COUNT: 11 CONFORMED PERIOD OF REPORT: 19990630 FILED AS OF DATE: 19990816 FILER: COMPANY DATA: COMPANY CONFORMED NAME: IXC COMMUNICATIONS INC CENTRAL INDEX KEY: 0001009532 STANDARD INDUSTRIAL CLASSIFICATION: TELEPHONE COMMUNICATIONS (NO RADIO TELEPHONE) [4813] IRS NUMBER: 752644120 STATE OF INCORPORATION: DE FISCAL YEAR END: 1231 FILING VALUES: FORM TYPE: 10-Q SEC ACT: SEC FILE NUMBER: 000-20803 FILM NUMBER: 99693774 BUSINESS ADDRESS: STREET 1: 1122 CAPITAL OF TEXAS HGWY S STREET 2: STE 200 CITY: AUSTIN STATE: TX ZIP: 78746 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 PERIOD END JUNE 30, 1999 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, 1999 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 AS SPECIFIED IN ITS CHARTER) ------------------------ DELAWARE 75-2644120 (STATE OR OTHER JURISDICTION OF (I.R.S. EMPLOYER INCORPORATION OR ORGANIZATION) IDENTIFICATION NO.) 1122 CAPITAL OF TEXAS HIGHWAY SOUTH, 78746-6426 AUSTIN, TEXAS (ZIP CODE) (ADDRESS OF PRINCIPAL EXECUTIVE OFFICES)
(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 37,399,773 on August 1, 1999. - -------------------------------------------------------------------------------- - -------------------------------------------------------------------------------- 2 IXC COMMUNICATIONS, INC. AND SUBSIDIARIES REPORT ON FORM 10-Q FOR THE QUARTER ENDED JUNE 30, 1999 TABLE OF CONTENTS
PAGE ---- PART I. FINANCIAL INFORMATION Item 1. Condensed Consolidated Financial Statements (Unaudited) Condensed Consolidated Balance Sheets June 30, 1999 and December 31, 1998......................................... 3 Condensed Consolidated Statements of Operations Three and Six Months Ended June 30, 1999 and 1998.................................... 4 Condensed Consolidated Statements of Cash Flows Six Months Ended June 30, 1999 and 1998.................................................. 5 Notes to Condensed Consolidated Financial Statements........ 6 Item 2. Management's Discussion and Analysis of Financial Condition and Results of Operations................................. 12 Item 3. Quantitative and Qualitative Disclosures About Market Risk...................................................... 16 PART II. OTHER INFORMATION Item 1. Legal Proceedings........................................... 17 Item 2. Changes in Securities and Use of Proceeds................... 17 Item 3. Defaults Upon Senior Securities............................. 17 Item 4. Submission of Matters to a Vote of Security Holders......... 17 Item 5. Other Information........................................... 18 Item 6. Exhibits and Reports on Form 8-K............................ 18 SIGNATURES........................................................... 24
2 3 IXC COMMUNICATIONS, INC. CONDENSED CONSOLIDATED BALANCE SHEETS (DOLLARS IN THOUSANDS, EXCEPT SHARE AND PER SHARE AMOUNTS) ASSETS
JUNE 30, DECEMBER 31, 1999 1998 ----------- ------------ (UNAUDITED) Cash and cash equivalents................................... $ 98,562 $ 264,826 Accounts and other receivables, net of allowance for doubtful accounts of $31,047 at June 30, 1999 and $16,664 at December 31, 1998...................................... 95,662 107,558 Current portion of notes receivable......................... -- 63,748 Note receivable from Westel................................. -- 9,421 Other current assets........................................ 22,752 10,965 ---------- ---------- Total current assets.............................. 216,976 456,518 Property and equipment...................................... 1,523,344 1,193,655 Less: accumulated depreciation.............................. (272,054) (209,979) ---------- ---------- Property and equipment, net....................... 1,251,290 983,676 Non-current marketable securities........................... 452,553 219,880 Investments in unconsolidated subsidiaries.................. 8,414 9,505 Deferred charges and other non-current assets, net.......... 172,260 78,658 ---------- ---------- Total assets...................................... $2,101,493 $1,748,237 ========== ========== LIABILITIES, REDEEMABLE PREFERRED STOCK AND STOCKHOLDERS' DEFICIT Current portion of long-term debt and capital lease obligations............................................... $ 12,804 $ 13,984 Accounts payable trade...................................... 97,755 33,558 Accrued service cost........................................ 59,667 43,177 Accrued liabilities......................................... 116,038 72,307 Current portion of unearned revenue......................... 53,453 33,640 ---------- ---------- Total current liabilities......................... 339,717 196,666 Long-term debt and capital lease obligations, less current portion................................................... 760,239 679,016 Unearned revenue -- noncurrent.............................. 532,965 488,395 Other noncurrent liabilities................................ 85,329 8,848 7 1/4% Junior Convertible Preferred Stock; $.01 par value; 3,000,000 shares of all classes of Preferred Stock authorized; 1,074,500 shares issued and outstanding at June 30, 1999 and December 31, 1998 (aggregate liquidation preference of $107,450 at June 30, 1999).................. 103,849 103,623 12 1/2% Junior Exchangeable Preferred Stock; $.01 par value; 3,000,000 shares of all classes of Preferred Stock authorized; 371,618 and 349,434 shares issued and outstanding at June 30, 1999 and December 31, 1998 (aggregate liquidation preference of $377,413 at June 30, 1999 including accrued dividends of $5,806)............... 367,263 344,235 Stockholders' deficit: 6 3/4% Cumulative Convertible Preferred Stock, $.01 par value; 3,000,000 shares of all classes of Preferred Stock authorized; $155,250 shares issued and outstanding at June 30, 1999 and December 31, 1998 (aggregate liquidation preference of $155,250 at June 30, 1999).............................................. 2 2 Common Stock, $.01 par value; 100,000,000 shares authorized; 37,390,765 shares issued and outstanding at June 30, 1999 and 36,409,709 shares issued and outstanding at December 31, 1998....................... 374 364 Additional paid-in capital................................ 253,392 253,429 Unrealized gain on marketable securities.................. 141,091 -- Accumulated deficit....................................... (482,728) (326,341) ---------- ---------- Total stockholders' deficit............................... (87,869) (72,546) ---------- ---------- Total liabilities, redeemable preferred stock and stockholders' deficit.................................. $2,101,493 $1,748,237 ========== ==========
See accompanying notes. 3 4 IXC COMMUNICATIONS, INC. CONDENSED CONSOLIDATED STATEMENTS OF OPERATIONS (DOLLARS IN THOUSANDS, EXCEPT PER SHARE DATA) (UNAUDITED)
THREE MONTHS SIX MONTHS ENDED JUNE 30, ENDED JUNE 30, ---------------------- ---------------------- 1999 1998 1999 1998 --------- --------- --------- --------- Net operating revenue: Private line service...................... $ 73,569 $ 49,232 $ 144,433 $ 92,572 Long distance switched services........... 74,898 105,502 152,645 219,269 Data and Internet services................ 5,353 1,201 10,528 1,677 Other..................................... 4,072 -- 11,644 -- --------- --------- --------- --------- 157,892 155,935 319,250 313,518 Operating expenses: Cost of services.......................... 108,289 107,593 213,093 215,542 Operations and administration............. 60,948 29,992 112,757 59,328 Restructuring charges..................... 25,826 -- 25,826 -- Depreciation and amortization............. 39,565 22,636 75,843 42,788 Merger and other infrequent costs......... 90 7,681 145 7,645 --------- --------- --------- --------- Operating loss.................... (76,826) (11,967) (108,414) (11,785) Interest income............................. 1,839 3,324 7,663 4,921 Interest expense............................ (9,092) (8,530) (20,109) (14,841) Equity (loss) from unconsolidated subsidiaries.............................. (13,111) (10,754) (15,982) (22,019) Other, net.................................. (12,760) 33 (12,725) 176 --------- --------- --------- --------- Loss before provision for income taxes and minority interest......................... (109,950) (27,894) (149,567) (43,548) Provision for income taxes.................. (3,900) (4,551) (6,311) (6,619) Minority interest........................... (301) (252) (509) (425) --------- --------- --------- --------- Loss before extraordinary loss.............. (114,151) (32,697) (156,387) (50,592) --------- --------- --------- --------- Extraordinary loss, net..................... -- (69,810) -- (69,810) --------- --------- --------- --------- Net loss.................................... (114,151) (102,507) (156,387) (120,402) --------- --------- --------- --------- Dividends applicable to preferred stock..... (16,372) (15,471) (32,390) (27,207) --------- --------- --------- --------- Net loss applicable to common stockholders.............................. (130,523) (117,978) (188,777) (147,609) --------- --------- --------- --------- Other comprehensive income, net of tax of $4,252 and $75,972: Change in unrealized gain on marketable securities................................ 7,896 -- 141,091 -- --------- --------- --------- --------- Comprehensive income (loss)................. $(122,627) $(117,978) $ (47,686) $(147,609) ========= ========= ========= ========= Basic and diluted loss per share: Before extraordinary loss................. $ (3.53) $ (1.35) $ (5.14) $ (2.18) Extraordinary loss........................ -- (1.95) -- (1.96) --------- --------- --------- --------- Net loss.................................. $ (3.53) $ (3.30) $ (5.14) $ (4.14) ========= ========= ========= ========= Weighted average shares outstanding......... 36,946 35,785 36,714 35,653 ========= ========= ========= =========
See accompanying notes. 4 5 IXC COMMUNICATIONS, INC. CONDENSED CONSOLIDATED STATEMENTS OF CASH FLOWS (DOLLARS IN THOUSANDS) (UNAUDITED)
FOR THE SIX MONTHS ENDED JUNE 30, ---------------------- 1999 1998 --------- --------- Net cash provided by operating activities................... $ 105,451 $ 41,311 --------- --------- Investing activities: Purchase of property and equipment........................ (261,642) (239,627) Proceeds from collection of notes receivable.............. 750 -- Acquisitions, net of cash acquired........................ (73,247) (22,699) Investments in unconsolidated subsidiaries................ (6,220) (12,431) --------- --------- Net cash used in investing activities....................... (340,359) (274,757) --------- --------- Financing activities: Proceeds from sale of 9% Senior Notes..................... -- 450,000 Proceeds from sale of 6 3/4% Cumulative Convertible Preferred Stock........................................ -- 147,213 Net proceeds from issuance of debt........................ 79,156 -- Proceeds from debt and capital lease obligations.......... -- 12,704 Principal payments on debt and capital lease obligations............................................ (9,112) (353,094) Redemption of 10% Junior Series 3 Cumulative Preferred Stock.................................................. -- (708) Stock option exercises.................................... 5,116 2,842 Payment of dividends on preferred stock................... (6,516) (1,948) Other financing activities................................ -- (3,186) --------- --------- Net cash provided by financing activities................... 68,644 253,823 --------- --------- Effect of differing year-ends from merged entities.......... -- (1,502) --------- --------- Net increase (decrease) in cash and cash equivalents........ (166,264) 18,875 Cash and cash equivalents at beginning of period............ 264,826 155,855 --------- --------- Cash and cash equivalents at end of period.................. $ 98,562 $ 174,730 ========= =========
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 and six month periods ended June 30, 1999 are not necessarily indicative of the results that may be expected for the year ended December 31, 1999. The accompanying unaudited Condensed Consolidated Financial Statements have been restated for 1998 to include the operations of Eclipse Telecommunications, Inc., formerly Network Long Distance, Inc. ("Eclipse"), which was acquired on June 3, 1998, in a transaction accounted for as a pooling of interests. The Condensed Consolidated Balance Sheet at December 31, 1998 has been derived from our audited financial statements 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 our audited consolidated financial statements and notes thereto for the year ended December 31, 1998. Certain amounts shown in our 1998 financial statements have been reclassified to conform to the 1999 presentation. 2. MARKETABLE SECURITIES PSINET INVESTMENT We own approximately 10.2 million shares of common stock of PSINet, Inc. This investment had a fair market value of approximately $447.6 million as of June 30, 1999. Of the total fair value, $240.0 million was recorded as unearned revenue because it represented the sale to PSINet of an agreement for an indefeasible right to use ("IRU") capacity on our network. We accounted for the remaining fair value, net of tax, as Unrealized Gain on Marketable Securities because the PSINet investment is "available-for-sale" as defined in Statement of Financial Accounting Standards ("SFAS") No. 115. The change in the unrealized gain amount is included in Other Comprehensive Income on the accompanying condensed consolidated statement of operations. The accompanying balance sheet includes approximately $52.0 million representing amounts received from a financial institution in June 1999 in connection with a prepaid, forward-sale contract of 1.5 million shares of PSINet common stock. This amount is accounted for as a note payable and is secured by the 1.5 million shares of stock. The forward-sale obligation may be settled at a specified date in the second quarter of 2002 for a maximum amount of 1.5 million shares of PSINet stock, or, at our option, the equivalent value of PSINet stock in cash. We are accruing interest expense on this liability at an effective interest rate of 6.8%. DCI TELECOMMUNICATIONS In November 1998 we entered into an agreement to acquire common stock of DCI Telecommunications, Inc. ("DCI"), as consideration for payment of amounts due from one of our customers that was also a vendor of DCI. The agreement provided that DCI was to issue us additional common stock if the market value of the shares we owned did not reach $17.7 million by June 1, 1999. As of June 1, 1999, and subsequent thereto, the market value of the shares we owned was less than the $17.7 million guaranteed in the November 1998 agreement. DCI has publicly disclosed that it does not intend to issue additional shares to us. We intend to vigorously pursue the remedies to which we are entitled under the November 1998 agreement. As of June 30, 1999, we have reduced our investment in DCI as a result of these uncertainties. This writedown is included in "other, net" in the accompanying statement of operations. The investment in DCI is included in non-current marketable securities in the accompanying consolidated balance sheet. 6 7 IXC COMMUNICATIONS, INC. AND SUBSIDIARIES NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED) (UNAUDITED) 3. INCOME TAXES The provision for income taxes recorded during interim periods is calculated based on an estimated annual effective tax rate. For 1999, the effective tax rate includes the impact of IRU transactions anticipated to occur during the year. We have applied a valuation allowance against the deferred tax assets arising during 1999 due to uncertainty regarding their realizability. 4. COMMITMENTS AND CONTINGENCIES From time to time we are involved in legal proceedings arising in the ordinary course of business, some of which are covered by insurance. In the opinion of management, none of the claims relating to such proceedings will have a material adverse effect on our financial condition or results of operations. 5. SEGMENT REPORTING Our financial reporting segments are based on the way management organizes the company for making operating decisions and assessing performance. These segments are based on the different types of products we offer. The segments consist of the private line segment, the switched long distance segment, and the data/ Internet segment. The segments are separately evaluated because the products or services sold are subject to different market forces and sales strategies. Management reviews the gross profits of each reporting segment, but views the costs of the network and administrative functions as supporting all business segments. Therefore, assets (other than accounts receivable), liabilities, general and administrative expenses, interest expense and income, and other expenses are not charged to any one segment. Losses from equity method subsidiaries are not charged to any one segment because those subsidiaries may have operations in multiple segments. All operating revenue shown is derived from sales to external customers. Revenue related to the sale of options in fibers that are jointly owned with other carriers are not reported in any segment. The summarized segment data are as follows (in thousands):
PRIVATE SWITCHED DATA & LINE LONG DISTANCE INTERNET UNALLOCATED TOTAL ------------ ------------- -------- ----------- --------- THREE MONTHS ENDED JUNE 30, 1999 Net operating revenue................... $ 73,569 $ 74,898 $ 5,353 $4,072 $ 157,892 Cost of service......................... 26,130 77,310 4,849 -- 108,289 -------- -------- ------- ------ --------- Gross profit............................ 47,439 (2,412) 504 4,072 49,603 Operations and administration........... 60,948 Restructuring charges................... 25,826 Depreciation and amortization........... 39,565 Merger and other infrequent costs....... 90 --------- Operating loss.......................... (76,826) Interest income......................... 1,839 Interest expense........................ (9,092) Equity (loss) from unconsolidated subsidiaries.......................... (13,111) Other, net.............................. (12,760) --------- Loss before provision for income taxes, minority interest, and extraordinary loss.................................. $(109,950) =========
7 8 IXC COMMUNICATIONS, INC. AND SUBSIDIARIES NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED) (UNAUDITED)
PRIVATE SWITCHED DATA & LINE LONG DISTANCE INTERNET UNALLOCATED TOTAL ------------ ------------- -------- ----------- --------- THREE MONTHS ENDED JUNE 30, 1998 Net operating revenue................... $ 49,232 $105,502 $ 1,201 $ -- $ 155,935 Cost of service......................... 22,448 82,342 2,803 -- 107,593 -------- -------- ------- ------- --------- Gross profit............................ 26,784 23,160 (1,602) -- 48,342 Operations and administration........... 29,992 Depreciation and amortization........... 22,636 Merger and other infrequent costs....... 7,681 --------- Operating loss.......................... (11,967) Interest income......................... 3,324 Interest expense........................ (8,530) Equity (loss) from unconsolidated subsidiaries.......................... (10,754) Other, net.............................. 33 --------- Loss before provision for income taxes, minority interest, and extraordinary loss.................................. $ (27,894) =========
PRIVATE SWITCHED DATA & LINE LONG DISTANCE INTERNET UNALLOCATED TOTAL ------------ ------------- -------- ----------- --------- SIX MONTHS ENDED JUNE 30, 1999 Net operating revenue................... $144,433 $152,645 $10,528 $11,644 $ 319,250 Cost of service......................... 52,233 151,639 9,221 -- 213,093 -------- -------- ------- ------- --------- Gross profit............................ 92,200 1,006 1,307 11,644 106,157 Operations and administration........... 112,757 Restructuring charges................... 25,826 Depreciation and amortization........... 75,843 Merger and other infrequent costs....... 145 --------- Operating loss.......................... (108,414) Interest income......................... 7,663 Interest expense........................ (20,109) Equity (loss) from unconsolidated subsidiaries.......................... (15,982) Other, net.............................. (12,725) --------- Loss before provision for income taxes, minority interest, and extraordinary loss.................................. $(149,567) =========
8 9 IXC COMMUNICATIONS, INC. AND SUBSIDIARIES NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED) (UNAUDITED)
PRIVATE SWITCHED DATA & LINE LONG DISTANCE INTERNET UNALLOCATED TOTAL ------------ ------------- -------- ----------- --------- SIX MONTHS ENDED JUNE 30, 1998 Net operating revenue................... $ 92,572 $219,269 $ 1,677 $ -- $ 313,518 Cost of service......................... 41,637 169,261 4,644 -- 215,542 -------- -------- ------- ------- --------- Gross profit............................ 50,935 50,008 (2,967) -- 97,976 Operations and administration........... 59,328 Depreciation and amortization........... 42,788 Merger and other infrequent costs....... 7,645 --------- Operating loss.......................... (11,785) Interest income......................... 4,921 Interest expense........................ (14,841) Equity (loss) from unconsolidated subsidiaries.......................... (22,019) Other, net.............................. 176 --------- Loss before provision for income taxes, minority interest, and extraordinary loss.................................. $ (43,548) =========
6. ACQUISITION OF COASTAL TELECOM LIMITED COMPANY On May 10, 1999, we acquired Coastal Telecom Limited Company, and other related companies under common control ("Coastal"). Coastal is a retail long distance reseller. The purchase price amounted to approximately $110 million and was paid with a combination of $73.2 million of cash (including approximately $10 million paid for working capital items), $10 million of notes payable, $25.0 million of our common stock, and warrants to purchase 75,000 shares of our common stock. Assets acquired included approximately $103 million of goodwill and approximately $7 million of property and equipment. In connection with the acquisition we completed a credit agreement with a commercial bank pursuant to which Eclipse, our wholly owned subsidiary, borrowed $27 million and used the proceeds to fund a portion of the Coastal purchase price. The credit agreement has a three-year term beginning in May 1999, may be extended for successive one-year terms, and is subject to a borrowing base calculation based on eligible accounts receivable. Amounts outstanding thereunder bear interest at either the bank's prime rate or LIBOR plus a 2.25% margin. The credit agreement is secured by the assets of Eclipse, including the assets acquired in the Coastal transaction. We must comply with various financial covenants under the credit agreement, including maintaining certain minimum cash flow ratios. 7. INVESTMENTS IN UNCONSOLIDATED SUBSIDIARIES At December 31, 1998, we were owed $9.4 million by Westel, our partner in Progress International LLC ("Progress"). The note was secured by Westel's ownership in Progress, and repayment was due on May 31, 1999. Westel failed to make scheduled payments on the note and thereby transferred their share rights to us. As a result of that forfeiture, we now own 65.4% of Progress. In February 1999 Marca-Tel S.A. de C.V. and its primary creditor agreed to allow MarcaTel to defer certain payments to the creditor until June 1999. The creditor was given the right to acquire up to 10% of MarcaTel and the creditor acquired additional shares which diluted our indirect interest from 32.1% (after taking into consideration the additional share rights forfeited by Westel) to 30.5%. In June 1999 MarcaTel did not pay the creditor, and a default was declared on the loan. Management of MarcaTel, IXC and the creditor are anticipated to meet during the third quarter to attempt to work out the default provisions. However, there is no assurance that the default provisions will be waived. 9 10 IXC COMMUNICATIONS, INC. AND SUBSIDIARIES NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED) (UNAUDITED) 8. RESTRUCTURING CHARGE In the second quarter of 1999, we recorded a charge of approximately $25.8 million to exit certain operations in the switched wholesale business. This charge resulted from our plan to reduce traffic, operations, and administrative headcount by exiting this under-performing business. The restructuring charge includes costs associated with workforce reduction, asset write-downs, network decommissioning costs, and fees to terminate certain lease contracts. The workforce reduction of 94 people includes both employees in the sales organization and employees contributing to network operations. These employees were notified of the workforce reduction in June 1999. All of the $2.9 million associated with the workforce reduction is expected to be paid in cash during the remainder of 1999. The costs accrued related to network decommissioning include labor, lease rentals, and other operating costs expected to be paid to decommission various network assets. We have adjusted the remaining useful lives of equipment being decommissioned to extend only to the date the asset is expected to be removed from service. All of the decommissioning costs are expected to be paid in cash within twelve months. The asset write-downs are non-cash in nature and include leasehold improvements related to facilities to be vacated and reserves for accounts receivable related to customers whose traffic we are removing from our network. We believe that collection of the identified accounts receivable is unlikely as a direct result of our decision to unilaterally terminate the affected customers' service under their contracts. The costs to terminate leases which are being abandoned are expected to be paid in cash over the next nine months. The restructuring activities are expected to be substantially complete by June 30, 2000. Activity in the accrued restructuring liability during the quarter ended June 30, 1999 is as follows (in thousands):
ACCRUAL RESTRUCTURING COSTS BALANCE AT CHARGE PAID JUNE 30, 1999 ------------- ----- ------------- Severance.............................................. $ 2,864 $249 $ 2,615 Network decommissioning................................ 3,872 -- 3,872 Asset write-downs...................................... 12,722 -- 12,722 Terminate contractual obligations and exit facilities........................................... 6,368 2 6,366 ------- ---- ------- Total restructuring costs.................... $25,826 $251 $25,575 ======= ==== =======
9. NEW ACCOUNTING PRONOUNCEMENTS In June 1998, the Financial Accounting Standards Board issued SFAS No. 133, "Accounting for Derivative Instruments and Hedging Activities." SFAS No. 133 establishes accounting and reporting standards requiring that derivative instruments be recorded in the balance sheet as either an asset or liability measured at its fair value. SFAS No. 133 is effective for all fiscal years beginning after June 15, 2000. We have not yet assessed the impact of SFAS No. 133 on our results of operations and financial position. 10. SUBSEQUENT EVENTS MERGER AGREEMENT WITH CINCINNATI BELL, INC. On July 20, 1999, we entered into an agreement to merge with Cincinnati Bell Inc. ("CBI") at a fixed exchange ratio of 2.0976 shares of CBI common stock for each share of our common stock. Also on July 20, 1999, General Electric Pension Trust ("GEPT") entered into an agreement with CBI in which CBI agreed to purchase approximately 5.0 million shares of our common stock from GEPT for $50 per share. Shareholders representing approximately 40% of the outstanding shares of IXC have committed to vote in favor of the merger. The merger is expected to close near the end of 1999 and is subject to shareholder and regulatory approval. On July 21, July 23, and July 27, 1999, five purported stockholder class action suits were filed in the Delaware Court of Chancery against us, certain current and former members of our board of directors, and in 10 11 IXC COMMUNICATIONS, INC. AND SUBSIDIARIES NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED) (UNAUDITED) two suits, also against CBI. These complaints allege, among other things that the defendants have breached their fiduciary duties to our stockholders in establishing the merger consideration in the merger agreement with CBI. The complaints seek, among other things, a court order enjoining completion of the merger. We and CBI believe that the complaints are without merit and intend to vigorously defend against the complaints. PSINET STOCK SALE In July 1999 we received $59.8 million from a financial institution in connection with a prepaid, forward-sale contract of an additional 1.5 million shares of PSINet common stock. This amount is accounted for as a note payable and is secured by the additional 1.5 million shares of stock. The forward-sale obligation may be settled at a specified date in the second quarter of 2002 for a maximum amount of 1.5 million shares of PSINet stock, or, at our option, the equivalent value of the PSINet stock in cash. BUSINESS REORGANIZATION In connection with the hiring of the new chief executive officer and the new chief financial officer, we are reviewing plans to streamline our operations, including reducing the number of middle-management positions and re-evaluating our information technology initiatives. A restructuring charge associated with this review is expected to be recorded during the third quarter. Although the plans are still being formulated, initial projections indicate that the amount of the charge will be at least $10 million. 11 12 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. Our 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 our actual results, performance or achievements to be materially different from those expressed or implied by the forward-looking statements, see "Business -- Risk Factors" in our Form 10-K for the fiscal year ended December 31, 1998. 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. RESULTS OF OPERATIONS On July 20, 1999, we entered into an agreement to merge with CBI at a fixed exchange ratio of 2.0976 shares of CBI common stock for each share of our common stock. Also on July 20, 1999, GEPT entered into an agreement with CBI in which CBI agreed to purchase approximately 5.0 million shares of our common stock from GEPT for $50 per share. Shareholders representing approximately 40% of the outstanding shares of IXC have committed to vote in favor of the merger. The merger is expected to close near the end of 1999 and is subject to shareholder and regulatory approval. Net operating revenue for the quarter and six months increased $2.0 million (1.3%) and $5.7 million (1.8%), respectively, from the 1998 periods. The current year's revenue includes the results of Coastal Telephone Company beginning on its acquisition date on May 10, 1999. These year-over-year increases reflect significant increases in private line and data/Internet service revenue and an almost offsetting decline in switched service revenue. Other revenue of $4.1 million for the second quarter of 1999 and $11.6 million for the six-month period of 1999 relates to the sale of an option of usage rights in fibers that are owned jointly with another carrier. Cost of services primarily reflects access charges paid to local exchange carriers ("LEC's") and transmission lease payments (monetary and nonmonetary) to other carriers. Cost of services increased $0.7 million (0.6%) over last year for the quarter and decreased $2.4 million (1.1%) for the year-to-date period. During the quarter, increases in transmission lease expense and data/Internet cost of services more than offset the decrease in access costs. For the six months the decrease in access costs more than offset the increases in transmission lease expense and data/Internet costs. Access cost as a percentage of net switched service revenue has increased year-over-year due to price competition and the impact of the FCC mandated access reform, which became effective in July 1998. In 1999 access cost was 92.5% and 89.4% of net switched service revenue for the quarter and six-month period versus 69.8% and 69.1% for the prior year's comparable periods. The improved revenue and small change in cost of service resulted in an increase in the gross profit of $1.3 million for the quarter and $8.2 million for the six-month period. Gross profit margins increased to 31.4% for the quarter and 33.3% for the six months versus 31.0% and 31.3% for the comparable prior year periods. These improvements are mainly driven by the other revenue included in the current year periods. Operating and administrative costs increased $31.0 million to $60.9 million for the current quarter and increased $53.4 million to $112.8 million for the six-month period. These increases are driven by an increase in headcount from 1,209 at June 1998 to 2,116 at June 1999. The focus of these increased costs is to build up the retail channel's infrastructure as well as to upgrade our level of information technology across the company. Costs were also incurred to operate the larger fiber optic network. A restructuring charge of $25.8 million was recorded during the current quarter associated with the costs of exiting a portion of the wholesale-switched service business. The charge includes severance costs associated with the termination of 94 employees, a reserve for customers who will be leaving the network, costs to dismantle switches that will become surplus and costs to abandon our microwave network that will no longer be needed. There was no such restructuring charge in the prior year's quarter. In connection with the hiring of the new chief executive officer and the new chief financial officer, we are reviewing plans to streamline our 12 13 operations, including reducing the number of middle-management positions and re-evaluating our information technology initiatives. A restructuring charge associated with this review is expected to be recorded during the third quarter. Although the plans are still being formulated, initial projections indicate that the amount of the charge will be at least $10 million. Depreciation and amortization expense increased $16.9 million for the quarter and $33.1 million for the six-month period reflecting our increased investment in the fiber optic network and other fixed assets and amortization of goodwill from the Coastal acquisition. Merger and other infrequent costs decreased $7.6 million for the quarter and $7.5 million for the year-to-date period, as costs associated with our merger with Eclipse during 1998 were not repeated in 1999. Interest income declined $1.5 million for the quarter and increased $2.7 million for the six-month period. The decline between quarters was due to less cash on hand in 1999. The increase in the six-month period reflects interest received during the first quarter of 1999 from notes receivable related to IRU agreements. Net interest expense rose $0.6 million for the quarter and $5.3 million for the six-month period reflecting the expense from the $450 million 9% Senior Subordinated Notes issued in April 1998 and the $200 million borrowed under our $600 million credit facility in October 1998. The increase in gross interest expense more than offset higher capitalized interest, which was due to the increased rate of network construction between periods. Losses from unconsolidated subsidiaries increased $2.4 million for the quarter and declined $6.0 million for the six-month period. The current year's increase mainly relates to a complete writedown of our investment in a joint venture with Unidial. Losses for the prior year's quarter were related to the investments in MarcaTel and PSINet. The investment in MarcaTel was written down to zero in 1998, and no further significant additional funding is required from us, so no further losses are being recorded. We stopped recognizing PSINet losses and began accounting for this investment using the cost method during the second quarter of 1998 because our level of ownership and influence of PSINet was diminished. The year-over-year increase in other, net expense of $12.8 million for the quarter and $12.9 million for the six-month period is mainly due to the reduction of the DCI investment during the current year as described in footnote 2 to the condensed consolidated financial statements. Income tax expense decreased $0.7 million for the quarter and $0.3 million for the six-month period reflecting a lower level of projected fiber sales during the current year. A valuation allowance is applied against tax assets arising during the year due to the uncertainty of their realization. During the second quarter of 1998 we recorded an after-tax extraordinary charge of $69.8 million relating to the April 1998 redemption of $284.2 million of the 12 1/2% Senior Notes due 2005. There were no such charges in 1999. Our net loss applicable to common shareholders increased to $130.5 million for the quarter and to $188.8 million for the six-month period from $118.0 million and $147.6 million for the prior year comparable periods. These increases are due to the items listed above plus an increase in the dividends applicable to preferred stock. Dividends applicable to preferred stock increased $0.9 million for the quarter and $5.2 million for the six-month period. The additional dividends were from the 6 3/4% preferred stock issued in March and April of 1998, and from dividends on the 12 1/2% Exchangeable Preferred Stock which are paid with additional shares of 12 1/2% Exchangeable Preferred Stock. SEGMENT INFORMATION PRIVATE LINE SERVICES Net private line revenue increased $24.3 million (49.4%) for the quarter and $51.9 million (56.0%) for the six-month period. These increases are primarily due to three large contracts including a significant Internet service provider ("ISP") and Excel Communications. The gross profit for this segment improved to $47.4 million for the quarter and $92.2 million year-to-date. The gross margin rate improved from 54.4% to 13 14 64.5% quarter over quarter and from 55.0% to 63.8% in the six-month periods. These improvements reflect the use of our network to carry most of the incremental revenue. SWITCHED SERVICE REVENUE Switched long distance revenue declined $30.6 million (29.0%) to $74.9 million during the current quarter and $66.6 million (30.4%) to $152.6 million for the six-month period. These declines are primarily due to the conversion of Excel Communications, formerly our largest customer, to a private line contract as it moved traffic to its own network, and an increase of $11.8 million for the quarter and $19.6 million for the six-month period in disputes and bad debt expense. Many of these disputes relate to the billing of pass-through charges and price adjustments. Cost of services declined $5.0 million (6.1%) for the quarter and $17.6 million (10.4%) for the six-month period due to the reduction in traffic partially offset by increased fixed access charges. The segment's gross profit declined $25.6 million for the quarter and $49.0 million year-to-date due mainly to the decline in net revenue. DATA/INTERNET Revenue increased $4.2 million for the quarter and $8.9 million year-to-date due mainly to the ATM/frame relay and Internet products produced and sold by the Internet companies we acquired during 1998. These products are also sold through the retail distribution channel. The segment's gross profit improved from a negative $1.6 million for the 1998 quarter and a negative $3.0 million for the prior year's six-month period to a positive $.5 million for the current quarter and a positive $1.3 million for the current six-month period. This improvement reflects the use of our network in providing these high-value services. LIQUIDITY AND CAPITAL RESOURCES We have financed the expansion of our network through the issuance of debt and equity securities, the sale of IRU's in capacity and fiber, and through borrowing against our investment in PSINet. Cash provided by operating activities increased $64.1 million (155.3%) to $105.5 million primarily due to increased receipts of cash related to IRU sales during the current period. Cash used in investing activities increased $65.6 million (23.9%) over the prior year to $340.4 million, due to an increase of $22.0 million in capital expenditures and an increase of $50.5 million for the acquisition of businesses. Coastal was acquired during the 1999 period versus several small Internet companies acquired during the prior year. Investments in unconsolidated subsidiaries decreased $6.2 million between years as we slowed our funding of MarcaTel. Cash provided by financing activities decreased $185.2 million to $68.6 million because there was no issuance of public debt in 1999 as there was in 1998. During the first six months of 1998 we issued $450 million in 9% Senior Subordinated Notes and $155.3 million in 6 3/4% Cumulative Convertible Preferred Stock and redeemed $284.2 million of the 12 1/2% Senior Notes. The only proceeds from debt in 1999 related to the borrowing of $52.0 million against a portion of our PSINet stock and $27.0 million from the line of credit used in the Coastal acquisition. As of August 10, 1999, the Company had $93.4 million in cash. We expect that the primary sources for cash over the next 12 months will be cash on hand, cash generated by operations, proceeds of IRU sales, and vendor and working capital financing we may seek. In addition, if necessary, we can sell or borrow against our investments in the common stock of PSINet and Applied Theory. We expect that it will be necessary to amend or obtain a waiver of our performance covenants under our present bank credit facility so that we can meet those covenants at the end of the third quarter. We are working with our banks to adjust the covenants so that we can either borrow against the remaining $150 million amount of the facilities or seek alternative debt sources. In the event the banks do not agree to change or waive the covenants, we would be in default under the credit facility. In addition, our lead bank has indicated to us that, subject to certain conditions, it is willing to loan us $150 million (apart from the $150 million remaining on the existing facility), but the arrangements for this loan have not yet been finalized. There can be no assurance that we shall be able to obtain covenant adjustments or waivers under the existing facility or to finalize and borrow under the additional loan. 14 15 We anticipate that, given the impending merger, we shall be able to meet our financing needs through the time of the merger through stock sales or these other sources of cash. However, there can be no assurance that sufficient additional cash will be obtained or that the banks will agree to amend or waive the covenants. In the event sufficient cash is not obtained, we shall have to take steps to conserve cash, possibly including delaying or reducing capital expenditures and reducing expenses. A default under the bank credit facility or a failure to obtain sufficient additional cash could have a material adverse effect on the Company. We seek to obtain sufficient funding from these sources for the following major uses of cash: - Our network expansion and other capital expenditures; - Debt service; - Lease payments; - Working capital; - Downsizing the wholesale switched service business; - Funding the third quarter restructuring program; and - Dividends on preferred stock. Capital spending in 1999 is projected to be approximately $600 million. After 1999, capital expenditures are expected to continue to be substantial. There can be no assurance that we will be successful in obtaining the necessary financing to meet our needs if the merger with CBI does not occur. A failure to raise cash would delay or prevent capital expenditures including the construction of our network expansion. We are required to make payments under our existing debt and capital lease arrangements of $6.8 million, $11.3 million, $19.1 million, and $83.6 million for the remainder of 1999, 2000, 2001, and 2002, respectively. We are required to make quarterly interest payments on amounts outstanding under our $600 million credit facility, to make semi-annual interest payments on our 9% Senior Subordinated Notes and the remaining 12 1/2% Senior Notes, and to make interest payments under the Eclipse line of credit. This line of credit, which is based upon the eligible accounts receivable, is due on May 1, 2002 and may be extended for successive one-year terms. We are required to pay quarterly dividends on the 7 1/4% Convertible Preferred Stock. We are required to pay quarterly dividends on the 12 1/2% Exchangeable Preferred Stock. These dividends must be paid in cash except that we have the option of paying dividends in additional shares of 12 1/2% Exchangeable Preferred Stock through February 15, 2001. Dividends on our 6 3/4% Preferred Stock are payable quarterly in cash. If we are prohibited from paying dividends in cash under the terms of our debt agreements, then we may pay our dividends on this preferred stock in common stock, valued at 95% of the average price of the common stock for 5 business days prior to the dividend payment date. We anticipate that such debt and equity service payments during 1999 will be made from cash on hand, except for the dividends on the 12 1/2% Exchangeable Preferred Stock which are anticipated to be paid-in-kind with stock dividends. We are required to make minimum annual lease payments for facilities, equipment and transmission capacity used in operating our business. In 1999, 2000, 2001 and 2002, these payments are expected to amount to approximately $35.5 million, $30.3 million, $23.1 million and $16.3 million respectively, on operating leases. We expect to incur additional operating lease costs in connection with the expansion of our network and the retail and Internet operations. Additionally, in connection with our network expansionism from time to time we enter into various construction and installation agreements with contractors. The forward-looking statements set forth above with respect to the estimated cash requirements relating to capital expenditures, our ability to meet such cash requirements and our ability to service our debt are based on certain assumptions as to future events. Important assumptions which if not met, could adversely affect our ability to achieve satisfactory results include that: (a) there will be no significant delays with respect to our network expansion; (b) our contractors and partners in cost-saving arrangements will perform their obligations; (c) rights-of-way can be obtained on a timely, cost-effective basis; (d) we will increase traffic on our network; and (e) we will not be in default under our existing credit arrangements and will be able to obtain vendor or additional debt financing. 15 16 YEAR 2000 RISKS The Year 2000 issue is the result of computer software programs being coded to use two digits rather than four to define the year. It is possible that some of our existing computer programs that have date-sensitive coding may recognize a date using "00" as the year 1900 rather than the year 2000. This could result in system failures or miscalculations causing disruption of operations, which could have a material adverse effect on our ability to conduct business after January 1, 2000, including an inability to provide telecommunications services to our customers or to accurately invoice customers or collect payments. Substantially all of our network was built in the last three years. As a result, we believe that we do not have a significant investment in legacy systems having substantial Year 2000 exposure. However, we have established a project team to identify, evaluate and address any existing Year 2000 issues. This Year 2000 effort covers the fiber optic network and supporting infrastructure related to providing switched, private line and data telecommunications services, and other operational and financial information technology ("IT") systems and applications. Also included in this effort are various other systems such as building operations and individual personal computers. The project team is reviewing the status of the Year 2000 compliance effort of key suppliers and other business partners, and is developing business continuity plans related to Year 2000 issues. While the Year 2000 project team is evaluating all potentially non-compliant systems, the Year 2000 effort is structured to give priority to those systems identified as "mission critical." The project team has identified the following principal phases of the project: a) assessment and planning, b) remediation, c) testing, and d) contingency planning. The assessment and planning phase was substantially complete at December 31, 1998. Substantially all mission-critical systems were remediated as of June 30, 1999 and are being tested (including those we acquired from Coastal). Testing on these applications is expected to be completed by September 30, 1999. In addition, all new components being purchased as part of the ongoing network and IT infrastructure expansion are being evaluated to ensure compliance. There can be no assurances that third parties, including customers, suppliers, and other business partners, will convert their critical systems and processes in a timely manner. Such failure by any of these parties could disrupt our business. Therefore, in addition to evaluating our own internal systems, we are in the process of evaluating and documenting the status of Year 2000 compliance efforts by key suppliers. We currently project incurring approximately $3.3 million through the end of 2000 in connection with the Year 2000 remediation project, of which approximately $2.3 million was incurred and expensed as of June 30, 1999. Such amounts are exclusive of amounts which were already anticipated to be spent on new hardware and software purchases resulting from the expansion of our network and other business operations. We believe that a portion of the Year 2000 expenses will not be incremental costs, but rather will represent the redeployment of existing IT resources. This redeployment may cause delays in making other IT or network upgrades or enhancements; however, the delays are not expected to have a material adverse effect on our operations. As part of our Year 2000 initiative, we are evaluating scenarios that may occur as a result of the century change and are developing contingency and business continuity plans tailored for Year 2000-related problems. We have substantially completed an enterprise-wide business contingency plan. Elements of the plan are already in place, including working disaster recovery documents, a key supplier/business partner survey campaign, and a risk management program. The above information regarding cost estimates, risks, and estimated readiness are forward looking statements based on numerous assumptions of future events, including the availability and future costs of certain technological and other resources, third party modification actions and other factors. Given the complexity of these issues and other unidentified risks, actual results may vary materially from those anticipated and discussed above. Specific factors that might cause such differences include, among others, the availability and cost of personnel trained in this area, the ability to locate and correct all affected computer code, the timing and success of remedial efforts of our third party suppliers and similar uncertainties. 16 17 ITEM 3. QUANTITATIVE AND QUALITATIVE DISCLOSURE ABOUT MARKET RISK We are exposed to market risk related to changes in interest rates because the interest rate on approximately $225 million of our debt at June 30, 1999 is indexed to floating interest rates. We monitor the risk associated with interest rates on an ongoing basis, but we have not entered into any interest rate swaps or other financial instruments to actively hedge the risk of changes in prevailing interest rates. Substantially all of our revenue is derived from domestic operations, so we believe the risk related to foreign currency exchange rates is minimal. PART II. OTHER INFORMATION ITEM 1. LEGAL PROCEEDINGS We are aware of five lawsuits filed in the Court of Chancery of the State of Delaware relating to our merger agreement with CBI. These lawsuits were filed in July subsequent to our announcement of the merger. The suit brought by Angie Garone on behalf of herself and others similarly situated, the suit brought by Robert Bernard, and the suit brought by John D. Crawford each name us, Benjamin L. Scott (a former director) and all of the directors on our current board as defendants. The other two suits, brought by Dr. Mark Gross and James Intagliata, each name us, Benjamin L. Scott, all of the directors on our current board, and CBI as defendants. Each suit was brought by a purported stockholder, individually and allegedly as a class action on behalf of all our stockholders. The complaints allege, among other things, that the defendants have breached their fiduciary duties to the stockholders in establishing the merger consideration in the merger agreement. The complaints seek, among other things, a court order prohibiting the consummation of the merger. ITEM 2. CHANGES IN SECURITIES AND USE OF PROCEEDS In connection with our acquisition of Coastal we issued and sold warrants to purchase 75,000 shares of common stock on May 10, 1999 and 698,985 shares of our common stock on June 2, 1999. We issued the warrants and the stock to the members of the limited liability companies which collectively operated as Coastal. In exchange for the warrants and the common stock, among other consideration, we received all of the outstanding membership interests in the Coastal entities. Following the acquisition, the Coastal entities were merged into Eclipse. The warrants are exercisable during the three year period following May 10, 1999 at an exercise price of $45.00 per share. The warrants provide no voting rights and contain provisions for adjustment upon the occurrence of stock dividends, stock splits or similar events. We did not employ an underwriter or placement agent in connection with the issuance of the common stock or the warrants. The sale and issuance of the warrants and the common stock were exempt from registration under the Securities Act in reliance on Section 4(2), as transactions not involving a public offering. The four Coastal members acquired the securities in a private offering. The Coastal members each represented their intention to acquire the securities for investment only and not with a view to distribute the securities to the public. Appropriate legends were affixed to the certificates representing the warrants and the common stock issued in the Coastal acquisition. The Coastal members had adequate access to sufficient information about us in order to make an informed investment decision. ITEM 3. DEFAULTS UPON SENIOR SECURITIES Not applicable. ITEM 4. SUBMISSION OF MATTERS TO A VOTE OF SECURITY HOLDERS We held our Annual Meeting of Stockholders on May 28, 1999. The meeting was held so that our stockholders could elect our Board of Directors and vote on four other proposals. The other proposals were: Proposal 2: Ratify the decision of the board of directors to not implement an amendment to the Restated Certificate of Incorporation, as amended (the "Restated Certificate") previously approved by a majority of our stockholders, which included, among other things, a two-for-one stock split of our common stock; 17 18 Proposal 3: Amend the Restated Certificate to increase the authorized number of shares of common stock, create a new class of preferred stock, and eliminate all matters set forth in the Restated Certificate regarding two series of preferred stock which were no longer outstanding; Proposal 4: Amend the Restated Certificate to effect a two-for-one stock split of the issued and outstanding shares of common stock, such amendment to take place at the discretion of the board of directors within one year of stockholder approval; Proposal 5: Adopt an amendment to our 1998 Stock Plan to increase the number of shares of common stock available for option and restricted stock grants. The number of votes cast for, against, or withheld for each nominee for director and each proposal, as well as the broker non-votes and the abstentions are set forth below.
BROKER FOR AGAINST WITHHELD NON-VOTES ABSTENTION ---------- --------- -------- --------- ---------- Wolfe H. Bragin.................... 32,344,373 0 0 0 260,024 Joe C. Culp........................ 32,360,863 0 0 0 243,534 Richard D. Irwin................... 32,360,863 0 0 0 243,534 Carl W. McKinzie................... 32,360,862 0 0 0 243,535 Benjamin L. Scott.................. 32,343,794 0 0 0 260,603 Ralph J. Swett..................... 32,360,863 0 0 0 243,534 Philip L. Williams................. 32,360,282 0 0 0 244,115 Proposal 2......................... 32,529,996 66,701 0 0 7,700 Proposal 3......................... 20,992,368 1,917,476 0 9,688,973 5,580 Proposal 4......................... 32,495,750 101,893 0 0 6,754 Proposal 5......................... 20,542,257 2,363,857 0 9,688,973 9,310
Each of the nominees was elected to the board of directors constituting all of our directors. All of the Proposals were approved by a majority of our stockholders. ITEM 5. OTHER INFORMATION None. ITEM 6. EXHIBITS AND REPORTS ON FORM 8-K (a) Exhibits
EXHIBIT NUMBER DESCRIPTION ------- ----------- 2.1 Agreement and Plan of Merger dated as of July 20, 1999, among Cincinnati Bell, Inc., IXC Communications, Inc. and Ivory Merger Inc. (incorporated by reference to Exhibit 2.1 of Cincinnati Bell, Inc.'s Form 8-K dated July 22, 1999 and filed with the Commission on July 23, 1999). 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 the IXC Communications, Inc.'s Quarterly Report on Form 10-Q for the quarter ended September 30, 1997 filed with the Commission on November 14, 1997).
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EXHIBIT NUMBER DESCRIPTION ------- ----------- 4.1 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 (the "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 (File No. 333-2936) (the "S-4")). 4.2 Form of 12 1/2% Series A Senior Notes due 2005 (incorporated by reference to Exhibit 4.6 of the S-4). 4.3 Form of 12 1/2% Series B Senior Notes due 2005 and Subsidiary Guarantee (incorporated by reference to Exhibit 4.8 of IXC Communications, Inc.'s Amendment No. 1 to Registration Statement on Form S-1 filed with the Commission on June 13, 1996 (File No. 333-4061) (the "S-1 Amendment")). 4.4 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 Amendment). 4.5 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 IXC Communications, Inc.'s Quarterly Report on Form 10-Q for the quarter ended June 30, 1997, filed with the Commission on May 15, 1997 (the "June 30, 1997 10-Q")). 4.6 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 June 30, 1997 10-Q). 4.7 Amendment to Registration Rights Agreement dated as of March 25, 1997, by and between IXC Communications, Inc. and Trustees of General Electric Pension Trust (incorporated by reference to Exhibit 4.14 of the June 30, 1997 10-Q). 4.8 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 (incorporated by reference to Exhibit 4.15 of IXC Communications, Inc.'s Quarterly Report on Form 10-Q for the quarter ended June 30, 1997, as filed with the Commission on August 6, 1997 (the "June 30, 1997 10-Q")). 4.9 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 (incorporated by reference to Exhibit 4.16 of the June 30, 1997 10-Q). 4.10 Indenture dated as of August 15, 1997, between IXC Communications, Inc. and The Bank of New York (incorporated by reference to Exhibit 4.2 of IXC Communications, Inc.'s Current Report on Form 8-K dated August 20, 1997, and filed with the Commission on August 28, 1997 (the "8-K")).
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EXHIBIT NUMBER DESCRIPTION ------- ----------- 4.11 First Supplemental Indenture dated as of October 23, 1997, among IXC Communications, Inc., the Guarantors, IXC International, Inc. and IBJ Schroder Bank & Trust Company (incorporated by reference to Exhibit 4.13 of IXC Communications, Inc.'s Annual Report on Form 10-K for the year ended December 31, 1997, and filed with the Commission on March 16, 1998 (the "1997 10-K")). 4.12 Second Supplemental Indenture dated as of December 22, 1997, among IXC Communications, Inc., the Guarantors, IXC Internet Services, Inc., IXC International, Inc. and IBJ Schroder Bank & Trust Company (incorporated by reference to Exhibit 4.14 of the 1997 10-K). 4.13 Third Supplemental Indenture dated as of January 6, 1998, among IXC Communications, Inc., the Guarantors, IXC Internet Services, Inc., IXC International, Inc. and IBJ Schroder Bank & Trust Company (incorporated by reference to Exhibit 4.15 of the 1997 10-K). 4.14 Fourth Supplemental Indenture dated as of April 3, 1998, among IXC Communications, Inc., the Guarantors, IXC Internet Services, Inc., IXC International, Inc., and IBJ Schroder Bank & Trust Company (incorporated by reference to Exhibit 4.15 of IXC Communications, Inc.'s Registration Statement on Form S-3 filed with the Commission on May 12, 1998 (File No. 333-52433)). 4.15 Purchase Agreement dated as of March 25, 1998, among IXC Communications, Inc., Goldman Sachs & Co. ("Goldman"), CS First Boston, Merrill Lynch, Pierce, Fenner & Smith Incorporated ("Merrill") and Morgan Stanley & Co. Incorporated ("Morgan Stanley") (incorporated by reference to Exhibit 4.1 IXC Communications, Inc.'s Current Report on Form 8-K dated March 30, 1998, and filed with the Commission on April 7, 1998 (the "April 7, 1998 8-K")). 4.16 Registration Rights Agreement dated as of March 30, 1998, among IXC Communications, Inc., Goldman, CS First Boston, Merrill and Morgan Stanley (incorporated by reference to Exhibit 4.2 of the April 7, 1998 8-K). 4.17 Deposit Agreement dated as of March 30, 1998, between IXC Communications, Inc. and BankBoston N.A. (incorporated by reference from Exhibit 4.3 of the April 7, 1998 8-K). 4.18 Purchase Agreement dated as of April 16, 1998, by and among IXC Communications, Inc., CS First Boston, Merrill, Morgan Stanley and Nationsbanc Montgomery Securities LLC (incorporated by reference to Exhibit 4.1 of IXC Communications, Inc.'s Current Report on Form 8-K dated April 21, 1998, and filed with the Commission on April 22, 1998 (the "April 22, 1998 8-K"). 4.19 Registration Rights Agreement dated as of April 16, 1998, by and among IXC Communications, Inc., Credit Suisse First Boston Corporation, Merrill, Morgan Stanley and Nationsbanc Montgomery Securities LLC (incorporated by reference to Exhibit 4.2 of the April 22, 1998 8-K). 4.20 Indenture dated as of April 21, 1998, between IXC Communications, Inc. and IBJ Schroder Bank & Trust Company, as Trustee (incorporated by reference to Exhibit 4.3 of the April 22, 1998 8-K). 4.21 Rights Agreement dated as of September 9, 1998, between IXC Communications, Inc. and U.S. Stock Transfer Corporation (incorporated by reference to Exhibit 4.1 of IXC Communications, Inc.'s Form 8-K dated September 8, 1998 and filed with Commission on September 11, 1998). 4.22+ Amendment No. 1 to Rights Agreement dated July 20, 1999, by and between IXC Communications, Inc. and U.S. Stock Transfer Corporation.
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EXHIBIT NUMBER DESCRIPTION ------- ----------- 4.23 Form of Registration Rights Agreement among IXC Communications, Inc. and the Coastal selling stockholders (incorporated by reference to Exhibit 4.22 of IXC Communications, Inc.'s Form S-3 dated April 14, 1999 and filed with the Commission on April 15, 1999 (File No. 333-76349)). 4.24 Form of Warrant for each of the Coastal selling stockholders (incorporated by reference to Exhibit 4.23 of IXC Communications, Inc.'s Form S-3 dated April 14, 1999 and filed with the Commission on April 15, 1999 (File No. 333-76349)). 10.1 Office Lease dated as of 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 (incorporated by reference to Exhibit 10.3 of the June 30, 1997 10-Q). 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 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 IXC Communications, Inc.'s and the Guarantors' Amendment No. 1 to Registration Statement on Form S-4 filed with the Commission on May 20, 1996 (File No. 333-2936) ("Amendment No. 1 to S-4")). 10.6 Third Amended and Restated Service Agreement dated as of April 16, 1998, among IXC Long Distance, Inc., IXC Carrier, Inc., IXC Broadband, Inc. and Excel Telecommunications, Inc. (incorporated by reference to Exhibit 10.6 of IXC Communications, Inc.'s Quarterly Report on Form 10-Q for the quarter ended June 30, 1998, filed with the Commission on May 15, 1998 (the "June 30, 1998 10-Q")). 10.7 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). 10.8* 1996 Stock Plan of IXC Communications, Inc., as amended (incorporated by reference to Exhibit 10.10 of the IXC Communications, Inc. Annual Report on Form 10-K for the year ended December 31, 1996 and filed with the Commission on March 28, 1997 (the "1996 10-K")). 10.9 IRU Agreement dated as of November 1995 between WorldCom, Inc. and IXC Carrier, Inc. (incorporated by reference to Exhibit 10.11 of Amendment No. 1 to the S-4). 10.10* IXC Communications, Inc. Outside Directors' Phantom Stock Plan 1998 Restatement (incorporated by reference to Exhibit 10.10 of the IXC Communications, Inc.'s Quarterly Report Form 10-Q for the quarter ended September 30, 1998 filed with the Commission on November 16, 1998). 10.11 Business Consultant and Management Agreement dated as of March 1, 1998, by and between IXC Communications, Inc. and Culp Communications Associates (incorporated by reference to Exhibit 10.11 of the June 30, 1998 10-Q). 10.12 Employment Agreement dated as of December 28, 1995, by and between IXC Communications, Inc. and James F. Guthrie (incorporated by reference to Exhibit 10.14 of the S-1 Amendment).
21 22
EXHIBIT NUMBER DESCRIPTION ------- ----------- 10.13* Special Stock Plan of IXC Communications, Inc. (incorporated by reference to Exhibit 10.16 of the 1996 10-K). 10.14 Lease dated as of June 4, 1997, between IXC Communications, Inc. and Carramerca Realty, L.P. (incorporated by reference to Exhibit 10.17 of the June 30, 1997 10-Q). 10.15 Loan and Security Agreement dated as of July 18, 1997, among IXC Communications, Inc., IXC Carrier, Inc. and NTFC Capital Corporation ("NTFC") (incorporated by reference to Exhibit 10.18 of the June 30, 1997 10-Q). 10.16 IRU and Stock Purchase Agreement dated as of July 22, 1997, between IXC Internet Services, Inc. and PSINet Inc. (incorporated by reference to Exhibit 10.19 of IXC Communications, Inc.'s Amendment No. 1 to Form 10-Q/A for the quarter ended September 30, 1997 filed with the Commission on December 12, 1997 (the "September 30, 1997 10-Q/A")). 10.17 Joint Marketing and Services Agreement dated as of July 22, 1997, between IXC Internet Services, Inc. and PSINet Inc. (incorporated by reference to Exhibit 10.20 of the September 30, 1997 10-Q/A). 10.18 Employment Agreement dated as of September 9, 1997, between Benjamin L. Scott and IXC Communications, Inc. (incorporated by reference to Exhibit 10.21 of IXC Communication Inc.'s Amendment No. 1 to Registration Statement on S-4 filed with the Commission on December 15, 1997 (File No. 333-37157) ("Amendment No. 1 to the EPS S-4")). 10.19* IXC Communications, Inc. 1997 Special Executive Stock Plan (incorporated by reference to Exhibit 10.22 of Amendment No. 1 to the EPS S-4). 10.20 First Amendment to Loan and Security Agreement dated as of December 23, 1997, among IXC Communications, Inc., IXC Carrier, Inc., NTFC and Export Development Corporation ("EDC") (incorporated by reference to Exhibit 10.21 of the 1997 10-K). 10.21 Second Amendment to Loan and Security Agreement dated as of January 21, 1998, among IXC Communications, Inc., IXC Carrier, Inc., NTFC and EDC (incorporated by reference to Exhibit 10.22 of the 1997 10-K). 10.22*+ IXC Communications, Inc. 1998 Stock Plan, as amended. 10.23+ First Amended and Restated Credit Agreement dated as of June 29, 1999, among IXC Communications Services, Inc., the Lenders (as defined therein), NationsBank, N.A., as a Lender and Administrative Agent, and Credit Suisse First Boston, TD Securities(USA), Inc. and Export Development Corporation, each as a Lender and Co-Syndication Agents. 10.24*+ Employment Agreement dated April 8, 1999, by and between IXC Communications, Inc. and Valerie G. Walden. 10.25*+ Employment Agreement dated April 26, 1999, by and between IXC Communications, Inc. and James F. Guthrie. 10.26*+ Employment Agreement dated May 27, 1999, by and between IXC Communications, Inc. and John M. Zrno. 10.27*+ Contract for Services dated June 28, 1999, by and between IXC Communications, Inc. and American Business Development Corp. 10.28 Stockholders Agreement dated as of July 20, 1999, among Cincinnati Bell, Inc., Richard D. Irwin and Ralph J. Swett (incorporated by reference to Exhibit 99.1 of Cincinnati Bell, Inc.'s Form 8-K dated July 22, 1999 and filed with the Commission on July 23, 1999).
22 23
EXHIBIT NUMBER DESCRIPTION ------- ----------- 10.29 Stockholder Agreement dated as of July 20, 1999, between Cincinnati Bell, Inc. and General Electric Pension Trust (incorporated by reference to Exhibit 99.2 of Cincinnati Bell, Inc.'s Form 8-K dated July 22, 1999 and filed with the Commission on July 23, 1999). 10.30 Stock Option Agreement dated as of July 20, 1999, between IXC Communications, Inc. and Cincinnati Bell, Inc. (incorporated by reference to Exhibit 99.3 of Cincinnati Bell, Inc.'s Form 8-K dated July 22, 1999 and filed with the Commission on July 23, 1999). 10.31 Stock Option Agreement dated as of July 20, 1999, between Cincinnati Bell, Inc. and IXC Communications, Inc. (incorporated by reference to Exhibit 99.4 of Cincinnati Bell, Inc.'s Form 8-K dated July 22, 1999 and filed with the Commission on July 23, 1999). 10.32 Stock Purchase Agreement dated July 20, 1999, by and among Cincinnati Bell, Inc. and General Electric Pension Trust (incorporated by reference to Exhibit 4 of Cincinnati Bell, Inc.'s Form 13D dated July 29, 1999 and filed with the Commission on July 29, 1999). 10.33 Joint Reporting Agreement dated June 15, 1999 among the Filing Persons (incorporated by reference to Exhibit 1 of IXC Communications, Inc.'s Amendment No. 1 to Form 13D dated June 15, 1999 and filed with the Commission on June 17, 1999). 10.34 Master Agreement dated as of June 2, 1999 between Merrill Lynch International ("MLI") and IXC Internet Services, Inc. ("Internet") (incorporated by reference to Exhibit 2 of IXC Communications, Inc.'s Amendment No. 1 to Form 13D dated June 15, 1999 and filed with the Commission on June 17, 1999). 10.35 Securities Loan Agreement dated as of June 2, 1999 between MLI and Internet (incorporated by reference to Exhibit 3 of IXC Communications, Inc.'s Amendment No. 1 to Form 13D dated June 15, 1999 and filed with the Commission on June 17, 1999). 10.36 Confirmation of OTC Transaction dated as of June 3, 1999 between MLI and Internet (incorporated by reference to Exhibit 4 of IXC Communications, Inc.'s Amendment No. 2 to Form 13D dated June 25, 1999 and filed with the Commission on June 29, 1999). 10.37 Confirmation of OTC Transaction dated as of July 6, 1999 between MLI and Internet (incorporated by reference to Exhibit 1 of IXC Communications, Inc.'s Amendment No. 4 to Form 13D dated July 31, 1999 and filed with the Commission on August 5, 1999). 10.38*+ IXC Communications, Inc. Stock Appreciation Rights Plan dated as of April 8, 1999. 27.1+ Financial Data Schedule.
- --------------- * Management contract or executive compensation plan or arrangement required to be indicated as such and filed as an exhibit pursuant to applicable rules of the Commission. + Filed herewith. (b) Reports on Form 8-K. (1) Form 8-K dated April 12, 1999 and filed with the Commission on April 14, 1999 with respect to a press release announcing an agreement with Electric Lightwave Inc. (2) Form 8-K dated May 10, 1999 and filed with the Commission on May 17, 1999 with respect to a press release announcing our acquisition of the entities doing business as Coastal Telephone Company. (3) Form 8-K dated May 11, 1999 and filed with the Commission on May 17, 1999 with respect to a press release announcing our results of operations for the quarter ending March 31, 1999. (4) Form 8-K dated May 28, 1999 and filed with the Commission on June 2, 1999 with respect to a press release announcing the appointment of John M. Zrno as President and Chief Executive Officer of 23 24 IXC Communications, Inc. and a press release announcing the election of John M. Zrno as a member of the Board of Directors of IXC Communications, Inc. (5) Form 8-K dated June 17, 1999 and filed with the Commission on June 29, 1999 with respect to two Schedules 13D filed with the Commission relating to the common stock of PSINet Inc. (6) Form 8-K dated July 21, 1999 and filed with the Commission on July 21, 1999 with respect to a press release announcing the agreement between IXC Communications, Inc. and Cincinnati Bell, Inc. to an Agreement and Plan of Merger and a press release reporting on IXC Communications, Inc.'s anticipated results of operations for the fiscal quarter ending July 31, 1999. (7) Form 8-K dated August 3, 1999 and filed with the Commission on August 4, 1999 with respect to a press release announcing IXC Communications, Inc.'s results of operations for the fiscal quarter ended July 31, 1999. (8) Form 8-K dated August 6, 1999 and filed with the Commission on August 9, 1999 with respect to two Schedules 13D filed with the Commission relating to the common stock of PSINet Inc. SIGNATURES Pursuant to the requirements of Section 13 or 15(d) of the Securities Exchange Act of 1934, the Registrant has duly caused this report to be signed on its behalf by the undersigned, thereunto duly authorized. IXC COMMUNICATIONS, INC. By: /s/ STANLEY W. KATZ ------------------------------------ Stanley W. Katz Chief Financial Officer Dated: August 16, 1999 24 25 EXHIBIT INDEX
EXHIBIT NUMBER DESCRIPTION ------- ----------- 2.1 Agreement and Plan of Merger dated as of July 20, 1999, among Cincinnati Bell, Inc., IXC Communications, Inc. and Ivory Merger Inc. (incorporated by reference to Exhibit 2.1 of Cincinnati Bell, Inc.'s Form 8-K dated July 22, 1999 and filed with the Commission on July 23, 1999). 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 the IXC Communications, Inc.'s Quarterly Report on Form 10-Q for the quarter ended September 30, 1997 filed with the Commission on November 14, 1997). 4.1 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 (the "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 (File No. 333-2936) (the "S-4")). 4.2 Form of 12 1/2% Series A Senior Notes due 2005 (incorporated by reference to Exhibit 4.6 of the S-4). 4.3 Form of 12 1/2% Series B Senior Notes due 2005 and Subsidiary Guarantee (incorporated by reference to Exhibit 4.8 of IXC Communications, Inc.'s Amendment No. 1 to Registration Statement on Form S-1 filed with the Commission on June 13, 1996 (File No. 333-4061) (the "S-1 Amendment")). 4.4 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 Amendment). 4.5 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 IXC Communications, Inc.'s Quarterly Report on Form 10-Q for the quarter ended June 30, 1997, filed with the Commission on May 15, 1997 (the "June 30, 1997 10-Q")). 4.6 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 June 30, 1997 10-Q). 4.7 Amendment to Registration Rights Agreement dated as of March 25, 1997, by and between IXC Communications, Inc. and Trustees of General Electric Pension Trust (incorporated by reference to Exhibit 4.14 of the June 30, 1997 10-Q). 4.8 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 (incorporated by reference to Exhibit 4.15 of IXC Communications, Inc.'s Quarterly Report on Form 10-Q for the quarter ended June 30, 1997, as filed with the Commission on August 6, 1997 (the "June 30, 1997 10-Q")).
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EXHIBIT NUMBER DESCRIPTION ------- ----------- 4.9 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 (incorporated by reference to Exhibit 4.16 of the June 30, 1997 10-Q). 4.10 Indenture dated as of August 15, 1997, between IXC Communications, Inc. and The Bank of New York (incorporated by reference to Exhibit 4.2 of IXC Communications, Inc.'s Current Report on Form 8-K dated August 20, 1997, and filed with the Commission on August 28, 1997 (the "8-K")). 4.11 First Supplemental Indenture dated as of October 23, 1997, among IXC Communications, Inc., the Guarantors, IXC International, Inc. and IBJ Schroder Bank & Trust Company (incorporated by reference to Exhibit 4.13 of IXC Communications, Inc.'s Annual Report on Form 10-K for the year ended December 31, 1997, and filed with the Commission on March 16, 1998 (the "1997 10-K")). 4.12 Second Supplemental Indenture dated as of December 22, 1997, among IXC Communications, Inc., the Guarantors, IXC Internet Services, Inc., IXC International, Inc. and IBJ Schroder Bank & Trust Company (incorporated by reference to Exhibit 4.14 of the 1997 10-K). 4.13 Third Supplemental Indenture dated as of January 6, 1998, among IXC Communications, Inc., the Guarantors, IXC Internet Services, Inc., IXC International, Inc. and IBJ Schroder Bank & Trust Company (incorporated by reference to Exhibit 4.15 of the 1997 10-K). 4.14 Fourth Supplemental Indenture dated as of April 3, 1998, among IXC Communications, Inc., the Guarantors, IXC Internet Services, Inc., IXC International, Inc., and IBJ Schroder Bank & Trust Company (incorporated by reference to Exhibit 4.15 of IXC Communications, Inc.'s Registration Statement on Form S-3 filed with the Commission on May 12, 1998 (File No. 333-52433)). 4.15 Purchase Agreement dated as of March 25, 1998, among IXC Communications, Inc., Goldman Sachs & Co. ("Goldman"), CS First Boston, Merrill Lynch, Pierce, Fenner & Smith Incorporated ("Merrill") and Morgan Stanley & Co. Incorporated ("Morgan Stanley") (incorporated by reference to Exhibit 4.1 IXC Communications, Inc.'s Current Report on Form 8-K dated March 30, 1998, and filed with the Commission on April 7, 1998 (the "April 7, 1998 8-K")). 4.16 Registration Rights Agreement dated as of March 30, 1998, among IXC Communications, Inc., Goldman, CS First Boston, Merrill and Morgan Stanley (incorporated by reference to Exhibit 4.2 of the April 7, 1998 8-K). 4.17 Deposit Agreement dated as of March 30, 1998, between IXC Communications, Inc. and BankBoston N.A. (incorporated by reference from Exhibit 4.3 of the April 7, 1998 8-K). 4.18 Purchase Agreement dated as of April 16, 1998, by and among IXC Communications, Inc., CS First Boston, Merrill, Morgan Stanley and Nationsbanc Montgomery Securities LLC (incorporated by reference to Exhibit 4.1 of IXC Communications, Inc.'s Current Report on Form 8-K dated April 21, 1998, and filed with the Commission on April 22, 1998 (the "April 22, 1998 8-K"). 4.19 Registration Rights Agreement dated as of April 16, 1998, by and among IXC Communications, Inc., Credit Suisse First Boston Corporation, Merrill, Morgan Stanley and Nationsbanc Montgomery Securities LLC (incorporated by reference to Exhibit 4.2 of the April 22, 1998 8-K). 4.20 Indenture dated as of April 21, 1998, between IXC Communications, Inc. and IBJ Schroder Bank & Trust Company, as Trustee (incorporated by reference to Exhibit 4.3 of the April 22, 1998 8-K).
27
EXHIBIT NUMBER DESCRIPTION ------- ----------- 4.21 Rights Agreement dated as of September 9, 1998, between IXC Communications, Inc. and U.S. Stock Transfer Corporation (incorporated by reference to Exhibit 4.1 of IXC Communications, Inc.'s Form 8-K dated September 8, 1998 and filed with Commission on September 11, 1998). 4.22+ Amendment No. 1 to Rights Agreement dated July 20, 1999, by and between IXC Communications, Inc. and U.S. Stock Transfer Corporation. 4.23 Form of Registration Rights Agreement among IXC Communications, Inc. and the Coastal selling stockholders (incorporated by reference to Exhibit 4.22 of IXC Communications, Inc.'s Form S-3 dated April 14, 1999 and filed with the Commission on April 15, 1999 (File No. 333-76349)). 4.24 Form of Warrant for each of the Coastal selling stockholders (incorporated by reference to Exhibit 4.23 of IXC Communications, Inc.'s Form S-3 dated April 14, 1999 and filed with the Commission on April 15, 1999 (File No. 333-76349)). 10.1 Office Lease dated as of 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 (incorporated by reference to Exhibit 10.3 of the June 30, 1997 10-Q). 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 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 IXC Communications, Inc.'s and the Guarantors' Amendment No. 1 to Registration Statement on Form S-4 filed with the Commission on May 20, 1996 (File No. 333-2936) ("Amendment No. 1 to S-4")). 10.6 Third Amended and Restated Service Agreement dated as of April 16, 1998, among IXC Long Distance, Inc., IXC Carrier, Inc., IXC Broadband, Inc. and Excel Telecommunications, Inc. (incorporated by reference to Exhibit 10.6 of IXC Communications, Inc.'s Quarterly Report on Form 10-Q for the quarter ended June 30, 1998, filed with the Commission on May 15, 1998 (the "June 30, 1998 10-Q")). 10.7 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). 10.8* 1996 Stock Plan of IXC Communications, Inc., as amended (incorporated by reference to Exhibit 10.10 of the IXC Communications, Inc. Annual Report on Form 10-K for the year ended December 31, 1996 and filed with the Commission on March 28, 1997 (the "1996 10-K")). 10.9 IRU Agreement dated as of November 1995 between WorldCom, Inc. and IXC Carrier, Inc. (incorporated by reference to Exhibit 10.11 of Amendment No. 1 to the S-4). 10.10* IXC Communications, Inc. Outside Directors' Phantom Stock Plan 1998 Restatement (incorporated by reference to Exhibit 10.10 of the IXC Communications, Inc.'s Quarterly Report Form 10-Q for the quarter ended September 30, 1998 filed with the Commission on November 16, 1998).
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EXHIBIT NUMBER DESCRIPTION ------- ----------- 10.11 Business Consultant and Management Agreement dated as of March 1, 1998, by and between IXC Communications, Inc. and Culp Communications Associates (incorporated by reference to Exhibit 10.11 of the June 30, 1998 10-Q). 10.12 Employment Agreement dated as of December 28, 1995, by and between IXC Communications, Inc. and James F. Guthrie (incorporated by reference to Exhibit 10.14 of the S-1 Amendment). 10.13* Special Stock Plan of IXC Communications, Inc. (incorporated by reference to Exhibit 10.16 of the 1996 10-K). 10.14 Lease dated as of June 4, 1997, between IXC Communications, Inc. and Carramerca Realty, L.P. (incorporated by reference to Exhibit 10.17 of the June 30, 1997 10-Q). 10.15 Loan and Security Agreement dated as of July 18, 1997, among IXC Communications, Inc., IXC Carrier, Inc. and NTFC Capital Corporation ("NTFC") (incorporated by reference to Exhibit 10.18 of the June 30, 1997 10-Q). 10.16 IRU and Stock Purchase Agreement dated as of July 22, 1997, between IXC Internet Services, Inc. and PSINet Inc. (incorporated by reference to Exhibit 10.19 of IXC Communications, Inc.'s Amendment No. 1 to Form 10-Q/A for the quarter ended September 30, 1997 filed with the Commission on December 12, 1997 (the "September 30, 1997 10-Q/A")). 10.17 Joint Marketing and Services Agreement dated as of July 22, 1997, between IXC Internet Services, Inc. and PSINet Inc. (incorporated by reference to Exhibit 10.20 of the September 30, 1997 10-Q/A). 10.18 Employment Agreement dated as of September 9, 1997, between Benjamin L. Scott and IXC Communications, Inc. (incorporated by reference to Exhibit 10.21 of IXC Communication Inc.'s Amendment No. 1 to Registration Statement on S-4 filed with the Commission on December 15, 1997 (File No. 333-37157) ("Amendment No. 1 to the EPS S-4")). 10.19* IXC Communications, Inc. 1997 Special Executive Stock Plan (incorporated by reference to Exhibit 10.22 of Amendment No. 1 to the EPS S-4). 10.20 First Amendment to Loan and Security Agreement dated as of December 23, 1997, among IXC Communications, Inc., IXC Carrier, Inc., NTFC and Export Development Corporation ("EDC") (incorporated by reference to Exhibit 10.21 of the 1997 10-K). 10.21 Second Amendment to Loan and Security Agreement dated as of January 21, 1998, among IXC Communications, Inc., IXC Carrier, Inc., NTFC and EDC (incorporated by reference to Exhibit 10.22 of the 1997 10-K). 10.22*+ IXC Communications, Inc. 1998 Stock Plan, as amended. 10.23+ First Amended and Restated Credit Agreement dated as of June 29, 1999, among IXC Communications Services, Inc., the Lenders (as defined therein), NationsBank, N.A., as a Lender and Administrative Agent, and Credit Suisse First Boston, TD Securities(USA), Inc. and Export Development Corporation, each as a Lender and Co-Syndication Agents. 10.24*+ Employment Agreement dated April 8, 1999, by and between IXC Communications, Inc. and Valerie G. Walden. 10.25*+ Employment Agreement dated April 26, 1999, by and between IXC Communications, Inc. and James F. Guthrie. 10.26*+ Employment Agreement dated May 27, 1999, by and between IXC Communications, Inc. and John M. Zrno. 10.27*+ Contract for Services dated June 28, 1999, by and between IXC Communications, Inc. and American Business Development Corp.
29
EXHIBIT NUMBER DESCRIPTION ------- ----------- 10.28 Stockholders Agreement dated as of July 20, 1999, among Cincinnati Bell, Inc., Richard D. Irwin and Ralph J. Swett (incorporated by reference to Exhibit 99.1 of Cincinnati Bell, Inc.'s Form 8-K dated July 22, 1999 and filed with the Commission on July 23, 1999). 10.29 Stockholder Agreement dated as of July 20, 1999, between Cincinnati Bell, Inc. and General Electric Pension Trust (incorporated by reference to Exhibit 99.2 of Cincinnati Bell, Inc.'s Form 8-K dated July 22, 1999 and filed with the Commission on July 23, 1999). 10.30 Stock Option Agreement dated as of July 20, 1999, between IXC Communications, Inc. and Cincinnati Bell, Inc. (incorporated by reference to Exhibit 99.3 of Cincinnati Bell, Inc.'s Form 8-K dated July 22, 1999 and filed with the Commission on July 23, 1999). 10.31 Stock Option Agreement dated as of July 20, 1999, between Cincinnati Bell, Inc. and IXC Communications, Inc. (incorporated by reference to Exhibit 99.4 of Cincinnati Bell, Inc.'s Form 8-K dated July 22, 1999 and filed with the Commission on July 23, 1999). 10.32 Stock Purchase Agreement dated July 20, 1999, by and among Cincinnati Bell, Inc. and General Electric Pension Trust (incorporated by reference to Exhibit 4 of Cincinnati Bell, Inc.'s Form 13D dated July 29, 1999 and filed with the Commission on July 29, 1999). 10.33 Joint Reporting Agreement dated June 15, 1999 among the Filing Persons (incorporated by reference to Exhibit 1 of IXC Communications, Inc.'s Amendment No. 1 to Form 13D dated June 15, 1999 and filed with the Commission on June 17, 1999). 10.34 Master Agreement dated as of June 2, 1999 between Merrill Lynch International ("MLI") and IXC Internet Services, Inc. ("Internet") (incorporated by reference to Exhibit 2 of IXC Communications, Inc.'s Amendment No. 1 to Form 13D dated June 15, 1999 and filed with the Commission on June 17, 1999). 10.35 Securities Loan Agreement dated as of June 2, 1999 between MLI and Internet (incorporated by reference to Exhibit 3 of IXC Communications, Inc.'s Amendment No. 1 to Form 13D dated June 15, 1999 and filed with the Commission on June 17, 1999). 10.36 Confirmation of OTC Transaction dated as of June 3, 1999 between MLI and Internet (incorporated by reference to Exhibit 4 of IXC Communications, Inc.'s Amendment No. 2 to Form 13D dated June 25, 1999 and filed with the Commission on June 29, 1999). 10.37 Confirmation of OTC Transaction dated as of July 6, 1999 between MLI and Internet (incorporated by reference to Exhibit 1 of IXC Communications, Inc.'s Amendment No. 4 to Form 13D dated July 31, 1999 and filed with the Commission on August 5, 1999). 10.38*+ IXC Communications, Inc. Stock Appreciation Rights Plan dated as of April 8, 1999. 27.1+ Financial Data Schedule.
- --------------- * Management contract or executive compensation plan or arrangement required to be indicated as such and filed as an exhibit pursuant to applicable rules of the Commission. + Filed herewith. EX-3.1 2 RESTATED CERTIFICATE OF INCORPORATION, AS AMENDED 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 (i) the Corporation may pay dividends on the Corporation's 7-1/4% Junior Convertible Preferred Stock Due 2007 ("Convertible Preferred Stock") with additional shares of Convertible Preferred Stock and (ii) the Corporation may pay dividends on the Corporation's 12-1/2% Junior Exchangeable Preferred Stock Due 2009 (the "Initial Exchangeable Preferred Stock") and 12-1/2% Series B Junior Exchangeable Preferred Stock Due 2009 (the "Series B Stock") with additional shares of Initial Exchangeable Preferred Stock and Series B Stock, respectively. 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 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"). 12 (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 13 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 14 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 15 (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 16 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 17 (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 18 "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 19 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 20 (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 21 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 22 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 23 (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 24 (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 25 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 26 (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 27 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 28 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 29 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 30 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 31 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 32 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 33 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 34 (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 35 "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 36 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 37 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 38 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 39 (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 40 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 41 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 42 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 43 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 44 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 45 (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 46 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 47 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 48 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 49 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 50 (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 51 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 52 (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 53 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 54 (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 55 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 56 (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 57 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 58 (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 59 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 60 "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 61 "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 62 "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 63 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 64 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 65 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. 66 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 67 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 68 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 69 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 70 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 71 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: ____________ 72 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 73 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. 74 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 75 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 76 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 77 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 78 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 79 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 80 IXC COMMUNICATIONS, INC. CERTIFICATE OF DESIGNATION OF THE POWERS, PREFERENCES AND RELATIVE, PARTICIPATING, OPTIONAL AND OTHER SPECIAL RIGHTS OF 12 1/2% JUNIOR EXCHANGEABLE PREFERRED STOCK DUE 2009 AND 12 1/2% SERIES B JUNIOR EXCHANGEABLE PREFERRED STOCK DUE 2009 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 (i) pursuant to authority conferred upon the board of directors of the Company (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 Sections 141(c)(2) and 151 of the General Corporation Law of the State of Delaware, said Board of Directors is authorized to issue Preferred Stock of the Company in one or more series and has authorized a committee of the Board of Directors (the "Placement Committee") to adopt the resolution set forth below and (ii) the Placement Committee duly approved and adopted the following resolution on August 14, 1997 (the "Resolution"): RESOLVED that, pursuant to the authority vested in the Board of Directors by its Restated Certificate of Incorporation, and the authority vested by such Board of Directors in a committee of the Board (the "Placement Committee"), all the members of which are members of such Board, the Placement Committee does hereby create, authorize and provide for the issuance of 12 1/2% Junior Exchangeable Preferred Stock Due 2009, par value $0.01 per share, with a stated value of $1000 per share, initially consisting of up to 450,000 shares and 12 1/2% Series B Junior Exchangeable Preferred Stock Due 2009, par value $0.01 per share, with a stated value of $1,000 81 2 per share, initially consisting of up to 450,000 shares (collectively, the "Exchangeable Preferred Stock") 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 (i) a series of Preferred Stock designated as the "12 1/2% Junior Exchangeable Preferred Stock Due 2009" (the "Initial Exchangeable Preferred Stock") and (ii) a series of Preferred Stock designated as the "12 1/2% Series B Junior Exchangeable Preferred Stock Due 2009" (the "Series B Stock"). The number of shares constituting the Initial Exchangeable Preferred Stock shall be 450,000, and the number of shares constituting the Series B Stock shall be 450,000. The Initial Exchangeable Preferred Stock and the Series B Stock are referred to as the Exchangeable Preferred Stock. The liquidation preference of the Exchangeable Preferred Stock shall be $1000 per share (the "Liquidation Preference"). (b) Rank. The Exchangeable 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 Exchangeable 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 share of Convertible Preferred Stock now or hereafter outstanding and on a parity with each other class of Capital Stock or series of Preferred Stock established hereafter by the Board of Directors of the 82 3 Company, the terms of which expressly provide that such class or series will rank on a parity with the Exchangeable 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 Exchangeable Preferred Stock as to dividend rights or rights on liquidation, winding-up and dissolution of the Company (collectively referred to as "Senior Stock"). All claims of the holders of the Exchangeable 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 Exchangeable 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, cumulative preferential dividends on each share of the Exchangeable Preferred Stock at a rate per annum equal to 12 1/2% of the Liquidation 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 Exchangeable Preferred Stock 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 Exchangeable Preferred Stock, which Additional Dividends shall accrue as follows if any of the following events occur (each such event in clauses (A), (B) and (C) below being herein called a "Registration Default"): (A) if by October 6, 1997, neither the Exchange Offer Registration Statement nor the Shelf Registration Statement has been filed with the SEC; (B) if by January 19, 1998, neither the Registered Exchange Offer is consummated nor the Shelf 83 4 Registration Statement declared effective by the SEC; or (C) if after January 19, 1998 and after either the Exchange Offer Registration Statement or the Shelf Registration Statement is declared effective, such Registration Statement thereafter ceases to be effective (in each case except as permitted below) in connection with resales of Exchangeable Preferred Stock in accordance with and during the periods specified herein. Additional Dividends shall accrue on the shares of Exchangeable Preferred Stock 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 .50% per annum. A Registration Default referred to in clause (C) of paragraph (c)(i) shall be deemed not to have occurred and be continuing in relation to a 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 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 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 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 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), (B) or (C) 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 84 5 respect to the Exchangeable 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 Exchangeable 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 Exchangeable 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 Exchangeable Preferred Stock issued in payment of a dividend, from the date of issuance of such additional shares of Exchangeable Preferred Stock, and shall be payable quarterly in arrears on each February 15, May 15, August 15 and November 15 (each, a "Dividend Payment Date"), commencing on November 15, 1997, to holders of record on the February 1, May 1, August 1 and November 1 immediately preceding the relevant Dividend Payment Date. Any dividend on the Exchangeable Preferred Stock payable pursuant to this paragraph (c)(i) on or prior to February 15, 2001 shall be, at the option of the Company, payable (1) in cash or (2) through the issuance of a number of additional shares (including fractional shares) of Exchangeable 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 February 15, 2001, all dividends shall be payable in cash. Any dividend accruing after February 15, 2001 that is not paid in cash on the relevant Dividend Payment Date shall accrue interest at a rate per annum equal to the then applicable dividend rate per annum from such Dividend Payment Date to the date of payment of such dividend. Such interest, if any, shall be payable in cash on each Dividend Payment Date. Any accrued interest not paid on a Dividend Payment Date shall accrue interest on such interest pursuant to this paragraph. Any references herein to the payment of 85 6 accrued and unpaid dividends shall be deemed to include any such interest. (ii) In the event the Company notifies the holders of Exchangeable Preferred Stock of its election not to make a Change of Control Offer (as defined in paragraph (h)(i)) pursuant to paragraph (h)(iii), then, within 60 days of the occurrence of the applicable Change of Control, holders of a majority of the outstanding shares of the Exchangeable Preferred Stock will designate an Independent Financial Advisor to determine, within 20 days of such designation, in the opinion of such firm, the appropriate dividend rate that the Exchangeable Preferred Stock should bear so that, after such reset, the Exchangeable Preferred Stock would have a market value of 101% of the Liquidation Preference; provided, however, that no such reset shall be required to be made if such Independent Financial Advisor determines that the Exchangeable Preferred Stock has a market value of 101% or greater. If within 5 days of the designation of an Independent Financial Advisor by the Holders, the Company determines that such Independent Financial Advisor is reasonably unacceptable to the Company, the Company shall designate a second Independent Financial Advisor to determine, within 15 days of such designation, in its opinion, such an appropriate reset dividend rate for the Exchangeable Preferred Stock. In the event that the two Independent Financial Advisors cannot agree, within 25 days of the designation of an Independent Financial Advisor by the Holders of a majority of the outstanding shares of the Exchangeable Preferred Stock, on the appropriate reset dividend rate, the two Independent Financial Advisors shall, within 10 days of such 25th day, designate a third Independent Financial Advisor, which, within 15 days of designation, will determine, in its opinion, an appropriate reset dividend rate which is between the two rates selected by the first two Independent Financial Advisors. Upon the determination of the reset rate, the Exchangeable Preferred Stock shall accrue and accumulate dividends at the reset rate as of the date of occurrence of the Change of Control; provided, however, that the reset rate shall in no event be less than 12 1/2% per annum or greater than 15% per annum. The reasonable fees and expenses including reasonable fees and expenses of legal counsel, if any, and customary 86 7 indemnification of each of the three above-referenced Independent Financial Advisors, shall be borne by the Company. (iii) All dividends paid with respect to shares of the Exchangeable Preferred Stock pursuant to paragraph (c)(i) shall be paid pro rata to the holders entitled thereto. (iv) No dividend 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 Exchangeable Preferred Stock. If full dividends are not so paid, the Exchangeable Preferred Stock will share dividends pro rata with the Parity Stock. (v) 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 Exchangeable Preferred Stock and any Parity Stock at the time such 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 Exchangeable 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. (vi) 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 87 8 to the payment thereof, as may be fixed by the Board of Directors of the Company. (vii) Dividends payable on the Exchangeable 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 Exchangeable Preferred Stock for a full Dividend Period will be computed by dividing the per annum dividend rate by four. (d) Liquidation Preference. (i) Upon any voluntary or involuntary liquidation, dissolution or winding-up of the Company, holders of Exchangeable 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 Exchangeable Preferred Stock, plus, without duplication, an amount in cash equal to all accumulated and unpaid dividends (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 Exchangeable 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 Exchangeable Preferred Stock and all Parity Stock are not paid in full, the Exchangeable 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 Exchangeable 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 Exchangeable Preferred Stock (and, if applicable, an amount equal to a prorated dividend), the holders of shares of Exchangeable Preferred Stock will not be entitled to any 88 9 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) Except as set forth in clause (B) below, the Exchangeable Preferred Stock shall not be redeemable at the option of the Company prior to August 15, 2002. On or after August 15, 2002, each share of the Exchangeable 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 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 "Optional Redemption Price"), if redeemed during the 12-month period beginning August 15 of each of the years set forth below:
Year in which redemption occurs Percentage ------ ---------- 2002.................................. 106.250% 2003.................................. 105.000 2004.................................. 103.750 2005.................................. 102.500 2006.................................. 101.250 2007 and thereafter................... 100.000
(B) At any time and from time to time prior to August 15, 2000, the Company may redeem in the aggregate up to 35% of the outstanding shares of Exchangeable Preferred 89 10 Stock with the proceeds of one or more Public Equity Offerings at a redemption price (expressed as a percentage of the Liquidation Preference thereof) of 112.500% plus accrued and unpaid dividends, if any, to the redemption date (including an amount in cash equal to a prorated dividend for any partial dividend period); provided, however, that at least $195 million aggregate Liquidation Preference of the Exchangeable Preferred Stock remains outstanding after each such redemption. (C) In the event of a redemption of only a portion of the then outstanding shares of Exchangeable 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 Exchangeable 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 August 15, 2009 (the "Mandatory Redemption Date") at a price equal to 100% of the Liquidation Preference of such share, plus, without duplication, all accrued and unpaid dividends thereon (including 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 Exchangeable 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 subparagraph (iii)(B) and the funds necessary for redemption (including an amount 90 11 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 Exchangeable Preferred Stock, not fewer than 30 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 Exchangeable 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; (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 Exchangeable Preferred Stock are to be redeemed and the total number of shares of the Exchangeable 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 91 12 the price designated, his certificate or certificates representing the shares of Exchangeable Preferred Stock to be redeemed; and (6) that dividends on the shares of the Exchangeable 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 Exchangeable Preferred Stock shall surrender the certificate or certificates representing such shares of Exchangeable 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 Exchangeable Preferred Stock, except as otherwise required under Delaware law or as set forth in paragraphs (ii) and (iii) below, shall not be entitled 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 Exchangeable Preferred Stock are in arrears and unpaid for six or more Dividend Periods (whether or not consecutive) (a "Dividend Default"); (2) the Company fails to redeem the Exchangeable Preferred Stock on August 15, 2009, or fails to otherwise discharge any redemption obligation with respect to the Exchangeable Preferred Stock; (3) a breach or violation of any of the provisions set forth under paragraph (l) (Certain Additional Provisions) occurs and the breach or violation continues for a period of 30 days or more after the Company 92 13 receives notice thereof specifying the default from the holders of at least 25% of the shares of Exchangeable Preferred Stock then outstanding; or (4) the Company fails to pay at final maturity (giving effect to any applicable grace period) the principal amount of any Indebtedness of the Company or any Significant Subsidiary (other than any Permitted PSINet Non-Recourse Debt) or the final maturity of any such Indebtedness is accelerated because of a default and the total amount of such Indebtedness unpaid or accelerated exceeds $5 million, then the number of directors constituting the Board of Directors of the Company will, subject to paragraph (f)(ii)(E), be increased by two and the Holders of the then outstanding shares of Exchangeable 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),(2),(3) or (4) above is a "Voting Rights Triggering Event". (B) The voting rights set forth in paragraph (f)(ii)(A) above will continue until such time as (x) in the case of a Dividend Default, all dividends in arrears on the Exchangeable Preferred Stock are paid in full in cash or (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 a majority of the outstanding shares of Exchangeable Preferred Stock then outstanding, at which time the term of any directors elected pursuant to the provisions of paragraph (f)(ii)(A) above (subject to the right of holders of any other preferred stock to elect directors) shall terminate forthwith 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 Exchangeable Preferred Stock (together with the holders of Parity Stock upon which like rights have been conferred and are exercisable) pursuant to paragraph (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% 93 14 of the shares of Exchangeable 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 Exchangeable 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; 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 Exchangeable 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 Exchangeable Preferred Stock or such Parity Stock so designated shall have, and the Company shall provide, access to the lists of holders of Exchangeable 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 Exchangeable 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 Exchangeable 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 94 15 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 Exchangeable 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 Exchangeable Preferred Stock (and such Parity Stock) may be filled by the remaining director elected by the Holders of Exchangeable Preferred Stock (and such Parity Stock) unless and until such vacancy shall be filled by the Holders of Exchangeable Preferred Stock (and such Parity Stock). (E) In the event that an event occurs at any time which results in the holders of any Parity Stock having voting rights to elect directors to the Board of Directors, holders of Exchangeable Preferred Stock shall, whether or not such event otherwise constitutes a Voting Rights Triggering Event pursuant to paragraph (f)(ii)(A), have the voting rights set forth in paragraphs (f)(ii)(A) and (f)(ii)(B), and such event shall be deemed (for purposes of this paragraph (f) only) to constitute a Voting Rights Triggering Event. In addition, in the event that during a time in which directors elected by the holders of Exchangeable Preferred Stock pursuant to this paragraph (f)(ii) are serving on the Board of Directors ("Previously- Elected Directors") an event occurs which results in holders of Parity Stock having voting rights to elect (voting together with the holders of Exchangeable Preferred Stock) at least two directors to the Board of Directors, the holders of Exchangeable Preferred Stock shall vote together with the holders of such Parity Stock to elect such new directors, and upon the election of the new directors the Previously-Elected Directors shall (unless such Previously- Elected Directors are elected as new directors) cease to serve on the Board of Directors. (iii) (A) So long as any shares of the Exchangeable 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 95 16 two-thirds of the shares of Exchangeable 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 Exchangeable 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 Exchangeable Preferred Stock or to authorize the issuance of any additional shares of Exchangeable Preferred Stock (except to authorize the issuance of additional shares of Exchangeable Preferred Stock to be paid as dividends on the Exchangeable Preferred Stock, for which no consent shall be necessary) without the affirmative vote or consent of Holders of at least a majority of the issued and outstanding shares of Exchangeable 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 Exchangeable 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 Exchangeable Preferred Stock and shall not be deemed to affect adversely the rights, preferences, privileges or voting rights of shares of Exchangeable Preferred Stock. (D) Prior to the exchange of Exchangeable Preferred Stock for Exchange Debentures, the Company shall not amend or modify the Exchange Indenture (except as expressly provided therein in respect of amendments without the consent of holders of Exchange Debentures) without 96 17 the affirmative vote or consent of holders of at least a majority of the shares of Exchangeable 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. (iv) In any case in which the Holders of Exchangeable Preferred Stock shall be entitled to vote pursuant to this paragraph (f) or pursuant to Delaware law, each Holder of Exchangeable Preferred Stock entitled to vote with respect to such matters shall be entitled to one vote for each share of Exchangeable Preferred Stock held. (g) Exchange. (i) Exchange for Debentures. (A) The Company may, at its option, on any scheduled Dividend Payment Date, exchange the Exchangeable Preferred Stock, in whole but not in part, for the Exchange Debentures; provided however, that (1) on the date of such exchange there are no accumulated and unpaid dividends on the Exchangeable Preferred Stock (including the dividends payable on such date) or other contractual impediment to such exchange; (2) there shall be funds legally available sufficient therefor; (3) immediately after giving effect to such exchange, no Default (as defined in the Exchange Indenture) shall have occurred and be continuing, and (iv) the Company shall have delivered to the Trustee under the Exchange Indenture an opinion of counsel with respect to the due authorization and issuance of the Exchange Debentures. (B) Upon any exchange pursuant to this paragraph (g)(i), holders of outstanding shares of Exchangeable Preferred Stock will be entitled to receive $1.00 principal amount of Exchange Debentures for each $1.00 of liquidation preference of Exchangeable Preferred Stock held by them. Exchange Debentures issued in exchange for Exchangeable Preferred Stock will be issued in principal amounts of $1,000 and integral multiples thereof to the extent possible, and will also be issued in principal amounts less than $1,000 so that each holder of Exchangeable Preferred Stock will receive certificates representing the entire amount of Exchange Debentures to which such holder's shares of Exchangeable Preferred Stock entitle such holder; 97 18 provided, however, that the Company may pay cash in lieu of issuing an Exchange Debenture in a principal amount less than $1,000. (ii) Procedures. (A) The Company will send a written notice of exchange (the "Exchange Notice") by mail to each holder of record of shares of Exchangeable Preferred Stock not fewer than 30 days nor more than 60 days before the date fixed for such exchange (the "Exchange Date"); provided, however, that no failure to give such notice nor any deficiency therein shall affect the validity of the procedure for the exchange of any shares of Exchangeable Preferred Stock to be exchanged 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 Exchange Notice shall state: (1) the Exchange Date; (2) that the holder is to surrender to the Company, in the manner and at the place or places designated, his certificate or certificates representing the shares of Exchangeable Preferred Stock to be exchanged; (3) that dividends on the shares of Exchangeable Preferred Stock to be exchanged shall cease to accrue on such Exchange Date whether or not certificates for shares of Exchangeable Preferred Stock are surrendered for exchange on such Exchange Date unless the Company shall default in the delivery of Exchange Debentures; and (4) that interest on the Exchange Debentures shall accrue from the Exchange Date whether or not certificates for shares of Exchangeable Preferred Stock are surrendered for exchange on such Exchange Date. (B) On and after the Exchange Date, dividends will cease to accrue on the outstanding shares of Exchangeable Preferred Stock, and all rights of the holders of Exchangeable Preferred Stock (except the right to receive Exchange Debentures, an amount in cash, to the extent 98 19 applicable, equal to the accumulated and unpaid dividends to the Exchange Date and, if the Company so elects, cash in lieu of any Exchange Debenture that is in a principal amount that is not an integral multiple of $1,000) will terminate. The person entitled to receive the Exchange Debentures issuable upon such exchange will be treated for all purposes as the registered holder of such Exchange Debentures. (C) On or before the Exchange Date, each holder of Exchangeable Preferred Stock shall surrender the certificate or certificates representing such shares of Exchangeable Preferred Stock, in the manner and at the place designated in the Exchange Notice. The Company shall cause the Exchange Debentures to be executed on the Exchange Date and, upon surrender in accordance with the Exchange Notice of the certificates for any shares of Exchangeable Preferred Stock so exchanged, duly endorsed (or otherwise in proper form for transfer, as determined by the Company), such shares shall be exchanged by the Company into Exchange Debentures. The Company shall pay interest on the Exchange Debentures at the rate and on the dates specified therein from the Exchange Date. (iii) No Exchange in Certain Cases. Notwithstanding the foregoing provisions of this paragraph (g), the Company shall not be entitled to exchange the Exchangeable Preferred Stock for Exchange Debentures if such exchange, or any term or provision of the Exchange Indenture or the Exchange Debentures, or the performance of the Company's obligations under the Exchange Indenture or the Exchange Debentures, shall materially violate or conflict with any applicable law or agreement or instrument then binding on the Company or if, at the time of such exchange, the Company is insolvent or if it would be rendered insolvent by such exchange. (iv) Exchange of Initial Exchangeable Preferred Stock for Series B Stock. The Series B Stock will be issued by the Company only in connection with an exchange offer, on a share for share basis, for the Initial Exchangeable Preferred Stock as required pursuant to the Registration Rights Agreement. Each share of Series B Stock issued in exchange for a share of Initial Exchangeable Preferred Stock 99 20 will be deemed to have the same liquidation preference and accrued and unpaid dividends as the share of Initial Exchangeable Preferred Stock so exchanged. (h) Change of Control. (i) Upon the occurrence of a Change of Control (the date of such occurrence being the "Change of Control Date"), the Company shall either (1) offer to purchase each holder's Exchangeable Preferred Stock in cash pursuant to the offer described in paragraph (h)(iii) (the "Change of Control Offer") at a purchase price equal to 101% of the Liquidation Preference thereof, plus, without duplication, 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) notify each holder of the Company's election not to make an offer as described in clause (1) above, in which case the dividend rate on the Exchangeable Preferred Stock shall be subject to reset pursuant to paragraph (c)(ii). (ii) Prior to the mailing of the notice referred to in paragraph (h)(iii), but in any event within 30 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 Exchangeable Preferred Stock would violate or constitute a default under the indebtedness of the Company. (iii) Within 30 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 Exchangeable Preferred Stock. Such notice shall state whether the Company has elected to make an offer to purchase shares of Exchangeable Preferred Stock and if it has so elected, such notice shall contain all instructions and materials necessary to enable such holders to tender Exchangeable Preferred Stock pursuant to the Change of 100 21 Control Offer. If the Company has elected to make a Change of Control Offer, such notice shall state: (A) that a Change of Control has occurred, that a Change of Control Offer is being made pursuant to this paragraph (h) and that all Exchangeable 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 60 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 Exchangeable Preferred Stock not tendered will continue to accrue dividends; (D) that, unless the Company defaults in making payment therefor, any share of Exchangeable 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 Exchangeable Preferred Stock purchased pursuant to a Change of Control Offer will be required to surrender stock certificates representing such shares of Exchangeable 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 Exchangeable 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 101 22 holder, the number of shares of Exchangeable Preferred Stock the holder delivered for purchase and a statement that such holder is withdrawing his election to have such shares of Exchangeable Preferred Stock purchased; (G) that holders whose shares of Exchangeable Preferred Stock are purchased only in part will be issued a new certificate representing the unpurchased shares of Exchangeable Preferred Stock; and (H) the circumstances and relevant facts regarding such Change of Control (including information with respect to pro forma historical income, cash flow and capitalization after giving effect to such Change of Control). If the Company elects not to make a Change of Control Offer, such notice shall state that the dividend rate on the Exchangeable Preferred Stock is subject to adjustment pursuant to paragraph (c)(ii). (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 made by the Company to repurchase the shares of Exchangeable 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 Exchangeable 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 each surrendered certificate and retire the shares represented thereby. Unless the Company defaults in the payment for the shares of Exchangeable Preferred Stock tendered pursuant to the Change of Control Offer, dividends will cease to accrue with respect to the shares of 102 23 Exchangeable 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 Exchangeable 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 Exchangeable Preferred Stock with respect to which the Change of Control Offer is being accepted, duly endorsed for transfer. (i) Conversion or Exchange. Except as otherwise provided herein, the holders of shares of Exchangeable Preferred Stock shall not have any rights hereunder to convert such shares into or exchange such shares for shares of any other class or classes or of any other series of any class or classes of Capital Stock of the Company. (j) Reissuance of Exchangeable Preferred Stock. Shares of Exchangeable 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 Exchangeable 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 Exchangeable Preferred Stock are outstanding, any issuance of such shares must be in compliance with the terms hereof. (k) 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. 103 24 (l) Certain Additional Provisions. The Company covenants and agrees for the benefit of the Holders as follows: (i) SEC Reports. The Company shall file with the Trustee and provide Holders, within 15 days after it files them with the SEC, copies of its annual report and the information, documents and other reports which the Company is required to file with the SEC pursuant to Section 13 or 15(d) of the Exchange Act. Notwithstanding that the Company may not be required to remain subject to the reporting requirements of Section 13 or 15(d) of the Exchange Act, the Company shall continue to file with the SEC and provide the Trustee and Holders with such annual reports and such information, documents and other reports as are specified in Sections 13 and 15(d) of the Exchange Act and applicable to a U.S. corporation subject to such Sections, such information, documents and other reports to be so filed and provided at the times specified for the filing of such information, documents and reports under such Sections. (ii) Limitation on Indebtedness. (A) The Company shall not Incur, and shall not permit any Restricted Subsidiary to Incur, directly or indirectly, any Indebtedness unless, on the date of such Incurrence and after giving pro forma effect thereto (including pro forma application of the net proceeds therefrom) and to any other Indebtedness Incurred or repaid since the end of the period referred to below and the receipt and application of the proceeds thereof, either (i) the Indebtedness to Operating Cash Flow Ratio for the Company's most recently ended four full fiscal quarters for which internal financial statements are available immediately preceding the date on which such Indebtedness is Incurred would have been not more than 5.0 to 1.0, or (ii) the Company's Consolidated Capital Ratio as of the end of the most recent fiscal quarter for which internal financial statements are available immediately preceding the date on which such Indebtedness is Incurred is less than 2.0 to 1.0. 104 25 (B) Notwithstanding the foregoing paragraph (a), the Company and its Restricted Subsidiaries may Incur any or all of the following Indebtedness: (1) Indebtedness Incurred pursuant to one or more Credit Agreements; provided, however, that, after giving effect to any such Incurrence, the aggregate principal amount of such Indebtedness then outstanding does not exceed the greater of (A) $150,000,000 and (B) 85% of the book value of the Accounts Receivables of the Company and its Restricted Subsidiaries; (2) Indebtedness owed to and held by the Company or a Restricted Subsidiary; provided, however, that any subsequent issuance or transfer of any Capital Stock which results in any Restricted Subsidiary ceasing to be a Restricted Subsidiary or any subsequent transfer of such Indebtedness (other than to the Company or another Restricted Subsidiary) shall be deemed, in each case, to constitute the Incurrence of such Indebtedness by the issuer thereof; (3) the Exchange Debentures (including Exchange Debentures issued in lieu of cash interest payments with respect to Exchange Debentures); (4) Indebtedness outstanding on the Issue Date (other than Indebtedness described in clause (1), (2) or (3) of this paragraph (l)(ii)(B)); (5) Refinancing Indebtedness in respect of Indebtedness Incurred pursuant to paragraph (l)(ii)(A) pursuant to clause (3) or (4) of this paragraph (l)(ii)(B) or this clause (5); (6) Hedging Obligations consisting of Interest Rate Agreements directly related to Indebtedness permitted to be Incurred by the Company and its Restricted Subsidiaries pursuant to this Certificate of Designation. (7) Indebtedness represented by Capital Lease Obligations, mortgage financings or purchase money 105 26 obligations, in each case Incurred for the purpose of financing all or any part of the purchase price or cost of construction or improvement of property used in the business of the Company or such Restricted Subsidiary; (8) In the event that the PSINet Shares are held by the Company or a Restricted Subsidiary, the Incurrence by the Company or such Restricted Subsidiary of Permitted PSINet Non-Recourse Debt; and (9) Indebtedness in an aggregate principal amount at any time outstanding which, together with the amount of all other Indebtedness of the Company and its Restricted Subsidiaries outstanding on the date of such Incurrence (other than Indebtedness permitted by clauses (1) through (8) of this paragraph (l)(ii)(B) and paragraph (l)(ii)(A)), does not exceed 5% of Consolidated Tangible Assets. (C) Notwithstanding the foregoing, the Company shall not Incur any Indebtedness pursuant to paragraph (l)(ii)(B) if the proceeds thereof are used, directly or indirectly, to Refinance any Subordinated Obligations unless such Indebtedness shall be subordinated to the Exchange Debentures to at least the same extent as such Subordinated Obligations. (D) For purposes of determining compliance with this paragraph (l)(ii), (1) in the event that an item of Indebtedness meets the criteria of more than one of the types of Indebtedness described above, the Company, in its sole discretion, will classify such item of Indebtedness and only be required to include the amount and type of such Indebtedness in one of the above clauses and (2) an item of Indebtedness may be divided and classified in more than one of the types of Indebtedness described above. (iii) Limitation on Restricted Payments. (A) The Company shall not, and shall not permit any Restricted 106 27 Subsidiary, directly or indirectly, to make a Restricted Payment if at the time the Company or such Restricted Subsidiary makes such Restricted Payment: (1) a Voting Rights Triggering Event shall have occurred and be continuing (or would result therefrom); (2) the Company is not able to Incur an additional $1.00 of Indebtedness under paragraph (l)(ii)(A); or (3) the aggregate amount of such Restricted Pay ment and all other Restricted Payments since the Issue Date would exceed the sum of: (I) an amount equal to the Cumulative Operating Cash Flor for the period (taken as one accounting period) from the beginning of the first full fiscal quarter commencing after the Issue Date to the end of the Company's most recently ended fiscal quarter for which internal financial statements are available at the time of such Restricted Payment less 1.50 times the Company's Cumulative Consolidated Interest Expense for such period; (II) the aggregate Net Cash Proceeds received by the Company from the issuance or sale of its Parity Stock and Junior Stock (in each case other than Disqualified Stock) subsequent to the Issue Date (other than an issuance or sale to a Subsidiary of the Company and other than an issuance or sale to an employee stock ownership plan or to a trust established by the Company or any of its Subsidiaries for the benefit of their employees); (III) the amount by which Indebtedness of the Company is reduced on the Company's balance sheet upon the conversion or exchange (other than by a Subsidiary of the Company) subsequent to the Issue Date of any Indebtedness of the Company convertible or exchangeable for Parity Stock or Junior Stock (in each case other than Disqualified 107 28 Stock) of the Company (less the amount of any cash, or the fair value of any other property, distributed by the Company upon such conversion or exchange); and (IV) an amount equal to the sum of (x) the net reduction in Investments in any Person resulting from dividends, repayments of loans or advances or other transfers of assets (but excluding such interest, dividends, repayments, advances or other transfers of assets to the extent any such item increases Consolidated Net Income), in each case to the Company or any Restricted Subsidiary from any Person (including, without limitation, from Unrestricted Subsidiaries), and (y) the portion (proportionate to the Company's equity interest in such Subsidiary) of the fair market value of the net assets of an Unrestricted Subsidiary at the time such Unrestricted Subsidiary is designated a Restricted Subsidiary; provided, however, that the foregoing sum shall not exceed, in the case of any Person (including any Unrestricted Subsidiary), the amount of Investments previously made (and treated as a Restricted Payment) by the Company or any Restricted Subsidiary in such Person. (B) The provisions of paragraph (l)(iii)(A) shall not prohibit: (1) any Restricted Payment made out of the proceeds of the substantially concurrent sale of, or any acquisition of any Parity Stock or Junior Stock of the Company made by exchange for, other Parity Stock or Junior Stock, as the case may be, of the Company (in each case other than Disqualified Stock and other than Parity Stock or Junior Stock issued or sold to a Subsidiary of the Company or an employee stock ownership plan or to a trust established by the Company or any of its Subsidiaries for the benefit of their employees); provided, however, that (I) such Restricted Payment shall be excluded in the calculation of the amount of Restricted Payments and (II) the Net Cash Proceeds from such sale shall be excluded from the 108 29 calculation of amounts under paragraph (l)(iii)(A)(3)(II); (2) dividends paid within 60 days after the date of declaration thereof if at such date of declaration such dividend would have complied with paragraph (l)(iii); provided, however, that at the time of payment of such dividend, no other Voting Rights Triggering Event shall have occurred and be continuing (or result therefrom); provided further, however, that such dividend shall be included in the calculation of the amount of Restricted Payments; or (3) the repurchase or other acquisition of shares of, or options to purchase shares of, common stock of the Company or any of its Subsidiaries from employees, former employees, directors or former directors of the Company or any of its Subsidiaries (or permitted transferees of such employees, former employees, directors or former directors), pursuant to the terms of the agreements (including employment agreements) or plans (or amendments thereto) approved by the Board of Directors under which such individuals purchase or sell or are granted the option to purchase or sell, shares of such common stock; provided, however, that the aggregate amount of such repurchases and other acquisitions shall not exceed $1,000,000 in any calendar year; provided further, however, that such repurchases and other acquisitions shall be excluded in the calculation of the amount of Restricted Payments. (iv) Limitation on Restrictions on Distributions from Restricted Subsidiaries. The Company shall not, and shall not permit any Restricted Subsidiary to, create or otherwise cause or permit to exist or become effective any consensual encumbrance or restriction on the ability of any Restricted Subsidiary to (A) pay dividends or make any other distributions on its Capital Stock to the Company or a Restricted Subsidiary or pay any Indebtedness owed to the 109 30 Company, (B) make any loans or advances to the Company or (C) transfer any of its property or assets to the Company, except: (1) any encumbrance or restriction pursuant to an agreement in effect at or entered into on the Issue Date; (2) any encumbrance or restriction with respect to a Restricted Subsidiary pursuant to an agreement relating to any Indebtedness Incurred by such Restricted Subsidiary on or prior to the date on which such Restricted Subsidiary was acquired by the Company (other than Indebtedness Incurred as consideration in, or to provide all or any portion of the funds or credit support utilized to consummate, the transaction or series of related transactions pursuant to which such Restricted Subsidiary became a Restricted Subsidiary or was acquired by the Company) and outstanding on such date; (3) any encumbrance or restriction pursuant to an agreement effecting a Refinancing of Indebtedness Incurred pursuant to an agreement referred to in clause (1) or (2) of this paragraph (l)(iv) or this clause (3) or contained in any amendment to an agreement referred to in clause (1) or (2) of this paragraph (l)(iv) or this clause (3); provided, however, that the encumbrances and restrictions with respect to such Restricted Subsidiary contained in any such refinancing agreement or amendment are no less favorable to the holders of Exchangeable Preferred Stock than encumbrances and restrictions with respect to such Restricted Subsidiary contained in such predecessor agreements; (4) any such encumbrance or restriction consisting of customary nonassignment provisions in leases governing leasehold interests to the extent such provisions restrict the transfer of the lease or the property leased thereunder; 110 31 (5) in the case of clause (C) above, restrictions contained in IRU Agreements, security agreements or mortgages securing Indebtedness or other obligations of a Restricted Subsidiary to the extent such restrictions restrict the transfer of the property subject to such security agreements or mortgages; (6) any restriction with respect to a Restricted Subsidiary imposed pursuant to an agreement entered into for the sale or disposition of all or substantially all the Capital Stock or assets of such Restricted Subsidiary pending the closing of such sale or disposition; and (7) any such encumbrance or restriction contained in the PSINet Agreement. (v) Limitation on Affiliate Transactions. (A) The Company shall not, and shall not permit any Restricted Subsidiary to, enter into or permit to exist any transaction (including the purchase, sale, lease or exchange of any property, employee compensation arrangements or the rendering of any service) with any Affiliate of the Company (an "Affiliate Transaction") unless (1) such Affiliate Transaction is on terms that are no less favorable to the Company or the relevant Restricted Subsidiary than those that would have been obtained in a comparable transaction by the Company or such Restricted Subsidiary with an unrelated Person and (2) the Company delivers to the Transfer Agent (I) with respect to any Affiliate Transaction involving aggregate consideration in excess of $1,000,000 a resolution of the Board of Directors set forth in an Officers' Certificate certifying that such Affiliate Transaction complies with clause (1) above and that such Affiliate Transaction has been approved by a majority of the disinterested members of the Board of Directors and (II) with respect to any Affiliate Transaction involving aggregate consideration in excess of $10,000,000, other than transactions with GE Capital Communication and Excluded PSINet Transactions, an opinion as to the fairness to the Company or such Restricted Subsidiary of such Affiliate Transaction from a financial point of view issued by an investment banking firm of national standing. 111 32 (B) The provisions of the foregoing paragraph (l)(v)(A) shall not prohibit (1) any Restricted Payment permitted to be paid pursuant to paragraph (l)(iii), (2) any issuance of securities, or other payments, awards or grants in cash, securities or otherwise pursuant to, or the funding of, employment arrangements, stock options and stock ownership plans approved by the Board of Directors, (3) the grant of stock options or similar rights to employees and directors of the Company pursuant to plans approved by the Board of Directors, (4) loans or advances to employees in the ordinary course of business in accordance with the past practices of the Company or its Restricted Subsidiaries, but in any event not to exceed $500,000 in the aggregate outstanding at any one time, (5) any employment or consulting arrangement or agreement entered into by the Company or any of its Restricted Subsidiaries in the ordinary course of business and consistent with the past practice of the Company or such Restricted Subsidiary, (6) the payment of reasonable fees to directors of the Company and its Restricted Subsidiaries who are not employees of the Company or its Restricted Subsidiaries, (7) any Affiliate Transaction between the Company and a Restricted Subsidiary or between Restricted Subsidiaries, (8) transactions in connection with Permitted Businesses between the Company and GE Capital Communication, (9) transactions between the Company or any Restricted Subsidiary specifically contemplated by the PSINet Agreement and (10) the issuance or sale of any Capital Stock (other than Disqualified Stock) of the Company. Notwithstanding the foregoing, Affiliate Transactions shall not include any transaction involving the sale, purchase, repurchase, redemption, transfer, exchange or other acquisition or disposition of Senior Notes, Exchangeable Preferred Stock or Convertible Preferred Stock by or from, or the payment of principal of, premium, if any, and interest on, or liquidation preference of and dividend on, any Senior Notes, Exchangeable Preferred Stock or Convertible Preferred Stock, as the case may be, to any Affiliate of the Company or any Affiliate of a Restricted Subsidiary of the Company; provided, however, that such transaction is offered substantially concurrently to all other holders of Senior Notes, Exchangeable Preferred Stock or Convertible Preferred Stock, as the case may be, on the same terms and conditions; 112 33 provided further, however, that such transaction is approved by a majority of the disinterested members of the Board of Directors, other than transactions in connection with the payment of principal of, premium, if any, and interest on, or liquidation preference of and dividends on, Senior Notes, Exchangeable Preferred Stock or Convertible Preferred Stock, as the case may be, pursuant to the provisions of the indenture or certificate of designation governing the payment of interest and principal, dividends and liquidation preference, optional redemption, repurchases from the proceeds of an asset disposition and repurchases upon a change of control. (vi) When Company May Merge or Transfer Assets. The Company shall not consolidate with or merge with or into, or convey, transfer or lease, in one transaction or a series of transactions, all or substantially all its assets to, any Person, unless: (1) the resulting, surviving or transferee Person (the "Successor Company") shall be a Person organized and existing under the laws of the United States of America, any State thereof or the District of Columbia and the Successor Company (if not the Company) shall expressly assume all the obligations of the Company under the Exchangeable Preferred Stock; (2) immediately after giving effect to such transaction (and treating any Indebtedness which becomes an obligation of the Successor Company or any Subsidiary as a result of such transaction as having been Incurred by such Successor Company or such Subsidiary at the time of such transaction), no Default shall have occurred and be continuing, (3) immediately after giving effect to such transaction, the Successor Company would be able to Incur an additional $1.00 of Indebtedness pursuant to paragraph (l)(ii)(A); (4) immediately after giving effect to such transaction, the Successor Company shall have Consolidated Net Worth in an amount that is not less than the Consolidated Net Worth of the Company immediately prior to such transaction; and (5) the Company shall have delivered to the Trustee an Officers' Certificate, stating that such consolidation, merger or transfer and such assumption (if any) comply with this Certificate of Designation. 113 34 (m) Certificates. (i) Form and Dating. The Exchangeable 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 Exchangeable 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 Exchangeable Preferred Stock certificate shall be dated the date of its authentication. The terms of the Exchangeable Preferred Stock certificate set forth in Exhibit A are part of the terms of this Certificate of Designation. (A) Global Exchangeable Preferred Stock. The Exchangeable 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 Exchangeable 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. Subject to the terms hereof and to the requirements of applicable law, the number of shares of Exchangeable Preferred Stock represented by Global Exchangeable 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 Exchangeable 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 Exchangeable Preferred Stock certificates that (a) shall be registered in the name of DTC for such Global Exchangeable Preferred Stock or the nominee of DTC and (b) shall be delivered by the Transfer Agent to DTC or pursuant to DTC's 114 35 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 Exchangeable Preferred Stock held on their behalf by DTC or by the Transfer Agent as the custodian of DTC or under such Global Exchangeable 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 Exchangeable 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 exercise of the rights of a holder of a beneficial interest in any Global Exchangeable Preferred Stock. (C) Certificated Exchangeable Preferred Stock. Exchangeable Preferred Stock initially sold in offshore transactions pursuant to Regulation S under the Securities Act will be issued in fully registered certificated form ("Certificated Exchangeable Preferred Stock"). Except as otherwise provided by applicable law or as provided in this paragraph (m)(i) or in paragraph (m)(iii), owners of beneficial interests in Global Exchangeable Preferred Stock will not be entitled to receive physical delivery of Certificated Exchangeable Preferred Stock. After a transfer of any Initial Exchangeable Preferred Stock during the period of the effectiveness of a Shelf Registration Statement with respect to such Initial Exchangeable Preferred Stock, all requirements pertaining to legends on such Initial Exchangeable Preferred Stock will cease to apply, the requirements requiring that any such Initial Exchangeable Preferred Stock issued to Holders be issued in global form will cease to apply, and Certificated Exchangeable Preferred Stock without legends will be 115 36 available to the transferee of the Holder of such Initial Exchangeable Preferred Stock upon exchange of such transferring Holder's Initial Exchangeable Preferred Stock or directions to transfer such Holder's interest in the Global Exchangeable Preferred Stock, as applicable. Upon the consummation of a Registered Exchange Offer with respect to the Initial Exchangeable Preferred Stock pursuant to which Holders of such Initial Exchangeable Preferred Stock are offered Series B Stock in exchange for their Initial Exchangeable Preferred Stock, all requirements that Initial Exchangeable Preferred Stock be issued in global form will cease to apply and Certificated Exchangeable Preferred Stock with the restricted securities legend set forth in Exhibit A hereto will be available to Holders of such Initial Exchangeable Preferred Stock that do not exchange their Initial Exchangeable Preferred Stock, and Series B Stock in certificated form will be available to Holders that exchange such Initial Exchangeable Preferred Stock in such Registered Exchange Offer. (ii) Execution and Authentication. Two Officers shall sign the certificates representing Exchangeable Preferred Stock for the Company by manual or facsimile signature. The Company's seal shall be impressed, affixed, imprinted or reproduced on the Exchangeable Preferred Stock and may be in facsimile form. If an Officer whose signature is on certificates representing Exchangeable Preferred Stock no longer holds that office at the time the Transfer Agent authenticates the Exchangeable Preferred Stock evidenced thereby, the shares of Exchangeable Preferred Stock evidenced thereby shall be valid nevertheless. A certificate representing Exchangeable Preferred Stock shall not be valid until an authorized signatory of the Transfer Agent manually signs the certificate of authentication on the Exchangeable Preferred Stock. The signature shall be conclusive evidence that the Exchangeable Preferred Stock has been authenticated under this Certificate of Designation. 116 37 The Transfer Agent shall authenticate and deliver: (1) 300,000 shares of Initial Exchangeable Preferred Stock for original issue and (2) 300,000 shares of Series B Stock for issue only in a Registered Exchange Offer pursuant to the Registration Rights Agreement, in each case 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 Exchangeable Preferred Stock to be authenticated and the date on which the original issue of Exchangeable Preferred Stock is to be authenticated and whether the Exchangeable Preferred Stock is to be Initial Exchangeable Preferred Stock or Series B Stock. The Transfer Agent may appoint an authenticating agent reasonably acceptable to the Company to authenticate the Exchangeable Preferred Stock. Unless limited by the terms of such appointment, an authenticating agent may authenticate Exchangeable 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 Exchangeable Preferred Stock. When Certificated Exchangeable Preferred Stock is presented to the Transfer Agent with a request to register the transfer of such Certificated Exchangeable Preferred Stock or to exchange such Certificated Exchangeable Preferred Stock for an equal number of shares of Certificated Exchangeable 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 117 38 Certificated Exchangeable 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 (2) in the case of Transfer Restricted Securities that are Certificated Exchangeable Preferred Stock, are being transferred or exchanged pursuant to an effective registration statement under the Securities Act or pursuant to clause (I) or (II) 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 B 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 B hereto). (B) Restrictions on Transfer of Certificated Exchangeable Preferred Stock for a Beneficial Interest in Global Exchangeable Preferred Stock. Certificated Exchangeable Preferred Stock may not be exchanged for a beneficial interest in Global Exchangeable Preferred Stock except upon satisfaction of the requirements set forth below. Upon receipt by the Transfer Agent of Certificated Exchangeable Preferred Stock, duly endorsed or accompanied 118 39 by appropriate instruments of transfer, in form satisfactory to the Transfer Agent, together with: (1) if such Certificated Exchangeable Preferred Stock is a Transfer Restricted Security, certification that such Certificated Exchangeable Preferred Stock is being transferred to a QIB in accordance with Rule 144A under the Securities Act; and (2) whether or not such Certificated Exchangeable 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 Exchangeable Preferred Stock to reflect an increase in the number of shares of Exchangeable Preferred Stock represented by the Global Exchangeable Preferred Stock, then the Transfer Agent shall cancel such Certificated Exchangeable 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 Exchangeable Preferred Stock represented by the Global Exchangeable Preferred Stock to be increased accordingly. If no Global Exchangeable 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 Exchangeable Preferred Stock representing the appropriate number of shares. (C) Transfer and Exchange of Global Exchangeable Preferred Stock. The transfer and exchange of Global Exchangeable 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 Exchangeable Preferred Stock for a Certificated Exchangeable Preferred Stock. 119 40 (1) Any person having a beneficial interest in Exchangeable Preferred Stock that is being transferred or exchanged pursuant to an effective registration statement under the Securities Act or pursuant to clause (I) or (II) below may upon request, and if accompanied by the information specified below, exchange such beneficial interest for Certificated Exchangeable Preferred Stock representing the same number of shares of Exchangeable 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 Exchangeable 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 Exchangeable Preferred Stock, a certification from such person to that effect (in substantially the form of Exhibit B hereto); or (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 B hereto); 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 Exchangeable Preferred Stock represented by Global Exchangeable Preferred Stock to be reduced on its books and records and, following such reduction, the Company will execute and the Transfer 120 41 Agent will authenticate and deliver to the transferee Certificated Exchangeable Preferred Stock. (2) Certificated Exchangeable Preferred Stock issued in exchange for a beneficial interest in a Global Exchangeable Preferred Stock pursuant to this paragraph (m)(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 Exchangeable Preferred Stock to the persons in whose names such Exchangeable Preferred Stock are so registered in accordance with the instructions of DTC. (E) Restrictions on Transfer and Exchange of Global Exchangeable Preferred Stock. Notwithstanding any other provisions of this Certificate of Designation (other than the provisions set forth in paragraph (m)(iii)(F)), Global Exchangeable 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 Exchangeable Preferred Stock. If at any time: (1) DTC notifies the Company that DTC is unwilling or unable to continue as depository for the Global Exchangeable Preferred Stock and a successor depository for the Global Exchangeable Preferred Stock is not appointed by the Company within 90 days after delivery of such notice; (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 121 42 (4) the Company, in its sole discretion, notifies the Transfer Agent in writing that it elects to cause the issuance of Certificated Exchangeable 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 Exchangeable Preferred Stock to the persons designated by the Company, will authenticate and deliver Certificated Exchangeable Preferred Stock equal to the number of shares of Exchangeable Preferred Stock represented by the Global Exchangeable Preferred Stock, in exchange for such Global Exchangeable Preferred Stock. (G) Legend. (1) Except as permitted by the following paragraph (2), each certificate evidencing the Global Exchangeable Preferred Stock and the Certificated Exchangeable Preferred Stock (and all Exchangeable Preferred Stock issued in exchange therefor or substitution thereof) shall bear a legend in substantially the following form: "THIS SECURITY (OR ITS PREDECESSOR) WAS ORIGINALLY ISSUED IN A TRANSACTION EXEMPT FROM REGISTRATION UNDER THE UNITED STATES SECURITIES ACT OF 1933 (THE "SECURITIES ACT"), AND THIS SECURITY MAY NOT BE OFFERED, SOLD OR OTHERWISE TRANSFERRED IN THE ABSENCE OF SUCH REGISTRATION OR AN APPLICABLE EXEMPTION THEREFROM. EACH PURCHASER OF THIS SECURITY IS HEREBY NOTIFIED THAT THE SELLER OF THIS SECURITY MAY BE RELYING ON THE EXEMPTION FROM THE PROVISIONS OF SECTION 5 OF THE SECURITIES ACT PROVIDED BY RULE 144A THEREUNDER. "THE HOLDER OF THIS SECURITY AGREES FOR THE BENEFIT OF THE ISSUER THAT (A) THIS SECURITY MAY BE OFFERED, RESOLD, PLEDGED OR OTHERWISE TRANSFERRED ONLY (i) TO A PERSON WHOM THE SELLER REASONABLY BELIEVES IS A "QUALIFIED INSTITUTIONAL BUYER" (AS DEFINED IN RULE 144A UNDER THE SECURITIES ACT) IN A TRANSACTION MEETING THE REQUIREMENTS OF RULE 144A, (ii) IN AN 122 43 OFFSHORE TRANSACTION IN ACCORDANCE WITH RULE 904 UNDER THE SECURITIES ACT, (iii) PURSUANT TO AN EXEMPTION FROM REGISTRATION UNDER THE SECURITIES ACT PROVIDED BY RULE 144 THEREUNDER (IF AVAILABLE), (iv) PURSUANT TO AN EFFECTIVE REGISTRATION STATEMENT UNDER THE SECURITIES ACT OR (v) TO THE COMPANY, IN EACH OF CASES (i) THROUGH (iv) IN ACCORDANCE WITH ANY APPLICABLE SECURITIES LAWS OF ANY STATE OF THE UNITED STATES, AND (B) THE HOLDER WILL, AND EACH SUBSEQUENT HOLDER IS REQUIRED TO, NOTIFY ANY PURCHASER OF THIS SECURITY FROM IT OF THE RESALE RESTRICTIONS REFERRED TO IN (A) ABOVE. "BY ITS ACQUISITION HEREOF, THE HOLDER REPRESENTS THAT (A) IT IS A "QUALIFIED INSTITUTIONAL BUYER" (AS DEFINED IN RULE 144A UNDER THE SECURITIES ACT") OR (B) IT IS NOT A U.S. PERSON AND IS ACQUIRING THIS SECURITY IN AN OFFSHORE TRANSACTION IN ACCORDANCE WITH REGULATION S. (2) Upon any sale or transfer of a Transfer Restricted Security (including any Transfer Restricted Security represented by Global Exchangeable 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 Exchangeable Preferred Stock, the Transfer Agent shall permit the Holder thereof to exchange such Transfer Restricted Security for a Certificated Exchangeable Preferred Stock that does not bear the legend set forth above and rescind any restriction on the transfer of such Transfer Restricted Security; (II) in the case of any Transfer Restricted Security that is represented by a Global Exchangeable Preferred Stock, the Transfer Agent shall permit the Holder thereof to exchange such Transfer Restricted Security for a Certificated Exchangeable 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 123 44 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); and (III) in the case of any Transfer Restricted Security that is represented by a Global Exchangeable Preferred Stock, the Transfer Agent shall permit the Holder thereof to exchange such Transfer Restricted Security (in connection with the offer to exchange Series B Stock for Initial Exchangeable Preferred Stock pursuant to the Registration Rights Agreement) for another Global Exchangeable Preferred Stock that does not bear the legend set forth above. (H) Cancelation or Adjustment of Global Exchangeable Preferred Stock. At such time as all beneficial interests in Global Exchangeable Preferred Stock have either been exchanged for Certificated Exchangeable Preferred Stock, redeemed, repurchased or canceled, such Global Exchangeable Preferred Stock shall be returned to DTC for cancelation or retained and canceled by the Transfer Agent. At any time prior to such cancelation, if any beneficial interest in Global Exchangeable Preferred Stock is exchanged for Certificated Exchangeable Preferred Stock, redeemed, repurchased or canceled, the number of shares of Exchangeable Preferred Stock represented by such Global Exchangeable 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 Exchangeable Preferred Stock, by the Transfer Agent or DTC, to reflect such reduction. (I) Obligations with Respect to Transfers and Exchanges of Exchangeable Preferred Stock. (1) To permit registrations of transfers and exchanges, the Company shall execute and the Transfer Agent shall authenticate Certificated Exchangeable Preferred Stock and Global Exchangeable Preferred Stock as required pursuant to the provisions of this paragraph (iii). 124 45 (2) All Certificated Exchangeable Preferred Stock and Global Exchangeable Preferred Stock issued upon any registration of transfer or exchange of Certificated Exchangeable Preferred Stock or Global Exchangeable Preferred Stock shall be the valid obligations of the Company, entitled to the same benefits under this Certificate of Designation as the Certificated Exchangeable Preferred Stock or Global Exchangeable Preferred Stock surrendered upon such registration of transfer or exchange. (3) Prior to due presentment for registration of transfer of any shares of Exchangeable Preferred Stock, the Transfer Agent and the Company may deem and treat the person in whose name such shares of Exchangeable Preferred Stock are registered as the absolute owner of such Exchangeable 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 Exchangeable Preferred Stock 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 Exchangeable Preferred Stock Certificates. (5) Upon any sale or transfer of shares of Exchangeable Preferred Stock (including any Exchangeable Preferred Stock represented by a Global Exchangeable 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 Exchangeable Preferred Stock, the Transfer Agent shall permit the holder thereof to exchange such 125 46 Exchangeable Preferred Stock for Certificated Exchangeable Preferred Stock that does not bear the legend set forth in paragraph (iii)(G) above and rescind any restriction on the transfer of such Exchangeable Preferred Stock; and (B) in the case of any Global Exchangeable Preferred Stock, such Exchangeable 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 Exchangeable Preferred Stock that is represented by Global Exchangeable Preferred Stock for Certificated Exchangeable 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 B hereto). (iv) Replacement Certificates. If a mutilated Exchangeable Preferred Stock certificate is surrendered to the Transfer Agent or if the Holder of a Exchangeable Preferred Stock certificate claims that the Exchangeable Preferred Stock certificate has been lost, destroyed or wrongfully taken, the Company shall issue and the Transfer Agent shall countersign a replacement Exchangeable 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 126 47 either of them may suffer if a Exchangeable Preferred Stock certificate is replaced. The Company and the Transfer Agent may charge the Holder for their expenses in replacing a Exchangeable Preferred Stock certificate. (v) Temporary Certificates. Until definitive Exchangeable Preferred Stock certificates are ready for delivery, the Company may prepare and the Transfer Agent shall countersign temporary Exchangeable Preferred Stock certificates. Temporary Exchangeable Preferred Stock certificates shall be substantially in the form of definitive Exchangeable Preferred Stock certificates but may have variations that the Company considers appropriate for temporary Exchangeable Preferred Stock certificates. Without unreasonable delay, the Company shall prepare and the Transfer Agent shall countersign definitive Exchangeable Preferred Stock certificates and deliver them in exchange for temporary Exchangeable Preferred Stock certificates. (vi) Cancelation. (A) In the event the Company shall purchase or otherwise acquire Certificated Exchangeable Preferred Stock, the same shall thereupon be delivered to the Transfer Agent for cancelation. (B) At such time as all beneficial interests in Global Exchangeable Preferred Stock have either been exchanged for Certificated Exchangeable Preferred Stock, redeemed, repurchased or canceled, such Global Exchangeable Preferred Stock shall thereupon be delivered to the Transfer Agent for cancelation. (C) The Transfer Agent and no one else shall cancel and destroy all Exchangeable Preferred Stock certificates surrendered for transfer, exchange, replacement or cancelation and deliver a certificate of such destruction to the Company unless the Company directs the Transfer Agent to deliver canceled Exchangeable Preferred Stock certificates to the Company. The Company may not issue new Exchangeable Preferred Stock certificates to replace Exchangeable Preferred Stock certificates to the extent they evidence Exchangeable Preferred Stock which the Company has purchased or otherwise acquired. 127 48 (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. (n) 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: "Accounts Receivable" means, with respect to any Person, all accounts receivable of such Person net of allowances for uncollectible accounts, discounts, refunds and all other allowances as determined in accordance with GAAP. "Additional Assets" means (i) any property or assets (other than Indebtedness and Capital Stock) in a Related Business; (ii) the Capital Stock of a Person that becomes a Restricted Subsidiary as a result of the acquisition of such Capital Stock by the Company or another Restricted Subsidiary; or (iii) Capital Stock in any Person that at such time is a Restricted Subsidiary; provided, however, that any such Restricted Subsidiary described in clauses (ii) or (iii) above is primarily engaged in a Related Business. "Affiliate" of any specified Person means any other Person, directly or indirectly, controlling or controlled by or under direct or indirect common control with such specified Person. For the purposes of this definition, "control" when used with respect to any Person means the power to direct the management and policies of such Person, directly or indirectly, whether through the ownership of voting securities, by contract or otherwise; and the terms "controlling" and "controlled" have meanings 128 49 correlative to the foregoing. For purposes of paragraphs (l)(iii) and (l)(v) only, "Affiliate" shall also mean any beneficial owner of Capital Stock representing 10% or more of the total voting power of the Voting Stock (on a fully diluted basis) of the Company or of rights or warrants to purchase such Capital Stock (whether or not currently exercisable) and any Person who would be an Affiliate of any such beneficial owner pursuant to the first sentence hereof. "Asset Swap" means an exchange of assets by the Company or any of its Restricted Subsidiaries for one or more Permitted Businesses, assets to be used in a Permitted Business, or for a controlling equity interest in any Person whose assets consist primarily of one or more Permitted Businesses. "Attributable Debt" in respect of a Sale/Leaseback Transaction means, as at the time of determination, the present value (discounted at the dividend rate borne by the Exchangeable Preferred Stock compounded annually) of the total obligations of the lessee for rental payments during the remaining term of the lease included in such Sale/Leaseback Transaction (including any period for which such lease has been extended). "Average Life" means, as of the date of determina tion, with respect to any Indebtedness or Preferred Stock, the quotient obtained by dividing (i) the sum of the products of the numbers of years from the date of determination to the dates of each successive scheduled principal payment of such Indebtedness or redemption or similar payment with respect to such Preferred Stock multi plied by the amount of such payment by (ii) the sum of all such payments. "Board of Directors" means the Board of Directors of the Company or any committee thereof duly authorized to act on behalf of such Board. "Business Day" means each day which is not a Legal Holiday. 129 50 "Capital Lease Obligations" means an obligation that is required to be classified and accounted for as a capital lease for financial reporting purposes in accordance with GAAP, and the amount of Indebtedness represented by such obligation shall be the capitalized amount of such obligation determined in accordance with GAAP; and the Stated Maturity thereof shall be the date of the last payment of rent or any other amount due under such lease prior to the first date upon which such lease may be terminated by the lessee without payment of a penalty. "Capital Stock" of any Person means any and all shares, rights to purchase, warrants, options, participations 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. "Change of Control" means the occurrence of any of the following events: (i) any "person" (as such term is used in Sections 13(d) and 14(d) of the Exchange Act), other than one or more Permitted Holders, is or becomes the beneficial owner (as defined in Rules 13d-3 and 13d-5 under the Exchange Act, except that for purposes of this clause (i) such person shall be deemed to have "beneficial ownership" of all shares that any such person has the right to acquire, whether such right is exercisable immediately or only after the passage of time, and except that any person that is deemed to have beneficial ownership of shares solely as a result of being part of a group pursuant to Rule 13d-5(b)(1) shall not be deemed to have beneficial ownership of any shares held by a Permitted Holder forming a part of such group), directly or indirectly, of more than 50% of the total voting power of the Voting Stock of the Company (for the purposes of this clause (i), such other person shall be deemed to beneficially own any Voting Stock of a specified corporation held by a parent corporation, if such other person is the beneficial owner (as defined in this clause (i)), directly or indirectly, of more than 35% of the voting 130 51 power of the Voting Stock of such parent corporation and the Permitted Holders beneficially own (as defined in Rules 13d-3 and 13d-5 under the Exchange Act), directly or indirectly, in the aggregate a lesser percentage of the voting power of the Voting Stock of such parent corporation and do not have the right or ability by voting power, contract or otherwise to elect or designate for election a majority of the board of directors of such parent corporation); (ii) during any period of two consecutive years, individuals who at the beginning of such period constituted the Board of Directors (together with any new directors whose election by such Board of Directors or whose nomination for election by the shareholders of the Company was approved by a vote of a majority of the directors of the Company then still in office who were either directors at the beginning of such period or whose election or nomination for election was previously so approved) cease for any reason to constitute a majority of the Board of Directors then in office; provided, however, that any directors elected by holders of Preferred Stock of the Company pursuant to any voting rights provisions included in the certificate of designation relating to such Preferred Stock shall be excluded in making any determination pursuant to this clause (ii); or (iii) the merger or consolidation of the Company with or into another Person or the merger of another Person with or into the Company, or the sale of all or substantially all the assets of the Company to another Person (other than a Person that is controlled by the Permitted Holders), and, in the case of any such merger or consolidation, the securities of the Company that are outstanding immediately prior to such transaction and which represent 100% of the aggregate voting power of the Voting Stock of the Company are changed into or exchanged for cash, securities or property, unless pursuant to such transaction such securities are changed into or exchanged for, in addition to any other consideration, securities of the surviving corporation that represent immediately after such transaction, at 131 52 least a majority of the aggregate voting power of the Voting Stock of the surviving corporation. Notwithstanding the foregoing, a Change of Control shall not be deemed to have occurred if, after such event that otherwise would constitute a Change of Control, the Securities are rated Investment Grade by Moody's or Standard & Poor's on the 30th day following the event that otherwise would constitute a Change of Control (the "Change of Control Determination Date"); provided, however, that to the extent there is a "rating watch" with respect to the Exchangeable Preferred Stock or other rating agency review on such 30th day, then the Change of Control Determination Date shall be the first Business Day thereafter on which the Exchangeable Preferred Stock is not subject to a "rating watch" or other rating agency review by either Moody's or Standard & Poor's. The term "Investment Grade", for such purpose, means a rating of Baa3 or higher in the case of Moody's, or BBB- or higher in the case of Standard & Poor's. "Code" means the Internal Revenue Code of 1986, as amended. "Company" means the party named as such in this Certificate of Designation until a successor replaces it and, thereafter, means the successor. "Consolidated Capital Ratio" of any Person as of any date means the ratio of (i) the aggregate consolidated principal amount of Indebtedness of such Person then outstanding to (ii) the greater of either (a) the aggregate consolidated paid-in capital of such Person as of such date or (b) the stockholders' equity as of such date as shown on the consolidated balance sheet of such Person determined in accordance with GAAP. "Consolidated Interest Expense" means, for any period, the total interest expense of the Company and its consolidated Restricted Subsidiaries, plus, to the extent not included in such total interest expense, and to the extent incurred by the Company or its Restricted Subsidiaries, without duplication, (i) interest expense attributable to capital leases and the interest expense 132 53 attributable to leases constituting part of a Sale/Leaseback Transaction, (ii) amortization of debt discount and debt issuance cost, (iii) capitalized interest, (iv) noncash interest expenses, (v) commissions, discounts and other fees and charges owed with respect to letters of credit and bankers' acceptance financing, (vi) net costs associated with Hedging Obligations (including amortization of fees), (vii) Preferred Stock dividends in respect of all (A) Preferred Stock of Restricted Subsidiaries and (B) Preferred Stock of the Company that is Disqualified Stock, in each case held by Persons other than the Company or a Restricted Subsidiary, (viii) interest incurred in connection with Investments in discontinued operations, (ix) interest accruing on any Indebtedness of any other Person to the extent such Indebtedness is Guaranteed by (or secured by the assets of) the Company or any Restricted Subsidiary and (x) the cash contributions to any employee stock ownership plan or similar trust to the extent such contributions are used by such plan or trust to pay interest or fees to any Person (other than the Company) in connection with Indebtedness Incurred by such plan or trust. "Consolidated Net Income" means, for any period, the net income of the Company and its consolidated Subsidi aries; provided, however, that there shall not be included in such Consolidated Net Income: (i) any net income of any Person (other than the Company) if such Person is not a Restricted Subsidiary, except that subject to the exclusion contained in clause (iv) below, the net income of any such Person for such period shall be included in such Consolidated Net Income up to the aggregate amount of cash actually distributed by such Person during such period to the Company or a Restricted Subsidiary as a dividend or other distribution (subject, in the case of a dividend or other distribution paid to a Restricted Subsidiary, to the limitations contained in clause (iii) below); (ii) any net income (or loss) of any Person acquired by the Company or a Subsidiary in a pooling of interests transaction for any period prior to the date of such acquisition; 133 54 (iii) any net income of any Restricted Subsidiary if such Restricted Subsidiary is subject to restrictions, directly or indirectly, on the payment of dividends or the making of distributions by such Restricted Subsidiary, directly or indirectly, to the Company, except that subject to the exclusion contained in clause (iv) below, the net income of any such Restricted Subsidiary for such period shall be included in such Consolidated Net Income up to the aggregate amount of cash actually distributed by such Restricted Subsidiary during such period to the Company or another Restricted Subsidiary as a dividend or other distribution (subject, in the case of a dividend or other distribution paid to another Restricted Subsidiary, to the limitation contained in this clause); (iv) any gain (but not loss) realized upon the sale or other disposition of any assets of the Company, its consolidated Subsidiaries or any other Person (including pursuant to any sale-and-leaseback arrangement) which is not sold or otherwise disposed of in the ordinary course of business and any gain (but not loss) realized upon the sale or other disposition of any Capital Stock of any Person; (v) extraordinary gains or losses; and (vi) the cumulative effect of a change in account ing principles. Notwithstanding the foregoing, for the purpose of paragraph (l)(iii) only, there shall be excluded from Consolidated Net Income any dividends, repayments of loans or advances or other transfers of assets from any Person (including any Unrestricted Subsidiary) to the Company or a Restricted Subsidiary to the extent such dividends, repayments or transfers increase the amount of Restricted Payments permitted under paragraph (l)(iii) (A)(3)(IV) thereof. "Consolidated Net Worth" means, with respect to any Person as of any date, the sum of: (i) the consolidated 134 55 equity of the common stockholders of such Person and its consolidated Subsidiaries as of such date plus (ii) the respective amounts reported on such Person's balance sheet as of such date with respect to any series of preferred stock (other than Disqualified Stock) that by its terms is not entitled to the payment of dividends unless such dividends may be declared and paid only out of net earnings in respect of the year of such declaration and payment, but only to the extent of any cash received by such Person upon issuance of such preferred stock, less (x) all write-ups (other than write-ups resulting from foreign currency translations and write-ups of tangible assets of a going concern business made within 12 months after the acquisition of such business) subsequent to the Issue Date in the book value of any asset owned by such Person or a consolidated Subsidiary of such Person, (y) all investments as of such date in unconsolidated Subsidiaries and in Persons that are not Subsidiaries (except, in each case, Permitted Investments), and (z) all unamortized debt discount and expense and unamortized deferred charges as of such date, as determined in accordance with GAAP. "Consolidated Tangible Assets" means, with respect to any Person as of any date, the sum of the consolidated gross book value as reflected in accounting books and records of such Person of all its property, both real and personal, less (i) the net book value of all its licenses, patents, patent applications, copyrights, trademarks, tradenames, goodwill, non-compete agreements or organizational expenses and other like intangibles, (ii) unamortized debt discount and expenses, (iii) all reserves for depreciation, obsolescence, depletion and amortization of its properties and (iv) all other proper reserves which should be provided in connection with the business conducted by such Person, all of the foregoing as determined in accordance with GAAP. "Convertible Preferred Stock" means the Company's 7 1/4% Junior Convertible Preferred Stock Due 2007. "Credit Agreements" means one or more debt facilities or commercial paper facilities with banks or other institutional lenders providing for revolving credit 135 56 loans, term loans, receivables financing (including through the sale of receivables to such lenders or to special purpose entities formed to borrow from such lenders against such receivables) or letters of credit, in each case, as amended, restated, modified, renewed, refunded, replaced or refinanced in whole or in part from time to time. "Cumulative Consolidated Interest Expense" means, with respect to any Person, as of any date of determination, Consolidated Interest Expense for the period (taken as one accounting period) from the beginning of the first fiscal quarter commencing after the Issue Date to the end of such Person's most recently ended fiscal quarter for which internal financial statements are available at such date of determination. "Cumulative Operating Cash Flow" means, as of any date of determination, Operating Cash Flow for the Company and its Restricted Subsidiaries for the period (taken as one accounting period) from the beginning of the first fiscal quarter commencing after the Issue Date to the end of the Company's most recently ended fiscal quarter for which internal financial statements are available at such date of determination. "Currency Agreement" means in respect of a Person any foreign exchange contract, currency swap agreement or other similar agreement designed to protect such Person against fluctuations in currency values. "Default" means any event which is, or after notice or passage of time or both would be, a Voting Rights Triggering Event. "Disqualified Stock" means, with respect to any Person, any Capital Stock which by its terms (or by the terms of any security into which it is convertible or for which it is exchangeable) or upon the happening of any event (i) matures or is mandatorily redeemable pursuant to a sinking fund obligation or otherwise, (ii) is convertible or exchangeable for Indebtedness or Disqualified Stock or (iii) is redeemable at the option of the holder thereof, in whole or in part, in each case on or prior to the first 136 57 anniversary of the Stated Maturity of the Exchangeable Preferred Stock; provided, however, that any Capital Stock that would not constitute Disqualified Stock but for provisions thereof giving holders thereof the right to require such Person to repurchase or redeem such Capital Stock upon the occurrence of an "asset sale" or "change of control" occurring prior to the first anniversary of the Stated Maturity of the Securities shall not constitute Disqualified Stock if the "asset sale" or "change of control" provisions applicable to such Capital Stock are not more favorable to the holders of such Capital Stock than the comparable provisions of the Exchange Indenture; provided further, however, that the Company's Convertible Preferred Stock outstanding on the Issue Date (and any shares of Convertible Preferred Stock issued as payment of a dividend on Convertible Preferred Stock) shall be deemed not to constitute Disqualified Stock. "Exchange Act" means the Securities Exchange Act of 1934, as amended. "Exchange Date" means the date on which the Securities are exchanged for the Exchangeable Preferred Stock. "Exchange Debentures" means the debentures issuable pursuant to the Exchange Indenture. "Exchange Offer Registration Statement" means a registration statement filed with the SEC with respect to a Registered Exchange Offer. "Exchange Indenture" means the Indenture dated as of August 15, 1997, by and between the Company and The Bank of New York, as Trustee, governing the Exchange Debentures. "Excluded PSINet Transactions" means any transaction between the Company or any of its Restricted Subsidiaries with PSINet Inc., so long as at the time of engaging in, or contracting to engage in, such transaction, the Company and its Subsidiaries have not acquired shares of PSINet Common Stock other than the PSINet Shares. 137 58 "GAAP" means generally accepted accounting principles in the United States of America as in effect as of the Issue Date, including those set forth in (i) the opinions and pronouncements of the Accounting Principles Board of the American Institute of Certified Public Accountants, (ii) statements and pronouncements of the Financial Accounting Standards Board, (iii) such other statements by such other entity as approved by a significant segment of the accounting profession and (iv) the rules and regulations of the SEC governing the inclusion of financial statements (including pro forma financial statements) in periodic reports required to be filed pursuant to Section 13 of the Exchange Act, including opinions and pronouncements in staff accounting bulletins and similar written statements from the accounting staff of the SEC. All ratios and computations based on GAAP contained in this Certificate of Designation shall be computed in conformity with GAAP. "GE Capital Communications" means GE Capital Communications Services Corporation. "Guarantee" means any obligation, contingent or otherwise, of any Person directly or indirectly guaranteeing any Indebtedness of any Person and any obligation, direct or indirect, contingent or otherwise, of such Person (i) to purchase or pay (or advance or supply funds for the purchase or payment of) such Indebtedness of such Person or (ii) entered into for the purpose of assuring in any other manner the obligee of such Indebtedness of the payment thereof or to protect such obligee against loss in respect thereof (in whole or in part); provided, however, that the term "Guarantee" shall not include endorsements for collection or deposit in the ordinary course of business. The term "Guarantee" used as a verb has a corresponding meaning. "Hedging Obligations" of any Person means the obligations of such Person pursuant to any Interest Rate Agreement or Currency Agreement. "Holder" means the Person in whose name a share of Exchangeable Preferred Stock is registered on the Transfer Agent's books. 138 59 "Incur" means issue, assume, Guarantee, incur or otherwise become liable for; provided, however, that any Indebtedness or Capital Stock of a Person existing at the time such Person becomes a Subsidiary (whether by merger, consolidation, acquisition or otherwise) shall be deemed to be Incurred by such Subsidiary at the time it becomes a Subsidiary. The term "Incurrence" when used as a noun shall have a correlative meaning. The accretion of principal of a non-interest bearing or other discount security shall be deemed the Incurrence of Indebtedness. "Indebtedness" means, with respect to any Person on any date of determination (without duplication): (i) the principal in respect of (A) indebtedness of such Person for money borrowed and (B) indebtedness evidenced by securities, debentures, bonds or other similar instruments for the payment of which such Person is responsible or liable, including, in each case, any premium on such indebtedness to the extent such premium has become due and payable; (ii) all Capital Lease Obligations of such Person and all Attributable Debt in respect of Sale/Leaseback Transactions entered into by such Person; (iii) all obligations of such Person issued or assumed as the deferred purchase price of property, and all obligations of such Person under any title retention agreement (but excluding trade accounts payable arising in the ordinary course of business); (iv) all obligations of such Person for the reimbursement of any obligor on any letter of credit, banker's acceptance or similar credit transaction (other than obligations with respect to letters of credit securing obligations (other than obligations described in clauses (i) through (iii) above) entered into in the ordinary course of business of such Person to the extent such letters of credit are not drawn upon or, if and to the extent drawn upon, such drawing is reimbursed no later than the tenth Business Day following payment on the letter of credit); 139 60 (v) the amount of all obligations of such Person with respect to the redemption, repayment or other repurchase of any Disqualified Stock or, with respect to any Subsidiary of such Person, the liquidation preference with respect to, any Preferred Stock (but excluding, in each case, any accrued dividends) of such Subsidiary (which will constitute Indebtedness Incurred by such Subsidiary and not Indebtedness Incurred by such Person); (vi) all obligations of the type referred to in clauses (i) through (v) of other Persons and all dividends of other Persons for the payment of which, in either case, such Person is responsible or liable, directly or indirectly, as obligor, guarantor or otherwise, including by means of any Guarantee; (vii) all obligations of the type referred to in clauses (i) through (vi) of other Persons secured by any Lien on any property or asset of such Person (whether or not such obligation is assumed by such Person), the amount of such obligation being deemed to be the lesser of the value of such property or assets or the amount of the obligation so secured; and (viii) to the extent not otherwise included in this definition, Hedging Obligations of such Person. The amount of Indebtedness of any Person at any date shall be the outstanding balance at such date of all unconditional obligations as described above and the maximum liability, upon the occurrence of the contingency giving rise to the obligation, of any contingent obligations at such date. "Indebtedness to Operating Cash Flow Ratio" means, as of any date of determination, the ratio of (a) the aggregate principal amount of all outstanding Indebtedness of a Person and its Restricted Subsidiaries as of such date on a consolidated basis, plus the aggregate liquidation preference of all outstanding Preferred Stock of the Restricted Subsidiaries of such Person as of such date (excluding any such Preferred Stock held by such Person or a Wholly Owned Restricted Subsidiary of such Person), plus the 140 61 aggregate liquidation preference or redemption amount of all Disqualified Stock of such Person (excluding any Disqualified Stock held by such Person or a Wholly Owned Restricted Subsidiary of such Person) as of such date to (b) Operating Cash Flow of such Person and its Restricted Subsidiaries for the most recent four-quarter period for which internal financial statements are available, determined on a pro forma basis after giving effect to all acquisitions and dispositions of assets (notwithstanding clause (ii) of the definition of "Consolidated Net Income" and including Asset Swaps) made by such Person and its Restricted Subsidiaries since the beginning of such four-quarter period through such date as if such acquisitions and dispositions had occurred at the beginning of such four-quarter period through such date as if such acquisitions and dispositions had occurred at the beginning of such four-quarter period. "Independent Financial Advisor" means a United States investment banking firm of national standing in the United States which does not, and whose directors, officers and employees or affiliates do not, have a direct or indirect financial interest in the Company. "Interest Rate Agreement" means in respect of a Person any interest rate swap agreement, interest rate cap agreement or other financial agreement or arrangement designed to protect such Person against fluctuations in interest rates. "Investment" in any Person means any direct or indirect advance, loan or any other extensions of credit (other than advances, loans or other extensions of credit to customers in the ordinary course of business that are recorded as accounts receivable on the balance sheet of the lender and other than commission, travel, relocation and similar advances to directors, officers and employees made in the ordinary course of business) (including by way of Guarantee or similar arrangement) or capital contribution to any Person (by means of any transfer of cash or other property to others or any payment for property or services for the account or use of such Person), or any purchase or acquisition of Capital Stock, Indebtedness or other similar 141 62 instruments issued by such Person. For purposes of the definition of "Unrestricted Subsidiary," the definition of "Restricted Payment" and paragraph (l)(iii), (i) "Investment" shall include the portion (proportionate to the Company's equity interest in such Subsidiary) of the fair market value of the net assets of any Subsidiary of the Company at the time that such Subsidiary is designated an Unrestricted Subsidiary; provided, however, that upon a redesignation of such Subsidiary as a Restricted Subsidiary, the Company shall be deemed to continue to have a permanent "Investment" in an Unrestricted Subsidiary equal to an amount (if positive) equal to (x) the Company's "Investment" in such Subsidiary at the time of such redesignation less (y) the portion (proportionate to the Company's equity interest in such Subsidiary) of the fair market value of the net assets of such Subsidiary at the time of such redesignation; and (ii) any property transferred to or from an Unrestricted Subsidiary shall be valued at its fair market value at the time of such transfer, in each case as determined in good faith by the Board of Directors; provided further, however, that an acquisition of assets, Capital Stock or other securities by the Company or any of its Restricted Subsidiaries shall not be deemed to be an Investment to the extent the consideration for such Capital Stock or other securities consists of common equity securities of the Company. "IRU" means an indefeasible right to use fiber or telecommunications capacity. "IRU Agreement" means an agreement pursuant to which an interest in an IRU is sold or leased or otherwise transferred. "Issue Date" means the date on which the Initial Exchangeable Preferred Stock is originally issued. "IXC Internet Capital Contribution" means the contribution by the Company to IXC Internet Services, Inc. (so long as IXC Internet Services, Inc. is a Subsidiary) of $10 million in cash, an IRU in two excess fibers in the Company's network (including two fibers in network routes to be built or acquired in the future) and space in certain points of 142 63 presence, in each case as contemplated in connection with the transactions contemplated by the PSINet Agreement. "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. "Lien" means any mortgage, pledge, security interest, encumbrance, lien or charge of any kind (including any conditional sale or other title retention agreement or lease in the nature thereof). "Moody's" means Moody's Investors Service, Inc. or its successor. "Net Cash Proceeds", with respect to any issuance or sale of Capital Stock, means the cash proceeds of such issuance or sale net of attorneys' fees, accountants' fees, underwriters' or placement agents' fees, discounts or commissions and brokerage, consultant and other fees actually incurred in connection with such issuance or sale and net of taxes paid or payable as a result thereof. "Officer" means the Chairman of the Board, the President, any Vice President, the Treasurer or the Secretary of the Company. "Officers' Certificate" means a certificate signed by two Officers. "Operating Cash Flow" means, with respect to any Person for any period, the Consolidated Net Income of such Person for such period, (A) plus (i) extraordinary net losses, net losses on sales of assets outside the ordinary course of business during such period and noncash charges relating to write-downs of property and equipment, to the extent such losses and charges were deducted in computing such Consolidated Net Income, plus (ii) provision for taxes based on income or profits, to the extent such provision for taxes was included in computing such Consolidated Net Income, and any provision for taxes utilized in computing the net losses under clause (i) hereof, plus (iii) Consolidated Interest Expense of such Person and its 143 64 Restricted Subsidiaries for such period, to the extent that any such expense was deducted in computing such Consolidated Net Income, plus (iv) depreciation, amortization (including amortization of goodwill and other intangibles but excluding amortization of prepaid cash expenses that were paid in a prior period) and other noncash charges (excluding any such noncash charge to the extent that it represents an accrual of or reserve for cash charges in any future period or amortization of a prepaid cash expense that was paid in a prior period) of such Person and its Restricted Subsidiaries for such period to the extent that such depreciation, amortization and other noncash charges were deducted in computing such Consolidated Net Income and (B) less all noncash income for such period (excluding any such noncash income to the extent it represents an accrual of cash income in any future period or amortization of cash income received in a period). Notwithstanding the foregoing, the provision for taxes on the income or profits of, and the depreciation and amortization and other noncash charges of, a Restricted Subsidiary of the referent Person shall be added to Consolidated Net Income to compute Operating Cash Flow only to the extent (and in the same proportion) that the net income of such Restricted Subsidiary was included in calculating the Consolidated Net Income of such Person for such period and only if and to the extent such Restricted Subsidiary could have paid such amount at the date of determination as a dividend or similar distribution to the referent Person by such Restricted Subsidiary without prior governmental approval (that has not been obtained), pursuant to the terms of its charter and all agreements, instruments, judgments, decrees, orders, statutes, rules and governmental regulations applicable to that Restricted Subsidiary or its stockholders. "Opinion of Counsel" means a written opinion from legal counsel who is acceptable to the Trustee. The counsel may be an employee of or counsel to the Company or the Trustee. "Permitted Business" means (i) any communications business and (ii) any business reasonably related or ancillary thereto. 144 65 "Permitted Holders" means the officers and directors of the Company, and Trustees of General Electric Pension Trust, Grumman Hill Associates, Inc. and Grumman Hill Investments, L.P., and each of their respective officers and directors and their Related Parties. "Permitted Investment" means an Investment by the Company or any Restricted Subsidiary in (i) the Company, a Restricted Subsidiary or a Person that will, upon the making of such Investment, become a Restricted Subsidiary; provided, however, that the primary business of such Restricted Subsidiary is a Related Business; (ii) another Person if as a result of such Investment such other Person is merged or consolidated with or into, or transfers or conveys all or substantially all its assets to, the Company or a Restricted Subsidiary; provided, however, that such Person's primary business is a Related Business; (iii) Temporary Cash Investments; (iv) receivables owing to the Company or any Restricted Subsidiary if created or acquired in the ordinary course of business and payable or dischargeable in accordance with customary trade terms; provided, however, that such trade terms may include such concessionary trade terms as the Company or any such Restricted Subsidiary deems reasonable under the circumstances; (v) payroll, travel, commission and similar advances to cover matters that are expected at the time of such advances ultimately to be treated as expenses for accounting purposes and that are made in the ordinary course of business; (vi) loans or advances to employees made in the ordinary course of business consistent with past practices of the Company or such Restricted Subsidiary; (vii) stock, obligations or securities received in settlement of debts created in the ordinary course of business and owing to the Company or any Restricted Subsidiary or in satisfaction of judgments; (viii) the IXC Internet Capital Contribution; (ix) the Investment in PSINet Inc. contemplated by the PSINet Agreement, including the Investment in shares of PSINet Common Stock purchased pursuant to the PSINet Agreement and the $240 million value protection right provided for by the PSINet Agreement; and (x) other Investments in any Person that in the aggregate do not exceed $30 million (without regard to increases and decreases in the value of the Investments). 145 66 "Permitted PSINet Non-Recourse Debt" means Indebtedness where (i) the holders of such Indebtedness expressly agree that they will look solely to the shares of PSINet Common Stock held by the issuer of such Indebtedness for payment on or in respect of such Indebtedness and expressly waive any recourse they may have on or with respect to such Indebtedness to the Company or any Restricted Subsidiary, (ii) neither the Company nor any Restricted Subsidiary (A) provides credit support (whether or not in the form of an undertaking, agreement or instrument which would constitute Indebtedness), other than the pledge by the issuer of such Indebtedness of shares of PSINet Common Stock, or (B) is directly or indirectly liable and (iii) no default with respect to such Indebtedness (including any rights which the holders thereof may have to take enforcement action against the shares of PSINet Common Stock securing such Indebtedness) would permit (upon notice, lapse of time or both) any holder of any other Indebtedness of the Company or any Restricted Subsidiary to declare a default on such other Indebtedness or cause the payment thereof to be accelerated or payable prior to its stated maturity. "Person" means any individual, corporation, partnership, limited liability company, joint venture, 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 Person, means Capital Stock of any class or classes (however designated) which is preferred as to the payment of dividends or distributions, or as to the distribution of assets upon any voluntary or involuntary liquidation or dissolution of such Person, over shares of Capital Stock of any other class of such Person. "principal" of any debt security means the principal of the Security plus the premium, if any, payable on the Security which is due or overdue or is to become due at the relevant time. 146 67 "PSINet Agreement" means the IRU and Stock Purchase Agreement dated as of July 22, 1997, between IXC Internet Services, Inc. and PSINet Inc. and the related documents executed in connection therewith, in each case as in effect as of the Issue Date. "PSINet Common Stock" means the common stock of PSINet, Inc. "PSINet Shares" means the shares of PSINet Common Stock acquired by the Company or any Subsidiary pursuant to the terms of the PSINet Agreement. "Public Equity Offering" means an underwritten primary public offering of common stock of the Company pursuant to an effective registration statement under the Securities Act. "Refinance" means, in respect of any Indebtedness, to refinance, extend, renew, refund, repay, prepay, redeem, defease or retire, or to issue other Indebtedness in exchange or replacement for, such indebtedness. "Refinanced" and "Refinancing" shall have correlative meanings. "Refinancing Indebtedness" means Indebtedness that Refinances any Indebtedness of the Company or any Restricted Subsidiary existing on the Issue Date or Incurred in compliance with this Certificate of Designation, including Indebtedness that Refinances Refinancing Indebtedness; provided, however, that (i) such Refinancing Indebtedness has a Stated Maturity no earlier than the Stated Maturity of the Indebtedness being Refinanced, (ii) such Refinancing Indebtedness has an Average Life at the time such Refinancing Indebtedness is Incurred that is equal to or greater than the Average Life of the Indebtedness being Refinanced and (iii) such Refinancing Indebtedness has an aggregate principal amount (or if Incurred with original issue discount, an aggregate issue price) that is equal to or less than the aggregate principal amount (or if Incurred with original issue discount, the aggregate accreted value) then outstanding or committed (plus accrued interest on the principal amount of Indebtedness Refinanced, and fees and 147 68 expenses, including any premium and defeasance costs) under the Indebtedness being Refinanced; provided further, however, that Refinancing Indebtedness shall not include (x) Indebtedness of a Subsidiary that Refinances Indebtedness of the Company (unless such Subsidiary was obligated under, or a guarantor of, the Indebtedness being Refinanced) or (y) Indebtedness of the Company or a Restricted Subsidiary that Refinances Indebtedness of an Unrestricted Subsidiary. "Registered Exchange Offer" means the offer by the Company, pursuant to the Registration Rights Agreement, to holders of Initial Exchangeable Preferred Stock to issue and deliver to such holders, in exchange for the Initial Exchangeable Preferred Stock, a like aggregate liquidation preference of Series B Stock registered under the Securities Act. "Registration Rights Agreement" means the Registration Rights Agreement dated August 14, 1997, among the Company and Credit Suisse First Boston Corporation, Merrill Lynch, Pierce, Fenner & Smith Incorporated and Morgan Stanley and Co. Incorporated. "Related Business" means any Permitted Business, the businesses conducted by the Company and the Restricted Subsidiaries on the Issue Date and any business related, ancillary or complementary to such businesses conducted by the Company and the Restricted Subsidiaries on the Issue Date. "Related Party" with respect to any Permitted Holder means (i) any controlling stockholder, 80% (or more) owned Subsidiary, or spouse or immediate family member (in the case of an individual) of such Principal or (ii) any trust, corporation, partnership or other entity, the beneficiaries, stockholders, partners, owners or Persons beneficially holding an 80% or more controlling interest of which consist of such Permitted Holder or such other Persons referred to in the immediately preceding clause (i). 148 69 "Representative" means any trustee, agent or representative (if any) for an issue of Senior Indebtedness of the Company. "Restricted Payment" with respect to any Person means (i) the declaration or payment of any dividends or any other distributions of any sort in respect of, in the case of the Company, any Junior Stock or, in the case of any Restricted Subsidiary, any Capital Stock (including any payment in connection with any merger or consolidation involving such Person) or similar payment to the direct or indirect holders of such Stock (other than dividends or distributions payable solely in Junior Stock (other than Disqualified Stock) and dividends or distributions to the extent paid to the Company or a Restricted Subsidiary, and other than pro rata dividends or other distributions made by a Subsidiary that is not a Wholly Owned Restricted Subsidiary to minority stockholders (or owners of an equivalent interest in the case of a Subsidiary that is an entity other than a corporation)), (ii) the purchase, redemption or other acquisition or retirement for value of any Junior Stock of the Company or Capital Stock of any direct or indirect parent of the Company or (iii) the making of any Investment in any Person (other than a Permitted Investment). "Restricted Subsidiary" means any Subsidiary of the Company that is not an Unrestricted Subsidiary. "Sale/Leaseback Transaction" means an arrangement relating to property now owned or hereafter acquired whereby the Company or a Restricted Subsidiary transfers such property to a Person and the Company or a Restricted Subsidiary leases it from such Person. "SEC" means the Securities and Exchange Commission. "Secured Indebtedness" means any Indebtedness of the Company secured by a Lien. "Senior Notes" means the Company's 12 1/2% Senior Notes Due 2005. 149 70 "Series 3 Preferred Stock" means the Company's 10% Junior Series 3 Cumulative Redeemable Preferred Stock. "Shelf Registration Statement" means a registration statement filed with the SEC covering resales of Exchangeable Preferred Stock. "Significant Subsidiary" means any Restricted Subsidiary that would be a "Significant Subsidiary" of the Company within the meaning of Rule 1-02 under Regulation S-X promulgated by the SEC. "Standard & Poor's" means Standard & Poor's Ratings Group, or its successor. "Stated Maturity" means, with respect to any security, the date specified in such security as the fixed date on which the final payment of principal of such security is due and payable, including pursuant to any mandatory redemption provision (but excluding any provision providing for the repurchase of such security at the option of the holder thereof upon the happening of any contingency unless such contingency has occurred). "Subordinated Indebtedness" means the Exchange Debentures and any other Indebtedness of the Company that specifically provides that such Indebtedness is to rank pari passu with the Exchange Debentures in right of payment and is not subordinated by its terms to any Indebtedness or other obligation of the Company which is not Senior Indebtedness (as defined in the Exchange Debenture). "Subordinated Obligation" means any Indebtedness of the Company (whether outstanding on the Issue Date or thereafter Incurred) which is subordinate or junior in right of payment to the Exchange Debentures pursuant to a written agreement to that effect. "Subsidiary" means, in respect of any Person, any corporation, association, partnership or other business entity of which more than 50% of the total voting power of shares of Capital Stock or other interests (including partnership interests) entitled (without regard to the 150 71 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 (i) such Person, (ii) such Person and one or more Subsidiaries of such Person or (iii) one or more Subsidiaries of such Person. "Temporary Cash Investments" means any of the following: (i) any investment in direct obligations of the United States of America or any agency thereof or obligations guaranteed by the United States of America or any agency thereof, (ii) investments in time deposit accounts, certificates of deposit and money market deposits maturing within 180 days of the date of acquisition thereof issued by a bank or trust company which is organized under the laws of the United States of America, any state thereof or any foreign country recognized by the United States of America, and which bank or trust company has capital, surplus and undivided profits aggregating in excess of $50,000,000 (or the foreign currency equivalent thereof) and has outstanding debt which is rated "A" (or such similar equivalent rating) or higher by at least one nationally recognized statistical rating organization (as defined in Rule 436 under the Securities Act) or any money-market fund sponsored by a registered broker dealer or mutual fund distributor, (iii) repurchase obligations with a term of not more than 30 days for underlying securities of the types described in clause (i) above entered into with a bank meeting the qualifications described in clause (ii) above, (iv) investments in commercial paper, maturing not more than 90 days after the date of acquisition, issued by a corporation (other than an Affiliate of the Company) organized and in existence under the laws of the United States of America or any foreign country recognized by the United States of America with a rating at the time as of which any investment therein is made of "P-1" (or higher) according to Moody's Investors Service, Inc. or "A-1" (or higher) according to Standard and Poor's Ratings Group, and (v) investments in securities with maturities of six months or less from the date of acquisition issued or fully guaranteed by any state, commonwealth or territory of the United States of America, or by any political subdivision or taxing authority thereof, and rated at least "A" by Standard 151 72 & Poor's Ratings Group or "A" by Moody's Investors Service, Inc. "Trustee" means the party named as such in the Exchange Indenture until a successor replaces it and, thereafter, means the successor. "Trust Officer" means the Chairman of the Board, the President or any other officer or assistant officer of the Trustee assigned by the Trustee to administer its corporate trust matters. "Uniform Commercial Code" means the New York Uniform Commercial Code as in effect from time to time. "Unrestricted Subsidiary" means (i) any Subsidiary of the Company that at the time of determination shall be designated an Unrestricted Subsidiary by the Board of Directors in the manner provided below and (ii) any Subsidiary of an Unrestricted Subsidiary. The Board of Directors may designate any Subsidiary of the Company (including any newly acquired or newly formed Subsidiary) to be an Unrestricted Subsidiary unless such Subsidiary or any of its Subsidiaries owns any Capital Stock or Indebtedness of, or owns or holds any Lien (excluding Liens incurred to secure obligations in respect of an IRU) on any property of, the Company or any Restricted Subsidiary; provided, however, that either (A) the Subsidiary to be so designated has total assets of $1,000 or less or (B) if such Subsidiary has assets greater than $1,000, the Investment resulting from such designation would be permitted under paragraph (l)(iii). The Board of Directors may designate any Unrestricted Subsidiary to be a Restricted Subsidiary; provided, however, that immediately after giving effect to such designation (x) the Company could Incur $1.00 of additional Indebtedness under paragraph (l)(iii)(A) and (y) no Default shall have occurred and be continuing. Any such designation by the Board of Directors shall be evidenced to the Trustee by promptly filing with the Trustee a copy of the resolution of the Board of Directors giving effect to such designation and an Officers' Certificate certifying that such designation complied with the foregoing provisions. 152 73 "U.S. Government Obligations" means direct obligations (or certificates representing an ownership interest in such obligations) of the United States of America (including any agency or instrumentality thereof) for the payment of which the full faith and credit of the United States of America is pledged and which are not callable at the issuer's option. "Voting Stock" of a Person means all classes of Capital Stock or other interests (including partnership interests) of such Person then outstanding and normally entitled (without regard to the occurrence of any contingency) to vote in the election of directors, managers or trustees thereof. "Wholly Owned Restricted Subsidiary" means a Restricted Subsidiary all the Capital Stock of which (other than directors' qualifying shares) is owned by the Company or one or more Wholly Owned Subsidiaries. 153 IN WITNESS WHEREOF, said IXC Communications, Inc., has caused this Certificate of Designation to be signed by James F. Guthrie, its Chief Financial Officer and Executive Vice President, this 19th day of August, 1997. IXC COMMUNICATIONS, INC., By: /s/ JAMES F. GUTHRIE ---------------------------------- Name: James F. Guthrie Title: Chief Financial Officer and Executive Vice President 154 EXHIBIT A FORM OF EXCHANGEABLE PREFERRED STOCK FACE OF SECURITY [THIS SECURITY (OR ITS PREDECESSOR) WAS ORIGINALLY ISSUED IN A TRANSACTION EXEMPT FROM REGISTRATION UNDER THE UNITED STATES SECURITIES ACT OF 1933 (THE "SECURITIES ACT"), AND THIS SECURITY MAY NOT BE OFFERED, SOLD OR OTHERWISE TRANSFERRED IN THE ABSENCE OF SUCH REGISTRATION OR AN APPLICABLE EXEMPTION THEREFROM. EACH PURCHASER OF THIS SECURITY IS HEREBY NOTIFIED THAT THE SELLER OF THIS SECURITY MAY BE RELYING ON THE EXEMPTION FROM THE PROVISIONS OF SECTION 5 OF THE SECURITIES ACT PROVIDED BY RULE 144A THEREUNDER. THE HOLDER OF THIS SECURITY AGREES FOR THE BENEFIT OF THE ISSUER THAT (A) THIS SECURITY MAY BE OFFERED, RESOLD, PLEDGED OR OTHERWISE TRANSFERRED ONLY (i) TO A PERSON WHOM THE SELLER REASONABLY BELIEVES IS A "QUALIFIED INSTITUTIONAL BUYER" (AS DEFINED IN RULE 144A UNDER THE SECURITIES ACT) IN A TRANSACTION MEETING THE REQUIREMENTS OF RULE 144A, (II) IN AN OFFSHORE TRANSACTION IN ACCORDANCE WITH RULE 904 UNDER THE SECURITIES ACT, (iii) PURSUANT TO AN EXEMPTION FROM REGISTRATION UNDER THE SECURITIES ACT PROVIDED BY RULE 144 THEREUNDER (IF AVAILABLE), (iv) PURSUANT TO AN EFFECTIVE REGISTRATION STATEMENT UNDER THE SECURITIES ACT OR (v) TO THE ISSUER, IN EACH OF CASES (i) THROUGH (iv) IN ACCORDANCE WITH ANY APPLICABLE SECURITIES LAWS OF ANY STATE OF THE UNITED STATES, AND (B) THE HOLDER WILL, AND EACH SUBSEQUENT HOLDER IS REQUIRED TO, NOTIFY ANY PURCHASER OF THIS SECURITY FROM IT OF THE RESALE RESTRICTIONS REFERRED TO IN (A) ABOVE.]* [BY ITS ACQUISITION HEREOF, THE HOLDER REPRESENTS THAT (A) IT IS A "QUALIFIED INSTITUTIONAL BUYER" (AS DEFINED IN RULE 144A UNDER THE SECURITIES ACT) OR (B) IT IS NOT A U.S. PERSON AND IS ACQUIRING THIS SECURITY IN AN OFFSHORE TRANSACTION IN ACCORDANCE WITH REGULATION S.]*/ - -------- * Subject to removal upon registration under the Securities Act of 1933 or otherwise when the security shall no longer be a restricted security. 155 2 [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 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.]** Certificate Number Number of Shares of Convertible Preferred Stock [ ] [ ] CUSIP NO.: [ ] 12 1/2% Junior Exchangeable Preferred Stock Due 2009 (par value $0.01) (liquidation preference $1000 per share) of IXC Communications, Inc. IXC Communications, Inc., a Delaware corporation (the "Company"), hereby certifies that [ ] (the - -------- ** Subject to removal if not a global security. 156 3 "Holder") is the registered owner of fully paid and non-assessable preferred securities of the Company designated the 12 1/2% [Series B] Junior Exchangeable Preferred Stock Due 2009 (par value $0.01) (liquidation preference $1000 per share) (the "Exchangeable Preferred Stock"). The shares of Exchangeable 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, restrictions, preferences and other terms and provisions of the Exchangeable Preferred Stock represented hereby are issued and shall in all respects be subject to the provisions of the Certificate of Designation dated August [ ], 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 ompany 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 Exchangeable 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 Exchangeable 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., 157 4 By: ---------------------------------- Name: Title: [Seal] By: ---------------------------------- Name: Title: 158 5 TRANSFER AGENT'S CERTIFICATE OF AUTHENTICATION This is one of the Exchangeable Preferred Stock referred to in the within mentioned Certificate of Designation. Dated: [ ], [ ] THE BANK OF NEW YORK as Transfer Agent, By: ---------------------------------- Authorized Signatory 159 6 REVERSE OF SECURITY Dividends on each share of Exchangeable 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 Exchangeable Preferred Stock shall be redeemable as provided in the Certificate of Designation. The shares of Exchangeable Preferred Stock shall be exchangeable at the Company's option into the Company's 12-1/2% Subordinated Exchange Debentures Due 2009 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. 160 7 ASSIGNMENT FOR VALUE RECEIVED, the undersigned assigns and transfers the shares of Exchangeable 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 Exchangeable 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 Exchangeable 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 161 8 - ------------ 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.) 162 EXHIBIT B CERTIFICATE TO BE DELIVERED UPON EXCHANGE OR REGISTRATION OF TRANSFER OF EXCHANGEABLE PREFERRED STOCK Re: 12 1/2% Junior Exchangeable Preferred Stock Due 2009 (the "Exchangeable Preferred Stock") of IXC Communications, Inc. (the "Company") This Certificate relates to ____ shares of Exchangeable 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 Exchangeable Preferred Stock held by the depository shares of Exchangeable Preferred Stock in definitive, registered form equal to its beneficial interest in such Exchangeable Preferred Stock (or the portion thereof indicated above); or [ ] has requested the Transfer Agent by written order to exchange or register the transfer of Exchangeable Preferred Stock. In connection with such request and in respect of such Exchangeable Preferred Stock, the Transferor does hereby certify that the Transferor is familiar with the Certificate of Designation relating to the above captioned Exchangeable Preferred Stock and that the transfer of this Exchangeable Preferred Stock does not require registration under the Securities Act of 1933 (the "Securities Act") because */: [ ] Such Exchangeable Preferred Stock is being acquired for the Transferor's own account without transfer. [ ] Such Exchangeable Preferred Stock is being transferred to the Company. - -------- * /Please check applicable box. 163 2 [ ] Such Exchangeable 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 with a certification in substantially the form of Exhibit C to the Certificate of Designation). [ ] Such Exchangeable 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 ------------------ ----------------------------------- 164 EXHIBIT C FORM OF CERTIFICATE TO BE DELIVERED IN CONNECTION WITH TRANSFERS PURSUANT TO REGULATION S ----------, ---- The Bank of New York Attention: [ ] Ladies and Gentlemen: In connection with our proposed sale of certain 12 1/2% Junior Exchangeable Preferred Stock Due 2009 (the "Exchangeable Preferred Stock") of IXC Communications, Inc., a Delaware corporation ("the "Company"), we represent that: (i) the offer of the Exchangeable 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 165 4 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: 166 CERTIFICATE OF DESIGNATION OF THE POWERS, PREFERENCES AND RELATIVE, PARTICIPATING, OPTIONAL AND OTHER SPECIAL RIGHTS OF 6 3/4% CUMULATIVE CONVERTIBLE PREFERRED STOCK 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 (i) pursuant to authority conferred upon the board of directors of the Company (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 Sections 141(c)(2) and 151 of the General Corporation Law of the State of Delaware, said Board of Directors is authorized to issue Preferred Stock of the Company in one or more series and has authorized a committee of the Board of Directors (the "Finance Committee") to adopt the resolution set forth below and (ii) the Finance Committee duly approved and adopted the following resolution on March 25, 1998 (the "Resolution"): RESOLVED that, pursuant to the authority vested in the Board of Directors by its Restated Certificate of Incorporation, and the authority vested by such Board of Directors in a committee of the Board (the "Finance Committee"), all the members of which are members of such Board, the Finance Committee does hereby create, authorize and provide for the issuance of 6 3/4% Cumulative Convertible Preferred Stock, par value $.01 per share, with a stated value of $1000 per share, initially consisting of up to 155,250 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: 1. 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 "6 3/4% Cumulative Convertible Preferred Stock" (the "Cumulative Convertible Preferred Stock"). The number of shares constituting the Cumulative Convertible Preferred Stock shall be 155,250, and such shares shall be represented by stock certificates substantially in the form set forth in Exhibit A hereto. The liquidation preference of the Cumulative Convertible Preferred Stock shall be $1,000 167 per share (the "Liquidation Preference"). The date the Cumulative Convertible Preferred Stock is first issued is referred to as the "Issue Date". 2. Rank. The Cumulative Convertible Preferred Stock will, rank (i) pari passu in right of payment with the Company's 7 1/4% Junior Convertible Preferred Stock Due 2007 (the "7 1/4% Preferred Stock"), the Company's 12 1/2% Junior Exchangeable Preferred Stock Due 2009 and 12 1/2% Series B Junior Exchangeable Preferred Stock Due 2009 (collectively, the "Exchangeable Preferred Stock") and each other class of Capital Stock or series of Preferred Stock established hereafter by the Board of Directors, the terms of which expressly provide that such class or series ranks on a parity with the Cumulative Convertible Preferred Stock as to dividend rights and rights on liquidation, dissolution and winding up of the Company (collectively referred to, as "Parity Securities"); (ii) junior in right of payment to any Senior Securities (as defined) as to dividends and upon liquidation, dissolution or winding up of the Company and (iii) senior in right of payment as to dividend rights and upon liquidation, dissolution or winding up of the Company to the Common Stock and any Capital Stock of the Company that expressly provides that it will rank junior to the Cumulative Convertible Preferred Stock as to dividend rights or rights on liquidation, winding up and dissolution of the Company (collectively referred to as "Junior Securities"). The Company may not authorize, create (by way of reclassification or otherwise) or issue any class or series of Capital Stock of the Company ranking senior in right of payment as to dividend rights or upon liquidation, dissolution or winding up of the Company to the Cumulative Convertible Preferred Stock ("Senior Securities") or any obligation or security convertible or exchangeable into, or evidencing a right to purchase, shares of any class or series of Senior Securities without the affirmative vote or consent of the holders of at least 66-2/3% of the outstanding shares of Cumulative Convertible Preferred Stock. 3. Dividends. The Holders of shares of the Cumulative Convertible Preferred Stock will be entitled to receive, when, as and if dividends are declared by the Board of Directors out of funds of the Company legally available therefor, cumulative preferential dividends from the Issue Date of the Cumulative Convertible Preferred Stock accruing at the rate of $67.50 per share of Cumulative Convertible Preferred Stock per annum, or $16.875 per share of Cumulative Convertible Preferred Stock per quarter, payable quarterly in arrears on January 1, April 1, July 1, and October 1 of each year or, if any such date is not a Business Day, on the next succeeding business day (each, a "Dividend Payment Date"), to the Holders of record as of the next preceding December 15, March 15, June 15, and September 15 (each, a "Record Date"). Accrued but unpaid dividends, if any, may be paid on such dates as determined by the Board of Directors. Dividends will be payable in cash except as set forth below. Dividends payable on the Cumulative Convertible Preferred Stock will be computed on the basis of a 360-day year of twelve 30-day months and will be deemed to accrue on a daily basis. Dividends may, at the option of the Company, be paid in Common Stock if, and only if, the documents governing the Company's indebtedness that exists on the Issue Date then prohibit the payment of such dividends in cash. If the Company elects to pay dividends in shares of Common Stock, the number of shares of Common Stock to be distributed will be calculated by dividing the amount of such dividend otherwise payable in cash by 95% of the arithmetic average of the Closing Price (as defined) for the five Trading Days (as defined) preceding the Dividend Payment Date. The Cumulative Convertible Preferred Stock will not be redeemable unless all dividends accrued through such redemption date shall have been paid in full. -2- 168 Notwithstanding anything to the contrary herein contained, the Company shall not be required to declare or pay a dividend if another person (including, without limitation, any of its subsidiaries) pays an amount to the Holders equal to the amount of such dividend on behalf of the Company and, in such event, the dividend will be deemed paid for all purposes. Dividends on the Cumulative Convertible Preferred Stock will accrue whether or not the Company has earnings or profits, whether or not there are funds legally available for the payment of such dividends and whether or not dividends are declared. Dividends will accumulate to the extent they are not paid on the Dividend Payment Date for the quarter to which they relate. Accumulated unpaid dividends will accrue and cumulate at a rate of 6.75% per annum. The Company will take all reasonable actions required or permitted under Delaware law to permit the payment of dividends on the Cumulative Convertible Preferred Stock. No dividend whatsoever shall be declared or paid upon, or any sum set apart for the payment of dividends upon, any outstanding share of the Cumulative Convertible Preferred Stock with respect to any dividend period unless all dividends for all preceding dividend periods have been declared and paid upon, or declared and a sufficient sum set apart for the payment of such dividend upon, all outstanding shares of Cumulative Convertible Preferred Stock. Unless full cumulative dividends on all outstanding shares of Cumulative Convertible Preferred Stock due for all past dividend periods shall have been declared and paid, or declared and a sufficient sum for the payment thereof set apart, then: (i) no dividend (other than a dividend payable solely in shares of Junior Securities or options, warrants or rights to purchase Junior Securities) shall be declared or paid upon, or any sum set apart for the payment of dividends upon, any shares of Junior Securities; (ii) no other distribution shall be declared or made upon, or any sum set apart for the payment of any distribution upon, any shares of Junior Securities; (iii) no shares of Junior Securities shall be purchased, redeemed or otherwise acquired or retired for value (excluding an exchange for shares of other Junior Securities or a purchase, redemption or other acquisition from the proceeds of a substantially concurrent sale of Junior Securities) by the Company or any of its subsidiaries; and (iv) no monies shall be paid into or set apart or made available for a sinking or other like fund for the purchase, redemption or other acquisition or retirement for value of any shares of Junior Securities by the Company or any of its subsidiaries. Holders of the Cumulative Convertible Preferred Stock will not be entitled to any dividends, whether payable in cash, property or stock, in excess of the full cumulative dividends as herein described. 4. Liquidation Preference. Upon any voluntary or involuntary liquidation, dissolution or winding up of the affairs of the Company after payment in full of the liquidation preference (and any accrued and unpaid dividends) on any Senior Securities, each Holder of shares of the Cumulative Convertible Preferred Stock shall be entitled, on an equal basis with the holders of the 7 1/4% Preferred Stock, the Exchangeable Preferred Stock and any other outstanding Parity Securities, to payment out of the assets of the Company available for distribution of the Liquidation Preference per share of the Cumulative Convertible Preferred Stock held by such Holder, plus an amount equal to the accrued and unpaid dividends on the Cumulative Convertible Preferred Stock and Liquidated Damages (as defined) (if any) to the date fixed for liquidation, dissolution, or winding up before any distribution is made on any Junior Securities, including, without limitation, Common Stock of the Company. After payment in full of the Liquidation Preference and an amount -3- 169 equal to the accrued and unpaid dividends and Liquidated Damages (if any), to which Holders of Cumulative Convertible Preferred Stock are entitled, such Holders will not be entitled to any further participation in any distribution of assets of the Company. However, neither the voluntary sale, conveyance, exchange or transfer (for cash, shares of stock, securities or other consideration) of all or substantially all of the property or assets of the Company nor the consolidation or merger of the Company with or into one or more corporations will be deemed to be a voluntary or involuntary liquidation, dissolution or winding up of the Company, unless such sale, conveyance, exchange, transfer, consolidation or merger shall be in connection with a liquidation, dissolution or winding up of the affairs of the Company or reduction or decrease in capital stock. 5. Redemption. The Cumulative Convertible Preferred Stock may not be redeemed at the option of the Company on or prior to April 5, 2000. After April 5, 2000 the Company may redeem the Cumulative Convertible Preferred Stock. Notwithstanding the foregoing, prior to April 1, 2002, the Company shall only have the option to redeem shares of the Cumulative Convertible Preferred Stock if, during the period of 30 consecutive Trading Days ending on the Trading Day immediately preceding the date that the notice of redemption is mailed to Holders, the Closing Price for the Common Stock exceeded $75 divided by the Conversion Rate effective on the date of such notice for at least 20 of such Trading Days. Subject to the immediately preceding sentence, the Cumulative Convertible Preferred Stock may be redeemed, in whole or in part, at the option of the Company after April 5, 2000, at the redemption prices specified below (expressed as percentages of the Liquidation Preference thereof), in each case, together with an amount equal to accrued and unpaid dividends on the Cumulative Convertible Preferred Stock (excluding any declared dividends for which the Record Date has passed) and Liquidated Damages (if any), to the date of redemption, upon not less than 15 nor more than 60 days' prior written notice, if redeemed during the period commencing on April 5, 2000 to March 31, 2001 at 105.40%, and thereafter during the 12-month period commencing on April 1 of each of the years set forth below:
REDEMPTION YEAR RATE - ---- ------- 2001................................................ 104.73% 2002................................................ 104.05% 2003................................................ 103.38% 2004................................................ 102.70% 2005................................................ 102.03% 2006................................................ 101.35% 2007................................................ 100.68% 2008 and thereafter................................. 100.00%
Except as provided in the preceding sentence, no payment or allowance will be made for accrued dividends on any shares of Cumulative Convertible Preferred Stock called for redemption. On and after any date fixed for redemption (the "Redemption Date"), provided that the Company has made available at the office of the Transfer Agent a sufficient amount of cash to effect the redemption, dividends will cease to accrue on the Cumulative Convertible -4- 170 Preferred Stock called for redemption (except that, in the case of a Redemption Date after a dividend payment Record Date and prior to the related Dividend Payment Date, holders of Cumulative Convertible Preferred Stock on the dividend payment Record Date will be entitled on such Dividend Payment Date to receive the dividend payable on such shares), such shares shall no longer be deemed to be outstanding and all rights of the holders of such shares as holders of Cumulative Convertible Preferred Stock shall cease except the right to receive the cash deliverable upon such redemption, without interest from the Redemption Date. In the event of a redemption of only a portion of the then outstanding shares of Cumulative 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. With respect to a redemption pursuant hereto, the Company will send a written notice of redemption by first class mail to each holder of record of shares of Cumulative 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 Cumulative 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: a. the redemption price; b. whether all or less than all the outstanding shares of the Cumulative Convertible Preferred Stock are to be redeemed and the total number of shares of the Cumulative Convertible Preferred Stock being redeemed; c. the Redemption Date; d. 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 Cumulative Convertible Preferred Stock to be redeemed; and e. that dividends on the shares of the Cumulative Convertible Preferred Stock to be redeemed shall cease to accumulate on such Redemption Date unless the Company defaults in the payment of the redemption price. Each holder of Cumulative Convertible Preferred Stock shall surrender the certificate or certificates representing such shares of Cumulative 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 redemption price 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. -5- 171 6. Voting Rights. Holders of record of shares of the Cumulative Convertible Preferred Stock will have no voting rights, except as required by law and as provided in this Section 6 and in Sections 2, 8 and 13 hereof. Upon the accumulation of accrued and unpaid dividends on the outstanding Cumulative Convertible Preferred Stock in an amount equal to six full quarterly dividends (whether or not consecutive) (together with any event with a similar effect pursuant to the terms of any other series of Preferred Stock upon which like rights have been conferred, a "Voting Rights Triggering Event"), the number of members of the Company's Board of Directors will be immediately and automatically increased by two (unless previously increased pursuant to the terms of any other series of Preferred Stock upon which like rights have been conferred), and the Holders of a majority of the outstanding shares of Cumulative Convertible Preferred Stock, voting together as a class (pro rata, based on liquidation preference) with the holders of any other series of Preferred Stock upon which like rights have been conferred and are exercisable, will be entitled to elect two members to the Board of Directors of the Company. Voting rights arising as a result of a Voting Rights Triggering Event will continue until such time as all dividends in arrears on the Cumulative Convertible Preferred Stock are paid in full. Notwithstanding the foregoing, however, such voting rights to elect directors will expire when the number of shares of Cumulative Convertible Preferred Stock outstanding is reduced to 13,500 or less. In the event such voting rights expire or are no longer exercisable because dividends in arrears have been paid in full, the term of any directors elected pursuant to the provisions of this paragraph 6 above shall terminate forthwith and the number of directors constituting the Board of Directors shall be immediately and automatically 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 Cumulative Convertible Preferred Stock (together with the holders of any other series of Preferred Stock upon which like rights have been conferred and are exercisable) pursuant to this paragraph 6, 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 Cumulative Convertible Preferred Stock then outstanding or the holders of 25% of the shares of any other series of Preferred Stock then outstanding upon which like rights have been conferred and are exercisable addressed to the secretary of the Company shall, call a special meeting of the Holders of Cumulative Convertible Preferred Stock and the holders of such other series of Preferred Stock for the purpose of electing the directors which such holders are entitled to elect pursuant to the terms hereof; 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 (or such vacancies arise, as the case may be), in which case such meeting shall be deemed to have been called for such next annual meeting. If such meeting shall not be called, pursuant to the provision of the immediately preceding sentence, 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 Cumulative Convertible Preferred Stock or the holders of 25% of the shares of any other series of Preferred Stock upon which like rights have been conferred 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 -6- 172 Cumulative Convertible Preferred Stock or such other series of Preferred Stock so designated shall have, and the Company shall provide, access to the lists of Holders of Cumulative Convertible Preferred Stock and the holders of such other series of Preferred Stock for any such meeting of the holders thereof to be called pursuant to the provisions hereof. If no special meeting of the Holders of Cumulative Convertible Preferred Stock and the holders of such other series of Preferred Stock is called as provided in this paragraph 6, then such meeting shall be deemed to have been called for the next meeting of stockholders of the Company. At any meeting held for the purposes of electing directors at which the Holders of Cumulative Convertible Preferred Stock (together with the holders of any other series of Preferred 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 Cumulative Convertible Preferred Stock (and such other series of Preferred Stock) shall be required to constitute a quorum thereof. Any vacancy occurring in the office of a director elected by the Holders of Cumulative Convertible Preferred Stock (and such other series of Preferred Stock) may be filled by the remaining director elected by the Holders of Cumulative Convertible Preferred Stock (and such other series of Preferred Stock) unless and until such vacancy shall be filled by the Holders of Cumulative Convertible Preferred Stock (and such other series of Preferred Stock). Except as set forth above and otherwise required by applicable law, the creation, authorization or issuance of any shares of any Junior Securities, Parity Securities or Senior Securities, or the increase or decrease in the amount of authorized Capital Stock of any class, including Preferred Stock, shall not require the affirmative vote or consent of Holders of Cumulative Convertible Preferred Stock and shall not be deemed to affect adversely the rights, preferences, privileges or voting rights of shares of Cumulative Convertible Preferred Stock. In any case in which the Holders of Cumulative Convertible Preferred Stock shall be entitled to vote pursuant hereto or pursuant to Delaware law, each Holder of Cumulative Convertible Preferred Stock entitled to vote with respect to such matters shall be entitled to one vote for each share of Cumulative Convertible Preferred Stock held. Except as required by law, the Holders of the Cumulative 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. 7. Conversion Rights. The Cumulative Convertible Preferred Stock will be convertible at the option of the Holder, into shares of Common Stock at any time, unless previously redeemed or repurchased, at a conversion rate of 13.748 shares of Common Stock per share of the Cumulative Convertible Preferred Stock) (as adjusted pursuant to the provisions hereof, the "Conversion Rate") (subject to the adjustments described below). The right to convert a share of the Cumulative Convertible Preferred Stock called for redemption or delivered for repurchase will -7- 173 terminate at the close of business on the Redemption Date for such Cumulative Convertible Preferred Stock or at the time of the repurchase, as the case may be. The right of conversion attaching to any share of Cumulative Convertible Preferred Stock may be exercised by the Holder thereof by delivering the share to be converted to the office of the Transfer Agent, or any agency or office of the Company maintained for that purpose, accompanied by a duly signed and completed notice of conversion in form reasonably satisfactory to the Transfer Agent of the Company, such as that which is set forth in Exhibit B hereto. The conversion date will be the date on which the share and the duly signed and completed notice of conversion are so delivered. As promptly as practicable on or after the conversion date, the Company will issue and deliver to the Transfer Agent a certificate or certificates for the number of full shares of Common Stock issuable upon conversion, with any fractional shares rounded up to full shares or, at the Company's option, payment in cash in lieu of any fraction of a share, based on the Closing Price of the Common Stock on the Trading Day preceding the conversion date. Such certificate or certificates will be delivered by the Transfer Agent to the appropriate Holder on a book-entry basis or by mailing certificates evidencing the additional shares to the Holders at their respective addresses set forth in the register of Holders maintained by the Transfer Agent. All shares of Common Stock issuable upon conversion of the Cumulative Convertible Preferred Stock will be fully paid and nonassessable and will rank pari passu with the other shares of Common Stock outstanding from time to time. Any shares of Cumulative Convertible Preferred Stock surrendered for conversion during the period from the close of business on any Record Date to the opening of business on the next succeeding Dividend Payment Date must be accompanied by payment of an amount equal to the dividends payable on such Dividend Payment Date on the shares of Cumulative Convertible Preferred Stock being surrendered for conversion. No other payment or adjustment for dividends, or for any dividends in respect of shares of Common Stock, will be made upon conversion. Holders of Common Stock issued upon conversion will not be entitled to receive any dividends payable to holders of Common Stock as of any record time before the close of business on the conversion date. The Conversion Rate shall be adjusted from time to time by the Company as follows: a. 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 Rate 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 increased by multiplying such Conversion Rate by a fraction of which the denominator shall be the number of shares of Common Stock outstanding at the close of business on the Record Date (as defined below) fixed for such determination and the numerator shall be the sum of such number of outstanding shares and the total number of shares constituting such dividend or other distribution, such increase 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 provision (a) is declared but not so paid or made, the Conversion Rate shall again be adjusted to the Conversion Rate which would then be in effect if such dividend or distribution had not been declared. b. If the outstanding shares of Common Stock shall be subdivided into a greater number of shares of Common Stock, the Conversion Rate in effect at the opening of -8- 174 business on the day following the day upon which such subdivision becomes effective shall be proportionately increased and, conversely, if the outstanding shares of Common Stock shall be combined into a smaller number of shares of Common Stock, the Conversion Rate in effect at the opening of business on the day following the day upon which such combination becomes effective shall be proportionately reduced, such increase or reduction, 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. c. If the Company shall offer or issue rights, options 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 below) on the Record Date fixed for the determination of shareholders entitled to receive such rights or warrants, the Conversion Rate shall be adjusted so that the same shall equal the rate determined by multiplying the Conversion Rate in effect at the opening of business on the date after such Record Date by a fraction 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 number of shares of Common Stock which the aggregate offering price of the total number of shares of Common Stock subject to such rights, options or warrants would purchase at such Current Market Price and 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 total number of additional shares of Common Stock subject to such rights, options 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, options or warrants, upon the expiration or termination of such rights or warrants the Conversion Rate shall again be adjusted to be the Conversion Rate 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 Rate shall again be adjusted to be the Conversion Rate 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. d. 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 to which provision (a) of this Section 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 (c) of this Section) (the foregoing hereinafter called the "Distributed Securities"), then, in each such case, the Conversion Rate shall be increased so that the same shall be equal to the rate determined by multiplying the Conversion Rate in effect immediately prior to the close of business on the Record Date (as defined below) with respect to such distribution by a fraction of which the denominator shall be the Current Market Price (determined as provided in provision g(ii) of this Section) of the Common Stock on such date less the Fair Market Value (as -9- 175 defined below) on such date of the portion of the Distributed Securities so distributed applicable to one share of Common Stock and the numerator shall be such Current Market Price, such increase 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 Cumulative Convertible Preferred Stock shall have the right to receive upon conversion of a share of Cumulative Convertible Preferred Stock (or any portion thereof) the amount of Distributed Securities such holder would have received had such holder converted such share of Cumulative 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 Rate shall again be adjusted to be the Conversion Rate 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 hereof by reference to the actual or when issued trading market for any securities comprising all 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 provision g(ii) of this section 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 provision (d) (and no adjustment to the Conversion Rate under this provision (d) 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 Rate under this provision (d) 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 Rate under this provision (d) 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 Rate 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 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 Rate shall be readjusted as if such rights and warrants had not been issued. -10- 176 Notwithstanding any other provision of this provision (d) 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 provision (d) if the Company makes proper provision so that each Holder of shares of Cumulative Convertible Preferred Stock who converts a share of Cumulative 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 Cumulative Convertible Preferred Stock into Common Stock. For purposes of this provision (d), provision (a) and provision (b), any dividend or distribution to which this provision (d) is applicable that also includes Common Stock, or rights or warrants to subscribe for or purchase Common Stock to which provision (b) 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 provision (b) applies (and any Conversion Rate increase required by this provision (d) 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 Rate increase required by provisions (a) and (b) with respect to such dividend or distribution shall then be made), except that (1) the Record Date of such 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 provision (a) 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 provision (b), 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 provision (a). e. If the Company shall, by dividend or otherwise, distribute to all holders of its Common Stock cash (excluding any cash that is part of a distribution referred to in provision (d)) 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 provision (e) 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 provision (d) has been made, exceeds 10% of the product of the Current Market Price (determined as provided below) 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 Rate shall be -11- 177 increased so that the same shall equal the price determined by multiplying the Conversion Rate in effect immediately prior to the close of business on such Record Date by a fraction (i) the denominator 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 10% amount divided by (y) the number of shares of Common Stock outstanding on the Record Date and (ii) the numerator 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 Cumulative Convertible Preferred Stock shall have the right to receive upon conversion of a share of Cumulative Convertible Preferred Stock (or any portion thereof) the amount of cash such holder would have received had such holder converted such share of Cumulative 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 Rate shall again be adjusted to be the Conversion Rate which would then be in effect if such dividend or distribution had not been declared. f. 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 that, combined together with (1) the aggregate of the cash plus the Fair Market Value, 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 provision (f) has been made and (2) the aggregate amount of any distributions to all holders of 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 provision (e) has been made, exceeds 10% of the product of the Current Market Price 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 Rate shall be adjusted so that the same shall equal the price determined by multiplying the Conversion Rate in effect immediately prior to the close of business on the date of the Expiration Time by a fraction of which the denominator 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 numerator shall be the sum of (x) the Fair Market Value 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 -12- 178 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 Rate shall again be adjusted to be the Conversion Rate which would then be in effect if such tender offer had not been made. If the application of this provision (f) to any tender offer would result in a decrease in the Conversion Rate, no adjustment shall be made for such tender offer under this provision (f). The Company may make voluntary increases in the Conversion Rate in addition to those required in the foregoing provisions, provided that each such increase is in effect for at least 20 calendar days. In addition, in the event that any other transaction or event occurs as to which the foregoing Conversion Rate adjustment provisions are not strictly applicable but the failure to make any adjustment would adversely affect the conversion rights represented by the Cumulative Convertible Preferred Stock in accordance with the essential intent and principles of such provisions, then, in each such case, either (i) the Company will appoint an investment banking firm of recognized national standing, or any other financial expert that does not (or whose directors, officers, employees, affiliates or stockholders do not) have a direct or material indirect financial interest in the Company or any of its subsidiaries, who has not been, and, at the time it is called upon to give independent financial advice to the Company, is not (and none of its directors, officers, employees, affiliates or stockholders are) a promoter, director or officer of the Company or any of its subsidiaries, which will give their opinion upon or (ii) the Board of Directors shall, in its sole discretion, determine consistent with the Board of Directors' fiduciary duties to the holders of the Company's Common Stock, the adjustment, if any, on a basis consistent with the essential intent and principles established in the foregoing Conversion Rate adjustment provisions, necessary to preserve, without dilution, the conversion rights represented by the Cumulative Convertible Preferred Stock. Upon receipt of such opinion or determination, the Company will promptly mail a copy thereof to the Holders of the Cumulative Convertible Preferred Stock and will, subject to the fiduciary duties of the Board of Directors, make the adjustments described therein. The Company will provide to Holders of the Cumulative Convertible Preferred Stock reasonable notice of any event that would result in an adjustment to the Conversion Rate pursuant to this section so as to permit the Holders to effect a conversion of Cumulative Convertible Preferred Stock into shares of Common Stock prior to the occurrence of such event. g. For purposes of this section, the following terms shall have the meaning indicated: i. "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. ii. "Fair Market Value" shall mean the amount which a willing buyer would pay a willing seller in an arm's-length transaction, under usual and ordinary circumstances and after consideration of all available uses and purposes without any compulsion -13- 179 upon the seller to sell or the buyer to buy, as determined by the Board of Directors, whose determination shall be made in good faith and shall be conclusive and described in a resolution of the Board of Directors. iii. "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). h. No adjustment in the Conversion Rate shall be required unless such adjustment would require an increase or decrease of at least 1% in such rate; provided, however, that any adjustments which by reason of this paragraph are not required to be made shall be carried forward and taken into account in any subsequent adjustment. All calculations under this paragraph 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. i. Whenever the Conversion Rate is adjusted as herein provided, the Company shall promptly file with the Transfer Agent an Officers' Certificate setting forth the Conversion Rate 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 Rate setting forth the adjusted Conversion Rate and the date on which each adjustment becomes effective and shall mail such notice of such adjustment of the Conversion Rate to each holder of Cumulative 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. j. In any case in which this paragraph 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 Cumulative 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. k. For purposes of this paragraph, 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. -14- 180 8. Certain Covenants. a. Transactions with Affiliates Without the affirmative vote or consent of the holders of a majority of the outstanding shares of Cumulative Convertible Preferred Stock, the Company will not, and will not permit any of its subsidiaries to, make any payment to, or sell, lease, transfer or otherwise dispose of any of its properties or assets to, or purchase any property or assets from, or enter into or make or amend any contract, agreement, understanding, loan, advance or guarantee with, or for the benefit of, any Affiliate (each of the foregoing, an "Affiliate Transaction"), unless (i) such Affiliate Transaction is on terms that are no less favorable to the Company or the relevant subsidiary than those that would have been obtained in a comparable transaction by the Company or such subsidiary with an unrelated Person and (ii) the Company files in its minute books with respect to any Affiliate Transaction or series of related Affiliate Transaction involving aggregate consideration in excess of $1.0 million, a resolution of the Board of Directors set forth in an Officers' Certificate certifying that such Affiliate Transaction complies with clause (i) above and that such Affiliate Transaction has been approved by a majority of the members of the Board of Directors that are disinterested as to such Affiliate Transaction. As used herein, "Affiliate" of any specified Person means any other Person directly or indirectly controlling or controlled by or under direct or indirect common control with such specified Person. For purposes of this definition, "control" (including, with correlative meanings, the terms "controlling," "controlled by" and "under common control with"), as used with respect to any Person, shall mean the possession, directly or indirectly, of the power to direct or cause the direction of the management or policies of such Person, whether through the ownership of voting securities, by agreement or otherwise; provided that beneficial ownership of 10% or more of the voting securities of a Person shall be deemed to be control. The provisions of the foregoing paragraph shall not prohibit (i) any issuance of securities, or other payments, awards or grants in cash, securities or otherwise pursuant to, or the funding of, employment arrangements, stock options and stock ownership plans approved by the Board of Directors, (ii) the grant of stock options or similar rights to employees and directors of the Company pursuant to plans approved by the Board of Directors, (iii) any employment or consulting arrangement or agreement entered into by the Company or any of its subsidiaries in the ordinary course of business and consistent with the past practice of the Company or such subsidiary, (iv) the payment of reasonable fees to directors of the Company and its subsidiaries who are not employees of the Company or its subsidiaries, (v) any Affiliate Transaction between the Company and a subsidiary thereof or between such subsidiaries (for purposes of this paragraph, "subsidiary" includes any entity deemed to be an Affiliate because the Company or any of its subsidiaries own securities in such entity or controls such entity), or (vi) transactions between the Company or any subsidiary thereof specifically contemplated by the PSINet Agreement dated as of July 22, 1997 between a subsidiary of the Company and PSINet, as amended as of the date hereof. -15- 181 b. Payments for Consent The Company nor any of its subsidiaries will, directly or indirectly, pay or cause to be paid any consideration, whether by way of dividend or other distribution, fee or otherwise, to any Holder of shares of the Cumulative Convertible Preferred Stock for or as an inducement to any consent, waiver or amendment of any of the terms or provisions of the Certificate of Designations or the Cumulative Convertible Preferred Stock unless such consideration is offered to be paid and is paid to all Holders of the Cumulative Convertible Preferred Stock that consent, waive or agree to amend in the time frame set forth in the solicitation documents relating to such consent, waiver or agreement. c. Reports Whether or not required by the rules and regulations of the Commission, so long as any shares of the Cumulative Convertible Preferred Stock are outstanding, the Company will furnish to the Holders of the Cumulative Convertible Preferred Stock (i) all quarterly and annual financial information that would be required to be contained in a filing with the Commission on Forms 10-Q and 10-K if the Company were required to file such Forms, including "Management's Discussion and Analysis of Financial Condition and Results of Operations" and, with respect to the annual information only, a report thereon by the Company's certified independent accountants and (ii) all information that would be required to be contained in a current report on Form 8-K if the Company were required to file such reports. In the event the Company has filed any such report with the Commission, it will not be obligated to separately finish the report to any Holder unless and until such Holder requests a copy of the report. In addition, whether or not required by the rules and regulations of the Commission, the Company will file a copy of all such information and reports with the Commission for public availability (unless the Commission will not accept such a filing) and make such information available to securities analysts and prospective investors upon request. 9. Merger, Consolidation or Sale of Assets of the Company In the event that the Company is party to any Fundamental Change or transaction (including, without limitation, a merger other than a merger that does not result in a reclassification, conversion, exchange or cancellation of Common Stock), consolidation, sale of all or substantially all of the assets of the Company, recapitalization or reclassification of Common Stock (other than a change in par value, or from par value to no par value, or from no par value to par value or as a result of a subdivision or combination of Common Stock) or any compulsory share exchange (each of the foregoing, including any Fundamental Change, being referred to as a "Transaction"), the Company will be obligated, subject to applicable provisions of state law and the restrictions of the Indenture, either to offer (a "Repurchase Offer") to purchase all of the shares of Cumulative Convertible Preferred Stock on the date (the "Repurchase Date") that is 75 days after the date the Company gives notice of the Transaction, at a price (the "Repurchase Price") equal to $1,000.00 per share of Cumulative Convertible Preferred Stock, together with an amount equal to accrued and unpaid dividends on the Cumulative Convertible Preferred Stock through the Repurchase Date or to adjust the Conversion Rate as described below. If a Repurchase Offer is made, the Company shall deposit, on or prior to the Repurchase Date, with a paying agent an amount of money sufficient to -16- 182 pay the aggregate Repurchase Price of the Cumulative Convertible Preferred Stock which is to be paid on the Repurchase Date. On or before the 15th day after the Company knows or reasonably should know that a Transaction has occurred, the Company will be required to mail to all Holders a notice of the occurrence of such Transaction and whether or not the documents governing the Company's indebtedness permit at such time a Repurchase Offer, and, as applicable, either the new Conversion Rate (as adjusted at the option of the Company) or the date by which the Repurchase Offer must be accepted, the Repurchase Price for the Cumulative Convertible Preferred Stock and the procedures which the holder must follow to accept the Repurchase Offer. To accept the Repurchase Offer, the Holder of a share of Cumulative Convertible Preferred Stock will be required to deliver, on or before the 10th day prior to the Repurchase Date, written notice to the Company (or an agent designated by the Company for such purpose) of the holder's acceptance, together with the certificates evidencing the Cumulative Convertible Preferred Stock with respect to which the offer is being accepted, duly endorsed for transfer. In the event the Company does not make a Repurchase Offer with respect to a Transaction and such Transaction results in shares of Common Stock being converted into the right to receive, or being exchanged for, (i) in the case of any Transaction other than a Transaction involving a Common Stock Fundamental Change (as defined below) (and subject to funds being legally available for such purpose under applicable law at the time of such conversion), securities, cash or other property, each share of the Cumulative Convertible Preferred Stock shall thereafter be convertible into the kind and, in the case of a Transaction which does not involve a Fundamental Change (as defined below), amount of securities, cash and other property receivable upon the consummation of such Transaction by a holder of that number of shares of Common Stock into which a share of the Cumulative Convertible Preferred Stock was convertible immediately prior to such Transaction, or (ii) in the case of a Transaction involving a Common Stock Fundamental Change, common stock, each share of the Cumulative Convertible Preferred Stock shall thereafter be convertible (in the manner described therein) into common stock of the kind received by holders of Common Stock (but in each case after giving effect to any adjustment discussed below relating to a Fundamental Change if such Transaction constitutes a Fundamental Change), other than as required by Delaware law. If any Fundamental Change occurs, then the Conversion Rate in effect will be adjusted immediately after such Fundamental Change as described below. In addition, in the event of a Common Stock Fundamental Change, each share of Cumulative Convertible Preferred Stock shall be convertible solely into common stock of the kind received by holders of Common Stock as a result of such Common Stock Fundamental Change. The Conversion Rate in the case of any Transaction involving a Fundamental Change will be adjusted immediately after such Fundamental Change: (i) in the case of a Non-Stock Fundamental Change (as defined below), the Conversion Rate will thereupon become the higher of (A) the Conversion Rate in effect immediately prior to such Non-Stock Fundamental Change, but after giving effect to any other prior -17- 183 adjustments effected, and (B) a fraction, the numerator of which is (x) the redemption rate for one share of the Cumulative Convertible Preferred Stock if the redemption date were the date of such Non-Stock Fundamental Change (or, for the period commencing on the first date of original issuance of the Cumulative Convertible Preferred Stock and through April 1, 1999, and the twelve-month period commencing April 1, 1999, the product of 106.75% and 106.075%, respectively), multiplied by $1000 plus (y) the amount of any then-accrued and unpaid dividends on one share of the Cumulative Convertible Preferred Stock, and the denominator of which is the greater of the Applicable Price or the then applicable Reference Market Price; and (ii) in the case of a Common Stock Fundamental Change, the Conversion Rate in effect immediately prior to such Common Stock Fundamental Change, but after giving effect to any other prior adjustments effected, will thereupon be adjusted by multiplying such Conversion Rate by a fraction of which the denominator will be the Purchaser Stock Price (as defined below) and the numerator will be the Applicable Price; provided, however, that in the event of a Common Stock Fundamental Change in which (A) 100% of the value of the consideration received by a holder of Common Stock is common stock of the successor, acquirer, or other third party (and cash, if any, is paid only with respect to any fractional interests in such common stock resulting from such Common Stock Fundamental Change) and (B) all Common Stock will have been exchanged for, converted into, or acquired for common stock (and cash with respect to fractional interests) of the successor, acquirer, or other third party, the Conversion Rate in effect immediately prior to such Common Stock Fundamental Change will thereupon be adjusted by multiplying such Conversion Rate by the number of shares of common stock of the successor, acquirer, or other third party received by a holder of one share of Common Stock as a result of such Common Stock Fundamental Change. The term "Applicable Price" means (i) in the case of a Non-Stock Fundamental Change in which the holders of 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 Fundamental Change or any Common Stock Fundamental Change, the average of the Closing Price (as defined below) for Common Stock during the ten Trading Days prior to the record date for the determination of the holders of Common Stock entitled to receive such securities, cash, or other property in connection with such Non-Stock Fundamental Change or Common Stock Fundamental Change or, if there is no such record date, the date upon which the holders of Common Stock shall have the right to receive such securities, cash, or other property (such record date or distribution date being hereinafter referred to as the "Entitlement Date") in each case as adjusted in good faith by the Company to appropriately reflect any of the events referred to above. The term "Common Stock Fundamental Change" means any Fundamental Change 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 prior to the Entitlement Date has been admitted for listing or admitted for listing subject to notice of issuance on a national securities exchange or quoted on the Nasdaq National Market; provided, however, that a Fundamental Change shall not be a Common Stock Fundamental Change unless either (i) the Company continues to exist after the occurrence of such Fundamental Change and the outstanding Cumulative Convertible Preferred -18- 184 Stock continues to exist as outstanding Cumulative Convertible Preferred Stock or (ii) not later than the occurrence of such Fundamental Change, the outstanding Cumulative Convertible Preferred Stock is converted into or exchanged for shares of convertible Preferred Stock of an entity succeeding to the business of the Company or a subsidiary thereof, 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 Cumulative Convertible Preferred Stock. The term "Fundamental Change" means the occurrence of any Transaction or event in connection with a plan pursuant to which all or substantially all Common Stock shall be exchanged for, converted into, acquired for, or constitute solely the right to receive securities, cash, or other property (whether by means of an exchange offer, liquidation, tender offer, consolidation, merger, combination, reclassification, recapitalization, or otherwise), provided, that, in the case of a plan involving more than one such Transaction or event, for purposes of adjustment of the Conversion Rate, such Fundamental Change shall be deemed to have occurred when substantially all Common Stock shall be exchanged for, converted into, or acquired for or constitute solely the right to receive securities, cash, or other property, but the adjustment shall be based upon the consideration that a holder of Common Stock received in such Transaction or event as a result of which more than 50% of Common Stock shall have been exchanged for, converted into, or acquired for or constitute solely the right to receive securities, cash, or other property. The term "Non-Stock Fundamental Change" means any Fundamental Change other than a Common Stock Fundamental Change. The term "Purchaser Stock Price" means, with respect to any Common Stock Fundamental Change, the average of the Closing Prices for the common stock received in such Common Stock Fundamental Change for the ten consecutive Trading Days prior to and including the Entitlement Date, as adjusted in good faith by the Company to appropriately reflect any of the events referred to above. The term "Reference Market Price" shall initially mean $38.79 (which is an amount equal to 66 2/3% of the reported last sales price for Common Stock on the Nasdaq National Market on March 25, 1998) and in the event of any adjustment of the Conversion Rate other than as a result of a Non-Stock Fundamental Change, the Reference Market Price shall also be adjusted so that the ratio of the Reference Market Price to the Conversion Rate after giving effect to any such adjustment shall always be the same as the ratio of the initial Reference Market Price to the initial Conversion Rate. 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; (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; (3) of any reclassification of the Common Stock of the Company (other than a subdivision or combination of its outstanding Common Stock); (4) of any consolidation or merger to which the Company is a party and for which approval of any shareholders of the Company is required; (5) the sale or transfer of all or substantially all the assets of the Company; or (6) of the voluntary or involuntary dissolution, -19- 185 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 Cumulative Convertible Preferred Stock, and shall cause to be mailed to all holders at their last addresses as they shall appear in the Cumulative 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. 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 Cumulative Convertible Preferred Stock, the full number of shares of Common Stock then issuable upon the conversion of all outstanding shares of Cumulative Convertible Preferred Stock. 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 Cumulative 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 Cumulative Convertible Preferred Stock or the shares of Cumulative 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. 10. Reissuance of Cumulative Convertible Preferred Stock. Shares of Cumulative Convertible Preferred Stock redeemed for or converted into Common Stock or that have been reacquired in any manner shall not be reissued as shares of Cumulative 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 Cumulative Convertible Preferred Stock are outstanding, any issuance of such shares must be in compliance with the terms hereof. 11. 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. -20- 186 12. 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. 13. Amendment, Supplement and Waiver. The Company may amend this Certificate of Designation with the affirmative vote or consent of the holders of a majority of the shares of Cumulative Convertible Preferred Stock then outstanding, (including votes or consents obtained in connection with a tender offer or exchange offer for the Cumulative Convertible Preferred Stock) and, except as otherwise provided by applicable law, any past default or failure to comply with any provision of this Certificate of Designation may also be waived with the consent of such holders. Notwithstanding the foregoing, however, without the consent of each Holder affected, an amendment or waiver may not (with respect to any shares of the Cumulative Convertible Preferred Stock held by a non-consenting Holder): (i) alter the voting rights with respect to the Cumulative Convertible Preferred Stock or reduce the number of shares of the Cumulative Convertible Preferred Stock whose Holders must consent to an amendment, supplement or waiver, (ii) reduce the Liquidation Preference of any share of the Cumulative Convertible Preferred Stock or adversely alter the provisions with respect to the redemption of the Cumulative Convertible Preferred Stock, (iii) reduce the rate of or change the time for payment of dividends on any share of the Cumulative Convertible Preferred Stock, (iv) waive a default in the payment of dividends or Liquidated Damages (if any) on the Cumulative Convertible Preferred Stock, (v) make any share of the Cumulative Convertible Preferred Stock payable in money other than United States dollars, (vi) make any change in the provisions of the Certificate of Designation relating to waivers of the rights of Holders of the Cumulative Convertible Preferred Stock to receive the Liquidation Preference, dividends or Liquidated Damages (if any) on the Cumulative Convertible Preferred Stock, or (vii) make any change in the foregoing amendment and waiver provisions. Notwithstanding the foregoing, without the consent of any Holder of the Cumulative Convertible Preferred Stock, the Company may (to the extent permitted by, and subject to the requirements of, Delaware law) amend or supplement this Certificate of Designation to cure any ambiguity, defect or inconsistency, to provide for uncertificated shares of the Cumulative Convertible Preferred Stock in addition to or in place of certificated shares of the Cumulative Convertible Preferred Stock, to make any change that would provide any additional rights or benefits to the Holders of the Cumulative Convertible Preferred Stock or to make any change that the Board of Directors determines, in good faith, is not materially adverse to Holders of the Cumulative Convertible Preferred Stock. 14. Shelf Registration; Liquidated Damages. Pursuant to the Registration Rights Agreement, the Company will agree to file a Shelf Registration Statement with the Commission on the appropriate form under the Securities Act with respect to the Cumulative Convertible Preferred Stock, any depositary shares issued in connection with the Cumulative Convertible Preferred Stock (the "Depositary Shares"), and Common Stock issuable upon conversion thereof or paid as dividends thereon, to cover resales of the Depositary Shares, the Cumulative Convertible Preferred Stock or such Common Stock by the Holders thereof who satisfy certain conditions relating to the provision of information in connection with the Shelf Registration Statement. The Company will use its best efforts to cause the Shelf Registration Statement to be declared effective as promptly as possible by -21- 187 the Commission. For purposes hereof, "Transfer Restricted Securities" means each Depositary Share or share of the Cumulative Convertible Preferred Stock or Common Stock issuable upon conversion thereof or paid as dividends thereon until the earlier of (i) the date on which such Depositary Share or share of Cumulative Convertible Preferred Stock or Common Stock 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 Depositary Share or share of Cumulative Convertible Preferred Stock or Common Stock is eligible to be distributed to the public pursuant to Rule 144(k) under the Securities Act. The Registration Rights Agreement will provide that the Company will (i) file the Shelf Registration Statement with the Commission on or prior to 45 days after the Issue Date, (ii) use its best efforts to cause the Shelf Registration to be declared effective by the Commission on or prior to June 26, 1998 and (iii) use its best efforts to maintain the effectiveness of the Shelf Registration Statement until all Depositary Shares, shares of Cumulative Convertible Preferred Stock and shares of Common Stock issued upon conversion thereof or as dividends thereon that are not held by affiliates of the Company (A) may be resold without restriction under Rule 144(k) under the Securities Act or (B) have been sold pursuant to the Shelf Registration Statement (subject to the Company's right to notify Holders that the Prospectus contained therein ceases to be accurate and complete as a result of material business developments for up to 120 days during such three-year period, provided that (A) no single period may exceed 45 days and (B) such periods in the aggregate may not exceed 60 days in any calendar year). If (a) the Company fails to file the Shelf Registration Statement required by the Registration Rights Agreement on or before the date specified for such filing, (b) such Shelf Registration Statement is not declared effective by the Commission on or prior to the date specified for such effectiveness (the "Effectiveness Target Date") or (c) the Shelf Registration Statement is declared effective but thereafter ceases to be effective or usable in connection with resales of Transfer Restricted Securities during the periods specified in the Registration Rights Agreement (each such event referred to in clauses (a) through (c) above a "Registration Default"), then the Company will pay Liquidated Damages as required by the Registration Rights Agreement to each Holder of shares of the Cumulative Convertible Preferred Stock which are Transfer Restricted Securities (and the corresponding Depositary Shares), with respect to the first 45-day period immediately following the occurrence of such Registration Default in an amount equal to $0.25 per year per Depositary Share ($5.00 per year per $1,000 in Liquidation Preference of the Cumulative Convertible Preferred Stock) held by such Holder. The amount of the Liquidated Damages will increase by an additional $2.50 per year per $1,000 in Liquidation Preference of the Cumulative Convertible Preferred Stock with respect to any subsequent period until all Registration Defaults have been cured. In addition, holders of shares of the Cumulative Convertible Preferred Stock which are Transfer Restricted Securities may receive Liquidated Damages with respect to Common Stock which are Transfer Restricted Securities issued in lieu of paying dividends in cash. The Liquidated Damages amount per share of Common Stock will be equal to the Liquidated Damages per share of Cumulative Convertible Preferred Stock, divided by the Conversion Rate. All accrued Liquidated Damages will be paid by the Company, to the extent permitted by applicable law, on each Dividend Payment Date and, to the extent the net dividend payable on such date may be paid through the issuance of Common Stock, may be paid in Common Stock (valued on the same basis as for the dividend then payable). Following the cure of all Registration Defaults, the accrual of Liquidated Damages will cease. Notwithstanding anything to -22- 188 the contrary herein contained, during any period, the Company will not be required to pay Liquidated Damages with respect to more than one Registration Default. The summary herein of certain provisions of the Registration Rights Agreement does not purport to be complete and is subject to, and is qualified in its entirety by reference to, all the provisions of the Registration Rights Agreement, a copy of which is available upon request to the Company. 15. Transfer and Exchange. When Cumulative Convertible Preferred Stock is presented to the Transfer Agent with a request to register the transfer of such Cumulative Convertible Preferred Stock or to exchange such Cumulative Convertible Preferred Stock for an equal number of shares of Cumulative 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 and such transfer or exchange is in compliance with applicable laws or regulations. 16. 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: "Board of Directors" mean the Board of Directors of the Company or any committee thereof duly authorized to act on behalf of the Board. "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. "Closing Price" means on any day the reported last bid price on such day, or in case no sale takes place on such day, the average of the reported closing bid and asked prices 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, in each case adjusted for any stock split during the relevant period. "Commission" means the Securities and Exchange Commission. "Default" means any event which is, or after notice or passage of time or both would be, a Voting Rights Triggering Event. -23- 189 "Holders" means the registered holders from time to time of the Cumulative Convertible Preferred Stock. "Indenture" means the Indenture dated as of October 5, 1995, as supplemented and amended, between the Company and IBJ Schroder Bank & Trust Company. "Liquidated Damages" means, with respect to any share of Cumulative Convertible Preferred Stock, the additional amounts payable pursuant to Section 14 hereof. "Officers' Certificate" means a certificate signed by two officers of the Company. "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. "Registration Rights Agreement" means the Registration Rights Agreement among the Company, Goldman, Sachs & Co., Credit Suisse First Boston Corporation, Merrill Lynch & Company and Morgan Stanley Dean Witter with respect to the Cumulative Convertible Preferred Stock. "Securities Act" means the Securities Act of 1933. "Shelf Registration Statement" means a shelf registration statement filed with the Commission 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. -24- 190 "Transfer Agent" means the transfer agent for the Cumulative Convertible Preferred Stock appointed by the Company, which initially shall be BankBoston, N.A. "Transfer Restricted Securities" means each share of Cumulative Convertible Preferred Stock (or the shares of Common Stock into which such share of Cumulative Convertible Preferred Stock is convertible) 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. -25- 191 IN WITNESS WHEREOF, said IXC Communications, Inc., has caused this Certificate of Designation to be signed by James F. Guthrie, its Executive Vice President and Chief Financial Officer, this 30th day of March, 1998. IXC COMMUNICATIONS, INC., by /s/ JAMES F. GUTHRIE --------------------------------------- Name: James F. Guthrie Title: Executive Vice President and Chief Financial Officer -26- 192 EXHIBIT A FORM OF CONVERTIBLE PREFERRED STOCK FACE OF SECURITY THESE SECURITIES HAVE NOT BEEN REGISTERED UNDER THE UNITED STATES SECURITIES ACT OF 1933 (THE "SECURITIES ACT") AND MAY NOT BE OFFERED, SOLD, PLEDGED OR OTHERWISE TRANSFERRED EXCEPT (1) TO A PERSON WHOM 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 903 OR RULE 904 OF REGULATION S UNDER THE SECURITIES ACT, (3) TO AN INSTITUTION THAT IS AN "ACCREDITED INVESTOR" WITHIN THE MEANING OF RULE 501(a)(1), (2), (3) OR (7) UNDER THE SECURITIES ACT IN A TRANSACTION EXEMPT FROM THE REGISTRATION REQUIREMENTS OF THE SECURITIES ACT, (4) PURSUANT TO AN EXEMPTION FROM REGISTRATION UNDER THE SECURITIES ACT PROVIDED BY RULE 144 THEREUNDER (IF AVAILABLE), OR (5) PURSUANT TO AN EFFECTIVE REGISTRATION STATEMENT UNDER THE SECURITIES ACT, AND IN EACH CASE, IN ACCORDANCE WITH ALL APPLICABLE SECURITIES LAWS OF THE STATES OF THE UNITED STATES. 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. -1- 193 Certificate Number Number of Shares of Convertible Preferred Stock [ ] [ ] CUSIP NO.: 450713870 6 3/4% Cumulative Convertible Preferred Stock (par value $0.01) (liquidation preference $1,000 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 6 3/4% Cumulative Convertible Preferred Stock (par value $0.01) (liquidation preference $1,000 per share of Cumulative Convertible Preferred Stock) (the "Cumulative Convertible Preferred Stock"). The shares of Cumulative 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, restrictions, preferences and other terms and provisions of the Cumulative Convertible Preferred Stock represented hereby are issued and shall in all respects be subject to the provisions of the Certificate of Designation dated March [ ], 1998, 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 Cumulative 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 Cumulative Convertible Preferred Stock shall not be entitled to any benefit under the Certificate of Designation or be valid or obligatory for any purpose. -2- 194 IN WITNESS WHEREOF, the Company has executed this certificate this [ ] day of [ ], [ ]. IXC COMMUNICATIONS, INC., By: ---------------------------------- Name: Title: [Seal] By: ---------------------------------- Name: Title: TRANSFER AGENT'S CERTIFICATE OF AUTHENTICATION This is one of the Cumulative Convertible Preferred Stock referred to in the within mentioned Certificate of Designation. Dated: [ ], [ ] BankBoston, N.A. as Transfer Agent, By: --------------------------------- Authorized Signatory -3- 195 REVERSE OF SECURITY Dividends on each share of Cumulative 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. The shares of Cumulative Convertible Preferred Stock shall be redeemable as provided in the Certificate of Designation. The shares of Cumulative 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. -4- 196 ASSIGNMENT FOR VALUE RECEIVED, the undersigned assigns and transfers the shares of Cumulative 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 Cumulative 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 Cumulative 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.) -5- 197 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 [ ]% Cumulative Convertible Preferred Stock (the "Cumulative Convertible Preferred Stock"), represented by stock certificate No(s). ___ (the "Cumulative 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 Designation of the Powers, Preferences and Relative, Participating, Optional and Other Special Rights of the Cumulative Convertible Preferred Stock and Qualifications, Limitations and Restrictions Thereof (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 Cumulative 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 Cumulative 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 Cumulative 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 Rate: -------------------------- Number of shares of Convertible Preferred Stock to be Converted: --------------------- Number of shares of -1- 198 Common Stock to be Issued: ---------------------------- Signature: -------------------------------------------- Name: ------------------------------------------------- Address:** ---------------------------------------------- Fax No.: ---------------------------------------------- * The Company is not required to issue shares of Common Stock until the original Cumulative 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 Cumulative 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. -1- 199 CERTIFICATE OF DESIGNATION of SERIES A JUNIOR PARTICIPATING PREFERRED STOCK of IXC COMMUNICATIONS, INC. Pursuant to Section 151 of the General Corporation Law of the State of Delaware IXC Communications, Inc., a corporation organized and existing under the General Corporation Law of the State of Delaware, in accordance with the provisions of Section 103 thereof, DOES HEREBY CERTIFY: That pursuant to the authority vested in the Board of Directors in accordance with the provisions of the Certificate of Incorporation of the said Corporation, the said Board of Directors on September 4, 1998 adopted the following resolution creating a series of 55,000 shares of Preferred Stock designated as "Series A Junior Participating Preferred Stock": RESOLVED, that pursuant to the authority vested in the Board of Directors of this Corporation in accordance with the provisions of the Certificate of Incorporation, a series of Preferred Stock, par value $.01 per share, of the Corporation be and hereby is created, and that the designation and number of shares thereof and the voting and other powers, preferences and relative, participating, optional or other rights of the shares of such series and the qualifications, limitations and restrictions thereof are as follows: SERIES A JUNIOR PARTICIPATING PREFERRED STOCK 1. Designation and Amount. There shall be a series of Preferred Stock that shall be designated as "Series A Junior Participating Preferred Stock," and the number of shares constituting such series shall be 55,000. Such number of shares may be increased or decreased by resolution of the Board of Directors; provided, however, that no decrease shall reduce the number of shares of Series A Junior Participating Preferred Stock to less than the number of shares then issued and outstanding plus the number of shares issuable upon exercise of outstanding rights, options or warrants or upon conversion of outstanding securities issued by the Corporation. 1 200 2. Dividends and Distribution. (A) Subject to the prior and superior rights of the holders of any shares of any class or series of stock of the Corporation ranking prior and superior to the shares of Series A Junior Participating Preferred Stock with respect to dividends, the holders of shares of Series A Junior Participating Preferred Stock, in preference to the holders of shares of any class or series of stock of the Corporation ranking junior to the Series A Junior Participating Preferred Stock in respect thereof, shall be entitled to receive, when, as and if declared by the Board of Directors out of funds legally available for the purpose, quarterly dividends payable in cash on the 15th day of January, April, July and October, in each year (each such date being referred to herein as a "Quarterly Dividend Payment Date"), commencing on the first Quarterly Dividend Payment Date after the first issuance of a share or fraction of a share of Series A Junior Participating Preferred Stock, in an amount per share (rounded to the nearest cent) equal to the greater of (a) $10.00 or (b) the Adjustment Number (as defined below) times the aggregate per share amount of all cash dividends, and the Adjustment Number times the aggregate per share amount (payable in kind) of all non-cash dividends or other distributions other than a dividend payable in shares of Common Stock or a subdivision of the outstanding shares of Common Stock (by reclassification or otherwise), declared on the Common Stock, par value $.01 per share, of the Corporation (the "Common Stock") since the immediately preceding Quarterly Dividend Payment Date, or, with respect to the first Quarterly Dividend Payment Date, since the first issuance of any share or fraction of a share of Series A Junior Participating Preferred Stock. The "Adjustment Number" shall initially be 1000. In the event the Corporation shall at any time after September 20, 1998 (i) declare and pay any dividend on Common Stock payable in shares of Common Stock, (ii) subdivide the outstanding Common Stock or (iii) combine the outstanding Common Stock into a smaller number of shares, then in each such case the Adjustment Number in effect immediately prior to such event shall be adjusted by multiplying such Adjustment Number by a fraction the numerator of which is the number of shares of Common Stock outstanding immediately after such event and the denominator of which is the number of shares of Common Stock that were outstanding immediately prior to such event. (B) The Corporation shall declare a dividend or distribution on the Series A Junior Participating Preferred Stock as provided in paragraph (A) above immediately after it declares a dividend or distribution on the Common Stock (other than a dividend payable in shares of Common Stock). (C) Dividends shall begin to accrue and be cumulative on outstanding shares of Series A Junior Participating Preferred Stock from the Quarterly Dividend Payment Date next preceding the date of issue of such shares of Series A Junior Participating Preferred Stock, unless the date of issue of such shares is prior to the record date for the first Quarterly Dividend Payment Date, in which case dividends on such shares shall begin to accrue from the date of issue of such shares, or unless the date of issue is a Quarterly Dividend Payment Date or is a date after the record date for the determination of holders of shares of Series A Junior Participating Preferred Stock entitled to receive a quarterly dividend and before such Quarterly Dividend Payment Date, in either of which events such dividends shall begin to accrue and be cumulative from such Quarterly Dividend Payment 2 201 Date. Accrued but unpaid dividends shall not bear interest. Dividends paid on the shares of Series A Junior Participating Preferred Stock in an amount less than the total amount of such dividends at the time accrued and payable on such shares shall be allocated pro rata on a share-by-share basis among all such shares at the time outstanding. The Board of Directors may fix a record date for the determination of holders of shares of Series A Junior Participating Preferred Stock entitled to receive payment of a dividend or distribution declared thereon, which record date shall be no more than 60 days prior to the date fixed for the payment thereof. 3. Voting Rights. The holders of shares of Series A Junior Participating Preferred Stock shall have the following voting rights: (A) Each share of Series A Junior Participating Preferred Stock shall entitle the holder thereof to a number of votes equal to the Adjustment Number on all matters submitted to a vote of the stockholders of the Corporation. (B) Except as required by law, by Section 3(C) and by Section 10 hereof, holders of Series A Junior Participating Preferred Stock shall have no special voting rights and their consent shall not be required (except to the extent they are entitled to vote with holders of Common Stock as set forth herein) for taking any corporate action. (C) If, at the time of any annual meeting of stockholders for the election of directors, the equivalent of six quarterly dividends (whether or not consecutive) payable on any share or shares of Series A Junior Participating Preferred Stock are in default, the number of directors constituting the Board of Directors of the Company shall be increased by two. In addition to voting together with the holders of Common Stock for the election of other directors of the Company, the holders of record of the Series A Junior Participating Preferred Stock, voting separately as a class to the exclusion of the holders of Common Stock, shall be entitled at said meeting of stockholders (and at each subsequent annual meeting of stockholders), unless all dividends in arrears on the Series A Junior Participating Preferred Stock have been paid or declared and set apart for payment prior thereto, to vote for the election of two directors of the Company, the holders of any Series A Junior Participating Preferred Stock being entitled to cast a number of votes per share of Series A Junior Participating Preferred Stock as is specified in paragraph (A) of this Section 3. Until the default in payments of all dividends which permitted the election of said directors shall cease to exist, any director who shall have been so elected pursuant to the next preceding sentence may be removed at any time, without cause, only by the affirmative vote of the holders of the shares of Series A Junior Participating Preferred Stock at the time entitled to cast a majority of the votes entitled to be cast for the election of any such director at a special meeting of such holders called for that purpose, and any vacancy thereby created may be filled by the vote of such holders. If and when such default shall cease to exist, the holders of the Series A Junior Participating Preferred Stock shall be divested of the foregoing special voting rights, subject to revesting in the event of each and every subsequent like default in payments of dividends. Upon the termination of the foregoing special voting rights, the terms of office of all persons who may have been elected directors pursuant to said special voting rights shall forthwith terminate, and the number of directors constituting the Board of Directors shall 3 202 be reduced by two. The voting rights granted by this Section 3(c) shall be in addition to any other voting rights granted to the holders of the Series A Junior Participating Preferred Stock in this Section 3. 4. Certain Restrictions. (A) Whenever quarterly dividends or other dividends or distributions payable on the Series A Junior Participating Preferred Stock as provided in Section 2 are in arrears, thereafter and until all accrued and unpaid dividends and distributions, whether or not declared, on shares of Series A Junior Participating Preferred Stock outstanding shall have been paid in full, the Corporation shall not: (i) declare or pay dividends on, make any other distributions on, or redeem or purchase or otherwise acquire for consideration any shares of stock ranking junior (either as to dividends or upon liquidation, dissolution or winding up) to the Series A Junior Participating Preferred Stock; (ii) declare or pay dividends on or make any other distributions on any shares of stock ranking on a parity (either as to dividends or upon liquidation, dissolution or winding up) with the Series A Junior Participating Preferred Stock, except dividends paid ratably on the Series A Junior Participating Preferred Stock and all such parity stock on which dividends are payable or in arrears in proportion to the total amounts to which the holders of all such shares are then entitled; or (iii) purchase or otherwise acquire for consideration any shares of Series A Junior Participating Preferred Stock, or any shares of stock ranking on a parity with the Series A Junior Participating Preferred Stock, except in accordance with a purchase offer made in writing or by publication (as determined by the Board of Directors) to all holders of Series A Junior Participating Preferred Stock, or to such holders and holders of any such shares ranking on a parity therewith, upon such terms as the Board of Directors, after consideration of the respective annual dividend rates and other relative rights and preferences of the respective series and classes, shall determine in good faith will result in fair and equitable treatment among the respective series or classes. (B) The Corporation shall not permit any subsidiary of the Corporation to purchase or otherwise acquire for consideration any shares of stock of the Corporation unless the Corporation could, under paragraph (A) of this Section 4, purchase or otherwise acquire such shares at such time and in such manner. 5. Reacquired Shares. Any shares of Series A Junior Participating Preferred Stock purchased or otherwise acquired by the Corporation in any manner whatsoever shall be retired promptly after the acquisition thereof. All such shares shall upon their retirement become authorized but unissued shares of Preferred Stock and may be reissued as part of a new series of Preferred 4 203 Stock to be created by resolution or resolutions of the Board of Directors, subject to any conditions and restrictions on issuance set forth herein. 6. Liquidation, Dissolution or Winding Up. (A) Upon any liquidation, dissolution or winding up of the Corporation, voluntary or otherwise, no distribution shall be made to the holders of shares of stock ranking junior (either as to dividends or upon liquidation, dissolution or winding up) to the Series A Junior Participating Preferred Stock unless, prior thereto, the holders of shares of Series A Junior Participating Preferred Stock shall have received an amount per share (the "Series A Liquidation Preference") equal to the greater of (i) $10.00 plus an amount equal to accrued and unpaid dividends and distributions thereon, whether or not declared, to the date of such payment, or (ii) the Adjustment Number times the per share amount of all cash and other property to be distributed in respect of the Common Stock upon such liquidation, dissolution or winding up of the Corporation. (B) In the event, however, that there are not sufficient assets available to permit payment in full of the Series A Liquidation Preference and the liquidation preferences of all other classes and series of stock of the Corporation, if any, that rank on a parity with the Series A Junior Participating Preferred Stock in respect thereof, then the assets available for such distribution shall be distributed ratably to the holders of the Series A Junior Participating Preferred Stock and the holders of such parity shares in proportion to their respective liquidation preferences. (C) Neither the merger or consolidation of the Corporation into or with another corporation nor the merger or consolidation of any other corporation into or with the Corporation shall be deemed to be a liquidation, dissolution or winding up of the Corporation within the meaning of this Section 6. 7. Consolidation, Merger, Etc. In case the Corporation shall enter into any consolidation, merger, combination or other transaction in which the outstanding shares of Common Stock are exchanged for or changed into other stock or securities, cash and/or any other property, then in any such case each share of Series A Junior Participating Preferred Stock shall at the same time be similarly exchanged or changed in an amount per share equal to the Adjustment Number times the aggregate amount of stock, securities, cash and/or any other property (payable in kind), as the case may be, into which or for which each share of Common Stock is changed or exchanged. 8. No Redemption. Shares of Series A Junior Participating Preferred Stock shall not be subject to redemption by the Company. 9. Ranking. The Series A Junior Participating Preferred Stock shall rank junior to all other series of the Preferred Stock as to the payment of dividends and as to the distribution of assets upon liquidation, dissolution or winding up, unless the terms of any such series shall provide otherwise, and shall rank senior to the Common Stock as to such matters. 5 204 10. Amendment. At any time that any shares of Series A Junior Participating Preferred Stock are outstanding, the Certificate of Incorporation of the Corporation shall not be amended in any manner which would materially alter or change the powers, preferences or special rights of the Series A Junior Participating Preferred Stock so as to affect them adversely without the affirmative vote of the holders of two-thirds of the outstanding shares of Series A Junior Participating Preferred Stock, voting separately as a class. 11. Fractional Shares. Series A Junior Participating Preferred Stock may be issued in fractions of a share that shall entitle the holder, in proportion to such holder's fractional shares, to exercise voting rights, receive dividends, participate in distributions and to have the benefit of all other rights of holders of Series A Junior Participating Preferred Stock. IN WITNESS WHEREOF, the undersigned has executed this Certificate this 16th day of September, 1998. IXC COMMUNICATIONS, INC. By: /s/ Benjamin L. Scott ------------------------- Name: Benjamin L. Scott Title: Chairman of the Board, President and Chief Executive Officer 6 205 FIFTH AMENDMENT TO RESTATED CERTIFICATE OF INCORPORATION OF IXC COMMUNICATIONS, INC. The undersigned corporation, organized and existing under and by virtue of the General Corporation Law of the State of Delaware does hereby certify: 1. That Stuart K. Coppens is the duly elected and acting Vice President of Finance and Chief Accounting Officer of IXC Communications, Inc., a Delaware corporation (the "Corporation"). 2. Article FOURTH of the Restated Certificate of Incorporation of the Corporation is amended to read in full as follows: "FOURTH: A. Classes of Stock. The Corporation is authorized to issue three classes of stock to be designated "Common Stock," "Preferred Stock" and "Class B Preferred Stock." The total number of shares of stock that the Corporation shall have authority to issue is 320,000,000 consisting of: (i) 300,000,000 shares of Common Stock, par value $.01 per share; (ii) 3,000,000 shares of Preferred Stock, par value $.01 per share; and (iii) 17,000,000 shares of Class B Preferred Stock, par value $.01 per share. B. Rights, Preferences, Privileges and Restrictions of Preferred Stock. 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. C. Rights, Preferences, Privileges and Restrictions of Class B Preferred Stock. The Class B 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 206 providing for such issue duly adopted by the Board. Such resolution or resolutions shall set forth the voting powers, full or limited, or none, of each such series of Class B Preferred Stock and shall fix the number of shares constituting any such series and the designations, preferences and relative, participating, optional or other special rights and qualifications, limitations or restrictions of each such series of Class B Preferred Stock. Subject to the rights of the holders of any series of Class B Preferred Stock pursuant to the terms of this Restated Certificate of Incorporation or any resolution or resolutions providing for the issuance of such series of stock adopted by the Board, the number of authorized shares of Class B Preferred Stock may be increased or decreased (but not below the number of shares thereof then outstanding) by the affirmative vote of the holders of a majority of the stock of the Corporation entitled to vote generally in the election of directors irrespective of the provisions of Section 242(b)(2) of the General Corporation Law of the State of Delaware." 3. Article ELEVENTH of the Restated Certificate of Incorporation is deleted in its entirety. 4. This Fifth Amendment to the Restated Certificate of Incorporation has been duly adopted and approved in accordance with the applicable provisions of Sections 228 and 242 of the General Corporation Law of the State of Delaware. IN WITNESS WHEREOF, the Corporation has caused this certificate to be signed by Stuart K. Coppens, its Vice President of Finance and Chief Accounting Officer this 19th day of July, 1999. By: /s/ Stuart K. Coppens --------------------------------- Stuart K. Coppens Vice President of Finance and Chief Accounting Officer EX-4.22 3 AMENDMENT #1 TO RIGHTS AGREEMENT 1 EXHIBIT 4.22 AMENDMENT NO. 1 TO RIGHTS AGREEMENT This Amendment No. 1 to Rights Agreement (this "Amendment") is entered into as of July 20, 1999, by and between IXC COMMUNICATIONS, INC., a Delaware corporation (the "Company"), and U.S. Stock Transfer Corporation (the "Rights Agent"), dated as of September 9, 1998, between the Company and the Rights Agent (the "Rights Agreement"). WHEREAS the Company has duly authorized the execution and delivery of this Amendment and all things necessary to make this Amendment a valid agreement of the Company have been done. This Amendment is entered into pursuant to Section 27 of the Rights Agreement. NOW, THEREFORE, in consideration of the premises and the mutual agreements herein set forth, the parties hereby agree as follows: 1. Defined Terms. Terms defined in the Rights Agreement and used and not otherwise defined herein shall have the meanings given to them in the Rights Agreement. 2. Amendment of Section 1. Section 1 of the Rights Agreement is amended to add the following at the end thereof: "(gg) Notwithstanding anything in this Agreement to the contrary, neither Parent nor any of its Affiliates or Associates shall be deemed to be the Beneficial Owner or to have Beneficial Ownership of any of the shares of Common Stock subject to the Stockholders Agreements or the Option Agreement, and neither Parent nor any of its Affiliates or Associates shall be deemed to be an Acquiring Person, each by the reason of the approval, execution, delivery or performance of the Merger Agreement, the Stockholders Agreements or the Option Agreement or the consummation of the transactions contemplated by the Merger Agreement, the Stockholders Agreements or the Option Agreement. "Merger Agreement" shall mean the Agreement and Plan of Merger dated as of July 20, 1999, among Parent, Ivory Merger Inc., a Delaware corporation and a wholly owned 2 2 subsidiary of Parent, and the Company, as amended from time to time in accordance with its terms; "Merger" shall have the meaning assigned to such term in the Merger Agreement; "Option Agreement" shall mean the Stock Option Agreement dated as of July 20, 1999, between the Company, as issuer, and Parent, as grantee; "Parent" shall mean CINCINNATI BELL INC., an Ohio Corporation; and "Stockholders Agreements" shall have the meaning assigned to such term in the Merger Agreement." 3. Amendment of Section 3(a). Section 3(a) of the Rights Agreement is amended to add the following sentence at the end thereof: "Notwithstanding anything in this Rights Agreement to the contrary, neither a Distribution Date a Flip-In Event, a Flip-Over Event nor a Stock Acquisition Date shall be deemed to have occurred solely as the result of the approval, execution, delivery or performance of the Merger Agreement, the Stockholders Agreements or the Option Agreement or the consummation of the transactions contemplated by the Merger Agreement, the Stockholders Agreements or the Option Agreement." 4. Amendment of Section 7(a). Section 7(a) of the Rights Agreement is amended by deleting the word "or" in the penultimate line of that section and substituting in its place "," and inserting immediately after the word "hereof" in the last line of that section the following clause: "or (iv) immediately prior to the Effective Time of the Merger. Upon the Expiration Date, the Rights shall expire." 5. Effectiveness. This Amendment shall be deemed effective as of July 20, 1999, as if executed on such date. Except as amended hereby, the Rights Agreement shall remain in full force and effect and shall be otherwise unaffected hereby. 6. Miscellaneous. This Amendment shall be deemed to be a contract made under the laws of the State of Delaware and for all purposes shall be governed by and construed in accordance with the laws of such state. This Amendment may be executed in any number of counterparts, each of such counterparts shall for all purposes be deemed an original and all such counterparts shall together constitute but one and the same instrument. 3 3 IN WITNESS WHEREOF, the parties hereto have caused this Amendment to be duly executed and attested, all as of the day and year first above written. Attest: IXC COMMUNICATIONS, INC., /s/ Jeffrey C. Smith by /s/ John M. Zrno - ------------------------------- ------------------------------------------ Name: Jeffrey C. Smith Name: John M. Zrno Title: Senior Vice President Title: President Attest: U.S. STOCK TRANSFER CORPORATION, /s/ Richard C. Brown by /s/ William Garza - ------------------------------- ------------------------------------------ Name: Richard C. Brown Name: William Garza Title: Vice-President Title: Assistant Vice-President EX-10.22 4 1998 STOCK PLAN, AS AMENDED 1 EXHIBIT 10.22 1998 STOCK PLAN 1. Purpose. The purpose of the IXC Communications, Inc. 1998 Stock Plan ("Plan") is to promote the interests of IXC Communications, Inc. ("Company") and its shareholders by enabling it to offer grants of stock to better attract, retain, and reward its employees, directors, and other persons providing services to it and, accordingly, to strengthen the mutuality of interests between those persons and the Company's shareholders by providing those persons with a proprietary interest in pursuing the Company's long-term growth and financial success. 2. Definitions. For purposes of this Plan, the following terms shall have the meanings set forth below. (a) "Board" means the Board of Directors of IXC Communications, Inc. (b) "Code" means the Internal Revenue Code of 1986. Reference to any specific section of the Code shall be deemed to be a reference to any successor provision. (c) "Committee" means the administrative Committee of this Plan that is provided in Section 3 of this Plan. (d) "Common Stock" means the common stock of the Company or any security issued in substitution, exchange, or in lieu thereof. (e) "Company" means IXC Communications, Inc., a Delaware corporation, or any successor corporation. Except where the context indicates otherwise, the term "Company" shall include its Parent and Subsidiaries. (f) "Disabled" means permanent and total disability, as defined in Code Section 22(e)(3). (g) "Exchange Act" means the Securities Exchange Act of 1934. (h) "Fair Market Value" of Common Stock for any day shall be determined in accordance with the following rules. (i) If the Common Stock is admitted to trading or listed on a national securities exchange, the last reported sale price on that day regular way, or if no such reported sale takes place on that day, the average of the last reported bid and ask prices on that day regular way, in either case on the principal national securities exchange on which the Common Stock is admitted to trading or listed. (ii) If not listed or admitted to trading on any national securities exchange, the last sale price regular way on that day reported on the Nasdaq National Market ("Nasdaq National Market") of the Nasdaq Stock Market ("NSM") or, if no such reported sale takes place on that day, the average of the closing bid and ask prices regular way on that day. (iii) If not traded or listed on a national securities exchange or included in the Nasdaq National Market, the last reported sale price on that day regular way, or if no such reported sale takes place on that day, the average of the closing bid and ask prices regular way on that day reported by the NSM, or any comparable system on that day. (iv) If the Common Stock is not included in (i), (ii) or (iii) above, the last reported sale price on that day regular way, or if no such reported sale takes place on that day, the closing bid and ask prices regular way on that day as furnished by any member of the National Association of Securities Dealers, Inc. ("NASD") selected from time to time by the Company for that purpose. If the national securities exchange, Nasdaq National Market, NSM, or NASD as applicable, are closed on such date, the "Fair Market Value" shall be determined as of the last preceding day on which the Common Stock was traded or for which bid and ask prices are available. In the case of an Incentive Stock Option, "Fair Market Value" shall be determined without reference to any restriction other than one that, by its terms, will never lapse. 1 2 (i) "Incentive Stock Option" means an option to purchase Common Stock that is an incentive stock option within the meaning of Code Section 422. (j) "Insider" means a person who is subject to Section 16 of the Exchange Act. (k) "Non-Qualified Stock Option" means any option to purchase Common Stock that is not an Incentive Stock Option. (l) "Option" means an Incentive Stock Option or a Non-Qualified Stock Option. (m) "Parent" shall mean any corporation (other than IXC Communications, Inc.) in an unbroken chain of corporations ending with IXC Communications, Inc. if each of the corporations (other than IXC Communications, Inc.) owns stock possessing fifty percent (50%) or more of the total combined voting power of all classes of stock in one of the other corporations in the chain, as determined in accordance with the rules of Code Section 424(e). (n) "Participant" means a person who was been granted an Option or Restricted Stock under the Plan. (o) "Plan" means this IXC Communications, Inc. 1998 Stock Plan, as it may be amended from time to time. (p) "Restricted Stock" means shares of Common Stock issued under Section 9 of this Plan below that are subject to restrictions upon assignment or alienation prior to vesting. (q) "Severance" means, with respect to a Participant, the termination of the Participant's provision of services to the Company as an employee, director, or independent contractor, whether by reason of death, disability, or any other reason. For purposes of determining the exercisability of an Incentive Stock Option, a Participant who is on a leave of absence that exceeds ninety (90) days will be considered to have incurred a Severance on the ninety-first (91st) day of the leave of absence, unless the Participant's rights to reemployment are guaranteed by statute or contract. However, a Participant will not be considered to have incurred a Severance because of a transfer of employment between the Company and a Subsidiary or Parent (or vice versa). (r) "Subsidiary" means any corporation or entity in which IXC Communications, Inc., directly or indirectly, controls fifty percent (50%) or more of the total voting power of all classes of its stock having voting power, as determined in accordance with the rules of Code Section 424(f). (s) "Ten Percent Shareholder" means any person who owns (after taking into account the constructive ownership rules of Code Section 424(d)) more than ten percent (10%) of the stock of the IXC Communications, Inc. or of any of its Parents or Subsidiaries. 3. Administration. (a) This Plan shall be administered by a Committee appointed by the Board; provided, however, that the Board may administer the Plan for any grants to Participants who are not subject to Code Section 162(m). The Board may remove members from, or add members to, the Committee at any time. To the extent possible and advisable, the Committee shall be composed of individuals that satisfy Rule 16b-3 under the Exchange Act and Code Section 162(m). Notwithstanding anything herein to the contrary, any action which may be taken by the Committee may also be taken by the Board. (b) The Committee may conduct its meetings in person or by telephone. A majority of the members of the Committee shall constitute a quorum, and any action shall constitute the action of the Committee if it is authorized by: (i) A majority of the members present at any meeting conducted in accordance with the Company's bylaws; or (ii) The unanimous consent of all of the members in writing without a meeting. 2 3 (c) The Committee is authorized to interpret this Plan and to adopt rules and procedures relating to the administration of this Plan. All actions of the Committee in connection with the interpretation and administration of this Plan shall be binding upon all parties. (d) Subject to the limitations of Sections 10 and 14 of this Plan, the Committee is expressly authorized to make such modifications to this Plan and to the grants of Options and Restricted Stock hereunder as are necessary to effectuate the intent of this Plan as a result of any changes in the tax, accounting, or securities laws treatment of Participants, the Company and the Plan. (e) The Committee may delegate its responsibilities to others under such conditions and limitations as it may prescribe, except that the Committee may not delegate its authority with regard to the granting of Options or Restricted Stock to Insiders if that would cause such grants to fail to satisfy Rule 16b-3 under the Exchange Act or Code Section 162(m). 4. Duration of Plan. (a) This Plan shall be effective as of July 30, 1998, provided it is approved by the majority of the Company's shareholders, in accordance with the provisions of Code Section 422, within twelve (12) months before or after the date of its adoption by the Board. (b) In the event that this Plan is not so approved, this Plan shall terminate and any Options granted under this Plan shall be void. (c) This Plan shall terminate on July 29, 2008, except with respect to Options then outstanding. 5. Number of Shares. (a) The aggregate number of shares of Common Stock which may be issued pursuant to this Plan shall be Three Million One Hundred Fifty Thousand (3,150,000). Effective [ ], 1999, this amount is increased to Five Million Six Hundred Fifty Thousand (5,650,000). The maximum number of shares that may be issued to a single Participant is Three Hundred Thousand (300,000). (b) Upon the expiration or termination of an outstanding Option which shall not have been exercised in full, the shares of Common Stock remaining unissued under the Option shall again become available for use under the Plan. (c) Upon the forfeiture of shares of Restricted Stock, the forfeited shares of Common Stock shall again become available for use under the Plan. 6. Eligibility. (a) Persons eligible for Options under this Plan shall consist of employees, directors, and other persons providing services to the Company. However, Incentive Stock Options may only be granted to employees. (b) Notwithstanding anything in this Plan to the contrary, in the event that the Company acquires another entity, the Committee may authorize the issuance of Options ("Substitute Options") to individuals or entities in substitution of stock options previously granted to those individuals or entities in connection with their performance of services for such acquired entity upon such terms and conditions as the Committee shall determine but which shall not be contrary to applicable law, taking into account the limitations of Code Section 424(a) in the case of a Substitute Option that is intended to be an Incentive Stock Option. 7. Form of Options. (a) Options shall be granted under this Plan on such terms and in such form as the Committee may approve, which shall not be inconsistent with the provisions of this Plan; provided, however, that in the event a grant of any Options by the Committee would not be exempt under Section 16b-3 of the Exchange Act, the Board may grant such Options under this Plan on such terms and in such form as the Board may approve, which shall not be otherwise inconsistent with the provisions of this Plan. 3 4 (b) The exercise price per share of Common Stock purchasable under an Option shall be set forth in the Option, which in all cases shall be at least equal to the Fair Market Value of the Common Stock on the date of the grant. (c) The exercise price of an Incentive Stock Option granted to a Ten Percent Shareholder shall be no less than one hundred ten percent (110%) of the Fair Market Value of the Common Stock on the date of the grant. 8. Exercise of Options. (a) Unless otherwise determined by the Board or the Committee, each Option shall be exercisable in four equal annual installments to begin in most instances with the start date of a Participant's employment with the Company and be subject to such other terms and conditions as may be set forth in the Option. Any Option shall be exercisable following the date of the Participant's Severance only to the extent (if at all) such Option was exercisable on the date of Severance. (b) The aggregate Fair Market Value (determined as of the date of grant) of the number of shares of Common Stock with respect to which Incentive Stock Options are exercisable for the first time by a Participant during any calendar year shall not exceed one hundred thousand dollars ($100,000) or such other limit as may be required by Section 422 of the Code. To the extent this limit is exceeded, the surplus shares shall be treated as acquired upon the exercise of a Non-Qualified Stock Option. For this purpose, the shares will be taken into account in the order in which the underlying Options were granted. (c) Options shall only be exercisable for whole numbers of shares. (d) Options are exercised by payment of the full amount of the purchase price to the Company. (i) The payment shall be in the form of cash or such other forms of consideration as the Committee shall deem acceptable, such as the surrender of outstanding shares of Common Stock owned by the Participant (that have been held a sufficient period of time (if any) to avoid adverse accounting treatment) or by withholding shares that would otherwise be issued upon the exercise of the Option. (ii) If the payment is made by means of the surrender of Restricted Stock, a number of shares issued upon the exercise of the Option equal to the number of shares of Restricted Stock surrendered shall be subject to the same restrictions as the Restricted Stock that was surrendered. (iii) After giving due considerations to the consequences under Rule 16b-3 under the Exchange Act and under the Code, the Committee may also authorize the exercise of Options by the delivery to the Company or its designated agent of an irrevocable written notice of exercise form together with irrevocable instructions to a broker-dealer to sell or margin a sufficient portion of the shares of Common Stock and to deliver the sale or margin loan proceeds directly to the Company to pay the exercise price of the Option. 9. Restricted Stock. (a) The Committee may issue grants of Restricted Stock upon such terms and conditions as it may deem appropriate, which need not be the same for each such grant. (b) Restricted Stock may not be sold to Participants for less than Fair Market Value. (c) A Participant shall not have a vested right to the shares subject to the grant of Restricted Stock until satisfaction of the vesting requirements specified in the grant. The Participant may not assign or alienate the Participant's interest in the shares of Restricted Stock prior to vesting. 4 5 (d) The following rules apply with respect to events that occur prior to the date on which the Participant obtains a vested right to the Restricted Stock. (i) Stock dividends, shares resulting from stock splits, etc. that are issued with respect to the shares covered by a grant of Restricted Stock shall be treated as additional shares received under the grant of Restricted Stock. (ii) Cash dividends constitute taxable compensation to the Participant that is deductible by the Company. 10. Modification of Grants. (a) The Committee may modify an existing Option, including the right to: (i) Accelerate the right to exercise it; (ii) Extend or renew it; or (iii) Cancel it and issue a new Option. However, no modification may be made to an Option that would impair the rights of the Participant holding the Option without the Participant's consent. Similar modifications can be made to grants of Restricted Stock. (b) Whether a modification of an existing Incentive Stock Option will be treated as the issuance of a new Incentive Stock Option will be determined in accordance with the rules of Code Section 424(h). (c) Whether a modification of an existing grant of Restricted Stock or of an Option granted to an Insider will be treated as a new grant will be determined in accordance with Rule 16b-3 under the Exchange Act. 11. Termination of Options. (a) Except to the extent the terms of an Option require its prior termination, each Option shall terminate on the earliest of the following dates. (i) The date which is ten (10) years from the date on which the Option is granted or five (5) years in the case of an Incentive Stock Option granted to a Ten Percent Shareholder. (ii) The date which is one (1) year from the date of the Severance of the Participant to whom the Option was granted, if the Participant was Disabled at the time of Severance. (iii) The date which is one (1) year from the date of the Severance of the Participant to whom the Option was granted, if the Participant's death occurs: (A) While the Participant is employed by the Company; or (B) Within three (3) months following the Participant's Severance. (iv) In the case of any Severance other than one described in Subparagraphs (ii) or (iii) above, the date that is three (3) months from the date of the Participant's Severance. 12. Non-transferability of Grants. (a) No Option under this Plan shall be assignable or transferable except by will or the laws of descent and distribution. (b) Grants of Restricted Stock shall be subject to such restrictions on transferability as may be imposed in such grants. 5 6 13. Adjustments (a) In the event of any change in the capitalization of the Company affecting its Common Stock (e.g., a stock split, reverse stock split, stock dividend, recapitalization, combination, or reclassification), the Committee shall authorize such adjustments as it may deem appropriate with respect to: (i) The maximum number of shares of Common Stock that may be issued under this Plan; (ii) The number of shares of Common Stock covered by each outstanding Option; (iii) The exercise price per share in respect of each outstanding Option; and (iv) The maximum number of shares that may be issued to a single individual. (b) The Committee may also make such adjustments in the event of a spin-off or other distribution of Company assets to shareholders, other than normal cash dividends. 14. Amendment and Termination. (a) The Board may at any time amend or terminate this Plan. However, no modification may be made to the Plan that would impair the rights of the Participant holding an Option without the Participant's consent. (b) Without the approval of the majority of the shareholders of the Company, the Board may not amend the provisions of this Plan regarding: (i) The class of individuals entitled to receive Incentive Stock Options; or (ii) The maximum number of shares of Common Stock that may be issued under the Plan, except as provided in Section 13 of this Plan. 15. Notice of Disqualifying Disposition. A Participant must notify the Company if the Participant disposes of stock acquired pursuant to the exercise of an Incentive Stock Option issued under the Plan prior to the expiration of the holding periods required to qualify for long-term capital gains treatment on the disposition. 16. Tax Withholding. (a) The Company shall have the right to take such actions as may be necessary to satisfy its tax withholding obligations relating to the operation of this Plan. (b) If Common Stock that was surrendered by the Participant is used to satisfy the Company's tax withholding obligations, the stock shall be valued based on its Fair Market Value when the tax withholding is required to be made. 17. No Additional Rights. (a) Neither the adoption of this Plan nor the granting (or exercise) of any Option or Restricted Stock shall: (i) Affect or restrict in any way the power of the Company to undertake any corporate action otherwise permitted under applicable law; or (ii) Confer upon any Participant the right to continue performing services for the Company, nor shall it interfere in any way with the right of the Company to terminate the services of any Participant at any time, with or without cause. (b) No Participant shall have any rights as a shareholder with respect to any shares covered by an Option granted to the Participant or subject to a grant of Restricted Stock until the date a certificate for such shares has been issued to the Participant. 6 7 18. Securities Law Restrictions. (a) No shares of Common Stock shall be issued under this Plan unless the Committee shall be satisfied that the issuance will be in compliance with applicable federal and state securities laws. (b) The Committee may require certain investment (or other) representations and undertakings by the Participant (or other person exercising an Option or purchasing Restricted Stock by reason of the death of the Participant) in order to comply with applicable law. (c) Certificates for shares of Common Stock delivered under this Plan may be subject to such restrictions as the Committee may deem advisable. The Committee may cause a legend to be placed on the certificates to refer to these restrictions. 19. Indemnification. To the maximum extent permitted by law, the Company shall indemnify each member of the Board, as well as any other employee of the Company with duties under this Plan, against expenses (including any amount paid in settlement) reasonably incurred by the individual in connection with any claims against him or her by reason of the performance of the individual's duties under this Plan, unless the losses are due to the individual's gross negligence or lack of good faith. 20. Governing Law. This Plan and all actions taken thereunder shall be governed by and construed in accordance with the laws of the State of Delaware. 7 EX-10.23 5 1ST AMENDED & RESTATED CREDIT AGREEMENT 1 EXHIBIT 10.23 - -------------------------------------------------------------------------------- $600,000,000 FIRST AMENDED AND RESTATED CREDIT AGREEMENT AMONG IXC COMMUNICATIONS SERVICES, INC. AND NATIONSBANK, N.A. AS ADMINISTRATIVE AGENT CREDIT SUISSE FIRST BOSTON TD SECURITIES (USA), INC. EXPORT DEVELOPMENT CORPORATION AS CO-SYNDICATION AGENTS AND LENDERS DATED AS OF JUNE 29, 1999 WITH BANC OF AMERICA SECURITIES LLC AS SOLE LEAD ARRANGER AND SOLE BOOK RUNNER - -------------------------------------------------------------------------------- 2 IXC COMMUNICATIONS SERVICES, INC. TABLE OF CONTENTS ARTICLE I. DEFINITIONS 1.01. Definitions............................................................1 1.02. Accounting and Other Terms............................................27 ARTICLE II. THE LOAN FACILITY 2.01. Loans.................................................................28 2.02. Making Advances.......................................................29 2.03. Evidence of Debt for Borrowed Money...................................30 2.04. Optional Prepayments..................................................31 2.05. Mandatory Prepayments.................................................31 2.06. Repayment.............................................................32 2.07. Interest..............................................................32 2.08. Default Interest......................................................33 2.09. Continuation and Conversion Elections.................................33 2.10. Fees..................................................................34 2.11. Reduction of Commitments..............................................35 2.12. Funding Losses........................................................37 2.13. Computations and Manner of Payments...................................37 2.14. Yield Protection; Changed Circumstances...............................39 2.15. Use of Proceeds.......................................................41 2.16. Collateral and Collateral Call........................................42 2.17. Conditions Precedent to the Making of the Special Purpose Loan........43 ARTICLE III. LETTERS OF CREDIT 3.01. Issuance of Letters of Credit.........................................46 3.02. Letters of Credit Fee.................................................46 3.03. Reimbursement Obligations.............................................47 3.04. Lenders' Obligations..................................................48 3.05. Administrative Agent's Obligations....................................48 ARTICLE IV. CONDITIONS PRECEDENT 4.01. Conditions Precedent to the Initial Rollover Advance, the Issuance of the Initial Letter of Credit and the Effectiveness of this Agreement........................................................49 4.02. Conditions Precedent to All Advances and Letters of Credit............51
i 3 ARTICLE V. REPRESENTATIONS AND WARRANTIES 5.01. Representations and Warranties........................................52 5.02. Survival of Representations and Warranties............................60 ARTICLE VI. GENERAL COVENANTS 6.01. Preservation of Existence and Similar Matters.........................60 6.02. Business; Compliance with Applicable Law. ............................61 6.03. Maintenance of Properties.............................................61 6.04. Accounting Methods and Financial Records..............................61 6.05. Insurance.............................................................61 6.06. Payment of Taxes and Claims...........................................61 6.07. Visits and Inspections................................................61 6.08. Payment of Debt for Borrowed Money....................................62 6.09. Use of Proceeds.......................................................62 6.10. Indemnity.............................................................62 6.11. Environmental Law Compliance..........................................63 6.12. Acquisitions, Generally...............................................64 6.13. Subsidiary Designation................................................64 6.14. Subsidiary Creation or Acquisition....................................64 6.15. Year 2000 Compliance..................................................64 6.16. Post Closing UCC Searches.............................................64 6.17. Post Closing Acquisition of Assets, Properties and Contractual Arrangements..............................................65 6.18. Post Closing Grant of Liens...........................................65 ARTICLE VII. INFORMATION COVENANTS 7.01. Quarterly Financial Statements and Information........................65 7.02. Annual Financial Statements and Information...........................66 7.03. Compliance Certificates...............................................66 7.04. Copies of Other Reports and Notices...................................66 7.05. Notice of Litigation, Default and Other Matters.......................67 7.06. ERISA Reporting Requirements..........................................68 ARTICLE VIII. NEGATIVE COVENANTS 8.01. Financial Covenants...................................................69 8.02. Debt for Borrowed Money...............................................71 8.03. Liens.................................................................72 8.04. Investments...........................................................72 8.05. Liquidation, Disposition or Acquisition of Assets, Merger, New Subsidiaries......................................................75 8.06. Guaranties; Contingent Liabilities....................................76 8.07. Restricted Payments...................................................76 8.08. Affiliate Transactions................................................78 8.09. Compliance with ERISA.................................................79 8.10. Capital Stock.........................................................79 8.11. Sale and Leaseback....................................................79 8.12. Sale or Discount of Receivables.......................................79 8.13. Limitation on Restrictive Agreements..................................79 8.14. Amendment of Material Agreements. ...................................80
ii 4 8.15. Name Changes, Changes Affecting Pledged Stock. ......................80 8.16. Unrestricted Subsidiaries and Mutual Signal. ........................80 8.17. Limitation on IRU Agreements..........................................81 8.18. Limitation on Unrestricted Subsidiaries. ............................81 ARTICLE IX. EVENTS OF DEFAULT 9.01. Events of Default.....................................................81 9.02. Remedies upon Default.................................................85 9.03. Cumulative Rights.....................................................86 9.04. Waivers...............................................................86 9.05. Performance by Administrative Agent or any Lender.....................86 9.06. Expenditures..........................................................87 9.07. Control...............................................................87 ARTICLE X. THE ADMINISTRATIVE AGENT 10.01. Authorization and Action..............................................87 10.02. Administrative Agent's Reliance, Etc..................................87 10.03. NationsBank, N.A. and Affiliates......................................88 10.04. Lender Credit Decision................................................88 10.05. Indemnification by Lenders............................................88 10.06. Successor Administrative Agent........................................89 ARTICLE XI. MISCELLANEOUS 11.01. Amendments and Waivers................................................89 11.02. Notices...............................................................90 11.03. Parties in Interest...................................................92 11.04. Assignments and Participations........................................92 11.05. Sharing of Payments...................................................93 11.06. Right of Set-off......................................................93 11.07. Costs, Expenses, and Taxes............................................94 11.08. Rate Provision........................................................94 11.09. Severability..........................................................95 11.10. Exceptions to Covenants...............................................95 11.11. Counterparts..........................................................95 11.12. GOVERNING LAW; WAIVER OF JURY TRIAL...................................95 11.13. ENTIRE AGREEMENT......................................................96 11.14. Amendment, Restatement, Extension, Renewal and Increase...............96
iii 5 TABLE OF SCHEDULES AND EXHIBITS SCHEDULES Schedule 1.01 - Description of PSINet Shares Schedule 1.02 - Unrestricted Subsidiaries as of the Closing Date Schedule 1.03 - Certain Owners of Capital Stock of the Parent Schedule 1.04 - Restricted Subsidiaries as of the Closing Date Schedule 5.01(a) - Jurisdictions of Qualification, Ownership and Capital Structure - the Parent, the Borrower and their Subsidiaries Schedule 5.01(f) - Non-Compliance with FCC or any applicable PUC Schedule 5.01(h) - Existing Litigation of the Borrower, the Parent and their Subsidiaries Schedule 5.01(r) - Description of Pledged Stock Schedule 8.02 - Existing Debt and Liabilities of the Borrower, the Parent and the Restricted Subsidiaries Schedule 8.03 - Existing Liens of the Borrower, the Parent and the Restricted Subsidiaries Schedule 8.04 - Existing Investments of the Borrower, the Parent and their Restricted Subsidiaries Schedule 8.07 - Permitted Consulting Fee Payments Schedule 8.08 - Permitted Affiliate Non-Market Transactions Schedule 8.16 - Permitted Transactions among the Borrower, the Parent and the Restricted Subsidiaries and the Unrestricted Subsidiaries
EXHIBITS Exhibit A - Form of Revolver Note Exhibit B - Form of Term Loan Note Exhibit C - Form of Compliance Certificate Exhibit D - Form of Borrowing Notice Exhibit E - Form of Conversion/Continuation Notice Exhibit F - Form of Assignment and Acceptance Exhibit G - Form of Unlimited Guaranty Exhibit H - Form of Pledge Agreement
vii 6 $600,000,000 IXC COMMUNICATIONS SERVICES, INC. FIRST AMENDED AND RESTATED CREDIT AGREEMENT THIS FIRST AMENDED AND RESTATED CREDIT AGREEMENT is dated as of June 29, 1999, among IXC COMMUNICATIONS SERVICES, INC., a Delaware corporation (the "Borrower"), the Lenders (as defined below), NATIONSBANK, N.A., as a Lender and Administrative Agent, and CREDIT SUISSE FIRST BOSTON, TD SECURITIES(USA), INC. and EXPORT DEVELOPMENT CORPORATION, each as a Lender and Co-Syndication Agents. BANC OF AMERICA SECURITIES LLC is Sole Lead Arranger and Sole Book Runner. BACKGROUND. WHEREAS, the Borrower, the Administrative Agent and the Lenders entered into a Credit Agreement, dated October 27, 1998 (the "Original Credit Agreement") providing for a $600,000,000 credit facility that had 1) one revolving loan facility in the amount of $150,000,000 (which such loan facility shall also include a letter of credit availability of not more than $20,000,000), 2) one term loan facility in the amount of $200,000,000, and 3) one uncommitted special purpose loan facility that can under certain terms and conditions increase up to an amount of $250,000,000), WHEREAS, the Borrower, the Administrative Agent and the Lenders hereby agree to make the following amendments and changes to the Original Credit Agreement, WHEREAS, the amendments to the Original Credit Agreement are agreed to by the Majority Lenders in accordance with the terms of Section 11.01 of the Original Credit Agreement, AGREEMENT. NOW, THEREFORE, for valuable consideration hereby acknowledged, the parties hereto agree as follows: ARTICLE I. DEFINITIONS 1.01. Definitions. As used in this Agreement, the following terms have the respective meanings indicated below (such meanings to be applicable equally to both the singular and plural forms of such terms): "Administrative Agent" means NationsBank, N.A., in its capacity as Administrative Agent hereunder, or any successor Administrative Agent appointed pursuant to Section 10.06 hereof. 1 7 "Advance" means an advance made by a Lender to the Borrower pursuant to Section 2.01 hereof, which shall include Revolver Advances, Special Purpose Advances (if any), Term Loan Advances and Refinancing Advances. "Affiliate" means a Person that directly, or indirectly through one or more intermediaries, Controls or is Controlled By or is Under Common Control with another Person. "Agreement" means this First Amended and Restated Credit Agreement, as hereafter amended, modified, increased, extended, restated or supplemented from time to time. "Amortized Existing Fiber IRU Proceeds" means for any period of determination, the amortized amount of the Existing Fiber IRU Proceeds for such period in accordance with the original amortization schedule established by the Parent, the Borrower and the Restricted Subsidiaries in accordance with each such Existing Fiber IRU when such IRU Agreement was executed, in each case consistent with the accounting practices of the Parent, the Borrower and the Restricted Subsidiary at the time such Existing Fiber IRU was executed. "Annualized Operating Cash Flow" means the product of (a) Operating Cash Flow minus, to the extent included in Operating Cash Flow, New Fiber IRU Proceeds, for the most recently completed two fiscal quarters, times (b) two, provided that, notwithstanding the foregoing, (i) the definition of "Annualized Operating Cash Flow" shall include (without duplication), Existing Fiber IRU Proceeds received by the Parent, the Borrower and the Restricted Subsidiaries for the most recently completed 12 month period without regard to any amortization schedule established in connection with each such Existing Fiber IRU, and New Fiber IRU Proceeds received by the Parent, the Borrower and the Restricted Subsidiaries for the most recently completed 12 month period, and (ii) notwithstanding the immediately foregoing subparagraph (i), fiber sale and IRU proceeds from Existing Fiber IRUs included in the definition of Annualized Operating Cash Flow shall be the following quarterly amounts for Annualized Operating Cash Flow determinations made at the following fiscal quarter ends: (i) September 30, 1998 - $23,220,000, (ii) December 31, 1998 - $25,140,000 and March 31, 1999 - $50,957,000. "Applicable Law" means (a) in respect of any Person, all provisions of Laws of Tribunals applicable to such Person, and all orders and decrees of all courts and arbitrators in proceedings or actions to which the Person in question is a party and (b) in respect of contracts made or performed in the State of Texas, "Applicable Law" also means the laws of the United States of America, including, without limiting the foregoing, 12 USC Sections 85 and 86, as amended to the date hereof and as the same may be amended at any time and from time to time hereafter, and any other statute of the United States of America now or at any time hereafter prescribing the maximum rates of interest on loans and extensions of credit, and the laws of the State of Texas, including, without limitation, Article 5069-1H, Title 79, Revised Civil Statutes of Texas, 1925, ("Art. 1H"), as amended, if applicable, and if Art. 1H is not applicable, Article 5069-1D, Title 79, Revised Civil Statutes of Texas, 1925, ("Art. 1D"), as amended, and any other statute of the State of Texas now or at any time hereafter prescribing maximum rates of interest on loans and extensions of credit; provided however, that the Borrower agrees that the provisions of Chapter 346 of the Texas Finance Code, as amended, shall not apply to Advances hereunder. 2 8 "Applicable Margin" means, (a) with respect to LIBOR Advances, 3.00% per annum, and (b) with respect to Base Advances, 1.750% per annum provided that, after the date which the Administrative Agent and the Lenders receive a Compliance Certificate required to be delivered in accordance with the terms of Section 7.03 hereof using the 1999 fourth calendar quarter financials of the Borrower and the Parent, the Applicable Margin for Advances will be adjusted as set forth in the last paragraph of this definition to the following per annum percentages applicable in the following situations:
REVOLVER ADVANCES TERM LOAN ADVANCES AND SPECIAL PURPOSE ADVANCES ONLY --------------------------- ----------------------------- LIBOR Advance Base Advance LIBOR Advance Base Advance Applicability Percentage Percentage Percentage Percentage - ------------- ---------- ------------- ---------- ---------- (i) If the Total 3.000% 1.750% 3.000% 1.750% Leverage Ratio is greater than or equal to 4.50 to 1.00 (ii) If the Total 2.500% 1.250% 3.000% 1.750% Leverage Ratio is less than 4.50 to 1.00 but is greater than or equal to to 3.50 to 1.00 (iii) If the Total 2.250% 1.000% 2.750% 1.500% Leverage Ratio is less than 3.50 to 1.00 but is greater than or equal to 2.50 to 1.00 (iv) If the Total 2.000% 0.750% 2.750% 1.500% Leverage Ratio is less than 2.50 to 1.00
After the date which the Administrative Agent and the Lenders receive a Compliance Certificate in accordance with the terms of Section 7.01 using the fourth calendar quarter financials of the Borrower and the Parent, the Applicable Margin payable by the Borrower on Revolver Advances only shall be subject to reduction or increase, as applicable and as set forth in the table above, on a quarterly basis according to the performance of the Borrower, the Parent and the Restricted Subsidiaries as tested by the Total Leverage Ratio. Except as set forth in the following sentence, any such increase or reduction in the Applicable Margin provided for herein for Revolver Advances shall be effective three Business Days after receipt by Administrative Agent of the applicable financial statements and corresponding Compliance Certificate. If financial statements and a Compliance Certificate of the Borrower setting forth the Total Leverage Ratio are not received by the Administrative Agent by the date required pursuant to Section 7.01 or 7.02 hereof, the Applicable Margin for Revolver Advances shall be determined as if the Total Leverage Ratio exceeds 4.50 to 1.00 until such time as such financial statements and Compliance Certificate are received. For the final quarter of any fiscal year of the Borrower, the Borrower may provide the unaudited financial statements of the Borrower and 3 9 the Parent, subject only to year-end adjustments, for the purpose of adjusting the Applicable Margin for Revolver Advances. "Applicable Specified Percentage" means with respect to any Lender, in the case of the Revolver Loan, such Lender's Revolver Specified Percentage, in the case of the Special Purpose Loan, such Lender's Special Purpose Specified Percentage and in the case of the Term Loan, such Lender's Term Loan Specified Percentage. "Application" means any stand-by letter of credit application delivered to Administrative Agent for or in connection with any stand-by Letter of Credit pursuant to Article III hereof, in Administrative Agent's standard form for stand-by letters of credit. "Art. 1D" has the meaning specified in the definition herein of "Applicable Law". "Art. 1H" has the meaning specified in the definition herein of "Applicable Law". "Assignment and Acceptance" means an assignment and acceptance entered into by a Lender and an assignee in accordance with the terms and conditions of Section 11.04 hereof, and accepted by Administrative Agent, in the form of Exhibit F hereto. "Auditor" means Ernst & Young or other independent certified public accountants selected by the Borrower and acceptable to Administrative Agent. "Authorized Officer" means, with respect to the Parent, the Borrower and their Subsidiaries respectively, any of the Chief Executive Officer, the President, the Chief Financial Officer, Chief Accounting Officer, the Vice President of Finance, the General Counsel or the Treasurer of the Borrower. "Backbone Fiber" means a fiber connecting Los Angeles, CA and New York, New York. "Bank Affiliate" means the holding company of any Lender, or any wholly owned direct or indirect subsidiary of such holding company or of such Lender. "Base Advance" means an Advance under the Revolver Loan, the Special Purpose Loan or the Term Loan, as applicable, bearing interest at the Base Rate. "Base Rate" means a per annum interest rate equal to the lesser of (a) the Highest Lawful Rate, and (b) the sum of the Applicable Margin plus the higher of (i) a fluctuating rate per annum as shall be in effect from time to time announced or published by NationsBank, N.A. as its prime rate, and which may not necessarily be the lowest interest rate charged by NationsBank, N.A., and (ii) the Federal Funds Rate in effect at such time plus .50%. "Board of Directors" means the Board of Directors of the Parent or any committee thereof duly authorized to act on behalf of such Board. "Borrower Deposit Account" means that certain deposit account of the Borrower at the Dallas, Texas Main Street location of NationsBank, N.A. on which the Administrative Agent, on behalf of the Lenders, has a first and prior Lien and security interest to secure the Obligations hereunder. 4 10 "Borrowing" means all Advances borrowed on the same day of the same Type. "Borrowing Notice" has the meaning set forth in Section 2.02(a) hereof. "Business Day" means a day on which banks are open for the transaction of business as required by this Agreement in Dallas, Texas and Toronto, Ontario and, with respect to any LIBOR Advance, a domestic business day in London, England and a day on which commercial banks are open for international business in London, England (including dealings in United States dollar deposits), and as otherwise relevant to the determination to be made or the action to be taken. "Capital Expenditures" means capital expenditures, as defined in accordance with GAAP. "Capital Leases" means capital leases and subleases, as defined in accordance with GAAP. "Capital Stock" means, as to any Person, the equity interests in such Person, including, without limitation, the shares of each class of capital stock of any Person that is a corporation, each class of partnership interests (including without limitation, general, limited and preference units) in any Person that is a partnership, and each membership interest in any Person that is a limited liability company. "Closing Date" means the date hereof. "Change of Control" means the occurrence of any one or more of the following events: (i) any Person that is not a Present Holder acquires Control of the Parent, (ii) any event which constitutes a Designated Change of Control, (iii) any event which constitutes any "change of control" as defined in the any of the Existing Financing Documentation, (iv) any event which results in the Parent's failure to own and control, directly or indirectly, 100% of the Capital Stock of the Borrower, or (v) any event which results in the Parent's and/or the Borrower's failure to own and control 100% of the Capital Stock of the Restricted Subsidiaries, except Mutual Signal which must remain at least 85% owned, the Subsidiaries of Mutual Signal, and Capital Stock of Restricted Subsidiaries sold pursuant to an asset sale permitted by the terms of this Agreement. "Code" means the Internal Revenue Code of 1986, as amended, and any reference to any provision of the Code shall include all successor provisions thereto. "Collateral" has the meaning ascribed thereto in Section 2.16(a) hereof. "Commitment" means the Revolver Commitment and the Special Purpose Commitment, if any. "Commitment Fee" means the Revolver Commitment Fee and, if the Special Purpose Loan is a revolving loan, any commitment fee agreed to in accordance with the terms of Section 2.17 hereof. "Communications Act" means, collectively, the Communications Act of 1934, as amended through the date hereof (including without limitation, by the Telecommunications Act of 1996), and as further amended, and the rules and regulations promulgated thereunder, as from time to time in effect. 5 11 "Compliance Certificate" means a certificate of an Authorized Officer in the form of Exhibit C hereto, (a) certifying that such individual has no knowledge that a Default or Event of Default has occurred and is continuing, or if a Default or Event of Default has occurred and is continuing, a statement as to the nature thereof and the action being taken or proposed to be taken with respect thereto, (b) setting forth detailed calculations with respect to the covenants described in Section 8.01 hereof and (c) certifying to the appropriate Applicable Margin. "Consequential Loss" with respect to (a) the Borrower's payment of all or any portion of the then-outstanding principal amount of a LIBOR Advance on a day other than the last day of the related Interest Period, including, without limitation, payments made as a result of the acceleration of the maturity of a Note, (b) subject to Administrative Agents' prior consent, a LIBOR Advance made on a date other than the date on which the Advance is to be made according to Section 2.02(a) or Section 2.09 hereof to the extent such Advance is made on such other date at the request of the Borrower, or (c) any of the circumstances specified in Sections 2.04, 2.05, 2.06 and 2.11 hereof on which a LIBOR Advance or a Letter of Credit may cause a Consequential Loss to be incurred, means any loss, cost or expense determined in accordance with the formula set forth below incurred by any Lender as a result of the timing of the payment or Advance or in liquidating, redepositing, redeploying or reinvesting the principal amount so paid or affected by the timing of the Advance or the circumstances described in Sections 2.04, 2.05, 2.06 or 2.11 hereof, which amount shall be the sum of (i) the interest that, but for the payment or timing of Advance, such Lender would have earned in respect of that principal amount, reduced, if such Lender is able to redeposit, redeploy, or reinvest the principal amount, by the interest earned by such Lender as a result of redepositing, redeploying or reinvesting the principal amount plus (ii) any expense or penalty incurred by such Lender by reason of liquidating, redepositing, redeploying or reinvesting the principal amount. Each determination by each Lender of any Consequential Loss is, in the absence of manifest error, presumptive evidence of the validity of such claim. "Contingent Liability" means, as to any Person, any obligation or Guaranty, contingent or otherwise, of such Person guaranteeing or having the economic effect of guaranteeing any Debt or obligation of any other Person in any manner, whether directly or indirectly, including without limitation any obligation of such Person, direct or indirect, (a) to purchase or pay (or advance or supply funds for the purchase or payment of) such Debt or to purchase (or to advance or supply funds for the purchase of) any security for the payment of such Debt, (b) to purchase Property or services for the purpose of assuring the owner of such Debt of its payment, or (c) to maintain the solvency, working capital, equity, cash flow, fixed charge or other coverage ratio, or any other financial condition of the primary obligor so as to enable the primary obligor to pay any Debt or to comply with any agreement relating to any Debt or obligation, but excluding endorsement of checks, drafts and other instruments in the ordinary course of business, provided that this definition of "Contingent Liability" shall not include Guaranties by the Parent, the Borrower or any Subsidiary of the Borrower and/or the Parent of any obligations of the Borrower or any wholly owned Subsidiary of the Borrower or the Parent that has executed an Unlimited Guaranty. "Continue," "Continuation" and "Continued" each refer to the continuation pursuant to Section 2.09 hereof of a LIBOR Advance from one Interest Period to the next Interest Period. 6 12 "Control" or "Controlled By" or "Under Common Control" mean possession, direct or indirect, of power to direct or cause the direction of management or policies (whether through ownership of voting securities, by contract or otherwise). "Controlled Group" means, as to any Person, all members of a controlled group of corporations and all trades or businesses (whether or not incorporated) which are under common control with such Person and which, together with such Person, are treated as a single employer under Section 414(b), (c), (m) or (o) of the Code. "Conversion or Continuance Notice" has the meaning set forth in Section 2.09(b) hereof. "Cumulative Convertible" means that certain $155,000,000 6 and 3/4% Cumulative Convertible Preferred Stock issued by the Parent, including all such Capital Stock issued in lieu of the payment of dividends. "Cumulative Convertible Documentation" means that certain Certificate of Designation with respect to the Cumulative Convertible, and all other agreements and other documentation relating to the Cumulative Convertible. "Debt" means all obligations, contingent or otherwise, which in accordance with GAAP are required to be classified on the balance sheet as liabilities, and in any event including (without duplication) (a) Capital Leases, (b) Contingent Liabilities that are required to be recorded in accordance with GAAP (including, without limitation, letters of credit and reimbursement obligations with respect to letters of credit), (c) liabilities secured by any Lien on any Property, regardless of whether such secured liability is with or without recourse, and (d) installment payment non-compete agreements. "Debt for Borrowed Money" means, with respect to the Parent, the Borrower and the Restricted Subsidiaries, at any date, without duplication, all Debt of the Borrower, the Parent and the Restricted Subsidiaries that constitutes (a) all obligations of the Borrower, the Parent and such Restricted Subsidiaries for borrowed money, letters of credit (or applications for letters of credit) or other similar instruments, (b) all obligations of the Borrower, the Parent and the Restricted Subsidiaries evidenced by bonds, debentures, notes or other similar instruments, (c) all obligations of the Borrower, the Parent and the Restricted Subsidiaries to pay the deferred purchase price of property or services, except trade accounts payable arising in the ordinary course of business, (d) all obligations under Capital Leases of the Borrower, the Parent and the Restricted Subsidiaries, (e) installment payment non-compete agreements for the Borrower, the Parent and each Restricted Subsidiary, and (f) all Contingent Liabilities relating to obligations of another Person (other than a wholly owned Restricted Subsidiary of the Borrower or the Parent that has executed an Unlimited Guaranty, with respect to Debt of another wholly owned Restricted Subsidiary or the Borrower or the Parent that has executed an Unlimited Guaranty) of the type described in (a) through (e) above. "Debtor Relief Laws" means applicable bankruptcy, reorganization, moratorium, or similar Laws, or principles of equity affecting the enforcement of creditors' rights generally. "Default" means any event specified in Section 9.01 hereof, whether or not any requirement in connection with such event for the giving of notice, lapse of time, or happening of any further condition has been satisfied. 7 13 "Designated Change of Control" means the occurrence of any of the following events (each a "Designated Change of Control"): (i) any "person" (as such term is used in Sections 13(d) and 14(d) of the Exchange Act), other than one or more Permitted Holders, is or becomes the beneficial owner (as defined in Rules 13d-3 and 13d-5 under the Exchange Act, except that for purposes of this clause (i) such person shall be deemed to have "beneficial ownership" of all shares that any such person has the right to acquire, whether such right is exercisable immediately or only after the passage of time and except that any person that is deemed to have beneficial ownership of shares solely as a result of being part of a group pursuant to Rule 13d-5(b)(i) shall not be deemed to have beneficial ownership of any shares held by a Permitted Holder forming a part of such group), directly or indirectly, of more than 50% of the total voting power of the Voting Stock of the Parent (for the purposes of this clause (i), such other person shall be deemed to beneficially own any Voting Stock of a specified corporation held by a parent corporation, if such other person is the beneficial owner (as defined in this clause (i)), directly or indirectly, of more than 35% of the voting power of the Voting Stock of such parent corporation and the Permitted Holders beneficially own (as defined in Rules 13d-3 and 13d-5 under the Exchange Act), directly or indirectly, in the aggregate a lesser percentage of the voting power of the Voting Stock of such parent corporation and do not have the right or ability by voting power, contract or otherwise to elect or designate for election a majority of the board of directors of such parent corporation); (ii) during any period of two consecutive years, individuals who at the beginning of such period constituted the Board of Directors (together with any new directors whose election by such Board of Directors or whose nomination for election by the shareholders of the Parent was approved by a vote of a majority of the directors of the Parent then still in office who were either directors at the beginning of such period or whose election or nomination for election was previously so approved) cease for any reason to constitute a majority of the Board of Directors then in office; provided, however, that any directors elected by holders of Preferred Stock of the Parent pursuant to any voting rights provisions included in the certificate of designation relating to such Preferred Stock shall be excluded in making any determination pursuant to this clause (ii), or (iii) the merger or consolidation of the Parent with or into another Person or the merger of another Person with or into the Parent, or the sale of all or substantially all the assets of the Parent to another Person (other than a Person that is controlled by the Permitted Holders), and, in the case of any such merger or consolidation, the securities of the Parent that are outstanding immediately prior to such transaction and which represent 100% of the aggregate voting power of the Voting Stock of the Parent are changed into or exchanged for cash, securities or property, unless pursuant to such transaction such securities are changed into or exchanged for, in addition to any other consideration, securities of the surviving corporation that represent immediately after such transaction, at least a majority of the aggregate voting power of the Voting Stock of the surviving corporation. "Designated Restricted Subsidiaries" means those Subsidiaries of the Parent from time to time defined as Restricted Subsidiaries by the Junior Exchangeable Documentation. 8 14 "Distribution" means, as to any Person, (a) any declaration or payment of any distribution or dividend (other than a common stock dividend) on, or the making of any pro rata distribution, loan, advance, or investment to or in any holder of, any partnership interest or shares of Capital Stock or other equity interest of such Person (or the establishment of a sinking fund or otherwise setting aside of funds for any such purpose), or (b) any purchase, redemption, or other acquisition or retirement for value of any shares of partnership interest or Capital Stock or other equity interest of such Person (or the establishment of a sinking fund or otherwise setting aside of funds for any such purpose). "Environmental Claim" means any written notice by any Tribunal alleging liability for damage to the environment, or by any Person alleging liability for personal injury (including sickness, disease or death), resulting from or based upon (a) the presence or release (including sudden or non-sudden, accidental or non-accidental, leaks or spills) of any Hazardous Material at, in or from property, whether or not owned by the Parent, the Borrower or any of its Subsidiaries, or (b) circumstances forming the basis of any violation, or alleged violation, of any Environmental Law. "Environmental Laws" means the Comprehensive Environmental Response, Compensation, and Liability Act (42 U.S.C. ss.9601 et seq.) ("CERCLA"), the Hazardous Material Transportation Act (49 U.S.C. ss.1801 et seq.), the Resource Conservation and Recovery Act (42 U.S.C. ss.6901 et seq.), the Federal Water Pollution Control Act (33 U.S.C. ss.1251 et seq.), the Clean Air Act (42 U.S.C. ss.7401 et seq.), the Toxic Substances Control Act (15 U.S.C. ss.2601 et seq.), and the Occupational Safety and Health Act (29 U.S.C. ss.651 et seq.) ("OSHA"), as such laws have been or hereafter may be amended or supplemented, and any and all analogous future federal, or present or future state or local, Laws. "ERISA" means the Employee Retirement Income Security Act of 1974, as amended, and the rulings and regulations issued thereunder, as from time to time in effect. "ERISA Affiliate" means any Person that for purposes of Title IV of ERISA is a member of the controlled group of the Borrower or any Obligor or any Unrestricted Subsidiary, or is under common control with Borrower or any Obligor or any Unrestricted Subsidiary, within the meaning of Section 414(c) of the Code, and the regulations and rulings issued thereunder. "ERISA Event" means (a) a reportable event, within the meaning of Section 4043 of ERISA, unless the 30-day notice requirement with respect thereto has been waived by the PBGC, (b) the issuance by the administrator of any Plan of a notice of intent to terminate such Plan, pursuant to Section 4041(a)(2) of ERISA (including any such notice with respect to a plan amendment referred to in Section 4041(e) of ERISA), (c) the withdrawal by the Parent, the Borrower, any Subsidiary of the Parent, or an ERISA Affiliate from a Multiple Employer Plan during a Plan year for which it was a substantial employer, as defined in Section 4001(a)(2) of ERISA, (d) the failure by the Borrower, the Parent, any Subsidiary of the Parent, or any ERISA Affiliate to make a payment to a Plan required under Section 302 of ERISA, (e) the adoption of an amendment to a Plan requiring the provision of security to such Plan, pursuant to Section 307 of ERISA, or (f) the institution by the PBGC of proceedings to terminate a Plan, pursuant to Section 4042 of ERISA, or the occurrence of any event or condition that constitutes grounds under Section 4042 of ERISA for the termination of, or the appointment of a trustee to administer, a Plan. 9 15 "Event of Default" means any of the events specified in Section 9.01 of this Agreement, provided there has been satisfied any requirement in connection therewith for the giving of notice, lapse of time, or happening of any further condition. "Exchange Act" means the Securities Exchange Act of 1934, as amended from time to time. "Excluded Stock" means (i) 15% of the Capital Stock of Mutual Signal, (ii) all of the Capital Stock of the Subsidiaries of Mutual Signal, (iii) 34% of the Capital Stock of IXC Communications Services Europe Limited, (iv) all of the Capital Stock of the Subsidiaries of Unrestricted Subsidiaries, and (v) 100% of the Capital Stock of Switched Services Communications, L.L.C. "Existing Financing" means collectively, the Junior Exchangeable, the Junior Convertible, the Cumulative Convertible, the Subordinated Notes and the Senior Notes. "Existing Financing Documentation" means collectively, the Junior Exchangeable Documentation, the Junior Convertible Documentation, the Cumulative Convertible Documentation, the Subordinated Notes Documentation, and the Senior Notes Documentation. "Existing Fiber IRUs" means fiber IRU Agreements entered into prior to June 30, 1999. "Existing Fiber IRU Proceeds" means, for any period of determination, the net cash proceeds (in each case, minus costs of sales) received by the Parent, the Borrower and the Restricted Subsidiaries from Existing Fiber IRUs for such period. "FCC" means the Federal Communications Commission, or any governmental agency succeeding to the functions thereof. "Federal Funds Rate" means, for any period, a fluctuating interest rate per annum equal for each day during such period to the weighted average of the rates on overnight federal funds transactions with members of the Federal Reserve System arranged by federal funds brokers, as published for such day (or, if such day is not a Business Day, for the next preceding Business Day) by the Federal Reserve Bank of Dallas, or, if such rate is not so published for any day which is a Business Day, the average of the quotations for such date on such transactions received by Administrative Agent from three federal funds brokers of recognized standing selected by it. "Fee Letters" means that certain Fee Letter, dated October 27, 1998, between the Parent, the Borrower and the Administrative Agent, that certain Fee Letter, dated as of June 28,1999 between the Parent, the Borrower and the Administrative Agent and all other fee letters executed among the Borrower and any Lender from time to time, as such letters may be amended, modified, substituted, replaced, or increased from time to time. "GAAP" means United States of America generally accepted accounting principles applied on a consistent basis. Application on a consistent basis shall mean that the accounting principles observed in a current period are comparable in all material respects to those applied in a preceding period, except for new developments or statements promulgated by the Financial Accounting Standards Board and other changes in accounting methods permitted by generally accepted accounting principles. 10 16 "Guarantors" means the Parent, each Restricted Subsidiary of the Borrower and the Parent existing on the Closing Date or formed or acquired by the Borrower and the Parent after the date hereof, and any direct or indirect Restricted Subsidiary of the Borrower and the Parent from time to time thereafter, provided that (a) Mutual Signal and the Subsidiaries of Mutual Signal shall not be Guarantors hereunder, and (b) this definition shall not include any Person who was a Guarantor at one time but was subsequently released by the Administrative Agent and the Lenders in accordance with the terms of Section 8.05 hereof. "Guaranty" means a guaranty executed by any Person of the obligations of another Person, or any agreement by which such Person assumes, guarantees, endorses, contingently agrees to purchase or provide funds for the payment of, or otherwise becomes liable upon, the obligation of any other Person, or agrees to maintain the net worth or working capital or other financial condition of any other Person, or otherwise assures any creditor or such other Person against loss, including, without limitation, any comfort letter, or take-or-pay contract and shall include without limitation, the contingent liability of such Person in connection with any application for a letter of credit. "Hazardous Materials" means all materials subject to regulation under any Environmental Law, including without limitation materials listed in 49 C.F.R. Section 172.101, Hazardous Substances, explosive or radioactive materials, hazardous or toxic wastes or substances, petroleum or petroleum distillates, asbestos, or material containing asbestos. "Hazardous Substances" means hazardous waste as defined in the Clean Water Act, 33 U.S.C. Section 1251 et seq., the Comprehensive Environmental Response Compensation and Liability Act as amended by the Superfund Amendments and Reauthorization Act, 42 U.S.C. Section 9601 et seq., the Resource Conservation Recovery Act, 42 U.S.C. Section 6901 et seq., and the Toxic Substances Control Act, 15 U.S.C. Section 2601 et seq. "Highest Lawful Rate" means at the particular time in question the maximum rate of interest which, under Applicable Law, any Lender is then permitted to charge on the Obligations. If the maximum rate of interest which, under Applicable Law, any Lender is permitted to charge on the Obligations shall change after the date hereof, the Highest Lawful Rate shall be automatically increased or decreased, as the case may be, from time to time as of the effective time of each change in the Highest Lawful Rate without notice to the Borrower. For purposes of determining the Highest Lawful Rate under Applicable Law, the applicable rate ceiling shall be (a) the weekly ceiling described in and computed in accordance with the provisions of Art. 1H, or (b) either the annualized ceiling or quarterly ceiling computed pursuant to Section .008 of Art. 1D; provided, however, that at any time the weekly ceiling, the annualized ceiling or the quarterly ceiling, as applicable, shall be less than 18% per annum or more than 24% per annum, the provisions of Sections .009(a), .009(b) or .009(c) of said Art. 1D shall control for purposes of such determination, as applicable. "Income Tax Expense" means the aggregate income Taxes accrued by the Parent, the Borrower and the Restricted Subsidiaries for the relevant period of determination. "Insufficiency" means, with respect to any Plan, the amount, if any, of its unfunded benefit liabilities within the meaning of Section 4001(a)(18) of ERISA. "Interest Coverage Ratio" means, on any date of determination for the Parent, the Borrower and the Restricted Subsidiaries, the ratio of (a) Operating Cash Flow for the most recently completed 11 17 12 month period to (b) the aggregate amount of cash Interest Expense actually paid during the most recently completed 12 month period. "Interest Expense" means, for the Parent, the Borrower and the Restricted Subsidiaries on a consolidated basis for any period of determination, the gross interest expense for any period on Total Debt, determined in accordance with GAAP, minus the sum of (a) interest income for such period, plus (b) to the extent included in the determination of such gross interest expense, upfront costs or fees expended during such period in connection with the execution and delivery of documentation relating to the Loan Papers. "Interest Period" means, with respect to any LIBOR Advance, the period beginning on the date the Advance is made or continued as a LIBOR Advance and ending one, two, three, six or, to the extent available as determined by Administrative Agent, twelve months thereafter (as the Borrower shall select), provided, however, that: (a) the Borrower may not select any Interest Period that ends after any principal repayment date unless, after giving effect to such selection, the aggregate principal amount of LIBOR Advances having Interest Periods that end on or prior to such principal repayment date, shall be at least equal to the principal amount of Advances due and payable on and prior to such date; (b) whenever the last day of any Interest Period would otherwise occur on a day other than a Business Day, the last day of such Interest Period shall be extended to occur on the next succeeding Business Day, provided, however, that if such extension would cause the last day of such Interest Period to occur in the next following calendar month, the last day of such Interest Period shall occur on the next preceding Business Day; and (c) whenever the first day of any Interest Period occurs on a day of an initial calendar month for which there is no numerically corresponding day in the calendar month that succeeds such initial calendar month by the number of months equal to the number of months in such Interest Period, such Interest Period shall end on the last Business Day of such succeeding calendar month. "Interest Rate Protection Agreement" means an interest rate swap, cap, collar or similar interest rate protection agreement between the Borrower and any Lender. "Investment" means any acquisition of all or substantially all of the assets of any Person, or any direct or indirect purchase or other acquisition of, or a beneficial interest in, any Capital Stock or other securities of any other Person, or any direct or indirect loan, advance, or capital contribution to or investment in any other Person, including without limitation the incurrence or sufferance of Debt or accounts receivable of any other Person that are not current assets or do not arise from sales to that other Person in the ordinary course of business. "IRU" means an indefeasible right to use fiber or telecommunications capacity. "IRU Agreement" means an agreement pursuant to which an interest in an IRU is sold or leased or otherwise transferred. 12 18 "Junior Convertible" means that certain $100,000,000 7 and 1/4% Junior Convertible Preferred Stock issued by the Parent, including all such Capital Stock issued in lieu of the payment of dividends. "Junior Convertible Documentation" means that certain Certificate of Designation with respect to the Junior Convertible, and all other agreements and other documentation relating to the Junior Convertible. "Junior Exchangeable" means that certain $300,000,000 12 and 1/2% Junior Exchangeable Preferred Stock issued by the Parent, and all such Capital Stock issued in lieu of the payment of dividends. "Junior Exchangeable Documentation" means that certain Certificate of Designation with respect to the Junior Exchangeable, and all other agreements and other documentation relating to the Junior Exchangeable. "Law" means any constitution, statute, law, ordinance, regulation, rule, order, writ, injunction, or decree of any Tribunal. "Lenders" means the lenders listed on the signature pages of this Agreement, and each transferee which hereafter becomes a party to this Agreement pursuant to Section 11.04 hereof or pursuant to an amendment to this Agreement, so long as each is owed any portion of the Obligation or is obligated to make any Advance hereunder. "Lending Office" means, with respect to each Lender, its branch or affiliate, (a) initially, the office of each Lender, branch or affiliate identified on each Lender's signature page hereto, and (b) subsequently, such other office of each Lender, branch or affiliate as each Lender may designate to the Borrower and Administrative Agent as the office from which the Advances of each Lender will be made and maintained and for the account of which all payments of principal and interest on the Advances and the Commitment Fee will thereafter be made. Lenders may have more than one Lending Office for the purpose of making Base Advances and LIBOR Advances. "Letter of Credit Commitment" means, on any date of determination, an amount equal to the lesser of (a) $20,000,000 and (b) the Revolver Commitment minus all outstanding Revolver Advances under the Revolver Loan. "Letters of Credit" means the irrevocable standby letters of credit issued by Administrative Agent under and pursuant to Article III hereof, and under and pursuant to Article III of the Original Credit Agreement, as each may be amended, modified, substituted, increased, replaced, renewed or extended from time to time. "LIBOR Advance" means an Advance under the Revolver Loan, the Special Purpose Loan or the Term Loan, bearing interest at the LIBOR Rate. "LIBOR Lending Office" means, with respect to each Lender, the office designated as its "LIBOR Lending Office" on each Lender's signature page hereto, or such other office of Lender or any of its affiliates hereafter designated by notice to the Borrower and Administrative Agent. 13 19 "LIBOR Rate" means, for any LIBOR Advance for any Interest Period therefore, a rate per annum equal to the lesser of (a) the Highest Lawful Rate and (b) the sum of (i) the Applicable Margin, plus (ii) the rate per annum (rounded upwards, if necessary, to the nearest one-one hundredth (1/100th) of one percent (1%)) appearing on Telerate Page 3750 (or any successor page) as the London interbank offered rate for deposits in United States dollars at approximately 11:00 a.m. (London time) two Business Days prior to the first day of such Interest Period. If for any reason such rate is not available, the term "LIBOR Rate" shall mean, for any LIBOR Advance for any Interest Period therefor, the rate per annum (rounded upwards, if necessary, to the nearest one-one hundredth (1/100th) of one percent (1%)) appearing on Reuters Screen LIBO page as the London interbank offered rate for deposits in United States dollars at approximately 11:00 a.m. (London time) two Business Days prior to the first day of such Interest Period for a term comparable to such Interest Period; provided, however, if more than one rate is specified on Reuters Screen LIBO Page, the applicable rate shall be the arithmetic mean of all such rates. "License" means, as to the Parent, the Borrower, or any Subsidiary of the Borrower and/or the Parent, any license, permit, consent, certificate of need, authorization, certification, accreditation, franchise, approval, or grant of rights by, or any filing or registration with, any Tribunal or third Person (including without limitation, the FCC or any applicable PUC) necessary for such Person to own, build, maintain, or operate its business or Property. "Lien" means any mortgage, pledge, security interest, encumbrance, lien, or charge of any kind, including without limitation any agreement to give or not to give any of the foregoing, any conditional sale or other title retention agreement, any lease in the nature thereof, and the filing of or agreement to give any financing statement or other similar form of public notice under the Laws of any jurisdiction (except for the filing of a financing statement or notice in connection with an (a) operating lease or (b) the true consignment of goods to the Parent, the Borrower or any Restricted Subsidiary as consignee). "Litigation" means any proceeding, claim, lawsuit, arbitration, and/or investigation conducted by or before any Tribunal or arbitrator, including without limitation proceedings, claims, lawsuits, and/or investigations under or pursuant to any environmental, occupational, safety and health, antitrust, unfair competition, securities, Tax, or other Law, or under or pursuant to any contract, agreement, or other instrument. "Loans" means all three of the Revolver Loan, the Special Purpose Loan, if any, and the Term Loan, and "Loan" means any one of the Revolver Loan, the Special Purpose Loan or the Term Loan, as applicable in the context used. "Loan Papers" means this Agreement, the Notes, the Pledge Agreement, the Unlimited Guaranties, the Fee Letters, all agreements related to the Borrower Deposit Account and the Parent Deposit Account, financing statements, any Interest Rate Protection Agreement and related documents entered into by the Borrower with any Lender or any Bank Affiliate, all Letters of Credit, all Applications and all other agreements between the Parent, the Borrower or any Restricted Subsidiary and the Administrative Agent related to any Letter of Credit, other fee letters, Assignment and Acceptances, post-closing letters, all security agreements, pledges, mortgages, deeds of trust, assignments, leasehold mortgages, leasehold deeds of trust, collateral assignments and other agreements and documentation relating to the Liens securing the Obligations, and all other documents, instruments, agreements, or certificates executed or delivered from time to time by any 14 20 Person in connection with this Agreement or as security for the Obligations hereunder, granting Collateral or otherwise, as each such agreement may be amended, modified, substituted, replaced or extended from time to time. "Majority Lenders" means any combination of Lenders having at least 51.00% of the aggregate amount of the sum of (a) outstanding Commitments plus (b) outstanding Term Loan Advances, plus (c) if the Special Purpose Loan is a term loan, the aggregate amount of outstanding Special Purpose Advances, provided, however, that (i) if the Revolver Commitment has been terminated, then (a) above will be the amount of the outstanding Revolver Advances and (ii) if the Special Purpose Loan is a revolving loan but the Special Purpose Commitment has been terminated, then (a) above will include the amount of the outstanding Special Purpose Advances. "Material Adverse Change" means any circumstance or event that is or could reasonably be expected to (a) be material and adverse to the financial condition, business, operations, prospects, or Properties of the Parent, the Borrower and the Restricted Subsidiaries on a consolidated basis, (b) materially and adversely affect the validity or enforceability of any Loan Paper or (c) cause a Default or Event of Default. "Maturity Date" means the earlier of October 24, 2003, or such earlier date on which the total amount of outstanding Obligations are due and payable (including, without limitation, whether by acceleration, scheduled reduction of the Commitment to zero, mandatory or voluntary commitment reduction of the Commitment to zero, installment payments or otherwise). "Maximum Amount" means the maximum amount of interest which, under Applicable Law, a Lender is permitted to charge on the Obligations. "Multiemployer Plan" means a multiemployer plan, as defined in Section 4001(a)(3) of ERISA, to which the Parent, the Borrower, any Subsidiary of the Parent or the Borrower, or any ERISA Affiliate is making or accruing an obligation to make contributions, or has within any of the preceding five plan years made or accrued an obligation to make contributions, such plan being maintained pursuant to one or more collective bargaining agreements. "Multiple Employer Plan" means a single employer plan, as defined in Section 4001(a)(15) of ERISA, that (a) is maintained for employees of the Parent, the Borrower, any Subsidiary of the Parent or the Borrower, or any ERISA Affiliate and at least one Person other than the Borrower, the Parent, any Subsidiary of the Borrower or the Parent, and any ERISA Affiliate, or (b) was so maintained and in respect of which the Borrower, the Parent, any Subsidiary of the Borrower or the Parent, or any ERISA Affiliate could have liability under Section 4064 or 4069 of ERISA in the event such plan has been or were to be terminated. "Mutual Signal" means Mutual Signal Holding Corporation, a Subsidiary of the Borrower the common stock of which is 85% owned by the Borrower and 15% owned by Frontier Corporation. "Net Proceeds" means the gross cash proceeds received by the Borrower, the Parent or any Restricted Subsidiary in connection with or as a result of any asset sale not in the ordinary course of business, minus (so long as each of the following are estimated in good faith by the management of the Parent and certified to the Lenders in reasonable detail by an Authorized Officer) (a) actual taxes estimated in good faith by the Board of Directors incurred as a result of such sale (after giving effect 15 21 to all tax benefits available to the Parent, the Borrower or such Restricted Subsidiary), and (b) reasonable and customary transaction costs payable by the Parent, the Borrower or any Restricted Subsidiary that are related to such sale and payable to a Person other than an Affiliate of the Parent, the Borrower and its Subsidiaries. "New Fiber IRU Proceeds" means, for any period of determination, the net cash proceeds (in each case, minus costs of sales) received by the Parent, the Borrower and the Restricted Subsidiaries from sales and IRUs of fiber that are not Existing Fiber IRUs during such period, in each case as accounted for by the Parent, the Borrower and the Restricted Subsidiaries consistently applied after June 30, 1999. "Notes" means each of the Revolver Notes, Special Purpose Notes (if any) and Term Loan Notes, and "Note" means any of the Revolver Note, the Special Purpose Note or the Term Loan Note, as applicable in the context used, and in each case, with any extension, renewal or amendment thereof, or substitution therefor. "Obligations" means all present and future obligations, indebtedness and liabilities, and all renewals and extensions of all or any part thereof, of the Borrower and each other Obligor to Lenders and Administrative Agent arising from, by virtue of, or pursuant to this Agreement, any of the other Loan Papers and any and all renewals and extensions thereof or any part thereof, or future amendments thereto, all interest accruing on all or any part thereof and reasonable attorneys' fees incurred by the Administrative Agent for the preparation of this Agreement and consummation of this credit facility, execution of waivers, amendments and consents, and in connection with the enforcement or the collection of all or any part thereof, and reasonable attorneys' fees incurred by the Lenders in connection with the enforcement or the collection of all or any part of the Obligations during the continuance of an Event of Default, in each case whether such obligations, indebtedness and liabilities are direct, indirect, fixed, contingent, joint, several or joint and several. Without limiting the generality of the foregoing, "Obligations" includes all amounts which would be owed by the Borrower, each other Obligor and any other Person (other than Administrative Agent or Lenders) to Administrative Agent or Lenders under any Loan Paper, but for the fact that they are unenforceable or not allowable due to the existence of a bankruptcy, reorganization or similar proceeding involving the Borrower, any other Obligor or any other Person (including all such amounts which would become due or would be secured but for the filing of any petition in bankruptcy, or the commencement of any insolvency, reorganization or like proceeding of the Borrower, any other Obligor or any other Person under any Debtor Relief Law). "Obligor" means (a) the Borrower, (b) the Parent, (c) each Restricted Subsidiary, (d) each other Person liable for performance of any of the Obligations and (e) each other Person the Property of which secures the performance of any of the Obligations. "Operating Cash Flow" means, for the Parent, the Borrower and the Restricted Subsidiaries, for any period, the consolidated net income (loss) for such period taken as a single accounting period (including, without limitation and duplication, New Fiber IRU Proceeds during such period, and revenue recognized during such period from the Williams Agreement), plus the sum of the following amounts for such period to the extent included in the determination of such consolidated net income or loss, without duplication: (a) depreciation (including any non cash impairment charges) expense, (b) amortization expense and other non-cash charges, expenses or losses reducing income, (c) Interest Expense, (d) Income Tax Expense and (e) extraordinary losses, minus the sum of (i) extraordinary 16 22 gains and (ii) non-cash income (including, without limitation, the sum of Amortized Existing Fiber IRU Proceeds), provided that, notwithstanding the foregoing, the calculation of Operating Cash Flow hereunder shall include (without duplication) (i) for the fiscal quarter ending June 30, 1999, the following restructuring and other infrequent charges, but only to the extent any of such charges were previously deducted and not added back pursuant to any other provision of this definition: (A) up to $18,400,000 in cash and non-cash restructuring charges related to the downsizing of the Parent's wholesale switched business segment and (B) up to $10,800,000 in cash and non-cash charges that are related to five DSC switches and (ii) infrequent charges relating to the rehoming of minutes of use from the five DSC switches to the other switches totaling up to $9,700,000 for the three fiscal quarters ending March 31, 2000, but in each of the three fiscal quarters only to the extent any portion of such amount was deducted during such fiscal quarter. "Original Credit Agreement" has the meaning ascribed thereto in the BACKGROUND section at the beginning of this Agreement. "Parent" means IXC Communications, Inc., a Delaware corporation, and the owner of 100% of the Capital Stock of the Borrower. "Parent Deposit Account" means that certain deposit account of the Parent at the Dallas, Texas Main Street location of NationsBank, N.A. on which the Administrative Agent, on behalf of the Lenders, has a first and prior Lien and security interest to secure the Obligations hereunder. "PBGC" means the Pension Benefit Guaranty Corporation, or any successor agency or entity performing substantially the same functions. "Permitted Acquisition" means acquisitions made by the Parent, the Borrower or any Restricted Subsidiary of telecommunications or internet businesses or related businesses, so long as in each case (a) there exists no Default or Event of Default both before and after giving effect to any such acquisition, (b) such acquired entity becomes a Restricted Subsidiary and executes an Unlimited Guaranty of the Obligations, or such acquired assets are acquired by a Restricted Subsidiary, and (c) the Borrower provides the Administrative Agent and each Lender with information demonstrating pro forma compliance with the terms of this Agreement through the Maturity Date, after giving effect to such Permitted Acquisition, including, without limitation, each provision of Section 8.01 hereof and Section 8.18 hereof, provided that (i) if the Total Leverage Ratio is greater than or equal to 3.00 to 1.00, and the aggregate purchase price for any such acquisition is in excess of $25,000,000, then, in addition to the foregoing requirements either (A) any such acquired entity or assets must have positive cash flow for the immediately preceding two full fiscal quarters annualized of such acquired entity, or (B) the Borrower must obtain the prior written consent of the Majority Lenders, and (ii) notwithstanding any of the foregoing limitations and requirements, if there exists no Default or Event of Default both before and after giving effect thereto and the Borrower complies with Section 8.04(j) hereof, the Borrower may acquire Unrestricted Subsidiaries. "Permitted Asset Sales" means (a) assets sales in the ordinary course of business, (b) assets sales of equipment that is worn out, obsolete, damaged or otherwise unsuitable for use in the business, (c) so long as there exists no Default or Event of Default both before and after giving effect to any such asset sale, (i) sales of dark fiber or IRU's in dark fiber or capacity and (ii) sales with respect to any asset used exclusively in connection with the Borrower's microwave relay system or 100% of the Capital Stock of any Subsidiary of the Parent or the Borrower exclusively engaged in the microwave business. 17 23 "Permitted Holders" means the officers and directors of the Parent, and Trustees of General Electric Pension Trust, Grumman Hill Associates, Inc. and Grumman Hill Investments, L.P., and each of their respective officers and directors and their Related Parties. "Permitted Investments" means, so long as there exists no Default or Event of Default both before and after giving effect to any such Investment (a) Investments made by the Parent, the Borrower or any Restricted Subsidiary in Unrestricted Subsidiaries not to exceed an amount over the term of this Agreement equal to the sum of (i) $50,000,000 plus (ii) net equity proceeds raised subsequent to the Closing Date that were not used to make Permitted Acquisitions or to redeem the Junior Exchangeable in accordance with the terms of this Agreement and (b) so long as the Parent, the Borrower and the Restricted Subsidiaries are in compliance with Section 2.05 hereof and Section 2.11 hereof, other Investments not to exceed in initial purchase price $50,000,000 in the aggregate outstanding at any one time. Notwithstanding the foregoing, (I) to the extent and at the time that any series of investments permitted under the preceding sections (a) and/or (b) constitutes a Permitted Acquisition (such acquired entity becoming a Restricted Subsidiary and executing an Unlimited Guaranty), the applicable investment basket (a) or (b) above shall be replenished by the amount of such initial investment, (II) so long as there exists no Default or Event of Default both before and after giving effect thereto, in addition to the foregoing permitted minority Investments, the Borrower may (A) sell microwave and/or DSC equipment for a purchase price constituting or including minority Investments, and (B) use the proceeds from the issuance of Capital Stock of the Parent to invest in Unrestricted Subsidiaries, but only in accordance with the terms of Section 8.04(j)(i) and (ii) hereof. "Permitted Liens" means, as applied to any Person: (a) any Lien in favor of the Lenders to secure the Obligations hereunder; (b) (i) Liens on real estate for real estate Taxes not yet delinquent, (ii) Liens created by lease agreements, statute or common law to secure the payments of rental amounts and other sums not yet due thereunder, (iii) Liens on leasehold interests created by the lessor in favor of any mortgagee of the leased premises, and (iv) Liens for Taxes, assessments, governmental charges, levies or claims that are being diligently contested in good faith by appropriate proceedings and for which adequate reserves shall have been set aside on such Person's books, but only so long as no foreclosure, restraint, sale or similar proceedings have been commenced with respect thereto; (c) Liens of carriers, warehousemen, mechanics, laborers and materialmen and other similar Liens incurred in the ordinary course of business for sums not yet due or being contested in good faith, if such reserve or appropriate provision, if any, as shall be required by GAAP shall have been made therefor; (d) Liens incurred in the ordinary course of business in connection with worker's compensation, unemployment insurance or similar legislation; 18 24 (e) Easements, right-of-way, matters of public record, restrictions and other similar encumbrances on the use of real property which do not materially interfere with the ordinary conduct of the business of such Person as currently conducted; (f) Liens in respect of judgments or awards for which appeals or proceedings for review are being prosecuted and in respect of which a stay of execution upon any such appeal or proceeding for review shall have been secured, provided that (i) such Person shall have established adequate reserves for such judgments or awards, (ii) such judgments or awards shall be fully insured and the insurer shall not have denied coverage, or (iii) such judgments or awards shall have been bonded to the satisfaction of the Majority Lenders; and (g) Any Liens existing on the Closing Date which are described on Schedule 8.03 hereto and not otherwise described elsewhere in the definition of Permitted Liens, and Liens resulting from the refinancing of the related Debt for Borrowed Money, provided that the Debt for Borrowed Money secured thereby shall not be increased and the Liens shall not cover additional assets of the Parent, the Borrower or any such Restricted Subsidiary. "Permitted Refinancing Indebtedness" means Debt of the applicable Obligor to the extent all of the proceeds thereof are used to refinance Debt of such Obligor (plus any premium thereon reasonably acceptable to the Administrative Agent), provided that after giving effect to the incurrence of such Debt, the Borrower is in pro forma compliance with the terms of this Agreement, and provided further that (i) the terms of such new Debt are no more restrictive than the Loans, (ii) the maturity of such new Debt is no shorter than the Debt being refinanced, (iii) the only Person obligated on such refinanced Debt is the original Person obligated on such Debt, (iv) the priority of any such new Debt shall remain unchanged (if such Debt to be refinanced is subordinated, the subordination provisions remain unchanged in the new refinanced Debt), and (v) the parties obligated on such Debt remain the same. "Person" means an individual, partnership, joint venture, corporation, limited liability company, trust, Tribunal, unincorporated organization, and government, or any department, agency, or political subdivision thereof. "Plan" means a Single Employer Plan or a Multiple Employer Plan. "Pledge Agreement" means the Pledge Agreement of even date herewith, executed by the Parent, the Borrower and any Subsidiary of the Borrower, granting a Lien on Capital Stock of the Borrower and each of the Subsidiaries of the Parent and the Borrower (except Excluded Stock) as security for the Obligations, substantially in the form of Exhibit H hereto, as such agreement may be amended, modified, renewed or extended from time to time, and "Pledge Agreement" shall also include each such pledge agreement pledging the Capital Stock of all other Subsidiaries of the Parent and the Borrower created or acquired from time to time (except Subsidiaries of Unrestricted Subsidiaries), and all amendments, modifications, renewals and extensions to any thereof. "Pledged Stock" means all of the Capital Stock of the Borrower and of each of the Subsidiaries of the Borrower (except Excluded Stock). "Preferred Stock", as applied to the Capital Stock of any Person, means Capital Stock of any class or classes (however designated) which is preferred as to the payment of dividends or 19 25 distributions, or as to the distribution of assets upon any voluntary or involuntary liquidation or dissolution of such Person, over shares of Capital Stock of any other class of such Person. "Present Holder" means those owners of common Capital Stock of the Parent set forth on Schedule 1.03 hereto and their Related Persons. "Prohibited Transaction" has the meaning specified in Section 4975 of the Code or Section 406 of Title I of ERISA. "Property" means all types of real, personal, tangible, intangible, or mixed property, whether owned or hereafter acquired in fee simple or leased by the Parent, the Borrower and the Restricted Subsidiaries. "PSINet Shares" means the Capital Stock of PSINet Inc. owned by IXC Internet Services, Inc. on the Closing Date and described on Schedule 1.01 hereto. "PUC" means any state regulatory agency or body that exercises jurisdiction over the rates or services or the ownership, construction or operation of any network facility or long distance telecommunications systems or over Persons who own, construct or operate a network facility or long distance telecommunications systems, in each case by reason of the nature or type of the business subject to regulation and not pursuant to laws and regulations of general applicability to Persons conducting business in such state. "Quarterly Date" means the last Business Day of each March, June, September and December during the term of this Agreement. "Refinancing Advance" means any Advance which is used to pay the principal amount (or any portion thereof) of an Advance at the end of its Interest Period and which, after giving effect to such application, does not result in an increase in the aggregate amount of outstanding Advances. "Related Party" with respect to any Permitted Holder means (i) any controlling stockholder, of an 80% (or more) owned Subsidiary, or spouse or immediate family member (in the case of an individual) of such Permitted Holder or (ii) any trust, corporation, partnership or other entity, the beneficiaries, stockholders, partners, owners or Persons beneficially holding an 80% or more controlling interest of which consist of such Permitted Holder or such other Persons referred to in the immediately preceding clause (i). "Related Person" means with respect to Schedule 1.03 hereto, any individual, (i) such individual's spouse (past or current), descendants (natural or adoptive, of the whole or half blood) of the parents of such individual, such individual's grandparents and parents (natural or adoptive), and the grandparents, parents and descendants of parents (natural or adoptive, of the whole of half blood) of such individual's spouse (past or current); or (ii) a trust, corporation, partnership or other entity, whose beneficiaries, trustees, donors, shareholders, partners or owners, or other persons or entities holding a controlling interest in such entity, consist of such individual and/or such other persons or entities referred to in the immediately preceding clause (i). "Release Date" means the date on which the Notes have been paid, all other Obligations due and owing have been paid and performed in full, and the Commitment has been terminated. 20 26 "Restricted Payments" means, for the Borrower, the Parent and the Restricted Subsidiaries of the Borrower, (a) any direct or indirect Distribution, dividend or other payment on account of any equity interest in, or shares of, Capital Stock or other securities of the Parent, the Borrower and its Restricted Subsidiaries (or the establishment of any sinking fund or otherwise the setting aside of any funds with respect thereto), except such dividends that are paid with common equity securities of the Parent; (b) any management, consulting or other similar fees, or any interest thereon, payable by the Borrower, the Parent or any of the Restricted Subsidiaries to Unrestricted Subsidiary and/or any other Affiliate of the Parent and/or the Borrower (or the establishment of any sinking fund or otherwise the setting aside of any funds with respect thereto), but specifically excluding any consulting fees payable by the Parent, the Borrower or any Restricted Subsidiary to a Person that is not an Affiliate of the Parent and/or the Borrower, (c) loans or advances to employees and/or shareholders of the Borrower, the Parent and the Subsidiaries of the Borrower and the Parent, except advances to employees of the Borrower and its Restricted Subsidiaries for moving and travel expenses in the ordinary course of business; (d) payments of principal and/or interest, or the setting aside of funds with respect thereto, of any Total Debt except the Obligations; (e) dividends, distributions, redemptions, repurchases or defeasance of any preferred stock issuance (or the setting aside of any funds to do so); (f) payments of any amounts, fees, advances, loans, investments or otherwise to any Unrestricted Subsidiary; and (g) any payment out of the Borrower Deposit Account or the Parent Deposit Account. "Restricted Subsidiary" means all those Subsidiaries of the Parent and/or the Borrower that are not Unrestricted Subsidiaries, provided that, notwithstanding the foregoing (a) all Subsidiaries designated by the Borrower as Restricted Subsidiaries on the Closing Date shall remain Restricted Subsidiaries until the Obligations have been repaid in full and the Commitments terminated, (b) all Designated Restricted Subsidiaries shall be at all times Restricted Subsidiaries hereunder, and (c) no Person may be included as a Restricted Subsidiary hereunder that has not executed an Unlimited Guaranty that is at the time of determination in full force and effect, except Mutual Signal and the Subsidiaries of Mutual Signal. All Restricted Subsidiaries as of the Closing Date are listed on Schedule 1.04 hereto. "Revolver Commitment" means, with respect to the Revolver Loan, $150,000,000 as reduced from time to time pursuant to Section 2.11 hereof. "Revolver Advance" means any advance made under the Revolver Loan. "Revolver Commitment Fee" means the fee described in Section 2.10(a) hereof. "Revolver Loan" means the loan made by a Lender pursuant to Section 2.01(a) of this Agreement. "Revolver Note" means each Note of the Borrower evidencing Revolver Advances under the Revolver Loan hereunder, substantially in the form of Exhibit A hereto, together in each case, with any extension, renewal or amendment thereof, or substitution therefor. "Revolver Specified Percentage" means, as to any Lender, the percentage indicated beside its name on the signature pages hereof designated as its Revolver Specified Percentage, or as adjusted or specified (i) in any Assignment and Acceptance or (ii) in any amendment to this Agreement. 21 27 "Rights" means rights, remedies, powers, and privileges. "Senior Debt" means, on any date of determination, Total Debt on such date minus the sum of (a) the aggregate outstanding principal amount of the Subordinated Notes, plus (b) to the extent included in Total Debt, accrued and unpaid interest on the Subordinated Notes. "Senior Leverage Ratio" means, on any date of determination, the ratio of (a) Senior Debt on such date to (b) Annualized Operating Cash Flow, provided that, for purposes of this calculation, Operating Cash Flow shall be calculated as if all assets (including Capital Stock of Restricted Subsidiaries of the Borrower and the Parent) acquired on any date during the period of determination were acquired on the first day in such period of determination, and all assets sold (including Capital Stock of Restricted Subsidiaries of the Borrower and the Parent) on any date during the period of determination were sold on the first day in such period of determination. "Senior Notes" means those certain 12 and 1/2% Senior Notes Due 2005 issued by the Parent. "Senior Notes Documentation" means that certain Indenture with respect to the Senior Notes, and all other agreements and other documentation relating to the Senior Notes, including, without limitation, that certain First Supplemental Indenture, dated as of October 23, 1997, that certain Second Supplemental Indenture, dated as of December 22, 1997, that certain Third Supplemental Indenture, dated as of January 6, 1998 and that certain Fourth Supplemental Indenture, dated as of April 3, 1998. "Single Employer Plan" means a single employer plan, as defined in Section 4001(a)(15) of ERISA, other than a Multiple Employer Plan of the Parent or the Borrower. "Solvent" means, with respect to any Person, that on such date (a) the fair value of the Property of such Person is greater than the total amount of liabilities, including without limitation Contingent Liabilities of such Person, (b) the present fair salable value of the assets of such Person on a going concern basis is not less than the amount that will be required to pay the probable liability of such Person on its debts as they become absolute and matured, (c) such Person does not intend to, and does not believe that it will, incur debts or liabilities beyond such Person's ability to pay as such debts and liabilities mature, and (d) such Person is not engaged in business or a transaction, and is not about to engage in business or a transaction, for which such Person's Property would constitute an unreasonably small capital. "Special Counsel" means the law firm of Donohoe, Jameson & Carroll, P.C., Dallas, Texas, or such other individual or firm acting as special counsel to Administrative Agent, as designated by Administrative Agent from time to time. "Special Purpose Advance" means any advance made under the Special Purpose Loan. "Special Purpose Commitment" means on any date of determination, the aggregate commitment for the Special Purpose Loan, if the Special Purpose Loan is a revolving loan, as determined in accordance with the terms of Section 2.17 hereof. "Special Purpose Loan" means the loan, if any, made by a Lender pursuant to Section 2.01(c) of this Agreement. 22 28 "Special Purpose Note" means each Note of the Borrower evidencing Special Purpose Advances hereunder, if any, substantially in the form agreed to in accordance with the terms and conditions of Section 2.17 hereof, and evidencing Special Purpose Advances made under the Special Purpose Loan, together in each case, with any extension, renewal or amendment thereof, or substitution therefor. "Special Purpose Specified Percentage" means, as to any Lender, the percentage indicated or specified in (i) any amendment to this Agreement or in any amendment and restatement of this Agreement, either in accordance with the terms and conditions of Section 2.17 hereof or otherwise and (ii) in any Assignment and Acceptance. "Subordinated Indebtedness" means Debt of the Parent that is unsecured and subordinated to the Obligations, such Debt in each case (a) to be pursuant to documentation containing terms and conditions no more onerous than this Agreement and the Loan Papers, (b) to have a maturity not less than one year after the Maturity Date, and (c) to be subordinated on terms and conditions no less favorable to the Administrative Agent and the Lenders than the subordination terms contained in the Subordinated Notes Documentation. "Subordinated Notes" means those certain $450,000,000 9% Senior Subordinated Notes Due 2008 issued by the Parent. "Subordinated Notes Documentation" means that certain Indenture with respect to the Subordinated Notes, and all other agreements and other documentation relating to the Subordinated Notes. "Subsidiary" of any Person means any corporation, limited liability company, partnership, joint venture, trust or estate of which (or in which) 50% or more of: (a) the outstanding Capital Stock having voting power to elect a majority of the board of directors of such corporation (irrespective of whether at the time Capital Stock of any other class or classes of such corporation shall or might have voting power upon the occurrence of any contingency), (b) the interest in the capital or profits of such partnership or joint venture, or (c) the beneficial interest of such trust or estate, is at the time directly or indirectly owned by such Person, by such Person and one or more of its Subsidiaries or by one or more of such Person's Subsidiaries. "Taxes" means all taxes, assessments, imposts, fees, or other charges at any time imposed by any Laws or Tribunal. "Term Loan Advance" means the initial advance and any of the Refinancing Advances made under the Term Loan. 23 29 "Term Loan" means the term loan made by the Lenders pursuant to Section 2.01(b) of this Agreement. "Term Loan Note" means each Note of the Borrower evidencing Term Loan Advances hereunder, substantially in the form of Exhibit B hereto with respect to Term Loan Advances made under the Term Loan, together with any extension, renewal or amendment thereof, or substitution therefor. "Term Loan Specified Percentage" means, as to any Lender, (a) prior to the initial Term Loan Advance, the percentage indicated beside its name on the signature pages hereof designated as its Term Loan Specified Percentage, or as adjusted or specified (i) in any Assignment and Acceptance or (ii) in any amendment to this Agreement, and (b) after the initial Term Loan Advance, the percentage of the outstanding portion of the Term Loan held by such Lender on any date of determination (after giving effect to assignments in accordance with the terms of Section 11.04 hereof). "Total Debt" means all Debt for Borrowed Money which would be shown on a consolidated balance sheet in accordance with GAAP, including, without limitation for the Parent, the Borrower and the Restricted Subsidiaries, (a) Capital Lease obligations, (b) Debt of any other Person secured by a Lien on the property of the Parent, the Borrower or any Restricted Subsidiary of the Borrower in an amount equal to the lesser of (i) such Debt of such Person and (ii) the value of such pledged property, (c) Contingent Liabilities, (d) Withdrawal Liability and (e) overdue interest on any Debt for Borrowed Money (but not accrued interest that is not overdue). "Total Leverage Ratio" means, on any date of determination, the ratio of (a) Total Debt on such date to (b) Annualized Operating Cash Flow, provided that for purposes of this calculation, Operating Cash Flow shall be calculated as if all assets (including Capital Stock of Restricted Subsidiaries of the Borrower and the Parent) acquired on any date during the period of determination were acquired on the first day in such period of determination, and all assets (including Capital Stock of Restricted Subsidiaries of the Borrower and the Parent) sold on any date during the period of determination were sold on the first day in such period of determination. "Total Specified Percentage" means, as to any Lender on any date of determination, the percentage that such Lender's outstanding Advances (all Revolver Advances, Special Purpose Advances (if any) and Term Loan Advances) bears to the aggregate outstanding amount of Advances (all Revolver Advances, Special Purpose Advances (if any), and Term Loan Advances) made by all Lenders hereunder, provided that, if there are no outstanding Advances hereunder, "Total Specified Percentage" shall mean for such Lender the percentage that the sum of its (a) Revolver Specified Percentage of the Revolver Commitment plus (b) if the Special Purpose Loan is a revolving loan as determined in accordance with Section 2.17 hereof, Special Purpose Specified Percentage of the Special Purpose Commitment, bears to the aggregate Commitments of all Lenders on such date. "Tribunal" means any state, commonwealth, federal, foreign, territorial, or other court or government body, subdivision, agency, department, commission, board, bureau, or instrumentality of a governmental body. "Type" refers to the distinction between Advances bearing interest at the Base Rate and LIBOR Rate. 24 30 "UCC" means the Uniform Commercial Code as adopted in the State of Texas on the Closing Date. "Unlimited Guaranty" means the Guaranty, executed in substantially similar form by the Parent and each Restricted Subsidiary of the Parent and the Borrower, guarantying payment and performance of the Obligations, substantially in the form of Exhibit G attached hereto, as such agreement may be amended, modified, renewed or extended from time to time, and each subsequent unlimited Guaranty in the form of Exhibit G hereto executed by any newly acquired or created Restricted Subsidiary of the Borrower and the Parent, as each such agreement may be amended, modified, renewed or extended from time to time. "Unrestricted Subsidiary" means those Subsidiaries of the Parent and the Borrower that are not less than 50% owned and are designated in writing to the Administrative Agent and each Lender by the Borrower as Unrestricted Subsidiaries, including, without limitation, Eclipse (formerly Network Long Distance, Inc.), IXC Internet and IXC International, Inc., provided that (a) no Restricted Subsidiary existing on the Closing Date may be designated as an Unrestricted Subsidiary and no Designated Restricted Subsidiary may be an Unrestricted Subsidiary and (b) no Restricted Subsidiary may be owned by an Unrestricted Subsidiary. Unrestricted Subsidiaries as of the Closing Date are listed on Schedule 1.02 hereto. The Borrower may designate any Unrestricted Subsidiary as a Restricted Subsidiary from time to time at its election, so long as prior to the effectiveness of such designation, such new Restricted Subsidiary has executed an Unlimited Guaranty of the Obligations, and executed security agreements, pledge agreements, mortgages, deeds of trust and other collateral documents (including corporate opinions, local counsel opinions, surveys, and otherwise) satisfactory to the Administrative Agent to effectively grant a Lien and security interest to the Administrative Agent on behalf of the Lenders on all of such new Restricted Subsidiary's assets and Properties to secure the Obligations, each such document and agreement to be in form, and on terms and conditions acceptable to the Administrative Agent. Each newly formed or acquired Unrestricted Subsidiary shall be effective as of the date of formation or acquisition, respectively. Each (i) Restricted Subsidiary hereafter designated by the Borrower as an Unrestricted Subsidiary from time to time after the Closing Date in accordance with the terms hereof and (ii) Unrestricted Subsidiary hereafter designated by the Borrower as a Restricted Subsidiary from time to time after the Closing Date in accordance with the terms hereof, will be effective as an Unrestricted Subsidiary or Restricted Subsidiary, respectively, commencing the beginning of the next succeeding calendar quarter after notice is delivered to the Lenders in accordance with the terms of Section 11.02 hereof, provided that, if the next succeeding calendar quarter commences sooner than 10 days following such notice, the effectiveness of the designation as an Unrestricted Subsidiary or Restricted Subsidiary, respectively, will commence on the beginning of the second succeeding calendar quarter following such notice. "Unused Facility Amount" means the Commitment minus the sum of (a) all outstanding Revolver Advances, plus (b) all outstanding Special Purpose Advances, if any, but only if the Special Purpose Loan is a revolving loan as determined in accordance with the terms of Section 2.17 hereof, plus (c) all issued and outstanding Letters of Credit, plus (d) all reimbursement obligations with respect to any draws under any Letters of Credit. 25 31 "Voting Stock" of a Person means all classes of Capital Stock or other interests (including partnership interests) of such Person then outstanding and normally entitled (without regard to the occurrence of any contingency) to vote in the election of directors, managers or trustees thereof. "Williams Agreement" means that certain IRU Agreement dated December 12, 1996 among the Borrower, Vyvx, Inc. (now known as Williams Communications, Inc.), and The WilTech Group (now known as Williams Communications Group, Inc.), as amended by Amendment No. 1 dated November 25, 1997 and as further amended from time to time. "Withdrawal Liability" has the meaning given such term under Part I of Subtitle E of Title IV of ERISA. "Year 2000 Compliant" means, with respect to a Person, that all computer hardware and software that are material to the business and operations of such Person will on a timely basis be able to perform properly date-sensitive functions for all dates before and after January 1, 2000, including functions with respect to any leap year. 1.02. Accounting and Other Terms . All accounting terms used in this Agreement which are not otherwise defined herein shall be construed in accordance with GAAP on a consolidated basis for the Parent, the Borrower and its Restricted Subsidiaries, unless otherwise expressly stated herein. References herein to one gender shall be deemed to include all other genders. Except where the context otherwise requires, (a) definitions imparting the singular shall include the plural and vice versa and (b) all references to time are deemed to refer to Dallas time. In any calculation made hereunder, including, without limitation, calculations made under Section 8.01 hereof, Section 8.18 hereof and the definition of Applicable Margin hereof, to the extent that any such calculations are made in reliance upon financial information supplied to the Administrative Agent and the Lenders in accordance with the terms hereof and such information is later corrected or changed in any manner (pursuant to an audited statement or otherwise), all such calculations made in accordance with the terms hereof shall be changed and effective retroactively as if the correct information had been delivered originally. ARTICLE II. THE LOAN FACILITY 2.01. Loans. (a) Revolver Loans. Each Lender severally agrees, on the terms and subject to the conditions hereinafter set forth, to make Revolver Advances to the Borrower on a Business Day during the period from the Closing Date to the Maturity Date, in an aggregate principal amount outstanding not to exceed at any time such Lender's Revolver Specified Percentage of the difference between the Revolver Commitment and the sum of the undrawn face amount of all outstanding Letters of Credit, plus reimbursement obligations under Article III hereof. Subject to the terms and conditions of this Agreement, the Borrower may borrow, repay and reborrow the Revolver Advances; provided, however, that at no time shall the sum of (i) all outstanding Revolver Advances, plus (ii) the undrawn face amount of all outstanding Letters of Credit, plus (iii) reimbursement obligations under Article III hereof exceed the Revolver Commitment. 26 32 (b) Term Loan. Each Lender severally agrees, on the terms and subject to the conditions hereinafter set forth, to continue the Term Loan it made available to the Borrower on the "Closing Date" as defined in the Original Credit Agreement, in an aggregate principal amount equal to such Lender's Term Loan Specified Percentage of $200,000,000. Once repaid, no Term Loan Advance may be reborrowed. (c) Uncommitted Special Purpose Loans. Each Lender agrees, on the terms and subject to the conditions hereinafter set forth, that until December 31, 2000, this Agreement may be amended from time to time in accordance with the terms of Section 2.17 hereof to permit the Lenders, if any, or such new creditors in accordance with the terms of Section 2.17 hereof, to make Special Purpose Advances under the Special Purpose Loan, whether such loan is a term loan or revolving loan, to the Borrower in an aggregate principal amount outstanding not to exceed at any time $250,000,000, all in accordance with, and subject to the terms of, Section 2.17 hereof. (d) Maximum Aggregate Borrowings. Notwithstanding the foregoing provisions and all other provisions of this Agreement and the Loan Papers, until the Administrative Agent and the Lenders are in receipt of an executed Compliance Certificate evidencing compliance with all terms and conditions of this Agreement using the Borrower prepared financial statements for the 1998 year end and fiscal quarter ending December 31, 1998, the sum of (i) the maximum aggregate Advances outstanding under the Loans (the Revolver Loan, the Special Purpose Loan, if any, and the Term Loan) and (ii) the face amount of all outstanding Letters of Credit, shall not exceed $275,000,000 at any one time. 2.02. Making Advances. (a) Each Borrowing of Advances shall be made upon the written notice of the Borrower, received by Administrative Agent not later than (i) 10:00 a.m. three Business Days prior to the date of the proposed Borrowing, in the case of Advances which are LIBOR Advances and (ii) 3:00 p.m. one Business Day prior to the date of the proposed Borrowing, in the case of Advances which are Base Advances. Each such notice of a Borrowing (a "Borrowing Notice") shall be by telecopy or telephone, promptly confirmed by letter, in substantially the form of Exhibit D hereto specifying therein: (i) the date of such proposed Borrowing, which shall be a Business Day, and whether such Borrowing will be under the Revolver Loan or the Special Purpose Loan; (ii) the Type of Advances of which the Borrowing is to be comprised; (iii) the amount of such proposed Borrowing which, (A) with respect to Advances drawn under (I) the Revolver Loan, shall not exceed the unused portion of the Revolver Commitment less outstanding Letters of Credit and reimbursement obligations and (II) the Special Purpose Loan, shall not exceed the unused portion of the Special Purpose Commitment, if any, and (B) shall (I) in the case of a Borrowing of Base Advances, be in an amount of not less than $2,000,000 or an integral multiple of $1,000,000 in excess thereof (or any lesser amount if such amount is the remaining undrawn portion under the Revolver Commitment or Special Purpose Commitment, respectively), and (II) in the case of a 27 33 Borrowing of LIBOR Advances, be in an amount of not less than $5,000,000 or an integral multiple of $1,000,000 in excess thereof; and (iv) if the Borrowing is to be comprised of LIBOR Advances, the duration of the initial Interest Period applicable to such Advances. If the Borrowing Notice fails to specify (a) whether such Borrowing is under the Revolver Loan or the Special Purpose Loan, then such Borrowing shall be deemed to be made under the Revolver Loan, (b) the duration of the initial Interest Period for any Borrowing or Refinancing Advance, as applicable, comprised of LIBOR Advances, such Interest Period shall be three months. Administrative Agent shall promptly notify Lenders of each such notice. Each Lender shall, before 1:00 p.m. on the date of each Advance under the Revolver Loan and the Special Purpose Loan hereunder (other than a Refinancing Advance), make available to Administrative Agent, at its office at NationsBank Plaza, 901 Main Street, Dallas, Texas 75202, such Lender's Revolver Specified Percentage or Special Purpose Specified Percentage, as applicable, of the aggregate Advances under the Revolver Loan or Special Purpose Loan, as applicable, to be made on that day in immediately available funds. (b) Unless any applicable condition specified in Article IV has not been satisfied, Administrative Agent will make the funds promptly available to the Borrower (other than with respect to a Refinancing Advance) by either (i) wiring such amounts pursuant to any wiring instructions, or (ii) depositing such amount in the account of the Borrower at the Administrative Agent, in each case as specified by the Borrower to the Administrative Agent in writing. (c) After giving effect to any Borrowing, (i) there shall not be more than seven different Interest Periods in effect and (ii) the aggregate principal amount of outstanding Advances under (A) the Revolver Loan, plus the sum of the outstanding face amount of the Letters of Credit, and reimbursement obligations under Article III shall not exceed the Revolver Commitment and (B) the Special Purpose Loan shall not exceed the Special Purpose Commitment. (d) No Interest Period applicable to any Advance shall extend beyond the Maturity Date. (e) Unless a Lender shall have notified Administrative Agent prior to the date of any Advance that it will not make available its Applicable Specified Percentage of any Advance, Administrative Agent may assume that such Lender has made the appropriate amount available in accordance with Section 2.02(a) hereof, and Administrative Agent may, in reliance upon such assumption, make available to the Borrower a corresponding amount. If and to the extent any Lender shall not have made such amount available to Administrative Agent, such Lender and the Borrower severally agree to repay to Administrative Agent immediately on demand such corresponding amount together with interest thereon, from the date such amount is made available to the Borrower until the date such amount is repaid to Administrative Agent, at (i) in the case of the Borrower, the Base Rate, and (ii) in the case of such Lender, the Federal Funds Rate. (f) The failure by any Lender to make available its Applicable Specified Percentage of any Advance hereunder shall not relieve any other Lender of its obligation, if any, to make available its Applicable Specified Percentage of any Advance. In no event, however, shall any Lender be responsible for the failure of any other Lender to make available any portion of any Advance. 28 34 (g) The Borrower and the Parent shall indemnify each Lender against any Consequential Loss incurred by each Lender as a result of (i) any failure to fulfill, on or before the date specified for an Advance, the conditions to the Advance set forth herein (including a Refinancing Advance) or (ii) the Borrower's requesting that an Advance (including a Refinancing Advance) not be made on the date specified in the Borrowing Notice. 2.03. Evidence of Debt for Borrowed Money. (a) The Advances made by each Lender under the Revolver Loan shall be evidenced by a Revolver Note in the amount of such Lender's Revolver Specified Percentage of the Revolver Commitment in effect on the Closing Date. (b) The Advances made by each Lender under the Special Purpose Loan shall be evidenced by a Special Purpose Note as determined in accordance with the terms of Section 2.17 hereof. (c) The Advances made by each Lender under the Term Loan shall be evidenced by a Term Loan Note in the amount of such Lender's Term Loan Specified Percentage of $200,000,000. (d) Administrative Agent's and each Lender's records shall be presumptive evidence as to amounts owed Administrative Agent and such Lender under the Notes and this Agreement. 2.04. Optional Prepayments. (a) The Borrower may, upon at least two Business Days prior written notice to Administrative Agent stating the proposed date and aggregate principal amount of the prepayment, prepay the outstanding principal amount of any Advances in whole or in part, together with accrued interest to the date of such prepayment on the principal amount prepaid without premium or penalty other than any Consequential Loss; provided, however, that in the case of a prepayment of a Base Advance, the notice of prepayment may be given by telephone by 3:00 p.m. upon at least one Business Day prior written notice. Each partial prepayment shall, in the case of Base Advances under the Loans, be in an aggregate principal amount of not less than $100,000 or a larger integral multiple of $50,000 in excess thereof and, in the case of LIBOR Advances under the Loans, be in an aggregate principal amount of not less than $500,000 or a larger integral multiple of $100,000 in excess thereof. If any notice of prepayment is given, the principal amount stated therein, together with accrued interest on the amount prepaid and the amount, if any, due under Section 2.12 and Section 2.14 hereof, shall be due and payable on the date specified in such notice unless the Borrower revokes its notice, provided that, if the Borrower revokes its notice of prepayment prior to such date specified, the Borrower shall reimburse the Administrative Agent for the account of all Lenders for all Consequential Losses suffered by each Lender as a result of the Borrower's failure to prepay. A certificate of each Lender claiming compensation under this Section 2.04(a), setting forth in reasonable detail the calculation of the additional amount or amounts to be paid to it hereunder shall be presumptive evidence of the validity of such claim. 29 35 (b) The application of prepayments made under this Section 2.04 as between the Revolver Loan, the Special Purpose Loan and the Term Loan shall be determined in accordance with the provisions of Section 2.13(f) hereof. All prepayments made pursuant to this Section 2.04 shall be first applied to Base Advances then to LIBOR Advances, all without premium or penalty, except the Borrower must pay together with any such prepayments, any Consequential Losses. 2.05. Mandatory Prepayments. (a) Asset Sales, PSINet Shares and Investments. To the extent that (i) the Parent, the Borrower or any of the Restricted Subsidiaries consummates any sale, transfer, conveyance or other divestiture of any asset or any of its Properties other than Permitted Asset Sales (this provision in and of itself not constituting permission to effectuate any such transactions), and/or (ii) the Parent, the Borrower or any Restricted Subsidiary receives proceeds from the sale of all or any portion of the PSINet Shares, and/or (iii) the Parent, the Borrower or any of the Restricted Subsidiaries consummates any sale of all or any portion of any Investment made under subsection (b) of the definition of "Permitted Investments", then the Borrower shall immediately use 100% of the Net Proceeds of any such transaction to repay the Obligations under the Loans. (b) Public or Private Issuance of Equity. To the extent that the Parent, the Borrower or any of the Restricted Subsidiaries consummates any public or private issuance of equity (this provision in and of itself not constituting permission to do so), then the Borrower shall immediately use the net proceeds to repay the Obligations under the Loans. (c) Mandatory Prepayments, Generally. The application of prepayments made under this Section 2.05 as between the Revolver Loan, the Special Purpose Loan and the Term Loan shall be determined in accordance with the provisions of Section 2.13(f) hereof. All prepayments made pursuant to this Section 2.05 shall be first applied to Base Advances then to LIBOR Advances, all without premium or penalty, except the Borrower must pay together with any such prepayments, any Consequential Losses. 2.06. Repayment. (a) LIBOR Advances. The principal amount of each LIBOR Advance is due and payable on the last day of the applicable Interest Period, which principal payment may be made by means of a Refinancing Advance in accordance with the terms of Section 2.09 hereof (and subject to the other provisions of this Agreement). (b) Commitment Reduction. On the date of a reduction of the Commitment pursuant to Section 2.11 hereof, the aggregate amount of outstanding (i) Revolver Advances in excess of the Revolver Commitment as reduced, and (ii) if the Special Purpose Loan is a revolving loan as determined in accordance with Section 2.17 hereof, the Special Purpose Advances in excess of the Special Purpose Commitment as reduced, shall be immediately due and payable (which such principal repayments may not be made by means of Refinancing Advances). (c) Term Loan Repayment. The Term Loan shall be due and payable in full on the Maturity Date, and all Term Loan Advances and other Obligations shall be due and payable in full on the Maturity Date. 30 36 (d) Maturity Date. All outstanding Advances under the Loans and all other Obligations shall be due and payable in full on the Maturity Date. (e) Repayments, Generally. All outstanding Advances and other Obligations shall be due and payable in full on the Maturity Date. Any repayments made pursuant to this Section shall be without premium or penalty, except the Borrower must pay together with any such prepayments, any Consequential Losses. Repayment of Advances shall be applied to Base Advances first, and then to LIBOR Advances. 2.07. Interest. Subject to Section 2.08 and Section 11.08 hereof, the Borrower shall pay interest on the unpaid principal amount of each Advance from the date of such Advance until such principal shall be paid in full, at either the Base Rate or the LIBOR Rate, as set forth in subsection (i) or (ii) below, as selected by the Borrower in accordance with Section 2.02 hereof and as follows: (i) Base Advances. Base Advances shall bear interest at a rate per annum equal to the Base Rate as in effect from time to time. If the amount of interest payable in respect of any interest computation period is reduced to the Highest Lawful Rate and the amount of interest payable in respect of any subsequent interest computation period would be less than the Maximum Amount, then the amount of interest payable in respect of such subsequent interest computation period shall be automatically increased to the Maximum Amount; provided that at no time shall the aggregate amount by which interest paid has been increased pursuant to this sentence exceed the aggregate amount by which interest has been reduced pursuant to this sentence. (ii) LIBOR Advances. LIBOR Advances shall bear interest at the rate per annum equal to the LIBOR Rate applicable to such Advance. (iii) Payment Dates. Accrued and unpaid interest on Base Advances shall be paid quarterly in arrears on each Quarterly Date and on the Maturity Date. Accrued and unpaid interest in respect of each LIBOR Advance shall be paid on the last day of the appropriate Interest Period, on the Maturity Date and on the date of any prepayment or repayment of such Advance; provided, however, that if any Interest Period for a LIBOR Advance exceeds three months, interest shall also be paid on the date which falls three, six, and nine months after the beginning of such Interest Period. 2.08. Default Interest. During the continuation of (a) any Default under Section 9.01(a) hereof (the three day grace period for interest, fees and other amounts payable) and (b) any Event of Default, the Borrower shall pay, on demand, interest (after as well as before judgment to the extent permitted by Law) on the principal amount of all Advances outstanding and on all other Obligations due and unpaid hereunder at a per annum rate equal to the lesser of the (a) the Highest Lawful Rate and (b) the Base Rate plus 2%. LIBOR Advances shall not be available for selection by the Borrower during the continuance of an Event of Default. 2.09. Continuation and Conversion Elections. (a) The Borrower may upon irrevocable written notice to Administrative Agent and subject to the terms of this Agreement: 31 37 (i) elect to convert, on any Business Day, all or any portion of outstanding Advances which are Base Advances (in an aggregate amount not less than $500,000 or an integral multiple of $100,000 in excess thereof) into LIBOR Advances; or (ii) elect to convert at the end of any Interest Period therefor, all or any portion of outstanding Advances which are LIBOR Advances comprised in the same Borrowing (in an aggregate amount not less than $100,000 or an integral multiple of $50,000 in excess thereof) into Base Advances; or (iii) elect to continue, at the end of any Interest Period therefor, any Advances which are LIBOR Advances; provided, however, that if the aggregate amount of outstanding LIBOR Advances comprised in the same Borrowing shall have been reduced as a result of any payment, prepayment or conversion of part thereof to an amount less than $500,000, the LIBOR Advances comprised in such Borrowing shall automatically convert into Base Advances at the end of each respective Interest Period. (b) The Borrower shall deliver a notice of conversion or continuation (a "Conversion or Continuation Notice"), in substantially the form of Exhibit E hereto, to Administrative Agent not later than (i) 10:00 a.m. three Business Days prior to the proposed date of conversion or continuation, if the Advances (or any portion of either thereof) are to be converted into or continued as LIBOR Advances; and (ii) 3:00 p.m. one Business Day prior to the proposed date of conversion or continuation, if the Advances (or any portion thereof) are to be converted into Base Advances. Each such Conversion or Continuation Notice shall be by telecopy or telephone, promptly confirmed by letter, specifying therein: (i) the proposed date of conversion or continuation; (ii) the aggregate amount of Advances to be converted or continued, and whether the Advances are Revolver Advances, Special Purpose Advances or Term Loan Advances; (iii) the nature of the proposed conversion or continuation; and (iv) the duration of the applicable Interest Period. (c) If, upon the expiration of any Interest Period applicable to LIBOR Advances, the Borrower shall have failed to select a new Interest Period to be applicable to such LIBOR Advances or if an Event of Default shall then have occurred and be continuing, the Borrower shall be deemed to have elected to convert such LIBOR Advances into Base Advances effective as of the expiration date of such current Interest Period. (d) Notwithstanding any other provision contained in this Agreement, after giving effect to any conversion or continuation of any Advances, there shall not be outstanding Advances with more than seven different Interest Periods. 32 38 2.10. Fees. (a) Revolver Commitment Fee. Subject to Section 11.08 hereof, the Borrower shall pay to Administrative Agent for the account of Lenders pro rata in accordance with each Lender's Revolver Specified Percentage, a commitment fee (the "Revolver Commitment Fee") equal to 0.500% per annum on the average daily amount of the difference between (i) the Revolver Commitment and (ii) the sum of (A) all outstanding Revolver Advances and (B) the face amount of all outstanding Letters of Credit, payable in arrears on each Quarterly Date commencing with the first Quarterly Date after the Closing Date, and continuing until the Maturity Date. (b) Other Fees. Borrower shall pay to Administrative Agent and the Lenders such other fees as set forth in any Fee Letters addressed to the Administrative Agent or any Lender. 2.11. Reduction of Commitments. (a) Mandatory Termination of the Revolver Commitment and the Special Purpose Commitment. The Revolver Commitment and, if the Special Purpose Loan is a revolving loan in accordance with the terms of Section 2.17 hereof, the Special Purpose Commitment, shall both automatically be reduced to zero and terminate on the Maturity Date. (b) Mandatory Reduction of Commitment Due to Asset Sales. The Commitment shall be reduced immediately and automatically in an amount equal to any amount required by Section 2.05(a) hereof to prepay the Loans as a result of (i) any sales, transfers, conveyances or other divestitures of assets and Properties of the Borrower, the Parent or any of the Restricted Subsidiaries (this provision in and of itself not constituting permission to effectuate any such transactions) and (ii) the receipt by the Parent, the Borrower or any Restricted Subsidiary of proceeds from the sale of all or any portion of the PSINet Shares, provided that, so long as there exists no Default or Event of Default both before and after giving effect to such asset sales or Property sales and both before and after any permitted reinvestment and so long as the aggregate amount of Permitted Investments outstanding at any one time does not exceed in initial purchase price $50,000,000, the Commitment shall not be automatically and immediately reduced if the Borrower in good faith intends to reinvest, and such proceeds are ultimately reinvested within a 12 month period after any such asset sale, in telecommunications assets, internet assets, Permitted Acquisitions or Permitted Investments. (c) Mandatory Reduction of Commitment Due to Issuances of Public or Private Equity. If at the time of any issuance of public or private equity by the Borrower, the Parent or any of the Restricted Subsidiaries (this provision in and of itself not constituting permission to effectuate any such transaction), the Total Leverage Ratio is in excess of 3.00 to 1.00, from the period from the date hereof and thereafter, the Commitment shall be reduced immediately and automatically in an amount equal to 50% of any amount required by Section 2.05(b) hereof to prepay outstanding Advances under the Loans (regardless of whether there are actually any outstanding Advances) as a result of any issuances of public or private equity (this provision in and of itself not constituting permission to effectuate any issuances of public or private equity), provided that, notwithstanding the foregoing, (A) if there exists any Event of Default at such time 100% of the net proceeds shall be used to reduce the Commitment, (B) if (I) there exists no Default or Event of Default both before and after giving effect to any 33 39 such issuance and (II) the proceeds of any such issuance are invested within a 12 month period in (x) Permitted Acquisitions and/or (y) Permitted Investments and/or (z) telecommunications or internet assets, the Commitment shall not be automatically and immediately reduced by any such amount, (C) if (I) there exists no Default or Event of Default both before and after giving effect to any such issuance, (II) the Parent has issued common stock and (III) the proceeds of any such issuance of common stock are used within a 12 month period to repurchase not more than 35% of the outstanding Junior Exchangeable in accordance with the terms of the Junior Exchangeable Documentation, the Commitment shall not be automatically and immediately reduced by any such amount, and (D) if there exists no Default or Event of Default both before and after giving effect to any such issuance, the Commitment shall not be automatically and immediately reduced by the net proceeds of any Preferred Stock issued by the Parent in accordance with the terms of Section 8.02(f)(i) hereof. (d) Change of Control. If any Change of Control shall have occurred, each of the Revolver Commitment and the Special Purpose Commitment (if the Special Purpose Loan is a revolving loan as determined in accordance with Section 2.17 hereof) shall immediately and automatically be reduced to zero, provided that, except with respect to the Subordinated Notes as provided in subsection (e) below, if the Loans are rated at least BBB or above, or any equivalent thereto, by Standard & Poor's Ratings Group, a Division of McGraw-Hill, Inc. or Moody's Investors Service, Inc. on the 30th day following the event that otherwise would constitute a Change of Control (the "Change of Control Determination Date"), neither the Revolver Commitment or the Special Purpose Commitment shall be reduced to zero as a result of this Section, provided, however, that to the extent there is a "rating watch" with respect to the Loans or other rating agency review on such 30th day, then the Change of Control Determination Date shall be the first Business Day thereafter on which the Loans are not subject to a "rating watch" or other rating agency review rating by either Standard & Poor's Ratings Group, a Division of McGraw-Hill, Inc. or Moody's Investors Service, Inc. (e) Redemption, Repurchase of the Subordinated Notes. Upon any binding request or demand for redemption (whether mandatory or otherwise, or defeasance with respect to either thereof) of the Subordinated Notes (whether pursuant to a Change of Control or otherwise), the Revolver Commitment and the Special Purpose Commitment (if the Special Purpose Loan is a revolving loan as determined in accordance with Section 2.17 hereof) shall immediately and automatically be reduced to zero. (f) Voluntary Commitment Reductions. The Borrower may from time to time, upon notice to Administrative Agent not later than 1:00 p.m., three Business Days in advance, terminate in whole or reduce in part the Commitment, as designated by the Borrower; provided, however, that the Borrower shall pay the accrued interest and the applicable accrued Commitment Fee on the amount of such reduction and all amounts due, and any partial reduction shall be in an aggregate amount which is an integral multiple of $5,000,000. (g) Commitment Reduction and Repayments, Generally. Application of both voluntary and mandatory reductions of the Commitments as between the Revolver Commitment and the Special Purpose Commitment (if the Special Purpose Loan is a revolving loan, as determined in accordance with the terms of Section 2.17 hereof) shall be determined in accordance with the terms of Section 2.13(f) hereof. To the extent outstanding Revolver Advances exceed the Revolver Commitment after any reduction thereof, the Borrower shall repay, on the date of such reduction, any such excess amount and all accrued interest thereon, the applicable Revolver Commitment Fee on the amount of such reduction and all amounts due. If the Special Purpose Loan is a revolving loan as determined in accordance with the terms of Section 2.17 hereof, to the extent outstanding Special Purpose Advances exceed the Special Purpose Commitment after any reduction thereof, the Borrower shall repay, on the date of such reduction, any such excess amount and all accrued interest thereon, the applicable Special Purpose Commitment Fee on the amount of such reduction and all amounts due. 34 40 Once reduced or terminated, none of the Revolver Commitment or the Special Purpose Commitment may be increased or reinstated (except the Special Purpose Commitment, in accordance with the terms of Section 2.17 hereof). No reduction of the Commitment, either voluntary or mandatory shall relieve or alter the mandatory reduction and termination of the Revolver Commitment and the Special Purpose Commitment (if the Special Purpose Loan is a revolving loan as determined n accordance with the terms of Section 2.17 hereof) pursuant to Section 2.11 hereof. 2.12. Funding Losses . The Borrower may prepay the outstanding principal balance of any Advance, in full at any time or in part from time to time in accordance with the terms of Section 2.04 hereof, provided, that as a condition precedent to the Borrower's right to make, and any Lender's obligation to accept, any such prepayment, each such prepayment shall be in the amount of 100% of the principal amount to be prepaid, plus accrued unpaid interest thereon to the date of prepayment, plus any other sums which have become due to Administrative Agent and Lenders under the Loan Papers on or before the prepayment date but have not been paid, plus (subject to Section 11.08 hereof) any Consequential Loss. The Borrower agrees that each Lender is not obligated to actually reinvest the amount prepaid in any specific obligation as a condition to receiving any Consequential Loss, or otherwise. 2.13. Computations and Manner of Payments. (a) The Borrower shall make each payment hereunder and under the other Loan Papers not later than 1:00 p.m. on the day when due in same day funds (by wire transfer or otherwise) to Administrative Agent, for the account of Lenders unless otherwise specifically provided herein, at Administrative Agent's office at NationsBank Plaza, 901 Main Street, Dallas, Texas 75202, referencing IXC Communications Services, Inc. in payment of its Obligations. No later than the end of each day when each payment hereunder is made, the Borrower shall notify Loan Operations at (214) 209-9192 or such other Person as Administrative Agent may from time to time specify. (b) Unless Administrative Agent shall have received notice from the Borrower prior to the date on which any payment is due hereunder that the Borrower will not make payment in full, Administrative Agent may assume that such payment is so made on such date and may, in reliance upon such assumption, make distributions to Lenders. If and to the extent the Borrower shall not have made such payment in full, each Lender shall repay to Administrative Agent forthwith on demand the applicable amount distributed, together with interest thereon at the Federal Funds Rate, from the date of distribution until the date of repayment. The Borrower hereby authorizes each Lender, if and to the extent payment is not made when due hereunder, to charge the amount so due against any account of the Borrower with such Lender. (c) Subject to Section 11.08 hereof, interest on LIBOR Advances under the Loan Papers shall be calculated on the basis of actual days elapsed but computed as if each year consisted of 360 days. Subject to Section 11.08 hereof, interest on Base Advances, the Commitment Fee and other amounts due under the Loan Papers shall be calculated on the basis of actual days elapsed but computed as if each year consisted of 365 or 366 days, as applicable. Such computations shall be made including the first day but excluding the last day occurring in the period for which such interest, payment or Commitment Fee is payable. Each determination by Administrative Agent or a Lender of an interest rate, fee or commission hereunder shall be presumptive evidence of the validity of such 35 41 claim. All payments under the Loan Papers shall be made in United States dollars, and without setoff, counterclaim, or other defense. (d) Whenever any payment to be made hereunder or under any other Loan Papers shall be stated to be due on a day other than a Business Day, such payment shall be made on the next succeeding Business Day, and such extension of time shall be included in the computation of interest or fees, if applicable; provided, however, if such extension would cause payment of interest on or principal of LIBOR Advances to be made in the next following calendar month, such payment shall be made on the next preceding Business Day. (e) Reference to any particular index or reference rate for determining any applicable interest rate under this Agreement is for purposes of calculating the interest due and is not intended as and shall not be construed as requiring any Lender to actually obtain funds for any Advance at any particular index or reference rate. (f) Notwithstanding anything to the contrary herein or in any Loan Paper, to the extent the Borrower makes any voluntary prepayment, or voluntary reduction of the Commitment under Sections 2.04 or 2.11 hereof, or any mandatory prepayment, or mandatory reduction of the Commitment under Sections 2.05 and 2.11 hereof, then such reduction of Commitment or such prepayment shall be applied as follows: (i) so long as there exists no Default or Event of Default, all voluntary Commitment reductions and all voluntary repayments and prepayments shall be applied as directed by the Borrower, and in the absence of direction by the Borrower, shall be deemed to prepay and reduce, respectively, (1) the Revolver Loan and the Revolver Commitment until the Revolver Commitment has been reduced to zero and the outstandings under the Revolver Loan have been repaid in full, then (2) if the Special Purpose Loan is a revolving loan as determined in accordance with Section 2.17 hereof, the Special Purpose Advances and the Special Purpose Commitment until the Special Purpose Commitment has been reduced to zero and the outstandings under the Special Purpose Loan have been repaid in full, then (3) if the Special Purpose Loan is a term loan as determined in accordance with Section 2.17 hereof, the Special Purpose Loan until the Special Purpose Advances have been repaid in full, then (4) the Term Loan until the Term Loan Advances have been repaid in full and then (5) to all remaining outstanding and unpaid Obligations; and (ii) if there exists a Default or Event of Default, all mandatory and voluntary Commitment reductions shall be applied (A) to the Revolver Commitment and to the Special Purpose Commitment, pro rata, if the Special Purpose Loan is a revolving loan as determined in accordance with the terms of Section 2.17 hereof or (B) to the Revolver Commitment, if the Special Purpose Loan is a term loan as determined in accordance with the terms of Section 2.17 hereof; and (iii) if there exists a Default or Event of Default, all mandatory and voluntary prepayments shall be applied to Advances outstanding under the Special Purpose Loan (if any), the Revolver Loan and the Term Loan, pro rata, until the Advances outstanding under each of the Special Purpose Loan, the Revolver Loan and the Term Loan have been repaid in full, and then to all remaining outstanding Obligations. 36 42 2.14. Yield Protection; Changed Circumstances. (a) If any Lender determines that either (i) the adoption of any Applicable Law, rule, regulation or guideline regarding capital adequacy and applicable to commercial banks or financial institutions generally or any change therein, or any change, after the date hereof, in the interpretation or administration thereof by any Tribunal, central bank or comparable agency charged with the interpretation or administration thereof, or (ii) compliance by any Lender (or Lending Office of any Lender) with any request or directive applicable to commercial banks or financial institutions generally regarding capital adequacy (whether or not having the force of law) of any such authority, central bank or comparable agency has the effect of reducing the rate of return on such Lender's capital as a consequence of its obligations hereunder to a level below that which such Lender could have achieved but for such adoption, change or compliance (taking into consideration such Lender's policies with respect to capital adequacy) by an amount reasonably deemed by such Lender to be material, then from time to time, within fifteen days after demand by such Lender, the Borrower shall pay to such Lender such additional amount or amounts as will adequately compensate such Lender for such reduction. Each Lender will notify the Borrower of any event occurring after the date of this Agreement which will entitle such Lender to compensation pursuant to this Section 2.14(a) as promptly as practicable after such Lender obtains actual knowledge of such event; provided, no Lender shall be liable for its failure or the failure of any other Lender to provide such notification. A certificate of such Lender claiming compensation under this Section 2.14(a), setting forth in reasonable detail the calculation of the additional amount or amounts to be paid to it hereunder shall be presumptive evidence of the validity of such claim. If such Lender demands compensation under this Section 2.14(a), the Borrower may at any time, on at least five Business Days' prior notice to such Lender (i) repay in full the then outstanding principal amount of LIBOR Advances, of such Lender, together with accrued interest thereon, or (ii) convert the LIBOR Advances to Base Advances in accordance with the provisions of this Agreement; provided, however, that the Borrower shall be liable for the Consequential Loss arising pursuant to those actions. (b) If, after the date hereof, any Tribunal, central bank or other comparable authority, at any time imposes, modifies or deems applicable any reserve (including, without limitation, any imposed by the Board of Governors of the Federal Reserve System), special deposit or similar requirement against assets of, deposits with or for the amount of, or credit extended by, any Lender, or imposes on any Lender any other condition affecting a LIBOR Advance, the Notes, or its obligation to make a LIBOR Advance, or imposes on any Lender any other condition affecting a Letter of Credit; and the result of any of the foregoing is to increase the cost to such Lender of making or maintaining its Letter of Credit, LIBOR Advances, or to reduce the amount of any sum received or receivable by such Lender under this Agreement or under the Notes, the Letters of Credit or reimbursement obligations by an amount deemed by such Lender, to be material, then, within five days after demand by such Lender, the Borrower shall pay to such Lender such additional amount or amounts as will compensate such Lender for such increased cost or reduction. Each Lender will (i) notify the Borrower of any event occurring after the date of this Agreement that entitles such Lender to compensation pursuant to this Section 2.14(b), as promptly as practicable after such Lender obtains actual knowledge of the event; provided, no Lender shall be liable for its failure or the failure of any other Lender to provide such notification and (ii) use good faith and reasonable efforts to designate a different Lending Office for LIBOR Advances, of such Lender if the designation will avoid the need for, or reduce the amount of, the compensation and will not, in the sole opinion of such Lender, be disadvantageous to such Lender. A certificate of such Lender claiming compensation under this Section 2.14(b), setting forth in reasonable detail the computation of the additional amount or 37 43 amounts to be paid to it hereunder shall be presumptive evidence of the validity of such claim. If such Lender demands compensation under this Section 2.14(b), the Borrower may at any time, on at least five Business Days' prior notice to such Lender (i) repay in full the then outstanding principal amount of LIBOR Advances, of such Lender, together with accrued interest thereon, or (ii) convert the LIBOR Advances to Base Advances in accordance with the provisions of this Agreement; provided, however, that the Borrower shall be liable for the Consequential Loss arising pursuant to those actions. (c) Notwithstanding any other provision of this Agreement, if the introduction of or any change in or in the interpretation or administration of any Law shall make it unlawful, or any central bank or other Tribunal shall assert that it is unlawful, for a Lender to perform its obligations hereunder to issue or maintain Letters of Credit, make LIBOR Advances, to continue to fund or maintain LIBOR Advances hereunder, make Base Rase Advances or otherwise perform any of such Lender's obligations hereunder, then, on notice thereof and demand therefor by such Lender to the Borrower, such Lender may take any of the following actions: (i) each LIBOR Advance will automatically, upon such demand, convert into a Base Advance, (ii) the obligation of such Lender to make, or to convert Advances into, LIBOR Advances or Base Rate Advances, or both, shall be suspended until such Lender notifies Administrative Agent and the Borrower that such Lender has determined that the circumstances causing such suspension no longer exist, and (iii) the obligation of such Lender to make or maintain Letters of Credit shall be suspended until such Lender notifies Administrative Agent and the Borrower that such Lender has determined that the circumstances causing such suspension no longer exist. (d) Upon the occurrence and during the continuance of any Default or Event of Default, (i) each LIBOR Advance will automatically, on the last day of the then existing Interest Period therefor, convert into a Base Advance and (ii) the obligation of each Lender to make, or to convert Advances into, LIBOR Advances shall be suspended. (e) If any Lender notifies Administrative Agent that the LIBOR Rate for any Interest Period for any LIBOR Advances will not adequately reflect the cost to such Lender of making, funding or maintaining LIBOR Advances for such Interest Period, Administrative Agent shall promptly so notify the Borrower, whereupon (i) each such LIBOR Advance will automatically, on the last day of the then existing Interest Period therefor, convert into a Base Advance and (ii) the obligation of such Lender to make, or to convert Advances into, LIBOR Advances shall be suspended until such Lender notifies Administrative Agent that such Lender has determined that the circumstances causing such suspension no longer exist and Administrative Agent notifies the Borrower of such fact. (f) Failure on the part of any Lender to demand compensation for any increased costs, increased capital or reduction in amounts received or receivable or reduction in return on capital pursuant to this Section 2.14 with respect to any period shall not constitute a waiver of any Lender's right to demand compensation with respect to such period or any other period, subject, however, to the limitations set forth in this Section 2.14. (g) The obligations of the Borrower under this Section 2.14 shall survive any termination of this Agreement, provided that, in no event shall the Borrower be required to make a payment under this Section 2.14 with respect to any event of which the Lender making such claim had knowledge more than 12 months prior to demand for such payment. 38 44 (h) Determinations by Lenders for purposes of this Section 2.14 shall be presumptively correct. Any certificate delivered to the Borrower by a Lender pursuant to this Section 2.14 shall include in reasonable detail the basis for such Lender's demand for additional compensation and a certification that the claim for compensation is consistent with such Lender's treatment of similar customers having similar provisions generally in their agreements with such Lender. (i) Notwithstanding any other provision of this Agreement, no Lender not organized under the Laws of the United States or any State (or which has a Bank Affiliate not organized under the Laws of the United States or any State) shall be entitled to compensation pursuant to this Section 2.14 with respect to any amount which would otherwise be due under this Section 2.14 but which is the result of an act of a Tribunal of the country in which such Lender or Bank Affiliate is organized, provided that, Lenders organized under the Laws of Canada will be entitled to the benefits of this Section as a result of an act of a Tribunal of Canada. 2.15. Use of Proceeds. (a) Revolver Advances. The proceeds of the Revolver Advances shall be available (and the Borrower shall use such proceeds) solely (a) for Permitted Acquisitions consummated by the Parent, the Borrower and the Designated Restricted Subsidiaries, (b) for Capital Expenditures made by the Parent, the Borrower and the Designated Restricted Subsidiaries and permitted under the terms of this Agreement, (c) for working capital of the Parent, the Borrower and the Designated Restricted Subsidiaries and (d) for other lawful corporate purposes of the Parent, the Borrower and the Designated Restricted Subsidiaries. (b) Special Purpose Advances and the Initial Term Loan Advance. The proceeds of the Special Purpose Advances and the initial Term Loan Advance shall be available (and the Borrower shall use such proceeds) solely to finance capital lease obligations, mortgage financings or purchase money obligations, in each case incurred for the purpose of financing all or any part of the purchase price or cost of construction or improvement of property used in the business of the Parent, the Borrower or any Designated Restricted Subsidiary. 39 45 2.16. Collateral and Collateral Call. (a) Collateral. Payment of the Obligations will be secured by (i) a first perfected security interest in 100% of the Capital Stock of the Borrower and each of the Subsidiaries of the Parent and the Borrower, except Excluded Stock, (ii) Unlimited Guaranties of the Obligations by each Guarantor, (iii) a first perfected security interest (except for Permitted Liens) in accounts, inventory, non-fixture equipment of the Borrower, the Parent and each of the Restricted Subsidiaries, inter-company loans among the Parent, the Borrower, and the Subsidiaries (except loans between Unrestricted Subsidiaries), the Borrower Deposit Account and the Parent Deposit Account, but excluding (A) all tangible and intangible assets of Mutual Signal and the Subsidiaries of Mutual Signal, (B) fiber and other related assets subject to an IRU, (C) microwave assets of the Parent, the Borrower and the Restricted Subsidiaries, (D) intellectual property of the Parent, the Borrower and the Restricted Subsidiaries, (E) motor vehicles, and (F) assets subject to Liens permitted under Section 8.03(b) hereof, and (iv) certain real estate sites and contract rights of the Parent, the Borrower and the Restricted Subsidiaries (except Mutual Signal and its Subsidiaries) (collectively, together with all other Properties or assets of the Parent, the Borrower, Subsidiaries and other Persons securing the Obligations from time to time, the "Collateral"). The Borrower agrees that it will, and will cause the Parent and the Restricted Subsidiaries to execute and deliver, or cause to be executed and delivered, such documents as the Administrative Agent may from time to time reasonably request to create and perfect a first Lien (subject to Permitted Liens) for the benefit of the Administrative Agent and the Lenders in the Collateral, subject to the terms of Section 6.18 hereof. (b) Collateral Call. The Borrower agrees upon the creation, formation or acquisition of any direct or indirect Restricted Subsidiary of the Borrower and/or the Parent, to immediately pledge 100% of the Capital Stock of any such Restricted Subsidiary to secure the Obligations, pursuant to a pledge agreement substantially in the form of Exhibit H hereto, and to promptly deliver to the Administrative Agent all certificates or other documentation evidencing 100% of such Capital Stock and, if such Capital Stock is stock of a corporation, together with stock powers executed in blank. The Borrower agrees, notwithstanding (a) above, promptly upon request by the Administrative Agent, to use its best efforts to take all actions necessary or advisable to promptly grant the Administrative Agent on behalf of the Lenders a Lien and/or security interest in all or any portion of the tangible and intangible assets and Properties of the Parent, the Borrower and the Restricted Subsidiaries (whether through Capital Stock or otherwise), including to immediately pledge/mortgage or grant a first priority security interest in real property to secure the Obligations, provided that under no circumstances shall the Borrower be required to grant a Lien and/or security interest in the microwave assets, motor vehicles, and other Properties and assets of the Parent, the Borrower and the Restricted Subsidiaries subject to a Permitted Lien or a Lien permitted by Section 8.03(b) hereof, or other assets which are prohibited by law or prohibited contractually on the date hereof from being subject to Liens. The Borrower agrees to use its best efforts to (and cause the Parent and the Restricted Subsidiaries to use their best efforts to), upon the request of the Majority Lenders, grant the Administrative Agent on behalf of Lenders a first priority Lien or security interest (subject to Permitted Liens) in any asset of the Borrower, the Parent or any of their Restricted Subsidiaries. 40 46 2.17. Conditions Precedent to the Making of the Special Purpose Loan. Upon written request by the Borrower to Lenders of its choice (including, as set forth below, other lenders not initially party to this Agreement or the other Loan Papers), and only so long as each Lender determines in its sole discretion in writing to make such Special Purpose Loan available to the Borrower, or increase the amount of the Special Purpose Loan, the Special Purpose Loan shall be made to the Borrower under the terms hereof, or increased under the terms hereof, in an aggregate outstanding amount not to exceed $250,000,000, in accordance with, and subject to, each of the terms and conditions set forth below: (a) The Special Purpose Loan, or any increase to the Special Purpose Loan must be effective prior to December 31, 2000. The Borrower and the Administrative Agent may request any or all of the Lenders and any new creditors to participate in the making of the Special Purpose Loan. No Lender shall be required to participate. The Borrower, the Administrative Agent and the participating Lenders, and any new creditors participating in the making of the Special Purpose Loan, shall agree as to whether the Special Purpose Loan is a revolving loan or a term loan, and shall further agree on all terms and conditions in connection with such loan, including facility fees, commitment fees, administrative fees, underwriting fees and other fees and amounts, interest, amortization and other terms and conditions, provided that, notwithstanding the foregoing, the Maturity Date shall be the same for the Special Purpose Loan. Each such Lender electing to participate in such Special Purpose Loan shall commit to an amount not less than $10,000,000, but shall accept any allocation amount designated by the Borrower and the Administrative Agent that is equal to or less than its proposed portion of the Special Purpose Loan. The amount of the Special Purpose Loan (or the Special Purpose Commitment, if the Special Purpose Loan is a revolving loan) shall be in excess of $50,000,000, but not in an amount in excess of $250,000,000. (b) Notwithstanding any other provision of this Agreement and the Loan Papers, it is expressly agreed by each Lender that any provision of Article II and Section 4.02(g) of this Agreement, and each of the definitions used therein, may be amended, or amended and restated, to effectuate the intent of this Section 2.17 by an agreement of the new lenders for the Special Purpose Loan representing 51% or more of the aggregate amount of the Special Purpose Loan, provided that, notwithstanding the foregoing (i) no such amendment will (A) increase the Revolver Commitment, (B) reduce any principal, interest, fees, or other amounts payable hereunder, or waive or result in the waiver of any Event of Default under Section 9.01(a) hereof, (C) postpone any date fixed for any payment of principal, interest, fees, or other amounts payable hereunder, (D) release or impair any Collateral or guaranties securing any Obligor's obligations hereunder, other as contemplated hereby and by the other Loan Papers or (E) change the meaning of "Total Specified Percentage", "Revolver Specified Percentage", "Term Loan Specified Percentage", except to adjust them to effectuate the intent of Section 2.17 hereof, or the number of Lenders required to take any action hereunder, (F) change the definitions of "Commitment", "Revolver Commitment", "Maturity Date", "Majority Lenders", or "Letter of Credit Commitment", without the consent of all Lenders, and (ii) this Agreement and the Loan Papers will only be amended in order to effectuate the intent of this Section 2.17. 41 47 (c) Upon satisfaction of each of the conditions precedent in this Section 2.17, after the making of the Special Purpose Loan, and if the Special Purpose Loan is a revolving loan, the Borrower shall be entitled to increase the amount of the Special Purpose Commitment from time to time in an aggregate amount for all such increases not to exceed $200,000,000, and in each case by not less than $10,000,000 (or $5,000,000 multiples thereof), provided that the Special Purpose Commitment may not exceed $250,000,000 in the aggregate at any time. Each Lender specified by the Borrower shall have received not less than ten days' prior written notice from the Borrower (or such lesser notice as acceptable to each specified Lender) requesting such Special Purpose Commitment increase. Each such Lender electing to participate in such Special Purpose Commitment increase shall commit to an amount not less than $10,000,000, but shall accept any allocation amount designated by the Borrower and the Administrative Agent that is equal to or less than its proposed portion of the Special Purpose Commitment increase. If the Special Purpose Loan is a term loan, the Borrower shall not be entitled to increase the Special Purpose Loan. (d) On any date of proposed making of a Special Purpose Loan or increase to the Special Purpose Commitment, the representations and warranties contained in Article V hereof must be true and correct on such date, as though made on and as of such date, except to the extent expressly made only as of a prior date. (e) On any date of proposed making of a Special Purpose Loan or increase to the Special Purpose Commitment, no Default or Event of Default shall exist, and no Default or Event of Default would result from the making of such Special Purpose Loan or such increase to the Special Purpose Commitment, and, with respect to any increase to such Special Purpose Commitment, the sum of all Special Purpose Advances outstanding shall not exceed the Special Purpose Commitment. (f) The Borrower shall have paid all such Lenders (including new lenders) agreeing to provide any portion of the Special Purpose Loan all facility fees and other upfront fees prior to the making of the Special Purpose Loan. For any increase from time to time to the Special Purpose Commitment, the Borrower and such Lenders (including the new lenders) shall have agreed to an upfront facility fee for each such increase, such fees to be negotiated at the time of access of each such increase, which such fees in each case shall be paid prior to or on the date of such increase. (g) Notwithstanding anything herein or in any other Loan Paper to the contrary, the Borrower and the Administrative Agent may agree to add other creditors in connection with the making of the Special Purpose Loan or any proposed increase to the Special Purpose Commitment. (h) With respect to the making of the Special Purpose Loan and each increase to the Special Purpose Commitment, the Administrative Agent shall have received a pro-forma Compliance Certificate in form and substance acceptable to the Lenders and demonstrating compliance with the terms of this Agreement and the Loan Papers for one full year after the date of the making of any Special Purpose Loan and each increase to the Special Purpose Commitment. 42 48 (i) With respect to the making of the Special Purpose Loan and each increase to the Special Purpose Commitment, the Administrative Agent shall have received financial projections in form and substance acceptable to the Lenders and demonstrating compliance with the financial covenants set forth in Section 8.01 hereof throughout the term of this Agreement. (j) With respect to the making of the Special Purpose Loan and each increase to the Special Purpose Commitment, the Administrative Agent shall have received a certificate from the Borrower to the effect that (i) such making of the Special Purpose Loan or such increase has received all required regulatory approvals, if necessary, and is in compliance with all applicable Laws, and (ii) no other approvals or consents from any Person are required by any such Person except to the extent they have been received. (k) With respect to the making of the Special Purpose Loan and each increase to the Special Purpose Commitment, the Administrative Agent and each Lender (including any new Lenders party hereto) shall have received new Special Purpose Notes evidencing the Special Purpose Loan, and any increase in the Special Purpose Commitment, and the Borrower, each Lender and each new Lender agrees to execute any and all such documents deemed necessary by the Administrative Agent in order to effectuate this Section 2.17 (and for no other purpose), whether UCC-1s, new documentation relating to any Collateral, Unlimited Guaranty or otherwise. (l) Promptly after making the Special Purpose Loan and promptly after any increase of the Special Purpose Commitment, the Administrative Agent shall deliver to each Lender evidence of new Special Purpose Specified Percentages and Total Specified Percentages adjusted to give effect to the Special Purpose Loan or any increase in the Special Purpose Commitment. (m) With respect to the making of the Special Purpose Loan and each increase to the Special Purpose Commitment, on or prior to the date of making of such loan or increase, each new lender being added to the credit facility shall deliver to the Borrower and the Administrative Agent documentation acceptable to the Administrative Agent evidencing such new Lender's acceptance of this Agreement and all the other Loan Papers in form and substance reasonably acceptable to the Administrative Agent (and making such lender a party to this Agreement and the other Loan Papers). (n) With respect to the making of the Special Purpose Loan and each increase to the Special Purpose Commitment, on the date of making of such loan or any such increase, the Administrative Agent shall deliver to the Borrower notice of the cost of any LIBOR breakage or other Consequential Loss incurred by any Lender as a result of such increase and reallocation to the Lenders, and the Borrower shall pay such costs on the date of increase in immediately available funds to the Administrative Agent on behalf of such Lenders. In connection with the making of any Special Purpose Loan and any increase to the Special Purpose Commitment in accordance with the terms of this Section 2.17, each existing Lender (regardless of whether such Lender is participating in such increase) agrees to execute any and all agreements requested by the Administrative Agent to effectuate the intent of this Section 2.17. 43 49 ARTICLE III. LETTERS OF CREDIT 3.01. Issuance of Letters of Credit. Letters of Credit issued under the Original Credit Agreement shall be deemed, for the purposes of this Agreement, to be issued hereunder, and each such Letter of Credit shall be treated in accordingly. The Borrower shall give the Administrative Agent not less than five Business Days prior written notice of a request for the issuance of a Letter of Credit, and the Administrative Agent shall promptly notify each Lender of such request. Upon receipt of the Borrower's properly completed and duly executed Applications, and subject to the terms of such Applications and to the terms of this Agreement, the Administrative Agent agrees to issue Letters of Credit on behalf of the Borrower in an aggregate face amount not in excess of the lesser of (a) Letter of Credit Commitment and (b) the remainder of the Revolver Commitment minus the sum of all outstanding Revolver Advances plus the aggregate face amount of all outstanding Letters of Credit. No Letter of Credit shall have a maturity extending beyond the earliest of (i) the Maturity Date, or (ii) one year from the date of its issuance, or (iii) such earlier date as may be required to enable the Borrower to satisfy its repayment obligations under Section 2.06 hereof. Subject to such maturity limitations and so long as no Default or Event of Default has occurred and is continuing or would result from the renewal of a Letter of Credit, the Letters of Credit may be renewed by the Administrative Agent in its discretion. The Lenders shall participate ratably in any liability under the Letters of Credit and in any unpaid reimbursement obligations of the Borrower with respect to any Letter of Credit in their Revolver Specified Percentages. The amount of the Letters of Credit issued and outstanding and the unpaid reimbursement obligations of the Borrower for such Letters of Credit shall reduce the amount of Revolver Commitment available, so that at no time shall the sum of (i) all outstanding Revolver Advances in the aggregate, plus (ii) the aggregate face amount of all outstanding Letters of Credit, plus (iii) (without duplication) all outstanding reimbursement obligations related to Letters of Credit, exceed the Revolver Commitment, and at no time shall the sum of all Revolver Advances by any Lender made plus its ratable share of amounts available to be drawn under the Letters of Credit and the unpaid reimbursement obligations of the Borrower in respect of such Letters of Credit exceed its Revolver Specified Percentage of the Revolver Commitment. 3.02.Letters of Credit Fee . In consideration for the issuance of each Letter of Credit, the Borrower shall pay to (a) the Administrative Agent for its sole account, an application and processing fee in the amount of the higher of (i) $350.00 and (ii) the product of 1/8th of 1% multiplied by the face amount of such Letter of Credit on each Letter of Credit, due and payable on the date of issuance of each Letter of Credit, and (b) the Administrative Agent for the account of the Lenders in accordance with their Revolver Specified Percentages, a per annum fee for each Letter of Credit equal to the higher of (i) $350.00 and (ii) the product of the Applicable Margin for a LIBOR Advance in effect on the date of calculation multiplied by the face amount of each such Letter of Credit. Each fee for each Letter of Credit under subsection (b) above shall be due and payable to the Administrative Agent quarterly as it accrues, on each Quarterly Date during the term of the Letter of Credit and on the expiration or renewal of each such Letter of Credit, beginning with the first such Quarterly Date after the issuance of each Letter of Credit and ending on the expiration date of each such Letter of Credit. 44 50 3.03. Reimbursement Obligations. (a) The Borrower hereby agrees to reimburse Administrative Agent immediately upon demand by Administrative Agent, and in immediately available funds, for any payment or disbursement made by Administrative Agent under any Letter of Credit. Payment shall be made by the Borrower with interest on the amount so paid or disbursed by Administrative Agent from and including the date payment is made under any Letter of Credit to and including the date of payment, at the lesser of (i) the Highest Lawful Rate, and (ii) the sum of the Base Rate in effect from time to time plus 2% per annum; provided, however, that if the Borrower would be permitted under the terms of Section 2.01, Section 2.02 and Section 4.02 to borrow Revolver Advances in amounts at least equal to their reimbursement obligation for a drawing under any Letter of Credit, a Base Advance by each Lender, in an amount equal to such Lender's Revolver Specified Percentage, shall automatically be deemed made on the date of any such payment or disbursement made by Administrative Agent in the amount of such obligation and subject to the terms of this Agreement. (b) The Borrower hereby also agrees to pay to Administrative Agent immediately upon demand by Administrative Agent and in immediately available funds, as security for their reimbursement obligations in respect of the Letters of Credit under Section 3.03(a) hereof and any other amounts payable hereunder and under the Notes, an amount equal to the aggregate amount available to be drawn under Letters of Credit then outstanding, irrespective of whether the Letters of Credit have been drawn upon, upon an Event of Default. Any such payments shall be deposited in a separate account designated "IXC Communications Services Special Account" or such other designation as Administrative Agent shall elect. All such amounts deposited with Administrative Agent shall be and shall remain funds of the Borrower on deposit with Administrative Agent and may be invested by Administrative Agent as Administrative Agent shall determine. Such amounts may not be used by Administrative Agent to pay the drawings under the Letters of Credit; however, such amounts may be used by Administrative Agent as reimbursement for Letter of Credit drawings which Administrative Agent has paid. During the existence of an Event of Default but after the expiration of any Letter of Credit that was not drawn upon, the Borrower may direct the Administrative Agent to use any cash collateral for any such expired Letter of Credit, if any, to reduce the amount of the Obligations. Any amounts remaining in the IXC Communications Services Special Account, after the date of the expiration of all Letters of Credit and after all Obligations have been paid in full, shall be repaid to the Borrower promptly after such expiration and such payment in full. (c) The obligations of the Borrower under this Section 3.03 will continue until all Letters of Credit have expired and all reimbursement obligations with respect thereto have been paid in full by the Borrower and until all other Obligations shall have been paid in full. (d) The Borrower shall be obligated to reimburse Administrative Agent upon demand for all amounts paid under the Letters of Credit as set forth in Section 3.03(a) hereof; provided, however, if the Borrower for any reason fails to reimburse Administrative Agent in full upon demand, whether by failing to or not being permitted to borrow Revolver Advances to pay such reimbursement obligations or otherwise, the Lenders shall reimburse Administrative Agent in accordance with each Lender's Revolver Specified Percentage for amounts due and unpaid from the Borrower as set forth in Section 3.04 hereof; provided, however, that no such reimbursement made by the Lenders shall discharge the Borrower's obligations to reimburse Administrative Agent. 45 51 (e) The Borrower and the Parent shall indemnify and hold Administrative Agent or any Lender, its officers, directors, representatives and employees harmless from loss for any claim, demand or liability which may be asserted against Administrative Agent or such indemnified party in connection with actions taken under the Letters of Credit or in connection therewith (INCLUDING LOSSES RESULTING FROM THE NEGLIGENCE OF ADMINISTRATIVE AGENT OR SUCH INDEMNIFIED PARTY), and shall pay Administrative Agent for reasonable fees of attorneys (who may be employees of Administrative Agent) and legal costs paid or incurred by Administrative Agent in connection with any matter related to the Letters of Credit, except for losses and liabilities incurred as a direct result of the gross negligence or wilful misconduct of Administrative Agent or such indemnified party. If the Borrower for any reason fails to indemnify or pay Administrative Agent or such indemnified party of Administrative Agent as set forth herein in full, the Lenders shall indemnify and pay Administrative Agent upon demand, in accordance with each Lender's Revolver Specified Percentage of such amounts due and unpaid from the Borrower. The provisions of this Section 3.03(e) shall survive the termination of this Agreement. 3.04. Lenders' Obligations. Each Lender agrees, unconditionally and irrevocably to reimburse Administrative Agent on demand for such Lender's Revolver Specified Percentage of each draw paid by Administrative Agent under any Letter of Credit. All amounts payable by any Lender under this subsection shall include interest thereon at the Federal Funds Rate, from the date of the applicable draw to the date of reimbursement by such Lender. No Lender shall be liable for the performance or nonperformance of the obligations of any other Lender under this Section. The obligations of the Lenders under this Section shall continue after the Maturity Date and shall survive termination of any Loan Papers. 3.05. Administrative Agent's Obligations. (a) Administrative Agent makes no representation or warranty, and assumes no responsibility with respect to the validity, legality, sufficiency or enforceability of any Application or any document relative thereto or to the collectibility thereunder. Administrative Agent assumes no responsibility for the financial condition of the Borrower and its Subsidiaries or for the performance of any obligation of the Borrower. Administrative Agent may use its discretion with respect to exercising or refraining from exercising any rights, or taking or refraining from taking any action which may be vested in it or which it may be entitled to take or assert with respect to any Letter of Credit or any Application. (b) Administrative Agent shall be under no liability to any Lender, with respect to anything the Administrative Agent may do or refrain from doing in the exercise of its judgment, the sole liability and responsibility of Administrative Agent being to handle each Lender's share on as favorable a basis as Administrative Agent handles its own share and to promptly remit to each Lender its share of any sums received by Administrative Agent under Article III or any Application. Administrative Agent shall have no duties or responsibilities except those expressly set forth herein and those duties and liabilities shall be subject to the limitations and qualifications set forth herein. (c) Neither Administrative Agent nor any of its directors, officers, or employees shall be liable for any action taken or omitted (whether or not such action taken or omitted is expressly set forth herein) under or in connection herewith or any other instrument or document in connection herewith, except for gross negligence or willful misconduct, and no Lender waives its right to institute legal action against Administrative Agent for wrongful payment of any Letter of Credit due to 46 52 Administrative Agent's gross negligence or willful misconduct. Administrative Agent shall incur no liability to any Lender, the Borrower or any Affiliate of the Borrower or Lender in acting upon any notice, document, order, consent, certificate, warrant or other instrument reasonably believed by Administrative Agent to be genuine or authentic and to be signed by the proper party. ARTICLE IV. CONDITIONS PRECEDENT 4.01. Conditions Precedent to the Initial Rollover Advance, the Issuance of the Initial Letter of Credit and the Effectiveness of this Agreement. The obligation of each Lender to make the initial rollover Advance under the Loans, or issue the initial Letter of Credit, is subject to receipt by the Administrative Agent of each of the following, in form and substance satisfactory to the Administrative Agent, with a copy (except for the Notes) for each Lender: (a) a loan certificate of the Borrower certifying as to the accuracy of its representations and warranties in the Loan Papers, certifying that no Default or Event of Default has occurred under the terms of this Agreement, and including a certificate of incumbency with respect to each Authorized Officer, and containing a representation that each of the following items that were attached to the loan certificate delivered pursuant to Section 4.01(a) of the Original Credit Agreement remains unchanged and valid therefrom, except as shown on the attachments: (i) copies of the Articles of Incorporation or other charter documents of the Borrower, the Parent and each of the Restricted Subsidiaries, certified to be true, complete and correct by the secretary of state of each such Person's respective state of incorporation, (ii) copies of the By-Laws of the Borrower, the Parent and each of the Restricted Subsidiaries and (iii) copies of a certificate of good standing and a certificate of existence for the Parent in Delaware and Texas, the Borrower in Delaware, Texas and California, each of the Restricted Subsidiaries' state of incorporation, and each state where each Restricted Subsidiary is qualified; (b) a loan certificate of the Borrower certifying that a copy of the resolutions of the Borrower, the Parent and each of the Restricted Subsidiaries authorizing them to execute, deliver and perform this Agreement and the other Loan Papers to which each of them is a party is attached and is a true and accurate copy; (c) in form and substance acceptable to the Administrative Agent, duly executed and completed affirmation of the following Loan Papers delivered in connection with the Original Credit Agreement: (i) the Notes, (ii) pledge agreements by the Borrower and the Parent, and, to the extent applicable, each Restricted Subsidiary, (iii) Unlimited Guaranties executed by the Parent and each of the Restricted Subsidiaries except Mutual Signal and Subsidiaries of Mutual Signal, and (iv) all security agreements, mortgages, deeds of trust, assignment agreements, and (v) other Loan Papers and collateral agreements executed by the Borrower, the Parent and any Restricted Subsidiary, as appropriate; (d) all other Loan Papers (if any) necessary to be delivered on the Closing Date duly executed and completed, dated the Closing Date; (e) opinions addressed to Administrative Agent on behalf of the Lenders of corporate counsel to the Borrower, the Parent and each Restricted Subsidiary with respect to organizational 47 53 matters, authorization, execution, etc., in form and substance acceptable to the Administrative Agent and Lenders; (f) reimbursement for Administrative Agent of its reasonable fees and expenses and for Special Counsel's reasonable fees and expenses rendered through the Closing Date; (g) payment of an amendment and restatement fees (i) in the amount of 25 basis points on the sum of each Lender's Commitment plus each Lender's Term Loan Specified Percentage of the Term Loan (including the Administrative Agent and the Co-Syndication Agents), but in each case, only to such Lenders signatory to this Agreement, and (ii) pursuant to any Fee Letters; (h) a designation from the Borrower and the Parent that the Loans (and the Unlimited Guaranties of the Loans by the Parent) constitute "Senior Indebtedness" and "Designated Senior Indebtedness" as defined in, and in accordance with the terms of, the Subordinated Notes Documentation and the Junior Exchangeable Documentation, and a certificate of the Borrower and the Parent that this Agreement is a "Credit Agreement" as defined in the Subordinated Notes Documentation; (i) evidence that all corporate proceedings of the Parent, the Borrower and each Restricted Subsidiary taken in connection with the transactions contemplated by this Agreement and the other Loan Papers, shall be reasonably satisfactory in form and substance to the Lenders and Special Counsel; and the Lenders shall have received copies of all documents or other evidence which the Administrative Agent, Special Counsel or any Lender may reasonably request in connection with such transactions; (j) a certificate from the Borrower stating that there has been no material adverse change in the financial condition, business, operations, or prospects of the Parent, the Borrower and its Subsidiaries since December 31, 1998; (k) in form and substance satisfactory to the Lenders and Special Counsel, an executed copy of a written confirmation of the Auditor regarding that certain change in the accounting treatment of fiber IRUs used by the Parent, the Borrower and its Subsidiaries, which such change will be effective June 30, 1999; and (l) in form and substance satisfactory to the Lenders and Special Counsel, such other documents, instruments and certificates as the Administrative Agent or any Lender may reasonably require in connection with the transactions contemplated hereby, including without limitation the status, organization or authority of the Parent, the Borrower or any Restricted Subsidiary, and the enforceability of and security for the Obligations. 4.02. Conditions Precedent to All Advances and Letters of Credit. The obligation of each Lender to make each Advance hereunder (excluding each Refinancing Advance), and the obligation of the Administrative Agent to issue any Letter of Credit shall be subject to the further conditions precedent that on the date of such Advance or such issuance of such Letter of Credit: (a) All of the representations and warranties of the Borrower under this Agreement shall be true and correct at such time in all material respects, both before and after giving effect to the 48 54 application of the proceeds of the Advance or the issuance of the Letter of Credit, except those representations and warranties that specifically speak as of a particular date; (b) The incumbency of the Authorized Officers shall be as stated in the certificate of incumbency delivered in the Borrower's loan certificate pursuant to Section 4.01(a) or as subsequently modified and reflected in a certificate of incumbency delivered to the Administrative Agent. The Lenders may, without waiving this condition, consider it fulfilled and a representation by the Borrower made to such effect if no written notice to the contrary, dated on or before the date of such Advance or the issuance of such Letter of Credit, is received by the Administrative Agent from the Borrower prior to the making of such Advance or such Letter of Credit; (c) There shall not exist a Default or an Event of Default hereunder and none shall exist as a result of making any such Advance or such Letter of Credit, and the Administrative Agent shall have received written or telephonic certification thereof by an Authorized Officer (which certification, if telephonic, shall be followed promptly by written certification); (d) No event shall have occurred that could reasonably be expected to cause a Material Adverse Change since June 30, 1998; (e) In the case of each Letter of Credit, Borrower shall have delivered to the Administrative Agent a duly executed and complete Application acceptable to Administrative Agent; (f) In the case of any Revolver Advance, the aggregate outstanding Revolver Advances after giving effect to such proposed Revolver Advance, plus the sum of the face amount of all outstanding Letters of Credit plus all reimbursement obligations under Article III hereof, shall not exceed the Revolver Commitment; (g) In the case of any Special Purpose Advance, (i) if the Special Purpose Loan is a revolving loan as determined in accordance with Section 2.17 hereof, the aggregate outstanding Special Purpose Advances after giving effect to such proposed Special Purpose Advance shall not exceed the Special Purpose Commitment, (ii) the Borrower shall represent and warrant that the use of the proceeds of the Special Purpose Advance complies with Section 2.15(b) hereof (and the delivery of a Borrowing Notice shall constitute such representation) and (c) such Special Purpose Advance is permitted Debt under the Existing Financing Documentation, including, without limitation, Section 4.03(b)(5) of the Indenture with respect to the Subordinated Notes and Section (l)(ii)(B)(7) of the Certificate of Designation with respect to the Junior Exchangeable; and (h) Until the Administrative Agent and the Lenders are in receipt of an executed Compliance Certificate evidencing compliance with all terms and conditions of this Agreement using the Borrower prepared financial statements for the 1998 year end and fiscal quarter ending December 31, 1998, the Borrower shall have delivered evidence satisfactory to the Administrative Agent that the sum of (i) the maximum aggregate Advances outstanding under the Loans and (ii) the face amount of all outstanding Letters of Credit, shall not exceed $275,000,000 at any one time. 49 55 ARTICLE V. REPRESENTATIONS AND WARRANTIES 5.01. Representations and Warranties. The Borrower hereby represents and warrants to each Lender as follows: (a) The respective jurisdictions of incorporation and percentage ownership of the Subsidiaries of the Borrower and the Parent on the Closing Date and listed on Schedule 5.01(a) hereto are true and correct. Each of the Borrower and the Restricted Subsidiaries is a corporation duly organized, validly existing and in good standing under the laws of its state of organization. Each of the Borrower, the Parent and the Restricted Subsidiaries has the corporate power and corporate authority to own its properties and to carry on its business as now being conducted. Each of the Borrower, the Parent and the Restricted Subsidiaries is duly qualified, in good standing and authorized to do business in each jurisdiction in which the character of its Properties or the nature of its business requires such qualification or authorization, except where the failure to so qualify could not reasonably be expected to cause a Material Adverse Change. (b) The Borrower has corporate power and has taken all necessary corporate action to authorize it to borrow hereunder. Each of the Parent, the Borrower and the Restricted Subsidiaries has corporate power and has taken all necessary corporate action to execute, deliver and perform the Loan Papers to which it is party in accordance with the terms thereof, and to consummate the transactions contemplated thereby. Each Loan Paper has been duly executed and delivered by the Borrower, the Parent or such Restricted Subsidiary executing it. Each of the Loan Papers to which the Borrower, the Parent and the Restricted Subsidiaries are party is a legal, valid and binding obligation of the Borrower, the Parent or such Restricted Subsidiary, as applicable, enforceable in accordance with its terms, subject, to enforcement of remedies, to the following qualifications: (i) equitable principles generally, and (ii) bankruptcy, insolvency, liquidation, reorganization, reconstruction and other similar laws affecting enforcement of creditors' rights generally (insofar as any such law relates to the bankruptcy, insolvency or similar event of the Borrower, the Parent or any Subsidiary of the Borrower or the Parent). (c) The execution, delivery and performance by the Borrower, the Parent and the Restricted Subsidiaries of the other Loan Papers to which they are respectively a party, and the consummation of the transactions contemplated thereby, do not and will not (i) require any consent or approval not already obtained, (ii) violate any Applicable Law, (iii) conflict with, result in a breach of, or constitute a default under the articles of incorporation or by-laws of the Borrower, the Parent or any Restricted Subsidiary, or under any material License, indenture, agreement or other instrument, to which the Borrower, the Parent or any Restricted Subsidiary is a party or beneficiary of, or by which they or their respective Properties may be bound, or (iv) result in or require the creation or imposition of any Lien upon or with respect to any property now owned or hereafter acquired by the Borrower, the Parent or any Restricted Subsidiary, except Permitted Liens. (d) The Borrower, the Parent and the Restricted Subsidiaries are primarily engaged in the operation of telecommunications, internet and pursuing activities related thereto. 50 56 (e) On the Closing Date, all material Licenses of the Parent, the Borrower and the Restricted Subsidiaries have been duly authorized and obtained, and are in full force and effect. The Parent, the Borrower and the Restricted Subsidiaries are in compliance in all material respects with all provisions thereof. On the Closing Date, no material License is the subject of any pending or, to the best of the Borrower's knowledge, threatened challenge or revocation. On each date after the Closing Date on which this representation is deemed to be made, no material License is the subject of any pending or, to the best of the Borrower's knowledge, threatened challenge or revocation, which such event could reasonably be expected to cause a Material Adverse Change. The Borrower, the Parent and the Restricted Subsidiaries are not required to obtain any material License that has not already been obtained from, or effect any material filing or registration that has not already been effected with, the FCC, any applicable PUC or any other federal, state or local regulatory authority in connection with the execution and delivery of this Agreement or any other Loan Paper, or the performance thereof (other than any enforcement of remedies by the Administrative Agent on behalf of the Lenders), in accordance with their respective terms, including any borrowings hereunder. (f) The Parent, the Borrower and the Restricted Subsidiaries are in compliance in all material respects with all material Applicable Laws. The Parent, the Borrower and the Restricted Subsidiaries have duly and timely filed all reports, statements and filings that are required to be filed by any of them under the Communications Act, and are in all material respects in compliance therewith, including without limitation the rules and regulations of the FCC and each applicable PUC. Except as set forth on Schedule 5.01(f) hereto, as of the Closing Date, the Borrower is not aware of any event or circumstance constituting noncompliance (or any Person alleging noncompliance) with any rule or regulation of the FCC or any applicable PUC. On each date after the Closing Date on which this representation is deemed to be made, the Borrower is not aware of any event or circumstance constituting noncompliance (or any Person alleging noncompliance) with any rule or regulation of the FCC or any applicable PUC, which such event or circumstance could reasonably be expected to cause a Material Adverse Change. (g) On the Closing Date, the Parent, the Borrower and the Restricted Subsidiaries have good and indefeasible title to, or a valid leasehold interest in, all of their material assets and Properties. On each date after the Closing Date on which this representation is deemed to be made, the Parent, the Borrower and the Restricted Subsidiaries have good and indefeasible title to, or a valid leasehold interest in, all of their material assets and Properties, in which any such failure could reasonably be expected to cause a Material Adverse Change. None of the assets of the Parent, the Borrower and the Restricted Subsidiaries is subject to any Liens, except Permitted Liens and Liens permitted under Section 8.03(b) hereof. No financing statement or other Lien filing authorized by the Parent, the Borrower or any Restricted Subsidiary (except relating to Permitted Liens and Liens permitted by Section 8.03(b) hereof) is on file in any state or jurisdiction that names the Borrower, the Parent or any of the Restricted Subsidiaries as debtor or covers (or purports to cover) any assets of the Parent, the Borrower or any of the Restricted Subsidiaries. The Parent, the Borrower and the Restricted Subsidiaries have not signed any such financing statement or filing, nor any security agreement authorizing any Person to file any such financing statement or filing. (h) On the Closing Date, except as reflected on Schedule 5.01(h) hereto, there is no action, suit, proceeding or any other Litigation pending against, or, to the best of the Borrower's knowledge, threatened against the Parent, the Borrower or any of their Subsidiaries, or in any other manner relating directly and materially adversely to the Parent, the Borrower, any of their Subsidiaries, or any of their material Properties, in any court or before any arbitrator of any kind or before or by any 51 57 governmental body. On each date after the Closing Date on which this representation is deemed to be made, there is no action, suit, proceeding or any other Litigation pending against, or, to the best of the Borrower's knowledge, threatened against the Parent, the Borrower or any of their Subsidiaries, or in any other manner relating to the Borrower, the Parent or any of their Subsidiaries, or any of their Properties, in any court or before any arbitrator of any kind or before or by any governmental body, which could reasonably be expected to cause a Material Adverse Change. (i) All federal, state and other Tax returns of the Borrower, the Parent and their Subsidiaries required by law to be filed have been duly filed and all federal, state and other Taxes, assessments and other governmental charges or levies upon the Borrower, the Parent, their Subsidiaries or any of their Properties, income, profits and assets, which are due and payable, have been paid, except those that are diligently contested in good faith by the Borrower and for which a reserve has been established in accordance with GAAP, and no Lien (other than a Permitted Lien) has attached and no foreclosure, distraint, sale or similar proceedings have been commenced. (j) The Borrower has furnished or caused to be furnished to the Lenders copies of its financial statements at June 30, 1998 which are prepared in good faith and complete in all material respects. Each such statement presents fairly in all material respects and in accordance with GAAP, the financial position of the Parent, the Borrower and the Restricted Subsidiaries as at such dates, and the results of operations for the periods then ended (except that such financial statements may be subject to year-end audit adjustments). The Borrower, the Parent and the Restricted Subsidiaries have no material liabilities, contingent or otherwise, nor material losses, except as disclosed in writing to the Lenders prior to the Closing Date or as disclosed on any subsequent financial statements. On the Closing Date after giving effect to the Advances made on such date, the Borrower, the Parent and each of the Restricted Subsidiaries is Solvent. (k) On the Closing Date, since the date of the most recent financial statements delivered to the Lenders, no event or circumstances have occurred or arisen that could reasonably be expected to cause a Material Adverse Change. (l) None of the Borrower, the Parent or their Controlled Group maintains or contributes to any Plan other than those disclosed to the Administrative Agent in writing. Each such Plan is in compliance in all material respects with the applicable provisions of ERISA, the Code, and any other applicable Federal or state law, rule or regulation. With respect to each Plan of the Borrower and the Parent, and each member of its Controlled Group (other than a Multiemployer Plan), all reports required under ERISA or any other Applicable Law to be filed with any governmental authority, the failure of which to file could reasonably result in liability of the Borrower, the Parent or any member of its Controlled Group in excess of $100,000, have been duly filed. All such reports are true and correct in all material respects as of the date given. No such Plan of the Borrower, the Parent or any member of its Controlled Group has any accumulated funding deficiency (as defined in Section 412(a) of the Code) (without regard to any waiver granted under Section 412 of the Code), nor has any funding waiver from the Internal Revenue Service been received or requested. None of the Borrower, the Parent, or any member of its Controlled Group has failed to make any contribution or pay any amount due or owing as required by Section 412 of the Code or Section 302 of ERISA or the terms of any such Plan prior to the due date under Section 412 of the Code and Section 302 of ERISA. There has been no ERISA Event or any event requiring disclosure under Section 4041(c)(3)(C), 4068(f), 4063(a) or 4043(b) of ERISA with respect to any Plan or trust of the Borrower, the Parent or any member of its Controlled Group since the effective date of ERISA. The 52 58 value of the assets of each Plan (other than a Multiemployer Plan) of the Borrower, the Parent and each member of its Controlled Group equaled or exceeded the present value of the benefit liabilities, as defined in Title IV of ERISA, of each such Plan as of the most recent valuation date using Plan actuarial assumptions at such date. There are no pending or, to the best of the Borrower's knowledge, threatened claims, lawsuits or actions (other than routine claims for benefits in the ordinary course) asserted or instituted against, and neither the Borrower, the Parent, nor any member of its Controlled Group has knowledge of any threatened Litigation or claims against, (i) the assets of any Plan or trust or against any fiduciary of a Plan with respect to the operation of such Plan, or (ii) the assets of any employee welfare benefit plan within the meaning of Section 3(1) or ERISA, or against any fiduciary thereof with respect to the operation of any such plan. None of the Borrower, the Parent or any member of its Controlled Group has engaged in any non-exempt prohibited transactions, within the meaning of Section 406 or Section 4.08 of ERISA or Section 4975 of the Code, in connection with any Plan. None of the Borrower, the Parent or any member of its Controlled Group has incurred or reasonably expects to incur (A) any liability under Title IV of ERISA (other than premiums due under Section 4007 of ERISA to the PBGC), (B) any withdrawal liability (and no event has occurred which with the giving of notice under Section 4219 of ERISA would result in such liability) under Section 4201 of ERISA as a result of a complete or partial withdrawal (within the meaning of Section 4203 or 4205 of ERISA) from a Multiemployer Plan, or (C) any liability under Section 4062 of ERISA to the PBGC or to a trustee appointed under Section 4042 of ERISA. None of the Borrower, the Parent, any member of its Controlled Group, or any organization to which the Borrower, the Parent, or any member of its Controlled Group is a successor or parent corporation within the meaning of ERISA Section 4069(b), has engaged in a transaction within the meaning of ERISA Section 4069. None of the Borrower, the Parent or any member of its Controlled Group maintains or has established any welfare benefit plan within the meaning of Section 3(1) of ERISA which provides for continuing benefits or coverage for any participant or any beneficiary of any participant after such participant's termination of employment except as may be required by the Consolidated Omnibus Budget Reconciliation Act of 1985, as amended ("COBRA") and the regulations thereunder, and at the expense of the participant or the beneficiary of the participant, or retiree medical liabilities. Each of the Borrower, the Parent and its Controlled Group which maintains a welfare benefit plan within the meaning of Section 3(1) of ERISA has complied in all material respects with any applicable notice and continuation requirements of COBRA and the regulations thereunder. (m) The Borrower is not, nor is the Parent or any of the Restricted Subsidiaries, engaged principally or as one of its important activities in the business of extending credit for the purpose of purchasing or carrying any margin stock within the meaning of Regulations G, T, U and X of the Board of Governors of the Federal Reserve System, and no part of the proceeds of the Advances will be used to purchase or carry any margin stock (as defined by Regulation U) or to extend credit to others for the purpose of purchasing or carrying any margin stock. Not more than 25% of the assets of any of the Parent, the Borrower or any of their Subsidiaries are margin stock (as defined by Regulation U), and none of the Pledged Stock or other Capital Stock of the Borrower, the Parent and their Subsidiaries is margin stock. None of the Parent, the Borrower and their Subsidiaries, nor any agent acting on their behalf, have taken or will knowingly take any action which might cause this Agreement or any Loan Papers to violate any regulation of the Board of Governors of the Federal Reserve System or to violate the Exchange Act, in each case as in effect now or as the same may hereafter be in effect. (n) The Parent, the Borrower and the Restricted Subsidiaries are in compliance with all of the provisions of their articles of incorporation. The Parent, the Borrower and the Restricted 53 59 Subsidiaries are in material compliance with all of the provisions of their by-laws. As of the Closing Date, no event has occurred or failed to occur, which has not been remedied or waived, the occurrence or non-occurrence of which constitutes, or which with the passage of time or giving of notice or both would constitute, (i) an Event of Default or (ii) a default by the Parent, the Borrower or any of the Restricted Subsidiaries under any material contract, or other material indenture, agreement or other instrument, or any judgment, decree or order to which the Parent, the Borrower or any of the Restricted Subsidiaries is a party or by which they or any of their material Properties is bound. On each date after the Closing Date on which this representation is deemed to be made, no event has occurred or failed to occur, which has not been remedied or waived, the occurrence or non-occurrence of which constitutes, or which with the passage of time or giving of notice or both would constitute, (i) an Event of Default or (ii) a default by the Parent, the Borrower or any of the Restricted Subsidiaries under any material contract or other material indenture, agreement or other instrument, or any judgment, decree or order to which the Parent, the Borrower or any of Restricted Subsidiaries is a party or by which they or any of their material Properties is bound, that could reasonably be expected to cause a Material Adverse Change. (o) The Borrower is not, nor is the Parent or any of their Subsidiaries, required to register under the provisions of the Investment Company Act of 1940, as amended. Neither the entering into or performance by the Borrower of this Agreement nor the issuance of the Notes, nor the execution, delivery and performance of the obligations under the Loan Papers by the Parent and their Subsidiaries, violates any provision of such act or requires any consent, approval, or authorization of, or registration with, the Securities and Exchange Commission or any other governmental or public body of authority pursuant to any provisions of such act. (p) On the Closing Date, none of the Parent, the Borrower nor any or their Subsidiaries has any actual knowledge or reason to believe that any substance deemed hazardous by any applicable Environmental Law, has been installed on any real property now owned by the Parent, the Borrower or any of their Subsidiaries, except (i) for hazardous substances the presence of which is not in violation of law and (ii) as disclosed in writing to the Lenders. On each date after the Closing Date on which this representation is deemed to be made, none of the Parent, the Borrower nor any Restricted Subsidiary has any actual knowledge or reason to believe that any substance deemed hazardous by any applicable Environmental Law, has been installed in violation of law on any real property now owned by the Parent, the Borrower or any of the Restricted Subsidiaries except as disclosed to the Lenders in writing, and which could not, in the reasonable judgment of the Borrower, cause a Material Adverse Change. As of the Closing Date, the Parent, the Borrower and the Restricted Subsidiaries are not in violation of or subject to any existing, pending or, to the best of the Borrower's knowledge, threatened investigation or inquiry by any governmental authority or to any material remedial obligations under any applicable Environmental Laws, and this representation and warranty would continue to be true and correct following disclosure to the applicable governmental authorities of all relevant facts, conditions and circumstances, if any, pertaining to any real property of the Parent, the Borrower and the Restricted Subsidiaries. On each date after the Closing Date on which this representation is deemed to be made, the Borrower, the Parent and the Restricted Subsidiaries are not in violation of or subject to any existing, pending or, to the best of the Borrower's knowledge, threatened investigation or inquiry by any governmental authority or to any material remedial obligations under any applicable Environmental Laws which could cause a Material Adverse Change, and this representation and warranty would continue to be true and correct following disclosure to the applicable governmental authorities of all relevant facts, conditions and circumstances, if any, pertaining to any real property of the Parent, the Borrower and the Restricted 54 60 Subsidiaries. The Borrower, the Parent and the Restricted Subsidiaries are not required to obtain any permits, Licenses or similar authorizations to construct, occupy, operate or use any buildings, improvements, fixtures, and equipment forming a part of any real property of the Borrower, the Parent or any Restricted Subsidiary by reason of any applicable Environmental Laws, except those that have been obtained. As of the Closing Date, the Parent, the Borrower and the Restricted Subsidiaries have no actual knowledge or reason to believe, after reasonable investigation, that any hazardous substances or solid wastes have been disposed of or otherwise released on or to the real property of the Borrower or any of its Restricted Subsidiaries in violation of any applicable Environmental Law. On each date after the Closing Date on which this representation is deemed to be made, the Borrower, the Parent and the Restricted Subsidiaries have no actual knowledge or reason to believe, that any hazardous substances or solid wastes have been disposed of or otherwise released on or to the real property of the Borrower, the Parent or any of the Restricted Subsidiaries, within the meaning of the applicable Environmental Laws, except as disclosed to the Lenders and which such disposal or release could not cause a Material Adverse Change. (q) On the Closing Date, there is no Litigation, or, to the best of the Borrower's knowledge, threatened Litigation or pending or threatened claim of breach or default, with respect to any material contract, or any loan agreement or document evidencing any Debt for Borrowed Money of the Borrower, the Parent or any of their Subsidiaries that has not been disclosed in writing to the Lenders. (r) All Pledged Stock has been duly authorized and validly issued, and is fully paid and nonassessable. The Capital Stock described on Schedule 5.01(r) hereto constitutes all the issued and outstanding Capital Stock of the Borrower and the Subsidiaries of the Parent and the Borrower, or the Subsidiaries of another Subsidiary of the Borrower, except such shares that have been issued after the Closing Date, and 100% of the Capital Stock of the Borrower and the Subsidiaries of the Borrower and the Parent (except Excluded Stock) is pledged to the Administrative Agent to secure the Obligations (and was delivered to the Administrative Agent together with stock powers executed in blank). No Person has conversion rights with respect to, or any subscription rights, calls, commitments or claims of any character for, or any repurchase or redemption options relating to, the Pledged Stock, other than those that have been waived and those in the Existing Financing Documentation. The Pledged Stock when issued or sold, was either (i) registered or qualified under applicable federal or state securities laws, or (ii) exempt therefrom. (s) No broker's, finder's or other fee or commission will be payable by the Borrower (other than to the Lenders hereunder) with respect to the making of the Commitment or the Advances hereunder. The Borrower agrees to indemnify and hold harmless the Administrative Agent and each Lender from and against any claims, demand, liability, proceedings, costs or expenses asserted with respect to or arising in connection with any such fees or commissions. (t) No event has occurred which permits (or with the passage of time would permit) the revocation or termination of any material License, which could reasonably be expected to cause a Material Adverse Change. (u) To the best knowledge of the Borrower, as of the Closing Date, the Borrower, the Parent and their Subsidiaries have obtained all material patents, trademarks, service-marks, trade names, copyrights, Licenses and other rights, free from burdensome restrictions, that are necessary for the operation of their business as presently conducted and as proposed to be conducted. On each 55 61 date after the Closing Date on which this representation is deemed to be made, the Borrower, the Parent and the Restricted Subsidiaries have obtained all patents, trademarks, service-marks, trade names, copyrights, Licenses and other rights, free from burdensome restrictions, that are necessary for the operation of their business as presently conducted and as proposed to be conducted, except those, the failure of which to obtain could not be reasonably expected to cause a Material Adverse Change. Nothing has come to the attention of the Borrower, the Parent or any of the Restricted Subsidiaries to the effect that (i) any process, method, part or other material presently contemplated to be employed by the Parent, the Borrower or any Restricted Subsidiary may infringe any patent, trademark, service-mark, trade name, copyright, License or other right owned by any other Person, or (ii) there is pending or overtly threatened any claim or Litigation against or affecting the Borrower, the Parent or any Restricted Subsidiary contesting its right to sell or use any such process, method, part or other material, which could reasonably be expected to cause a Material Adverse Change. (v) Neither this Agreement nor any other document, certificate or statement which has been furnished to any Lender by or on behalf of the Parent, the Borrower or any of their Subsidiaries in connection herewith contained any untrue statement of a material fact or omitted to state a material fact necessary in order to make the statement contained herein and therein not misleading at the time it was furnished. On the Closing Date, there is no fact known to the Borrower and not known to the public generally that could reasonably be expected to be both material and adverse to the interests of the Lenders, which has not been set forth in this Agreement or in the documents, certificates and statements furnished to the Lenders by or on behalf of the Borrower prior to the date hereof in connection with the transaction contemplated hereby. On each date after the Closing Date on which this representation is deemed to be made, there is no fact known to the Borrower, the Parent or any of their Subsidiaries, and not known to the public generally, that could reasonably be expected to cause a Material Adverse Change, which has not been disclosed to the Lenders in writing. (w) The Borrower is not, nor is the Parent or any Restricted Subsidiary, a party to any contractual relationship which is breached or in default solely as a result of any change in the ownership or management of the Parent or the Borrower, or the Board of Directors, unless the Borrower has agreed to a substantially similar provision in this Agreement. (x) Year 2000 Compliance. (i) The Borrower has (A) undertaken a detailed review and assessment of all areas within its business and operations that could be adversely affected by the "Year 2000 Problem" (that is, the risk that computer hardware and software used by the Borrower, the Parent and their Subsidiaries may be unable to recognize and perform properly date-sensitive functions involving certain dates prior to and any date after December 31, 1999 (including recognizing and performing properly date-sensitive functions in leap years)), (B) developed a detailed plan, timeline and budget for addressing the Year 2000 Problem on a timely basis, and (C) to date implemented that plan in accordance with that timetable and budget. The aggregate costs to and charges by the Borrower related to the Year 2000 Problem and being Year 2000 Compliant shall not exceed an amount which could result in a Material Adverse Change. (ii) Each of the Borrower, the Parent and their Subsidiaries is in the process of making inquiry of each of its key suppliers, vendors and customers as to whether such Person will on a timely basis be Year 2000 Compliant in all material respects. "Key suppliers, 56 62 vendors and customers" refers to those suppliers, vendors and customers of the Borrower, the Parent and their Subsidiaries, the business failure of which could result in a Material Adverse Change. (y) The Loans and the Unlimited Guaranties of the Loans and all Obligations are senior in priority to all Existing Financing, except the Senior Notes which will rank pari passu with the Obligations. The Loans and the Unlimited Guaranties of the Loans and all Obligations constitute "Senior Indebtedness" and "Designated Senior Indebtedness" under each of the Subordinated Notes, the Subordinated Notes Documentation, the Junior Exchangeable and the Junior Exchangeable Documentation. This Agreement is a "Credit Agreement" as defined in the Subordinated Notes Documentation. Nothing in this Agreement and the other Loan Papers violates any provision of the Existing Financing Documentation, and no consent is required in connection with any of the Existing Financing Documentation in order to execute, deliver and perform under this Agreement and the other Loan Papers. There exists no breach, default or event of default under any of the Existing Financing Documentation. All notices required by any Existing Financing Documentation regarding the execution, delivery or performance by the Borrower, the Parent or any Restricted Subsidiary, or any action or agreement in connection with any of the Loan Papers, has been given in accordance with the terms of the Existing Financing Documentation. 5.02. Survival of Representations and Warranties. All representations and warranties made under this Agreement and the other Loan Papers shall be deemed to be made at and as of the Closing Date and at and as of the date of each Advance, and each shall be true and correct in all material respects when made. All such representations and warranties shall survive, and not be waived by, the execution hereof by any Lender, any investigation or inquiry by any Lender, or by the making of any Advance under this Agreement. ARTICLE VI. GENERAL COVENANTS So long as any of the Obligations are outstanding and unpaid or the Commitment or any Letter of Credit is outstanding (whether or not the conditions to borrowing have been or can be fulfilled): 6.01. Preservation of Existence and Similar Matters. (a) The Borrower and the Parent shall, and shall cause each Restricted Subsidiary to, preserve and maintain, or timely obtain and thereafter preserve and maintain (i) material rights, franchises, authorizations, consents, privileges and all other material Licenses from federal, state and local governmental bodies and any Tribunal (regulatory or otherwise) which the Borrower, the Parent or such Restricted Subsidiary deems reasonably necessary or advisable to conduct its business in the ordinary course, and (ii) its existence (except as permitted by Section 8.05 hereof); and (b) The Borrower and the Parent shall, and shall cause each Restricted Subsidiary to, qualify and remain qualified and authorized to do business in each jurisdiction in which the character of its Properties or the nature of its business requires such qualification or authorization, except where the failure to do so could not cause a Material Adverse Change. 57 63 6.02. Business; Compliance with Applicable Law. The Borrower and the Parent shall, and shall cause each Restricted Subsidiary to (a) engage primarily in the business of telecommunications and internet, and activities related thereto, and (b) comply in all material respects with the requirements of all Applicable Law. 6.03. Maintenance of Properties. The Borrower and the Parent shall, and shall cause each Restricted Subsidiary to, maintain or cause to be maintained all their material Properties necessary to the conduct of their business (whether owned or held under lease) in reasonably good repair, working order and condition, taken as a whole, and from time to time make or cause to be made all appropriate repairs, renewals, replacements, additions, betterments and improvements thereto. 6.04. Accounting Methods and Financial Records. The Borrower and the Parent shall, and shall cause each Restricted Subsidiary to, maintain a system of accounting established and administered in accordance with GAAP, keep adequate records and books of account in which complete entries will be made and all transactions reflected in accordance with GAAP, and keep accurate and complete records of its respective assets. The Borrower and the Parent shall, and shall cause each Restricted Subsidiary to, maintain a fiscal year ending on December 31. 6.05. Insurance. The Borrower and the Parent shall, and shall cause each Restricted Subsidiary to, maintain insurance from responsible companies in such amounts and against such risks as shall be customary and usual in the industry for companies of similar size and capability, but in no event less than the amount and types insured as of the Closing Date. Each insurance policy shall name the Administrative Agent as additional insured, or loss payee, as appropriate, and provide for at least 30 days' prior notice to the Administrative Agent of any proposed termination or cancellation of such policy, whether on account of default or otherwise. 6.06. Payment of Taxes and Claims. The Borrower and the Parent shall, and shall cause each Restricted Subsidiary to, pay and discharge all Taxes, assessments and governmental charges or levies imposed upon it or its income or Properties prior to the date on which penalties attach thereto, and all lawful material claims for labor, materials and supplies which, if unpaid, might become a Lien upon any of their Properties or assets except those Taxes, assessments and charges contested by the Borrower diligently in good faith, and for which adequate reserves have been established in accordance with GAAP. The Borrower and the Parent shall, and shall cause each of their Subsidiaries to, timely file all information returns required by federal, state or local Tax authorities. 6.07. Visits and Inspections. The Borrower and the Parent shall, and shall cause each Restricted Subsidiary to, promptly, permit representatives of the Administrative Agent or any Lender from time to time, upon prior notice reasonable under the circumstances, to (a) visit and inspect the Properties of the Borrower, the Parent and each Restricted Subsidiary as often as the Administrative Agent or any Lender shall deem advisable, (b) inspect and make extracts from and copies of the Borrower's, the Parent's and each Restricted Subsidiary's books and records, and (c) discuss with the Borrower's, the Parent's and each Restricted Subsidiary's directors, officers, employees and the auditors of the Borrower, the Parent and each Restricted Subsidiary, its business, assets, liabilities, financial positions, results of operations and business prospects. 58 64 6.08. Payment of Debt for Borrowed Money. The Borrower and the Parent shall, and shall cause each Restricted Subsidiary to, pay its Debt for Borrowed Money when and as the same becomes due. 6.09. Use of Proceeds. (a) Revolver Advances. The Borrower shall use the proceeds of the Revolver Advances exclusively (a) on the Closing Date, to refinance existing indebtedness of the Parent, the Borrower and the Designated Restricted Subsidiaries, (b) for Permitted Acquisitions consummated by the Parent, the Borrower and the Designated Restricted Subsidiaries, (c) for Capital Expenditures made by the Parent, the Borrower and the Designated Restricted Subsidiaries and permitted under the terms of this Agreement, (d) for working capital of the Parent, the Borrower and the Designated Restricted Subsidiaries and (e) for other lawful corporate purposes of the Parent, the Borrower and the Designated Restricted Subsidiaries. (b) Special Purpose Advances and the Initial Term Loan Advance. The Borrower shall use the proceeds of the Special Purpose Advances and the initial Term Loan Advance exclusively to finance capital lease obligations, mortgage financings or purchase money obligations, in each case incurred for the purpose of financing all or any part of the purchase price or cost of construction or improvement of property used in the business of the Parent, the Borrower or any Designated Restricted Subsidiary. 59 65 6.10. Indemnity. (a) Each of the Parent and the Borrower agrees, and shall cause each Restricted Subsidiary to agree, to defend, protect, indemnify and hold harmless the Administrative Agent, each Lender, each of their respective Affiliates, and each of their respective (including such Affiliates') officers, directors, employees, agents, attorneys, shareholders and consultants (including, without limitation, those retained in connection with the satisfaction or attempted satisfaction of any of the conditions set forth herein) of each of the foregoing (collectively, "Indemnitees") from and against any and all liabilities, obligations, losses, damages, penalties, actions, judgments, suits, claims, costs, expenses and disbursements of any kind or nature whatsoever (including, without limitation, the reasonable fees and disbursements of counsel for such Indemnitees in connection with any investigative, administrative or judicial proceeding, whether or not such Indemnitees shall be designated a party thereto), imposed on, incurred by, or asserted against such Indemnitees (whether direct, indirect or consequential and whether based on any federal, state, or local laws and regulations), under common law or at equitable cause, or on contract, tort or otherwise, arising from or connected with the past, present or future operations of the Borrower, the Parent or any of their Subsidiaries, or any of their predecessors in interest, in any manner relating to or arising out of this Agreement, the Loan Papers, or any act, event or transaction or alleged act, event or transaction relating or attendant thereto, the making of any participations in the Advances and the management of the Advances, INCLUDING IN CONNECTION WITH, OR AS A RESULT, IN WHOLE OR IN PART, OF ANY NEGLIGENCE OF ADMINISTRATIVE AGENT OR ANY LENDER (other than those matters raised exclusively by a participant against the Administrative Agent or any Lender and not the Borrower), or the use or intended use of the proceeds of the Advances hereunder, or in connection with any investigation of any potential matter covered hereby, but excluding any claim or liability that arises as the result of the gross negligence or willful misconduct of any Indemnitee, as finally judicially determined by a court of competent jurisdiction (collectively, the "Indemnified Matters"). (b) In addition, the Borrower and the Parent shall, and shall cause each Restricted Subsidiary to, periodically, upon request, reimburse each Indemnitee for its reasonable legal and other actual expenses (including the cost of any investigation and preparation) incurred in connection with any Indemnified Matter. If for any reason the foregoing indemnification is unavailable to any Indemnitee or insufficient to hold any Indemnitee harmless with respect to Indemnified Matters, then the Borrower and the Parent and the Restricted Subsidiaries shall contribute to the amount paid or payable by such Indemnitee as a result of such loss, claim, damage or liability in such proportion as is appropriate to reflect not only the relative benefits received by the Borrower and the Parent and the Restricted Subsidiaries, and the Borrower's stockholders, the Parent's stockholders and the Restricted Subsidiaries' stockholders, on the one hand and such Indemnitee on the other hand but also the relative fault of the Borrower, the Parent, the Restricted Subsidiaries and such Indemnitee, as well as any other relevant equitable considerations. The reimbursement, indemnity and contribution obligations under this Section shall be in addition to any liability which the Borrower may otherwise have, shall extend upon the same terms and conditions to each Indemnitee, and shall be binding upon and inure to the benefit of any successors, assigns, heirs and personal representatives of the Borrower, the Parent, the Restricted Subsidiaries, the Administrative Agent, the Lenders and all other Indemnitees. This Section shall survive any termination of this Agreement and payment of the Obligations. 6.11. Environmental Law Compliance. The Borrower and the Parent agree, and shall cause each Restricted Subsidiary to agree, that the use which the Borrower, the Parent or any of their Subsidiaries intends to make of any real Property owned by it will not result in the disposal or other release of any hazardous substance or solid waste on or to such real Property in violation of any 60 66 Environmental Law. As used herein, the terms "hazardous substance" and "release" as used in this Section shall have the meanings specified in CERCLA (as defined in the definition of applicable Environmental Laws), and the terms "solid waste" and "disposal" shall have the meanings specified in RCRA (as defined in the definition of applicable Environmental Laws); provided, however, that if CERCLA or RCRA is amended so as to broaden the meaning of any term defined thereby, such broader meaning shall apply subsequent to the effective date of such amendment; and provided further, to the extent that any other law applicable to the Borrower, the Parent, any of their Subsidiaries or any of their properties and assets establishes a meaning for "hazardous substance," "release," "solid waste," or "disposal" which is broader than that specified in either CERCLA or RCRA, such broader meaning shall apply. Each of the Parent, the Borrower and each Restricted Subsidiary agrees to indemnify and hold the Administrative Agent and each Lender harmless from and against, and to reimburse them with respect to, any and all claims, demands, causes of action, loss, damage, liabilities, costs and expenses (including reasonable attorneys' fees and courts costs) of any kind or character, known or unknown, fixed or contingent, asserted against or incurred by any of them at any time and from time to time by reason of or arising out of (a) the failure of the Parent, the Borrower or any of their Subsidiaries to perform any obligation hereunder regarding asbestos or applicable Environmental Laws, (b) any violation on or before the Release Date of any applicable Environmental Law in effect on or before the Release Date, and (c) any act, omission, event or circumstance existing or occurring on or prior to the Release Date (including without limitation the presence on such real Property or release from such real Property of hazardous substances or solid wastes disposed of or otherwise released on or prior to the Release Date), resulting from or in connection with the ownership of the real Property, regardless of whether the act, omission, event or circumstance constituted a violation of any applicable Environmental Law at the time of its existence or occurrence, or whether the act, omission, event or circumstance is caused by or relates to the negligence of any indemnified Person; provided, that the Borrower shall not be under any obligation to indemnify the Administrative Agent or any Lender to the extent that any such liability arises as the result of the gross negligence or willful misconduct of such Person, as finally judicially determined by a court of competent jurisdiction. The provisions of this paragraph shall survive the Release Date and shall continue thereafter in full force and effect. 6.12. Acquisitions, Generally. In connection with any Permitted Acquisition made by the Parent, the Borrower or any Restricted Subsidiary during the term of this Agreement, the Borrower and the Parent shall and shall cause each Restricted Subsidiary to, (a) not less than ten Business Days prior to the proposed acquisition date, deliver to Administrative Agent a detailed written description of the proposed Permitted Acquisition in form reasonably acceptable to the Administrative Agent, and (b) prior to the consummation of the acquisition a statement certified by an Authorized Officer that (i) the proposed transaction complies with the definition of Permitted Acquisition set forth in Article I hereof and with the terms and conditions set forth in Section 8.05(b) hereof and/or, to the extent applicable, Section 8.05(d) hereof, and (ii) no Default or Event of Default exists prior to or after giving effect to any requested Advance or the consummation of such acquisition, or will exist upon consummation of the proposed acquisition and related borrowings and transactions, together with a Compliance Certificate computed after giving effect to such acquisition and borrowings. 6.13. Subsidiary Designation. The Borrower agrees that each Restricted Subsidiary on the Closing Date will remain a Restricted Subsidiary until the Obligations have been repaid in full and the Commitment has been terminated. 61 67 6.14. Subsidiary Creation or Acquisition. The Borrower and the Parent shall, and shall cause each Restricted Subsidiary to, give written notice to the Administrative Agent in accordance with the terms of Section 11.02 hereof 20 days prior to the creation or acquisition of any Subsidiary. 6.15. Year 2000 Compliance. The Borrower will promptly notify the Administrative Agent in the event the Borrower discovers or determines that any computer application (including those of its suppliers and vendors) that is material to its or any of the Parent's, or any of the Borrower's and/or the Parent's Subsidiaries' business and operations will not be Year 2000 Compliant on a timely basis, except to the extent that such failure could not be reasonably expected to cause a Material Adverse Change. 6.16. Post Closing UCC Searches. The Borrower will provide the Administrative Agent with UCC-11 searches in all States in which the Parent, the Borrower or any Restricted Subsidiary has any operations, but only to the extent such searches were not provided after the "Closing Date" of the Original Credit Agreement, in accordance with the terms and conditions of the Section 6.16 of the "Original Credit Agreement, in each case any such searches to be conducted not earlier than 60 days after the Closing Date and not later than 90 days after the Closing Date. 6.17. Post Closing Acquisition of Assets, Properties and Contractual Arrangements. The Borrower and the Parent shall, and shall cause the Parent and each Restricted Subsidiary to, use their best efforts to insure that all assets and Properties acquired by any such Person after the Closing Date be in a form and substance permitting the Administrative Agent on behalf of Lenders to have the benefit of a first and prior Lien (subject to Permitted Liens and Liens under Section 8.03(b) hereof) securing the Obligations. The Borrower will promptly notify the Administrative Agent and Lenders in writing of any material asset or Property acquired by the Borrower, the Parent or any Restricted Subsidiary after the Closing Date, or any material contractual arrangement entered into by the Parent, the Borrower or any Restricted Subsidiary after the Closing Date, that will not permit Administrative Agent on behalf of Lenders to be granted a Lien securing the Obligations. 6.18. Post Closing Grant of Liens. The Borrower and the Parent shall, and shall cause each Restricted Subsidiary to (a) use its best efforts to grant a Lien to the Administrative Agent on behalf of the Lenders in all fee owned real Property of the Borrower, the Parent and the Restricted Subsidiaries by December 31, 1998, and (b) use its reasonable efforts after the Closing Date to grant a leasehold mortgage or deed of trust, as applicable, to the Administrative Agent on behalf of the Lenders in all 20 leasehold properties held by the Borrower, the Parent and the Restricted Subsidiaries upon which the Administrative Agent, prior to the Closing Date, requested a Lien. ARTICLE VII. INFORMATION COVENANTS So long as any of the Obligations are outstanding and unpaid or the Commitment or any Letter of Credit is outstanding (whether or not the conditions to borrowing have been or can be fulfilled), the Borrower shall furnish or cause to be furnished to each Lender: 7.01. Quarterly Financial Statements and Information . Within 45 days after the end of each fiscal quarter, (a) consolidated and consolidating balance sheets of the Parent, the Borrower and the Restricted Subsidiaries, (b) consolidated balance sheets of the Parent, the Borrower and their Subsidiaries, each as at the end of such quarter, (c) the related consolidated and consolidating 62 68 statements of income and consolidated statements of changes in cash for such quarter and for the elapsed portion of the year ended with the last day of such quarter for the Parent, the Borrower and the Restricted Subsidiaries and (d) the related consolidated and consolidating statements of income and consolidated statements of changes in cash for such quarter and for the elapsed portion of the year ended with the last day of such quarter for the Parent, the Borrower and their Subsidiaries, all of which shall be certified by the Chief Executive Officer or the Chief Financial Officer to, in his or her opinion, present fairly in all material respects, in accordance with GAAP, the financial position and results of operations of (i) the Parent, the Borrower and the Restricted Subsidiaries, and (ii) the Parent, the Borrower and their Subsidiaries, respectively, as at the end of and for such period, and for the elapsed portion of the year ended with the last day of such period, and (c) a schedule in form and substance, and in acceptable detail, itemizing (i) the transactions between the Restricted Subsidiaries and Unrestricted Subsidiaries during such fiscal quarter and (ii) reconciling the balance sheets, statements of income and consolidated statements of changes between the Restricted Subsidiaries and the Unrestricted Subsidiaries for such quarter. 7.02. Annual Financial Statements and Information . (a) Within 90 days after the end of each fiscal year, a copy of (i) the consolidated and consolidating balance sheets of the Parent, the Borrower and the Restricted Subsidiaries, and (ii) the consolidated balance sheets of the Parent, the Borrower and their Subsidiaries, each as of the end of the current and prior fiscal years, (iii) consolidated and consolidating statements of earnings, statements of changes in shareholders' equity, and statements of changes in cash as of and through the end of such fiscal year for the Parent, the Borrower and the Restricted Subsidiaries and the Parent, the Borrower and their Subsidiaries, respectively, all of which are prepared in accordance with GAAP, and certified by independent certified public accountants acceptable to the Lenders, whose opinion shall be in scope and substance in accordance with generally accepted auditing standards and shall be unqualified, and (iv) a schedule in form and substance, and in acceptable detail, itemizing (A) the transactions between the Restricted Subsidiaries and Unrestricted Subsidiaries during such period and (B) reconciling the balance sheets, statements of income and consolidated statements of changes between the Restricted Subsidiaries and the Unrestricted Subsidiaries for such period. (b) As soon as available, but in any event within 45 days following the end of each fiscal year, a copy of the annual consolidated operating budget of the Parent, the Borrower and the Restricted Subsidiaries for the succeeding fiscal year. 7.03. Compliance Certificates . At the time financial statements are furnished pursuant to Section 7.01 and Section 7.02 hereof, a duly completed Compliance Certificate evidencing no Default or Event of Default. 7.04. Copies of Other Reports and Notices . (a) Promptly upon their becoming available, a copy of (i) all material reports or letters submitted to the Parent, the Borrower or any Restricted Subsidiary by accountants in connection with any annual, interim or special audit, including without limitation any report prepared in connection with the annual audit referred to in Section 7.02 hereof, and any other comment letter submitted to management in connection with any such audit, (ii) each financial statement, report, notice or proxy statement sent by the Parent, the Borrower or any Restricted Subsidiary to stockholders generally, (iii) each regular or periodic report and any registration statement or prospectus (or material written 63 69 communication in respect of any thereof) filed by the Parent, the Borrower or any Restricted Subsidiary with any securities exchange, with the Securities and Exchange Commission or any successor agency, and (iv) all press releases concerning material financial aspects of the Parent, the Borrower or any Restricted Subsidiary. (b) Promptly upon becoming aware (i) that the holder(s) of any note(s) or other evidence of indebtedness or other security of the Borrower, the Parent or any Restricted Subsidiary in excess of $250,000 in the aggregate has given notice or taken any action with respect to a breach, failure to perform, claimed default or event of default thereunder, (ii) of any occurrence or non-occurrence of any event which constitutes or which with the passage of time or giving of notice or both could constitute a material breach by the Parent, the Borrower or any Restricted Subsidiary under any material agreement or instrument other than this Agreement to which the Parent, the Borrower or any Restricted Subsidiary is a party or by which any of their Properties may be bound, or (iii) of the occurrence of any event, circumstance or condition which could reasonably be expected to cause a Material Adverse Change, a written notice specifying the details thereof (or the nature of any claimed default or event of default) and what action is being taken or is proposed to be taken with respect thereto; (c) Promptly upon receipt thereof, information with respect to and copies of any notices received from the FCC, any applicable PUC or any other federal, state or local regulatory agencies or any tribunal relating to any order, ruling, law, information or policy that relates to a breach of or noncompliance with the Communications Act or any law, rule or regulation of any applicable PUC, or might result in the payment of money by the Borrower, the Parent or any Restricted Subsidiary in an amount of $250,000 or more in the aggregate, or otherwise cause a Material Adverse Change, or result in the loss or suspension of any material License or any material contract; (d) Promptly upon the knowledge of an Authorized Officer of receipt by the Parent, the Borrower or any Restricted Subsidiary from any governmental agency, or any government, political subdivision or other entity, of any material notice, correspondence, hearing, proceeding or order regarding or affecting the Parent, the Borrower, any Restricted Subsidiary, or any of their Properties or businesses not in the ordinary course of business, a copy of such notice, correspondence, hearing, proceeding or order; and (e) From time to time and promptly upon each request, such data, certificates, reports, statements, documents or further information regarding the assets, business, liabilities, financial position, projections, results of operations or business prospects of the Parent, the Borrower and the Restricted Subsidiaries, as the Administrative Agent or any Lender may reasonably request. 7.05. Notice of Litigation, Default and Other Matters . Prompt notice of the following events after the Borrower has knowledge or notice thereof: (a) The commencement of all proceedings and investigations by or before the FCC, any applicable PUC, or any other governmental body, and all other actions and proceedings in any court or before any arbitrator involving claims for damages (including punitive damages) in excess of either $1,000,000 for any one proceeding or investigation, or $5,000,000 in the aggregate for all such proceedings and investigations (after deducting the amount with respect to the Borrower, the Parent or any of their Subsidiaries is insured), against or in any other way relating directly to the Borrower, the Parent, any of their Subsidiaries, or any of their properties, assets or businesses; 64 70 (b) Promptly upon the happening of any condition or event which constitutes a Default or Event of Default, a written notice specifying the nature and period of existence thereof and what action is being taken or is proposed to be taken with respect thereto; and (c) Any event which could cause a Material Adverse Change with respect to the business, assets, liabilities, financial position, results of operations or prospective business of the Parent, the Borrower or any of their Subsidiaries. 7.06. ERISA Reporting Requirements . (a) Promptly and in any event (i) within 30 days after the Borrower, the Parent or any member of their Controlled Group knows or has reason to know that any ERISA Event described in clause (a) of the definition of ERISA Event or any event described in Section 4063(a) of ERISA with respect to any Plan of the Parent or the Borrower or any member of their Controlled Group has occurred, and (ii) within 10 days after the Borrower, the Parent or any member of their Controlled Group knows or has reason to know that any other ERISA Event with respect to any Plan of the Parent, the Borrower or any member of their Controlled Group has occurred or a request for a minimum funding waiver under Section 412 of the Code with respect to any Plan of the Borrower, the Parent or any member of their Controlled Group, a written notice describing such event and describing what action is being taken or is proposed to be taken with respect thereto, together with a copy of any notice of event that is given to the PBGC; (b) Promptly and in any event within two Business Days after receipt thereof by the Parent, the Borrower or any member of their Controlled Group from the PBGC, copies of each notice received by the Parent or the Borrower or any member of their Controlled Group of the PBGC's intention to terminate any Plan or to have a trustee appointed to administer any Plan; (c) Promptly and in any event within 30 days after the filing thereof by the Borrower, the Parent or any member of its Controlled Group with the United States Department of Labor, the Internal Revenue Service or the PBGC, copies of each annual and other report (including Schedule B thereto) with respect to each Plan; (d) Promptly and in any event within 30 days after receipt thereof, a copy of any notice, determination letter, ruling or opinion the Borrower or any member of its Controlled Group receives from the PBGC, the United States Department of Labor or the Internal Revenue Service with respect to any Plan; (e) Promptly, and in any event within 10 Business Days after receipt thereof, a copy of any correspondence the Borrower or any member of their Controlled Group receives from the Plan Sponsor (as defined by Section 4001(a)(10) of ERISA) of any Plan concerning potential withdrawal liability pursuant to Section 4219 or 4202 of ERISA, and a statement from the chief financial officer of the Parent, the Borrower or such member of its Controlled Group setting forth details as to the events giving rise to such potential withdrawal liability and the action which the parent, the Borrower or such member of their Controlled Group is taking or proposes to take with respect thereto; 65 71 (f) Notification within 30 days of any material increases in the benefits of any existing Plan which is not a Multiemployer Plan, or the establishment of any new Plans, or the commencement of contributions to any Plan to which the Borrower, the Parent or any member of their Controlled Group was not previously contributing; (g) Notification within three Business Days after the Borrower, the Parent or any member of their Controlled Group knows or has reason to know that the Borrower, the Parent or any such member of their Controlled Group has or intends to file a notice of intent to terminate any Plan under a distress termination within the meaning of Section 4041(c) of ERISA and a copy of such notice; and (h) Promptly after receipt of written notice of commencement thereof, notice of all actions, suits and proceedings before any court or governmental department, commission, board, bureau, agency or instrumentality, domestic or foreign, affecting the Borrower, the Parent or any member of their Controlled Group with respect to any Plan. ARTICLE VIII. NEGATIVE COVENANTS So long as any of the Obligations are outstanding and unpaid or the Commitment or any Letter of Credit is outstanding (whether or not the conditions to borrowing have been or can be fulfilled): 8.01. Financial Covenants. (a) TOTAL LEVERAGE RATIO. Commencing the date hereof and continuing at all times until the Obligations have been repaid in full, the Borrower shall not permit the Total Leverage Ratio to be more than the following ratios during the following time periods:
PERIOD RATIO ------ ----- From the date hereof through March 30, 2000 6.00 to 1.00 From March 31, 2000 through March 30, 2001 5.50 to 1.00 From March 31, 2001 through March 30, 2002 5.00 to 1.00 From March 31, 2002 through June 30, 2002 4.50 to 1.00 From July 1, 2002 through December 31, 2002 4.00 to 1.00 From January 1, 2003 and thereafter 3.50 to 1.00
(b) SENIOR LEVERAGE RATIO. Commencing the date hereof and continuing at all times until the Obligations have been repaid in full, the Borrower shall not permit the Senior Leverage Ratio to be more than the following ratios during the following time periods:
PERIOD RATIO ------ ----- From the date hereof through March 30, 2000 2.50 to 1.00 From March 31, 2000 through March 30, 2001 2.00 to 1.00 From March 31, 2001 and thereafter 1.50 to 1.00
66 72 (c) INTEREST COVERAGE RATIO. Commencing the date hereof and continuing at all times until the Obligations have been repaid in full, the Borrower shall not permit the Interest Coverage Ratio to be less than the following ratios during the following time periods:
PERIOD RATIO ------ ----- From the date hereof through December 31, 1999 1.50 to 1.00 From January 1, 2000 and thereafter 2.00 to 1.00
(d) CAPITAL EXPENDITURES. The Borrower shall not permit Capital Expenditures made by the Parent, the Borrower and the Restricted Subsidiaries for each fiscal year of the Borrower to exceed the amounts set forth below for each fiscal year; provided that, to the extent that less than such amount set forth below was used by the Parent, the Borrower and the Restricted Subsidiaries for Capital Expenditures for any fiscal year, the Borrower, the Parent or the Restricted Subsidiaries may increase the limitation on Capital Expenditures for the succeeding fiscal year (and such succeeding fiscal year only), provided that such increases in the aggregate do not exceed the amount of such unused amount.
PERIOD AMOUNT ------ ----- For the Fiscal Year 1998 $425,000,000 For the Fiscal Year 1999 $475,000,000 For the Fiscal Year 2000 and each fiscal year thereafter $200,000,000
provided that, for the fiscal year 2000 only, such prescribed amount shall be added to the sum of (i) cash dividends (or payments with respect to any agreement related to the PSINet Shares), in each case received by the Borrower and the Restricted Subsidiaries from Unrestricted Subsidiaries during such fiscal year, plus (ii) cash equity contributed to the Parent and downstreamed to the Borrower during such fiscal year (in each case net of any equity proceeds used to redeem, repurchase or retire any Debt for Borrowed Money of the Parent, the Borrower or any Subsidiary of the Parent and the Borrower, except any repayment of Revolver Advances) plus (iii) the net cash proceeds of any Debt for Borrowed Money issued by the Borrower, which such Debt for Borrowed Money is subordinated to the Obligations on terms and conditions, and pursuant to documentation, in each case on comparable terms to the Subordinated Indebtedness (and in each case net of any proceeds of the issuance of Debt for Borrowed Money used to redeem, repurchase or retire any Debt for Borrowed Money of the Parent, the Borrower or any Subsidiary of the Parent and the Borrower, except any repayment of Revolver Advances), provided that, to the extent that the Borrower receives the net cash proceeds of equity or Debt for Borrowed Money during the fiscal year 1999 in excess of $250,000,000, such additional amounts received in 1999 may be used to increase the limitation on Capital Expenditures for the fiscal year 2000. (e) INTENTIONALLY DELETED. (f) MINIMUM OPERATING CASH FLOW MINUS FIBER PROCEEDS. Operating Cash Flow minus New Fiber IRU Proceeds for the Parent, the Borrower and the Restricted Subsidiaries may not be less than the amounts set forth below for the fiscal quarters set forth below: 67 73
PERIOD AMOUNT ------ ----- Fiscal Quarter Ending June 30, 1999 $ 10,000,000 Two Fiscal Quarters Ending September 30, 1999 $ 32,000,000 Three Fiscal Quarters Ending December 31, 1999 $ 64,000,000 Four Fiscal Quarters Ending March 31, 2000 $ 95,000,000 Four Fiscal Quarters Ending June 30, 2000 $120,000,000 Four Fiscal Quarters Ending September 30, 2000 $140,000,000 Four Fiscal Quarters Ending December 31, 2000 $155,000,000
8.02. Debt for Borrowed Money . The Borrower and the Parent shall not, and shall not permit any Restricted Subsidiary to, create, assume, incur or otherwise become or remain obligated in respect of, or permit to be outstanding, or suffer to exist any Debt for Borrowed Money or issue any Preferred Stock, except: (a) with respect to the Borrower, the Parent and the Restricted Subsidiaries, Debt for Borrowed Money under the Loan Papers; (b) with respect to the Parent, the Borrower and its Restricted Subsidiaries, Debt for Borrowed Money in existence on the Closing Date described on Schedule 8.02 hereto and not otherwise permitted pursuant to the terms of this Section 8.02, including without limitation, the Existing Financing, in each case only in the principal amounts and as such Debt for Borrowed Money exists as of the Closing Date, provided that, existing Debt of the Parent not in excess of the amount of $49,000,000 shall be included in Section 8.02(g) below; (c) provided that no Default or Event of Default exists or would result from the incurrence thereof, with respect to the Parent, the Borrower and the wholly owned Restricted Subsidiaries, Debt owed to each other; (d) so long as there exists no Default or Event of Default both before and after giving effect thereto, Debt of the Borrower in respect to Interest Rate Protection Agreements; (e) so long as there exists no Default or Event of Default both before and after giving effect thereto, Debt of the Borrower and the Parent in respect of Permitted Refinancing Indebtedness; (f) commencing no earlier than March 31, 1999, so long as there exists no Default or Event of Default both before and after giving effect thereto, (i) either (A) unsecured Debt of the Parent which (I) is pursuant to terms and conditions no more onerous than the terms and provisions of the Loans and (II) has a maturity of at least one year beyond the Maturity Date OR (B) Preferred Stock issued by the Parent which (I) is pursuant to terms and conditions no more onerous than the terms and provisions of the Loans and (II) has a maturity of at least one year beyond the Maturity Date, in either case of (A) or (B) above (or any combination of either), in an aggregate amount not in excess of $300,000,000, and, when added to the Debt for Borrowed Money of the Parent and the Borrower permitted by subsections (ii) and (iii) below, does not exceed in an aggregate amount outstanding at any one time $600,000,000; or 68 74 (ii) unsecured Subordinated Debt of the Parent which does not exceed an aggregate amount outstanding at any one time of $200,000,000 and, when added to the Debt for Borrowed Money and the Borrower and Preferred Stock of the Parent permitted to be incurred by subsections (i) and (iii) above and below, does not exceed in an aggregate amount outstanding at any one time $600,000,000; or (iii) unsecured Subordinated Indebtedness of the Borrower not in excess of $600,000,000, so long as such Subordinated Indebtedness of the Borrower when aggregated with Debt for Borrowed Money of the Parent and the Borrower, or Preferred Stock of the Parent, (or both) permitted to be incurred in (i) and (ii) above does not exceed in an aggregate amount outstanding at any one time $600,000,000; and (g) so long as there exists no Default or Event of Default both before and after giving effect to the incurrence thereof, Debt of the Borrower and the Parent (including obligations with respect to Capital Leases and acquired Debt of the Borrower) in an aggregate amount outstanding at any one time of $78,000,000 (which such $78,000,000 includes Debt existing on the Closing Date in an amount not in excess of $49,000,000), provided that, notwithstanding the foregoing, $10,000,000 in the aggregate of the $78,000,000 basket may be acquired Debt of one or more Restricted Subsidiaries. 8.03. Liens. The Borrower and the Parent shall not, and shall not permit any Restricted Subsidiary to, create, assume, incur, permit or suffer to exist, directly or indirectly, any Lien on any of its assets or Properties, whether now owned or hereafter acquired, except (a) Permitted Liens, and (b) so long as no Default or Event of Default exists or would result from the incurrence of such Lien, Liens securing Debt permitted to be incurred by Section 8.02(g) hereof (and any Permitted Refinancing Indebtedness of such Debt), but only so long as such Debt secured thereby shall not be increased and the Liens shall cover Properties of the Borrower and the Parent purchased with the proceeds of such Debt and shall not cover additional assets of the Borrower, the Parent or any such Restricted Subsidiary. Except to the extent that any such provision is contained in the Existing Financing Documentation, the Borrower and the Parent shall not, and shall not permit any Restricted Subsidiary to, agree with any other Person that it shall not create, assume, incur, permit or suffer to exist or to be created, assumed, incurred or permitted to exist, directly or indirectly, any Lien on any of its assets or Properties. 8.04. Investments. The Borrower and the Parent shall not, and shall not permit any Restricted Subsidiary to, make any Investment, except that the Borrower and the Parent may purchase or otherwise acquire and own: (a) Marketable, direct obligations of, or guaranteed by, the United States of America and maturing within 365 days of the date of purchase; (b) Commercial paper maturing not more than 90 days after the date of acquisition, issued by U.S. corporations (other than Affiliates of the Borrower and the Parent) that have a rating of A-1/P-1 or better by Standard & Poor's Ratings Group, a Division of McGraw-Hill, Inc. or Moody's Investors Service, Inc.; (c) time deposit accounts, certificates of deposit and money market deposits maturing within 180 days of the date of acquisition thereof issued by a bank or trust company which is organized under the laws of the United States of America, any state thereof or any foreign country 69 75 recognized by the United States of America, and which bank or trust company has a capital surplus and undivided profits aggregating in excess of $50,000,000 (or the foreign currency equivalent thereof) and has outstanding debt which is rated "A" (or such similar equivalent rating) or higher by at least one nationally recognized statistical rating organization (as defined in Rule 436 under the Exchange Act); (d) securities with maturities of six months or less from the date of acquisition, issued or fully guaranteed by any state, commonwealth or territory of the United States of America, or by an political subdivision or taxing authority thereof, and rated at least "A" by Standard & Poor's Ratings Group, a Division of McGraw-Hill, Inc. or "A" by Moody's Investors Service, Inc.; (e) Investments in acquisitions permitted by Section 8.05(b) hereof, so long as (i) the Capital Stock of each new Subsidiary is pledged to the Lenders to secure the Obligations pursuant to a pledge agreement substantially identical in form and substance to the Pledge Agreement, and (ii) each new Restricted Subsidiary of the Borrower or the Parent (A) is subject to the provisions hereof, (B) immediately becomes a party to an Unlimited Guaranty and (C) grants a Lien and security interest in all such assets and Properties of such new Subsidiary of the type already constituting Collateral hereunder and as requested by the Majority Lenders, except assets subject to Permitted Liens and Liens permitted by Section 8.03(b) hereof, pursuant to security documents required by the Administrative Agent substantially in the form of those already constituting Loan Papers; (f) Accounts receivable that arise in the ordinary course of business and are payable on standard terms; (g) Investments in existence on the Closing Date described on Schedule 8.04 hereto and Investments disclosed on Schedule 8.16 hereto; (h) Investments in the PSINet Shares, in accordance with the transaction described on Schedule 8.16 hereto (and any debt or equity securities received by the Borrower, the Parent or any Restricted Subsidiary in exchange for all or any portion of the PSINet Shares); (i) Permitted Investments; (j) Investments in 100% of the Capital Stock of Unrestricted Subsidiaries so long as: (i) there exists no Default or Event of Default both before and after giving effect to such Investment, (ii) the aggregate revenues of the Unrestricted Subsidiaries does not exceed 30% of the consolidated revenues of the Parent, the Borrower and all of the Subsidiaries of the Parent and the Borrower, and (iii) the purchase price of any such interest in Unrestricted Subsidiaries is paid in (i) Capital Stock of the Parent, (ii) cash from Unrestricted Subsidiaries, (iii)debt securities or Preferred Stock of Unrestricted Subsidiaries or (iv) equity securities of Subsidiaries of Unrestricted Subsidiaries, or any combination of the foregoing; 70 76 (k) receivables owing to the Parent, the Borrower or any Restricted Subsidiary if created or acquired in the ordinary course of business and payable or dischargeable in accordance with customary trade terms; provided, however, that such trade terms may include such concessionary trade terms as the Parent, the Borrower or any such Restricted Subsidiary deems reasonable under the circumstances; (l) payroll, travel, commission and similar advances to cover matters that are expected at the time of such advances ultimately to be treated as expenses for accounting purposes and that are made in the ordinary course of business; (m) loans or advances to employees made in the ordinary course of business consistent with past practices of the Parent, the Borrower or such Restricted Subsidiary; (n) stock, obligations or securities received in settlement of debts created in the ordinary course of business and owing to the Parent, the Borrower or any Restricted Subsidiary or in satisfaction of judgments; (o) any Person primarily engaged in a business similar to the Parent to the extent the Investment represents a minority equity interest in such Person which is received as the consideration for the disposition by the Parent, the Borrower or any Restricted Subsidiary of a fiber IRU (which does not require significant additional capital expenditures for optronics or electronic equipment) which the Board of Directors has determined in good faith is excess out the reasonable requirements of the Parent, the Borrower or such Restricted Subsidiary; (p) any Person to the extent such Investment is dividended or otherwise distributed to the Parent, the Borrower or a Restricted Subsidiary by an Unrestricted Subsidiary (and in connection therewith there exists no payment of any kind to such Unrestricted Subsidiary); and (q) repurchase obligations with a term of not more than 30 days for underlying securities of the types described in subparagraph (a) above entered into with a bank meeting the qualifications described in subparagraph (c) above. 8.05. Liquidation, Disposition or Acquisition of Assets, Merger, New Subsidiaries. The Borrower and the Parent shall not, and shall not permit any Restricted Subsidiary of the Borrower to, at any time: (a) liquidate or dissolve itself (or suffer any liquidation or dissolution) or otherwise wind up; or sell, lease, abandon, transfer or otherwise dispose of all or any part of its assets, Properties or business other than (i) so long as the Borrower complies with Section 2.05 and Section 2.11 hereof, Permitted Asset Sales, (ii) so long as there exists no Default or Event of Default both before and after giving effect to any such sale and the Borrower complies with Section 2.05 and Section 2.11 hereof, (A) sales of assets with a sales price of less than $5,000,000 for any one sale and less than $10,000,000 in the aggregate for all such sales from the Closing Date through the Maturity Date, (B) sales of accounts receivable in accordance with the terms of Section 8.12 hereof, (C) and after delivery of prior written notice to the Administrative Agent, any Restricted Subsidiary of the Borrower can be dissolved so long as a wholly owned Restricted Subsidiary of the Borrower that has executed an Unlimited Guaranty or the Borrower acquires all such Restricted Subsidiary's assets (and such Restricted Subsidiary may be released from its Unlimited Guaranty), (D) after delivery of prior 71 77 written notice to the Administrative Agent, any wholly owned direct or indirect Restricted Subsidiary of the Borrower that has executed an Unlimited Guaranty of the Obligations hereunder may sell or transfer assets, Property or business to the Borrower or any other wholly owned indirect or indirect Restricted Subsidiary of the Borrower that has executed an Unlimited Guaranty of the Obligations hereunder, and (E) the Borrower may sell all or any portion of the PSINet Shares. (b) acquire any assets, Property or business of any other Person, or participate in any joint venture, except (i) assets and Property acquired in the ordinary course of business, (ii) provided that the Borrower complies fully with Sections 6.12, 8.04(e) and 8.05(d) hereof, Permitted Acquisitions may be consummated, (iii) after delivery of prior written notice to the Administrative Agent, the Borrower or any wholly owned direct or indirect Restricted Subsidiary of the Borrower that has executed an Unlimited Guaranty of the Obligations hereunder may acquire assets, Property or business from any other wholly owned direct or indirect Restricted Subsidiary of the Borrower that has executed an Unlimited Guaranty of the Obligations hereunder, (iv) assets acquired constituting wholly owned Unrestricted Subsidiaries in accordance with the terms of Section 8.04(j) hereof, (v) assets acquired in connection with transactions described on Schedule 8.16 hereto and (vi) Investments permitted by Section 8.04 hereof; (c) enter into any merger or consolidation, except that, so long as there exists no Default or Event of Default and none is caused thereby (i) after delivery of prior written notice to the Administrative Agent, any wholly owned Restricted Subsidiary of the Borrower can merge or consolidate into any other wholly owned Restricted Subsidiary of the Borrower, or so long as such transaction is in connection with a Permitted Acquisition, into another Person, so long as a wholly owned Restricted Subsidiary of the Borrower which has executed an Unlimited Guaranty is a survivor, or into the Borrower so long as the Borrower is the surviving corporation or (ii) after delivery of prior written notice to the Administrative Agent, another Person may be merged into the Borrower or any wholly owned Restricted Subsidiary of the Borrower that has executed an Unlimited Guaranty in connection with a Permitted Acquisition, so long as the Borrower or such wholly owned Restricted Subsidiary is the surviving corporation; and (d) create or acquire any Subsidiary, except (a) as permitted by Section 8.04(e) hereof and Section 8.05(b) above, (b) Unrestricted Subsidiaries in accordance with the terms and conditions of Section 8.04(i) or (j) hereof, and (c) so long as (i) there exists no Default or Event of Default both before and after giving effect to the creation of any new wholly owned Restricted Subsidiary and the transfer of any assets to such wholly owned Restricted Subsidiary, (ii) immediately upon the creation of any new wholly owned Restricted Subsidiary, such Restricted Subsidiary shall become a signatory to an Unlimited Guaranty of the Obligations delivered to the Administrative Agent, (iii) the Borrower immediately delivers all shares of Capital Stock of the new wholly owned Restricted Subsidiary to the Administrative Agent together with stock powers executed in blank, and (iv) the Borrower or any Restricted Subsidiary of the Borrower owning any portion of the Capital Stock of any such new wholly owned Restricted Subsidiary executes and delivers to the Administrative Agent a pledge agreement pledging all such Capital Stock to secure the Obligations in form substantially similar to the pledge agreement executed by the Borrower in connection with this Agreement, the Borrower may create a new wholly owned Restricted Subsidiary of the Borrower. Nothing in this Section 8.05(d) shall permit the Borrower or any Restricted Subsidiary of the Borrower to create any Subsidiary that is not wholly owned. 72 78 In connection with any asset sale permitted by this Section 8.05 or otherwise consented to by the Lenders in accordance with the terms of this Agreement, the Administrative Agent is hereby authorized by each Lender to (i) execute any and all releases deemed appropriate by it to release such assets of the Parent, the Borrower and the Restricted Subsidiaries (including, without limitation, Capital Stock owned by the Parent, the Borrower and the Restricted Subsidiaries) constituting Collateral from all Liens and security interests securing all or any portion of the Obligations, (ii) return to the Borrower any such Collateral in the possession of the Administrative Agent, (iii) after the permitted sale by any Restricted Subsidiary of all of its assets and Properties (including without limitation, the sale of the microwave assets), release any such Person who has executed an Unlimited Guaranty from the terms and conditions of its Unlimited Guaranty and (iv) take such other action as the Administrative Agent deems necessary or appropriate in connection with such transaction and in furtherance of the effectuation thereof. 8.06. Guaranties; Contingent Liabilities . The Borrower and the Parent shall not, and shall not permit any Restricted Subsidiary to, at any time make or issue any Guaranty, or assume, be obligated with respect to, or permit to be outstanding any Contingent Liabilities, except pursuant to the Loan Papers. 8.07. Restricted Payments. The Borrower and the Parent shall not, and shall not permit any Restricted Subsidiary to, directly or indirectly declare, make or pay any Restricted Payment; provided, however (a) any Subsidiary of the Borrower or the Parent may declare, make and pay Restricted Payments to the Borrower, the Parent or any other wholly owned Restricted Subsidiary that has executed an Unlimited Guaranty of the Obligations hereunder (or any Subsidiary of Mutual Signal may declare, make and pay Restricted Payments to Mutual Signal); (b) the Borrower may make or declare, make and pay Distributions, or make loans and advances, in each case to the Parent, so long as, in each case: (i) the Administrative Agent is notified in writing not less than two Business Days or more than 10 Business Days prior to such Distribution or loan or advance (provided that no such notice shall be required with respect to any such Distribution, loan or advance paid by the Borrower prior to June 30, 1999), of (A) the amount of such Distribution, loan or advance, (B) the date the amount of such Distribution, loan or advance will be transferred into the Borrower Deposit Account, and (C) the date the amount of such Distribution, loan or advance will be paid to the Parent by transfer into the Parent Deposit Account, and (ii) the full amount of each such Distribution, loan or advance is first deposited by the Borrower into the Borrower Deposit Account, and (iii) each such Distribution, loan or advance is made only from the Borrower Deposit Account and transferred pursuant to the instructions of the Parent; (c) so long as there exists no Default or Event of Default both before and after giving effect to any such payment, after two Business Days prior notice to the Administrative 73 79 Agent and the Lenders (provided that no such notice shall be required with respect to any such Distribution, loan or advance paid by the Parent prior to June 30, 1999) of the amount of such payment and the date of payment thereof, the Parent may make Distributions out of the Parent Deposit Account to (i) make scheduled dividend payments on the Junior Convertible and the Cumulative Convertible, (ii) if the Total Leverage Ratio is less than or equal to 3.00 to 1.00 both before and after making any such Restricted Payment, make scheduled dividend payments on the Junior Exchangeable, (iii) make Distributions or other Restricted Payments from time to time over the term of this Agreement not to exceed an aggregate amount at the time of such payment equal to the net amount of cash distributions received by the Parent from Unrestricted Subsidiaries and not used for other purposes, and (iv) so long as (A) such Restricted Payment is made prior to August 15, 2000 and (B) such Restricted Payment does not exceed an amount in excess of the difference between (I) net proceeds from the issuance of common Capital Stock of the Parent minus (II) the amount of net proceeds from the issuance of common Capital Stock of the Parent used to make Permitted Acquisitions or Permitted Investments, or other acquisitions and investments permitted by this Agreement, the Parent may repurchase up to 35% of its Junior Exchangeable in accordance with the terms of the Junior Exchangeable Documentation; (d) so long as there exists no Default or Event of Default both before and after giving effect to any such payment, the Borrower and the Parent may make annual consulting fee payments to the Persons and in such amounts as set forth on Schedule 8.07 hereto; (e) so long as there exists no Default or Event of Default both before and after giving effect to any such payment, the Borrower and the Parent may make payments to Unrestricted Subsidiaries in connection with such transactions and in such amounts as set forth on Schedule 8.16 hereto; (f) the Borrower, the Parent and the Restricted Subsidiaries may make Investments permitted by Sections 8.04(i), (j), (l), (m) and (p) hereof; (g) Mutual Signal may make pro rata Distributions to its shareholders; (h) so long as there exists no Default or Event of Default both before and after giving effect to any such payment, the Borrower, the Parent or any Restricted Subsidiary may make scheduled interest payments on Debt for Borrowed Money permitted to be incurred under Sections 8.02(c), (d), (f) and (g) hereof; (i) so long as there exists no Default or Event of Default both before and after giving effect to any such payment, the Parent may make payment in kind payments on (i) 74 80 Preferred Stock issued in accordance with the provisions of Section 8.02(f)(i) hereof and (ii) any of the Existing Financing; (j) so long as there exists no Default or Event of Default both before and after giving effect to any such payment, (i) any Restricted Subsidiary may make principal payments on Debt for Borrowed Money owed to the Borrower that is permitted to be incurred under Section 8.02(c) hereof and (ii) the Borrower may make principal payments on Debt for Borrowed Money that is permitted to be incurred under Section 8.02(g) hereof; and (k) so long as there exists no Default or Event of Default both before and after giving effect to any such payment, (i) after October 2000 the Borrower or the Parent may repurchase the Senior Notes pursuant to the call provision set forth in the Senior Notes Documentation, provided that the purchase price in the aggregate for all such Senior Notes shall not exceed $1,000,000, (ii) the Borrower, the Parent or any Restricted Subsidiary may repurchase its Capital Stock from any terminated employee of such entity, in the aggregate for all such repurchases for all such entities not to exceed $1,000,000 for each fiscal year, and (iii) the Parent may pay cash dividends or Distributions in lieu of the issuance of fractional shares, provided that all such cash paid in lieu of fractional shares shall not exceed in the aggregate $1,000,000 over the term of this Agreement. 8.08. Affiliate Transactions . The Borrower and the Parent shall not, and shall not permit any Restricted Subsidiary to, at any time engage in any transaction with an Affiliate, nor make an assignment or other transfer of any of its assets or Properties to any Affiliate, on terms materially less advantageous to the Parent, the Borrower or any such Restricted Subsidiary than would be the case if such transaction had been effected with a non-Affiliate, except those transactions described on Schedule 8.08 hereof and to the extent applicable, Schedule 8.16 hereof. 8.09. Compliance with ERISA . The Borrower and the Parent shall not, and shall not permit any of their Subsidiaries to, directly or indirectly, or permit any member of its Controlled Group to directly or indirectly, (a) terminate any Plan so as to result in any material (in the opinion of the Majority Lenders) liability to the Borrower or any member of its Controlled Group, (b) permit to exist any ERISA Event, or any other event or condition which presents the risk of liability of the Borrower or any member of its Controlled Group, (c) make a complete or partial withdrawal (within the meaning of Section 4201 of ERISA) from any Multiemployer Plan so as to result in any liability to the Borrower or any member of its Controlled Group, (d) enter into any new Plan or modify any existing Plan so as to increase its obligations thereunder except in the ordinary course of business consistent with past practice which could result in any liability to the Borrower or the Parent, or any member of their Controlled Group, or (e) permit the present value of all benefit liabilities, as defined in Title IV of ERISA, under each Plan of the Borrower or the Parent, or any member of their Controlled Group (using the actuarial assumptions utilized by the PBGC upon termination of a plan) to exceed the fair market value of Plan assets allocable to such benefits all determined as of the most recent valuation date for each such Plan. 8.10. Capital Stock . The Borrower and the Parent shall not, and shall not permit any Restricted Subsidiary to (a) make or permit any transfer, assignment, distribution, mortgage, pledge or gift of any shares of Pledged Stock, except (i) to the Borrower or another wholly owned direct or indirect Restricted Subsidiary of the Borrower that has executed an Unlimited Guaranty of the Obligations, and (ii) for asset sales permitted by Section 8.05(a) hereof, and (b) issue any Capital 75 81 Stock other than common Capital Stock issued by the Parent, Preferred Stock of the Parent in accordance with the terms of Section 8.02(f) hereof, and payments in kind described in Section 8.07(i) hereof. 8.11. Sale and Leaseback. The Borrower and the Parent shall not, and shall not permit any Restricted Subsidiary to, enter into any arrangement whereby it sells or transfers any of its assets, and thereafter rents or leases such assets. 8.12. Sale or Discount of Receivables. The Borrower and the Parent shall not, and shall not permit any Restricted Subsidiary to, directly or indirectly sell, with or without recourse, for discount or otherwise, any notes or accounts receivable, provided that, so long as there exists no Default or Event of Default both before and after giving effect to each such sale, the Borrower or the Parent may sell accounts receivable on a non recourse basis and on other terms acceptable to the Administrative Agent, in an aggregate amount not to exceed $100,000,000 in accounts sold and outstanding at any one time. 8.13. Limitation on Restrictive Agreements. Except those written agreements entered into in connection with the Existing Financing Documentation or other Debt in effect on the Closing Date, the Borrower and the Parent shall not, and shall not permit any Restricted Subsidiary to, enter into any indenture, agreement, instrument, financing document or other arrangement which, directly or indirectly, prohibits or restrains, or has the effect of prohibiting or restraining, or imposes materially adverse conditions upon: (a) the incurrence of indebtedness, (b) the granting of Liens, (c) the making or granting of Guarantees, (d) the payment of dividends or Distributions, (e) the purchase, redemption or retirement of any Capital Stock of the Parent, the Borrower or any Subsidiary of the Parent and/or the Borrower, (f) the making of loans or advances, (g) transfers or sales of Property or assets (including Capital Stock) by the Borrower, the Parent or any of the Restricted Subsidiaries, (h) the making of Investments, (i) any change of control or management, (j) the making of changes or amendments to this Agreement or any other Loan Paper, or (k) the acceptance of a waiver or consent with respect to any term or provision of this Agreement or any other Loan Paper, provided that, notwithstanding the foregoing, in connection with (i) any Preferred Stock issuance or debt issuance in accordance with the terms of Section 8.02(f)(i) hereof and any new capital lease in connection with Section 8.02(g) hereof, the Parent may agree to restrictive provisions so long as such provisions are no more restrictive than the provisions in this agreement and such provisions shall not in any case restrict, limit or prohibit the Parent, the Borrower or any Restricted Subsidiary from (A) granting the Administrative Agent and the Lenders any Lien to secure the Obligations hereunder (except Liens on assets subject to Permitted Liens and Liens permitted under Section 8.03(b) hereof), (B) guaranteeing any portion of the Obligations, (C) amending any provision of this Agreement or any Loan Paper or (D) accepting any waiver or consent with respect to any provision of this Amendment or the Loan Papers and (ii) any Subordinated Indebtedness issuance in accordance with the terms of Section 8.02(f)(ii) hereof, the Parent may agree to restrictive provisions so long as such provisions are no more restrictive than the provisions in the Subordinated Notes Documentation and such provisions shall not in any case restrict, limit or prohibit the Parent, the Borrower or any Restricted Subsidiary from (A) granting the Administrative Agent and the Lenders any Lien to secure the Obligations hereunder (except Liens on assets subject to Permitted Liens and Liens permitted under Section 8.03(b) hereof), (B) guaranteeing any portion of the Obligations, (C) amending any provision of this Agreement or any Loan Paper or (D) accepting any waiver or consent with respect to any provision of this Amendment or the Loan Papers. 76 82 8.14. Amendment of Material Agreements. The Borrower and the Parent shall not, and shall not permit any Restricted Subsidiary to, amend, waive or consent to any deviation from any provision of any documentation or agreements of the (i) Existing Financing Documentation, (ii) articles of incorporation of the Parent, the Borrower and the Restricted Subsidiaries, and (iii) by laws and other organizational documents (other than the Articles of Incorporation) in any manner that is both material and adverse to the interests of the Lenders. Notwithstanding the foregoing, the Parent is permitted to amend its Articles of Incorporation to increase the outstanding shares of common or preferred Capital Stock or to effect a common Capital Stock split. 8.15. Name Changes, Changes Affecting Pledged Stock. The Borrower and the Parent shall not, and shall not permit any Subsidiary of the Borrower or the Parent to, change its name. The Borrower and the Parent shall not, and shall not permit any Subsidiary of the Borrower or the Parent to, take any action or make any change in its organization or otherwise that would in any manner hinder or impair the Lien of the Lenders on the Pledged Stock. 8.16. Unrestricted Subsidiaries and Mutual Signal. Except as specifically permitted by the terms of this Agreement or listed on Schedule 8.16 hereto, the Borrower and the Parent shall not, and shall not permit any Restricted Subsidiary to, contribute any equity, make any loan, advance or other investment in, or otherwise conduct any business with, any Unrestricted Subsidiary and/or Mutual Signal. 8.17. Limitation on IRU Agreements. Except as set forth on Schedule 8.16 hereto, the Borrower and the Parent shall not, and shall not permit any Restricted Subsidiary to, enter into an IRU Agreement granting an IRU to any Person other than to the Parent, the Borrower or any Restricted Subsidiary, provided that the Parent, the Borrower or any Restricted Subsidiary may enter into an IRU Agreement granting an IRU to any Person (other than the Borrower, the Parent or any Restricted Subsidiary) so long as, in each case (a) there exists no Default or Event of Default at the time such IRU Agreement is made, (b) such IRU Agreement would not result in the Parent, the Borrower and the Restricted Subsidiaries having the cumulative indefeasible right to use the telecommunications capacity on less than 12 Backbone Fibers, (c) under no circumstances shall the Parent, the Borrower or any Restricted Subsidiary grant an IRU on any "lit" fiber, provided that, notwithstanding the foregoing, so long as there exists no Default or Event of Default both before and after giving effect to any such transaction, the Parent, the Borrower and its Subsidiaries may grant IRUs on "lit" fiber so long as (i) the term of each such IRU does not exceed five years, (ii) the gross revenues of all such IRUs by the Parent, the Borrower and its Subsidiaries in the aggregate in any fiscal year do not exceed $25,000,000, and (iii) the Liens and security interests of the Administrative Agent to secure the Obligations remain unaffected, in full force and effect, (d) the Board of Directors has determined in good faith that the disposition of the fiber capacity involved in such IRU Agreement would not cause a shortage of fiber capacity to the Parent, the Borrower or any Restricted Subsidiary which would interfere with (i) the Parent's, the Borrower's or any Restricted Subsidiary's ability to continue providing telecommunications services at the then current level; or (ii) the Parent's, the Borrower's or any Restricted Subsidiary's business plan. 8.18. Limitation on Unrestricted Subsidiaries. The Borrower and the Parent shall not, and shall not permit any Restricted Subsidiary to, permit the aggregate revenues of the Unrestricted Subsidiaries to exceed 30% of the consolidated revenues of the Parent, the Borrower and all of the Subsidiaries of the Parent and the Borrower. 77 83 ARTICLE IX. EVENTS OF DEFAULT 9.01. Events of Default. Any one or more of the following shall be an "Event of Default" hereunder, if the same shall occur for any reason whatsoever, whether voluntary or involuntary, by operation of Law, or otherwise: (a) The Borrower shall fail to pay any (i) principal payable under any Loan Paper on the date due; or (ii) any interest, fees or other amounts payable within three days of the date due; (b) Any representation or warranty made or deemed made by any Obligor (or any of its officers or representatives) under or in connection with any Loan Paper shall prove to have been incorrect or misleading in any material respect when made or deemed made; (c) The Borrower shall fail to perform or observe any term or covenant contained in Section 7.05 hereof or in Article VIII hereof; (d) Any Obligor shall fail to perform or observe any other term or covenant contained in this Agreement or any other Loan Paper, other than those described in Sections 9.01(a), (b) and (c) above, and such failure shall not be remedied within thirty days following the earlier of the Borrower's knowledge of such failure or notice from any Lender of the occurrence of such failure; (e) Any of the following shall occur: (i) Any Loan Paper or material provision thereof shall, for any reason, not be valid and binding on the Obligor signatory thereto, or not be in full force and effect, or shall be declared to be null and void; or (ii) the validity or enforceability of any Loan Paper shall be contested by any Obligor, any Unrestricted Subsidiary or any Affiliate of the Borrower and its Subsidiaries; or (iii) any Obligor shall deny in writing that it has any or further liability or obligation under its respective Loan Papers; or (iv) any default or breach under any provision of any Loan Papers shall continue after the applicable grace period, if any, specified in such Loan Paper; (f) Any of the following shall occur: (i) the Parent, the Borrower or any of their Subsidiaries shall make an assignment for the benefit of creditors or be unable to pay its debts generally as they become due; (ii) the Parent, the Borrower or any of their Subsidiaries shall petition or apply to any Tribunal for the appointment of a trustee, receiver, or liquidator of it, or of any substantial part of its assets, or shall commence any proceedings relating to the Parent, the Borrower or any of their Subsidiaries under any Debtor Relief Laws; (iii) any such petition or application shall be filed, or any such proceedings shall be commenced, against the Parent, the Borrower or any of their Subsidiaries, or an order, judgment or decree shall be entered appointing any such trustee, receiver, or liquidator, or approving the petition in any such proceedings, and such petition or application shall be consented to or uncontested by the Parent, the Borrower or such Subsidiary, or if contested by the Parent, the Borrower or such Subsidiary, shall not be dismissed within 60 days following the filing of such petition or application; (iv) any final order, judgment, or decree shall be entered in any proceedings against the Parent, the Borrower or any of their Subsidiaries decreeing its dissolution; or (v) any final order, judgment, or decree shall be entered in any proceedings against the Parent, the Borrower or any of their Subsidiaries decreeing its split-up which requires the divestiture of a substantial part of its assets; (g) Any of the following shall occur: (i) The Borrower, the Parent or any Subsidiary of the Borrower or the Parent shall fail to pay any Debt (other than Debt under the Loan Papers) in an 78 84 aggregate amount of $1,000,000 or more when due (whether by scheduled maturity, required prepayment, acceleration, demand, or otherwise), and such failure shall continue after the applicable grace period, if any, specified in the agreement or instrument relating to such Debt; or (ii) the Borrower, the Parent or any Subsidiary of the Borrower or the Parent shall fail to perform or observe any term or covenant contained in any agreement or instrument relating to any such Debt, when required to be performed or observed, and such failure shall continue after the applicable grace period, if any, specified in such agreement or instrument, and can result in acceleration of the maturity of such Debt; or (iii) any such Debt shall be declared to be due and payable, or required to be prepaid, mandatorily redeemed or repurchased (other than by a regularly scheduled required prepayment), prior to the stated maturity thereof; or (iv) there shall exist a breach by any the Borrower, the Parent or any of their Subsidiaries under one or more material contracts the effect of which could reasonably be expected to cause a Material Adverse Change; (h) Any Obligor shall have any final judgment(s) outstanding against it, and such judgment(s) shall remain unstayed, in effect, and unpaid for the period of time after which the judgment holder may cause the creation of Liens against or seizure of any of its Property; (i) Any of the following shall have occurred: (i) Any ERISA Event shall have occurred with respect to a Plan of the Borrower or the Parent or any Subsidiary of the Borrower or the Parent, and the sum of the Insufficiency of such Plan and liabilities relating thereto is equal to or greater than $1,000,000 or (ii) the Borrower, the Parent, the Subsidiaries of the Borrower and the Parent or any ERISA Affiliate of any of them shall have committed a failure described in Section 302(f)(l) of ERISA, and the amount determined under Section 302(f)(3) of ERISA is equal to or greater than $1,000,000; (j) The Borrower or the Parent, or any ERISA Affiliate of the Borrower or the Parent shall have been notified by the sponsor of a Multiemployer Plan that (A) it has incurred Withdrawal Liability to such Plan in an amount that exceeds $1,000,000 or requires payments exceeding $1,000,000 per annum, or (B) such Plan is in reorganization or is being terminated, within the meaning of Title IV of ERISA, if as a result thereof the aggregate annual contributions to all Multiemployer Plans in reorganization or being terminated is increased over the amounts contributed to such Plans for the preceding Plan year by an amount exceeding $1,000,000; (k) Any of the Borrower, the Parent or any of their Subsidiaries shall be required under any Environmental Law (i) to implement any remedial, neutralization, or stabilization process or program, the cost of which could reasonably be expected to cause a Material Adverse Change, or (ii) to pay any penalty, fine, or damages in an aggregate amount which could reasonably be expected to cause a Material Adverse Change; (l) Any of the following shall have occurred: (i) Any property or assets (whether leased or owned), or the operations conducted thereon by any of the Borrower, the Parent or any of their Subsidiaries, or any current or prior owner or operator thereof (in the case of real Property), shall violate or have violated any applicable Environmental Law, if such violation could reasonably be expected to cause a Material Adverse Change; or (ii) the Borrower or the Parent or such Subsidiary shall not obtain or maintain any License required to be obtained or filed under any Environmental Law in connection with the use of such Property and assets, including without limitation past or present treatment, storage, disposal, or release of Hazardous Materials into the environment, if the 79 85 failure to obtain or maintain the same could reasonably be expected to cause a Material Adverse Change; (m) Any of the following shall have occurred: (i) Any Loan Paper shall for any reason (other than pursuant to the terms thereof) cease to create a valid and perfected first priority Lien in the Collateral purported to be covered thereby (except as permitted by the terms of this Agreement or consented to by the Lenders); or (ii) Less than 100% of the Capital Stock of the Borrower or any Subsidiary of the Parent or the Borrower shall be subject to a first priority perfected pledge to the Administrative Agent to secure the Obligations, except the Excluded Stock; (n) Any of the following shall have occurred: (i) A final non-appealable order is issued by any Tribunal, including, but not limited to, the FCC, any applicable PUC, or the United States Justice Department, requiring any Obligor to divest a substantial portion of its assets pursuant to any antitrust, restraint of trade, unfair competition, industry regulation, or similar Laws, or (ii) any Tribunal shall condemn, seize, or otherwise appropriate, or take custody or control of all or any substantial portion of the assets of the Parent, the Borrower or any of their Subsidiaries; (o) Any of the following shall have occurred if the effect thereof could be reasonably expected to cause a Material Adverse Change; (i) Any License whether presently existing or hereafter granted to or obtained by the Borrower, the Parent or any of their Subsidiaries shall expire without renewal or be suspended or revoked, or (ii) the Parent, the Borrower or any of their Subsidiaries shall become subject to any injunction or other order affecting or which may affect the Parent's, the Borrower's or any of their Subsidiary's present or proposed operations under any such License; (p) Any civil action, suit or proceeding shall be commenced against the Borrower, the Parent or any of their Subsidiaries under any federal or state racketeering statute (including, without limitation, the Racketeer Influenced and Corrupt Organization Act of 1970)("RICO") and such suit shall be adversely determined by a court of applicable jurisdiction, and which is either non-appealable or which the Parent, the Borrower or such Subsidiary has elected not to appeal; or any criminal action or proceeding shall be commenced against the Borrower, the Parent or any of their Subsidiaries under any federal or state racketeering statute (including, without limitation, RICO); (q) There shall occur a Change of Control, provided that, if the Loans are rated at least BBB or above, or any equivalent thereto, by Standard & Poor's Ratings Group, a Division of McGraw-Hill, Inc. or Moody's Investors Service, Inc. on the 30th day following the event that otherwise would constitute a Change of Control (the "Change of Control Determination Date"), there shall exist no Event of Default under this Section 9.01(q), provided, however, that to the extent there is a "rating watch" with respect to the Loans or other rating agency review on such 30th day, then the Change of Control Determination Date shall be the first Business Day thereafter on which the Loans are not subject to a "rating watch" or other rating agency review rating by either Standard & Poor's Ratings Group, a Division of McGraw-Hill, Inc. or Moody's Investors Service, Inc.; (r) Any Litigation commenced against the Borrower, the Parent or any of their Subsidiaries is adversely determined by a court of applicable jurisdiction, which such Litigation is 80 86 either non-appealable or which such Obligor has elected not to appeal, and in either case, is reasonably expected to cause a Material Adverse Change; (s) The Parent, the Borrower or any Subsidiary of the Borrower or the Parent shall fail to comply in any respect with the Communications Act, or any rule or regulation promulgated by the FCC or any applicable PUC, and such failure could reasonably be expected to cause a Material Adverse Change; or any License or authorization constituting authorizations, permits or licenses of the Parent, the Borrower or any of their Subsidiaries material to the operation of the business of the Parent, the Borrower and any of their Subsidiaries, has expired or shall expire without having been renewed or shall be canceled or impaired, and such expiration, cancellation or impairment could reasonably be expected to cause a Material Adverse Change; (t) The Parent, the Borrower or any of their Subsidiaries shall fail to operate its business for any period of time which, in the aggregate, could reasonably be expected to cause a Material Adverse Change; (u) Any Substantial Portion shall not, for any reason (including, without limitation, loss of FCC License, fiber network or otherwise) be operating for a period in excess of 30 days. For purposes of this Section 9.01(u), "Substantial Portion" means any portion of the telecommunications system of the Parent, the Borrower and the Restricted Subsidiaries that has generated, for the most recently completed twelve month period, in excess of five percent of the Operating Cash Flow; (v) Any of the Parent, the Borrower or any of their Subsidiaries shall fail to be Year 2000 Compliant; (w) Any breach, default under, redemption, repurchase or defeasance, or other comparable event shall occur with respect to any of the Subordinated Notes; or (x) Any breach or default under any provision of, or redemption, repurchase or defeasance with respect to, or other comparable event as a result of any change of control provision shall occur with respect to, any of the Junior Exchangeable, Junior Convertible or the Cumulative Convertible, provided that, if the Loans are rated at least BBB or above, or any equivalent thereto, by Standard & Poor's Ratings Group, a Division of McGraw-Hill, Inc. or Moody's Investors Service, Inc. on the 30th day following the event that otherwise would constitute a Change of Control (the "Change of Control Determination Date"), there shall exist no Event of Default under this Section 9.01(x), provided, however, that to the extent there is a "rating watch" with respect to the Loans or other rating agency review on such 30th day, then the Change of Control Determination Date shall be the first Business Day thereafter on which the Loans are not subject to a "rating watch" or other rating agency review rating by either Standard & Poor's Ratings Group, a Division of McGraw-Hill, Inc. or Moody's Investors Service, Inc. 9.02. Remedies upon Default. If an Event of Default described in Section 9.01(f) shall occur, the aggregate unpaid principal balance of and accrued interest on all Advances shall, to the extent permitted by Applicable Law, thereupon become due and payable concurrently therewith, without any action by Administrative Agent or any Lender, and without diligence, presentment, demand, protest, notice of protest or intent to accelerate, or notice of any other kind, all of which are hereby expressly waived. Subject to the foregoing sentence, if any Event of Default shall occur and be continuing, Administrative Agent may at its election, do any one or more of the following: 81 87 (a) Declare the entire unpaid balance of all Obligations immediately due and payable, whereupon it shall be due and payable without diligence, presentment, demand, protest, notice of protest or intent to accelerate, or notice of any other kind (except notices specifically provided for under Section 9.01 hereof), all of which are hereby expressly waived (except to the extent waiver of the foregoing is not permitted by Applicable Law); (b) Terminate either the Revolver Commitment or, if the Special Purpose Loan is a revolving loan as determined in accordance with the terms of Section 2.17 hereof, the Special Purpose Commitment, or terminate both of the Commitments; (c) Reduce any claim of Administrative Agent and Lenders to judgment; (d) Demand (and the Borrower shall pay to Administrative Agent) immediately upon demand and in immediately available funds, the amount equal to the aggregate amount of the Letters of Credit then outstanding, irrespective of whether such Letters of Credit have been drawn upon, all as set forth and in accordance with the terms of provisions of Article III hereof. The Administrative Agent shall promptly advise the Borrower of any such declaration or demand but failure to do so shall not impair the effect of such declaration or demand; and (e) Exercise any Rights afforded under any Loan Papers, by Law, including but not limited to the UCC, at equity, or otherwise. 9.03. Cumulative Rights. All Rights available to Administrative Agent and Lenders under the Loan Papers shall be cumulative of and in addition to all other Rights granted thereto at Law or in equity, whether or not amounts owing thereunder shall be due and payable, and whether or not Administrative Agent or any Lender shall have instituted any suit for collection or other action in connection with the Loan Papers. 9.04. Waivers. The acceptance by Administrative Agent or any Lender at any time and from time to time of partial payment of any amount owing under any Loan Papers shall not be deemed to be a waiver of any Default or Event of Default then existing. No waiver by Administrative Agent or any Lender of any Default or Event of Default shall be deemed to be a waiver of any Default or Event of Default other than such Default or Event of Default. No delay or omission by Administrative Agent or any Lender in exercising any Right under the Loan Papers shall impair such Right or be construed as a waiver thereof or an acquiescence therein, nor shall any single or partial exercise of any such Right preclude other or further exercise thereof, or the exercise of any other Right under the Loan Papers or otherwise. 9.05. Performance by Administrative Agent or any Lender. Should any covenant of any Obligor fail to be performed in accordance with the terms of the Loan Papers, Administrative Agent may, at its option, perform or attempt to perform such covenant on behalf of such Obligor. Notwithstanding the foregoing, it is expressly understood that neither Administrative Agent nor any Lender assumes, and shall not ever have, except by express written consent of Administrative Agent or such Lender, any liability or responsibility for the performance of any duties or covenants of any Obligor. 9.06. Expenditures. The Borrower shall reimburse Administrative Agent and each Lender for any reasonable sums spent by it in connection with the exercise of any Right under Section 9.05 82 88 hereof. Such sums shall bear interest at the lesser of (a) the Base Rate (whether or not in effect), plus 2.00% per annum and (b) the Highest Lawful Rate, from 15 days after the date any Lender makes demand to the Borrower for reimbursement of such amount until the date of repayment by the Borrower. 9.07. Control. None of the covenants or other provisions contained in this Agreement shall, or shall be deemed to, give Administrative Agent or any Lender any Rights to exercise control over the affairs and/or management of any Obligor, the power of Administrative Agent and each Lender being limited to the Rights to exercise the remedies provided in this Article; provided, however, that if Administrative Agent or any Lender becomes the owner of any partnership, stock or other equity interest in any Person, whether through foreclosure or otherwise, it shall be entitled to exercise such legal Rights as it may have by being an owner of such stock or other equity interest in such Person. ARTICLE X. THE ADMINISTRATIVE AGENT 10.01. Authorization and Action. Each Lender hereby appoints and authorizes Administrative Agent to take such action as Administrative Agent on its behalf and to exercise such powers under this Agreement and the other Loan Papers as are delegated to the Administrative Agent by the terms of the Loan Papers, together with such powers as are reasonably incidental thereto. As to any matters not expressly provided for by this Agreement and the other Loan Papers (including without limitation enforcement or collection of the Notes), Administrative Agent shall not be required to exercise any discretion or take any action, but shall be required to act or to refrain from acting (and shall be fully protected in so acting or refraining from acting) upon the instructions of Majority Lenders (or all Lenders, if required under Section 11.01 hereof), and such instructions shall be binding upon all Lenders; provided, however, that Administrative Agent shall not be required to take any action which exposes Administrative Agent to personal liability or which is contrary to any Loan Papers or Applicable Law. Administrative Agent agrees to give to each Lender notice of each notice given to it by the Borrower pursuant to the terms of this Agreement, and to distribute to each applicable Lender in like funds all amounts delivered to Administrative Agent by the Borrower for the individual account of any Lender pro rata in accordance with the Applicable Specified Percentage, as set forth in this Agreement. Functions of the Administrative Agent are administerial in nature and in no event shall the Administrative Agent have a fiduciary or trustee relationship in respect of any Lender by reason of this Agreement or any other Loan Paper. 10.02. Administrative Agent's Reliance, Etc. Neither Administrative Agent, nor any of its directors, officers, agents, employees, or representatives shall be liable for any action taken or omitted to be taken by it or them under or in connection with this Agreement or any other Loan Paper, except for its or their own gross negligence or willful misconduct. Without limitation of the generality of the foregoing, Administrative Agent (a) may treat the payee of any Note as the holder thereof until Administrative Agent receives written notice of the assignment or transfer thereof signed by such payee and in form satisfactory to Administrative Agent; (b) may consult with legal counsel (including counsel for the Parent, the Borrower or any of the Restricted Subsidiaries), independent public accountants, and other experts selected by it, and shall not be liable for any action taken or omitted to be taken in good faith by it in accordance with the advice of such counsel, accountants, or experts; (c) makes no warranty or representation to any Lender and shall not be responsible to any Lender for any statements, warranties, or representations made in or in connection with this Agreement or any other Loan Papers; (d) shall not have any duty to ascertain or to inquire as to the performance or 83 89 observance of any of the terms, covenants, or conditions of this Agreement or any other Loan Papers on the part of the Parent, the Borrower or the Restricted Subsidiaries or to inspect the Property (including the books and records) of the Parent, the Borrower or their Subsidiaries; (e) shall not be responsible to any Lender for the due execution, legality, validity, enforceability, genuineness, sufficiency, or value of this Agreement, any other Loan Papers, or any other instrument or document furnished pursuant hereto; and (f) shall incur no liability under or in respect of this Agreement or any other Loan Papers by acting upon any notice, consent, certificate, or other instrument or writing believed by it to be genuine and signed or sent by the proper party or parties. 10.03. NationsBank, N.A. and Affiliates. With respect to its Revolver Commitment, Special Purpose Commitment, its Advances, and any Loan Papers, NationsBank, N.A. has the same Rights under this Agreement as any other Lender and may exercise the same as though it were not Administrative Agent. NationsBank, N.A. and its Affiliates may accept deposits from, lend money to, act as trustee under indentures of, and generally engage in any kind of business with, any Obligor, any Affiliate thereof, and any Person who may do business therewith, all as if NationsBank, N.A. were not Administrative Agent and without any duty to account therefor to any Lender. 10.04. Lender Credit Decision. Each Lender acknowledges that it has, independently and without reliance upon Administrative Agent or any other Lender, and based on the financial statements referred to in Section 5.01(j), Section 7.01 and Section 7.02 hereof and such other documents and information as it has deemed appropriate, made its own credit analysis and decision to enter into this Agreement. Each Lender also acknowledges that it will, independently and without reliance upon Administrative Agent or any other Lender and based on such documents and information as it shall deem appropriate at the time, continue to make its own credit decisions in taking or not taking action under this Agreement and the other Loan Papers. 10.05. Indemnification by Lenders. Lenders shall indemnify Administrative Agent, pro rata in accordance with each Lender's Total Specified Percentage, from and against any and all liabilities, obligations, losses, damages, penalties, actions, judgments, suits, costs, expenses, or disbursements of any kind or nature whatsoever which may be imposed on, incurred by, or asserted against Administrative Agent in any way relating to or arising out of any Loan Papers or any action taken or omitted by Administrative Agent thereunder, including any negligence of Administrative Agent; provided, however, that no Lender shall be liable for any portion of such liabilities, obligations, losses, damages, penalties, actions, judgments, suits, costs, expenses, or disbursements resulting from Administrative Agent's gross negligence or willful misconduct. Without limitation of the foregoing, Lenders shall reimburse Administrative Agent, pro rata in accordance with each Lender's Total Specified Percentage, promptly upon demand for any out-of-pocket expenses (including reasonable attorneys' fees) incurred by Administrative Agent in connection with the preparation, execution, delivery, administration, modification, amendment, or enforcement (whether through negotiation, legal proceedings or otherwise) of, or legal and other advice in respect of rights or responsibilities under, the Loan Papers. The indemnity provided in this Section 10.05 shall survive the termination of this Agreement. 10.06. Successor Administrative Agent. Administrative Agent may resign at any time by giving written notice thereof to Lenders and the Borrower, and may be removed at any time with or without cause by the action of all Lenders (other than Administrative Agent, if it is a Lender). Upon any such resignation or removal, Majority Lenders shall have the right to appoint a successor Administrative Agent with the prior written consent of the Borrower (which shall not be unreasonably 84 90 withheld), provided that, if there exists an Event of Default that is continuing, no consent of the Borrower shall be required. If no successor Administrative Agent shall have been so appointed and shall have accepted such appointment within thirty days after the retiring Administrative Agent's giving of notice of resignation, then the retiring Administrative Agent may, on behalf of Lenders, appoint a successor Administrative Agent, which shall be a commercial bank organized under the Laws of the United States of America or of any State thereof and having a combined capital and surplus of at least $500,000,000. Upon the acceptance of any appointment as Administrative Agent hereunder by a successor Administrative Agent, such successor Administrative Agent shall thereupon succeed to and become vested with all the Rights and duties of the retiring Administrative Agent, and the retiring Administrative Agent shall be discharged from its duties and obligations under the Loan Papers, provided that if the retiring or removed Administrative Agent is unable to appoint a successor Administrative Agent, Administrative Agent shall, after the expiration of a sixty day period from the date of notice, be relieved of all obligations as Administrative Agent hereunder. Notwithstanding any Administrative Agent's resignation or removal hereunder, the provisions of this Article shall continue to inure to its benefit as to any actions taken or omitted to be taken by it while it was Administrative Agent under this Agreement. ARTICLE XI. MISCELLANEOUS 11.01. Amendments and Waivers. Except as set forth in Section 2.17 hereof, no amendment or waiver of any provision of this Agreement or any other Loan Papers, nor consent to any departure by the Borrower or any Obligor therefrom, shall be effective unless the same shall be in writing and signed by the Borrower and the Administrative Agent with the consent of the Majority Lenders, and then any such waiver or consent shall be effective only in the specific instance and for the specific purpose for which given; provided, however, that no amendment, waiver, or consent shall (and the result of action or failure to take action shall not) unless in writing and signed by all of Lenders and Administrative Agent, (a) increase the Revolver Commitment or the Special Purpose Commitment (except in accordance with the terms of Section 2.17 hereof), (b) reduce any principal, interest, fees, or other amounts payable hereunder, or waive or result in the waiver of any Event of Default under Section 9.01(a) hereof, (c) postpone any date fixed for any payment of principal, interest, fees, or other amounts payable hereunder, (d) release or impair any Collateral or guaranties securing any Obligor's obligations hereunder, other than releases contemplated hereby and by the other Loan Papers, (e) change the meaning of "Total Specified Percentage", "Revolver Specified Percentage", "Term Loan Specified Percentage" or "Special Purpose Specified Percentage" (except in accordance with the terms of Section 2.17 hereof), or the number of Lenders required to take any action hereunder, change the definitions of "Commitment", "Revolver Commitment", "Special Purpose Commitment" (except in accordance with the terms of Section 2.17 hereof), "Maturity Date", "Majority Lenders", or "Letter of Credit Commitment", or (f) amend this Section 11.01 or Section 11.03 hereof. No amendment, waiver, or consent shall affect the Rights or duties of Administrative Agent under any Loan Papers, unless it is in writing and signed by Administrative Agent in addition to the requisite number of Lenders. 85 91 11.02. Notices. (a) Manner of Delivery. All notices communications and other materials to be given or delivered under the Loan Papers shall, except in those cases where giving notice by telephone is expressly permitted, be given or delivered in writing. All written notices, communications and materials shall be sent by registered or certified mail, postage prepaid, return receipt requested, by telecopier, or delivered by hand. In the event of a discrepancy between any telephonic notice and any written confirmation thereof, such written confirmation shall be deemed the effective notice except to the extent Administrative Agent, any Lender or the Borrower has acted in reliance on such telephonic notice. (b) Addresses. All notices, communications and materials to be given or delivered pursuant to this Agreement shall be given or delivered at the following respective addresses and telecopier and telephone numbers and to the attention of the following individuals or departments: (i) If to the Borrower, the Parent or any Restricted Subsidiary: IXC Communications Services, Inc. 1122 Capital of Texas Highway South Austin, Texas 78746 Telephone No.: (512) 427-3713 Telecopier No.: (512) 328-0239 Attention: Mr. James F. Guthrie Executive Vice President and Chief Financial Officer With copies to (which is not required for effective delivery as set forth above): Riordan & McKinzie A Professional Corporation 695 Town Center Drive, Suite 1500 Costa Mesa, CA 92626 Telephone No.: (714) 433-2618 Facsimile No.: (714) 549-3244 Attention: Michael P. Whalen (ii) If to Administrative Agent: NationsBank, N.A. NationsBank Plaza 901 Main Street, 64th Floor Dallas, Texas 75202 Telephone No.: (214) 209-0988 Telecopier No.: (214) 209-9390 Attention: Ms. Roselyn M. Drake Principal 86 92 With a copy to (which is not required for effective delivery as set forth above): Donohoe, Jameson & Carroll, P.C. 3400 Renaissance Tower 1201 Elm Street Dallas, Texas 75270 Telephone No.: (214) 698-3814 Telecopier No.: (214) 744-0231 Attention: Melissa Ruman Stewart (iii) If to any Lender, to its address shown opposite its signature block on the signature pages hereto, or on any Assignment and Acceptance, or in any other notice to the Borrower and the Administrative Agent, or at such other address or, telecopier or telephone number or to the attention of such other individual or department as the party to which such information pertains may hereafter specify for the purpose in a notice to the other specifically captioned "Notice of Change of Address". (c) Effectiveness. Each notice, communication and any material to be given or delivered to any party pursuant to this Agreement shall be effective or deemed delivered or furnished (i) if sent by mail, on the fifth day after such notice, communication or material is deposited in the mail, addressed as above provided, (ii) if sent by telecopier, when such notice, communication or material is transmitted to the appropriate number, (iii) if sent by hand delivery or overnight courier, when left at the address of the addressee addressed as above provided, and (iv) if given by telephone, when communicated to the individual or any member of the department specified as the individual or department to whose attention notices, communications and materials are to be given or delivered except that notices of a change of address, telecopier or telephone number or individual or department to whose attention notices, communications and materials are to be given or delivered shall not be effective until received; provided, however, that notices to Administrative Agent pursuant to Article II shall be effective when received. The Borrower agrees that Administrative Agent shall have no duty or obligation to verify or otherwise confirm telephonic notices given pursuant to Article II, and agrees to indemnify and hold harmless Administrative Agent and Lenders for any and all liabilities, obligations, losses, damages, penalties, actions, judgments, suits, claims, costs, and expenses resulting, directly or indirectly, from acting upon any such notice. 11.03. Parties in Interest. All covenants and agreements contained in this Agreement and all other Loan Papers shall bind and inure to the benefit of the respective successors and assigns of the parties hereto. Each Lender may from time to time assign or transfer its interests hereunder pursuant to Section 11.04 hereof. The Borrower may not assign or transfer its Rights or obligations hereunder without the prior written consent of the Administrative Agent and each Lender. 11.04. Assignments and Participations. (a) Each Lender (an "Assignor") may assign its Rights and obligations as a Lender under the Loan Papers to one or more transferees pursuant to an Assignment and Acceptance, so long as (i) each assignment shall be of a constant, and not a varying percentage of all Rights and obligations thereunder, provided that any assignment may assign a non-pro rata portion of any of the Revolver 87 93 Loan, Term Loan or Special Purpose Loan, (ii) each Assignor shall obtain in each case the prior written consent of Administrative Agent and the Borrower, in each case such consent of the Borrower and the Administrative Agent not to be unreasonably withheld or delayed, provided that (A) in the event there exists an Event of Default that is continuing, no consent of the Borrower shall be required to make an assignment and (B) no consent of the Borrower shall be required for any Lender to assign all or any portion of its Loan to an Affiliate or another existing Lender, (iii) each Assignor shall in each case pay a $3,500 processing fee to Administrative Agent, (iv) no such assignment is for an amount less than $5,000,000 and in increments $1,000,000, provided that, if any such assignment is to an existing Lender, such minimum assignment amounts shall not be required and (v) if any such assignment is a partial assignment, no Lender shall hold less than $5,000,000 immediately after giving effect to any assignment. Assignments and other transfers (except participations) with respect to each Lender's participation in a given Letter of Credit may only be made with the prior written consent of the Administrative Agent. Within five Business Days after Administrative Agent receives notice of any such assignment, the Borrower shall execute and deliver to Administrative Agent, in exchange for the Notes issued to Assignor, new Notes to the order of such Assignor and its assignee in amounts equal to their respective Applicable Specified Percentages of the Revolver Commitment and/or the Special Purpose Commitment, and/or the outstanding amount of the Term Loan, as applicable. Such new Notes shall be dated the effective date of the assignment. It is specifically acknowledged and agreed that on and after the effective date of each assignment, the assignee shall be a party hereto and shall have the Rights and obligations of a Lender under the Loan Papers. It is specifically agreed by all parties hereto that Lenders may have different percentages for each of the Loans. (b) Each Lender may sell participations to one or more Persons in all or any of its Rights and obligations under the Loan Papers; provided, however, that (i) such Lender's obligations under the Loan Papers shall remain unchanged, (ii) such Lender shall remain solely responsible to the other parties hereto for the performance of such obligations, (iii) such Lender shall remain the holder of its Notes for all purposes of the Loan Papers, (iv) the participant shall be granted the Right to vote on or consent to only those matters described in Sections 11.01(a), (b), (c) and (d) hereof, (v) Obligors, the Administrative Agent, and other Lenders shall continue to deal solely and directly with such Lender in connection with their respective Rights and obligations under the Loan Papers and (vi) no such participation is for an amount less than $5,000,000. (c) Any Lender may, in connection with any assignment or participation, or proposed assignment or participation, disclose to the assignee or participant, or proposed assignee or participant, any information relating to the Parent, the Borrower and their Subsidiaries furnished to such Lender by or on behalf of the Parent, the Borrower and their Subsidiaries. (d) Notwithstanding any other provision set forth in this Agreement, (i) any Lender may at any time create a security interest in all or any portion of its Rights under this Agreement (including, without limitation, the Advances owing to it and the Notes held by it) in favor of any Federal Reserve Bank in accordance with Regulation A of the Board of Governors of the Federal Reserve System and (ii) no participant of any Lender may further assign or participate any of its interest in the Loan Papers to any Person (except as may be required by Law or a Tribunal having authority over such participant). 11.05. Sharing of Payments. If, after and during the continuance of any Event of Default, any Lender shall obtain any payment (whether voluntary, involuntary, through the exercise of any Right 88 94 of set-off, or otherwise) on account of its Advances in excess of its pro rata share of payments made by the Borrower in accordance with such Lender's Total Specified Percentage, such Lender shall forthwith purchase participations in Advances made by the other Lenders as shall be necessary to share the excess payment pro rata in accordance with each Lender's Total Specified Percentage with each of them; provided, however, that if any of such excess payment is thereafter recovered from the purchasing Lender, its purchase from each Lender shall be rescinded and each Lender shall repay the purchase price to the extent of such recovery together with a pro rata share of any interest or other amount paid or payable by the purchasing Lender in respect of the total amount so recovered. The Borrower agrees that any Lender so purchasing a participation from another Lender pursuant to this Section 11.05 may, to the fullest extent permitted by Law, exercise all its Rights of payment (including the Right of set-off) with respect to such participation as fully as if such Lender were the direct creditor of the Borrower in the amount of such participation. 11.06. Right of Set-off. Upon the occurrence and during the continuance of any Event of Default, each Lender is hereby authorized (after prior written noticed to the Administrative Agent) at any time and from time to time, to the fullest extent permitted by Law, to set-off and apply any and all deposits (general or special, time or demand, provisional or final) at any time held and other indebtedness at any time owing by such Lender to or for the credit or the account of the Borrower, the Parent or any of their Subsidiaries against any and all of the obligations of the Borrower now or hereafter existing under this Agreement and the other Loan Papers, whether or not Administrative Agent or any Lender shall have made any demand under this Agreement or the other Loan Papers, and even if such obligations are unmatured. Each Lender shall promptly notify the Borrower after any such set-off and application, provided that the failure to give such notice shall not affect the validity of such set-off and application. The Rights of each Lender under this Section 11.06 are in addition to other Rights (including, without limitation, other Rights of set-off) which such Lender may have. 11.07. Costs, Expenses, and Taxes. (a) Notwithstanding anything to the contrary in the Loan Papers, the Borrower agrees to pay on demand (i) all costs and expenses of Administrative Agent in connection with the preparation and negotiation of all Loan Papers, including without limitation the reasonable fees and out-of-pocket expenses of Special Counsel, FCC counsel, PUC counsel and local counsel, as appropriate, (ii) all costs and expenses (including reasonable attorneys' fees and expenses) of Administrative Agent in connection with any interpretation, grant and perfection of any Lien, modification, amendment, waiver, release of any Loan Papers, restructuring or work-out and (iii) all costs and expenses (including reasonable attorneys' fees and expenses) of Administrative Agent and each Lender in connection with any collection of any portion of the Obligations or the enforcement of any Loan Papers during the continuance of an Event of Default. (b) In addition, notwithstanding anything to the contrary in the Loan Papers, the Borrower shall pay any and all stamp, debt, and other Taxes payable or determined to be payable in connection with any payment hereunder (other than Taxes on the overall net income of Administrative Agent or any Lender or franchise Taxes or Taxes on capital or capital receipts of Administrative Agent or any Lender), or the execution, delivery, or recordation of any Loan Papers, and agrees to save Administrative Agent and each Lender harmless from and against any and all liabilities with respect to, or resulting from any delay in paying or omission to pay any Taxes in accordance with this Section 11.07, including any penalty, interest, and expenses relating thereto. All payments by the Borrower or any Restricted 89 95 Subsidiary of the Borrower under any Loan Papers shall be made free and clear of and without deduction for any present or future Taxes (other than Taxes on the overall net income of Administrative Agent or any Lender of any nature now or hereafter existing, levied, or withheld, or franchise Taxes or Taxes on capital or capital receipts of Administrative Agent or any Lender), including all interest, penalties, or similar liabilities relating thereto. If the Borrower shall be required by Law to deduct or to withhold any Taxes from or in respect of any amount payable hereunder (i) the amount so payable shall be increased to the extent necessary so that, after making all required deductions and withholdings (including Taxes on amounts payable to Administrative Agent or any Lender pursuant to this sentence), Administrative Agent or any Lender receives an amount equal to the sum it would have received had no such deductions or withholdings been made, (ii) the Borrower shall make such deductions or withholdings, and (iii) the Borrower shall pay the full amount deducted or withheld to the relevant taxing authority in accordance with Applicable Law. Without prejudice to the survival of any other agreement of the Borrower hereunder, the agreements and obligations of the Borrower contained in this Section 11.07 shall survive the execution of this Agreement, termination of the Commitment, repayment of the Obligations, satisfaction of each agreement securing or assuring the Obligations and termination of this Agreement and each other Loan Paper. 11.08. Rate Provision. It is not the intention of any party to any Loan Papers to make an agreement violative of the Laws of any applicable jurisdiction relating to usury. In no event shall any Obligor or any other Person be obligated to pay any amount in excess of the Maximum Amount. If Administrative Agent or any Lender ever receives, collects or applies, as interest, any such excess, such amount which would be excessive interest shall be deemed a partial repayment of principal and treated hereunder as such; and if principal is paid in full, any remaining excess shall be paid to the Borrower or the other Person entitled thereto. In determining whether or not the interest paid or payable, under any specific contingency, exceeds the Maximum Amount, each Obligor, Administrative Agent and each Lender shall, to the maximum extent permitted under Applicable Laws, (a) characterize any nonprincipal payment as an expense, fee or premium rather than as interest, (b) exclude voluntary prepayments and the effect thereof, and (c) amortize, prorate, allocate and spread in equal parts, the total amount of interest throughout the entire contemplated term of the Obligations so that the interest rate is uniform throughout the entire term of the Obligations; provided that if the Obligations are paid and performed in full prior to the end of the full contemplated term thereof, and if the interest received for the actual period of existence thereof exceeds the Maximum Amount, Administrative Agent or Lenders, as appropriate, shall refund to the Borrower the amount of such excess or credit the amount of such excess against the total principal amount owing, and, in such event, neither Administrative Agent nor any Lender shall be subject to any penalties provided by any Laws for contracting for, charging or receiving interest in excess of the Maximum Amount. This Section 11.08 shall control every other provision of all agreements among the parties to the Loan Papers pertaining to the transactions contemplated by or contained in the Loan Papers. 11.09. Severability. If any provision of any Loan Papers is held to be illegal, invalid, or unenforceable under present or future Laws during the term thereof, such provision shall be fully severable, the appropriate Loan Paper shall be construed and enforced as if such illegal, invalid, or unenforceable provision had never comprised a part thereof, and the remaining provisions thereof shall remain in full force and effect and shall not be affected by the illegal, invalid, or unenforceable provision or by its severance therefrom. Furthermore, in lieu of such illegal, invalid, or unenforceable provision there shall be added automatically as a part of such Loan Paper a legal, valid, and enforceable provision as similar in terms to the illegal, invalid, or unenforceable provision as may be possible. 90 96 11.10. Exceptions to Covenants. No Obligor shall be deemed to be permitted to take any action or to fail to take any action that is permitted as an exception to any covenant in any Loan Papers, or that is within the permissible limits of any covenant, if such action or omission would result in a violation of any other covenant in any Loan Papers. 11.11. Counterparts. This Agreement and the other Loan Papers may be executed in any number of counterparts, all of which taken together shall constitute one and the same instrument. In making proof of any such agreement, it shall not be necessary to produce or account for any counterpart other than one signed by the party against which enforcement is sought. 11.12. GOVERNING LAW; WAIVER OF JURY TRIAL. (a) THIS AGREEMENT AND ALL OTHER LOAN PAPERS SHALL BE DEEMED TO BE CONTRACTS MADE IN DALLAS, TEXAS, AND SHALL BE GOVERNED BY AND CONSTRUED IN ACCORDANCE WITH THE LAWS OF THE STATE OF TEXAS (WITHOUT GIVING EFFECT TO CONFLICTS OF LAWS) AND THE UNITED STATES OF AMERICA. WITHOUT EXCLUDING ANY OTHER JURISDICTION, THE BORROWER AGREES THAT THE FEDERAL COURTS OF TEXAS LOCATED IN DALLAS, TEXAS, WILL HAVE JURISDICTION OVER PROCEEDINGS IN CONNECTION HEREWITH. TO THE MAXIMUM EXTENT PERMITTED BY LAW, THE BORROWER HEREBY WAIVES ANY RIGHT THAT IT MAY HAVE TO A TRIAL BY JURY OF ANY DISPUTE (WHETHER A CLAIM IN TORT, CONTRACT, EQUITY, OR OTHERWISE) ARISING UNDER OR RELATING TO THIS AGREEMENT, THE OTHER LOAN PAPERS, OR ANY RELATED MATTERS, AND AGREES THAT ANY SUCH DISPUTE SHALL BE TRIED BEFORE A JUDGE SITTING WITHOUT A JURY. (b) THE BORROWER HEREBY WAIVES PERSONAL SERVICE OF ANY LEGAL PROCESS UPON IT. THE BORROWER AGREES THAT SERVICE OF PROCESS MAY BE MADE UPON IT BY REGISTERED MAIL (RETURN RECEIPT REQUESTED) DIRECTED TO THE BORROWER AT ITS ADDRESS DESIGNATED FOR NOTICE UNDER THIS AGREEMENT AND SERVICE SO MADE SHALL BE DEEMED TO BE COMPLETED FIVE DAYS AFTER DEPOSIT IN THE UNITED STATES MAIL. NOTHING IN THIS SECTION 11.12 SHALL AFFECT THE RIGHT OF ADMINISTRATIVE AGENT OR ANY LENDER TO SERVE LEGAL PROCESS IN ANY OTHER MANNER PERMITTED BY LAW. 11.13. ENTIRE AGREEMENT. THIS AGREEMENT AND THE OTHER LOAN PAPERS REPRESENT THE FINAL AGREEMENT BETWEEN THE PARTIES AND MAY NOT BE CONTRADICTED BY EVIDENCE OF PRIOR, CONTEMPORANEOUS OR SUBSEQUENT ORAL AGREEMENT OF THE PARTIES. THERE ARE NO UNWRITTEN ORAL AGREEMENTS BETWEEN THE PARTIES. 11.14. Amendment, Restatement, Extension, Renewal and Increase. This Agreement is a renewal and amendment and restatement of the Original Credit Agreement, and, as such, except for the "Obligation" as defined in the Original Credit Agreement (which shall survive, be renewed and restated by the terms of this Agreement), all other terms and provisions supersede in their entirety the Original Credit Agreement. This Agreement is being restated and amended by the Majority Lenders in accordance with the terms of Section 11.01 of the Original Credit Agreement. All subordination agreements, security agreements, pledge agreements, mortgages, deeds of trust and other documents 91 97 and instruments granting any security interest or assigning any interest in any assets of the Borrower or any Subsidiary to secure the Obligation executed and delivered in connection with this Agreement that restate any previously granted interest shall supersede any subordination agreements, security agreements, pledge agreements, mortgages, deeds of trust and other documents and instruments granting any security interest or assigning any interest in any assets of the Borrower or any Subsidiary that were executed and delivered in connection with the Original Credit Agreement (the "Original Security Documents"), except for the Liens created under the Original Security Documents which shall remain valid, binding and enforceable Liens against the Borrower, the Subsidiaries and each of the other Persons granting any such Liens. All other Original Security Documents shall continue to secure the Obligations as herein defined, and shall be in full force and effect. ================================================================================ THE REMAINDER OF THIS PAGE IS INTENTIONALLY LEFT BLANK ================================================================================ 92 98 IN WITNESS WHEREOF, this First Amended and Restated Credit Agreement is executed as of the date first set forth above. THE BORROWER: IXC COMMUNICATIONS SERVICES, INC. /s/ James F. Guthrie ---------------------------------------- By: James F. Guthrie Its: Executive Vice President and Chief Financial Officer 99 Agreed and Accepted: THE PARENT: IXC COMMUNICATIONS, INC. /s/ James F. Guthrie ---------------------------------------- By: James F. Guthrie Its: Executive Vice President and Chief Financial Officer 100 ADMINISTRATIVE AGENT: NATIONSBANK, N.A., as Administrative Agent /s/ Roselyn M. Drake ---------------------------------------- By: Roselyn M. Drake Its: Principal 101 CO-SYNDICATION AGENTS: CREDIT SUISSE FIRST BOSTON, as Co-Syndication Agent /s/ Todd C. Morgan ---------------------------------------- By: Todd C. Morgan ----------------------------------- Its: Director ----------------------------------- /s/ Bill O'Daly ---------------------------------------- By: Bill O'Daly ----------------------------------- Its: Vice President ----------------------------------- 102 TD SECURITIES (USA), INC., as Co-Syndication Agent /s/ David Perlman ---------------------------------------- By: David Perlman ----------------------------------- Its: ----------------------------------- 103 EXPORT DEVELOPMENT CORPORATION, as Co-Syndication Agent /s/ Bruce Dunlop ---------------------------------------- By: Bruce Dunlop ----------------------------------- Its: Financial Services Manager ----------------------------------- /s/ Stephen Davies ---------------------------------------- By: Stephen Davies ----------------------------------- Its: Financial Services Manager ----------------------------------- 104 LENDERS: NATIONSBANK, N.A., individually as a Lender Address: 901 Main Street 64th Floor Dallas, Texas 75202 /s/ Roselyn M. Drake ------------------------------------------ By: Roselyn M. Drake Its: Principal Attn.: Roselyn M. Drake Telephone: (214) 209-0988 Telecopy: (214) 209-9390 Revolver Specified Percentage: 21.42857142750% Term Loan Specified Percentage: 21.42857142750% Total Specified Percentage: 21.42857142750% 105 EXPORT DEVELOPMENT CORPORATION, as a Lender Address: 151 O'Connor Street, 10th Floor Ottawa, ON K1A 1K3 /s/ Bruce Dunlop ---------------------------------------- By: Bruce Dunlop ----------------------------------- Its: Financial Services Manager ----------------------------------- Attn: Bruce Dunlop Telephone: (613) 598-3034 Telecopy: (613) 598-6858 /s/ Stephen Davies ---------------------------------------- By: Stephen Davies ----------------------------------- Its: Financial Services Manager ----------------------------------- Revolver Specified Percentage: 21.42857142750% Term Loan Specified Percentage: 21.42857142750% Total Specified Percentage: 21.42857142750% 106 CREDIT SUISSE FIRST BOSTON, as a Lender Address: 11 Madison Avenue New York, New York 10010 /s/ Todd C. Morgan ---------------------------------------- By: Todd C. Morgan ----------------------------------- Its: Director ----------------------------------- Attn: Jeffrey Howe Telephone: (212) 325-9102 Telecopy: (212) 325-6695 /s/ Bill O'Daly ---------------------------------------- By: Bill O'Daly ----------------------------------- Its: Vice President ----------------------------------- Revolver Specified Percentage: 10.00000000000% Term Loan Specified Percentage: 10.00000000000% Total Specified Percentage: 10.00000000000% 107 TORONTO DOMINION (TEXAS), INC., as a Lender Address: 909 Fannin Street, Suite 1700 Houston, Texas 77010 /s/ Carol Brandt ---------------------------------------- By: Carol Brandt ----------------------------------- Its: Vice President ----------------------------------- Attn: Carol Brandt Telephone: (713) 653-8204 Telecopy: (713) 951-9921 Revolver Specified Percentage: 11.42857143000% Term Loan Specified Percentage: 11.42857143000% Total Specified Percentage: 11.42857143000% 108 THE BANK OF NEW YORK, as a Lender Address: One Wall Street, 16th Floor New York, New York 10286 /s/ Gary Granovsky ---------------------------------------- By: Gary Granovsky ----------------------------------- Its: Vice President ----------------------------------- Attn: Gerry Grenovsky Telephone: (212) 635-8615 Telecopy: (212) 635-8593 Revolver Specified Percentage: 7.14285714500% Term Loan Specified Percentage: 7.14285714500% Total Specified Percentage: 7.14285714500% 109 BANK OF MONTREAL, as a Lender Address: 430 Park Avenue New York, New York 10022 /s/ Ola Anderssen ---------------------------------------- By: Ola Anderssen ----------------------------------- Its: Director ----------------------------------- Attn: Ola Anderssen Telephone: (212) 605-1453 Telecopy: (212) 605-1648 Revolver Specified Percentage: 4.28571428500% Term Loan Specified Percentage: 4.28571428500% Total Specified Percentage: 4.28571428500% 110 BANK OF NOVA SCOTIA, as a Lender Address: One Liberty Plaza, 26th Floor New York, New York 10006 /s/ Vincent J. Fitzgerald ---------------------------------------- By: Vincent J. Fitzgerald ----------------------------------- Its: Authorized Secretary ----------------------------------- Attn: Steve Levi Telephone: (212) 225-5039 Telecopy: (212) 225-5091 Revolver Specified Percentage: 4.28571428500% Term Loan Specified Percentage: 4.28571428500% Total Specified Percentage: 4.28571428500% 111 BANK AUSTRIA CREDITANSTALT CORPORATE FINANCE, INC., as a Lender Address: Two Ravinia Drive, Suite 1680 Atlanta, Georgia 30346 /s/ Gary Andresen ---------------------------------------- By: Gary Andresen ----------------------------------- Its: Associate ----------------------------------- Attn: Carl Drake Telephone: (770) 390-1850 Telecopy: (770) 390-1851 /s/ Robert M. Biringer ---------------------------------------- By: Robert M. Biringer ----------------------------------- Its: Executive Vice President ----------------------------------- Revolver Specified Percentage: 4.28571428500% Term Loan Specified Percentage: 4.28571428500% Total Specified Percentage: 4.28571428500% 112 NATIONAL WESTMINSTER BANK PLC, as a Lender Address: c/o Greenwich Capital Markets By: Natwest Capital Markets Ltd., its 600 Steamboat Road agent Greenwich, CT 06830 By: Greenwich Capital Markets, Inc., its agent /s/ Richard J. Jacoby ---------------------------------------- By: Richard J. Jacoby ----------------------------------- Its: Assistant Vice President ----------------------------------- Attn: Rick Jacoby Telephone: (203) 618-2510 Telecopy: (203) 618-2520 Revolver Specified Percentage: 2.85714285500% Term Loan Specified Percentage: 2.85714285500% Total Specified Percentage: 2.85714285500% 113 THE INDUSTRIAL BANK OF JAPAN, LIMITED, NEW YORK BRANCH, as a Lender Address: 1251 Avenue of the Americas New York, New York 10020-1104 /s/ William Kennedy ---------------------------------------- By: William Kennedy ----------------------------------- Its: Senior Vice President ----------------------------------- Attn: Christian Giordano Telephone: (212) 282-3515 Telecopy: (212) 282-4486 Revolver Specified Percentage: 4.28571428500% Term Loan Specified Percentage: 3.21428571500% Total Specified Percentage: 5.71428571500% 114 BANK OF TOKYO-MITSUBISHI TRUST COMPANY, as a Lender Address: 1251 Avenue of the Americas New York, New York 10020-1104 /s/ Emile Elnems ---------------------------------------- By: Emile Elnems ----------------------------------- Its: Vice President ----------------------------------- Attn: Emile Elnems Telephone: (212) 782-4310 Telecopy: (212) 782-5650 Revolver Specified Percentage: 4.28571428500% Term Loan Specified Percentage: 4.28571428500% Total Specified Percentage: 4.28571428500% 115 BANK OF HAWAII, as a Lender Address: 1850 North Central Avenue Suite 400 Phoenix, Arizona 85004 /s/ Eric N. Pelletier ---------------------------------------- By: Eric N. Pelletier ----------------------------------- Its: Vice President ----------------------------------- Attn: Eric Pelletier Telephone: (602) 257-2485 Telecopy: (602) 257-2235 Revolver Specified Percentage: 2.85714286000% Term Loan Specified Percentage: 2.85714286000% Total Specified Percentage: 2.85714286000% 116 KZH CNC LLC, as a Lender Address: c/o The Chase Manhattan Bank 450 West 33rd Street, 15th Floor New York, New York 10001 /s/ Virginia Conway ---------------------------------------- By: Virginia Conway ----------------------------------- Its: Authorized Agent ----------------------------------- Attn: Virginia Conway Telephone: (212) 946-7575 Telecopy: (212) 946-7776 Revolver Specified Percentage: 0.00000000000% Term Loan Specified Percentage: 2.50000000000% Total Specified Percentage: 1.42857142950% EX-10.24 6 EMPLOYMENT AGREEMENT - VALERIE G. WALDEN 1 EXHIBIT 10.24 EMPLOYMENT AGREEMENT This employment agreement ("Agreement") is made as of April 8, 1999, by and between IXC Communications, Inc., a Delaware corporation (the "Company"), and Valerie G. Walden ("Employee"). BACKGROUND Employee is now, and has been, employed by the Company as an "at will" employee. The Company and Employee now desire to enter into a formal employment contract with a fixed term and certain non-compete and other provisions, all as set forth herein. NOW, THEREFORE, in consideration of the premises and the mutual covenants and agreements contained herein, the parties hereto, intending to be legally bound, hereby agree as follows: SECTION 1. CAPACITY AND DUTIES 1.1 Employment; Acceptance of Employment. Effective April 8, 1999, the Company employs Employee as Senior Vice President Customer Operations and Corporate Marketing, and Employee hereby accepts such employment with the Company, for the period and upon the terms and conditions hereinafter set forth. 1.2 Capacity and Duties. (a) Employee shall be employed by the Company as Senior Vice President Customer Operations and Corporate Marketing, and shall perform such duties and shall have such authority, consistent with her position, as may from time to time reasonably be specified by the Company or the Board of Directors of the Company (the "Board"). (b) Employee shall devote Employee's full-time attention, energies, skills, learning and best efforts to the business of the Company and, during the term of this Agreement, shall not be engaged, directly or indirectly, in any other business activity or render services of a business, professional or commercial nature to any other person, firm or corporation, in competition with the Company, except as otherwise agreed to in writing by the Company. SECTION 2. TERM OF EMPLOYMENT 2.1 Term. The term of Employee's employment hereunder shall commence on April 8, 1999, and shall continue until August 7, 2001, unless earlier terminated as hereinafter provided. Upon the expiration of such term, Employees employment with the Company shall continue on an at will employment basis until terminated by either party. 2 SECTION 3. COMPENSATION 3.1 Basic Compensation. As compensation for Employee's services hereunder, the Company shall pay to Employee a salary at the annual rate of $215,792.00 payable in periodic installments in accordance with the Company's regular payroll practices in effect from time to time, or at such higher annual rate as the Board shall from time to time determine in its sole discretion. The Board shall review Employee's salary no less frequently than annually. 3.2 Incentive Compensation. In addition to the base salary provided in Section 3.1 hereof, Employee shall be eligible to receive an annual bonus in accordance with the Company's policy, targeted at the same percentage of base salary as other senior executives of the Company, upon meeting the defined corporate objectives set by the Board and the personal objectives set by the CEO. 3.3 Health and Dental Benefits. In addition to the compensation provided for in Section 3.1 and Section 3.2 hereof, Employee shall be entitled to all rights and benefits for which Employee is eligible under any health and dental insurance policies that IXC provides to its employees or officers in comparable positions during the term of this Agreement. 3.4 Vacation. Employee shall be entitled to paid vacation during the term of her employment hereunder in accordance with the Company's vacation policy. 3.5 Reimbursement of Business Expenses. The Company will, upon submission of appropriate documentation, promptly reimburse employee for reasonable and authorized business expenses (including travel, entertainment, business meetings, telephone and similar items) incurred by Employee during the term of this Agreement in accordance with the Company's policy. 3.7 Other benefits. In addition to the benefits set forth in this Section 3, Employee shall be entitled to all other rights and benefits that IXC provides to its employees or officers in comparable positions during the term of this Agreement. SECTION 4. TERMINATION OF EMPLOYMENT 4.1 Death of Employee. Employee's employment hereunder shall immediately terminate upon her death. 4.2 Disability of Employee. If Employee, in the reasonable opinion of a physician selected by the Board, is materially unable, due to a physical, mental or emotional illness or condition, to perform her duties hereunder for a period of three consecutive months, the Board shall have the right to terminate Employee's employment upon 30 days' prior written notice to Employee at any time during the continuation of such inability. -2- 3 4.3 Termination for Cause. The Board may terminate Employee's employment hereunder for "cause" immediately upon written notice to Employee. As used herein, "cause" shall mean the following: (a) fraud committed in connection with Employee's employment, or theft, misappropriation or embezzlement of the Company's funds or property; (b) conviction of any felony, crime involving fraud or misrepresentation, or any other crime the effect of which is likely to materially adversely affect the Company; (c) failure to follow a reasonable lawful directive of the Board or an authorized Company officer or director following two business days' notice that such failure shall constitute grounds for termination for cause; or (d) abuse of alcohol or other drugs which materially interferes with the performance by Employee of her duties hereunder, provided that Employee has been given 30 days' prior written notice by the Board of its intent to terminate Employee pursuant to this provision during which time Employee has not demonstrated the cessation of such abuse to the reasonable satisfaction of the Board. 4.4 Termination Without Cause. If the Employee's employment is terminated by the Company for any reason other than as set forth above, Employee's termination shall be considered "without cause". 4.5 Payments upon Termination. (a) If Employee's employment is terminated as a result of her death, the Company shall not thereafter be obligated to make any further payments under this Agreement other than amounts payable hereunder accrued as of the date of Employee's death in accordance with generally accepted accounting principles. (b) If Employee's employment is terminated by the Company pursuant to Section 4.2 (disability), the Company shall not thereafter be obligated to make any further payments under this Agreement other than amounts payable hereunder accrued as of the date of Employee's termination in accordance with generally accepted accounting principles. (c) If Employee's employment is terminated by the Company pursuant to Section 4.3 (cause), the Company shall not thereafter be obligated to make any further payments under this Agreement other than amounts payable hereunder accrued as of the date of Employee's termination in accordance with generally accepted accounting principles. (d) If Employee's employment is terminated by the Company pursuant to Section 4.4 (without cause) the Company shall not thereafter be obligated to make any further payments under this Agreement other than (i) amounts payable hereunder accrued as of the date of Employee's termination in accordance with generally accepted accounting principles, (ii) a -3- 4 severance payment in an amount equal to the sum of the payments and obligations set forth in Section 3.1 from the date of such termination until August 7, 2001, but in no event shall such payment exceed one years payments under Sections 3.1, and (iii) COBRA payments, if applicable, for Employee's health benefits for a maximum of six months. Moreover, if Employee's employment is terminated by the Company pursuant to Section 4.4 (without cause), it is understood that solely for purposes of Employee's Stock Option Agreements 7, Employee's termination shall be deemed to have occurred on August 7, 2001. 4.6 No Mitigation. There shall be no requirement on the part of Employee to seek other employment or otherwise mitigate damages in order to be entitled to the full amount of any payments or benefits to be made pursuant to this Agreement and payments due in respect of periods following the termination of employment shall not be diminished by any amounts earned by Employee from any other employment. SECTION 5. MISCELLANEOUS 5.1 Noncompetition. During the term of Employee's employment hereunder, and continuing until the earliest to occur of the following: (i) February 7, 2002 provided that Employee continues to be employed by the Company on such date (ii) six months after termination of Employees employment hereunder in the event that employee resigns on or before August 7, 2001 (iii) a Change of Control as defined in Employee's Stock Option Agreement dated as of 12/29/1997, or (iv) a termination of Employees employment by the Company pursuant to Section 4.4 (without cause), Employee shall not, directly or indirectly, engage in, render services of any nature to, provide financial support for, plan for, be connected in any manner with or organize any business which is competitive with or similar to the business of the Company if such other business has operations or planned operations anywhere in the world where the Company or its subsidiaries has or plans to have operations, by becoming an owner, officer, director, shareholder (except for less than 2% of a publicly traded stock for investment purposes only), partner, creditor, associate, employee, agent, representative or consultant or serve in any other capacity in connection with such other business without the Company's prior written consent. Each of the parties hereto acknowledges that the restrictions, prohibitions and other provisions hereof are reasonable, fair and equitable in scope, terms and duration, are necessary to protect the legitimate business interests of the Company given the current scope of the Companies business and Employees expertise, and are a material inducement to the Company to enter into this Agreement. The provisions of this section shall survive the termination of this Agreement. 5.2 Nonsolicitation. During the term of Employee's employment and continuing for one year thereafter, Employee shall not, directly or indirectly; (i) hire or solicit any employee, consultant, sales representative, sales agent or advisor of the Company or any of its affiliates or encourage any such employee, consultant, sales representative, sales agent or advisor to leave such employment for any business whether or not a competitor of the Company; or (ii) solicit or divert or attempt to divert to any competitor any business of the Company or solicit or divert or attempt to divert any customers or suppliers of the Company. -4- 5 5.3 Confidentiality/Trade Secrets. Since the work for which Employee is employed and upon which Employee will be engaged will include knowledge and information of a confidential nature to, and the secret property of, the Company, or persons, firms, entities or corporations with whom the Company is affiliated, or customers of the Company or its affiliates (including but not limited to inventions, improvements, designs systems, ideas, financial and technical data, trade secrets, business plans, financing systems and techniques, sales techniques and approaches, and customer and supplier information), Employee shall receive all knowledge and information in confidence, and shall not at any time (during or after employment with the Company) except as required in the conduct of the Company business, or authorized in writing by the Company, publish, disclose or use or authorize anyone else to publish, disclose or make use of any such information or knowledge unless and until such information or knowledge shall have ceased to be secret or confidential as evidenced by general public knowledge. In the event that Employee's employment with the Company shall cease, Employee authorizes the Company to send a copy of this section in its sole discretion, to any and all future employers which Employee may have and to any and all persons, firms, entities and corporations with whom Employee may become affiliated in a business or commercial enterprise, and inform any and all such employers, persons, firms, entities or corporations that the Company intends to exercise its legal rights should Employee breach the terms of this Agreement or should another party induce a breach by Employee. The provisions of this section shall survive the termination of this Agreement. 5.4 Property. All results and proceeds of Employee's services hereunder, and all inventions, improvements, systems, designs, ideas, business plans, sales techniques and approaches which Employee made or conceived or which Employee may make or conceive, at any time after the commencement of Employee's employment with the Company and until the termination thereof, either individually or jointly with others, or which Employee utilizes in carrying out Employee's duties hereunder (hereinafter "Property"), shall be the exclusive property of the Company as a "work for hire", and Employee hereby assigns and agrees to assign to the Company all of Employee's rights in and to all such Property, and to all copyrights (statutory and common law), covering any or all of the Property. The provisions of this section shall survive the termination of this Agreement. 5.5 Injunction; Confidential Materials. Employee hereby consents and agrees that for any violation of any of the provisions of Section 5.3 (Confidentiality/Trade Secrets), or Section 5.4 (Property) of this Agreement, a restraining order and/or an injunction may issue against Employee in addition to any other rights the Company may have at law or in equity. Employee agrees that records containing secret or confidential knowledge and information prepared by Employee or which come into Employee's possession during Employee's employment by the Company, are and remain the property of the Company, and if and when Employee's employment with the Company terminates, all such records and all copies thereof shall be left with the Company. 5.6 Remedies. Employee acknowledges and agrees that the services to be rendered by Employee hereunder and the rights and privileges herein granted to the Company are by reason of Employee's skill and experience, of a special, unique, unusual, extraordinary and -5- 6 intellectual character which gives them a peculiar value, the loss of which cannot reasonably or adequately be compensated in damages in an action at law, and that a breach by Employee of any of the provisions contained herein, including, without limitation, the provisions of Section 5.1 (Noncompetition), will cause the Company irreparable injury and damage. Employee expressly agrees that the Company shall be entitled as a matter of right to injunctive or other equitable relief to prevent a breach of this Agreement by Employee. Resort to such equitable relief, however, shall not be construed as a waiver of any other rights or remedies which the Company may have for damages or otherwise hereunder. Employee specifically agrees that the Company may recover by appropriate action the amount of the actual damage caused the Company by any failure, refusal or neglect of Employee to keep and perform all of the agreements and warranties herein contained. 5.7 Prior Employment. Employee represents and warrants that he is not a party to any other employment, non-competition or other agreement or restriction which could interfere with her employment with the Company or her or the Company's rights and obligations hereunder; and that her acceptance of employment with the Company and the performance of her duties hereunder will not breach the provisions of any contract, agreement, or understanding to which he is party or any duty owed by him to any other person. 5.8 Severability. The invalidity or unenforceability of any particular provision or part of any provision of this Agreement shall not affect the other provisions or parts hereof. 5.9 Assignment. This Agreement shall not be assignable by Employee, and shall be assignable by the Company only to any person or entity which may become a successor in interest (by purchase of assets or stock, or by merger, or otherwise) to the Company. Subject to the foregoing, this Agreement and the rights and obligations set forth herein shall inure to the benefit of, and be binding upon, the parties hereto and each of their respective permitted successors, assigns, heirs, executors and administrators. 5.10 Notices. All notices hereunder shall be in writing and shall be sufficiently given if hand-delivered, sent by documented overnight delivery service or registered or certified mail, postage prepaid, return receipt requested or by facsimile (confirmed by U.S. mail), confirmation received, addressed as set forth below or to such other person and/or at such other address as may be furnished in writing by any party hereto to the other. Any such notice shall be deemed to have been given as of the date received, in the case of personal delivery, or on the date shown on the receipt of confirmation therefor, in all other cases. Any and all service of process and any other notice in any action, suite or proceeding shall be effective against any party if given as provided in this Agreement; provided that nothing herein shall be deemed to affect the right of any party to serve process in any other manner permitted by law. -6- 7 (a) If to the Company: IXC Communications, Inc. 1122 South Capital of Texas Highway Austin, TX 78746 Attention: General Counsel Tel: 512-427-3959 Fax: 512-328-7902 . (b) If to Employee: Valerie G. Walden 11 Pascal Lane Austin, TX 78746 Tel: 512-347-0586 Fax: 512-347-0587 5.11 Entire Agreement and Modification. This Agreement constitutes the entire agreement between the parties hereto with respect to the matters contemplated herein and supersedes all prior agreements and understandings with respect thereto. Any amendment, modification or waiver of this Agreement shall not be effective unless in writing. Neither the failure nor any delay on the part of any party to exercise any right, remedy, power or privilege hereunder shall operate as a waiver thereof, nor shall any single or partial exercise of any right, remedy, power or privilege preclude any other or further exercise of the same or any other right, remedy, power or privilege with respect to any occurrence be construed as a waiver of any right, remedy, power or privilege with respect to any other occurrence. 5.12 Binding Arbitration. The parties hereby consent to the resolution by binding arbitration of all claims or controversies in any way arising out of, relating to or associated with this Agreement. Any arbitration required by this Agreement shall be conducted before a single arbitrator in Austin, Texas in accordance with the commercial arbitration rules of the American Arbitration Association then existing, and any award, order or judgment pursuant to such arbitration may be enforced in any court of competent jurisdiction. The arbitrator shall apply rules of Texas law and the parties expressly waive any claim or right to an award of punitive damages. All such arbitration proceedings shall be conducted on a confidential basis. Notwithstanding the foregoing, either party may seek injunctive or other equitable relief in a court of law without proceeding through arbitration. 5.13 Amendment. This Agreement may only be amended by an agreement in writing signed by the Company and Employee. 5.14 Governing Law. This Agreement is made pursuant to, and shall be construed and enforce in accordance with, the internal laws of the State of Texas, without giving effect to otherwise applicable principles of law. -7- 8 5.15 Headings; Counterparts. The headings of paragraphs in this Agreement are for convenience only and shall not affect its interpretation. This Agreement may be executed in two or more counterparts, each of which shall be deemed to be an original an all of which, when taken together, shall be deemed to constitute but one and the same Agreement. 5.16 Further Assurances. Each of the parties hereto shall execute such further instruments and take such other actions as any other party shall reasonably request in order to effectuate the purposes of this Agreement. IN WITNESS WHEREOF, the parties have executed this Agreement as of the date first above written. IXC Communications, Inc. By: /s/ Benjamin L. Scott ------------------------------------ Name: Benjamin L. Scott Title: Chairman Employee: /s/ Valerie G. Walden ------------------------------ Valerie G. Walden -8- EX-10.25 7 EMPLOYMENT AGREEMENT - JAMES F. GUTHRIE 1 EXHIBIT 10.25 EMPLOYMENT AGREEMENT This employment agreement ("Agreement") is made as of April 26, 1999 by and between IXC Communications, Inc., a Delaware corporation (the "Company"), and James F. Guthrie ("Employee"). BACKGROUND Employee is now, and has been for several years, employed by the Company. As an inducement for Employee to remain with the Company through and beyond December 31, 1999, the Company and Employee now desire to enter into a formal employment contract all as set forth herein. NOW, THEREFORE, in consideration of the premises and the mutual covenants and agreements contained herein, the parties hereto, intending to be legally bound, hereby agree as follows: SECTION 1. CAPACITY AND DUTIES 1.1 Employment; Acceptance of Employment. Effective April 26, 1999, the Company employs Employee as Executive Vice President, Chief Financial Officer, and Employee hereby accepts such employment with the Company, for the period and upon the terms and conditions hereinafter set forth. 1.2 Capacity and Duties. (a) Employee shall be employed by the Company as Executive Vice President, Chief Financial Officer, and shall be responsible for all financial operations and M&A activities of the Company and its subsidiaries, and shall perform such duties and shall have such authority, consistent with his position, as may from time to time reasonably be specified by the Board of Directors of the Company (the "Board"). While not a member of the Board, Employee will be included in all applicable Board of Directors meetings, teleconferences, etc. (b) Employee shall devote Employee's full-time attention, energies, skills, learning and best efforts to the business of the Company and, during the term of this Agreement, shall not be engaged, directly or indirectly, in any other business activity or render services of a business, professional or commercial nature to any other person, firm or corporation, in competition with the Company, except as otherwise agreed to in writing by the Company. SECTION 2. TERM OF EMPLOYMENT 2.1 Term. The term of Employee's employment hereunder shall commence on April 26, 1999, and shall continue until October 7, 2002, unless earlier terminated as hereinafter provided. Upon the expiration of such term, Employees employment with the Company shall continue on an at will employment basis until terminated by either party. 2 2.2 Notwithstanding section 2.1 above, Employee may terminate this Agreement at any time upon giving no less than 90 days notice to the Company. SECTION 3. COMPENSATION 3.1 Basic Compensation. As compensation for Employee's services hereunder, the Company shall pay to Employee a salary at the annual rate of $278K payable in periodic installments in accordance with the Company's regular payroll practices in effect from time to time, or at such higher annual rate as the Board shall from time to time determine in its sole discretion. The Board shall review Employee's salary no less frequently than annually. 3.2 Incentive Compensation. In addition to the base salary provided in Section 3.1 hereof, Employee shall be eligible to receive an annual bonus in accordance with the Company's policy, at the same level as other senior executives of the Company, upon meeting the defined corporate objectives set by the Board and the personal objectives set by the CEO. 3.3 Health and Dental Benefits. In addition to the compensation provided for in Section 3.1 and Section 3.2 hereof, Employee shall be entitled to all rights and benefits for which Employee is eligible under any health and dental insurance policies that IXC provides to its employees or officers in comparable positions during the term of this Agreement. 3.4 Vacation. Employee shall be entitled to paid vacation during the term of his employment hereunder in accordance with the Company's vacation policy. 3.5 Reimbursement of Business Expenses. The Company will, upon submission of appropriate documentation, promptly reimburse employee for reasonable and authorized business expenses (including travel, entertainment, business meetings, telephone and similar items) incurred by Employee during the term of this Agreement in accordance with the Company's policy. 3.6 Special payments. (a) Provided Employee remains an active employee of the Company beyond December 31, 1999, or should he be terminated by the Company for reasons other than cause, as defined in section 4.3, including change of title or a decrease in his responsibilities (excepting the title and responsibilities as CFO which both parties agree may be changed or deleted after the date hereof) prior to December 31, 1999, employee shall be entitled to: a special one-time payment of $556K on January 20, 2000; a payout of his 1999 bonus target at a minimum of 50% of base pay, on the normal bonus payment date regardless of whether he is an employee on such date; and, upon termination, a cash payment equivalent to the value of the acceleration of his then unvested options scheduled on Exhibit A calculated at the market price as of such termination date, less his exercise price, multiplied by the number of unvested shares at the time of such termination. In addition, Employee and the Company agree that: (i) should Employee be terminated by the Company for reasons other than cause as defined in section 4.3, or (ii) should Employee terminate this Agreement in accordance with section 2.2 above prior to -2- 3 October 7, 2002, Employee and the Company, at no additional cost to the Company other than the value of actual services performed, agree to allow Employee to enter into an independent contractor relationship with the Company for consulting services, such that Employee shall have a minimum of one year from his termination date, but not beyond October 7, 2002, to exercise any then vested stock options granted prior to April 26, 1999, in accordance with the terms of the applicable Stock Plan. (b) Any options granted after the effective date of this agreement shall not be subject to the provisions of paragraph 3.6 (a) above. 3.7 Other benefits. In addition to the benefits set forth in this Section 3, Employee shall be entitled to all other rights and benefits that IXC provides to its employees or officers in comparable positions during the term of this Agreement. SECTION 4. TERMINATION OF EMPLOYMENT 4.1 Death of Employee. Employee's employment hereunder shall immediately terminate upon his death. 4.2 Disability of Employee. If Employee, in the reasonable opinion of a physician selected by the Board, is materially unable, due to a physical, mental or emotional illness or condition, to perform his duties hereunder for a period of three consecutive months, the Board shall have the right to terminate Employee's employment upon 30 days' prior written notice to Employee at any time during the continuation of such inability. 4.3 Termination for Cause. The Board may terminate Employee's employment hereunder for "cause" immediately upon written notice to Employee. As used herein, "cause" shall mean the following: (a) fraud committed in connection with Employee's employment, or theft, misappropriation or embezzlement of the Company's funds or property; (b) conviction of any felony, crime involving fraud or misrepresentation, or any other crime the effect of which is likely to materially adversely affect the Company; (c) failure to follow a reasonable lawful directive of the Board or an authorized Company officer or director following two business days' notice that such failure shall constitute grounds for termination for cause; or (d) abuse of alcohol or other drugs which materially interferes with the performance by Employee of his duties hereunder, provided that Employee has been given 30 days' prior written notice by the Board of its intent to terminate Employee pursuant to this provision during which time Employee has not demonstrated the cessation of such abuse to the reasonable satisfaction of the Board. -3- 4 4.4 Termination Without Cause. If the Employee's employment is terminated by the Company for any reason other than as set forth above, Employee's termination shall be considered "without cause." 4.5 Payments upon Termination. (a) If Employee's employment is terminated as a result of his death, the Company shall not thereafter be obligated to make any further payments under this Agreement other than amounts payable hereunder accrued as of the date of Employee's death in accordance with generally accepted accounting principles. (b) If Employee's employment is terminated by the Company pursuant to Section 4.2 (disability), the Company shall not thereafter be obligated to make any further payments under this Agreement other than amounts payable hereunder accrued as of the date of Employee's termination in accordance with generally accepted accounting principles. (c) If Employee's employment is terminated by the Company pursuant to Section 4.3 (cause), the Company shall not thereafter be obligated to make any further payments under this Agreement other than amounts payable hereunder accrued as of the date of Employee's termination in accordance with generally accepted accounting principles. (d) If Employee's employment is terminated by the Company pursuant to Section 4.4 (without cause) the Company shall not thereafter be obligated to make any further payments under this Agreement other than (i) amounts payable hereunder accrued as of the date of Employee's termination in accordance with generally accepted accounting principles, and (ii) severance payments in an amount equal to the sum of the payments and obligations set forth in Sections 3.1, 3.3, and, with respect to any payments not yet made, 3.6, from the date of such termination through the end of the term, but in no event to exceed a period of one year. 4.6 No Mitigation. There shall be no requirement on the part of Employee to seek other employment or otherwise mitigate damages in order to be entitled to the full amount of any payments or benefits to be made pursuant to this Agreement and payments due in respect of periods following the termination of employment shall not be diminished by any amounts earned by Employee from any other employment. SECTION 5. MISCELLANEOUS 5.1 Noncompetition. During the term of Employee's employment hereunder, and continuing until one year after termination of Employees employment hereunder or (iii) a Change of Control as defined in paragraph 3.7.2, Employee shall not, directly or indirectly, engage in, render services of any nature to, provide financial support for, plan for, be connected in any manner with or organize any business which is competitive with or similar to the business of the Company if such other business has operations or planned operations anywhere in the -4- 5 world where the Company or its subsidiaries has or plans to have operations, by becoming an owner, officer, director, shareholder (except for less than 2% of a publicly traded stock for investment purposes only), partner, creditor, associate, employee, agent, representative or consultant or serve in any other capacity in connection with such other business without the Company's prior written consent. Each of the parties hereto acknowledges that the restrictions, prohibitions and other provisions hereof are reasonable, fair and equitable in scope, terms and duration, are necessary to protect the legitimate business interests of the Company given the current scope of the Companies business and Employees expertise, and are a material inducement to the Company to enter into this Agreement. The provisions of this section shall survive the termination of this Agreement. 5.2 Nonsolicitation. During the term of Employee's employment and continuing for one year thereafter, Employee shall not, directly or indirectly; (i) hire or solicit any employee, consultant, sales representative, sales agent or advisor of the Company or any of its affiliates or encourage any such employee, consultant, sales representative, sales agent or advisor to leave such employment for any business whether or not a competitor of the Company; or (ii) solicit or divert or attempt to divert to any competitor any business of the Company or solicit or divert or attempt to divert any customers or suppliers of the Company. 5.3 Confidentiality/Trade Secrets. Since the work for which Employee is employed and upon which Employee will be engaged will include knowledge and information of a confidential nature to, and the secret property of, the Company, or persons, firms, entities or corporations with whom the Company is affiliated, or customers of the Company or its affiliates (including but not limited to inventions, improvements, designs systems, ideas, financial and technical data, trade secrets, business plans, financing systems and techniques, sales techniques and approaches, and customer and supplier information), Employee shall receive all knowledge and information in confidence, and shall not at any time (during or after employment with the Company) except as required in the conduct of the Company business, or authorized in writing by the Company, publish, disclose or use or authorize anyone else to publish, disclose or make use of any such information or knowledge unless and until such information or knowledge shall have ceased to be secret or confidential as evidenced by general public knowledge. In the event that Employee's employment with the Company shall cease, Employee authorizes the Company to send a copy of this section in its sole discretion, to any and all future employers which Employee may have and to any and all persons, firms, entities and corporations with whom Employee may become affiliated in a business or commercial enterprise, and inform any and all such employers, persons, firms, entities or corporations that the Company intends to exercise its legal rights should Employee breach the terms of this Agreement or should another party induce a breach by Employee. The provisions of this section shall survive the termination of this Agreement. 5.4 Property. All results and proceeds of Employee's services hereunder, and all inventions, improvements, systems, designs, ideas, business plans, sales techniques and approaches which Employee made or conceived or which Employee may make or conceive, at any time after the commencement of Employee's employment with the Company and until the termination thereof, either individually or jointly with others, or which Employee utilizes in -5- 6 carrying out Employee's duties hereunder (hereinafter "Property"), shall be the exclusive property of the Company as a "work for hire", and Employee hereby assigns and agrees to assign to the Company all of Employee's rights in and to all such Property, and to all copyrights (statutory and common law), covering any or all of the Property. The provisions of this section shall survive the termination of this Agreement. 5.5 Injunction; Confidential Materials. Employee hereby consents and agrees that for any violation of any of the provisions of Section 5.3 (Confidentiality/Trade Secrets), or Section 5.4 (Property) of this Agreement, a restraining order and/or an injunction may issue against Employee in addition to any other rights the Company may have at law or in equity. Employee agrees that records containing secret or confidential knowledge and information prepared by Employee or which come into Employee's possession during Employee's employment by the Company, are and remain the property of the Company, and if and when Employee's employment with the Company terminates, all such records and all copies thereof shall be left with the Company. 5.6 Remedies. Employee acknowledges and agrees that the services to be rendered by Employee hereunder and the rights and privileges herein granted to the Company are by reason of Employee's skill and experience, of a special, unique, unusual, extraordinary and intellectual character which gives them a peculiar value, the loss of which cannot reasonably or adequately be compensated in damages in an action at law, and that a breach by Employee of any of the provisions contained herein, including, without limitation, the provisions of Section 5.1 (Noncompetition), will cause the Company irreparable injury and damage. Employee expressly agrees that the Company shall be entitled as a matter of right to injunctive or other equitable relief to prevent a breach of this Agreement by Employee. Resort to such equitable relief, however, shall not be construed as a waiver of any other rights or remedies which the Company may have for damages or otherwise hereunder. Employee specifically agrees that the Company may recover by appropriate action the amount of the actual damage caused the Company by any failure, refusal or neglect of Employee to keep and perform all of the agreements and warranties herein contained. 5.7 Prior Employment. Employee represents and warrants that he is not a party to any other employment, non-competition or other agreement or restriction which could interfere with his employment with the Company or his or the Company's rights and obligations hereunder; and that his acceptance of employment with the Company and the performance of his duties hereunder will not breach the provisions of any contract, agreement, or understanding to which he is party or any duty owed by him to any other person. 5.8 Severability. The invalidity or unenforceability of any particular provision or part of any provision of this Agreement shall not affect the other provisions or parts hereof. 5.9 Assignment. This Agreement shall not be assignable by Employee, and shall be assignable by the Company only to any person or entity which may become a successor in interest (by purchase of assets or stock, or by merger, or otherwise) to the Company. Subject to the foregoing, this Agreement and the rights and obligations set forth herein shall inure to the -6- 7 benefit of, and be binding upon, the parties hereto and each of their respective permitted successors, assigns, heirs, executors and administrators. 5.10 Notices. All notices hereunder shall be in writing and shall be sufficiently given if hand-delivered, sent by documented overnight delivery service or registered or certified mail, postage prepaid, return receipt requested or by facsimile (confirmed by U.S. mail), confirmation received, addressed as set forth below or to such other person and/or at such other address as may be furnished in writing by any party hereto to the other. Any such notice shall be deemed to have been given as of the date received, in the case of personal delivery, or on the date shown on the receipt of confirmation therefor, in all other cases. Any and all service of process and any other notice in any action, suite or proceeding shall be effective against any party if given as provided in this Agreement; provided that nothing herein shall be deemed to affect the right of any party to serve process in any other manner permitted by law. (a) If to the Company: IXC Communications, Inc. 1122 South Capital of Texas Highway Austin, TX 78746 Attention: General Counsel Tel: 512-427-3959 Fax: 512-328-7902 (b) If to Employee: Mr. James F. Guthrie 3100 Sweetgum Cove Austin, TX 78735 Tel: 512-347-0193 Fax: 512-347-1668 -7- 8 5.11 Entire Agreement and Modification. This Agreement constitutes the entire agreement between the parties hereto with respect to the matters contemplated herein and supersedes all prior agreements and understandings with respect thereto. Any amendment, modification or waiver of this Agreement shall not be effective unless in writing. Neither the failure nor any delay on the part of any party to exercise any right, remedy, power or privilege hereunder shall operate as a waiver thereof, nor shall any single or partial exercise of any right, remedy, power or privilege preclude any other or further exercise of the same or any other right, remedy, power or privilege with respect to any occurrence be construed as a waiver of any right, remedy, power or privilege with respect to any other occurrence. 5.12 Binding Arbitration. The parties hereby consent to the resolution by binding arbitration of all claims or controversies in any way arising out of, relating to or associated with this Agreement. Any arbitration required by this Agreement shall be conducted before a single arbitrator in Austin, Texas in accordance with the commercial arbitration rules of the American Arbitration Association then existing, and any award, order or judgment pursuant to such arbitration may be enforced in any court of competent jurisdiction. The arbitrator shall apply rules of Texas law and the parties expressly waive any claim or right to an award of punitive damages. All such arbitration proceedings shall be conducted on a confidential basis. Notwithstanding the foregoing, either party may seek injunctive or other equitable relief in a court of law without proceeding through arbitration. 5.13 Amendment. This Agreement may only be amended by an agreement in writing signed by the Company and Employee. 5.14 Governing Law. This Agreement is made pursuant to, and shall be construed and enforce in accordance with, the internal laws of the State of Texas, without giving effect to otherwise applicable principles of law. 5.15 Headings; Counterparts. The headings of paragraphs in this Agreement are for convenience only and shall not affect its interpretation. This Agreement may be executed in two or more counterparts, each of which shall be deemed to be an original an all of which, when taken together, shall be deemed to constitute but one and the same Agreement. 5.16 Further Assurances. Each of the parties hereto shall execute such further instruments and take such other actions as any other party shall reasonably request in order to effectuate the purposes of this Agreement. IN WITNESS WHEREOF, the parties have executed this Agreement as of the date first above written. IXC Communications, Inc. By: /s/ Benjamin L. Scott ------------------------------- Benjamin L. Scott Employee: /s/ James F. Guthrie ---------------------------------- James F. Guthrie Date: 5/18/99 -------------------- -8- 9 Exhibit A James F. Guthrie Employment Agreement
Number Remaining Grant Date of Options Grant Price Vesting Dates o 10/29/1996 100,000 $22.50 10/29/1999 10/29/2000 o 9/9/1997 50,000 $27.50 9/9/1999 9/9/2000 9/9/2001 o 10/7/1998 37,000 $22.00 10/7/1999 10/7/2000 10/7/2001 10/7/2002
-9- EX-10.26 8 EMPLOYMENT AGREEMENT - JOHN M. ZRNO 1 EXHIBIT 10.26 EMPLOYMENT AGREEMENT This Employment Agreement ("Agreement") is entered into as of May 27, 1999 by and between IXC Communications, Inc., a Delaware corporation ("Company"), and John M. Zrno ("Employee"). ARTICLE I EMPLOYMENT The Company hereby employs Employee and Employee hereby accepts employment with the Company upon the terms and conditions set forth below. 1.1 TERM. (a) The term of this Agreement will commence on May 27, 1999 (the "Commencement Date") and, unless terminated earlier under the terms hereof, will terminate on May 27, 2003. (b) This Agreement will terminate prior to May 27, 2003, upon the earliest to occur of any of the following events: (i) Upon written notice to Employee that the Board of Directors has determined that Employee should be terminated for "Cause," as that term is defined in Section 2.4(h) of this Agreement; or (ii) Upon the Employee's death, "Disability" (as that term is defined in Internal Revenue Code ("Code") Section 22(e)(3)), or voluntary termination of employment by Employee. 1.2 DUTIES. (a) Employee agrees to serve as President and Chief Executive Officer of the Company as well as of its major subsidiaries or in such other capacity or capacities as the Board of Directors may reasonably require that are consistent with his position, provided that the duties and responsibilities of Employee are not materially diminished and there is no change in his title or reporting responsibilities. (b) Employee will report directly to the Board of Directors of the Company ("Board of Directors"). 2 ARTICLE II COMPENSATION AND BENEFITS 2.1 COMPENSATION. (a) As compensation for the services to be rendered under this Agreement, Employee will be entitled to receive from the Company an annual base salary of three hundred eighty-five thousand dollars ($385,000), payable bi-weekly. (b) Bonuses, if any, are awarded by, and at the sole discretion of, the Board of Directors. (c) Employee's base salary may be increased from time to time in accordance with the Company's policies and procedures. 2.2 BENEFITS. The Company will make available to Employee the fringe benefits provided to its senior executive officers, including group-term life insurance coverage, medical benefits, (including dental insurance), participation in the Company's 401(k) Plan, reimbursement of reasonable and appropriate business expenses, an annual car allowance of Eight Thousand Dollars ($8,000) payable in monthly installments, and vacations, all in accordance with the Company's stated policies and procedures. 2.3 RELOCATION COSTS. The Company will reimburse Employee for the reasonable costs of (i) living accommodations in Austin (e.g., hotel or apartment accommodations) for a reasonable period and (ii) transporting such of Employee's household goods as he may designate from Dallas, Texas to Austin, Texas. 2.4 STOCK OPTION. (a) The Company will grant a nonqualified stock option to Employee allowing Employee to purchase five hundred thousand (500,000) shares of common stock of the Company ("Option"). The term of the Option will be for ten (10) years. -2- 3 (b) The exercise price per share under the Option will be thirty-three dollars and ninety-three and three-fourths cents ($33.9375), which was the NASDAQ closing price of the stock on May 27, 1999. (c) The Option will vest as follows: (i) the Option with respect to the right to acquire 350,000 shares of common stock vests immediately on May 27, 1999; and (ii) the Option with respect to the right to acquire the remaining 150,000 shares of common stock will vest in equal installments over a four (4) year period on the first, second, third and fourth anniversaries of the Commencement Date. Except as otherwise expressly provided in this Agreement, in no event will Employee vest upon any anniversary of the Commencement Date unless Employee is employed by the Company on such date. (d) If Employee voluntarily resigns or is terminated for Cause (as that term is defined in Paragraph (h) below) prior to the expiration of this Agreement, Employee can exercise the vested portion of the Option not later than the ninetieth (90th) day following the effective date of his resignation or termination, at which time the unexercised portion of the Option (whether vested or not) will be forfeited. (e) If Employee is terminated for a reason that does not constitute Cause prior to the expiration of this Agreement, the entire Option will become immediately exercisable and remain exercisable for ninety (90) days following the effective date of his termination, at which time the unexercised portion of the Option will be forfeited. (f) Upon the death or Disability of the Employee, Employee (or his personal representative or estate, whichever is applicable) can exercise the vested portion of the Option not later than one (1) year following the date of his death or Disability, at which time the unexercised portion of the Option (whether vested or not) will be forfeited. (g) If there is a "Change in Control" of the Company after May 27, 2000, the Option with respect to the right to acquire any shares of common stock that have not vested will become immediately vested. Notwithstanding that acceleration in the vesting of the Option would be available, Employee may elect not to have the vesting accelerated. For purposes of this Agreement, the term "Change in Control" means any of the following: (A) A successful tender offer for greater than fifty percent (50%) of the outstanding capital stock of the Company; -3- 4 (B) A sale of all or substantially all of the assets of the Company; or (C) A merger or consolidation of the Company with any other corporation in which the stockholders of the Company immediately preceding such merger or consolidation will not hold at least fifty-one percent (51%) of the outstanding capital stock of the surviving corporation (whether or not the Company is the surviving corporation) immediately after such merger or consolidation. (h) For purposes of this Agreement, the term "Cause" means any of the following: (i) Employee's failure or refusal to: (A) Materially perform his duties and responsibilities as set forth in Section 1.2 of this Agreement; or (B) Devote all of his business time and attention exclusively to the business and affairs of the Company in accordance with the terms of this Agreement; provided, however, that Employee may, at his discretion, continue to serve on the Boards of Directors of Teleglobe, Inc., FaxNet, Inc. and such other boards as the directors of the Company shall approve; in each case if such failure or refusal is not cured within thirty (30) days after written notice thereof to Employee by the Company; (ii) The willful misappropriation by Employee of the funds or property of the Company; (iii) The use of alcohol or drugs, materially interfering with the performance of Employee's obligations under this Agreement, continuing after written warning; (iv) Conviction of Employee in a court of law of, or entering a plea of guilty or no contest to, any felony or any other crime involving moral turpitude, dishonesty, or theft; (v) The commission in bad faith by the Employee of any act which materially injures or could reasonably be expected to materially injure the reputation, business, or business relationships of the Company; or -4- 5 (vi) Any material breach (not covered by any of Subparagraphs (i) through (v) of this Paragraph (h)) of any term, provision, or condition of this Agreement, if such breach is not cured within thirty (30) days after written notice thereof to Employee by the Company. 2.5 WITHHOLDING. Any amounts includible in Employee's income as a result of this Agreement will be subject to all applicable legal requirements with respect to the withholding of federal, state, and local taxes and other normal withholdings. ARTICLE III FIDELITY For purposes of this Article III, the term "Company" shall include IXC Communications, Inc. and its subsidiaries and affiliates. 3.1 CONFIDENTIAL INFORMATION. (a) Employee agrees not to disclose any Confidential Information (as that term is defined in Paragraph (e) below) of the Company, including information received in confidence from the Company or from others, whether before, during, or after Employee's employment with the Company, except upon the prior written consent of the Company. (b) Employee acknowledges that the Confidential Information of the Company includes matters conceived or developed by Employee, as well as matters learned by Employee from other employees or agents of the Company. (c) Any Confidential Information that Employee may prepare, use, or come into contact with will be and remain the Company's sole property and will not be removed from the Company's premises without its written consent, except as required in accordance with Employee's performance of Employee's duties hereunder, and will be returned to the Company, together with all copies, summaries, and extracts thereof, upon termination of this Agreement. (d) Except as the Company may otherwise consent or direct in writing, Employee will not, sell, use, lecture upon, or publish any Confidential Information or authorize anyone else to do those things at any time either before or after the expiration of this Agreement. -5- 6 (e) For purposes of this Agreement, the term "Confidential Information" means information (i) disclosed to or known by Employee as a consequence of or through Employee's employment by the Company, (ii) not generally known outside the Company, and (iii) that relates to the Company. Confidential Information will also include the Company's proprietary information (such as trade secrets). (f) This Section 3.1 will continue in full force and effect after the expiration of this Agreement. 3.2 COMPETITION. (a) The provisions of Paragraph (c) below will apply from the Commencement Date until the earliest to occur of the following events: (i) Until May 27, 2003; or (ii) The maximum period during which the provisions of this Section 3.2 can be enforced under Texas law. (b) The provisions of Paragraph (c) below will not apply if the Company terminates the employment of Employee for a reason that does not constitute "Cause" under Section 2.4(h) of this Agreement. (c) Except in furtherance of the execution of Employee's duties under this Agreement, Employee expressly covenants and agrees that Employee will not, without the prior written consent of the Board of Directors, either acting alone or in conjunction with others, directly or indirectly: (i) Engage in any competition with the Company with respect to those products or services of a type for which Employee had responsibility for at the Company; (ii) Solicit business of any type engaged in by the Company (or by any subsidiary or affiliate of Company) with respect to those products or services of a type for which Employee had responsibility for at the Company from any person or business which is an account, customer, or client of the Company; (iii) Induce or attempt to influence any such account, customer, or client to curtail or cancel his or its business with the Company; or (iv) Induce or attempt to influence any employee to terminate his or her employment with the Company. -6- 7 3.3 ENFORCEMENT. Because the remedy at law for any breach of the provisions of this Article III would be inadequate, Employee hereby consents to the granting of an injunction or other equitable relief enjoining any breach of these provisions by any court having jurisdiction without the necessity of proving actual monetary loss. In addition to such injunctive relief, the Company may pursue at law any remedies available to it. ARTICLE IV MISCELLANEOUS MATTERS 4.1 BINDING ON SUCCESSOR. The Company will not enter into any merger, acquisition, or other business combination with any other party in which the Company will not be the surviving entity unless the other party to that agreement consents to be bound by the terms of this Agreement. 4.2 NO ASSIGNMENT. Except as required by law, Employee may not assign or alienate (voluntarily or involuntarily) any right to receive payments under this Agreement. 4.3 GOVERNING LAW. This Agreement shall be governed by and construed in accordance with the laws of the State of Texas without reference to the conflict of laws provisions thereof. 4.4 CAPTIONS. The captions of this Agreement are included solely for convenience of reference and have no force or effect. 4.5 AMENDMENTS. This Agreement may not be amended, modified, or waived in any manner other than by a written agreement executed by the parties to this Agreement. The waiver by either party of compliance with any provision of this Agreement by the other party will not operate or be construed as a waiver of any other provision of this Agreement, or of any subsequent breach by the other party of any provision of this Agreement. 4.6 NOTICES. All notices and other communications hereunder will be sufficient if in writing and either hand-delivered or mailed by registered or certified mail, return receipt requested, with postage prepaid, to the parties at the following addresses (or to such other address or addresses as either party shall have designated in writing to the other party in accordance with the provisions of this Section 4.6): -7- 8 IF TO THE COMPANY: IXC Communications, Inc. 1122 Capital of Texas Highway South Austin, Texas 78746-6426 Attn: Chairman IF TO EMPLOYEE: John M. Zrno c/o IXC Communications, Inc. 1122 Capital of Texas Highway South Austin, Texas 78746-6426 4.7 SEVERABILITY. The invalidity or unenforceability of any provision of this Agreement will not affect the validity or enforceability of any other provision of this Agreement. 4.8 ENTIRE AGREEMENT AND MODIFICATION. This Agreement constitutes the full and complete understanding and agreement of the parties and supersedes all prior understandings and agreements between the parties. IN WITNESS WHEREOF, the parties hereto have executed this Agreement as of the day and year indicated above. JOHN M. ZRNO, an individual IXC COMMUNICATIONS, INC. /s/ By: /s/ Jeffrey C. Smith - --------------------------------- ------------------------------ Jeffrey C. Smith Senior Vice President -8- EX-10.27 9 CONTRACT FOR SERVICES 1 EXHIBIT 10.27 [GRAPHIC] CONTRACT FOR SERVICES Whereas, American Business Development Corporation ("ABDC"), whose principal office is located at 9330 LBJ Freeway, Suite 900, Dallas, Texas 75243, provides consulting services to the telecommunications industry. Whereas, IXC Communications, Inc. ("Client"), whose principal office is located at 1122 Capital of Texas Highway South, Austin, Texas 78746, provides telecommunications products and services to various customers. Whereas, Client has requested the consulting services of ABDC as described herein (the "Services"). Now therefore, ABDC has been engaged by the Client for a period of one (1) year (the "Term") commencing on the Effective Date hereof for the purpose of rendering the Services generally described as follows. For purposes of this Agreement, the Effective Date shall be June 14, 1999. 1. The Services shall include, but not be limited to, the following: General Description of the Services: A. Consultation and assistance provided to management regarding telecommunications issues. B. Consultation and assistance regarding financial matters relating to the Client and the telecommunications industry, including, if so asked, to perform all of the functions and responsibilities of acting CFO of Client. C. Any other professional consultation and assistance reasonably requested by the Client and accepted by ABDC. 2. All services to be performed pursuant to this Agreement shall be performed by Stanley W. Katz personally. While Mr. Katz shall be permitted to perform some services for other clients during the term of this Agreement, Mr. Katz shall devote substantially all of his full time and effort to the performance of this Agreement. This Agreement may not be assigned by ABDC, nor may others provide services without the prior written consent of Client. This Agreement shall terminate upon the death or disability (for more than 45 days) of Mr. Katz. 2 CONTRACT FOR SERVICES BETWEEN IXC COMMUNICATIONS, INC. AND ABDC (CONTINUED): 3. ABDC shall report to and follow the direction of Mr. John M. Zrno (or his designee) of Client. Upon mutual agreement, this Contract may be changed by the Client from time to time upon written notice to ABDC. 4. ABDC shall receive a monthly cash Retainer in the amount of fifty thousand dollars ($50,000.00) in consideration for the Services performed. In addition to the Retainer set forth in Paragraph 3, ABDC will be reimbursed for all reasonable and necessary expenses incurred in performing the Services. If major expenses (e.g. travel, lodging, etc.) are to be incurred, if practicable, ABDC will notify and receive prior approval from the Client. 5. In addition to the Retainers set forth in Paragraph 3, provided that ABDC is continuing to perform services in accordance with this Agreement, ABDC shall receive Non-Recurring Cash Payment ("NRCP") in the total amount of five hundred thousand dollars ($500,000.00), payable, subject to paragraph 7, as follows: a. Two hundred and fifty thousand dollars ($250,000.00) will be payable January 13, 2000. b. Two hundred and fifty thousand dollars ($250,000.00) will be payable June 13, 2000. 6. Provided that ABDC is continuing to perform services in accordance with this Agreement, if Client terminates this Agreement prior to the end of the Term, Client will pay to ABDC immediately upon such termination all Retainers, NRCP, and expenses owed and yet unpaid to ABDC through the Term of the Contract. The Aggregate Value of all cash payments (absent expense reimbursements) is one million one hundred thousand U.S. dollars ($1,100,000.00). Provided that ABDC is continuing to perform services in accordance with this Agreement, subject to paragraph 7, this Contract may not be cancelled by the Client without immediate payment of the then unpaid Aggregate Value to ABDC. 7. This Contract will terminate upon Change In Control of the Client. At that time, the then unpaid portion of the Aggregate Value shall immediately become due and payable to ABDC. (a) For the purposes of this Agreement, "Change in Control", means any of the following: (i) A successful tender offer for greater than fifty percent (50%) of the outstanding capital stock of the Company; (ii) A sale of all or substantially all of the assets of the Company; or (iii) A merger or consolidation of the Company with any other corporation in which the stockholders of the Company immediately preceding such merger or consolidation will not hold a majority of the outstanding capital stock of the 3 CONTRACT FOR SERVICES BETWEEN IXC COMMUNICATIONS, INC. AND ABDC (CONTINUED): surviving corporation (whether or not the Company is the surviving corporation) immediately after such merger or consolidation. 8. At any point during the Term of this Contract, the Client may offer to ABDC an option ("Stock Option") to purchase IXC Communications, Inc. common stock. If such Stock Option is accepted by ABDC, it will replace the then unpaid portion of the NRCP as compensation to ABDC. 9. Independent Contractor. In the performance of Consultant's duties and obligations under this Agreement, Consultant shall at all times act in the capacity of an independent contractor. Consultant shall be fully and solely responsible to report all sums received under this Agreement and to pay all taxes accruing as a result of the sums received in a manner consistent with being an independent contractor as contemplated by this Agreement. Client shall not withhold any sums from the amounts paid to the Consultant for any tax purpose whatsoever. Consultant further understands and agrees that Consultant and Consultant shall not be entitled to any benefits available to Client's employees including, without limitation, medical, dental, unemployment, disability, vacation and pension benefits, and that Consultant is solely responsible for providing workers' compensation coverage, and all other legally required benefits, to any persons performing services for Consultant who are entitled to such benefits under applicable state or federal law. 10. Confidential Information. The Confidential Information (as such term is defined below) shall be kept confidential and shall not be disclosed by Consultant in whole or in part, to any third party without Client's prior written consent. The Confidential Information (as such term is defined below) shall be kept confidential and shall not be disclosed by Consultant except for disclosures: (i) to those employees, advisors and agents (collectively "Representatives") who need to know such information in connection with performing its obligations to clients (it being understood that those Representatives will be informed of, and will be bound by the confidential nature of the confidential information and the terms of this Agreement), and (ii) as otherwise permitted by this Agreement. "Confidential Information" shall mean all of the following, whether oral or written: all analyses, business and financial reports, compilations, excerpts, forecasts, summaries, studies, statements, and other information, cost data, customer or investor lists, data, developments, documentation, experience, information concerning benefits, customers, contracts, investors, operations, sales, salaries, personnel, products or suppliers, "know-how," knowledge, marketing information, methods, models, plans, policies, practices, price data, procedures, products, programs, strategies, supplier lists, trade secrets, owned by, generated by, or disclosed by, Client or of any affiliate of Client, and any other information normally understood to be or designated as confidential or proprietary by Client, including, without limitation, information concerning matters conceived or developed by Consultant or its Representatives for Client, except to the extent publicly known other than by breach hereof, in the public domain, obtained from any 4 CONTRACT FOR SERVICES BETWEEN IXC COMMUNICATIONS, INC. AND ABDC (CONTINUED): person not in breach of any obligation to Client or any of its affiliates, or independently developed by Consultant. All analyses, compilations, studies or other documents prepared by Consultant and its Representatives using Confidential Information shall also be deemed to be Confidential Information. Notwithstanding anything herein to the contrary, this section shall survive the termination of this Agreement for any reason and shall remain in force and effect forever. 11. Required Disclosure. In the event that Consultant is requested pursuant to, or required by, applicable law, regulation, or legal or administrative process to disclose any of the Confidential Information, Consultant will notify Client in writing so that Client may seek a protective order or other appropriate remedy or, in its discretion, to waive compliance with the terms of this Confidentiality Agreement. In the event that no such protective order or other remedy is obtained, or if Client does not waive compliance with the terms of this Confidentiality Agreement, Consultant agrees to furnish only that portion of the Confidential Information which Consultant is advised by counsel is legally required, and Consultant will use reasonable efforts to obtain reliable assurances that confidential treatment will be accorded to the Confidential Information. 12. Insurance. Consultant shall self insure or shall maintain in full force and effect applicable workers' compensation insurance and comprehensive general liability insurance policy protecting Consultant and Client and their respective officers and employees against loss, liability or expense relating to personal injury, death or property damage or otherwise arising out of, or occurring in connection with the business of Consultant. 13. Indemnification. Consultant shall indemnify, defend, release and hold harmless Client and all of its affiliates, agents, clients, consultants, customers, employees, subcontractors, invitees or licensees from and against any action, claim, court cost, damage, demand, expense, liability, loss, penalty, proceeding or suit, (collectively, together with related attorneys' fees, including costs and disbursements, "Claims") imposed upon Client by reason of damages to property or injuries, including death, as a result of an act (whether intentional, negligent or otherwise) or omission on the part of Consultant or any of its affiliates, agents, clients, consultants, customers, employees, subcontractors, invitees or licensees in connection with Consultant's performance under this Agreement. In the event any action shall be brought against Client, Client shall immediately notify Consultant in writing, and Consultant, upon the request of Client, shall assume the defense thereof on behalf of Client and its affiliates and shall pay all expenses and satisfy all judgments which may be incurred by or rendered against Client or its affiliates in connection therewith, provided that Client and its affiliates shall not be liable for any settlement of any such action effected without its written consent. Notwithstanding anything herein to the contrary, this section shall survive the termination of this Agreement for any reason and shall remain in force and effect forever. 5 CONTRACT FOR SERVICES BETWEEN IXC COMMUNICATIONS, INC. AND ABDC (CONTINUED): 14. Binding Arbitration and Fees. The parties hereby consent to the resolution by binding arbitration of all claims or controversies in any way arising out of, relating to or associated with this Agreement. Any arbitration required by this Agreement shall be conducted before a single arbitrator in Austin, Texas in accordance with the commercial arbitration rules of the American Arbitration Association then existing, any award, order or judgment pursuant to such arbitration may be enforced in any court of competent jurisdiction. The arbitrator shall apply rules of Texas law and the parties expressly waive any claim or right to an award of punitive damages. All such arbitration proceedings shall be conducted on a confidential basis. Notwithstanding the foregoing, either party may seek injunctive or other equitable relief in a court of law without proceeding through arbitration. 15. Invoices submitted to the Client for all Retainers, NRCPs, and expense reimbursements are payable upon receipt and will be considered overdue if not paid within thirty (30) days of receipt of invoice. 16. This Contract may be extended or renegotiated by mutual agreement of the parties. 17. Any and all work performed and materials prepared pursuant to this Contract shall be the exclusive property of the Client. 18. This Contract constitutes the entire agreement between ABDC and the Client. No other commitments, obligations or duties expressed or implied are valid outside of the Contract or amendments thereto. This Contract supersedes any and all agreements existing between ABDC and the Client. 19. This Contract shall be governed by the substantive laws of the State of Texas. ALL TERMS AND CONDITIONS AGREED TO: IXC COMMUNICATIONS, INC. AMERICAN BUSINESS DEVELOPMENT CORP. By: /s/ John M. Zrno By: /s/ Stanley W. Katz -------------------------------- -------------------------------------- John M. Zrno, CEO Stanley W. Katz, President Date: June 28, 1999 ----------------------------------- EX-10.38 10 STOCK APPRECIATION RIGHTS PLAN 1 EXHIBIT 10.38 IXC COMMUNICATIONS, INC. 1999 STOCK APPRECIATION RIGHTS PLAN 1. PURPOSE. The purpose of the IXC Communications, Inc. 1999 Stock Appreciation Rights Plan is to provide stock-based compensation payable in the form of cash to a select group of senior executives of IXC Communications, Inc. 2. EFFECTIVE DATE. The effective date of the Plan is April 8, 1999. 3. DEFINITIONS. For purposes of this Plan, the following terms shall have the meanings set forth below: (a) "Base Price" means the Fair Market Value of the Common Stock on the date on which the Stock Appreciation Right was granted. (b) "Board of Directors" means the Board of Directors of the Company. (c) "Cap" means the maximum amount of the Fair Market Value of the Common Stock that may be taken into account in determining the amount of the benefit payable upon the exercise of the Participant's Stock Appreciation Right. (d) A "Change in Control" will be deemed have transpired upon the occurrence of any of the following events: (i) The date of consummation of the sale of all or substantially all of the assets of the Company; (ii) The date of completion of a successful tender offer for greater than fifty percent (50%) of the outstanding capital stock of the Company; or (iii) The date of consummation of a merger or consolidation of the Company with any other corporation in which the parties who were the stockholders of the Company immediately preceding such merger or consolidation will not hold a majority of the outstanding capital stock of the surviving corporation (whether or not the Company is the surviving corporation) immediately after such merger or consolidation. (e) "Committee" means the committee designated in accordance with Section 4 below that is responsible for the administration of the Plan. (f) "Common Stock" means the common stock of the Company or any security issued in substitution, exchange, or in lieu thereof. (g) "Company" means IXC Communications, Inc., a Delaware corporation, or any successor corporation. 2 (h) A "Constructive Discharge" of a Participant will be deemed to have occurred if there is (i) any material reduction in the Participant's compensation, (ii) any material reduction in the level or scope of job responsibility or status of the Participant occurring without the consent of the Participant, or (iii) any relocation to an office of the Company which is more than thirty (30) miles from the office where the Participant was previously located to which the Participant has not agreed. (i) The "Fair Market Value" of Common Stock shall be determined in accordance with the general rules stated in Subparagraph (i) below and the special rule contained in Subparagraph (ii) below. (i) The following general rules shall apply for valuation purposes. (A) If the Common Stock is admitted to trading or listed on a national securities exchange, its Fair Market Value shall be the last reported sale price on that day regular way, or if no such reported sale takes place on that day, the average of the last reported bid and ask prices on that day regular way, in either case on the principal national securities exchange on which the Common Stock is admitted to trading or listed. (B) If the Common Stock is not listed or admitted to trading on any national securities exchange, its Fair Market Value shall be the last sale price regular way on that day reported on the Nasdaq National Market ("Nasdaq National Market") of the Nasdaq Stock Market ("NSM") or, if no such reported sale takes place on that day, the average of the closing bid and ask prices regular way on that day. (C) If the Common Stock is not traded or listed on a national securities exchange or included in the Nasdaq National Market, its Fair Market Value shall be the last reported sale price on that day regular way, or if no such reported sale takes place on that day, the average of the closing bid and ask prices regular way on that day reported by the NSM, or any comparable system on that day. (D) If the Common Stock is not described in (A), (B), or (C) above, its Fair Market Value shall be the last reported sale price on that day regular way, or if no such reported sale takes place on that day, the average of the closing bid and ask prices regular way on that day as furnished by any member of the National Association of Securities Dealers, Inc. ("NASD") selected from time to time by the Company for that purpose. If the national securities exchange, Nasdaq National Market, NSM, or NASD (whichever is applicable) is closed on such date, the "Fair Market Value" shall be -2- 3 determined as of the last preceding day on which the Common Stock was traded or for which bid and ask prices are available. (ii) Notwithstanding the provisions of Subparagraph (i) above, in the case of a Change in Control, the Fair Market Value of the Common Stock shall be the value of the consideration paid for it in the transaction that effects the Change in Control. (j) "Participant" means an employee of the Company who has been granted a Stock Appreciation Right. (k) "Plan" means this IXC Communications, Inc. 1999 Stock Appreciation Rights Plan, as it may be amended from time to time. (l) "Related Stock Option" means the stock option previously granted to the Participant for the same number of shares as to which the Participant's Stock Appreciation Right applies. (m) "Stock Appreciation Right" means the right to receive the difference between the (i) Base Price and (ii) the Fair Market Value of the Common Stock on the date that the right is exercised. However, in no event will the portion of the Fair Market Value of the Common Stock in excess of the Cap (if applicable) be taken into account in determining the amount payable to the Participant. 4. ADMINISTRATION. (a) This Plan shall be administered by the Board or a committee appointed by the Board. (In either case, the responsible entity shall be referred to as the "Committee.") It is expressly intended that this Plan be treated as a formula plan for purposes of Rule 16b-3 promulgated by the Securities and Exchange Commission so that the approval of the Plan by the Board of Directors constitutes the approval of all grants under the Plan. (b) The Committee may conduct its meetings in person or by telephone. A majority of the members of the Committee shall constitute a quorum, and any action shall constitute the action of the Committee if it is authorized by: (i) A majority of the members present at any meeting conducted in accordance with the Company's bylaws; or (ii) The unanimous consent of all of the members in writing without a meeting. (c) The Committee is authorized to interpret this Plan and to adopt rules and procedures relating to the administration of this Plan. All actions of the Committee in -3- 4 connection with the interpretation and administration of this Plan shall be binding upon all parties. (d) The Committee is authorized to make such modifications to this Plan as are necessary to effectuate the intent of this Plan as a result of any changes in the tax, accounting, or securities laws treatment of the Participants, the Plan, or of the Company. 5. PARTICIPATION AND BENEFITS. Schedule A contains a list of (a) those senior executives of the Company who have been granted Stock Appreciation Rights as of the Effective Date of this Plan ("Initial Participants"), (b) the number of shares of Common Stock subject to each Stock Appreciation Right, (c) the Base Price of each Stock Appreciation Right, and (d) the Cap for each Stock Appreciation Right, and (e) the date of the Related Stock Option. The terms of any additional grants (whether to Initial Participants or to new Participants) shall be set forth in additional Schedules. 6. VESTING. (a) Except as otherwise provided in the grant, each Participant shall earn a vested right to exercise the number of shares subject to his or her Stock Appreciation Right at the rate of twenty-five percent (25%) on each anniversary of the date of the grant. (b) The termination of the Participant's employment (whether by reason of death or otherwise) shall not accelerate the number of shares with respect to which this Stock Appreciation Right may be exercised. Also, this Stock Appreciation Right shall be exercisable following termination of employment only to the extent (if at all) it was exercisable at the time of termination of employment. (c) In the event there is a Change in Control of the Company and (i) a Participant's employment is terminated without cause by the Company (or its successor) or (ii) a Participant is Constructively Discharged by the Company (or its successor), in each case during the one (1) year period immediately following the consummation of the Change in Control ("Employee Termination Date"), the Stock Appreciation Right shall fully vest on the Employee Termination Date, provided that it had not previously been terminated. A Change in Control without the occurrence of an event described in (i) or (ii) of the immediately preceding sentence during the one (1) year period immediately following the consummation of the Change in Control will not in any way change the vesting schedule set forth in Paragraph (a) of this Section 6. 7. EXERCISE OF RIGHTS. A Stock Appreciation Right may be exercised by the Participant by delivering to the Committee written notice specifying the number of full shares with respect to which it is to be exercised. Participants may not exercise their Stock Appreciation Rights with respect to a fractional share. Except as otherwise provided in the grant, if the Stock Appreciation Right is granted in tandem with a stock option, the Participant may exercise his or her Stock Appreciation Right only at the same time and with respect to the same number of shares as to which the Participant exercises his or her Related Stock Option. -4- 5 8. TERMINATION OF RIGHTS. Except as otherwise specified in the grant, all Stock Appreciation Rights will end on the tenth (10th) anniversary of the date of the grant. If the Stock Appreciation Right is granted in tandem with a stock option, the Stock Appreciation Right will remain exercisable following the termination of the Participant's employment (whether by reason of death, disability, or otherwise) only to the extent (if at all) that the Participant could exercise his or her Related Stock Option following termination of employment. 9. FORM OF BENEFIT PAYMENTS. Benefits will be paid in the form of a lump sum distribution of cash equal to the difference between (a) the Fair Market Value of the Common Stock (but not to exceed the Participant's Cap, if applicable) on the date that the Participant exercises the Stock Appreciation Right and (b) the Base Price of the Stock Appreciation Right. 10. DESIGNATION OF BENEFICIARY. In the event of the death of a Participant prior to the date on which the Participant's entire benefit under the Plan is paid, the benefit (or the remaining portion thereof) shall be paid to the Participant's estate, unless the Participant has designated a beneficiary in accordance with such rules and procedures as the Committee may prescribe. 11. PAYEES UNDER A LEGAL DISABILITY. If any payee is a minor, or if the Committee reasonably believes that any payee is legally incapable of giving a valid receipt and discharge for any payment due the payee, the Committee may have the payment made to the person (or persons or institution) whom it believes is caring for or supporting the payee. Any such payment shall be a payment for the benefit of the payee and shall be a complete discharge of any liability under the Plan to the payee. 12. PAYMENT OF BENEFITS. All payments under the Plan shall be delivered in person or mailed to the last address of the Participant (or, in the case of the death of the Participant, to that of the Participant's estate or of the Participant's designated beneficiary, whichever is applicable). Each Participant shall be responsible for furnishing the Committee with his or her current address and that of his or her beneficiary (if applicable). 13. CHANGES IN CAPITALIZATION. In the event of any change in the capitalization of the Company affecting its Common Stock (e.g., a stock split, reverse stock split, stock dividend, recapitalization, combination, or reclassification), the Committee shall make such adjustments as it may deem appropriate to each Stock Appreciation Right relating to (a) the number of shares of Common Stock to which it applies, (b) the Base Price, and (c) the Cap (if applicable). 14. NON-TRANSFERABILITY OF GRANTS. Stock Appreciation Rights are not assignable or transferable except by will or the laws of descent and distribution. 15. AMENDMENT AND TERMINATION. The Board may amend or terminate this Plan at any time. 16. NO ADDITIONAL RIGHTS. Neither the adoption of this Plan nor the participation of any Employee in this Plan shall (a) affect or restrict in any way the power of the Company to -5- 6 undertake any corporate action otherwise permitted under applicable law, (b) confer upon any Participant the right to continue performing services for the Company, or (c) interfere in any way with the right of the Company to terminate the services of any Participant at any time, with or without cause, subject to the terms of any applicable employment agreement. 17. SECURITIES LAW RESTRICTIONS. No Participant will be allowed to exercise a Stock Appreciation right if the Company determines that such exercise would violate (a) applicable federal or state securities law, (b) the rules of any stock exchange (or other securities market) on which the Common Stock is traded, or (c) the IXC Communications, Inc. Statement of Policy regarding Securities Transactions and Confidentiality (or any successor document). 18. WITHHOLDINGS. Any payments from the Plan may be subject to withholding for taxes as may be required by any applicable federal or state law. 19. INDEMNIFICATION. To the maximum extent permitted by law, the Company shall indemnify each member of the Board of Directors, as well as any other employee of the Company with duties under this Plan, against any and all liabilities and expenses (including any amount paid in judgment or settlement) reasonably incurred by the individual in connection with any claims against the individual by reason of the performance of the individual's duties under this Plan, unless the losses are due to the individual's gross negligence or lack of good faith. -6- 7 20. GOVERNING LAW. This Plan and all actions taken thereunder shall be governed by and construed in accordance with the laws of the State of Delaware. -7- EX-27.1 11 FINANCIAL DATA SCHEDULE
5 1,000 OTHER DEC-31-1999 JAN-01-1999 JUN-01-1999 98,562 0 95,662 31,047 0 219,976 1,523,344 272,054 2,101,493 339,717 450,815 471,112 2 374 (88,728) 2,101,493 0 319,250 0 213,093 214,571 43,150 20,109 (149,567) 6,311 (156,387) 0 0 0 (156,387) (5.14) (5.14)
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