As filed with the Securities and Exchange Commission on February 8, 2002
Registration No. 333-_____
===============================================================================
SECURITIES AND EXCHANGE COMMISSION
Washington, D.C. 20549
---------------
FORM S-1
REGISTRATION STATEMENT UNDER THE SECURITIES ACT OF 1933
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CORECOMM HOLDCO, INC.
(Exact Name of Registrant as Specified in Its Charter)
Delaware 4812 13-4078506
(State or Other Jurisdiction of (Primary Standard Industrial (I.R.S. Employer
Incorporation or Organization) Classification Code Number) Identification No.)
110 East 59th Street, 26th Floor
New York, New York 10022
(212) 906-8485
(Address, Including Zip Code, and Telephone Number,
Including Area Code, of Registrant's Principal
Executive Offices)
---------------
Jared L. Gurfein, Esq. Thomas H. Kennedy, Esq.
Director of Legal Affairs Skadden, Arps, Slate, Meagher & Flom LLP
CoreComm Holdco, Inc. Four Times Square
110 East 59th Street, 26th Floor New York, New York 10036
New York, New York 10022 (212) 735-3000
(212) 906-8485
(Name, Address, Including Zip Code, and Telephone Number,
Including Area Code, of Agent for Service)
---------------
Approximate date of commencement of proposed sale of the
securities to the public:
At such time or times on and after the date that this Registration
Statement becomes effective as the selling securityholders may determine.
---------------
If any of the securities being registered on this form are to be
offered on a delayed or continuous basis pursuant to Rule 415 under the
Securities Act of 1933, check the following box. |X|
If this form is filed to register additional securities for an
offering pursuant to Rule 462(b) under the Securities Act, check the
following box and list the Securities Act registration statement number of
the earlier effective registration statement for the same offering. | |
If this form is a post-effective amendment filed pursuant to Rule
462(c) under the Securities Act, check the following box and list the
Securities Act registration number of the earlier effective registration
statement for the same offering. | |
If this form is a post-effective amendment filed pursuant to Rule
462(d) under the Securities Act, check the following box and list the
Securities Act registration statement number of the earlier effective
registration statement for the same offering. | |
If delivery of the prospectus is expected to be made pursuant to
Rule 434, check the following box. | |
CALCULATION OF REGISTRATION FEE
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| |
Title of Each Class of |Proposed Maximum Aggregate | Amount of
Securities to be Registered | Offering Price(1) | Registration Fee(1)
| |
------------------------------------------------------------------------| --------------------------|- ------------------------
Common Stock, par value $0.01 per share, including the associated | $26,056,806 | $2,398
Rights to purchase Series A Junior Participating Preferred Stock(2) | |
------------------------------------------------------------------------ --------------------------- -------------------------
(1) Estimated solely for the purpose of calculating the registration fee
pursuant to Rule 457(o) of the Securities Act of 1933, as amended.
(2) The rights to purchase shares of our Series A Junior Participating
Preferred Stock initially are attached to and trade with the shares
of our common stock being registered hereby. Upon the occurrence of
specified events, our Series A Junior Participating Preferred Stock
will be evidenced separately from the shares of our common stock.
Value attributed to these rights, if any, is reflected in the market
price of our common stock.
-------------
The Registrant hereby amends this Registration Statement on such
date or dates as may be necessary to delay its effective date until the
Registrant shall file a further amendment which specifically states that this
Registration Statement shall thereafter become effective in accordance with
Section 8(a) of the Securities Act of 1933 or until the Registration
Statement shall become effective on such date as the Securities and Exchange
Commission, acting pursuant to said Section 8(a), may determine.
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[FLAG]
The information in this prospectus is not complete and may be changed. The
selling securityholders may not sell these securities until the registration
statement filed with the Securities and Exchange Commission is effective.
This prospectus is not an offer to sell these securities and the selling
securityholders are not soliciting offers to buy these securities in any
state where the offer or sale is not permitted.
Preliminary Prospectus
Subject to completion dated February 8, 2002
CoreComm Holdco, Inc.
---------------
8,685,602 Shares of Common Stock
---------------
This prospectus relates to the sale by selling securityholders of
(1) up to 8,685,602 shares of our common stock that the selling
securityholders acquired from us in our recently announced plan of
recapitalization in which debt and preferred stock of ours and CoreComm
Limited were exchanged for shares of our common stock, which we refer to as
the "Holdco Recapitalization," and (2) rights to purchase shares of our
Series A junior participating preferred stock, which rights are attached to
each share of our common stock. We will not receive any proceeds from the
sale of any of the securities.
The securities are being registered to permit the selling
securityholders to sell the securities from time to time to the public. The
selling securityholders may sell the securities through ordinary brokerage
transactions or through any other means described in the section entitled
"Plan of Distribution." We do not know when or in what amounts a selling
securityholder may offer securities for sale. The selling securityholders may
sell any, all or none of the securities offered by this prospectus.
Currently no public market exists for the shares of our common
stock. Pursuant to conversations we have had with Nasdaq, we intend to
transfer the existing listing of CoreComm Limited's common stock on the
Nasdaq National Market to our common stock in the future upon successful
completion of the exchange offer for CoreComm Limited common stock we
commenced on or about February 8, 2002, which is described in this
prospectus. However, there is no assurance that we will be able to continue
to meet the continued listing requirements of the Nasdaq National Market.
CoreComm Limited's outstanding common stock currently trades under the symbol
"COMM" on the Nasdaq National Market.
We urge you to carefully read the "Risk Factors" section beginning
on page 9, where we describe risks associated with CoreComm Holdco and our
common stock, before you make your investment decision.
Neither the Securities and Exchange Commission nor any state
securities commission has approved or disapproved of these securities or
determined if this prospectus is truthful or complete. Any representation to
the contrary is a criminal offense.
The date of this prospectus is _________, 2002
CONDENSED CORECOMM CORPORATE STRUCTURE
CoreComm Holdco, Inc., a Delaware corporation, was created by the
1999 merger of two former wholly owned subsidiaries of CoreComm Limited -
CoreComm Operating Co. Limited and CoreComm Ohio Limited, both Bermuda
companies, which were incorporated in 1998. Until December 17, 2001, CoreComm
Holdco was a wholly owned subsidiary of CoreComm Limited. On October 31, 2001
and December 17, 2001, CoreComm Limited and CoreComm Holdco announced the
Holdco Recapitalization in which shares of common stock of CoreComm Holdco
were to be issued in exchange for:
(1) 6% Convertible Subordinated Notes due 2006 of CoreComm Limited;
(2) a significant portion of CoreComm Limited's other debt;
(3) a significant portion of joint debt of CoreComm Limited and CoreComm
Holdco; and (4) all of CoreComm Limited's outstanding preferred stock.
The registration statement of which this prospectus forms a part is being
filed pursuant to the agreements entered into in connection with the Holdco
Recapitalization, relating to those shares of our common stock issued in
those transactions. CoreComm Holdco's only material assets are loans to, and
the capital stock of, its subsidiary, CoreComm Communications, Inc., which in
turn owns the capital stock of various operating companies.
As the final phase of the Holdco Recapitalization, we intend to
offer to exchange 1/116.7 of a share of our common stock, including the
associated rights to purchase shares of our Series A junior participating
preferred stock, for each validly tendered and not withdrawn share of
CoreComm Limited common stock accepted in the registered public exchange
offer. We also intend to offer to exchange 3.0349 shares of our common stock,
including the associated rights to purchase shares of our Series A junior
participating preferred stock and $30.00 in cash for each $1,000 principal
amount of 6% Convertible Subordinated Notes due 2006 of CoreComm Limited that
is validly tendered and not withdrawn and accepted in the registered public
exchange offer. In each case, we will round up the number of our shares
issued to each unaffiliated holder of either security. We will issue up to an
aggregate of 1,314,416 shares of our common stock in these exchange offers
(plus additional shares which may be issued as a result of rounding up in the
exchange offers) which will represent approximately 13% of our outstanding
shares. We operate the same businesses that CoreComm Limited historically
operated. As a result of the already completed phases of the Holdco
Recapitalization, CoreComm Limited now owns only approximately 13% of our
outstanding common shares. Moreover, we will become the parent of CoreComm
Limited if the exchange offers are completed and CoreComm Limited has agreed
at that time to surrender that number of shares of our common stock that are
issued in the exchange offers, which will leave CoreComm Limited with little
or no material assets.
The following three charts summarize the corporate structure of
CoreComm Limited and CoreComm Holdco, through which we conduct our operations
and hold our investments. The first chart illustrates our corporate structure
prior to December 17, 2001. The second chart illustrates our corporate
structure since the consummation of the initial phase of the Holdco
Recapitalization which commenced on December 17, 2001 and was completed on
December 28, 2001. The third chart indicates our corporate structure assuming
we are successful in completing the exchange offers. None of these charts
shows details of our operating or other intermediate companies or ownership
interests in those entities.
[GRAPHIC OF CHART 1 - STRUCTURE PRIOR TO DECEMBER 17, 2001]
[GRAPHIC OF CHART 2 - PRESENT STRUCTURE]
[GRAPHIC OF CHART 3 - ASSUMING SUCCESSFUL COMPLETION OF THE EXCHANGE OFFERS(1)]
1 Assumes 100% of the holders of CoreComm Limited common stock are validly
tendered and accepted in the exchange offer. One of the conditions to the
exchange offer for shares of CoreComm Limited common stock is that at
least 90% of the outstanding shares of CoreComm Limited common stock are
validly tendered and not withdrawn in the exchange offer, which condition
can be waived by CoreComm Holdco, in whole or in part, at any time prior
to the expiration date of the exchange offers, subject to applicable rules
and regulations.
In this prospectus, "we," "us," "our," "CoreComm Holdco" and "Holdco"
refer to CoreComm Holdco, Inc. and, unless the context requires otherwise,
its consolidated subsidiaries. In this prospectus, "Limited" refers to
CoreComm Limited. As of December 31, 2001, (1) we did not own any shares
of CoreComm Limited's common stock, and (2) CoreComm Limited owned
1,314,416 shares of our common stock which presently amounts to
approximately 13% of our outstanding shares.
PROSPECTUS SUMMARY
This summary highlights information about us which is contained
elsewhere in this prospectus. This summary may not contain all the
information that is important to you. You should read the entire prospectus,
including the section entitled "Risk Factors" and the financial statements
and related notes, carefully before making a decision. Various statements in
this prospectus are forward-looking statements. Please refer to the section
entitled "Special Note Regarding Forward-Looking Statements."
We are an integrated communications provider that offers local and
toll-related telephone, Internet and high-speed data services to business and
residential customers in targeted markets throughout the Mid-Atlantic and
Midwest regions of the United States. We operate three business divisions:
business services (ATX), residential services (CoreComm Residential) and
Internet services (Voyager). We are exploiting the convergence of
telecommunications and information services through our network strategy,
which involves the ownership of telephone switching equipment and the leasing
of the local telephone lines that run directly to homes and businesses,
combined with the provisioning of a leased regional network that carries
Internet traffic. This configuration of locally and regionally owned and
leased facilities allows us to deliver a wide range of communications
services over a wide geography within our regions. We currently offer
services to business and residential customers located principally in
Pennsylvania, Ohio, New Jersey, Michigan, Wisconsin, Maryland, Illinois, New
York, Virginia, Delaware, Massachusetts, Washington, D.C. and Indiana. In
local exchange services, we compete against the established local telephone
service provider that was the service provider in a region prior to the
opening of local telephone service to competition.
In 2001, we streamlined our strategy and operations to focus on our
two most successful and promising lines of business. The first is integrated
communications products and other high bandwidth/data/web-oriented services
for the business market. The second is bundled local telephony and Internet
products efficiently sold, serviced and provisioned via Internet-centric
interfaces to the residential market. Our strategy is to attractively bundle
telephony and data services in our target markets in order to compete with
the incumbents and gain market share.
As of September 30, 2001, we had more than 295,000 local telephone
access lines in service and more than 350,000 Internet customers.
Through our business services division, we offer customers a full
range of high-speed communications services including local and toll-related
telephony services, network services such as network data integration,
Internet access and Web consulting, development and hosting, and other
related services. In addition, we offer Advanced Communications Solutions
products tailored to meet the needs of our business customers, such as
conference calling, travel services, pre-paid calling, enhanced fax and
PC-based billing. Customers are billed on a single, consolidated invoice,
delivered by traditional means or near real time Web-based billing that
allows the customer to sort the information to detail calling patterns. Our
target markets are the Mid-Atlantic region throughout the New York-Virginia
corridor, and Midwest markets, including: Cleveland, Ohio; Columbus, Ohio;
Chicago, Illinois; and other markets in the Great Lakes region.
Our residential services division offers residential customers
voice, data and other telecommunications services in Ohio, Illinois,
Michigan, Wisconsin and Pennsylvania, and Internet access services over a
wider footprint in the Midwest and Mid-Atlantic regions of the United States.
Customers are billed for their services with one, consolidated bill. If they
choose, customers can access their billing information and pay their bills
online, or they may elect automatic bill payment via credit or debit card.
Our residential strategy is to bundle telephony and Internet products and
services in ways that are attractive to the customer, distinctive in the
marketplace, and offer convenience and simplicity.
Our Internet services division provides Internet access and
high-speed data communications services to residential and business
subscribers. Services include dial-up Internet access, dedicated
telecommunications services to business, cable modem access, Web-hosting,
electronic commerce, and co-location services. We operate one of the largest
dial-up Internet networks in the Midwest in terms of geographic coverage,
with approximately 170 owned points of presence in Michigan, Wisconsin, Ohio,
Illinois, Indiana, Minnesota, Pennsylvania, New York and California.
Our principal executive offices are located at 50 Monument Road,
Bala Cynwyd, Pennsylvania 19004 and 110 East 59th Street, New York, New York
10022, and our telephone number is (212) 906-8485. The address of our Website
is www.core.com. The information on our Website is not part of this
prospectus.
Recent Developments
Holdco Recapitalization
In October 2001, CoreComm Limited entered into agreements with
numerous holders of its 6% Convertible Subordinated Notes due 2006 whereby
the holders agreed, among other things, to exchange their notes for the
amount of the October 1, 2001 interest payment of approximately $5 million,
and shares of our common stock as part of a recapitalization plan. The
exchange was completed in December 2001, including the payment of the
approximately $5 million by CoreComm Limited.
In December 2001, both CoreComm Holdco and CoreComm Limited entered
into an exchange agreement with
(1) holders of 10.75% Unsecured Convertible PIK Notes due 2011 and
10.75% Senior Unsecured Convertible PIK Notes due 2010, both of which were a
joint obligation of CoreComm Limited and CoreComm Holdco, in the initial
principal amounts of $10,000,000 and $16,100,000, respectively, together with
any interest paid thereon,
(2) holders of Senior Unsecured Notes due September 29, 2003 of
CoreComm Limited in the principal amount of $105.7 million, and
(3) holders of all of the preferred stock of CoreComm Limited in the
initial principal amount of $300 million together with any dividends paid
thereon.
The exchange agreement provided for the securityholders to exchange their
securities for shares of our common stock as part of the Holdco
Recapitalization. Please refer to the section of the prospectus entitled
"Description of Capital Stock - The Exchange Agreement."
In December 2001, the credit agreement governing our senior secured
facility was amended to permit the Holdco Recapitalization to occur.
On December 17, 2001, Nasdaq granted CoreComm Limited an exception
to Nasdaq's stockholder approval requirements permitting the Holdco
Recapitalization to proceed without a vote of the stockholders of CoreComm
Limited because requiring a stockholder vote would seriously jeopardize the
financial viability of CoreComm Limited.
By December 28, 2001, we completed the first phase of the Holdco
Recapitalization.
In December 2001, we consummated other transactions to eliminate
additional amounts of our outstanding indebtedness.
As part of the Holdco Recapitalization, we plan to launch registered
public exchange offers whereby we will offer to exchange shares of our common
stock which will have been registered under the Securities Act of 1933, as
amended, which we refer to as the "Securities Act," pursuant to a Form S-4
registration statement to all remaining holders of 6% Convertible
Subordinated Notes due 2006 of CoreComm Limited and all holders of CoreComm
Limited common stock for their notes and CoreComm Limited common stock,
respectively. As a result of the already completed phases of the Holdco
Recapitalization, CoreComm Limited's only material asset is its ownership of
approximately 13% of our outstanding shares.
Changes in Management and Board of Directors
In January, 2002, our board of directors implemented changes to our
management and expanded our board to include three new directors. The changes
are as follows:
o Barclay Knapp was elected to be our Chairman of the board of
directors;
o Thomas J. Gravina was elected to be our President - Chief Executive
Officer and was elected to serve as a director;
o Michael A. Peterson was elected to be our Executive Vice President -
Chief Operating Officer and Chief Financial Officer and was elected
to serve as a director;
o George S. Blumenthal was elected Chairman Emeritus; and o Ralph H.
Booth, II was elected to serve as a director.
THE OFFERING
Common Stock Offered by Selling Securityholders....... 8,685,602 shares
Selling Securityholders............................... The selling securityholders obtained their shares of our
common stock in connection with their exchange of securities
in the Holdco Recapitalization.
Voting Rights......................................... Holders of common stock have one vote per share.
Use of Proceeds....................................... The selling securityholders will receive all of the proceeds
from the sale of the shares sold under this prospectus, if
and when any sales occur. We will not receive any proceeds
from any of these sales.
Nasdaq National Market................................ Pursuant to discussions with Nasdaq, we expect that if we
are successful in consummating the registered public
exchange offer through which holders of CoreComm Limited
common stock will receive our common stock in exchange for
their CoreComm Limited common stock, we will transfer
CoreComm Limited's Nasdaq listing to our common stock.
CoreComm Limited currently trades under the symbol "COMM" on
the Nasdaq National Market. We cannot be certain of our
success in either consummating the registered public
exchange offer or of our ability to meet the continued
listing requirements of the Nasdaq National Market.
Risk Factors.......................................... Please refer to the section of the prospectus entitled "Risk
Factors" beginning on page 9 for a discussion of risks that
you should consider carefully before deciding to invest in
shares of our common stock.
Rights to Purchase Series A Preferred Stock .......... Each share of common stock has an associated right to
purchase our Series A junior participating preferred stock.
Each right entitles the holder to purchase one-one
thousandth of a share of Series A preferred stock for a
purchase price of initially four times the average closing
price of our common stock over the first five days of
trading following the Securities and Exchange Commission,
which we refer to as the "SEC," declaring the registration
statement, of which this prospectus forms a part, effective,
subject to adjustment. The rights will not be separable
from the common stock until the tenth business day after it
is publicly announced that a party has acquired more than
15% of our outstanding common stock or the tenth business
day after a tender offer for more than 15% of our
outstanding common stock is announced, subject to
exceptions. If a party acquires 15% of our outstanding
common stock or if our board of directors otherwise
determines in good faith that there is an adverse acquirer,
each right will effectively entitle the holder to purchase,
for the payment of the purchase price, common stock worth
twice the purchase price at a price per share equal to the
then current market price. Purchases of common stock
permitted under our recently closed exchange agreements with
former securityholders of CoreComm Limited, in connection
with the Holdco Recapitalization, are exempt from these
provisions. Please refer to the section of the prospectus
entitled "Description of Capital Stock-- The Stockholder
Rights Plan."
SUMMARY HISTORICAL AND PRO FORMA FINANCIAL DATA
The following summary financial data of CoreComm Holdco and its
predecessor, OCOM Corporation Telecoms Division, has been derived from, and
should be read in conjunction with, the historical consolidated financial
statements and related notes included in this prospectus. The summary
historical financial data relates to OCOM as it was operated prior to its
acquisition by CoreComm Holdco.
The following pro forma financial data as of and for the nine months
ended September 30, 2001 and for the year ended December 31, 2000, gives
effect to the Holdco Recapitalization. In addition, the unaudited pro forma
financial data gives effect to other transactions to eliminate additional
amounts of our outstanding indebtedness that were entered into by December
31, 2001, the public exchange offers of our common stock to CoreComm
Limited's stockholders, and to the holders of CoreComm Limited's 6%
Convertible Subordinated Notes and an estimated result of the fair value
analysis of our net tangible assets as if a purchase business combination
occurred in connection with the Holdco Recapitalization and exchange
transactions. For additional information with respect to the Holdco
Recapitalization, without giving effect to the public exchange offers, refer
to the Unaudited Pro Forma Financial Data included elsewhere in this
prospectus. The final determination of fair values will be made upon the
completion of a study to be undertaken to determine the fair value of some of
our assets and liabilities, including intangible assets. Our actual financial
position and results of operations will differ, perhaps significantly, from
the unaudited pro forma amounts reflected in this prospectus as a result of
the completion of this fair value analysis. This information should be read
in conjunction with the unaudited pro forma financial data included elsewhere
in this prospectus.
Interim data for the nine months ended September 30, 2001 and 2000
are unaudited but include, in our opinion, all adjustments consisting only of
normal recurring adjustments necessary for a fair presentation of that data.
Results for the nine months ended September 30, 2001 are not necessarily
indicative of the results that may be expected for any other interim period
or the year as a whole.
In 2000, we completed two significant acquisitions. We acquired ATX
Telecommunications Services, Inc. and Voyager.net, Inc. In addition, we
entered into a senior secured credit facility with The Chase Manhattan Bank
and CoreComm Limited issued approximately $108.7 million aggregate principal
amount of senior unsecured notes to the former shareholders of ATX. The pro
forma income statement data for the year ended December 31, 2000 also gives
effect to these acquisitions as if they had been consummated on January 1,
2000. Also in 2000, we recorded a non-cash compensation expense of
approximately $43.4 million in accordance with APB opinion No. 25,
"Accounting for Stock Issued to Employees."
In 1999, we acquired 100% of the stock of MegsINet Inc. and some of
the assets of USN Communications, Inc. In addition, CoreComm Limited issued
$175.0 million in aggregate principal amount of 6% Convertible Subordinated
Notes due 2006, of which $4.75 million remains outstanding as a result of the
Holdco Recapitalization and prior conversions into CoreComm Limited common
stock by holders of the notes.
Pro Forma Historical
------------------- ----------------------------------------------------------------------
The
For the Period Predecessor
Nine From April 1, (OCOM) For
Months Year 1998 (Date the Period
Ended Ended Operations From January 1,
September December Nine Months Ended Year Ended Commenced) to 1998 to
30, 31, September 30, December 31, December 31, May 31,
------- -------- ------------- --------------- ------------ --------------
2001 2000 2001 2000 2000 1999 1998 1998
---- ----- ---- ---- ---- ---- ---- ----
(in thousands, except per share data)
Income Statement Data
Revenues................. $220,487 $298,446 $220,055 $56,155 $131,526 $57,151 $6,713 $1,452
Operating expenses....... 541,783 626,927 579,529 220,973 427,847 157,660 20,553 4,234
(Loss) before
extraordinary item.... (332,173) (339,292) (376,033) (167,150) (301,241) (103,180) (13,815) (2,782)
Gain from
extinguishment of
debt (1).......... 2,216 -- -- -- -- --
Net (loss)............... n/a n/a (373,817) (167,150) (301,241) (103,180) (13,815) (2,782)
Basic and diluted net
(loss) per common
share:
(Loss) before
extraordinary item.... (33.55) (34.26) (39.52) (17.57) (31.66) (10.85) (1.45) (.29)
Gain from
extinguishment of
debt............... .23 -- -- -- -- --
Net (loss)............... n/a n/a (39.29) (17.57) (31.66) (10.85) (1.45) (.29)
Basic and diluted weighted
average number of common
shares(1)........... 9,902 9,902 9,514 9,514 9,514 9,514 9,514 9,514
September 30, 2001
------------------------------
Historical Pro Forma
---------- ---------
(in thousands)
Balance Sheet Data
Working capital (deficiency)........................................................ $(98,239) $(81,921)
Fixed assets-- net.................................................................. 120,464 113,310
Total assets........................................................................ 583,030 348,884
Long-term debt and capital leases................................................... 179,993 160,047
Shareholders' equity................................................................ 217,575 29,706
----------
(1) After giving retroactive effect to the 6,342.944-for-1 stock split in
December 2001. We have never declared or paid any cash dividends.
RISK FACTORS
An investment in our common stock involves a high degree of risk.
You should carefully consider the risks described below before deciding to
invest in our common stock. The value of our common stock could decline due
to any of these risks, in which case you could lose all or part of your
investment. In assessing these risks, you should also refer to the other
information in this prospectus, including our financial statements and the
related notes. Various statements in this prospectus, including some of the
following risk factors, constitute forward-looking statements. Please refer
to the section of the prospectus entitled "Special Note Regarding
Forward-Looking Statements."
Risk factors relating to our business:
We are at risk of not being able to meet our near term cash requirements.
We still have significant liabilities even after the successful
completion of the Holdco Recapitalization. On a pro forma basis, at September
30, 2001, our current liabilities would exceed our current assets by
approximately $82 million. Our operating losses and capital expenditures
currently result in negative cash flow. Although we believe that we will have
sufficient cash to execute our business plan, we cannot assure you that:
(1) actual costs will not exceed the amounts estimated or additional
funding will not be required;
(2) we will be able to generate sufficient cash from operations to
meet capital requirements, debt service and other obligations when required;
(3) we will be able to access this cash flow;
(4) we will be able to sell assets or businesses;
(5) we will not be adversely affected by interest rate fluctuations;
or
(6) we will be able to secure additional financing.
These factors may affect our ability to meet our cash requirements, which may
have an adverse effect on us, and potentially our viability as an ongoing
business.
To develop our business, fund our capital commitments and service our
indebtedness and other obligations, we will require a significant amount of
cash.
Our strategy will require capital to build and maintain the network,
including potentially building through acquisitions. In addition, our
businesses that resell services provided by larger, facilities-based
companies will require additional money to acquire new customers and to
finance the support of these new customers. Our businesses will also require
additional billing, customer service and other back-office expenditures. In
addition, we will require significant amounts of capital to meet all of our
debt service and other obligations as they become due.
We intend to fund these requirements from cash and cash equivalents
on hand, future issuances of both public and private debt and equity and
funds internally generated by operations. We cannot give you any assurance
that sufficient resources will be available to meet our expected requirements
and obligations. There can be no assurance that we will be able to meet these
obligations with the resources currently on hand or the cash that may be
generated by our operations in the future.
As a result, we cannot assure you that we will be able to repay our
present or future indebtedness. Accordingly, we may be required to consider a
number of measures, including:
o limiting or eliminating business projects;
o refinancing all or a portion of our debt;
o seeking modifications of the terms of our debt;
o seeking additional debt financing, which may be subject to obtaining
necessary lender consents;
o seeking additional equity financing; or
o a combination of these measures.
We cannot assure you that any of these possible measures can be
accomplished, or can be accomplished in sufficient time to make timely
payments with respect to our indebtedness. In addition, we cannot assure you
that any measures can be accomplished on terms which will be favorable to us
and our subsidiaries.
We expect to incur net losses and negative cash flow from operations for some
time.
On a pro forma basis, we would have had net losses before
extraordinary item for the nine months ended September 30, 2001 and for the
fiscal year ended December 31, 2000 of approximately $332.2 million and
$339.3 million, respectively.
We expect that our capital and operating expenditures will result in
negative cash flow until at least the fourth quarter of 2002. We cannot
assure you that this will not continue beyond that time.
We also expect to incur future operating losses, and we cannot
assure you that we will achieve or sustain profitability in the future. If we
fail to become profitable, it could adversely affect our ability to sustain
our operations and to obtain additional required funds. In addition, failing
to become profitable would adversely affect our ability to make the required
payments on our indebtedness.
For more information, please refer to the section of the prospectus
entitled "Unaudited Pro Forma Financial Data."
Uncertainties regarding our financial condition may adversely impact our
ability to obtain trade credit and vendor financing, and may adversely affect
our relationships with creditors and vendors.
Our recently experienced financial difficulties and our anticipated
cash flow and liquidity problems led to our decision to consummate the Holdco
Recapitalization. In addition, we have negotiated favorable settlements for
less than the full amount owed to many of our trade creditors. These events
may cause trade creditors and vendors to view our business prospects with a
heightened level of uncertainty, and as a result:
o our existing trade creditors and vendors may be less willing to
advance trade credit and vendor financing on the terms or at the
levels previously provided; and
o we may have difficultly in securing trade credit and vendor
financings from new sources.
If this were to occur and we were to experience difficulty in
obtaining new trade credit and vendor financing, or if the terms of financing
were to be less favorable than those previously provided, our future
revenues, cash flows and profitability may be adversely affected, and we may
not have sufficient cash to fund our current operations unless we locate
alternative sources of this financing, which may not be possible on
acceptable terms or at all.
Our substantial indebtedness could adversely affect our financial health.
As of September 30, 2001, as adjusted for the Holdco
Recapitalization and other transactions, we have $171.2 million in
outstanding debt obligations in the form of: our $144.3 million, net of
unamortized discount of $11.8 million, senior secured credit facility with
The Chase Manhattan Bank; $15.4 million, net of unamortized discount of $0.4
million of Unsecured Convertible PIK Notes due 2011; and $11.5 million in
capital leases and other notes. In addition, we have $118.1 million in trade
payables and accrued expenses outstanding. This substantial amount of debt,
cash interest due to The Chase Manhattan Bank from time to time and any other
trade payables and other debt which we may incur may have important
consequences for you. For example, it could:
o limit our ability to obtain additional financing, if we need it, for
working capital, capital expenditures, acquisitions, debt service
requirements or other purposes;
o increase our vulnerability to adverse economic and industry
conditions;
o require us to dedicate a substantial portion of our cash flow from
operations to payments on our debt, thereby reducing funds available
for operations, future business opportunities or other purposes;
o limit our flexibility in planning for, or reacting to, changes in
our business and the industry in which we compete; and
o place us at a competitive disadvantage compared to competitors that
may have less debt.
Restrictions imposed by our debt agreements may significantly limit our
ability to execute our business strategy and increase the risk of default
under our debt obligations.
The credit agreement governing our senior secured credit facility
contains a number of covenants which may significantly limit our or our
subsidiaries' ability to, among other things:
o borrow additional money;
o make capital expenditures and other investments;
o pay dividends;
o merge, consolidate or dispose of our assets;
o enter into transactions with related entities;
o incur additional liens; and
o refinance junior indebtedness.
It is an event of default under our senior secured credit facility
if we experience change of control events including the acquisition by a
person or group of more than 35% of our voting power in the circumstances set
forth in the senior secured credit facility. In December 2001, the credit
agreement governing our senior secured facility was amended to permit the
Holdco Recapitalization to occur.
In addition, the senior secured credit agreement contains financial
maintenance covenants. If we fail to comply with these covenants, we will be
in default under that credit agreement. A default, if not waived, could
result in acceleration of our indebtedness, in which case the debt would
become immediately due and payable. If this were to occur today, we would not
be able to repay our debt and may not be able to borrow sufficient funds to
refinance it. Even if new financing were available, it may not be on terms
that are acceptable to us. In addition, complying with these covenants may
cause us to take actions that we otherwise would not take, or not take
actions that we otherwise would take.
For more information about these restrictions, please refer to the
section of the prospectus entitled "Description of Our Indebtedness."
We are a holding company that is dependent upon cash flow from our
subsidiaries to meet our obligations - our ability to access that cash flow
may be limited in some circumstances.
We are a holding company with no independent operations or
significant assets other than investments in and advances to our
subsidiaries. We depend upon the receipt of sufficient funds from our
subsidiaries to meet our obligations. The terms of existing and future
indebtedness of our subsidiaries and the laws of the jurisdictions under
which those subsidiaries are organized generally limit the payment of
dividends, loan repayments and other distributions to them, subject in some
cases to exceptions that allow them to service indebtedness in the absence of
specified defaults.
We have material disputes with vendors and other parties that could expose us
to material breach of contract and other commercial claims.
We purchase goods and services from a wide variety of vendors under
contractual and other arrangements that sometimes give rise to litigation in
the ordinary course of business. We also provide goods and services to a wide
range of customers under arrangements that sometimes lead to disputes over
payment, performance and other obligations. Some of these disputes,
regardless of their merit, could subject us to costly litigation and the
diversion of our technical and/or management personnel. Additionally, any
liability from litigation that is not covered by our insurance or exceeds our
coverage could have a negative effect on our business, financial condition
and/or operating results. Currently, we have the following outstanding
matters which, if resolved unfavorably to us, could have a material adverse
effect on us:
o On or about September 14, 2001, a lawsuit was filed by WXIII/Far
Yale Gen-Par, LLC, as General Partner of WXIII/Far Yale Real Estate
Limited Partnership against CoreComm Communications, Inc. (our first
tier wholly owned subsidiary) and CoreComm Limited seeking
approximately $172,500 in unpaid rent, interest and other charges
allegedly owed under a commercial real estate lease between Yale and
CoreComm Communications as to which CoreComm Limited is the
guarantor. On or about February 5, 2002, Yale filed a motion with
the court requesting permission to amend the complaint to specify a
revised figure of $404,290.87 as the amount allegedly due under the
lease and to add an additional count asking the court to issue a
preliminary injunction preventing the defendants from transferring,
selling, assigning, encumbering or otherwise hypothecating any of
their assets, including any debt or equity interests in their
subsidiaries, except for usual and ordinary expenses paid in the
usual and ordinary course of business. We are currently defending
ourselves in the litigation and we do not believe that Yale's
request for a preliminary injunction is meritorious. However, we
cannot predict the outcome of the litigation. If Yale were to obtain
the injunctive relief requested, it could prevent us from closing
the exchange offers and/or have a material adverse effect on our
business, financial condition and/or results of operations. Even if
the minimum condition is satisfied, before the expiration date we
may choose not to accept outstanding securities and not to complete
the exchange offers if any action, proceeding or litigation seeking
to enjoin, make illegal or delay completion of the exchange offers
or otherwise relating in any manner to the exchange offers is or has
been threatened or instituted or is pending or if any order, stay,
injunction or decree is issued by any court which would or might
restrain, prohibit or delay completion of the exchange offers.
o We are currently in litigation with Ameritech Ohio, a supplier from
whom we purchase telecommunications products and services, over the
adequacy of Ameritech's performance under a 1998 contract between us
and Ameritech and related issues. This litigation began in June 2001
when Ameritech threatened to stop processing new orders following
our exercise of our right under the contract to withhold payments
for Ameritech's performance failures. In response to their threat,
we sought, and on June 29, 2001 received, an order from an official
of the Public Utilities Commission of Ohio, which we refer to as
"PUCO," barring Ameritech from refusing to process new CoreComm
orders. Ameritech has appealed that order to the PUCO and the appeal
is still pending.
On July 5, 2001, Ameritech filed a claim with the PUCO seeking
payment from us of approximately $8,600,000 allegedly owed
under the contract. On August 8, 2001, Ameritech filed a second
claim against CoreComm in Ohio state court, seeking an
additional approximately $4,300,000 in allegedly improperly
withheld amounts. On August 28, 2001, we exercised our right to
remove the state court claim to the United States District
Court for the Northern District of Ohio, and the parties then
stipulated to a consolidation of both of Ameritech's claims in
the United States District Court. To consolidate the two
claims, on October 9, 2001, Ameritech filed an amended
complaint in the United States District Court, seeking a total
of approximately $14,400,000.
On December 26, 2001, we filed our answer to Ameritech's
amended complaint and simultaneously filed three counterclaims
against Ameritech and some of its affiliates, alleging breach
of contract, antitrust violations, and fraudulent or negligent
misrepresentation. Ameritech's response to our counterclaims is
currently due on February 13, 2002. Although we believe that we
have meritorious defenses to Ameritech's amended complaint, and
that the amount currently in dispute is substantially less than
the $14,400,000 claimed in Ameritech's amended complaint, we
cannot be certain how the matter will be resolved. We also
believe that to the extent that Ameritech prevails with respect
to any of its claims, Ameritech's award may be offset in whole
or in part by amounts that we are seeking to obtain from
Ameritech under its counterclaims. However, it is impossible at
this time to predict the outcome of the litigation.
o We have received correspondence from various operating subsidiaries
of Verizon Communications, Inc. ("Verizon") claiming that Verizon is
owed a total of approximately $14.4 million for services allegedly
provided in Delaware, Maryland, Virginia, Pennsylvania, District of
Columbia, Massachusetts and New York, and threatening to activate
account embargo and service suspension procedures in those states if
payment of the alleged amounts is not received by February 11, 2002
(as to the amounts allegedly owed in Pennsylvania) and March 3, 2002
(as to the amounts allegedly owed for the remaining states). We are
currently reviewing Verizon's claims against our own billing
records, including records reflecting unresolved disputed charges,
and believe that the amount at issue could be substantially less
than the amount claimed by Verizon. Moreover, we intend to
vigorously defend against any effort to implement any embargo or
service suspension. However, we cannot presently predict how the
matter will be resolved and if Verizon were to prevail on its claims
and/or activate an account embargo or service suspension, it could
have a material adverse affect on our business, financial condition
and/or results of operations.
o On December 3, 2001, General Electric Capital Corp. filed a lawsuit
in the Circuit Court of Cook County, Illinois against CoreComm
Limited and our subsidiary, MegsINet, Inc. seeking approximately $8
million in allegedly past due amounts under a capital equipment
lease agreement between Ascend and MegsINet. GECC is seeking all
amounts allegedly owed under the lease as well as repossession of
the equipment. The company's response to GECC's complaint is due
February 20, 2002 and we intend to defend the suit vigorously. A
finding in favor of GECC could adversely affect our financial
condition.
o On May 25, 2001, KMC Telecom, Inc. and some of its operating
subsidiaries filed an action in the Supreme Court of New York for
New York County against CoreComm Limited, Cellular Communications of
Puerto Rico, Inc., CoreComm New York, Inc. and MegsINet, Inc. On
that same date, KMC filed the same cause of action in the Circuit
Court of Cook County, IL. Upon defendant's Motion to Stay the New
York action, KMC voluntarily dismissed the Illinois litigation and
the matter is currently proceeding in New York. KMC contends that it
is owed approximately $2 million under a services agreement and a
collocation agreement with MegsINet. The defendants have denied
KMC's claims and have asserted that KMC failed to perform under the
alleged contracts. The defendants have served discovery and intend
to defend themselves in coordination with one of their insurance
carriers. However, a finding in favor of KMC in this litigation
could have a material adverse effect on our business, financial
condition and/or results of operations.
o On July 6, 2001, MCI initiated a compulsory arbitration action
against our subsidiary CoreComm Communications, Inc. in connection
with a dispute arising under a carrier services agreement between
the parties. The arbitration demand contends that MCI is owed in
excess of $1.9 million for circuits that were allegedly ordered by
CoreComm Communications, Inc. under the carrier agreement, and MCI
has subsequently asserted that under one theory of the case, its
claims could exceed $10 million. We have denied MCI's claims,
asserting that the circuits were never ordered under the contract
and have been improperly billed by MCI and we do not agree with
MCI's various damages theories. Discovery in this matter has been
completed, and the case is currently scheduled for trial before the
arbitrator in April 2002. We are defending the suit and pursuing all
available claims and defenses. However, a finding in favor of MCI in
this arbitration could have a material adverse effect on our
business, financial condition and/or results of operations.
o We have received correspondence from a law firm on behalf of Weston
Telecommunications, L.L.C. asserting that Weston is the assignee of
certain rights of Easton Telecom Services, Inc. under an asset
purchase agreement approved as part of the bankruptcy disposition of
Teligent, Inc., and demanding payment of approximately $4.9 million
for telecommunications services purportedly provided under alleged
contracts between Easton and our subsidiary MegsINet, Inc. We have
investigated Weston's claims and do not believe they have any merit,
and we intend to defend ourselves vigorously and pursue all
available claims and defenses should the matter proceed to
litigation. However, a finding in favor of Weston in this matter
could have a material adverse effect on our business, financial
condition and/or results of operations.
We face heavy competition in the telecommunications industry for all of the
services we provide at present and those we intend to provide in the future.
Some of our present competitors and potential future competitors may
have greater financial, technical, marketing, personnel and other resources
than we have. The competitive environment could have a variety of adverse
effects on us. For example, it could:
o require price reductions in the fees for services and require
increased spending on marketing, network capacity and product
development;
o negatively impact our ability to generate greater revenues and
profits from sources other than our core local and long distance
telephone and Internet service businesses;
o limit our ability to develop new products and services;
o limit our ability to continue to grow our subscriber base; and
o result in attrition in our subscriber base.
Any of the above events could have an adverse impact on revenues or
result in an increase in costs as a percentage of revenues, either of which
could have a material adverse effect on our business, financial condition and
operating results.
Local Telephone Business. In each of our markets, we face
competition from larger, better capitalized incumbent local exchange
carriers, including Verizon and SBC, as well as other providers of
telecommunications services, other competitive local exchange carriers and
cable television companies. An incumbent local exchange carrier is an
established local telephone service provider that was the monopoly service
provider in a region prior to the opening of local telephone service to
competition. We also will face competition or prospective competition from
other telecommunications companies. For example, AT&T, MCI WorldCom and
Sprint, among other carriers, have begun to offer local telecommunications
services in major U.S. markets using their own facilities or by resale of the
incumbent local exchange carriers' or other providers' services. In fact,
some of our potential competitors, including AT&T, MCI WorldCom and Sprint,
have entered into interconnection agreements with Verizon and SBC to provide
local exchange service in states in which we operate.
In addition to these long distance carriers, entities that currently
offer or are potentially capable of offering switched telecommunications
services include:
o other competitive local exchange carriers;
o other long distance carriers;
o wireless telephone system operators;
o large customers who build private networks;
o cable television companies; and
o other utilities.
These entities may provide a bundled package of telecommunications
products, including local and long distance telephone, that is in direct
competition with the products we offer or plan to offer. Competition in the
competitive local exchange carrier business will continue to intensify in the
future due to the increase in the size, resources and number of market
participants.
Internet Services. The Internet services market is extremely
competitive. We compete directly or indirectly with the following
categories of companies:
o established online services, such as America Online, the Microsoft
Network and Prodigy;
o local, regional and national Internet service providers, which are
vendors that provide subscribers access to the Internet, such as
EarthLink Network, Inc. and United Online;
o national telecommunications companies, such as AT & T;
o incumbent local exchange carriers, such as Verizon and SBC; and
o online cable services, such as Roadrunner.
This competition will likely increase as large diversified
telecommunications and media companies acquire Internet service providers and
as Internet service providers consolidate into larger, more competitive
companies. Diversified competitors may bundle other services and products
with Internet connectivity services, potentially placing us at a significant
competitive disadvantage. As a result, our businesses may suffer.
Other Businesses. In addition to our competitive local exchange
carrier and Internet services businesses, our other businesses face strong
competition as well. These competitive businesses include long distance
service, cellular service and messaging services such as paging. Our long
distance service faces competition from long distance carriers, including
facilities-based carriers such as AT&T, MCI WorldCom and Sprint and resellers
of long distance service. Moreover, as more incumbent local exchange carriers
enter the long distance market, our long distance service will face increased
competition from those entities given their ability to offer bundles of local
and long distance services. Our cellular service faces competition from other
cellular carriers, such as Verizon, Cingular and AT&T Wireless, and from
personal communications service carriers, such as Sprint PCS. Our paging
services are similarly exposed to competition from other providers of paging
services operating in the same local markets, regionally or nationally.
The telecommunications industry is highly regulated by the federal government
and by state governments, and potential regulatory changes could have an
adverse effect on our operations.
Local Telephone and Other Businesses. Our telephone businesses are
subject to extensive regulation by the FCC and by the public utility
commissions of various states. Changes in statutes, regulations or judicial
interpretations could have material adverse effects on our operations. In
particular, unfavorable decisions with respect to regulatory matters that
affect our operations, status or relationships with our customers or other
carriers could decrease our revenues, increase our costs, and make it more
difficult to attract and retain customers. It is impossible to determine at
this time how the FCC or the various State regulatory commissions will rule
on any of the numerous issues before it that affect our business.
Internet Services. We will provide Internet services through data
transmissions over public telephone lines and networks. These transmissions
are subject to the regulation of the FCC and state public utility commissions
described above. As an Internet service provider, we are not currently
subject to direct regulation by the FCC or any other governmental agency,
other than regulations applicable to businesses generally. However, we could
become subject to FCC or other regulatory agency regulation, especially as
Internet services and telecommunications services converge. Changes in the
regulatory environment could decrease our revenues, increase our costs and
affect our service offerings.
There have been various regulations and court cases relating to
liability of Internet service providers and other online service providers
for information carried on or through their services or equipment, including
in the areas of copyright, indecency, obscenity, defamation and fraud. The
United States Supreme Court declared the Communications Decency Act of 1996
to be unconstitutional as it applies to the transmission of indecent online
communications to minors, and a lower court declared the 1998 Federal Child
Online Protection Act to be unconstitutional. Other federal and state
statutes continue to prohibit the online distribution of obscene materials.
Additional laws and regulations may be adopted with respect to the Internet,
covering issues such as Universal Service Fund support payments, content,
user privacy, pricing, libel, obscene material, indecency, taxation,
gambling, intellectual property protection and infringement and technology
export and other controls. Other federal Internet-related legislation has
been introduced which may limit commerce and discourse on the Internet. The
law in this area is unsettled and there may be new legislation and court
decisions that expose Internet service providers to liabilities or affect
their services.
In addition, because users may download materials and subsequently
distribute them to others, persons may potentially make claims against us for
defamation, negligence, copyright or trademark infringement, personal injury
or other claims based on the nature, content, publication and distribution of
these materials. We also could be exposed to liability with respect to the
offering of third-party content that may be accessible through its services.
It is also possible that if any third-party content provided through our
services contains errors, third parties who access this material could make
claims against us for losses incurred in reliance on this information. We
also will offer e-mail services, which will expose us to other potential
risks, such as liabilities or claims resulting from unsolicited e-mail, lost
or misdirected messages, illegal or fraudulent use of e-mail or interruptions
or delays in e-mail service. These claims, whether with or without merit,
likely would divert management's time and attention, may result in negative
publicity and could result in significant costs to investigate and defend.
Any determination of non-compliance with FCC and state regulations dealing
with ownership changes could result in monetary penalties or loss of our
telecommunications authorizations.
We hold federal and state authorizations to provide international
and domestic wireline and wireless telecommunications services. Both the FCC
and some of the states in which we operate have regulatory regimes that
require authorization holders to obtain the prior approval of the relevant
regulatory agency before undergoing changes in ownership or control. At the
federal level, for non-substantial, also referred to as "pro forma," changes
in ownership or control, we are only required to notify the FCC after closing
the transaction which results in the non-substantial change. In some of the
states, however, the regulatory agencies require prior approval for even pro
forma transfers of control.
Based on our review of the relevant regulations and policies, we
determined that the Holdco Recapitalization was pro forma in nature and that
we could complete that transaction without securing prior regulatory approval
relating to our FCC telecommunications authorizations. Accordingly, we did
not seek any prior approvals from the FCC. Nor did we seek prior approval
from any state telecommunications regulatory agency. In the event that we
completed the transaction without obtaining the requisite regulatory
approvals, either because our determination of the pro forma nature of the
transaction was erroneous or because a particular agency requires prior
approval even for pro forma transfers of control, we remain subject to
enforcement actions from the telecommunications regulatory agencies. These
enforcement actions could include monetary penalties, and/or revocation or
impairment of our telecommunications authorizations.
Our reliance on incumbent local exchange carriers and other facilities-based
providers of telecommunications services and changes to our agreements with
these providers could have a material adverse effect on us.
We depend upon our agreements with the incumbent local exchange
carriers operating in our existing and targeted markets. There are two
primary types of agreements that we enter into with these providers:
o interconnection agreements, which specify how we connect our network
with, and purchase unbundled elements of, the network of the
incumbent local exchange carriers in each of our markets; and
o resale agreements, through which we provide telecommunications
services on a resale basis.
Federal legislation regulating the telecommunications industry has
enhanced competition in the local service market by requiring the incumbent
local exchange carriers to provide access to their networks through
interconnection agreements and to offer separate elements of their network
and retail services at prescribed rates to other telecommunications carriers.
The termination of any of our contracts with our carriers or a reduction in
the quality or increase in cost of their services could have a material
adverse effect on our financial condition and results of operations.
Similarly, the failure by the incumbent local exchange carriers to comply
with their obligations under our interconnection agreements or resale
agreements could result in customer dissatisfaction and the loss of existing
and potential customers. In addition, the rates charged to us under the
interconnection agreements or resale agreements may limit our flexibility to
price our services at rates that are low enough to attract a sufficient
number of customers and permit us to operate profitably.
Interconnection and resale agreements are subject to review and
approval by various federal and state regulators. In addition, parties to the
agreements may seek to have the agreements modified based upon the outcome of
regulatory or judicial rulings occurring after the dates of the agreements.
The outcome of these rulings, or any modified agreements, could have a
material adverse effect on our financial condition and results of operations.
In addition, some aspects of the agreements, including the price and economic
terms of these agreements, have been subject to litigation and regulatory
action. Please refer to the section of the prospectus entitled "Government
Regulation of the Telecommunications Services Business."
We rely on telecommunications carriers to transmit our traffic over
local and long distance networks. Our dependence on other facilities-based
carriers means that we depend on the quality and condition of their networks.
These networks may experience disruptions that are not easily remedied. For
example, the following conditions of the facilities-based carriers could
cause interruption in service and/or reduced capacity for our customers:
o physical damage;
o power loss; and
o software defects.
We depend upon cooperation with the incumbent local exchange
carriers and other providers for the provision and repair of transmission
facilities and to provide the services and network components that are
ordered. We may not be able to obtain the facilities and services we require
at satisfactory quality levels, rates, terms and conditions, which could
delay the buildout of our networks and degrade the quality of service to our
subscribers.
In addition, we depend upon suppliers of network services, hardware
and software. If these suppliers fail to provide network services, equipment
or software in the quantities, at the quality levels or at the times
required, or if we cannot develop alternative sources of supply, it will be
difficult, if not impossible, for us to provide our services.
The pace at which we are able to add new customers and services
could be adversely affected if the incumbent local exchange carriers do not
provide us with necessary network elements, collocation space, intercompany
network connections and billing information and the means to share
information about customer accounts, service orders and repairs on a timely
basis. In many instances, the incumbent local exchange carriers do not timely
or fully provide these services or facilities. Also, the rules governing
which elements the incumbent local exchange carriers must provide, the cost
methodology for providing these elements, and the types of equipment that may
be placed together are currently under FCC and judicial review.
In the event that our long distance carriers are unable to handle
the growth in customer usage, we could try to transfer traffic to a carrier
with sufficient capacity, but we cannot be sure that additional capacity will
be available. If any of the local exchange carriers are unable to handle the
growth in customer usage, we will be required to use another local carrier,
which could be difficult in light of the limited number of local carriers
with their own facilities. In the event we elect to use other carriers, the
charges for services may exceed those under the existing contracts, which
could have a material adverse effect on our financial condition and results
of operations.
In addition, the accurate and prompt billing of our customers will
depend upon the timeliness and accuracy of call detail records provided by
the carriers whose services we will resell. We cannot be sure that our
carriers will provide accurate information on a timely basis. A carrier's
failure to do so could have a material adverse effect on our ability to bill
our customers and, therefore, on our operating results.
We may not be able to implement successfully our business strategy because
doing so depends on factors beyond our control, which could adversely affect
our results of operations.
Our success depends on our ability to implement our business
strategy in order to increase our earnings and cash flow. Our results of
operations and cash flow will be adversely affected if we cannot fully
implement our business strategy. Successful implementation depends on factors
unique to the telecommunications industry and numerous other factors beyond
our control. These include changes in:
o general economic conditions;
o characteristics of local markets;
o the perception of attractiveness of a particular product;
o evolving consumer preferences;
o federal, state and local regulations; and
o our continued ability to hire and retain qualified management
personnel.
In addition, because of these and other factors, we may not be able
to implement our business plans within planned time periods and budgets. If
we cannot implement our expansion and business plans in a timely fashion or
if there are delays or cost overruns, our business, financial condition and
results of operations will be adversely affected.
Because of the fast pace of technological change in the telecommunications
industry, there is a risk that we will fall behind or will fail to
successfully address this change, which could harm our ability to compete and
could materially and adversely affect our business and results of operations.
The telecommunications industry is subject to rapid and significant
changes in technology. We cannot predict the effect of technological changes
on our business. However, the cost of implementing emerging and future
technologies may be significant.
The Internet services market is characterized by rapid technological
change, evolving industry standards, changes in member needs and frequent new
service and product introductions. Our future success depends, in part, on
our ability to use leading technologies effectively, develop our technical
expertise, enhance our existing services and develop new services that meet
changing member needs on a timely and cost-effective basis. In particular, we
must provide subscribers with the appropriate products, services and guidance
to best take advantage of the rapidly evolving telecommunications industry.
Our failure to respond in a timely, cost-efficient and effective manner to
new and evolving technologies, such as those offering greater bandwidth
services, among others, could have a negative impact on our business and
financial results.
Our services depend upon our network infrastructure, and the failure to have
sufficient capacity to accommodate new users, to maintain reliability or to
maintain security could have a material adverse effect on our ability to
attract and retain customers.
Success in our businesses depends, in part, on the capacity,
reliability and security of our network infrastructure. Network capacity
constraints may occur in the future, both at the local and national levels.
These capacity constraints would result in slowdowns, delays or
inaccessibility when members try to use a particular service. Poor network
performance could cause customers to discontinue service with us. Reducing
the incidence of these problems requires constantly expanding and improving
our infrastructure, which could be very costly and time consuming.
Our Internet services network infrastructure is composed of a
complex system of routers, switches, transmission lines and other hardware
used to provide Internet access and other services. This network
infrastructure will require continual upgrades and adaptation as the number
of customers and the amount and type of information they wish to transmit
over the Internet increases. This development of network infrastructure will
require substantial financial, operational and managerial resources. We
cannot be certain that we will be able to upgrade or adapt our network
infrastructure to meet additional demand or changing customer requirements on
a timely basis and at a commercially reasonable cost, or at all. If we fail
to upgrade our network infrastructure on a timely basis or adapt it to an
expanding customer base, changing customer requirements or evolving industry
standards, our business could be adversely affected.
We also have to protect our infrastructure against fire, power loss,
telecommunications failure, computer viruses, security breaches and similar
events. We do not currently maintain a redundant or backup network operations
center. A significant portion of our computer equipment, including critical
equipment dedicated to our telephone network and Internet access services, is
presently located at four network operating centers: Philadelphia,
Pennsylvania; Cleveland, Ohio; East Lansing, Michigan; and New Berlin,
Wisconsin. A natural disaster or other unanticipated occurrence at our switch
or collocation facilities, network operations center or points-of- presence
through which members connect to the Internet, in the networks of
telecommunications carriers we will use, or in the Internet backbone in
general could cause interruptions in our Internet services.
We may be required to make significant capital expenditures relating to the
information systems infrastructure of our operations.
Our billing, customer service and management information systems are
vital to our ability to bill customers, monitor costs and respond to customer
service issues. As our operations grow, our need for sophisticated systems
will increase. The cost of implementing these systems has been, and will
continue to be, significant. Furthermore, any of the following developments
could negatively affect our results of operations:
o the failure to adequately and timely identify all information and
processing needs;
o the failure of systems to operate as expected;
o the failure to upgrade systems as necessary; and
o failure by third party service providers to deliver necessary
systems or services.
Risk factors relating to our common stock and corporate control:
Our anti-takeover defense provisions may deter potential acquirers and may
depress our stock price.
Delaware corporate law, our restated certificate of incorporation,
as amended, which we refer to as the "charter," and our amended by-laws
contain provisions that could have the effect of making it more difficult for
a third party to acquire, or of discouraging a third party from attempting to
acquire, control of us. These provisions include the following:
o we may issue preferred stock with rights senior to those of our
common stock;
o we have a classified board of directors with terms that do not
expire for three years from re-election;
o our charter prohibits action by written consent by stockholders; and
o we require advance notice for nomination of directors and for
stockholder proposals.
In addition, under our stockholder rights plan, holders of our
common stock are entitled to one right to purchase 1/1000 of a share of our
Series A junior participating preferred stock for each outstanding share of
common stock they hold, exercisable under defined circumstances involving a
potential change of control as discussed in this prospectus. The preferred
stock purchase rights have the anti-takeover effect of causing substantial
dilution to a person or group that attempts to acquire us on terms not
approved by our board of directors. Those provisions could have a material
adverse effect on the premium that potential acquirers might be willing to
pay in an acquisition or that investors might be willing to pay in the future
for shares of our common stock. Please refer to the section of the prospectus
entitled "Description of Capital Stock -- The Stockholder Rights Plan."
Some of our significant stockholders, who have the right to maintain
specified ownership percentages of our voting securities and have a
contractual right to representation on our board of directors, may have
interests that conflict with our interests and the interests of our other
stockholders.
As a result of their ownership of our common stock and contractual
rights, some of our significant stockholders will be in a position to affect
significantly our corporate actions in a manner that could conflict with the
interests of our other stockholders.
Although Michael Karp (together with the Florence Karp Trust), Booth
American Company, Thomas Gravina and Debra Buruchian, as well as the other
parties to the Holdco Recapitalization exchange agreement, have agreed to
restrictions on their rights to acquire additional shares of our common
stock, they have the right to acquire some additional amounts. Specifically,
each party may acquire in any calendar year a number of additional shares of
our common stock sufficient to raise their percent ownership of all of our
outstanding shares by 0.0735 times the percent they owned immediately after
the closing of the transactions in the exchange agreement, up to a maximum of
39%. That means that Michael Karp (together with the Florence Karp Trust),
who currently owns 34.0% of our common stock, has the right to own up to
36.5% of our voting securities in 2002 and up to 39.0% of our voting
securities thereafter. Booth American Company, which currently owns 20.0% of
our common stock, has the right to own up to 21.5% of our voting securities
in 2002, 22.9% thereafter. Each of Thomas Gravina, who is our CEO, President
and a director, and Debra Buruchian currently own 10.8% of our common stock,
and thus have the right to own up to 11.6% of our voting securities in 2002
and up to 12.4% of our voting securities thereafter. The ability of these
stockholders to acquire additional shares of our common stock could have a
material adverse effect on the premium that potential acquirers may be
willing to pay in an acquisition or that investors might be willing to pay in
the future for shares of our common stock.
Each of Michael Karp and Booth American Company also have a
contractual right to designate directors to our board of directors. So long
as Michael Karp, together with his affiliates and associates, owns at least
15% of our outstanding common stock, Michael Karp has the right to designate
that number of directors to our board of directors so that his representation
on our board of directors is proportionate to his, together with his
affiliates' and associates', ownership percentage of our common stock. So
long as Booth American Company, together with its affiliates and associates,
owns at least 15% of our outstanding common stock, Booth American Company has
the right to designate one director to our board of directors. As of January
14, 2002, Ralph Booth had been elected to the board. As of January 14, 2002,
Michael Karp had not nominated any directors.
We may issue additional common stock or preferred stock, which could dilute
your interests.
Our charter does not limit the issuance of additional common stock
or preferred stock up to the number of authorized shares of each class. We
have already adopted a stock option plan which is described in "Management
and Executive Compensation -- Executive Compensation -- Stock Option Plan."
In January 2002, our board of directors approved an initial grant of options
exercisable for 2.58 million shares of our common stock under the plan. We
cannot predict the extent to which this potential dilution, the availability
of a large amount of shares for sale, and the possibility of additional
issuances and sales of our common stock and/or preferred stock will
negatively affect the trading price of our common stock or the liquidity of
our common stock.
Our ability to pay dividends is restricted.
We have never paid cash dividends on our common stock. In addition,
the payment of any dividends by us in the future will be at the discretion of
our board of directors and will depend upon, among other things, future
earnings, operations, capital requirements, our general financial condition,
the general financial condition of our subsidiaries and general business
conditions. The terms of our senior secured credit facility further restrict
our ability to pay dividends on our common stock. Under applicable law, in
order for us to declare and pay a dividend we must have available surplus.
In addition, any future debt instruments of ours or our subsidiaries
may restrict our payment of dividends or the payment of dividends or
distributions to us by our subsidiaries. Please refer to the section of this
discussion of risk factors entitled "Restrictions imposed by our debt
agreements may significantly limit our ability to execute our business
strategy and increase the risk of default under our debt obligations" and the
section of this prospectus entitled "Dividend Policy."
The market price of our common stock could be volatile.
The market price of our common stock could fluctuate widely in
response to numerous factors and events, including the depth and liquidity of
the trading market, many of which are beyond our control. These factors
include actual or anticipated variations in our operating results, earnings
releases by us and our competitors, announcements of technological
innovations, changes in financial estimates by securities analysts, the
possibility of Nasdaq delisting, market conditions in the industry and the
general state of the securities markets, governmental legislation or
regulation, currency and exchange rate fluctuations, as well as general
economic and market conditions, such as recessions. In addition, the stock
market in general, and the telecommunications sector specifically, in recent
years have experienced broad price and volume fluctuations.
Our common stock could be delisted from the Nasdaq National Market if we fail
to meet Nasdaq's continued listing criteria, which could have a negative
impact on the trading activity and price of your common stock, and could make
it more difficult for us to raise capital.
If the exchange offer for CoreComm Limited common stock is
successful and the Nasdaq listing is transferred to our common stock and we
fail to meet any of the Nasdaq continued listing requirements, our common
stock could be delisted from the Nasdaq National Market. If our common stock
is delisted from the Nasdaq National Market, it could have a negative impact
on the trading activity and price of your common stock and could make
obtaining timely and accurate quotations with respect to the trading of our
common stock difficult. It could also make it more difficult for us to raise
additional equity capital in the future.
Sales of large amounts of our common stock or the perception that sales could
occur may depress our stock price.
We issued an aggregate of 8,685,602 shares of our common stock to
former holders of preferred stock of CoreComm Limited, former holders of debt
securities of CoreComm Limited and former holders of debt securities that
were a joint obligation of CoreComm Limited and CoreComm Holdco, Inc. as part
of the Holdco Recapitalization. These shares represent approximately 87% of
our outstanding common stock. None of these shares are subject to any lock up
restrictions and may be sold at any time, except that some shares issued in
accordance with the exchange agreement may only be transferred in the
following manners:
o pursuant to a bona fide public offering;
o pursuant to unsolicited open market sales on any national securities
exchange or automated inter-dealer quotation system on which the
shares are listed;
o pursuant to a tender offer made to our stockholders which our board
of directors has recommended;
o pursuant to a privately-negotiated transaction with a person or
entity that, together with its affiliates and associates, does not
own at least 15% of our common stock;
o pursuant to a will or the laws of descent and distribution;
o pursuant to a bequest or similar gift or transfer to any person or
entity that, together with its affiliates and associates, does not
own at least 15% of our common stock; or
o as a result of any pledge or hypothecation to a bona fide financial
institution to secure a bona fide loan, guaranty or other financial
accommodation or as a result of any foreclosure with respect
thereto. Please refer to the section of the prospectus entitled
"Description of Capital Stock - The Exchange Agreement."
Sales of the securities acquired in connection with the Holdco
Recapitalization in the public market could lower our stock price and impair
our ability to raise funds in additional stock offerings. Future sales of a
substantial number of shares of our common stock in the public market, or the
perception that these sales could occur, could adversely affect the
prevailing market price of our common stock and could make it more difficult
for us to raise funds through a public offering of our equity securities.
Special Note Regarding Forward-Looking Statements
In this prospectus there are "forward-looking statements" within the
meaning of Section 27A of the Securities Act and Section 21E of the
Securities Exchange Act of 1934, as amended, which we refer to as the
"Exchange Act," which are usually identified by the use of forward-looking
words or phrases, including, "anticipates," "believes," "estimates,"
"expects," "intends," "projects," "plans," "should," "strategy," "will" and
similar expressions. We intend these forward-looking statements to be covered
by the safe harbor provisions for forward-looking statements contained in the
Private Securities Litigation Reform Act of 1995 and are including this
statement for purposes of complying with these safe harbor provisions.
These forward-looking statements reflect current judgments about our
plans, strategies and prospects, which are based on the information currently
available and on current assumptions as of the date of this prospectus.
Although we believe that our plans, intentions and expectations as
reflected in or suggested by these forward-looking statements are reasonable
as of the date of this prospectus, we can give no assurance that the plans,
intentions or expectations will be achieved in a timely manner, if at all. In
reviewing information included in this prospectus, keep in mind that our
actual results, performances, or achievements may differ materially from the
forward-looking statements made in this prospectus. The risks identified in
this section could cause our actual results, performance or achievements to
be materially different from the forward-looking statements made in this
prospectus. These risks, uncertainties and contingencies include the
following:
o the success or failure of our efforts to implement our current
business strategy;
o operating cash flow will meet expectations or that we will be able
to access this cash form our subsidiaries' operations to meet any
unfunded portion of our capital requirements when required or to
satisfy the terms of our indebtedness;
o additional financing will not be required in excess of our projected
funding requirements;
o any financings will be obtained when required on acceptable terms or
at all;
o our access to trade credit and vendor financings;
o technological developments;
o our ability to continue to design and deploy efficient network
routes, install facilities, obtain and maintain any required
regulatory licenses or approvals and finance construction and
development of our network, all in a timely manner, at reasonable
costs and on satisfactory terms and conditions;
o our assumptions about customer acceptance, churn rates, overall
market penetration and competition from providers of alternative
services;
o the impact of restructuring, the Holdco Recapitalization and
integration actions;
o economic conditions generally and in the competitive local exchange
carrier market specifically;
o industry trends in the telecommunications industry generally;
o the actions of competitors and our ability to respond to those
actions;
o legislative and regulatory changes; and
o availability, terms and deployment of capital.
We disclaim any intent or obligation to update any forward-looking
statements, whether as a result of changes in our plans, intentions or
expectations, new information, future events or otherwise. In evaluating
forward-looking statements, you should consider these risks and
uncertainties, together with the other risks described from time to time in
our reports and documents filed with the SEC, and you should not place undue
reliance on these statements, which are not a guarantee of performance and
are subject to a number of risks and uncertainties, many of which are outside
our control. All subsequent written and oral forward-looking statements are
expressly qualified in their entity by the foregoing cautionary statements.
USE OF PROCEEDS
The selling securityholders will receive all of the proceeds from
the sale of shares of our common stock sold under this prospectus, if and
when sales occur. We will not receive any of the proceeds from any sales by
the selling securityholders of shares of our common stock.
DIVIDEND POLICY
Since our inception, we have not declared or paid any cash dividends
on our common stock. We currently intend to retain our earnings for use in
the operation and expansion of our business and for debt service and,
therefore, we do not anticipate paying cash dividends in the foreseeable
future. Please refer to the section entitled "Risk Factors -- Our ability to
pay dividends is restricted" for a discussion of the legal and contractual
restrictions on our ability to declare and pay dividends.
CAPITALIZATION
The following table shows our cash and cash equivalents and
capitalization as of September 30, 2001, and as adjusted to give effect to
the Holdco Recapitalization, the other transactions to eliminate additional
amounts of our outstanding indebtedness that were entered into by December
31, 2001, the public exchange offers of our common stock to CoreComm
Limited's stockholders and to the holders of CoreComm Limited's 6%
Convertible Subordinated Notes due 2006 and an estimated result of the fair
value analysis of our net tangible assets as if a purchase business
combination occurred in connection with the recapitalization and exchange
transactions. The final determination of fair values will be made upon the
completion of a study to be undertaken to determine the fair value of some of
our assets and liabilities, including intangible assets. For additional
information with respect to the Holdco Recapitalization, without giving
effect to the public exchange offers, refer to the Unaudited Pro Forma
Financial Data included elsewhere in this prospectus. Our actual financial
position and results of operations will differ, perhaps significantly, from
the amounts reflected in this prospectus as a result of the completion of
this fair value analysis. You should read this table together with our
consolidated financial statements and related notes included in this
prospectus and the information in "Unaudited Pro Forma Financial Data," and
"Management's Discussion and Analysis of Financial Condition and Results of
Operations -- Liquidity and Capital Resources."
As of September 30, 2001
------------------------
Actual As Adjusted
------ -----------
(in thousands)
Cash and cash equivalents.................................................... $ 46,713 $ 36,125
============ ==========
Current portion of long-term debt............................................ $ 40,772 $ 11,165
============ ==========
Long-term debt:
Capital lease obligations.................................................. $ 324 $ 324
Senior secured credit facility, less unamortized discount of $11,752,000
(asadjusted)........................................................... 136,298 144,348
10.75% senior unsecured convertible PIK notes due 2010..................... 17,494 --
10.75% unsecured convertible PIK notes due 2011, less unamortized discount of
$377,000 (actual) and $377,000 (as adjusted)............................. 25,877 15,375
------------- -----------
Total long-term debt..................................................... 179,993 160,047
Stockholders' equity:
Preferred stock, par value $0.01 per share, 10,000,000
shares authorized, none issued or outstanding........................... -- --
Common stock, par value $0.01 per share; 250,000,000
shares authorized;
9,514,000 (actual) and 10,000,000 (as adjusted) shares issued(1)........ 95 100
Additional paid-in capital................................................. 1,021,469 29,900
Deferred non-cash compensation............................................. (11,936) --
(Deficit).................................................................. (792,053) --
------------ ----------
217,575 30,000
Treasury stock, none (actual) and 98,000 (as adjusted) shares.......... -- (294)
. ------------ -----------
Total stockholders' equity.............................................. 217,575 29,706
------------ -----------
Total capitalization.................................................... $ 397,568 $ 189,753
============ ==========
(1) Excludes shares issuable upon the possible future conversion of
Unsecured Convertible Notes or upon the exercise of stock options and
warrants.
o The 10.75% Unsecured Convertible PIK Notes due 2011 are
convertible into CoreComm Limited common stock at a conversion
price of $1.00 per share (subject to a potential one-time right to
convert at $0.67 per share in connection with the occurrence of a
change of control). However, the holder of these notes and
CoreComm Limited and CoreComm Holdco have entered into an
agreement relating to the conversion feature of the note following
the Holdco Recapitalization. Through that agreement, consistent
with the original terms of the note, CoreComm Limited and CoreComm
Holdco have agreed to exercise their right under the note such
that, following the successful completion of our exchange offer to
the holders of CoreComm Limited common stock to exchange their
shares of CoreComm Limited common stock for shares of our common
stock, the convertibility feature of the note will be altered so
that rather than the note being convertible into shares of
CoreComm Limited common stock, it will become convertible into
shares of our common stock. At that time, the conversion price of
$1.00 will be equitably adjusted by applying the exchange ratio in
the exchange offers, which results in a new conversion price of
$116.70 per share of our common stock. The holder has agreed not
to exercise its rights to convert into CoreComm Limited common
stock for six months from February 5, 2002 (unless that right has
previously ceased as a result of the completion of the exchange
offer and the change in the convertibility feature). In the event
that we are unsuccessful in completing the exchange offer, the
conversion feature would remain into CoreComm Limited common
stock. These notes are redeemable, in whole or in part, at our
option, at any time in April 2003, at a redemption price of
103.429% that declines annually to 100% in April 2007, in each
case together with accrued and unpaid interest to the redemption
date.
o CoreComm Limited's warrants to purchase shares of CoreComm Limited's
Common Stock will be exercisable for common shares of CoreComm
Holdco, subject to any exchange ratio in the exchange offer, if the
exchange offer for CoreComm Limited's Common Stock is consummated.
o As of December 31, 2001, there were options to purchase
approximately 22.1 million shares of CoreComm Limited common stock
outstanding. In December 2001, the CoreComm Limited board of
directors, in connection with the Holdco Recapitalization,
accelerated all outstanding options to acquire shares of CoreComm
Limited common stock so that all are presently fully vested and
exercisable. However, based on the last sales price for CoreComm
Limited common stock on the Nasdaq Stock Market on February 4, 2002
of $0.10, less than 1% of those options are at exercise prices below
the market price for CoreComm Limited common stock. CoreComm Limited
options are not exercisable for shares of CoreComm Holdco common
stock. In the event that we are successful in consummating the
exchange offers, CoreComm Limited would become a subsidiary of
CoreComm Holdco. Subsequent to that time, CoreComm Holdco and
CoreComm Limited may agree to effect a merger between CoreComm
Limited and a subsidiary of CoreComm Holdco which would have the
effect of converting holders of any remaining outstanding shares of
CoreComm Limited common stock not owned by us into shares of our
common stock at an exchange ratio identical to that being offered in
the exchange offers. Between now and that time, if holders of
CoreComm Limited options exercise their options, they would, at the
time of a merger, have the same rights as other holders of CoreComm
Limited common stock to have their shares of CoreComm Limited
converted to shares of CoreComm Holdco at that exchange ratio.
o In December 2001, CoreComm Holdco adopted a new stock option plan
for its employees. A total of 2.9 million shares of common stock
were reserved for issuance under the plan, which represents 22.5% of
the total fully diluted shares of CoreComm Holdco. In January 2002,
CoreComm Holdco's board of directors approved a grant of options to
purchase an aggregate of approximately 2.58 million shares of
CoreComm Holdco's common stock, representing approximately 20% of
the total fully diluted shares. The exercise price of these options
is the estimated fair market value on the date of grant of $3.00 per
share. The number of shares issuable under the plan and the number
of shares into which each outstanding option is exercisable is
subject to adjustment for stock splits and other similar
transactions. For example, if we effect a 3-for-1 stock split, a
holder of 100 options would automatically have 300 options following
the split, at 1/3 the original strike price.
UNAUDITED PRO FORMA FINANCIAL DATA
In October 2001, CoreComm Limited entered into agreements with
numerous holders of its 6% Convertible Subordinated Notes due 2006 whereby
the holders agreed, among other things, to exchange their notes for
approximately $5 million in cash (the amount of the October 1, 2001 interest
payment) and shares of our common stock as part of the Holdco
Recapitalization. The exchange was completed in December 2001, including the
payment of the approximately $5 million by CoreComm Limited.
On December 28, 2001, we completed the exchange of shares of our
common stock for substantial amounts of the outstanding indebtedness of
CoreComm Limited, substantial amounts of our outstanding indebtedness as
co-obligors with CoreComm Limited and all of the outstanding preferred stock
of CoreComm Limited. This exchange was completed pursuant to an exchange
agreement with CoreComm Limited and
(1) holders of 10.75% Unsecured Convertible PIK Notes due 2011 and
10.75% Senior Unsecured Convertible PIK Notes due 2010, which were a joint
obligation of CoreComm Holdco and CoreComm Limited, in the initial principal
amounts of $10,000,000 and $16,100,000, respectively, together with any
interest paid thereon,
(2) the holders of Senior Unsecured Notes due September 29, 2003 of
CoreComm Limited in the principal amount of $105.7 million, and
(3) the holders of all of the preferred stock of CoreComm Limited in
the initial principal amount of $300 million together with any dividends paid
thereon.
The following summarizes the indebtedness and preferred stock that
was exchanged for shares of our common stock in December 2001:
------------------------------------------|--------------------| -----------------------| -----------------------------
| | | Principal Amount or
Description | Date Issued | Issuer | Liquidation Preference when
| | | Issued
------------------------------------------|--------------------| -----------------------| -----------------------------
10.75% Unsecured Convertible PIK | | CoreComm Limited and |
Notes due 2011 |April 2001 | CoreComm Holdco | $10.0 million
------------------------------------------|--------------------| -----------------------| -----------------------------
10.75% Senior Unsecured | | CoreComm Limited and |
Convertible PIK Notes due 2010 |December 2000 | CoreComm Holdco | $16.1 million
------------------------------------------|--------------------| -----------------------| -----------------------------
Senior Unsecured Notes due | | |
September 29, 2003 |September 2000 | CoreComm Limited | $108.7 million
------------------------------------------|--------------------| -----------------------| -----------------------------
6% Convertible Subordinated Notes | | |
due 2006 |October 1999 | CoreComm Limited | $175.0 million (1)
------------------------------------------|--------------------| -----------------------| -----------------------------
Series A and Series A-1 Preferred | | |
Stock |September 2000 | CoreComm Limited | $51.1 million
------------------------------------------|--------------------| -----------------------| -----------------------------
Series B Preferred Stock |September 2000 | CoreComm Limited | $250.0 million
------------------------------------------ -------------------- ----------------------- -----------------------------
------------
(1) $164.75 million was outstanding as of September 30, 2001, of which $160 million was exchanged.
As a result of the completed exchanges in December 2001,
approximately 87% of our outstanding shares, or 8,685,602 shares, are owned
by the former holders of indebtedness of CoreComm Holdco and CoreComm Limited
and the former holders of preferred stock of CoreComm Limited, and
approximately 13% of our outstanding shares, or 1,314,416 shares, continue to
be held by CoreComm Limited. We hold $160 million principal amount of
CoreComm Limited's 6% Convertible Subordinated Notes due 2006, approximately
$105.7 million principal amount of CoreComm Limited's Senior Unsecured Notes
due September 29, 2003, approximately 51,000 shares of CoreComm Limited's
Series A and Series A-1 preferred stock and 250,000 shares of CoreComm
Limited's Series B preferred stock as a result of the exchanges. In addition,
we exchanged the approximately $10.8 million principal and accrued interest
of 10.75% Unsecured Convertible PIK Notes due 2011 and the approximately
$18.0 million principal and accrued interest of 10.75% Senior Unsecured
Convertible PIK Notes due 2010 for shares of our common stock.
We will determine the gain on restructuring of our indebtedness and
the carrying value of our investment in CoreComm Limited's notes and
preferred stock based on the fair value of our shares issued in the
recapitalization. As a result of the issuance of over 80% of our outstanding
shares to new stockholders, we are performing an analysis of the fair value
of our net tangible assets as if a purchase business combination occurred.
We intend to offer our common stock to CoreComm Limited's
stockholders through registered public exchange offers. These offers will
also be made to solicit any remaining holders of CoreComm Limited's 6%
Convertible Subordinated Notes due 2006, who will be offered a pro rata share
in the aggregate consideration described above. We have agreed to file a
shelf registration statement under the Securities Act to permit the sale of
our common stock that was issued in the first phases of the Holdco
Recapitalization.
In September 2000, CoreComm Limited acquired ATX in exchange for
cash, notes, convertible preferred stock and common stock and CoreComm
Limited acquired Voyager in exchange for cash and common stock.
The unaudited pro forma financial data presented below gives effect
to the completed acquisitions of ATX and Voyager as well as the
recapitalization and exchange transactions completed in December 2001. In
addition, the unaudited pro forma financial data gives effect to other
transactions to eliminate additional amounts of our outstanding indebtedness
that were entered into by December 31, 2001. The unaudited pro forma
financial data also gives effect to the intended public exchange offers of
our common stock to CoreComm Limited's stockholders, and to the holders of
CoreComm Limited's 6% Convertible Subordinated Notes. Finally, the unaudited
pro forma financial data gives effect to an estimated result of the fair
value analysis of our net tangible assets as if a purchase business
combination occurred in connection with the recapitalization and exchange
transactions. We have estimated that the fair value of our shares issued in
these transactions is $3.00 per share. The final determination of fair value
will be made upon the completion of a study to be undertaken to determine the
fair value of some of our assets and liabilities, including intangible
assets. Our actual financial position and results of operations may differ,
perhaps significantly, from the unaudited pro forma amounts reflected in this
prospectus as a result of the completion of this fair value analysis.
The pro forma financial data is based on our historical financial
statements and the historical financial statements of ATX, Voyager and
CoreComm Limited. The ATX and Voyager acquisitions have been accounted for
using the purchase method of accounting, in which the assets acquired and
liabilities assumed have been recorded at their fair values. Some amounts in
these historical financial statements have been reclassified to conform to
our presentation.
The unaudited pro forma condensed statements of operations for the
nine months ended September 30, 2001 and the year ended December 31, 2000
give effect to the recapitalization and exchange transactions, the other
transactions to eliminate additional amounts of our outstanding indebtedness
and the estimated result of the fair value analysis as if they had occurred
on January 1, 2000. The unaudited pro forma condensed statements of
operations for the year ended December 31, 2000 also gives effect to the ATX
and Voyager acquisitions as if they had been consummated on January 1, 2000.
The unaudited pro forma condensed balance sheet at September 30, 2001 gives
effect to the recapitalization and exchange transactions, the other
transactions to eliminate additional amounts of our outstanding indebtedness
and the estimated result of the fair value analysis as if they had occurred
on September 30, 2001.
The pro forma adjustments are based upon available information and
assumptions that we believe are reasonable. The unaudited pro forma condensed
statements of operations do not purport to present our results of operations
had the various transactions or acquisitions occurred on the dates specified,
nor are they necessarily indicative of the results of operations that may be
achieved in the future. The unaudited pro forma financial statements should
be read in conjunction with our financial statements and related notes, and
with the financial statements and related notes of ATX and Voyager appearing
elsewhere in this prospectus.
As of December 31, 2001, there were options to purchase
approximately 22.1 million shares of CoreComm Limited common stock
outstanding. In December 2001, the CoreComm Limited board of directors, in
connection with the Holdco Recapitalization, accelerated all outstanding
options to acquire shares of CoreComm Limited common stock so that all are
presently fully vested and exercisable. However, based on the last sales
price of CoreComm Limited common stock on the Nasdaq Stock Market on February
4, 2002 of $.10, less than 1% of those options are at exercise prices below
the market price for CoreComm Limited common stock. CoreComm Limited options
are not exercisable for shares of our common stock. In the event that we are
successful in consummating the exchange offers, CoreComm Limited would become
a subsidiary of CoreComm Holdco. Subsequent to that time, CoreComm Holdco and
CoreComm Limited may agree to effect a merger between CoreComm Limited and a
subsidiary of CoreComm Holdco which would have the effect of converting
holders of any remaining outstanding shares of CoreComm Limited common stock
not owned by us into shares of our common stock at an exchange ratio
identical to that being offered in the exchange offers. Between now and that
time, if holders of CoreComm Limited options exercise their options, they
would, at the time of a merger, have the same rights as other holders of
CoreComm Limited common stock to have their shares of CoreComm Limited
converted to shares of our common stock at that exchange ratio. The pro forma
financial data does not give effect to non-cash compensation expense, if any,
that may be recorded upon such option transactions.
PRO FORMA CONDENSED CONSOLIDATED BALANCE SHEET (UNAUDITED)
SEPTEMBER 30, 2001
(in thousands)
Pro Forma
for completed
CoreComm portion CoreComm CoreComm
CoreComm of Holdco Limited & Holdco
Holdco Recapitalization Subsidiaries Recapitalizat
Historical Adjustments & Other Historical Adjustments Pro Forma
---------- ----------- --------------- ------------ ----------- --------------
Assets
Cash and cash equivalents. $ 46,713 $(3,200) (C) $43,513 $240 $(7,628) (E,G,H) $36,125
Other current assets...... 40,510 40,510 575 41,085
Total current assets...... 87,223 (3,200) 84,023 815 (7,628) 77,210
Fixed assets, net......... 120,464 (7,222) (C) 113,242 68 113,310
Goodwill, net............. 355,448 (249,688) (D) 105,760 29,155 (I) 134,915
Intangible assets, net.... 5,790 5,790 5,790
Investment in and
receivable from
CoreComm Limited....... 22,937 (B) 22,937 (22,937) (F,G) --
Other, net................ 14,105 14,105 8,595 (5,041) (G) 17,659
-------- --------- -------- ------ ------ ------
$583,030 $(237,173) $345,857 $9,478 $6,451 $348,884
======== ========= ======== ====== ====== ========
Liabilities and shareholders'
equity
Current liabilities
Current portion of debt
and capital leases..... $40,772 $(29,607) (C) $11,165 $2,739 $(2,739) (G) $11,165
Other current liabilities. 144,690 (45) (C) 144,645 26,532 (23,211) (E,G) 147,966
------- ------- ------- ------ ------- -------
Total current liabilities. 185,462 (29,652) 155,810 29,271 (25,950) 159,131
Debt and capital leases... 147,124 (2,452) (A,C) 144,672 257,686 (257,686) (G) 144,672
Notes payable to related
parties................ 32,869 (17,494) (A) 15,375 15,375
(A, B, (F,G,
Shareholders' equity...... 217,575 (187,575) C, D) 30,000 (277,479) 277,185 H,I) 29,706
------- --------- -------- -------- ------- --------
$583,030 $(237,173) $345,857 $9,478 $(6,451) $348,884
======== ========= ======== ======== ======= ========
PRO FORMA CONDENSED CONSOLIDATED STATEMENT OF OPERATIONS (UNAUDITED)
FOR THE NINE MONTHS ENDED SEPTEMBER 30, 2001
(in thousands, except per share data)
Pro Forma
for completed
CoreComm portion CoreComm CoreComm
CoreComm of Holdco Limited & Holdco
Holdco Recapitalization Subsidiaries Recapitalizat
Historical Adjustments & Other Historical Adjustments Pro Forma
---------- ----------- --------------- ------------ ----------- -------------
Revenues $ 220,055 $220,055 $432 - $220,487
Costs and expenses.........
Operating.................. 175,942 175,942 175,942
Selling, general and 75,021 75,021 826 75,847
administrative.............
Corporate.................. 3,854 3,854 2,860 6,714
Non-cash compensation...... 9,702 9,702 9,702
Other charges.............. 37,395 37,395 37,395
Write-down of intangibles.. 167,599 167,599 167,599
Depreciation............... 34,626 34,626 26 34,652
Amortization............... 75,390 $(45,833) (N) 29,557 2 $ 4,373 (R) 33,932
------ -------- ------ ----- ---------- ------
579,529 (45,833) 533,696 3,714 $ 4,373 541,783
------- ------- ------- ----- ---------- -------
Operating (loss)........... (359,474) 45,833 (313,641) (3,282) (4,373) (321,296)
Other income (expense).....
Interest income and other,
net..................... 1,875 (320) (Q) 1,555 151 (4) (S) 1,702
Interest expense........... (18,467) 5,654 (P) (12,813) (16,955) 16,955 (T) (12,813)
----------- -------- ----------- --------- ---------- ----------
(Loss) before income taxes
and extraordinary item.. (376,066) 51,167 (324,899) (20,086) 12,578 (332,407)
Income tax benefit......... 33 33 201 234
----------- -------- ----------- --------- ---------- ----------
(Loss) before extraordinary
item.................... $(376,033) $51,167 $(324,866) $(19,885) $12,578 $(332,173)
=========== ======== =========== ========= ========== ==========
Basic and diluted (loss) per
share before
extraordinary item...... $(39.52) $(32.49) $(33.55)
=========== ======== =========== ========= ========== ==========
Weighted average shares.... 9,514 486 (O) 10,000 (98) (U) 9,902
=========== ======== =========== ========= ========== ==========
PRO FORMA CONDENSED CONSOLIDATED STATEMENT OF OPERATIONS (UNAUDITED)
FOR THE YEAR ENDED DECEMBER 31, 2000
(in thousands, except per share data)
Completed Acquisitions
------------------------------------
Pro Forma
for
Completed
Portion of CoreComm CoreComm
Holdco Limited Holdco
CoreComm Voyager Recapital- and Recapitaliza-
Holdco ATX Pro Adjust- Pro Adjust- ization Subsidiaries Adjust- tion
Historical Historical Forma ments Forma ments & Other Historical ments ProForma
--------------------------------------------------------------------------------------------------------------
Revenues $ 131,526 $110,817 $55,507 $297,850 $297,850 $596 $298,446
Costs and expenses
Operating 142,323 84,176 24,812 251,311 251,311 251,311
Selling, general
and administrative 109,197 43,603 26,189 $(1,400)(J) 177,589 177,589 1,813 179,402
Corporate 11,224 11,224 11,224 1,660 12,884
Non-cash
compensation 43,440 75 43,515 43,515 43,515
Other charges 12,706 1,103 1,707 (2,810)(K) 12,706 12,706 12,706
Write-down of
intangibles 35,920 35,920 35,920 35,920
Depreciation 30,641 2,227 5,265 38,133 38,133 105 38,238
Amortization 42,396 134 23,024 65,000 (L) 130,554 $(83,458)(N) 47,096 24 $5,831(R) 52,951
--------------------------------------------------------------------------------------------------------------
427,847 131,243 81,072 60,790 700,952 (83,458) 617,494 3,602 5,831 626,927
--------------------------------------------------------------------------------------------------------------
Operating (loss) (296,321) (20,426) (25,565) (60,790) (403,102) 83,458 (319,644) (3,006) (5,831) (328,481)
Other income
(expense)Interest
income and other,
net 1,134 76 712 1,922 (394)(Q) 1,528 5,089 (5)(S) 6,612
Interest expense (5,929) (2,273) (10,177)(M) (18,379) 1,210 (P) (17,169) (14,528) 14,524 (T) (17,173)
--------------------------------------------------------------------------------------------------------------
(Loss)before
income taxes
and extraordinary
item (301,116) (20,350) (27,126) (70,967) (419,559) 84,274 (335,285) (12,445) 8,688 (339,042)
Income tax provision (125) (125) (125) (125) (250)
--------------------------------------------------------------------------------------------------------------
(Loss) before
extraordinary item $(301,241) $(20,350)$(27,126) $(70,967) $(419,684) $84,274 $(335,410) $(12,570) $8,688 $(339,292)
==============================================================================================================
Basic and diluted
(loss)per share before
extraordinary item $(31.66) $(44.11) $(33.54) $(34.26)
==============================================================================================================
Weighted average
shares 9,514 9,514 (O) 10,000 (98)(U) 9,902
==============================================================================================================
NOTES TO UNAUDITED PRO FORMA FINANCIAL DATA
(in thousands, except per share data)
Pro Forma Adjustments for Holdco Recapitalization and Other
(A) Holdco Recapitalization CoreComm Holdco Notes
--------------------------------------------------------------------------------
10.75% Unsecured 10.75% Unsecured
Convertible Notes Convertible Notes
due 2011 due 2010 Total
---------------------- ---------------------- ----------------- ----------------
Note payable $10,502 $10,502
Notes payable to related parties $17,494 17,494
Shares issued 400 640 1,040
Value of CoreComm Holdco
common stock $3.00 $3.00 $3.00
---------------------- ---------------------- ----------------
$1,200 $1,920 $3,120
---------------------- ---------------------- ----------------
Extraordinary gain $9,302 $15,574 $24,876
====================== ====================== ================
(B) Holdco Recapitalization CoreComm Limited Notes & Preferred Stock
--------------------------------------------------------------------------------
Senior Unsecured
Notes due 2003 and
Series B Preferred 6% Convertible Series A and A-1
Stock Subordinated Notes Preferred Stock Total
--------------------- ---------------------- ------------------ ----------------
Shares issued 5,560 486 1,600 7,646
Value of CoreComm Holdco
common stock $3.00 $3.00 $3.00 $3.00
Investment in CoreComm
Limited $16,680 $1,457 $4,800 $22,937
===================== ====================== ================== ================
An aggregate of 8,200 of the shares issued in (A) and (B) were
contributed by CoreComm Limited.
(C) Other Debt
---------------------------------------------------------------------------
Current portion of debt and
capital leases $29,607
Accrued interest 45
Reclassify to noncurrent debt, net
of discount (8,050)
Fixed assets, net returned (7,222)
Cash paid (3,200)
----------------
Extraordinary gain $11,180
================
Other transactions included above to eliminate additional amounts of
our indebtedness that were negotiated away or settled for a reduced
amount paid in cash and through the return of assets. All were
entered into by December 31, 2001.
(D) Adjustment to record the estimated
result of the analysis of the fair
value of our net tangible assets
as if a purchase business
combination occurred
Goodwill and shareholders'
equity reduction $249,688
================
(E) CoreComm Limited Exchange 6% Convertible Subordinated Notes
---------------------------------------------------------------------------
Cash to be paid for accrued interest
$4,750 principal amount 6% for 1/2
year $143
================
NOTES TO UNAUDITED PRO FORMA FINANCIAL DATA (Continued)
(in thousands, except per share data)
(F) Exchange Offer 6% Convertible Subordinated Notes
---------------------------------------------------------------------------
Shares to be issued for $4,750
principal amount of 6% Convertible
subordinated notes 14
Value of CoreComm Holdco common
stock $3.00
----------------
Investment in CoreComm Limited $43
================
(G) Elimination to Consolidate CoreComm Holdco and CoreComm
Limited After the Holdco Recapitalization
--------------------------------------------------------------------
Cash and cash equivalents: Total
Cash paid for 6% convertible
subordinated
notes - exchanged $(4,800)
Other, net:
Deferred financing costs on exchanged
debt (5,041)
Current portion of debt and capital
leases:
Senior unsecured notes due 2003 -
current
portion 2,739
Other current liabilities:
Accrued interest 6% convertible
subordinated notes 4,813
Accrued interest senior unsecured
notes
due 2003 3,405
Series A preferred dividend payable 3,326
Series B preferred dividend payable 11,524 23,068
Debt and capital leases:
6% convertible subordinated notes 164,750
payable
Senior unsecured notes due 2003 92,936 257,686
Shareholders' equity:
Series A preferred stock 50,000
Series B preferred stock 67,298 117,298
-------------------- --------------
390,950
CoreComm Holdco investment in:
CoreComm Limited 6% convertible
subordinated notes to be
exchanged (43)
CoreComm Limited notes & preferred
stock from
recapitalization (22,937)
--------------
Adjustment to investment in and
receivable
from CoreComm Limited (22,980)
--------------
$367,970
==============
(H) Holdco Recapitalization and Other Costs
-----------------------------------------------------
Legal, accounting and other $685
Employee incentives 2,000
---------------------
Cash paid (offset to extraordinary gain)
to record estimated cost of transactions. $2,685
=====================
To record estimated cost of transactions.
NOTES TO UNAUDITED PRO FORMA FINANCIAL DATA (Continued)
(in thousands, except per share data)
(I) Adjustment to record consolidation of CoreComm Limited's negative
net assets, and shares of CoreComm Holdco held by CoreComm Limited
(98 shares at $3.00
per share or $294) $29,155
============
Year Ended
December 31, 2000
-------------------
Pro Forma adjustments for Completed
Acquisitions
(J) Phantom Unit Compensation
Upon a change in control of ATX, ATX recorded
a compensation charge equal to the fair
value of its currently outstanding phantom
units under its Phantom Unit Plan less amounts
previously recorded $13,600
The expense related to the Phantom Unit Plan has
been excluded from the pro forma condensed
statement of operations since it is a
non-recurring charge (15,000)
-------------------
Net statement of operations impact $(1,400)
===================
To adjust ATX Phantom Unit costs which are
non-recurring
(K) Nonrecurring merger related charges $(2,810)
===================
(L) Amortization
ATX goodwill $397,796
Number of months
60
Pro forma period
9
-----------
59,669
Historical amortization in ATX
(134)
Historical amortization in CoreComm Holdco
(208)
-----------
59,327
Voyager goodwill $190,682
Number of months
60
Pro forma period
9
-----------
28,602
Historical amortization in Voyager (22,826)
Historical amortization in CoreComm Holdco 5,673
(103)
------------------------------
Amortization adjustment $65,000
===================
NOTES TO UNAUDITED PRO FORMA FINANCIAL DATA (Continued)
(in thousands, except per share data)
Year Ended Nine Months
December 31, 2000 Ended
September 30, 2001
------------------- -----------------------
(M) To record additional interest costs associated with financing the
ATX and Voyager acquisitions for periods prior to their acquisitions
in September 2000
Interest expense
Senior secured credit facility $75,000 at
11.04% for nine months $6,210
Senior unsecured notes due 2003 $108,700 at
6.47% for nine months 5,273
Amortization of fees on borrowing recorded as
deferred financing costs (eight year term)
for nine months
473
-------------------
11,956
Historical interest expense on Voyager debt (1) (1,641)
Historical interest expense on CoreComm Holdco (138)
-------------------
Interest expense adjustment $10,177
===================
(1) This facility was repaid at the closing of the Voyager merger
(N) Purchase Price Adjustment
Goodwill write-down March 2001 $(167,599) $(167,599)
Useful life (months)
60 60
Pro forma period
12 (33,520) 3 (8,380)
-------------- --------------
Purchase price allocation write-down -
pro
forma (249,688) (249,688)
Useful life (months)
60 60
Pro forma period 12 (49,938) 9 (37,453)
--------------------------------------------------------------------
amortization adjustment $(83,458) $(45,833)
=====================================================
(O) Shares issued for 6% convertible subordinated
notes 486 486
=== ===
Pro Forma Adjustments for Holdco
Recapitalization and Other
(P) To decrease interest expense for debt that
has been exchanged for shares of CoreComm
Holdco common stock
Interest expense
10.75% unsecured convertible notes due 2011 $- $502
10.75% senior unsecured convertible notes due
2010 70 1,323
Equipment payable - 477
Senior secured credit facility - 3,037
Working capital promissory note 216 70
Capital lease 223 67
Note payable for equipment 701 178
-------------- -----------------------
$1,210 $5,654
============== =======================
NOTES TO UNAUDITED PRO FORMA FINANCIAL DATA (continued)
(in thousands, except per share data)
Nine Months
Ended
Year Ended September 30,
December 31, 2000 2001
-------------------- -----------------
(Q) Interest income adjustment
Cash paid 10,685 10,685
Interest rate 3.68% 3.99%
Pro forma period 12 9
-------------------- -----------------
$394 $320
==================== =================
(R) To record amortization on the additional
goodwill as a result of the consolidation of
CoreComm Limited $29,155 $29,155
Useful life (months) 60 60
Pro forma period 12 9
-------------------- -----------------
$5,831 $4,373
==================== =================
(S) Interest income adjustment
Cash to be paid for 6% convertible
subordinated notes $143 $143
Interest rate 3.68% 3.99%
Pro forma period 12 9
-------------------- -----------------
$5 $4
==================== =================
(T) Interest expense - CoreComm Limited
recapitalization
6% convertible subordinated notes $10,500 $7,602
Amortization of fees on borrowing recorded as
deferred financing costs 1,006 756
Senior unsecured notes due 2003 3,018 8,597
-------------------- -----------------
$14,524 $16,955
==================== =================
(U) Shares held by CoreComm Limited that become
treasury shares (98) (98)
==================== =================
SELECTED HISTORICAL FINANCIAL DATA
The following selected historical financial data of CoreComm Holdco
and our predecessor, OCOM Corporation Telecoms Division, has been derived
from, and should be read in conjunction with, the historical consolidated
financial statements and related notes included in this prospectus. The
summary historical financial data relates to OCOM as it was operated prior to
its acquisition by CoreComm Holdco. The selected historical financial data as
of December 31, 2000, 1999, 1998, 1997 and 1996 and for the years ended
December 31, 2000 and 1999, for the period from April 1, 1998 to December 31,
1998, for the period from January 1, 1998 to May 31, 1998, and for the years
ended December 31, 1997 and 1996 have been derived from the historical
financial statements of CoreComm Holdco or OCOM audited by Ernst & Young LLP,
independent auditors.
Interim data for the nine months ended September 30, 2001 and 2000
are unaudited but include, in our opinion, all adjustments consisting only of
normal recurring adjustments necessary for a fair presentation of that data.
Results for the nine months ended September 30, 2001 are not necessarily
indicative of the results that may be expected for any other interim period
or the year as a whole.
In 2000, we completed two significant acquisitions. We acquired ATX
Telecommunications Services, Inc. and Voyager.net, Inc. In addition, we
entered into a senior secured credit facility with The Chase Manhattan Bank
and CoreComm Limited issued approximately $108.7 million aggregate principal
amount of senior unsecured notes to the former shareholders of ATX. Also in
2000, we recorded a non-cash compensation expense of approximately $43.4
million in accordance with APB opinion No. 25, "Accounting for Stock Issued
to Employees."
In 1999, we acquired 100% of the stock of MegsINet Inc. and some of
the assets of USN Communications, Inc. In addition, CoreComm Limited issued
$175.0 million in aggregate principal amount of 6% Convertible Subordinated
Notes due 2006.
SELECTED HISTORICAL FINANCIAL DATA (Continued)
(in thousands, except per share data)
For the Period
From April 1,
1998 (Date
Operations The Predecessor (OCOM)
Nine Months Ended Year Ended Commenced) For the Period ----------------------
To From January 1, Year Ended Year Ended
September 30, December 31, December 31, 1998 to May 31, December 31, December 31,
2001 2000 2000 1999 1998 1998 1997 1996
---- ---- ---- ---- ---- ---- ---- ----
Income Statement Data
Revenues................. $220,055 $ 56,155 $131,526 $ 57,151 $ 6,713 $ 1,452 $ 3,579 $ 5,103
Costs and expense .......
Operating................ 175,942 77,321 142,323 57,551 5,584 772 1,581 3,065
Selling, general and
administrative........... 75,021 70,783 109,197 72,821 11,940 3,205 5,934 3,119
Corporate................ 3,854 7,465 11,224 6,686 2,049 -- -- --
Non-cash compensation.... 9,702 35,420 43,440 1,056 -- -- -- --
Reorganization charges 37,395 775 12,706 -- -- -- -- --
Write-down of intangibles 167,599 -- 35,920 -- -- -- -- --
Depreciation and
amortization........... 110,016 29,209 73,037 19,546 980 257 439 149
--------- -------- -------- -------- ------- -------- ------- -------
579,529 220,973 427,847 157,660 20,553 4,234 7,954 6,333
--------- -------- -------- -------- ------- -------- ------- -------
Operating (loss)......... (359,474) (164,818) (296,321) (100,509) (13,840) (2,782) (4,375) (1,230)
Other income (expense)
Interest and other income 1,875 589 1,134 55 46 -- (4) 133
Interest expense......... (18,467) (2,767) (5,929) (2,624) (21) -- -- --
--------- -------- -------- -------- ------- -------- ------- -------
(Loss) before income
taxes and extraordinary
item..................... (376,066) (166,996) (301,116) (103,078) (13,815) (2,782) (4,379) (1,097)
Income tax benefit
(provision)............ 33 (154) (125) (102) -- -- --
--------- -------- -------- -------- ------- -------- ------- -------
(Loss) before
extraordinary item..... (376,033) (167,150) (301,241) (103,180) (13,815) -- -- --
Gain from
extinguishment of debt. 2,216 -- -- -- -- -- -- --
--------- -------- -------- -------- ------- -------- ------- -------
Net (loss)............... $(373,817) $(167,150) $(301,241) $(103,180) $(13,815) (2,782) $ $(4,379) $(1,097)
========== ========== ========== ========== ========= ======== ============ ========
Basic and diluted net
(loss) per common share:
(Loss) before extraordinary
item..................... $(39.52) (17.57) $(31.66) (10.85) $ (1.45) $ (.29) $ (.46) $ (.12)
Gain from
extinguishment of debt. .23 -- -- -- -- -- -- --
--------- -------- -------- -------- ------- -------- ------- -------
Net (loss)............... $(39.29) $(17.57) $(31.66) $(10.85) $ (1.45) $ (.29) $ (.46) $ (.12)
========== ========== ========== ========== ========= ======== ============ ========
Weighted average shares (1) 9,514 9,514 9,514 9,514 9,514 9,514 9,514 9,514
========== ========== ========== ========== ========= ======== ============ ========
The Predecessor
(OCOM)
-----------------
September 30, December 31,
-----------------------------------------------------------------
2001 2000 1999 1998 1997 1996
---- ---- ---- ---- ---- ----
Balance Sheet Data
Working capital (deficiency).. $ (98,239) $(100,684) $(43,279) $ 1,695 (950) $ (490)
Fixed assets-- net............ 120,464 179,379 90,347 3,581 1,269 270
Total assets.................. 583,030 896,606 216,877 44,596 1,731 917
Long-term debt and capital 179,993 109,990 18,882 501 -- --
leases........................
Shareholders' equity.......... 217,575 599,304 129,990 36,278 -- --
Parent's investment (deficiency) -- -- -- -- 321 (208)
-------------------
We have never declared or paid any cash dividends.
(1) After giving retroactive effect to the 6,342.944-for-1 stock split in
December 2001.
MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION
AND RESULTS OF OPERATIONS
Results of Operations
In July 2001, we finalized the streamlining of our operating
structure to focus on our two most successful and promising lines of
business. The first is integrated communications products and other high
bandwidth/data/web-oriented services for the business market and the second
is bundled local telephony and Internet products efficiently sold, serviced
and provisioned via Internet-centric interfaces to the residential market.
We have engaged in significant efforts to reduce expenses in all
areas of our business, while maintaining our revenue initiatives. These plans
were implemented through a variety of means, including facility
consolidation, headcount reduction, efficiency improvements, vendor
negotiations and network optimization.
We have also engaged in significant efforts to capitalize on more
profitable UNE, UNE-P and Enhanced Extended Loop provisioning and pricing to
reduce existing network costs and capital expenditures, and enhance gross
margins going forward. A large portion of our business and residential local
access lines have been converted to these more profitable services, resulting
in improved operating results on a going forward basis.
In addition, we have made significant progress in improving the
operating efficiency of our networks, while also reducing network costs. The
associated cost savings and product enhancements have come from increased
overall efficiency, improved pricing terms, as well as the elimination of
duplicative or unneeded network facilities.
In April 2001, we announced that we are evaluating strategic
alternatives for our non-CLEC assets and businesses, and we have retained
advisors for the purpose of conducting this review.
Nine Months Ended September 30, 2001 and 2000
Following the completion of the acquisitions of ATX and Voyager in
September 2000, we consolidated the results of operations of these businesses
from the dates of acquisition. The results of these businesses are not
included in the 2000 results.
The increase in revenues to $220,055,000 from $56,155,000 is due to
acquisitions in 2000, which accounted for $166,737,000 of the increase. This
increase is offset by a decline in revenue attributed to the customer base
associated with the USN assets to $17,093,000 from $20,642,000. The revenues
from the USN customer based peaked in the third quarter of 1999 after our
acquisition in May 1999 and, as expected, declined thereafter. USN
Communications, Inc. was a CLEC that operated on a resale basis. The
underlying operations, customer relationships and future revenue streams of
the resale CLEC business have declined since our acquisition. This trend will
affect future operations because, in accordance with our revised business
plan, we are substantially reducing our resale business.
Operating costs include direct cost of sales, network costs and
salaries and related expenses of network personnel. Operating costs increased
to $175,942,000 from $77,321,000 due to acquisitions in 2000, which amounted
to $111,878,000 of the increase. This increase is offset by a decrease in
costs as a result of the implementation of our modified business plan as
described above.
Selling, general and administrative expenses increased to
$75,021,000 from $70,783,000 due to acquisitions in 2000, which amounted to
$52,448,000 of the increase. This increase is offset by a decrease in costs
as a result of the implementation of our modified business plan as described
above.
Corporate expenses include the costs of our officers and
headquarters staff, the costs of operating the headquarters and costs
incurred for strategic planning and evaluation of business opportunities.
Corporate expenses decreased to $3,854,000 from $7,465,000 primarily as a
result of the implementation of our modified business plan as described
above.
In accordance with APB Opinion No. 25, "Accounting for Stock Issued
to Employees," in April 2000, we recorded a non-cash compensation expense of
approximately $29.0 million and a non-cash deferred expense of approximately
$31.3 million due to the issuance of options to employees by CoreComm Limited
as compensation for services provided to us at an exercise price of $14.55
which was less than the fair value of CoreComm Limited's common stock on the
date of the grant. From April 2000 to September 30, 2001, $19.4 million of
the deferred non-cash compensation was charged to expense, including $9.7
million in the nine months ended September 30, 2001. We will charge the
remaining $11.9 million deferred expense to non-cash compensation expense
over the vesting period of the CoreComm Limited stock options.
Reorganization charges of $37,395,000 in 2001 relate to our
announcements in May and July 2001 that we were taking additional actions to
reorganize, re-size and reduce operating costs and create greater efficiency
in various areas of our business. An aggregate of $21,497,000 of these costs
are for equipment and other assets that will not require any future cash
outlays. The employee severance and related costs in 2000 were for
approximately 250 employees to be terminated, none of whom are still employed
by us. These costs in 2001 are for approximately 630 employees to be
terminated of which approximately 40 employees were still employed by us as
of September 30, 2001. The major actions involved in the 2001 reorganization
include (1) consolidation of functions such as network operations, customer
service and finance, (2) initiatives to increase gross margins and (3)
discussions with vendors to reduce or eliminate purchase commitments. The
consolidation of functions resulted in employee terminations and the closing
of offices. Employee severance and related costs, lease exit costs and fixed
assets and prepayment write-downs include charges related to these actions.
Initiatives to increase gross margins resulted in consolidation of network
assets and elimination of redundant and less profitable facilities. Charges
for these actions include lease exit costs and fixed assets and prepayment
write-downs. Finally, reductions or elimination of purchase commitments
resulted in agreement termination charges. All of these actions are expected
to be completed by June 30, 2002. Fixed assets and prepayments written-off
include $5.3 million related to vacated offices, $13.4 million for network
assets in abandoned markets and $2.8 million for prepayments in respect of
ILEC facilities in abandoned markets. We continue to review our operations
and may incur additional charges in the future related to our operations.
The following table summarizes the reorganization charges incurred
and utilized in 2000 and 2001:
Employee Fixed
Severance Lease Assets
And Related Exit Agreement And
Costs Costs Terminations Prepayments Total
-----------------------------------------------------------------------------------
(in thousands)
Charged to expense $2,089 $1,917 $ - $ - $ 4,006
Utilized (775) (1,396) - - (2,171)
-----------------------------------------------------------------------------------
Balance, December 31, 2000 1,314 521 - - 1,835
Charged to expense 3,262 6,977 6,582 21,883 38,704
Adjustments (996) 73 - (386) (1,309)
Utilized (2,701) (4,137) (2,712) (21,497) (31,047)
-----------------------------------------------------------------------------------
Balance, September 30, 2001 $ 879 $3,434 $ 3,870 $ - $ 8,183
===================================================================================
Reorganization charges of $775,000 in 2000 relate to the March 2000
announcement of a reorganization of some of our operations.
At March 31, 2001, we reduced the carrying amount of goodwill
related to the Voyager and MegsINet acquisitions by $167,599,000. In
connection with the reevaluation of our business plan and the decision to
sell our non-CLEC assets and businesses announced in April 2001, we were
required to report all long-lived assets and identifiable intangibles to be
disposed of at the lower of carrying amount or estimated fair value less cost
to sell. The carrying amount of goodwill related to these acquisitions is
eliminated before reducing the carrying amounts of the other assets. The
estimated fair value of these businesses was determined based on information
provided by the investment bank retained for the purpose of conducting this
sale.
Depreciation expense increased to $34,626,000 from $19,416,000
primarily as a result of an increase in fixed assets due to acquisitions in
2000.
Amortization expense increased to $75,390,000 from $9,793,000 due to
the amortization of goodwill from the acquisitions in 2000.
Interest income and other, net, increased to $1,875,000 from
$589,000 primarily due to an increase in interest income on our cash and cash
equivalents.
Interest expense increased to $18,467,000 from $2,767,000 primarily
due to increased borrowings to fund our acquisitions and operations.
The income tax benefit of $33,000 in 2001 is from state and local
income tax refunds net of payments, and the provision of $154,000 in 2000 is
for state and local income tax.
In September 2001, we and the holder of the $3,016,000 principal
amount 12.75% note payable for equipment agreed to a modification of the note
that reduced the principal amount to $800,000 which was paid on October 1,
2001. We recorded an extraordinary gain on the extinguishment of debt of
$2,216,000 for the difference between the $3,016,000 obligation and the
$800,000 liability.
Year Ended December 31, 2000 and 1999
Following completion of our acquisitions of ATX and Voyager in
September 2000, we consolidated the results of operations of these businesses
from the dates of acquisition. The results of these businesses are not
included in the 1999 results.
The increase in revenues to $131,526,000 from $57,151,000 is
primarily due to acquisitions in 2000, which accounted for $59,164,000 of the
increase. The remainder of the increase is primarily due to an increase in
CLEC and ISP revenues from an increase in customers. The revenues from the
USN customer base peaked in the third quarter of 1999 after our acquisition
in May 1999 and declined thereafter. Additionally, prepaid cellular debit
card and cellular long distance revenues declined as a result of our
termination of these services in the third quarter of 1999. We had revenues
of $2,379,000 in 1999 from the provision of these services.
Operating costs increased to $142,323,000 from $57,551,000 primarily
due to acquisitions in 2000, which accounted for $41,650,000 of the increase.
The remainder of the increase is primarily due to an increase in the fixed
component of operating expenses due to our migration to a facilities-based
infrastructure. In 1999, operating costs included $2,211,000 related to the
prepaid cellular debit card and cellular long distance services.
Selling, general and administrative expenses increased to
$109,197,000 from $72,821,000 primarily due to acquisitions in 2000, which
accounted for $21,432,000 of the increase. The remainder of the increase is a
result of increased selling and marketing costs and increased customer
service costs.
Corporate expenses include the costs of our officers and
headquarters staff, the costs of operating the headquarters and costs
incurred for strategic planning and evaluation of business opportunities.
Corporate expenses increased to $11,224,000 from $6,686,000 primarily due to
increased strategic planning activities.
Non-cash compensation in 2000 of $43,440,000 includes $38,652,000
from the grant of options by CoreComm Limited as compensation for services
provided to us at an exercise price below fair market value, and $4,788,000
from the rescission of CoreComm Limited stock option exercises. In April
2000, the CoreComm Limited compensation and option committee of its board of
directors approved the issuance of options to purchase approximately 2.7
million shares of CoreComm Limited common stock to various employees at an
exercise price of $14.55, which was less than the fair market value of
CoreComm Limited common stock on the date of the grant. In accordance with
APB Opinion No. 25, "Accounting for Stock Issued to Employees," in April
2000, we recorded a non-cash compensation expense of approximately $29.0
million and a non-cash deferred expense of approximately $31.3 million. From
April 2000 to December 31, 2000, $9.7 million of the deferred non-cash
compensation was charged to expense. We will charge the deferred expense to
non-cash compensation expense over the vesting period of the CoreComm Limited
stock options. In December 2000, the CoreComm Limited board of directors
approved the rescission of some previously exercised CoreComm Limited
employee stock options. CoreComm Limited issued notes to employees for the
repurchase of the 671,000 shares of common stock for an aggregate of
$6,803,000, which exceeded the fair market value of our common stock on the
date of repurchase. The notes earned interest at a rate of 4.5% and were
redeemed in December 2000. We recorded non-cash compensation of $4.7 million
from these transactions.
The non-cash compensation charge of $1,056,000 in 1999 was recorded
in accordance with APB Opinion No. 25, related to a change in employee stock
option agreements.
Other charges of $12,706,000 in 2000 include a reserve of $8,700,000
for notes receivable from former officers of Voyager, and restructuring costs
of $4,006,000. The restructuring costs relate to our announcements in March
and December 2000 of reorganizations of certain of our operations. The charge
consisted of employee severance and related costs of $2,089,000 for
approximately 250 employees to be terminated and lease exit costs of
$1,917,000. As of December 31, 2000, $2,171,000 of these provisions had been
used, including $775,000 for employee severance and related costs and
$1,396,000 for lease exit costs. As of December 31, 2000, none of the
employees to be terminated were still employed by us. The remaining provision
for leases will be used through 2003.
The write-down of intangibles in 2000 of $35,920,000 is comprised of
$14,784,000 related to business combinations and $21,136,000 related to our
LMDS licenses. At December 31, 2000, we wrote-off the carrying amount of
intangible assets from business combinations including goodwill of
$6,690,000, workforce of $577,000 and customer lists of $7,517,000. These
assets were primarily related to our resale CLEC business, which was acquired
in 1999. The underlying operations, customer relationships and future revenue
streams had deteriorated significantly since the acquisition. These were
indicators that the carrying amount of these resale-related assets was not
recoverable. We estimated that the fair value of these assets was zero due to
the lack of potential buyers, the overall deterioration of the resale CLEC
business environment and because of the negative cash flow of these resale
businesses for the foreseeable future. In connection with the reevaluation of
our business plan, we reduced the carrying amount of the LMDS licenses at
December 31, 2000 by $21,136,000 to reflect their estimated fair value. The
estimated fair value was determined based on an analysis of sales of other
LMDS licenses.
Depreciation expense increased to $30,641,000 from $10,916,000
primarily as a result of an increase in fixed assets.
Amortization expense increased to $42,396,000 from $8,630,000 due to
the amortization of goodwill from the acquisitions in 2000.
Interest income and other, net, increased to $1,134,000 from $55,000
primarily due to interest income on our cash, cash equivalents and marketable
securities.
Interest expense increased to $5,929,000 from $2,624,000 primarily
due to interest on the senior secured credit facility beginning in September
2000, the senior unsecured notes due 2003 issued in September 2000 and the
senior unsecured notes due 2010 issued in December 2000.
The income tax provisions of $125,000 in 2000 and $102,000 in 1999
are for state and local income tax.
Year Ended December 31, 1999 and the Period from April 1, 1998 (date
operations commenced) to December 31, 1998
Following the completion of the acquisitions of 100% of the stock of
MegsINet Inc. and the CLEC assets of USN Communications, Inc. in May 1999, we
consolidated the results of operations of these businesses from the dates of
acquisition. The results of these businesses are not included in the 1998
results.
The increase in revenues to $57,151,000 from $6,713,000 is primarily
due to acquisitions in 1999, which accounted for $40,909,000 of the increase.
The remainder of the increase is primarily due to an increase in CLEC and ISP
revenues from an increase in customers, offset by the decline in cellular
long distance revenue as a result of customers switching to other long
distance providers. In the third quarter of 1999, we sold most of our prepaid
cellular debit card business and we terminated our cellular long distance
business in some markets. We had revenues in 1999 of $2,379,000 from the
prepaid cellular debit card business and from the cellular long distance
business in these markets.
Operating costs increased to $57,551,000 from $5,584,000 primarily
due to acquisitions in 1999, which accounted for $43,315,000 of the increase.
The remainder of the increase is primarily due to the increase in revenues.
Operating costs as a percentage of revenues increased to 101% from 83%. The
increase in percentage terms is the result of an increase in the fixed
component of operating expenses due to the migration toward a
facilities-based infrastructure. In 1999, operating costs were $2,211,000
from the prepaid cellular debit card business and from the cellular long
distance business in the terminated markets.
Selling, general and administrative expenses increased to
$72,821,000 from $11,940,000 primarily due to acquisitions in 1999, which
accounted for $33,184,000 of the increase. The remainder of the increase is a
result of increased selling and marketing costs and increased customer
service costs.
Corporate expenses include the costs of our officers and
headquarters staff, the costs of operating the headquarters and costs
incurred for strategic planning and evaluation of business opportunities.
Corporate expenses increased to $6,686,000 from $2,049,000 because the 1998
expenses did not represent a full period of results due to the fact that
CoreComm Limited was spun off from another company, Cellular Communications
of Puerto Rico, Inc. on September 2, 1998, at which time corporate expenses
commenced. In addition, allocated charges from NTL Incorporated (a company
that has some of the same officers and directors as us) increased due to the
acquisitions by third parties in 1999 of other companies that had been
sharing these expenses.
The non-cash compensation charge of $1,056,000 in 1999 was recorded
in accordance with APB Opinion No. 25, "Accounting for Stock Issued to
Employees," related to a change in CoreComm Limited employee stock option
agreements.
Depreciation expense increased to $10,916,000 from $749,000 as a
result of acquisitions in 1999, which accounted for $7,176,000 of the
increase and an increase in fixed assets.
Amortization expense increased to $8,630,000 from $231,000 due to
the amortization of goodwill and other intangibles from the acquisitions in
1999.
Interest income and other, net, increased to $55,000 from $46,000
primarily due to interest income on our cash, cash equivalents and marketable
securities.
Interest expense increased to $2,624,000 from $21,000 primarily due
to interest on notes payable and capital leases of acquired businesses.
Other Results of Operations Matters
In June 2001, the board of directors of CoreComm Limited approved
the repricing of some stock options granted to our employees by CoreComm
Limited. George Blumenthal, CoreComm Limited's then Chairman of the board,
Barclay Knapp, CoreComm Limited's then President and Chief Executive Officer,
and the non-employee members of CoreComm Limited's board of directors did not
participate in the repricing. Options to purchase an aggregate of
approximately 10.2 million shares of CoreComm Limited common stock with an
average exercise price of $10.70 per share were repriced to $.25, $.75 or
$1.25 per share, depending upon the original exercise price. In accordance
with APB No. 25 and related interpretations, we are accounting for the
repriced options as a variable plan. We will recognize non-cash compensation
expense for the difference between the quoted market price of CoreComm
Limited's common stock and the exercise price of the repriced options while
the options remain outstanding. CoreComm Limited's board of directors took
this action to continue to provide performance incentives to our employees.
In August 2001, the Financial Accounting Standards Board (FASB)
issued Statement of Financial Accounting Standards (SFAS) No. 144,
"Accounting for the Impairment or Disposal of Long-Lived Assets", effective
for us on January 1, 2002. This statement supercedes SFAS No. 121,
"Accounting for the Impairment of Long-Lived Assets and for Long-Lived Assets
to Be Disposed Of" and other related accounting guidance. We are in the
process of evaluating the financial statement impact of the adoption of SFAS
No. 144.
In June 2001, the FASB issued SFAS No. 143, "Accounting for Asset
Retirement Obligations," effective for us on January 1, 2003. This statement
addresses financial accounting and reporting for obligations associated with
the retirement of tangible fixed assets and the associated asset retirement
costs. We are in the process of evaluating the financial statement impact of
the adoption of SFAS No. 143.
In June 2001, the FASB issued SFAS No. 141, "Business Combinations,"
and No. 142, "Goodwill and Other Intangible Assets." SFAS No. 141 requires
that the purchase method of accounting be used for all business combinations
initiated after June 30, 2001. Use of the pooling-of-interests method is no
longer permitted. SFAS No. 141 also includes guidance on the initial
recognition and measurement of goodwill and other intangible assets acquired
in a business combination that is completed after June 30, 2001. SFAS No. 142
ends the amortization of goodwill and indefinite-lived intangible assets.
Instead, these assets must be reviewed annually, or more frequently under
some conditions for impairment in accordance with this statement. This
impairment test uses a fair value approach rather than the undiscounted cash
flow approach previously required by SFAS No. 121, "Accounting for the
Impairment of Long-Lived Assets and for Long-Lived Assets to Be Disposed Of".
In addition, we are reviewing the carrying value of our long-lived assets for
impairment in accordance with SFAS No. 121, although it is not currently
possible to predict the outcome of this review.
Liquidity and Capital Resources
We anticipate that we will have sufficient cash to execute our
business plan into 2003, by which time we anticipate that we will be
generating enough cash from our operations to fund our capital expenditures
and debt service. If we are unable to execute our business plan successfully,
we may be required to obtain additional financing. Our ability to raise
additional capital in the future will be dependent on a number of factors,
such as general economic and market conditions, which are beyond our control.
If we are unable to obtain additional financing or to obtain it on favorable
terms, we may be required to further reduce our operations, forego attractive
business opportunities, or take other actions which could adversely affect
our business, results of operations and financial condition.
We still have significant current liabilities even after the
successful completion of the Holdco Recapitalization. On a pro forma basis at
September 30, 2001 our current liabilities exceed our current assets by
approximately $82 million. An inability to generate cash from operations
and/or raise additional financing may effect our ability to meet our cash
requirements, which may have an adverse affect on us, and potentially our
viability as an ongoing business.
Depending upon the success of the execution of our business plan,
additional financing may not be necessary in the foreseeable future. However,
we cannot assure you that: (a) actual costs will not exceed the amounts
estimated in our business plan or that additional funding will not be
required, (b) we and our subsidiaries will be able to generate sufficient
cash from operations to meet capital requirements, debt service and other
obligations when required, (c) we will be able to access this cash flow, (d)
we will be able to sell assets or businesses (75% or more of the net proceeds
from a sale may be required to be used to repay indebtedness) or (e) we will
not be adversely affected by interest rate fluctuations.
In October 2001, CoreComm Limited entered into agreements with
numerous holders of its 6% Convertible Subordinated Notes Due 2006 whereby
the holders agreed, among other things, to exchange their notes for
approximately $5 million in cash (the amount of the October 1, 2001 interest
payment) and shares of our common stock as part of a recapitalization plan.
The exchange was completed in December 2001, including the payment of the
approximately $5 million by CoreComm Limited.
On December 28, 2001, we completed the exchange of shares of our
common stock for substantial amounts of the outstanding indebtedness of
CoreComm Limited, substantial amounts of our outstanding indebtedness as
co-obligors with CoreComm Limited and all of the outstanding preferred stock
of CoreComm Limited. This exchange was completed pursuant to an exchange
agreement with CoreComm Limited and (1) holders of 10.75% Unsecured
Convertible PIK Notes Due 2011 and 10.75% Senior Unsecured Convertible PIK
Notes Due 2010, both of which were a joint obligation of CoreComm Holdco and
CoreComm Limited, in the initial principal amounts of $10,000,000 and
$16,100,000, respectively, together with any interest paid thereon, (2) the
holders of Senior Unsecured Notes due September 29, 2003 of CoreComm Limited
in the principal amount of $105.7 million, and (3) the holders of all of the
preferred stock of CoreComm Limited in the initial principal amount of $300
million together with any dividends paid thereon.
We anticipate that we and our subsidiaries will not generate
sufficient cash flow from operations to repay at maturity the entire
principal amount of our outstanding indebtedness. Accordingly, we may be
required to consider a number of measures, including: (a) refinancing all or
a portion of this indebtedness, (b) seeking modifications to the terms of
this indebtedness, (c) seeking additional debt financing, which may be
subject to obtaining necessary lender consents, (d) seeking additional equity
financing, or (e) a combination of the foregoing.
We are a holding company with no significant assets other than cash
and securities and investments in and advances to our subsidiaries. We are
therefore likely to be dependent upon receipt of funds from our subsidiaries
to meet our own obligations. However, our subsidiaries' debt agreements
prevent the payment of dividends, loans or other distributions to us, except
in limited circumstances.
In December 2001, in connection with the Holdco Recapitalization,
CoreComm Limited and CoreComm Holdco were granted an exception by Nasdaq
absent which, CoreComm Limited and CoreComm Holdco would have had to obtain
stockholder approval prior to the completion of the Holdco Recapitalization.
Accordingly, following the consummation of the intended registered public
exchange offers, whereby holders of the CoreComm Limited common stock and of
the remaining 6% Convertible Subordinated Notes due October 1, 2006 will
exchange their securities for common stock of CoreComm Holdco, we anticipate,
based on conversations with Nasdaq, that CoreComm Holdco will become the
Nasdaq listed entity and will be subject to the continued inclusion
requirements of the Nasdaq National Market. If we fail to meet the continued
inclusion requirements, we believe that not being listed on the Nasdaq
National Market would have an adverse affect on the trading prices of our
common stock and would adversely affect the liquidity of the shares of common
stock held by our stockholders. In addition, not being listed may cause
future financing to be more difficult, more expensive or both.
In April 2001, we entered into a $156.1 million Amended and Restated
Credit Agreement with The Chase Manhattan Bank that amends and restates the
term loan facility and revolving credit facility that closed in September
2000. As of January 25, 2002, there was $106.1 million outstanding under the
term loan facility and $50.0 million outstanding under the revolving credit
facility. The term loan facility will amortize in quarterly installments of
principal commencing on December 31, 2003 with a final maturity on September
22, 2008. The revolving credit facility shall be automatically and
permanently reduced in increasing quarterly installments of principal
commencing on December 31, 2003 with a termination date on September 22,
2008. In the event our remaining approximately $4.75 million of 6%
Convertible Subordinated Notes have not been converted or refinanced on or
prior to April 1, 2006, then the facilities become payable in full on April
1, 2006. The interest rate on both the term loan facility and the revolving
credit facility is, at our option, either 3.5% per annum plus the base rate,
which is the higher of the prime rate or the federal funds effective rate
plus 0.5% per annum, or the reserve-adjusted London Interbank Offered Rate
plus 4.5% per annum. At September 30, 2001, the effective interest rate on
the amounts outstanding was 8.29%. Beginning October 12, 2001 and ending
April 12, 2002, the interest rate is 6.86%. Interest is payable at least
quarterly. The commitment fee on the unused portion of the commitments is
1.25% per annum payable quarterly, subject to reduction to 1% per annum based
upon the amount borrowed under the facilities.
In April 2001, we issued to NTL Incorporated, referred to as "NTL,"
$15 million aggregate principal amount of unsecured convertible notes. These
notes will mature in April 2011. Interest on the notes is at an annual rate
of 10.75% payable semiannually on October 15 and April 15 of each year,
commencing October 15, 2001. The interest is payable in kind by the issuance
of additional unsecured convertible notes in principal amount equal to the
interest payment that is then due. The additional notes issued for interest
will have an initial conversion price equal to 120% of the weighted average
closing price of CoreComm Limited common stock for a specified period. These
notes are convertible into CoreComm Limited common stock prior to maturity at
a conversion price of $1.00 per share, subject to adjustment. However, the
holder of these notes and CoreComm Limited and CoreComm Holdco have entered
into an agreement relating to the conversion feature of the note following
the Holdco Recapitalization. Through that agreement, consistent with the
original terms of the note, CoreComm Limited and CoreComm Holdco have agreed
to exercise their right under the note such that, following the successful
completion of our exchange offer to the holders of CoreComm Limited common
stock to exchange their shares of CoreComm Limited common stock for shares of
our common stock, the convertibility feature of the note will be altered so
that rather than the note being convertible into shares of CoreComm Limited
common stock, it will become convertible into shares of our common stock. At
that time, the conversion price of $1.00 will be equitably adjusted by
applying the exchange ratio in the exchange offers, which results in a new
conversion price of $116.70 per share of our common stock. The holder has
agreed not to exercise its rights to convert into CoreComm Limited common
stock for six months from February 5, 2002 (unless that right has previously
ceased as a result of the completion of the exchange offer and the change in
the convertibility feature). In the event that we are unsuccessful in
completing the exchange offer, the conversion feature would remain into
CoreComm Limited common stock. These notes are redeemable, in whole or in
part, at our option, at any time in April 2003, at a redemption price of
103.429% that declines annually to 100% in April 2007, in each case together
with accrued and unpaid interest to the redemption date.
Some of our subsidiaries have various notes payable and capital
leases outstanding. The approximate amounts due for these notes and leases
are as follows: $10.5 million in 2002 and $268,000 in 2003.
In October 1999, CoreComm Limited issued $175 million principal
amount of 6% Convertible Subordinated Notes due October 1, 2006, and received
net proceeds of $168.5 million. In April 2001, $10,250,000 aggregate
principal amount of these notes was converted into approximately 374,000
shares of CoreComm Limited's common stock. As part of the Holdco
Recapitalization , on December 17, 2001, $160 million principal amount of the
6% Convertible Subordinated Notes were exchanged for 485,602 common shares of
our common stock and the payment of the October 2001 interest payment of
approximately $4.8 million. We intend to launch a public exchange offer for
the remaining $4.75 million principal amount of the 6% Convertible
Subordinated Notes for an aggregate amount of approximately 14,416 common
shares of CoreComm Holdco and expect to pay the remaining October 2001
interest payment of $142,500 to those holders.
In May 1999, we acquired MegsINet and the CLEC assets of USN
Communications. The USN acquisition included a potential contingent cash
payment to be paid in 2000, which was capped at $58.6 million. The contingent
payment was payable only if the USN assets met or exceeded operating
performance thresholds. We do not expect any contingent payment to be
required.
Consolidated Statement of Cash Flows
For the nine months ended September 30, 2001, cash used in operating
activities decreased to $33,448,000 from $118,590,000 in the nine months
ended September 30, 2000 due to significant efforts to reduce expenses and
other efforts to conserve cash.
For the nine months ended September 30, 2001, cash used to purchase
fixed assets decreased to $4,243,000 from $43,484,000 in the nine months
ended September 30, 2000 which reflects the modifications to our business
plan and the efforts to conserve cash.
Proceeds from borrowings, net of financing costs, of $88,679,000 was
from the borrowings under the Chase facility in January and April 2001 and
the issuance of the 10.75% senior unsecured convertible notes in April 2001.
Quantitative and Qualitative Disclosure About Market Risk
The SEC's rule related to market risk disclosure requires that we
describe and quantify our potential losses from market risk sensitive
instruments attributable to reasonably possible market changes. Market risk
sensitive instruments include all financial or commodity instruments and
other financial instruments, such as investments and debt, that are sensitive
to future changes in interest rates, currency exchange rates, commodity
prices or other market factors. We are not exposed to market risks from
changes in foreign currency exchange rates or commodity prices. We do not
hold derivative financial instruments nor do we hold securities for trading
or speculative purposes. Under our current policies, we do not use interest
rate derivative instruments to manage our exposure to interest rate changes.
The fair-market value of long-term fixed interest rate debt is
subject to interest rate risk. Generally the fair market value of fixed
interest rate debt will increase as interest rates fall and decrease as
interest rates rise. In the following table, the fair value of our
convertible notes was determined from the quoted market price. The carrying
amount of the variable rate senior secured credit facility approximates the
fair value. The fair value of our other notes payable are estimated using
discounted cash flow analyses, based on our current incremental borrowing
rates for similar types of borrowing arrangements.
Interest Rate Sensitivity
As of September 30, 2001, As Adjusted For
the Holdco Recapitalization and Other Transactions
Principal Amount by Expected Maturity
Average Interest Rate
For the Three
Months
Ending For the Years Ending December 31, Fair
December 31, -------------------------------------------------------- Value
2001 2002 2003 2004 2005 2006 Thereafter Total 9/30/01
----------------------------------------------------------------------------------------------------------
(in thousands)
Long-term debt,
including current
portion:
Fixed rate $3,266 $ - $ - $ - $ - $ - $15,752 $19,018 $18,266
Average interest
rate 6.73% 10.75%
Variable rate $ - $ - $1,950 $9,750 $25,350 $50,700 $68,350 $156,100 $156,100
-
Average interest Libor + Libor + Libor + Libor + Libor +
rate 4.5% or 4.5% or 4.5% or 4.5% or 4.5% or
base rate base rate base rate base rate base rate
+ 3. 5% + 3. 5% + 3.5% + 3.5% + 3.5%
BUSINESS
We are an integrated communications provider that offers local and
toll-related telephone, Internet and high-speed data services to business and
residential customers in targeted markets throughout the Mid-Atlantic and
Midwest regions of the United States. We operate three business divisions:
business services (ATX), residential services (CoreComm Residential) and
Internet services (Voyager). We are exploiting the convergence of
telecommunications and information services through our network strategy,
which involves the ownership of telephone switching equipment and the leasing
of the local telephone lines that run directly to homes and businesses,
combined with the provisioning of a leased regional network that carries
Internet traffic. This configuration of locally and regionally owned and
leased facilities allows us to deliver a wide range of communications
services over a wide geography within our regions. We currently offer
services to business and residential customers located principally in
Pennsylvania, Ohio, New Jersey, Michigan, Wisconsin, Maryland, Illinois, New
York, Virginia, Delaware, Massachusetts, Washington, D.C. and Indiana. In
local exchange services, we compete against the established local telephone
service provider that was the service provider in a region prior to the
opening of local telephone service to competition.
In 2001, we streamlined our strategy and operations to focus on our
two most successful and promising lines of business. The first is integrated
communications products and other high bandwidth/data/web-oriented services
for the business market. The second is bundled local telephony and Internet
products efficiently sold, serviced and provisioned via Internet-centric
interfaces to the residential market. Our strategy is to attractively bundle
telephony and data services in our target markets in order to compete with
the incumbents and gain market share.
As of September 30, 2001, we had more than 295,000 local telephone
access lines in service and more than 350,000 Internet customers. The
following table details our customer base.
September 30, 2001
------------------
Residential Local Access Lines 54,400
Business Local Access Lines 241,500
Toll-related Access Line Equivalents 495,300
Internet Subscribers 351,600
Other Data Customers (1) 18,200
------------------
(1) Other data customers included Point-to-Point data, Frame Relay, Web
Development, Web Hosting, E-Commerce, Collocation and other related
customers.
As of the third quarter ended September 30, 2001, our revenues were
attributable to the following service categories:
Q3 2001
-------
Local Exchange Services 32%
Toll-related Telephony Services 26%
Internet, Data and Web-related Services 32%
Other Revenue 10%
Total 100%
We have engaged in significant efforts to capitalize on ways to
increase the profitability of our services. We have capitalized on
opportunities such as more profitable Unbundled Network Element - Platform
(UNE-P) and Enhanced Extended Loop (EEL) provisioning and pricing to reduce
existing network costs and capital expenditures, and enhance gross margins.
In the last few months, a large portion of our business and residential local
access lines have been converted to these more profitable services from total
service resale, which we expect to continue. We will also continue to
provision telephony customers onto our owned and leased networks where we
have facilities in place, while also taking advantage of UNE-P and EEL
provisioning to expand our service areas.
The following is a description of our three business divisions, as
well as a description of our network technology and proprietary systems.
Business Services (ATX)
Through our business services division, we offer customers a full
range of high-speed communications services including local and toll-related
telephony services, network services such as network data integration,
Internet access and Web consulting, development and hosting, and other
related services. In addition, we offer Advanced Communications Solutions
products tailored to meet the needs of our business customers, such as
conference calling, travel services, pre-paid calling, enhanced fax and
PC-based billing. Customers are billed on a single, consolidated invoice,
delivered by traditional means or near real time Web-based billing that
allows the customer to sort the information to detail calling patterns. Our
target markets are the Mid-Atlantic region throughout the New York-Virginia
corridor, and Midwest markets, including: Cleveland, Ohio; Columbus, Ohio;
Chicago, Illinois; and other markets in the Great Lakes region.
Business Products and Services
Our business division offers our customers a full range of broadband
communications services, including:
o CoreConnect. We offer a single, simple solution for all of a
customer's communications needs - local, long distance, toll,
data and Internet access services bundled over a
multi-purpose broadband connection. By combining all of a
business' essential communications over the same facilities,
we are able to offer an integrated access tool that enables
higher speed, greater bandwidth, and significant cost
savings, all from a single source. Through this integrated
product, we are also able to offer custom-tailored
bandwidth-intensive data solutions such as WAN/LAN
connectivity, dedicated point-to-point circuits, frame relay
to the Internet, and ATM for multimedia applications. We also
offer these products on a stand-alone basis.
o Local Telephony Services. Local telephony services include
local dial tone and a set of custom calling features that
business customers can tailor to meet their local telephony
needs. A sample of some of the most popular local features
include alternate answer, automatic callback, busy line
transfer, call blocking, call forwarding, call trace, call
waiting, caller ID with name, multi-ring service, repeat
dialing, remote access call forwarding, and speed calling.
o Toll-related Telephony Services. Toll-related telephony
services include inbound/outbound service, international, 800
or 888 service and calling card telephone service. We
currently provide intraLATA and interstate long distance
services nationwide and international termination worldwide.
We also offer a full line of Advanced Communications
Solutions along with our toll-related services, such as
Internet-based call management, traveling calling cards, fax
broadcasting, voice mail, conference calling and enhanced
call routing services.
o Network Services. We also offer complete high-speed network
solutions to our customers. These services include network
data integration for private line services, Internet
services, Web design, development, hosting and consulting
services.
o Internet Services. We utilize a state-of-the-art network to
deliver Internet access designed for business use, ensuring
high-speed and stable connectivity to a global resource of
information. Our customers are connected via high-speed
dedicated lines, from 56K up to DS3.
o Web Services/E-commerce. We are able to facilitate virtually
every aspect of establishing and maintaining an interactive
global presence in Web services. The various segments of Web
services include Web design, hosting, electronic commerce,
Intranet development, database integration, Internet
marketing and Internet security.
o Consulting Services, Local Area Network/Wide Area Network
Data Integration. Our network services and integration unit
assists organizations in the design, construction,
implementation and management of practical local and wide
area networks. This business unit manages local area
network/wide area network data integration for private line
services, Internet network and integrated services digital
network, as well as professional consulting services and
hardware/software sales. We develop solutions while educating
clients on specific business applications and the technology
that make them possible. Consulting services include wide
area network architecture and implementation, router and CSU
configuration, local area network switching, electronic
commerce, cabling and VLAN design and set-up.
o Wireless Services. We also offer wireless services primarily
as a customer retention tool, consisting of both cellular and
paging service. We offer digital and analog cellular services
as well as ESMR service, which is two-way radio and digital
cellular service, through Nextel.
Business Sales and Marketing
Our sales model is based on our consultative sales approach, our
proprietary marketing and training tools, the experience of our sales force,
our "farm-team" training and career development program, and our shared
vision and incentive structure to reward individual and team performance
objectives.
Each sale begins with an evaluative consultation that investigates
the telecom needs of the customer. The sales consultant then designs a
tailored, integrated and cost-effective telecom platform that addresses the
specific customer's communications needs. The level of the sales consultant's
telecom and customer knowledge necessary to sell successfully can be achieved
only through significant training, mentoring and devotion of corporate
resources.
We have an experienced and long-tenured sales force. Over 25% of our
senior sales force professionals have been with us for more than five years,
and 18 out of 22 members of the sales management team have been promoted from
within our organization.
Residential Services (CoreComm Residential)
We offer residential customers voice, data and other
telecommunications services in Ohio, Illinois, Michigan, Wisconsin and
Pennsylvania and Internet access services over a wider footprint in the
Midwest and Mid-Atlantic regions of the United States. Customers are billed
for their services with one, consolidated bill. If they choose, customers can
access their billing information and pay their bills online, or they may
elect automatic bill payment via credit or debit card.
Residential Products and Services
Our residential strategy is to bundle telephony and Internet
products and services in ways that are attractive to the customer,
distinctive in the marketplace, and offer convenience and simplicity. We
typically offer a platform of the most popular services and then create ways
for customers to purchase other services easily and conveniently according to
their tastes.
For example, in the current residential offering, we combine a
package of local and long distance phone service with Internet access, which
is called the "CoreComm Unlimited Premium" service. Although the details of
the offerings vary somewhat by region, the service typically includes:
- Local dial tone;
- Local calls;
- Call waiting;
- Caller-ID with name;
- Personal "800" number;
- Premium Internet service;
- 56K unlimited access;
- 3 e-mail addresses;
- 10 MB of personal web space;
- Long distance service option at 10 cents per minute; and
- 100-200 minutes of long distance included with additional
minutes at 6-8 cents per minute.
Additional options and features, such as voice mail, three-way
calling, an additional line, and additional web site space, can be easily and
flexibly added to the service. The pricing for CoreComm Unlimited Premium
varies by region, but in all areas the price offers value and convenience
when compared to offerings from the incumbent telephony company and other
providers of these services.
Although the specific components of the product offerings
continually change over time, we plan to continue our strategy of designing
marketing packages that give the customer flexibility and choice, with
convenient ways to subscribe to additional services.
In general, we currently offer the following voice, data and
Internet services to residential customers in our markets:
o Local Telephony Services - including standard dial tone,
local calling, Emergency 911 services, operator assisted
calling, access to the long distance network, and other
related services.
o Custom Calling Features - including call waiting, call
forwarding, caller ID, voice mail, conference calling,
multi-ring, speed calling and other enhanced features.
o Toll-related Telephony Services - including 1+ interLATA
calls, which are calls across Local Access and Transport
Areas, intraLATA calls, international calls, 800/888/877 toll
free services, calling cards and other related services.
Residential Sales and Marketing
We focus on a marketing approach that combines targeted direct
marketing with partnerships and local organizations. We utilize local media
and partner with civic organizations to develop the recognition of the brand
and to create a captive potential base of customers. We also target customers
in our footprint via direct mail, e-mail and telemarketing. All of our sales
efforts are designed to drive revenue growth by capitalizing on low cost
opportunities in our current markets.
In addition to efforts designed to acquire new customers, we
continually engage in efforts to sell additional services to existing
customers. For example, we are currently working on upselling our
Internet-only customers to bundled local and toll-related telephony and
Internet products.
Our residential marketing efforts are intended to drive potential
customers to our website, www.core.com. At this website, customers can sign
up for service in a fully online process. Customers may also sign up for
service by calling our toll-free number. Our product offerings are designed
to be simple and flexible, so that potential customers can easily perceive
their value.
Internet Services (Voyager)
Our Internet services division provides Internet access and
high-speed data communications services and to residential and business
subscribers. Services include dial-up Internet access, dedicated
telecommunications services to business, cable modem access, Web-hosting,
electronic commerce, and co-location services. We operate one of the largest
dial-up Internet networks in the Midwest in terms of geographic coverage,
with approximately 170 owned points of presence in Michigan, Wisconsin, Ohio,
Illinois, Indiana, Minnesota, Pennsylvania, New York and California.
In April 2001, we announced that we are evaluating strategic
alternatives for our non CLEC assets and businesses and we have retained
advisors for the purpose of conducting this review.
Internet Products and Services
Internet Access Services
We offer Internet access services to residential subscribers and
dedicated, web hosting, and dial-up Internet access to business customers. By
selecting between the various types of access services and pricing plans
available, subscribers can select services that fit their specific needs.
o Dial-up Access. Our residential access services are designed
to provide subscribers with reliable Internet access through
standard dial-up modems. The dial-up Internet access service
includes:
- local access numbers;
- personal Web space;
- multiple e-mail accounts;
- toll-free customer support;
- light usage plans;
- optional content filters for parental or business use;
and
- Internet chat and news groups.
We also offer prepaid plans for quarterly, semi-annual and annual
access. A majority of our residential subscribers pay their monthly fee
automatically by a pre-authorized monthly charge to their credit card.
Additional service options include Web content filter service, e-mail alias
(forwarding) and national toll-free roaming service.
o Dedicated Access. We offer high-speed dedicated connections
to both business and residential subscribers at a range of
speeds using traditional telecommunications lines and frame
relay communications services for those customers requiring
greater speed and reliability.
o Cable Modems. Through a reseller arrangement with Millennium
Digital Media Systems, L.L.C., we offer high-speed Internet
access in some locations through the use of modems integrated
with local cable television networks and provides the
technical and billing support to this fast-growing segment of
the Internet access business.
Web Services
Our Web services help organizations and individuals implement
their Web site and e-commerce goals. We offer various Web hosting
and other services that enable customers to establish a Web site
presence without maintaining their own Web servers and high-speed
connectivity to the Internet.
o Web Hosting. We offer a diverse range of shared, dedicated
and co-location Web hosting services for small and medium
businesses. The Web hosting service includes state-of-the-art
Web servers, high-speed connections to the Internet at its
network operations centers, and registration of our
customers' domain name and Internet address. We also offer
Web page design, development, maintenance and traffic
reporting and consulting services.
o Co-location. We offer co-location services, providing
telecommunications facilities for customer-owned Web servers,
for customers who prefer to own and have physical access to
their servers but require the reliability, security and
performance of our on-site facilities. Co-location customers
house their equipment at our secure network operating centers
and receive direct high-speed connections to the Internet.
o E-commerce. We have launched a suite of Web hosting and
e-commerce solutions that enable businesses to easily and
affordably create Web sites and sell their products and
services over the Internet. The product suite includes
EasyWeb, which allows a business to quickly create a Web site
online through a series of menu-driven screens and templates,
and EasyShop, a comprehensive e-commerce solution, which
allows businesses to accept real-time credit card purchases
via their Web site.
o Local Content. Our portal is a web site including
personalized local news and weather, sports, entertainment,
finance, stock quotes, shopping, classifieds and chat
services for our customers. Content is automatically tailored
to individual customers using a database driven process that
presents customers with location-specific information.
Customers can also customize the layout and specific content
options available to them. Content is made available through
revenue sharing and co-branding agreements with organizations
including CMGI Inc.'s MyWay.com, Wizshop.com, Amazon.com, and
local media. Customers access the portal page at
www.voyager.net.
Other Services and Offerings
We also offer other enhanced communications services to meet the
one-stop shopping demands of residential and business customers.
o Virtual Private Networks. Our custom virtual private networks
solutions enable customers to deploy tailored, Internet
protocol-based mission-critical business applications for
internal enterprise, business-to-business and
business-to-customer data communications on its network while
also affording high-speed access to the Internet. We offer
customers a secure network on which to communicate and access
information between an organization's geographically
dispersed locations, collaborate with external groups or
individuals, including customers, suppliers, and other
business partners and use the Web to access information on
the Internet and communicate with other Web users.
o Long Distance and other Telecommunications. We currently
resell long distance telecommunications services as well as
an 800 service, calling cards and prepaid cards to its
Internet customers through our VoyagerLink operations. We
currently offer this interstate and intrastate long-distance
service to our customers at a fixed rate per minute, with no
set-up or monthly charges.
Internet Sales and Marketing
Marketing. Our marketing philosophy is based on the belief that a
consumer's selection of an Internet service provider is often strongly
influenced by a personal referral. Accordingly, we believe that the customer
satisfaction of our subscriber base has led to significant word-of-mouth
referrals. Our referral incentive program awards subscribers one month of
free service for every customer referred. As a result, over 70% of new
sign-ups come from existing subscriber referrals. Our proprietary customer
care and billing system automatically tracks and credits the subscriber's
account, thus providing valuable marketing information and flexibility with
this program. We also market services through strategic relationships with
value added resellers in the local communities, such as trade associations,
unions, Web development companies, local area network administrators and
retail stores which represent and promote us on a commission basis. These
relationships are a significant source of new customers. We do not use mass
marketing media as a major source of acquiring new customers, but instead
believe that by providing superior customer service and developing strong
relationships within local communities, particularly in small- and
medium-sized markets, we can continue to grow with very low costs per new
customer acquired.
Free CDs and Diskettes. Upon the request of prospective customers,
we distribute free software via CD and diskettes that contain both the
Netscape browser software for Windows 2000/98/95, Windows 3.1 and Macintosh,
as well as Microsoft's Internet Explorer. The software is configured to
facilitate installation and connection to a point of presence. Individuals
receiving the CD or diskettes have the opportunity to obtain the free browser
software contained on the CD by opening an account with us, either online or
via a toll-free telephone number. New customers can be online in a matter of
minutes after opening an account online or by calling our toll-free telephone
number.
Business Sales and Support. We have a business sales and support
team dedicated to selling and providing customized support to our growing
small- and medium-sized business customers. The business teams include
support personnel located throughout its target region. This strong local
presence allows it to meet face-to-face with its business customers to
evaluate their needs and respond with customized solutions. Our locally-based
sales and support teams are supported by additional network engineers at our
call centers for trouble-shooting on specific problems.
Network and Technology
Network Strategy. Our network strategy combines the ownership of
telephone switching equipment and the leasing of the local telephone lines
that run directly to homes and businesses, combined with the provisioning of
a leased regional network that carries Internet traffic. This configuration
of locally and regionally owned and leased facilities allows us to deliver a
wide range of communications services over a wide geography within our
regions.
Telephony Network Infrastructure. We currently have Class 5 switches
operating in Philadelphia, PA; Columbus, OH; Cleveland, OH; and Chicago, IL.
These switches are connected via leased local transport to collocations
throughout their respective markets where we have equipment collocated with
the incumbent local exchange carrier. We are able to reduce the number of
collocations we establish with the incumbent local exchange carrier, in each
market by utilizing Enhanced Extended Loops (EELs) that virtually allow us to
extend our local networks to service customers well outside of the
collocation footprint. Also, in areas where we do not have facilities in
place, we utilize Unbundled Network Element - Platform (UNE-P) and total
service resale provisioning to service their customers. We also operate five
Class 4 switches to handle our toll-related traffic.
Internet Network Infrastructure. We designed and built our Internet
network to specifically service Internet (data) traffic. The network is
comprised primarily of the latest Cisco Systems and Juniper Networks routing
and switching equipment, which provides a common platform for increased
flexibility and maintenance while allowing for the use of advanced routing
protocols to quickly and dependably deliver customer traffic. We have two
Internet network operating centers to oversee traffic flows and general
network operations, as opposed to a single network operating center as found
in many national networks, which helps create redundancy and ensures a secure
and reliable network. We are continuously improving our network
infrastructure and connectivity costs through relationships with incumbent
local exchange carriers and competitive local exchange carriers such as
Brooks Fiber (MCI WorldCom), Phone Michigan (McLeodUSA), Time Warner, Coast
to Coast and Focal Communications.
Our Internet points of presence are linked to regional network
points, or hubs, which are our two Internet-dedicated network operating
centers. These network points are linked to the Internet by fiber optic
connections and employ asynchronous transfer mode, frame relay and other
methods of handling traffic efficiently. Interlinked network points allow
Internet users to access sites located on other network points. In the event
that one of our subscribers wishes to access a Web site that is located on
another service provider's network, data is directed to a network access
point where information sharing is conducted under arrangements known as
peering. The flow of information across a network access point allows
information to be downloaded from one service provider's network to a
subscriber on another service provider's network.
Internet Points of Presence. Our approximately 170 dial-in points of
presence primarily utilize digital access servers manufactured by 3Com
Corporation and Lucent Technologies, Inc. These servers allow for a variety
of customer connections from standard dial-up to traditional
telecommunications lines, including integrated digital services network. Our
network has been reconfigured to include redundant data circuits, which will
automatically route customer traffic in the event of a failure, and our
network topology offers high levels of performance and security. Through
various relationships with competitive local exchange carriers, we have been
able to reduce the overall number of points of presence by consolidating
several of them into "SuperPOPs" with expanded calling areas. The SuperPOP
allows us to consolidate equipment into one large modem bank and eliminate
various telecommunication links from its points of presence back to the
network operating center, thereby creating enhanced network reliability and
reducing telecommunication costs.
Network Operations Centers (NOCs). We currently have 4 network
operations centers localized to manage traffic throughout our footprint. The
NOCs are located in Philadelphia, PA, Cleveland, OH, which monitors the
Cleveland, Columbus and Chicago networks, and East Lansing, MI, and New
Berlin, WI. The East Lansing and New Berlin NOCs house all of our internal
Internet network equipment, including servers, routers, mail, hosting and
disk arrays, as well as our main routing equipment and connection to the
Internet. These two NOCs have been interconnected to provide redundancy and
to ensure the highest quality data network. Each network operations center is
monitored on a 24 hours per day, seven days per week basis in order to
provide the highest level of network performance.
Peering Relationships. Peering is the act of exchanging data across
networks, typically at specific, discrete locations. By allowing separate
networks to exchange data, users on a particular Internet service provider's
network are able to access information and communicate with users on another
provider's network. Many formal peering points exist where several dozen
Internet service providers and other providers exchange data, including
network access points. Internet service providers can also run connections to
peer with several different providers, known as multihoming. Multihoming
allows an Internet service provider to provide better service, as inbound and
outbound data can go over different routes if a particular network is
overloaded. We have relationships at multiple points with several different
organizations, including Verio, Inc. in Ann Arbor, Michigan, NAP.net in
Chicago, Illinois and MCI and Savvis in Kalamazoo, Michigan, thus building in
network redundancy that allows for better connectivity for its customers.
Electronic Bonding and Proprietary Systems
We are currently bonded electronically with Ameritech and Verizon.
This electronic interface allows for more timely and accurate service
ordering and provisioning of customers. We have real-time access to customer
information while order entry and confirmation are batched and transmitted
several times a day. We provide service to customers through our proprietary
systems, which are designed to interface with the incumbent local exchange
carriers' systems through a variety of delivery mechanisms. Our systems and
processes have been developed to decrease the risk of human error associated
with provisioning customers by manual keying or fax.
Our customer interface systems have been developed and continue to
be enhanced in a client/server environment that allows for flexibility to
accommodate an expanding customer base, efficient entry into new markets,
switch-based services, and rapid development of additional functionality. Our
proprietary systems handle all pre-ordering activities, including obtaining
customer service records (CSR), finding and reserving telephone numbers,
verifying customer addresses, validating due dates, searching the incumbent
local exchange carrier's switches for feature availability (COFA), and yellow
page listings.
Our recent and ongoing enhancements to our information systems
include the following:
o Rating and billing engines are being re-engineered for
performance and scalability using a multi-tiered
architecture.
o Provisioning systems for the Ameritech region have been
enhanced to support Ameritech's five state region. Our
service order management system has been enhanced to validate
in real time the incumbent local exchange carrier feature
availability, integrate the electronic generation of service
order data, and integrate automated switch activation
software for our Class 5 switches, all within a single
system. The provisioning information is entered once, and it
flows through our internal systems, our switch, and the
incumbent local exchange carrier systems with minimal manual
intervention.
o We have automated the migration processes to move customers
from resale to on-switch and resale to UNE-P via our service
order management system, which has been designed to minimize
manual processes with the incumbent local exchange carrier.
o We have purchased and installed a platform for our call
centers which has introduced skills-based routing of inbound
calls with an automated attendant. This allows us to service
our customers better by ensuring that a call is delivered to
a customer service representative with the skills necessary
to handle the customer.
o We have integrated an auto-dialer with our collections
system, which has significantly increased collection agent
productivity and effectiveness.
We have invested in the construction of a series of proprietary
software applications and an extensive corporate Intranet in our efforts to
achieve a paperless work environment in which all job critical information is
readily available online. Our employees use the corporate Intranet to access
detailed product and corporate information, industry research and updates,
competitive intelligence files, online training and certification, calendars,
a personnel directory, community activities, philanthropic organizations, and
other important content from the convenience of their desktops. Online forms
and sophisticated e-mail applications have further increased productivity by
enhancing communications.
We currently utilize internally developed proprietary systems for
integrated order management and provisioning, as well as for customer
relations management. For billing, we use a combination of proprietary
software and an external service bureau.
We provide customer service and technical support through three call
centers located in Philadelphia, PA, Columbus, OH, and East Lansing, MI. We
provide 100% of our customer care internally and do not outsource any
customer operations to third party providers. We have upgraded our phone
systems to route calls, track important call-in data, automatically answer
questions and move customers quickly through the call-in process. Our
comprehensive staff training program and incentive compensation program
linked to customer satisfaction has led to significant improvements in the
time required to move subscribers through the various calling queues. In
addition to using our call centers, customers can also e-mail questions
directly to technical support staff, as well as find solutions online through
the use of the tutorials found at our web site.
Competition
The telecommunications industry and all of its segments are highly
competitive and many of our existing and potential competitors have greater
financial, marketing, technical and other resources than we do. Competition
for our products and services is based on price, quality, network
reliability, service features and responsiveness to customers' needs.
Competitive Local Exchange Carrier
In each of our markets, we face competition from incumbent local
exchange carriers, including Verizon and Ameritech, as well as other
providers of telecommunications services, other competitive local exchange
carriers and cable television companies. In the local exchange markets, our
principal competitor will be the incumbent local exchange carriers. We also
face competition or prospective competition from one or more competitive
local exchange carriers. For example the following companies have each begun
to offer local telecommunications services in major U.S. markets using their
own facilities or by resale of the incumbent local exchange carrier's
services or other providers' services: AT&T, MCI WorldCom, McLeod USA, Choice
One Communications, XO Communications and Sprint.
Some of our competitors, including AT&T, MCI WorldCom and Sprint,
have entered into interconnection agreements with Verizon and Ameritech in
states in which we operate. These competitors either have begun or in the
near future likely will begin offering local exchange service in those
states. In addition to these long distance service providers and existing
competitive local exchange carriers, entities that currently offer or are
potentially capable of offering switched telecommunications services include:
- wireless telephone system operators;
- large customers who build private networks;
- cable television companies; and
- other utilities.
Competition in our competitive local exchange carrier business will
continue to intensify in the future due to the increase in the size,
resources and number of market participants. Many facilities-based
competitive local exchange carriers have committed substantial resources to
building their networks or to purchasing competitive local exchange carriers
or inter-exchange carriers with complementary facilities. By building or
purchasing a network or entering into interconnection agreements or resale
agreements with incumbent local exchange carriers, including regional Bell
operating companies and inter-exchange carriers, a provider can offer single
source local and long distance services similar to those offered by us.
Additional alternatives may provide competitors with greater flexibility and
a lower cost structure than ours. Some of these competitive local exchange
carriers and other facilities-based providers of local exchange service are
acquiring or being acquired by inter-exchange carriers. These combined
entities may provide a bundled package of telecommunications products,
including local and long distance telephony, that is in direct competition
with the products offered or planned to be offered by us.
Internet
The Internet services market is also extremely competitive. We
compete directly or indirectly with the following categories of companies:
- established online services, such as America Online, the
Microsoft Network and Prodigy;
- local, regional and national Internet service providers,
such as Earthlink, United Online and Internet America;
- national telecommunications companies, such as AT&T and
MCI;
- providers of Web hosting, co-location and other
Internet-based business services, such as Verio, Inc.;
- computer hardware and software and other technology
companies that provide Internet connectivity with their
products, including IBM and Microsoft Corporation;
- national long distance carriers such as AT&T
Corporation, MCI WorldCom and Sprint Corporation;
- regional Bell operating companies, such as Verizon and
Ameritech, and local telephone companies;
- cable operators, including AT&T Corporation, Comcast and
Time Warner Cable;
- nonprofit or educational Internet service providers;
- online cable services, such as Excite@Home and
Roadrunner; and
- satellite-based online providers, such as DIRECTV and
EchoStar.
We believe that the primary competitive factors determining success
as an Internet service provider are:
- accessibility and performance of service;
- quality customer support;
- price;
- access speed;
- brand awareness;
- ease of use; and
- scope of geographic coverage.
Many of the major cable companies and some other Internet access
providers offer Internet connectivity through the use of cable modems and
wireless terrestrial and satellite-based service technologies. In addition,
several competitive local exchange carriers and other Internet access
providers have launched national or regional digital subscriber line programs
providing high speed Internet access using the existing copper telephone
infrastructure. Several of these competitive local exchange carriers have
announced strategic alliances with local, regional and national Internet
service providers to provide broadband Internet access. We also believe that
manufacturers of computer hardware and software products, media and
telecommunications companies and others will continue to enter the Internet
services market, which will also intensify competition. Any of these
developments could materially and adversely affect our business, operating
results and financial condition.
Competition will increase as large diversified telecommunications
and media companies acquire Internet service providers and as Internet
service providers consolidate into larger, more competitive companies.
Diversified competitors may bundle other services and products with Internet
connectivity services, potentially placing us at a significant competitive
disadvantage. As a result, our businesses may suffer.
Customer Dependence and Seasonality
We do not depend upon any single customer for any significant
portion of our business. Neither our business nor the telecommunications
industry are generally characterized as having a material seasonal element,
and we do not expect our business or the industry to become seasonal in the
foreseeable future.
Employees
As of September 30, 2001, we had an aggregate of approximately 1,300
employees. None of our employees are represented by any labor organization.
We believe that our relationship with our employees is excellent.
Properties
Some of our subsidiaries lease switch buildings, ILEC collocations
and office space which we believe is adequate to serve our present business
operations and our needs for the foreseeable future. For information
concerning lease commitments, please refer to the Notes to the Consolidated
Financial Statements included in this prospectus.
Legal Proceedings
We purchase goods and services from a wide variety of vendors under
contractual and other arrangements that sometimes give rise to litigation in
the ordinary course of business. We also provide goods and services to a wide
range of customers under arrangements that sometimes lead to disputes over
payment, performance and other obligations. Some of these disputes,
regardless of their merit, could subject us to costly litigation and the
diversion of our technical and/or management personnel. Additionally, any
liability from litigation that is not covered by our insurance or exceeds our
coverage could have a material adverse effect on our business, financial
condition and/or operating results. Currently, we have the following
outstanding matters which, if resolved unfavorably to us, could have a
material adverse effect on us:
o On or about September 14, 2001, a lawsuit was filed by
WXIII/Far Yale Gen-Par, LLC, as General Partner of WXIII/Far
Yale Real Estate Limited Partnership against CoreComm
Communications, Inc. (our first tier wholly owned subsidiary)
and CoreComm Limited seeking approximately $172,500 in unpaid
rent, interest and other charges allegedly owed under a
commercial real estate lease between Yale and CoreComm
Communications as to which CoreComm Limited is the guarantor.
On or about February 5, 2002, Yale filed a motion with the
court requesting permission to amend the complaint to specify
a revised figure of $404,290.87 as the amount allegedly due
under the lease and to add an additional count asking the
court to issue a preliminary injunction preventing the
defendants from transferring, selling, assigning, encumbering
or otherwise hypothecating any of their assets, including any
debt or equity interests in their subsidiaries, except for
usual and ordinary expenses paid in the usual and ordinary
course of business. We are currently defending ourselves in
the litigation and we do not believe that Yale's request for
a preliminary injunction is meritorious. However, we cannot
predict the outcome of the litigation. If Yale were to obtain
the injunctive relief requested, it could prevent us from
closing the exchange offers and/or have a material adverse
effect on our business, financial condition and/or results of
operations. Even if the minimum condition is satisfied,
before the expiration date we may choose not to accept
outstanding securities and not to complete the exchange
offers if any action, proceeding or litigation seeking to
enjoin, make illegal or delay completion of the exchange
offers or otherwise relating in any manner to the exchange
offers is or has been threatened or instituted or is pending
or if any order, stay, injunction or decree is issued by any
court which would or might restrain, prohibit or delay
completion of the exchange offers.
o We are currently in litigation with Ameritech Ohio, a
supplier from whom we purchase telecommunications products
and services, over the adequacy of Ameritech's performance
under a 1998 contract between us and Ameritech and related
issues. This litigation began in June 2001 when Ameritech
threatened to stop processing new orders following our
exercise of our right under the contract to withhold payments
for Ameritech's performance failures. In response to their
threat, we sought, and on June 29, 2001 received, an order
from an official of the Public Utilities Commission of Ohio,
which we refer to as "PUCO," barring Ameritech from refusing
to process new CoreComm orders. Ameritech has appealed that
order to the PUCO and the appeal is still pending.
On July 5, 2001, Ameritech filed a claim with the PUCO seeking
payment from us of approximately $8,600,000 allegedly owed
under the contract. On August 8, 2001, Ameritech filed a second
claim against CoreComm in Ohio state court, seeking an
additional approximately $4,300,000 in allegedly improperly
withheld amounts. On August 28, 2001, we exercised our right to
remove the state court claim to the United States District
Court for the Northern District of Ohio, and the parties then
stipulated to a consolidation of both of Ameritech's claims in
the United States District Court. To consolidate the two
claims, on October 9, 2001, Ameritech filed an amended
complaint in the United States District Court, seeking a total
of approximately $14,400,000.
On December 26, 2001, we filed our answer to Ameritech's
amended complaint and simultaneously filed three counterclaims
against Ameritech and some of its affiliates, alleging breach
of contract, antitrust violations, and fraudulent or negligent
misrepresentation. Ameritech's response to our counterclaims is
currently due on February 13, 2002. Although we believe that we
have meritorious defenses to Ameritech's amended complaint, and
that the amount currently in dispute is substantially less than
the $14,400,000 claimed in Ameritech's amended complaint, we
cannot be certain how the matter will be resolved. We also
believe that to the extent that Ameritech prevails with respect
to any of its claims, Ameritech's award may be offset in whole
or in part by amounts that we are seeking to obtain from
Ameritech under its counterclaims. However, it is impossible at
this time to predict the outcome of the litigation.
o We have received correspondence from various operating
subsidiaries of Verizon Communications, Inc. ("Verizon")
claiming that Verizon is owed a total of approximately $14.4
million for services allegedly provided in Delaware,
Maryland, Virginia, Pennsylvania, District of Columbia,
Massachusetts and New York, and threatening to activate
account embargo and service suspension procedures in those
states if payment of the alleged amounts is not received by
February 11, 2002 (as to the amounts allegedly owed in
Pennsylvania) and March 3, 2002 (as to the amounts allegedly
owed for the remaining states). We are currently reviewing
Verizon's claims against our own billing records, including
records reflecting unresolved disputed charges, and believe
that the amount at issue could be substantially less than the
amount claimed by Verizon. Moreover, we intend to vigorously
defend against any effort to implement any embargo or service
suspension. However, we cannot presently predict how the
matter will be resolved and if Verizon were to prevail on its
claims and/or activate an account embargo or service
suspension, it could have a material adverse affect on our
business, financial condition and/or results of operations.
o On December 3, 2001, General Electric Capital Corp. filed a
lawsuit in the Circuit Court of Cook County, Illinois against
CoreComm Limited and our subsidiary, MegsINet, Inc. seeking
approximately $8 million in allegedly past due amounts under
a capital equipment lease agreement between Ascend and
MegsINet. GECC is seeking all amounts allegedly owed under
the lease as well as repossession of the equipment. The
company's response to GECC's complaint is due February 20,
2002 and we intend to defend the suit vigorously. A finding
in favor of GECC could adversely affect our financial
condition.
o On May 25, 2001, KMC Telecom, Inc. and some of its operating
subsidiaries filed an action in the Supreme Court of New York
for New York County against CoreComm Limited, Cellular
Communications of Puerto Rico, Inc., CoreComm New York, Inc.
and MegsINet, Inc. On that same date, KMC filed the same
cause of action in the Circuit Court of Cook County, IL. Upon
defendant's Motion to Stay the New York action, KMC
voluntarily dismissed the Illinois litigation and the matter
is currently proceeding in New York. KMC contends that it is
owed approximately $2 million under a services agreement and
a collocation agreement with MegsINet. The defendants have
denied KMC's claims and have asserted that KMC failed to
perform under the alleged contracts. The defendants have
served discovery and intend to defend themselves in
coordination with one of their insurance carriers. However, a
finding in favor of KMC in this litigation could have a
material adverse effect on our business, financial condition
and/or results of operations.
o On July 6, 2001, MCI initiated a compulsory arbitration
action against our subsidiary CoreComm Communications, Inc.
in connection with a dispute arising under a carrier services
agreement between the parties. The arbitration demand
contends that MCI is owed in excess of $1.9 million for
circuits that were allegedly ordered by CoreComm
Communications, Inc. under the carrier agreement, and MCI has
subsequently asserted that under one theory of the case, its
claims could exceed $10 million. We have denied MCI's claims,
asserting that the circuits were never ordered under the
contract and have been improperly billed by MCI and we do not
agree with MCI's various damages theories. Discovery in this
matter has been completed, and the case is currently
scheduled for trial before the arbitrator in April 2002. We
are defending the suit and pursuing all available claims and
defenses. However, a finding in favor of MCI in this
arbitration could have a material adverse effect on our
business, financial condition and/or results of operations.
o We have received correspondence from a law firm on behalf of
Weston Telecommunications, L.L.C. asserting that Weston is
the assignee of certain rights of Easton Telecom Services,
Inc. under an asset purchase agreement approved as part of
the bankruptcy disposition of Teligent, Inc., and demanding
payment of approximately $4.9 million for telecommunications
services purportedly provided under alleged contracts between
Easton and our subsidiary MegsINet, Inc. We have investigated
Weston's claims and do not believe they have any merit, and
we intend to defend ourselves vigorously and pursue all
available claims and defenses should the matter proceed to
litigation. However, a finding in favor of Weston in this
matter could have a material adverse effect on our business,
financial condition and/or results of operations.
GOVERNMENT REGULATION OF
THE TELECOMMUNICATIONS SERVICES BUSINESS
Overview
The telecommunications services we provide are subject to regulation
by federal, state and local government agencies. The following summary does
not purport to describe all current and proposed regulations and laws
affecting the telecommunications industry. Federal and state regulations and
legislation are the subject of judicial proceedings, legislative hearings and
administrative proposals, which could change in varying degrees the manner in
which this industry operates. Neither the outcome of these proceedings nor
their impact on the telecommunications industry or our business can be
determined at this time. Future federal or state regulations and legislation
may be less favorable to us than current regulation and legislation and
therefore may have a material and adverse impact on our business and
financial prospects. In addition, we may expend significant financial and
managerial resources to participate in proceedings setting rules at either
the federal or state level, without achieving a favorable result.
At the federal level, the FCC has jurisdiction over interstate and
international services. Interstate services are communications that originate
in one state and terminate in another. Intrastate services are communications
that originate and terminate in a single state and state public service
commissions exercise jurisdiction over intrastate services. Municipalities
and other local government agencies may also regulate limited aspects of our
business, such as use of government-owned rights-of-way and construction
permits. Our networks are also subject to numerous local regulations such as
building codes, franchise and right-of-way licensing requirements.
Telecommunications Act of 1996
The federal Telecommunications Act, enacted in 1996, has resulted
and will continue to result in substantial changes in the marketplace for
telecommunications services. These changes include, at present, opening local
exchange services to competition and, in the future, a substantial increase
in the addressable services for us. Among its more significant provisions,
the Telecommunications Act:
o removes legal barriers to entry into some telecommunications
services, such as long distance and local exchange services;
o requires incumbent local exchange carriers such as Verizon or
SBC, which we refer to as "ILECs," to "interconnect" with and
provide services for resale by competitors;
o permits incumbent local exchange carriers, including Bell
regional operating companies in some circumstances to enter
into new markets, such as long distance and cable television;
o relaxes regulation of telecommunications services provided by
incumbent local exchange carriers and all other
telecommunications service providers; and
o directs the FCC to establish an explicit subsidy mechanism
for the preservation of universal service. The FCC was also
directed by Congress to revise and make explicit subsidies
inherent in the access charges paid by interexchange carriers
for use of local exchange carriers' services.
Removal of Entry Barriers
The provisions of the Telecommunications Act should enable us to
provide a full range of telecommunications services in any state. Although we
may be required to obtain certification from state public service commissions
in almost all cases, the Telecommunications Act should limit substantially
the ability of a state public service commission to deny a request for
certification. The provisions of the Telecommunications Act also reduce the
barriers to entry by other potential competitors and therefore increase the
level of competition we will likely face in all markets affected by the Act.
Please refer to the section of the prospectus entitled
"Business-Competition."
Interconnection with Local Exchange Carrier Facilities
A company may not be able to compete effectively with the ILECs in
the switched local telephone services market unless it is able to connect its
facilities with the ILEC's facilities and obtain access to some ILEC services
and resources under reasonable rates, terms and conditions. The
Telecommunications Act imposes a number of access and interconnection
requirements on all local exchange providers, including CLECs, with
additional requirements imposed on non-rural ILECs. These requirements are
intended to provide access to some networks under reasonable rates, terms and
conditions. Specifically, ILECs must provide the following:
Unbundling of Network Elements
ILECs must offer access to various unbundled elements of their
network. This requirement allows competitors to purchase at cost-based rates
elements of an ILEC's network that may be necessary to provide service to our
customers.
Dialing Parity
All local exchange carriers must provide dialing parity, which means
that a customer calling to or from a CLEC network cannot be required to dial
more digits than is required for a comparable call originating and
terminating on the ILEC's network.
Telephone Number Portability
Telephone number portability enables a customer to keep the same
telephone number when the customer switches local exchange carriers.
Reciprocal Compensation
The duty to provide reciprocal compensation means that local
exchange carriers must terminate calls that originate on competing networks
in exchange for a given level of compensation and that they are entitled to
termination of calls that originate on their network, for which they must pay
a given level of compensation.
Resale
All local exchange carriers generally may not prohibit or place
unreasonable restrictions on the resale of their services. In addition, ILECs
must offer local exchange services to resellers at a wholesale rate that is
less than the retail rate charged to end users.
Collocation
Subject to space and equipment use limitations, ILECs must permit
CLECs to install and maintain some types of their own network equipment in
ILECs' central offices and remote terminals. The rates, terms and conditions
are subject to negotiation and, failing agreement, to arbitration before
state public utility commissions.
Access to Rights of Way
All ILECs, CLECs and some other utilities must provide access to
their poles, ducts, conduits and rights-of-way on a reasonable,
nondiscriminatory basis to telecommunications carriers.
Good Faith Negotiations
ILECs are required to negotiate in good faith with other carriers
that request any or all of the arrangements discussed above. If a requesting
carrier is unable to reach agreement with the ILEC within a prescribed time,
either carrier may request arbitration by the applicable state commission.
Rates
The rates charged by incumbent local exchange carriers for
interconnection and unbundled network elements must be calculated using a
forward-looking, cost-based methodology, and may vary greatly from state to
state. These rates must be approved by state regulatory commissions, which
often follows a lengthy and expensive negotiation, arbitration, and review
process. Recurring and non-recurring charges for telephone lines and other
unbundled network elements may change based on the rates proposed by ILECs
and approved by state regulatory commissions from time to time, which creates
uncertainty about how interconnection and unbundled element rates will be
determined in the future and which could have an adverse effect on our
operations. The ILECs have appealed certain aspects of the methodology used
to set these rates to the United States Supreme Court. If the appeal is
successful, it could result in higher prices for interconnection and
unbundled network elements.
While the Telecommunications Act generally requires ILECs to offer
interconnection, unbundled network elements and resold services to CLECs,
ILEC-to-CLEC interconnection agreements have limited terms, requiring the
CLEC to renegotiate the agreements on a periodic basis. ILECs may not provide
timely provisioning or adequate service quality, thereby impairing a CLEC's
reputation with customers who can easily switch back to the ILEC.
Current Regulatory Issues
The following regulatory issues are currently before the FCC and
various courts and may impact our operations.
Reciprocal Compensation
In March 2000, the U.S. Court of Appeals for the D.C. Circuit
overturned the FCC's previous determination that calls to Internet service
providers, which we refer to as "ISPs," are not local. The court found that
the FCC had failed to explain adequately its determination that a call does
not "terminate" at an ISP merely because the ISPs then originate further
telecommunications that extend beyond state boundaries. In response to this
court ruling, in April 2001 the FCC once again determined that calls to ISPs
are jurisdictionally interstate, and thus, not subject to reciprocal
compensation under Section 251(b)(5) of the Telecommunications Act. Instead,
the FCC adopted an interim graduated rate scheme for ISP-bound traffic in
which the compensation rates for ISP-bound traffic decrease on a yearly
basis. In addition, the FCC initiated a proceeding to comprehensively review
all intercarrier compensation schemes, in which it suggested moving to a
bill-and-keep regime for all intercarrier payments. The interim graduate rate
regime for ISP-bound traffic will remain in place for the next three years or
until FCC concludes its review of all intercarrier compensation schemes.
A number of parties have filed petitions for reconsideration of the
FCC's decision regarding compensation for ISP-bound traffic, but the FCC has
yet to act on those petitions. In addition, many competitive carriers and
state public utility commissions have appealed the FCC's determination to the
U.S. Court of Appeals for the D.C. Circuit. The court will hear oral
arguments in February 2002. The outcome of this appeal could have an impact
on the amount of compensation we receive for ISP-bound traffic. As our
existing interconnection agreements expire and as we enter new markets, we
must negotiate new reciprocal compensation rates and traffic scope with each
incumbent carrier. A reduction in rates payable for Internet service provider
reciprocal compensation could have an adverse effect on our future revenues
and business strategy.
Collocation
The FCC has adopted rules requiring incumbent local exchange
carriers to provide collocation to competitive local exchange carriers for
the purpose of interconnecting their competing networks. In a July 2001
decision, the FCC concluded that collocating equipment is "necessary" for
interconnection or access to unbundled network elements if "an inability to
deploy that equipment would, as a practical, economic, or operational matter,
preclude the requesting carrier from obtaining interconnection or access to
unbundled network elements." In addition, the FCC found that multifunction
equipment satisfies the "necessary standard" only if the equipment's primary
purpose and function is to provide the requesting carrier with "equal in
quality" interconnection or "nondiscriminatory access" to UNEs. Finally, the
FCC determined that ILECs are no longer required to permit competitors to
construct and maintain cross-connects outside the physical collocation space
of the ILEC's premises. However, ILECs must provision cross-connects between
collocated carriers upon reasonable request. The ILECs have appealed these
findings to the U.S. Court of Appeals for the D.C. Circuit. A successful
appeal could provide incumbent carriers with a basis for refusing to
collocate multifunction equipment or provide collocation in a timely and
efficient manner. This could have a negative impact on our network deployment
plans.
Line Sharing
On December 9, 1999, the FCC released its line sharing order that
requires ILECs to offer line sharing as an unbundled network element by June
6, 2000. Line sharing permits CLECs to use a customer's existing line to
provide DSL services while the ILEC continues to use the same line to provide
voice service. Prices for line sharing will be set by the states based on a
cost methodology adopted by the FCC. In January 2001, the FCC clarified that
line sharing applies to the entire loop, even when a portion of the loop
consists of fiber facilities. Incumbent carriers must also permit competing
carriers to self-provision or partner with a data carrier. However, in a
February 2001 Clarification Order, the FCC made clear that its prior ruling
did not expand an ILEC's obligation to provide access to unbundled packet
switching capability. The FCC is currently seeking comment on issues relating
to line sharing on fiber facilities.
Local Exchange Carrier Entry Into New Markets
UNE Entry. The FCC has adopted rules that allow competitors to
purchase at cost-based rates elements of an ILEC's network that may be
necessary to provide service to our customers. The FCC is currently reviewing
the framework under which ILECs must make unbundled network elements
available to competing carriers. As a result of this review, the FCC may
determine that ILECs no longer need to unbundle certain network elements,
which may impact our ability to provide service to our customers. In
addition, the FCC is currently considering whether to adopt performance
standards for ILECs' provision of unbundled network elements. These standards
would ensure that ILECs provision those elements on a timely basis.
Section 271 Entry. Our principal competitor in each market we enter
is the ILEC. These of these carriers, the Regional Bell Operating Companies,
which we refer to as "RBOCs," are currently permitted to provide long
distance services to customers outside of their local service areas and in
conjunction with their mobile telephone services, but they are prohibited
from providing long distance services that originate in that states where
they provide local telephone service, which is referred to as "in-region long
distance service." Section 271 of the Telecommunications Act established
procedures under which RBOCs can provide in-region long distance services in
a state after receiving approval from the FCC. To obtain approval, the RBOC
must comply with a competitive checklist that incorporates, among other
things, the interconnection requirements discussed above. Please refer to the
section of the prospectus entitled "- Interconnection with Local Exchange
Carrier Facilities."
Approval from the FCC under Section 271 will enable a RBOC to
provide customers with a full range of local and long distance
telecommunications services. The provision of landline long distance services
by RBOCs is expected to reduce the market share of the major long distance
carriers, which may be significant customers of our services. Consequently,
the entry of the RBOCs into the long distance market may have adverse
consequences on the ability of CLECs both to generate access revenues from
the IXCs and to compete in offering a package of local and long distance
services. Starting in December 1999, the FCC has approved a number of 271
applications, including applications for New York, Texas, Oklahoma, Kansas,
Massachusetts, Connecticut, Pennsylvania, Arkansas, and Missouri. We
anticipate that the ILECs will soon initiate similar proceedings to obtain
long distance service authority in every other state in which we operate or
plan to operate.
Access Charges
In addition to charging other carriers reciprocal compensation for
terminating local traffic, we also collect access charges from carriers for
originating and terminating inter-exchange traffic. Federal law requires that
these charges be just and reasonable. Some inter-exchange carriers have
challenged the switched access rates of some competitive local exchange
carriers, asserting that these competitive local exchange carriers' service
charges for switched access services are higher than those of the incumbent
local exchange carriers serving the same territory, and are therefore unjust
and unreasonable. These inter-exchange carriers have refused to pay
competitive local exchange carriers any originating access charges in excess
of the corresponding incumbent rate. In response, the FCC adopted an order in
April 2001, which gradually aligns competitors' access charge rates more
closely with those of the ILECs. Specifically, the FCC established a
benchmark rate of 2.5 cents per minute for the first year, at the end of
which, the rate will drop to 1.8 cents per minute, or the ILEC rate,
whichever is higher. At the beginning of year three, the benchmark rate drops
to 1.2 cents per minute, or the ILEC rate, whichever is higher. At the end of
the third year, the benchmark rate drops to the switched access rate of the
competing ILEC. On the effective date of these rules, competitors have the
option to tariff their access rates, for those areas where they have
previously offered service, at either the benchmark rate or the rate of the
corresponding ILEC in the study area of the relevant end-user customer,
whichever is higher. Any competitive carrier access charges above the
benchmark, will be mandatorily detariffed, although CLECs may negotiate
higher rates with inter-exchange carriers. These changes could impair our
ability to offer customers lower-cost access services. Moreover, because
competitive local exchange carrier access charges are reduced, our revenue
could decrease.
In May 2000, the FCC issued an order adopting an integrated
interstate access reform and universal service proposal put forth by a
coalition of incumbent local exchange carriers and inter-exchange carriers.
Specifically, the FCC removed $650 million in universal service subsidies
from interstate access charges paid by long distance carriers and collects
that sum through an assessment on all carriers' interstate revenues. In
September 2001, the U.S. Court of Appeals for the Fifth Circuit remanded the
FCC's decision, concluding that the FCC failed to exercise sufficiently
independent judgment in establishing the $650 million amount. The FCC is
currently seeking comment on the remand. While these reforms are aimed
primarily at price cap, or incumbent, local exchange carriers, it is too
early to assess what impact, if any, they will have on CoreComm.
Universal Service
Universal service obligations apply to all telecommunications
carriers that provide interstate telecommunications services. In May 1997,
the FCC issued an order implementing the provisions of the Telecommunications
Act relating to the preservation and advancement of universal telephone
service. This order requires all telecommunications carriers providing
interstate telecommunications services, including us, to contribute to
universal service support for schools, libraries and rural health care
programs. Our contribution to the federal support funds is calculated based
on a percentage of our gross end-user interstate and international
telecommunications revenue. The amount of our required contribution changes
each quarter, but may be passed on to our end users on a pro rata basis. The
FCC is currently seeking comment on whether it should change the manner in
which it assesses contributions, such as moving from revenue-based to
flat-rate assessment, and the way in which carriers recover USF costs from
their customers. Furthermore, we may be eligible to directly or indirectly
receive subsidy funds for telecommunications services we provide to some
covered end users. Most state public service commissions have adopted rules
or are currently considering actions to preserve universal service and
promote the public interest. We are currently unable to quantify the amount
of subsidy payments that we will be required to make and the effect that
these required payments will have on our financial condition.
Relaxation of Regulation
Forbearance
The Telecommunications Act gives the FCC authority to decide to
forebear from regulating carriers if it believes regulation would not serve
the public interest. The FCC is charged with reviewing its regulations for
continued relevance on a regular basis. As a result of this mandate, a number
of regulations that apply to competitive local exchange carriers have been,
and others may in the future be, eliminated. We cannot, however, guarantee
that any regulations that are now or will in the future be applicable to us
will be eliminated.
Dominance/Non-Dominance
Through a series of proceedings, the FCC has established different
levels of regulation for "dominant carriers" and "non-dominant carriers." As
a non-dominant carrier, we are subject to relatively limited regulation by
the FCC. However, at a minimum, we must offer interstate services at just and
reasonable rates in a manner that is not unreasonably discriminatory. One
goal of the Telecommunications Act is to increase competition for
telecommunications services and thus reduce the need for regulation of these
services. To this end, the Telecommunications Act requires the FCC to
streamline its regulation of incumbent local exchange carriers and permits
the FCC to forbear from regulating particular classes of telecommunications
services or providers. In fact, the FCC is currently considering whether to
deem ILECs non-dominant in the provision of broadband services. Since we are
a non-dominant carrier and, therefore, are not heavily regulated by the FCC,
the potential for regulatory forbearance likely will be more beneficial to
the incumbent local exchange carriers than to us in the long run.
Detariffing
The Telecommunications Act requires all common carriers, including
us, to charge just and reasonable rates for their services and to file
schedules of these rates with the FCC. These schedules are known as "tariffs"
and they represent a contract between a carrier and its customers. The FCC
has used its forbearance authority to eliminate the filing of tariffs in
several instances. Most non-dominant carriers must detariff for their
interstate inter-exchange services. However, non-dominant carriers are
permitted to continue to file tariffs for 101-XXX dial-around type services.
For international services, non-dominant carriers may not file any new or
revised contract tariffs or tariffs for other long-term international service
arrangements and most non-dominant carriers must detariff by January 28,
2002. Rather, non-dominant carriers must now post their rates, terms and
conditions in a publicly available form, such as on a website. Furthermore,
as explained above, the FCC has recently adopted permissive detariffing for
the access charges competitive carriers levy on interstate long distance
carriers for completing calls to competitive local exchange carriers'
customers. The FCC's preclusion of non-dominant interstate carriers from
filing tariffs may increase our exposure to litigation. Currently, tariffs
contain provisions limiting the liability of providers on a variety of
issues. In the absence of filed tariffs, carriers must rely on negotiated
contracts with each customer to provide these liability limitations.
In addition to requiring the incumbent local exchange carriers to
open their networks to competitors and reducing the level of regulation
applicable to competitive local exchange carriers, the Telecommunications Act
also reduces the level of regulation that applies to the incumbent local
exchange carriers, thereby increasing their ability to respond quickly in a
competitive market. For example, the FCC has applied "streamlined" tariff
regulation of the incumbent local exchange carriers introduction of new
services, which shortens the requisite waiting period before which tariff
changes may take effect. These developments enable the incumbent local
exchange carriers to change rates more quickly in response to competitive
pressures. The FCC has also adopted heightened price flexibility for the
incumbent local exchange carriers, subject to specified caps. If exercised by
the incumbent local exchange carriers, this flexibility may decrease
CoreComm's ability to compete effectively with the incumbent local exchange
carriers in its markets.
Local Government Authorizations
Many jurisdictions where we may provide services require license or
franchise fees based on a percentage of revenues. Because the
Telecommunications Act specifically allows municipalities to charge fees for
use of the public rights-of-way, it is likely that jurisdictions that do not
currently impose fees will seek to impose fees in the future. However, the
amount and basis of these fees have been successfully challenged by several
telecommunications service providers. Federal courts have struck down
municipal ordinances that:
o do not relate the fees imposed under the ordinance to the
extent of a provider's use of the rights-of-way;
o do not relate the fees imposed under the ordinance to the
costs incurred by the local government in maintaining the
rights-of-way; or
o seek to impose fees based on a concept of the "value" of the
use to the provider by relating the fees to provider
revenues.
Additionally, because the Telecommunications Act requires
jurisdictions to charge non-discriminatory fees to all telecommunications
providers, telecommunications providers are challenging municipal fee
structures that excuse other companies, particularly the incumbent local
exchange carriers, from paying license or franchise fees, or allow them to
pay fees that are materially lower than those that are required from new
competitors such as us. A number of these decisions have been appealed and,
in any event, it is uncertain how quickly particular jurisdictions will
respond to the court decisions without a specific legal challenge initiated
by us or another competitive local exchange carrier to the fee structure at
issue.
Regulation of Resellers
The FCC has defined resale as any activity in which a party, the
reseller, subscribes to the services or facilities of a facilities-based
provider, or another reseller, and then re-offers communications services to
the public for profit, with or without adding value. Resellers are common
carriers generally subject to all rules and regulations placed on providers
of the underlying services by either the FCC or the states in which they
operate. The FCC has held that prohibitions on the resale of common carrier
services are unjust, unreasonable, and unlawfully discriminatory in violation
of the Telecommunications Act. Accordingly, all common carriers must make
their services available for resale at rates, terms, and conditions that do
not unreasonably discriminate against resellers.
As to other telecommunications service providers, such as
competitive local exchange carriers and wireless providers, there is no
regulation that requires them to give discounts to resellers below the rates
offered to end users of the same quantities of similar services. The FCC's
requirement that wireless providers offer resale services is currently set to
expire on November 24, 2002. Because our cellular service offerings are
resale-only, the termination of this policy may adversely affect our ability
to offer cellular services in the future.
International Operations
We already provide international resale services and may ultimately
expand our operations to other countries. The FCC requires every carrier that
originates international telecommunications from within the U.S., either
through the use of its own facilities or on a resale basis, to secure in
advance an authorization from the FCC under Section 214 of the
Telecommunications Act. Additionally, these carriers must comply with other
routine reporting requirements. We hold a Section 214 Authorization for both
facilities-based and resale international services.
Internet Regulation
The FCC currently does not regulate the provision of Internet
service, although it does regulate common carriers that provide elements of
the "backbone" networks on which the Internet is based. Similarly, state
public utility commissions generally do not regulate Internet service, except
in some limited circumstances where incumbent local exchange carriers provide
Internet services. The FCC and some states, however, are reviewing the
development of the Internet and the types of services that are provided
through it. For example, if the FCC should determine that an Internet service
provider offers a service that is an exact substitute for long distance
telephone service with the sole distinction that it is based on a
packet-switched network rather than a circuit-switched network, the FCC may
determine that it should impose similar regulation on the new services.
State Regulation Generally
Most states require companies to be certified or authorized by the
state's public utility commission in order to provide intrastate common
carrier or telecommunications services. These certifications generally
require a showing that the carrier has adequate financial, managerial and
technical resources to offer the proposed services in a manner consistent
with the public interest.
In addition to obtaining certification, in each state, we must
negotiate terms of interconnection with the incumbent local exchange carrier
before we can begin providing switched services. State public utility
commissions are required to approve interconnection agreements before they
become effective and must arbitrate disputes among the parties upon request.
We have already entered into interconnection agreements with Ameritech, which
is now a part of SBC and Verizon. Regulatory changes could require
renegotiation of relevant portions of existing interconnection agreements, or
require additional court and regulatory proceedings. We are not presently
subject to state-initiated price regulation based on costs or earnings. Most
states require competitive local exchange carriers to file tariffs setting
forth the terms, conditions and prices for intrastate services. Some states
permit tariffs to list a rate range or set prices on an individual case
basis. Other state requirements may include filing of periodic reports, the
payment of regulatory fees and surcharges and compliance with service
standards and consumer protection rules. Please refer to the section of the
prospectus entitled "- Interconnection with Local Exchange Carrier
Facilities."
Several states provide incumbent local exchange carriers with
flexibility for their rates, special contracts (selective discounting) and
tariffs, particularly for services that are considered to be competitive.
This pricing flexibility increases the ability of the incumbent local
exchange carrier to compete with us and constrains the rates we may charge
for our services. States may grant incumbent local exchange carriers
additional pricing flexibility. At the same time, some incumbent local
exchange carriers may request increases in local exchange rates to offset
revenue losses due to competition. Some states require prior approvals or
notification for some transfers of assets, customers or ownership of a
competitive local exchange carrier and for issuance of bonds, notes or other
evidence of indebtedness or securities of any nature. Delays in receiving
required regulatory approvals may occur.
MANAGEMENT AND EXECUTIVE COMPENSATION
Directors and Executive Officers
The following table provides information about our directors and
executive officers:
Name Age Title
---- --- -----
Barclay Knapp............................ 45 Chairman of the Board
Thomas J. Gravina........................ 40 President, Chief Executive Officer and Director
Executive Vice President, Chief Operating Officer,
Michael A. Peterson...................... 32 Chief Financial Officer and Director
Gregg N. Gorelick........................ 43 Senior Vice President-- Controller and Treasurer
George S. Blumenthal..................... 58 Chairman Emeritus and Director
Ralph H. Booth, II....................... 48 Director
Alan J. Patricof......................... 67 Director
Warren Potash............................ 70 Director
Our charter provides for a classified board of directors consisting
of three classes as nearly equal in number as possible with the directors in
each class serving staggered three year terms. The term of the initial Class
I Directors which are comprised of Thomas J. Gravina, Ralph H. Booth, II and
Michael A. Peterson, shall terminate on the date of the 2002 annual meeting
of stockholders; the term of the initial Class II Directors which are
comprised of George S. Blumenthal and Warren Potash shall terminate on the
date of the 2003 annual meeting of stockholders and the term of the initial
Class III Directors which are comprised of Barclay Knapp and Alan J. Patricof
shall terminate on the date of the 2004 annual meeting of stockholders. At
each annual meeting of stockholders, successors to the class of directors
whose term expires at that annual meeting shall be elected for a three-year
term. The following is a brief description of the present and past business
experience of each of the persons who serve as our directors and executive
officers.
Barclay Knapp is currently the Chairman of CoreComm Limited and
CoreComm Holdco and was the President, Chief Executive Officer, Chief
Financial Officer and director of CoreComm Limited and CoreComm Holdco from
March 1998 until January 2002. Mr. Knapp was appointed President of
Cellular Communications of Puerto Rico, Inc. in March 1994 and Chief
Executive Officer in March 1998, and remained in those positions until the
1999 sale of Cellular Communications of Puerto Rico. Mr. Knapp was a
director of Cellular Communications of Puerto Rico from February 1992 and
was Chief Financial Officer from that date to 1997. Mr. Knapp was Executive
Vice President, Chief Operating Officer and a director of Cellular
Communications International, Inc. from July 1991 until June 1998. Mr.
Knapp was also Executive Vice President, Chief Operating Officer, Chief
Financial Officer and a director of Cellular Communications, Inc. from its
founding in 1981 until its sale in 1996. He is currently President, Chief
Executive Officer and a director of NTL Incorporated. Mr. Knapp is also a
director of Bredbandsbolaget, a Swedish company in which NTL holds a 25%
interest.
Thomas J. Gravina is currently the President and Chief Executive
Officer and a director of CoreComm Holdco and the President and Chief
Executive Officer of CoreComm Limited. Mr. Gravina was the Executive Vice
President and Chief Operating Officer of CoreComm Limited and CoreComm
Holdco, until January 2002. Mr. Gravina has been employed by each of CoreComm
Limited and CoreComm Holdco since the acquisition of ATX Telecommunications
Services, Inc. (ATX) in September 2000. Prior to the acquisition, Mr. Gravina
served as Co-Chief Executive Officer and a partner of ATX, a position he had
held since 1987.
Michael A. Peterson is currently Executive Vice President, Chief
Operating Officer, Chief Financial Officer and a director of CoreComm Holdco
and the Executive Vice President, Chief Operating Officer and Chief Financial
Officer of CoreComm Limited, and had served as Vice President -- Corporate
Development of CoreComm Limited and CoreComm Holdco since June 2000 and,
until that time, had served as Director -- Corporate Development of CoreComm
Limited and CoreComm Holdco since our inception. He has worked for us and our
related historical affiliates since 1996. He is also Director -- Corporate
Development at NTL. Prior to joining NTL, he was in the investment banking
division at Donaldson, Lufkin & Jenrette, specializing in the communications
industry.
Gregg N. Gorelick is currently Senior Vice President, Controller and
Treasurer of CoreComm Limited and CoreComm Holdco and had served as Vice
President, Controller and Treasurer since March 1998. Mr. Gorelick was
Cellular Communications of Puerto Rico's Vice President and Controller from
February 1992 until its sale in 1999, held that position at Cellular
Communications International from July 1991 until its sale in 1999 and has
held that position at NTL since its formation. From 1981 to 1986 he was
employed by Ernst & Whinney (now known as Ernst & Young LLP). Mr. Gorelick is
a certified public accountant and was Vice President and Controller of
Cellular Communications from 1986 until its sale in 1996.
George S. Blumenthal has been Chairman Emeritus of CoreComm Limited
and CoreComm Holdco since January 2002, a director of CoreComm Limited and
CoreComm Holdco since March 1998 and was the Chairman of CoreComm Limited and
CoreComm Holdco from March 1998 until January 2002. Mr. Blumenthal was
Chairman, Treasurer and a director of Cellular Communications of Puerto Rico
from February 1992 until its sale in 1999 and was its Chief Executive Officer
from March 1994 until March 1998. In addition, Mr. Blumenthal is Chairman,
Treasurer and a director of NTL. Mr. Blumenthal is also a director of
Sotheby's Holdings, Inc.
Ralph H. Booth, II has been our director since January 2002, and has
been the Chairman and Chief Executive Officer of Booth American Company, a
private investment concern, since 1995. Prior to that time and beginning in
1981, he was the President and Chief Financial Officer for Booth American
Company when it owned and operated both a cable television and a radio
broadcasting division. Mr. Booth is a co-founder of and principal in ECE
Management International, LLC since 1989. Mr. Booth is also a director of B/G
Communications, LLC, B/G Enterprises, LLC, B/G Properties, LLC and Grupo
Clarin, S.A.
Alan J. Patricof has been a director of CoreComm Limited and
CoreComm Holdco since March 1998. Mr. Patricof is Chairman of APAX
Partners, formerly known as Patricof & Co. Ventures, Inc., a venture
capital firm he founded in 1969. Mr. Patricof serves as a director of NTL
and Boston Properties, Inc., which are publicly held, and Johnny Rockets
Group, Inc., which is a privately held company.
Warren Potash has been a director of CoreComm Limited and CoreComm
Holdco since March 1998. Mr. Potash retired in 1991 as President and Chief
Executive Officer of the Radio Advertising Bureau, a trade association, a
position he held since 1989. Prior to that time, and beginning in 1986, he
was President of New Age Communications, Inc., a communications consultancy
firm. Until his retirement in 1986, Mr. Potash was a Vice President of
Capital Cities/ABC Broadcasting, Inc., a position he held since 1970. Mr.
Potash is also a director of NTL.
In addition to these individuals, our board of directors has
approved the expansion of the board and the nomination and appointment of
three additional directors to be designated by Michael Karp, which expansion
and appointments are to become effective once the board is informed of the
identity of the nominees. Michael Karp is currently our largest stockholder,
and participated in the Holdco Recapitalization by tendering notes and
preferred stock he held in exchange for shares of our common stock. Mr. Karp,
together with the Florenece Karp Trust, presently holds 34.0% of our common
stock. The board has not yet been informed of the individuals whom Mr. Karp
intends to nominate. Mr. Karp's right to nominate these directors was
included in the exchange agreement that he signed with CoreComm Limited and
CoreComm Holdco as part of the Holdco Recapitalization.
Executive Compensation
The following table discloses compensation received by CoreComm
Holdco's Chief Executive Officer and CoreComm Holdco's four other most highly
paid executive officers for the year ended December 31, 2001.
CoreComm Holdco
Summary Compensation Table*
Long-Term
Compensation
Awards
Common
Stock
Name and Principal Underlying
Position in 2001 Annual Compensation Options(#)(1)
Other Annual All Other
Salary Bonus Compensation Compensation
Year ($) ($) ($) ($)
------------------------- ------ ---------- ------------ -------------- --------------- --------------
Barclay Knapp.......... 2001 104,870 - - -
President and Chief 2000 121,917 - - -
Executive and 1999 51,667 - - -
Financial Officer
George S. Blumenthal... 2001 104,870 - - -
Chairman 2000 121,917 - - -
1999 51,667 - - -
Richard J. Lubasch (2). 2001 88,390 100,000 - 100,000
Senior Vice President-- 2000 102,758 - - 75,000
General Counsel and 1999 39,583 - - 30,000
Secretary
Thomas J. Gravina(3)... 2001 248,077 1,300,000 12,185(4) -
Executive Vice
President
and Chief Operating
Officer
Michael A. Peterson.... 2001 2,400 750,000 - 225,000
Vice President - 2000 2,400 - - 100,000
Corporate Development
Patty J. Flynt(5)......
Senior Vice President 2001
and 58,700 50,615 - -
Chief Operating 2000 223,149 117,742 38,161(6) 150,000
Officer 1999 206,250 100,435 - 450,001
---------------------
* Some employees of NTL provided management, financial,
legal and technical services to us. Amounts charged to us
consist of salaries and direct costs allocated to us. In
2000, 1999 and 1998, NTL charged us $919,000, $2,268,000
and $313,000 respectively, net of our charges to NTL. It
is not practicable to determine the amounts of these
expenses that would have been incurred had we operated
without these services. However, in the opinion of our
management, the allocated method is reasonable. The named
executives, except for Mr. Gravina, receive salaries from
NTL and spend portions of their time providing executive
management to us.
(1) Amounts in this column are CoreComm Limited stock option
grants. In December 2001, the CoreComm Limited board of
directors, in connection with the Holdco
Recapitalization, accelerated all outstanding options to
acquire shares of CoreComm Limited common stock so that
all are presently fully vested and exercisable. CoreComm
Limited options are not exercisable for shares of our
common stock. In the event that we are successful in
consummating the exchange offers, CoreComm Limited would
become a subsidiary of CoreComm Holdco. Subsequent to
that time, CoreComm Holdco and CoreComm Limited may agree
to effect a merger between CoreComm Limited and a
subsidiary of CoreComm Holdco which would have the effect
of converting holders of any remaining outstanding shares
of CoreComm Limited common stock not owned by us into
shares of our common stock at an exchange ratio identical
to that being offered in the exchange offers. Between now
and that time, if holders of CoreComm Limited options
exercise their options, they would, at the time of a
merger, have the same rights as other holders of CoreComm
Limited common stock to have their shares of CoreComm
Limited converted to shares of our common stock at that
exchange ratio.
(2) Effective February 4, 2002, Mr. Lubasch resigned from
office as our Senior Vice President--General Counsel and
Secretary.
(3) Thomas J. Gravina became our Executive Vice President and
Chief Operating Officer effective February 1, 2001,
following the resignation of Patty J. Flynt as Senior
Vice President and Chief Operating Officer.
(4) Other annual compensation represents a car allowance.
(5) Effective February 1, 2001, Ms. Flynt resigned from
office as our Senior Vice President and Chief Operating
Officer.
(6) Other annual compensation includes reimbursement for
relocation expenses and moving expenses of $12,800 and
$24,900, respectively.
Employment Arrangements
The following represent the principal terms of employment
arrangements for Thomas J. Gravina, our President - Chief Executive Officer
and a director, and Michael A. Peterson, our Executive Vice President - Chief
Operating Officer, Chief Financial Officer and a director, that have been
agreed in principal between the compensation committee of the board of
directors and the named executive, but are subject to formalization in fully
executed employment contracts. Therefore, such contracts may contain
different or additional material terms when finalized and executed.
Thomas J. Gravina:
Term: Three years, plus automatic one year renewals
unless six months notice of non-renewal by
executive or CoreComm Holdco
Title: President and Chief Executive Officer
Base salary: $900,000
Bonuses: Quarterly bonus targets of $300,000 for 2002;
quarterly bonuses targets of $225,000 for each
calendar year after 2002, in each case based on
meeting financial targets; bonus of $700,000
payable in connection with successful completion
of the Holdco Recapitalization process; and
additional bonuses commensurate with position,
performance and awards to other senior executives
Options: Initial grant of options to purchase 350,000
shares of our common stock(1)
Benefits: Appropriate for executive's position, including
401(k), savings, pension, profit sharing, life
insurance, disability and medical insurance; term
life insurance providing $3,000,000 death benefit;
and long-term disability insurance providing a
benefit of at least $300,000 per year
Termination
without cause: Up to two years bonus and salary payable upon
termination, plus two year option acceleration
Non-competition: Customary non-compete and non-solicitation provisions
Michael A. Peterson:
Term: Three years, plus automatic one year renewals
unless six months notice of non-renewal by
executive or CoreComm Holdco
Title: Executive Vice President, Chief Operating
Officer and Chief Financial Officer
Base salary: $500,000
Bonuses: Quarterly bonus targets of $150,000 for 2002;
quarterly bonus targets of $112,500 for each
calendar year after 2002, in each case based on
meeting financial targets; bonus of $350,000
payable in connection with successful completion
of the Holdco Recapitalization process; additional
bonuses commensurate with position, performance
and awards to other senior executives
Options: Initial grant of options to purchase 495,000
shares of our common stock(1)
Benefits: Appropriate for executive's position, including
401(k), savings, pension, profit sharing, life
insurance, disability and medical insurance; term
life insurance providing $3,000,000 death benefit;
and long-term disability insurance providing a
benefit of at least $300,000 per year
Termination
without cause: Up to two years bonus and salary payable upon
termination, plus two year option acceleration
Non-competition: Customary non-compete and non-solicitation provisions
-------------
(1) These options were granted to the named executive in January 2002.
Option Exercises and Year-End Value Table
There were no options of CoreComm Holdco outstanding in 2001.
Stock Option Plan
On December 10, 2001, our board of directors adopted the CoreComm
Holdco, Inc. 2001 Stock Option Plan, reserving under this plan shares of
common stock for issuance to employees and non-employee directors.
The purpose of our stock option plan is to encourage stock ownership
by our employees and non-employee directors, and the employees and
non-employee directors of our divisions, subsidiary corporations and other
affiliates, so as to encourage these individuals to continue to put forth
maximum efforts for the success of our business. Under our stock option plan,
grants may be made of options to acquire shares of our common stock. The
options may be "incentive stock options" within the meaning of Section 422 of
the Internal Revenue Code. The terms of options granted under our stock
option plan, including provisions regarding vesting, exercisability, exercise
price and duration, are generally set by the compensation committee of our
board of directors.
SECURITY OWNERSHIP OF CERTAIN BENEFICIAL
OWNERS AND MANAGEMENT
The following table provides, as of February 6, 2002, information
regarding the beneficial ownership of our common stock by (a) each of our
executive officers and directors, (b) all those directors and executive
officers as a group and (c) each person known by us to be the beneficial
owner of more than 5% of any class of our voting securities as calculated in
accordance with Rule 13d-3 of the Exchange Act.
Amount and Nature of Beneficial Ownership
------------------------------------------------------------------------
Presently
Exercisable
Options,
Executive Officers, Directors Common and
and Principal Stockholders (1) Stock Warrants (2) Total Percent (3)
------------------------------------------------------------------------------------------------------------------------------------
Barclay Knapp 347,578 0 347,578 3.48%
Thomas J. Gravina 1,087,588 116,667 1,204,255 11.90%
Michael A. Peterson 7,588 165,000 172,588 1.70%
Gregg N. Gorelick 0 13,333 13,333 *
George S. Blumenthal 195,337 0 195,337 1.95%
Ralph H. Booth, II (4) 2,080,000 (4) 0 2,080,000 (4) 20.80%(4)
Alan J. Patricof 0 5,333 5,333 *
Warren Potash 759 5,333 6,092 *
All directors and officers as a group 3,718,850 305,666 4,024,516 39.05%
(8 in number)
Michael Karp (5) 3,400,000 0 3,400,000 34.00%
University City Housing Company
1062 East Lancaster Avenue, Suite 30B
Rosemont, PA 19010
Booth American Company (4) 2,080,000 0 2,080,000 20.80%
333 West Fort Street, Suite 1230
Detroit, MI 48226
CoreComm Limited 1,314,416 0 1,314,416 13.14%
Debra Buruchian 1,080,000 8,333 1,088,333 10.87%
c/o CoreComm Limited
50 Monument Road
Bala Cynwyd, PA 19004
------------------------------
* Represents less than one percent.
(1) Unless otherwise noted, the business address of each person is 110
East 59th Street, New York, New York 10022.
(2) Includes shares of common stock purchasable upon the exercise of
options which are exercisable or become so in the next 60 days and
warrants.
(3) Includes common stock, exercisable options and warrants.
(4) Ralph H. Booth, II, our director, is an affiliate of Booth
American Company. Accordingly, Mr. Booth may claim beneficial
ownership of all of the shares held by Booth American Company.
Booth American Company is the record owner of all 2,080,000 shares
set forth opposite Ralph H. Booth, II's name in the table.
(5) Includes 197,101 shares of common stock held by the Florence Karp
Trust, of which shares Mr. Karp disclaims beneficial ownership.
SELLING SECURITYHOLDERS
The following table provides, as of February 8, 2002, the respective
number of shares of common stock beneficially owned by that securityholder.
Common Stock
Beneficially
Owned
Selling Securityholder and Offered
------------------------ -----------------
Michael Karp..............................................................3,202,899
Booth American Company....................................................2,080,000
Thomas Gravina............................................................1,087,588
Debra Buruchian...........................................................1,080,000
Barclay Knapp...............................................................347,578
Credit Suisse First Boston Corporation......................................217,126
The Florence Karp Trust......................................................197,101
George S. Blumenthal........................................................195,337
Morgan Stanley & Company Inc.................................................30,286
BNP Paribas Equity Strategies, Inc...........................................28,832
Georgica Partners............................................................26,201
CRT Capital Group LLC........................................................22,838
Richard J. Lubasch...........................................................21,818
Richard Reiss, Jr.............................................................20,547
Ted McCourtney...............................................................18,182
FTA Media Limited............................................................13,809
St. Albans Partners Ltd......................................................13,658
JMG Capital Partners, LP.....................................................11,002
JMG Capital Triton Offshore Fund Ltd.........................................11,002
Yield Strategies Fund II, L. P................................................9,105
Ermitage Selz Fund Ltd........................................................7,588
Michael A. Peterson...........................................................7,588
Pitt & Co.....................................................................6,070
Brown University..............................................................5,919
Circlet (IMA) Limited.........................................................4,553
GAM Selection Investments Inc.................................................3,794
The Georgica International Fund Ltd...........................................3,035
Del Mintz Trust...............................................................2,125
Coastal Convertible Ltd.......................................................1,518
Irving Spitz..................................................................1,518
William Ginsberg..............................................................1,518
Inger Ginsberg................................................................1,063
Warren Potash...................................................................759
John Gregg......................................................................607
Ralco Inc.......................................................................607
Stuart Schapiro Keogh Plan......................................................607
Anthony J. Spatacco, Jr.........................................................304
Bill Mintz......................................................................304
Gary Mintz......................................................................304
Mark Mintz......................................................................304
Michael Spatacco................................................................304
Stanley Knapp Trust.............................................................304
Generally, only selling securityholders identified in the foregoing
tables who beneficially own the shares of our common stock set forth opposite
their respective names may sell shares of our common stock under the
registration statement, of which this prospectus forms a part. We may from
time to time include additional selling securityholders in supplements to
this prospectus.
Except as set forth in "Management and Executive Compensation -
Directors and Executive Officers" and "Certain Relationships and Related
Transactions," none of the selling securityholders listed above has, or
within the past three years has had, any position, office or other material
relationship with us or any of our predecessors or affiliates. This
prospectus relates to the offer on a delayed or continuous basis as provided
in Rule 415 under the Securities Act of all of the securities listed in the
table above. The selling securityholders may sell all, none or a part of the
securities listed above. Accordingly, no estimate can be given as to the
amount or percentage of the securities that will be held by the selling
securityholders after any given sale. In addition, the selling
securityholders identified above may have sold, transferred or otherwise
disposed of all or a portion of these securities since the date of this
prospectus in transactions exempt from the registration requirements of the
Securities Act.
CERTAIN RELATIONSHIPS AND RELATED TRANSACTIONS
NTL Incorporated
NTL provides us with management, financial, legal and technical
services, access to office space and equipment and use of supplies. Amounts
charged to us by NTL consist of salaries and direct costs allocated to us
where identifiable and a percentage of the portion of NTL's corporate
overhead which cannot be specifically allocated to NTL. Effective January 1,
2001, the percentage used to allocate corporate overhead was reduced. NTL's
charges to us commenced in October 1998. It is not practicable to determine
the amounts of these expenses that would have been incurred had we operated
as an unaffiliated entity. In the opinion of management, this allocation
method is reasonable. In 2000, 1999 and 1998, NTL charged us $1,186,000,
$2,330,000 and $313,000 respectively, and in the nine months ended September
30, 2001 and 2000, NTL charged us $340,000 and $907,000 respectively, which
is included in corporate expenses.
We provided NTL with access to office space at a separate location
and equipment and the use of supplies until August 2001. In the fourth
quarter of 1999, we began charging NTL a percentage of our office rent and
supplies expense. It is not practicable to determine the amounts of these
expenses that would have been incurred had we operated as an unaffiliated
entity. In the opinion of management, this allocation method is reasonable.
In 2000 and 1999, we charged NTL $267,000 and $62,000 respectively, which
reduced corporate expenses.
On April 12, 2001, CoreComm Holdco and CoreComm Limited issued, as
joint and several obligors, a 10.75% Unsecured Convertible PIK Note due 2011
to NTL in the principal amount of $15,000,000 for the purchase price of
$15,000,000, which was paid in cash. On February 5, 2002, CoreComm Holdco and
CoreComm Limited entered into an agreement regarding the convertibility
feature of these notes. The principal features of this note and the
additional agreement are set forth in "Description of Indebtedness -10.75%
Unsecured Convertible PIK Note due 2011."
A subsidiary of ours provides billing and software development
services to subsidiaries of NTL. General and administrative expenses were
reduced by $1,400,000, $800,000, $275,000 and $138,000 for the years ended
December 31, 2000 and 1999, for the period from April 1, 1998, the date
operations commenced, to December 31, 1998 and for the period from January 1,
1998 to May 31, 1998 respectively, as a result of these charges. General and
administrative expenses were reduced by $1,428,000 and $709,000 for the nine
months ended September 30, 2001 and 2000 respectively, as a result of the
charges for these services.
In October 2000, we billed NTL $6,674,000 for billing and software
development services to be rendered from January to September 2001. In March
2000, we and NTL announced that we had entered into an agreement to link our
networks in order to create an international Internet backbone. In November
2000, we billed NTL $9,128,000 primarily for usage of the network in 2001.
The $15,802,000 total is included in due from NTL and deferred revenue at
December 31, 2000. In February 2001, the international Internet backbone
commenced operations and we recognized revenue of $225,000 for the network
usage in the nine months ended September 30, 2001.
In April 2001, we entered into a network and software agreement with
NTL in connection with the issuance of $15 million aggregate principal amount
of 10.75% Unsecured Convertible PIK Notes due April 2011. Pursuant to the
network and software agreement with NTL, we are obligated to provide U.S.
network access for U.K. Internet traffic from NTL's U.K. customers for three
years, as well as a royalty-free license to use certain provisioning software
and know-how.
Properties and Facilities of the Business Formerly Operated by ATX
The former ATX headquarters and executive offices and primary
technical operations facility are leased from entities controlled by Michael
Karp, the former Chief Executive Officer and principal stockholder of ATX and
our largest stockholder who, together with The Florence Karp Trust, currently
owns 34.0% of our common stock. We currently pay approximately $1.0 million
per year in rent for these facilities and approximately $450,000 per year in
rent for the former primary technical operations facility. The lease for the
former primary technical operations facility currently expires in December
2002. In connection with our acquisition of ATX, these leases were modified
to reflect provisions found in arm's length negotiations for these
arrangements, including, without limitation:
o the landlord is required to give consent to a reasonable
sublease, and is entitled to all profits from that
sublease;
o there is a standard recapture right;
o there is a standard non-disturbance clause;
o we are no longer obligated to share facilities, employees
and/or supplies with the landlord;
o provisions regarding the purchase of telecommunications
services by landlord or other tenants from ATX have been
eliminated; and
o arrangements granting the landlord a percentage of ATX's
revenues have been eliminated.
ATX Liability Insurance Plans
ATX's liability insurance plans were held jointly with University
City Housing, an entity owned by Michael Karp. In connection with our
acquisition of ATX, each of ATX's liability insurance plans were amended so
that University City Housing is not be entitled to participate in these
plans.
Exchange Agreement between CoreComm Limited and CoreComm Holdco
On December 14, 2001, CoreComm Limited and CoreComm Holdco, as part
of the Holdco Recapitalization, entered into an exchange agreement whereby
CoreComm Limited agreed that from time to time, upon our request, it would
deliver to us shares of our common stock held by it. We agreed to
(1) waive our rights to interest payments pursuant to CoreComm
Limited debt securities and debt securities that were joint obligations of
CoreComm Limited and CoreComm Holdco that we hold,
(2) extend by twenty years the maturity dates of CoreComm Limited
debt securities and debt securities that were joint obligations of CoreComm
Limited and CoreComm Holdco that we hold,
(3) waive the right to convert into shares of CoreComm Limited
common stock the debt securities that were joint obligations of CoreComm
Limited and CoreComm Holdco that we hold,
(4) delete provisions contained in the Senior Unsecured Notes due
September 29, 2003 of CoreComm Limited relating to scheduled prepayments,
mandatory prepayments and liens,
(5) delete provisions in the Note Purchase Agreement, dated as of
September 29, 2000, related to the Senior Unsecured Notes due September 29,
2003 of CoreComm Limited relating to accounting, financial statements,
inspection rights, insurance, payment of taxes, compliance with laws,
corporate existence, indebtedness incurred, refinancing, liens, liquidation
and dissolution, covenants restricting payment, transactions with affiliates,
fees and events of default, and
(6) waive our rights with respect to shares of preferred stock of
CoreComm Limited which we hold relating to receipt of dividends, mandatory
redemption rights, conversion rights and governing rights.
These waiver of rights, amendments and deletions are subject to equitable
adjustment, in our discretion, in the event that any of the recapitalization
transactions are not consummated or are otherwise compromised.
Arrangements with Initial Selling Securityholders
CoreComm Holdco and CoreComm Limited have entered into an exchange
agreement with some of the initial selling securityholders. CoreComm Holdco
is also subject to provisions contained in agreements entered into with the
former holders of CoreComm Limited's convertible notes. Please refer to the
section of the prospectus entitled "Description of Capital Stock - The
Exchange Agreement" and "Description of Capital Stock - The Convertible
Notes."
Employment Arrangements
A summary of the terms of employment arrangements between each of
Thomas J. Gravina, our President -- Chief Executive Officer and a director,
and Michael A. Peterson, our Executive Vice President -- Chief Operating
Officer and Chief Financial Officer and a director, are described in the
section "Management and Executive Compensation - Employment Arrangements."
DESCRIPTION OF CAPITAL STOCK
Authorized Capital Stock
Our authorized capital stock consists of 250,000,000 shares of
common stock, par value $0.01 per share, and 10,000,000 shares of preferred
stock, par value $0.01 per share. As of February 1, 2002, we had (a)
10,000,018 shares of common stock issued and outstanding, which were held of
record by approximately 43 stockholders, including CoreComm Limited and (b)
no shares of preferred stock issued or outstanding. The currently outstanding
shares of common stock are validly issued, fully paid and non-assessable. The
number of authorized shares of any of our preferred stock or our common stock
may be increased or decreased, but not below the then number of shares
outstanding, by the vote of the holders of a majority of our voting power and
no vote of the holders of any of our preferred stock or our common stock
voting separately as a class is required. The following description is
qualified in all respects by reference to our charter and our amended
by-laws.
Common Stock
The holders of our common stock are entitled to one vote for each
share held of record on all matters submitted to a vote of our stockholders
and do not have cumulative voting rights in the election of directors. The
holders of our common stock are not entitled to vote on any amendment to our
charter that relates solely to the terms of one or more outstanding series of
preferred stock if the holders of the affected series are entitled, either
separately or together with the holders of one or more other series, to vote
thereon pursuant to our charter or pursuant to the Delaware General
Corporation Law. Holders of our common stock are entitled to receive
proportionately dividends as may from time to time be declared by our board
of directors out of funds legally available for the payment of dividends. In
the event of our liquidation, dissolution or winding up, holders of our
common stock would be entitled to share proportionately in all of our assets
available for distribution to holders of our common stock remaining after
payment of liabilities and liquidation preference of any outstanding
preferred stock. Holders of our common stock have no preemptive rights and
have no rights to convert our common stock into any other securities, and
there are no redemption provisions with respect to the common stock.
Currently no public market exists for the shares of our common
stock. Pursuant to discussions with Nasdaq, we intend to transfer CoreComm
Limited's Nasdaq listing to our common stock following successful completion
of the planned public exchange offer for holders of CoreComm Limited Common
Stock to exchange their shares for our common stock. CoreComm Limited's
outstanding common stock currently trades under the symbol "COMM" on the
Nasdaq National Market.
Preferred Stock
Our charter authorizes the board of directors to issue one or more
series of preferred stock and determine, with respect to any series, the
rights, if any, and their qualifications, limitations or restrictions, as are
stated in resolutions adopted by the board of directors providing for the
issue of the series and as are permitted by the Delaware General Corporation
Law.
The ability of the board of directors to issue one or more series of
preferred stock provides increased flexibility in structuring possible future
financings and acquisitions and in meeting other corporate needs which might
arise. The authorized shares of preferred stock, as well as shares of our
common stock, are available for issuance without further action by our
stockholders, unless any action is required by applicable law or the rules of
any stock exchange or automated quotation system on which our securities may
be listed or applicable rules of any self-regulatory organization. If the
approval of our stockholders is not required for the issuance of shares of
preferred stock or common stock, the board of directors does not intend to
seek stockholder approval. The board of directors will make any determination
to issue the shares based on its judgment as to our best interests and the
best interests of our stockholders. The board of directors, in so acting,
could issue preferred stock having terms that could discourage an acquisition
attempt or other transaction that some or a majority of the stockholders
might believe to be in their best interests or in which stockholders might
receive a premium for their shares over the then current market price of our
shares.
Series A Junior Participating Preferred Stock
In connection with the adoption of our stockholder rights plan,
which is described below, our board of directors designated and reserved for
issuance Series A Junior Participating Preferred Stock. A total of 1,000,000
shares of Series A preferred stock are authorized. No shares are issued or
outstanding. When issued and paid for in accordance with the stockholder
rights plan, the Series A preferred stock will be fully paid and
nonassessable. We will appoint a transfer agent for the Series A preferred
stock if any shares are issued.
Dividends and Ranking. Each share of Series A preferred stock
entitles its holders to receive dividends out of our funds legally available
for the payment of dividends when, as and if declared by our board of
directors. With respect to those dividends, the Series A preferred stock will
rank:
o senior to all classes of our common stock and to each other
class of capital stock or series of preferred stock that is
designated to rank junior to the Series A preferred stock;
o junior to all classes of preferred stock that is designated
to rank senior to the Series A preferred stock; and
o equal to all classes of preferred stock that is designated to
rank equally with the Series A preferred stock.
Dividends are payable quarterly in cash on the fifteenth day of
March, June, September and December of each year, in an amount per share
equal to the greater of:
o $0.01; and
o 1,000 times the aggregate per-share amount of all dividends
declared on our common stock since the immediately preceding
dividend payment date, subject to adjustment for subdivision
or combination of our common stock.
Liquidation, Dissolution or Winding up. Upon our liquidation,
dissolution or winding up, the holders of outstanding shares of Series A
preferred stock will be entitled to paid out of the assets available for
distribution to our stockholders after payment of any liquidation values of
any securities senior in liquidation rights to the Series A preferred stock.
After payment of the liquidation values of senior securities, the
holders of the Series A preferred stock will be entitled to receive $1.00 for
each share of Series A preferred stock they hold, plus any accrued and unpaid
dividends or distributions on those shares. If, upon any liquidation,
dissolution or winding up of our company, the remaining assets available for
distribution are insufficient to pay the holders of the Series A preferred
stock and all other securities ranking equally with the Series A preferred
stock with respect to liquidation the full amount to which they are entitled,
the holders of Series A preferred stock will share those remaining assets
ratably, together with the holders of the securities ranking equally with the
Series A preferred stock.
Following the initial payment with respect to each share of Series A
preferred stock, no additional distributions will be made to the holders of
the Series A preferred stock until the holders of shares of common stock have
received an amount per share equal to the amount distributed with respect to
each share of Series A preferred stock divided by 1,000, subject to
adjustment for splits and combinations of our common stock. After the payment
with respect to our common stock, the holders of the Series A preferred stock
and the holders of the common stock will share ratably in any remaining
assets and funds, based on one share of Series A preferred stock equaling
1,000 shares of common stock, subject to adjustment for splits and
combinations of our common stock.
Voting Rights. Subject to adjustments for splits and combinations of
our common stock, each share of Series A preferred stock will entitle the
holder to 1,000 votes on all matters submitted to a vote of our stockholders.
The holders of the Series A preferred stock will vote as a single class with
the holders of our common stock.
If dividends on the Series A preferred stock are in arrears in an
amount equal to six quarterly dividends, all holders of our preferred stock
whose dividends are in arrears with respect to six quarterly periods will,
voting as a single class, be entitled to elect two new directors to our board
of directors. The directors will serve until successors to them have been
elected or until dividends on the Series A preferred stock are no longer in
arrears.
Redemption. The Series A preferred stock is not redeemable.
Conversion. The Series A preferred stock is not convertible.
The Convertible Note Agreements
In connection with the Holdco Recapitalization, CoreComm Limited
entered into binding agreements for transactions that allowed it to exchange
approximately $160 million principal amount of its 6% Convertible
Subordinated Notes due 2006. Under the terms of the agreements, in exchange
for tendering the notes, CoreComm Limited paid each holder that signed such
an agreement: (1) a cash payment equal to the October 2001 interest payment
due to that holder, and (2) shares of CoreComm Holdco common stock, equal in
the aggregate to approximately 5% of our common stock. These agreements also
contain a mutual release of claims whereby CoreComm Limited released each
holder who was a party to one of these agreements, and each of these holders
released CoreComm Limited, of all claims arising from occurrences taking
place on or prior to the date of these respective agreements.
CoreComm Limited and CoreComm Holdco provided notices of closing of
the transactions under these agreements. Each notice of closing contained an
agreement by CoreComm Holdco to file a shelf registration statement under the
Securities Act covering the shares of our common stock issued under these
agreements. This prospectus is part of that registration statement.
The Exchange Agreement
In connection with the Holdco Recapitalization, CoreComm Limited and
CoreComm Holdco entered into an exchange agreement with holders of preferred
stock of CoreComm Limited, holders of debt securities of CoreComm Limited and
holders of debt securities which were joint obligations of CoreComm Limited
and CoreComm Holdco. The transactions contemplated by the Exchange Agreement
closed in December 2001. Pursuant to that agreement:
o the securityholders would exchange their securities for
shares of CoreComm Holdco common stock as part of the Holdco
Recapitalization plan;
o We would file a shelf registration statement under the
Securities Act covering the shares of our common stock issued
under the exchange agreement;
o none of the securityholders, together with their affiliates
and their associates, would acquire any shares of our voting
securities, subject to an allowed annual increase in percent
ownership of our outstanding common shares equal to 0.0735
times their original percent ownership of our common stock,
capped at a maximum of 39%;
o if a securityholder, or any of their affiliates or
associates, were to acquire ownership of our voting
securities in contravention of the restrictions set forth in
the exchange agreement, we would have the right to either (1)
purchase, or cause a designee to purchase, any or all of
these securities so acquired at the price paid by the
securityholder or its affiliates or associates or (2) require
the securityholder, or its affiliates or associates, to
dispose of these securities within 30 days;
o the following additional restrictions apply to each security
holder that, together with its affiliates and associates,
owns at least 15% of our common stock, provided that these
restrictions will not apply to any of these security holders
(1) after the nine month anniversary of the SEC declaring the
registration statement of which this prospectus forms a part
effective and (2) at any time when a security holder,
together with its affiliates, its associates and specified
transferees to which they transfer our voting securities own
less than 10% of the voting power of all our voting
securities. These securities holders are:
o prohibited from subjecting any of our voting
securities to any voting agreements or arrangements
or depositing them into a voting trust;
o prohibited from soliciting proxies in opposition to
the recommendation of our board of directors;
o in any election contest, required to vote all of our
voting securities held by it (1) in the same
proportion as the votes cast by all other holders of
our voting securities or (2) in the manner
recommended by our board of directors if the
election contest involves a proposed change of
control;
o prohibited from acting with any other person or
entity for the purpose of affecting or influencing
control of CoreComm Holdco or acquiring, holding or
disposing of our voting securities;
o prohibited from proposing, soliciting or otherwise
participating in any transaction relating to an
acquisition of, a business combination or similar
transaction with, or a change of control of,
CoreComm Holdco or encouraging another person or
entity to make a tender offer for our voting
securities;
o shares of our common stock issued under the exchange
agreement to these securityholders and their affiliates and
associates may only be transferred:
o pursuant to a bona fide public offering;
o pursuant to unsolicited open market sales on any national
securities exchange or automated inter-dealer quotation
system on which the shares are listed;
o pursuant to a tender offer made to our stockholders which our
board of directors has recommended;
o pursuant to a privately-negotiated transaction with a person
or entity that, together with its affiliates and associates,
does not own at least 15% of our common stock;
o pursuant to a will or the laws of descent and distribution;
o pursuant to a bequest or similar gift or transfer to any
person or entity that, together with its affiliates and
associates, does not own at least 15% of our common stock; or
o as a result of any pledge or hypothecation to a bona fide
financial institution to secure a bona fide loan, guaranty or
other financial accommodation or as a result of any
foreclosure with respect thereto;
o if we enter into a definitive agreement with a third party or
accept, approve or recommend an offer from a third party to
acquire greater than 50% of our voting securities, each
security holder would have the right, on a pro-rata basis
commensurate with its then level of ownership of our voting
securities, to offer to acquire the number of our securities
that is equal to or greater than the number of our voting
securities that is contemplated to be acquired pursuant to
the third party offer, and we would not take any action that
would confer a timing advantage to the third party;
o any securityholder, together with its associates and
affiliates, may make a bona fide written offer to acquire or
purchase 100% of our capital stock so long as the offer is
definitive in nature or provides for a make-whole premium or
similar significant penalty payable to our other stockholders
in the event that the transaction is not completed;
o each securityholder granted an irrevocable proxy to members
of our board of directors and officers to vote all of the
shares of our stock which he, she or it would be entitled to
vote in favor of (1) a stock split of shares of our common
stock upon a determination by our board of directors that a
stock split is advisable and in our best interest to more
accurately reflect our capitalization pursuant to the
restructuring plan and an amendment to our charter to effect
this stock split and/or (2) a change in our corporate name to
a suitable corporate name upon a determination by our board
of directors that a corporate name change is advisable and in
our best interest and an amendment to our charter to effect
this corporate name change;
o each of Michael Karp and Booth American Company also have a
contractual right to designate directors to CoreComm Holdco's
board of directors whereby:
o so long as Michael Karp, together with his affiliates and
associates, owns at least 15% of our outstanding common
stock, Michael Karp has the right to designate that
number of directors to our board of directors so that his
representation on our board of directors is proportionate
to his, together with his affiliates' and associates',
ownership percentage of our common stock; and
o so long as Booth American Company, together with its
affiliates and associates, owns at least 15% of CoreComm
Holdco's outstanding common stock, Booth American Company
has the right to designate one director to our board of
directors;
o each securityholder agreed (1) that it had not commenced any
action against CoreComm Limited or CoreComm Holdco, (2) to
release CoreComm Limited and CoreComm Holdco from all claims
arising from occurrences taking place on or prior to the
closing date and (3) that it would not assist in any action
commenced by or on behalf of the holders of 6% Convertible
Subordinated Notes due 2006 of CoreComm Limited; and
o each of CoreComm Limited and CoreComm Holdco agreed (1) that
it had not commenced any action against any securityholder
and (2) to release each securityholder from all claims
arising from occurrences taking place on or prior to the
closing date.
Special Charter Provisions
Our charter contains the provisions described below. These charter
provisions may have the effect, alone or in combination with each other or
with the existence of authorized but unissued common stock and any series of
preferred stock, of precluding or rendering more difficult a hostile
takeover, making it more difficult to remove or change the composition of our
incumbent board of directors and our officers, being adverse to stockholders
who desire to participate in a tender offer and depriving stockholders of
possible opportunities to sell their shares at temporarily higher prices.
Classified board and filling of vacancies on the board of directors.
The charter provides that the directors shall be divided into three classes,
each of which shall serve a staggered three-year term, and that vacancies on
our board of directors that may occur between annual meetings may be filled
by our board of directors. In addition, this provision specifies that any
director elected to fill a vacancy on our board of directors will serve for
the balance of the term of the replaced director. At each annual meeting of
stockholders, successors to the class of directors whose term expires at that
annual meeting shall be elected for a three-year term.
Qualification of directors. The charter provides that, subject to
the contractual board representation rights set forth in the exchange
agreement, it is a qualification of at least 81% of the directors that they
not be (1) beneficial owners of 15% or more of our common stock, (2)
affiliates or associates of any beneficial owner of 15% or more of our common
stock or (3) persons whose beneficial ownership of securities would be
required to be aggregated on any Schedule 13D or Schedule 13G required to be
filed under the Exchange Act by any beneficial owner of 15% or more of our
common stock.
Removal of directors. The charter provides that directors can be
removed only by the stockholders for cause and then only by the affirmative
vote of the holders of not less than two-thirds of the combined voting power
of the voting stock.
Voting requirement for some business combinations. The charter also
provides that, in addition to any affirmative vote required by law, the
affirmative vote of holders of two-thirds of the voting power of the voting
stock will be necessary to approve any "business combination," proposed by an
"interested stockholder." The additional voting requirements will not apply,
however, if:
o the business combination was approved by not less than a
majority of the continuing directors;
o a series of conditions are satisfied requiring, in summary,
the following:
(A) that the consideration to be paid to stockholders in
the business combination must be at least equal to the higher of:
(1) the highest per-share price paid by the interested
stockholder in acquiring any shares of common stock during the
two years prior to the announcement date of the business
combination or in the transaction in which it became an
interested stockholder, this date is referred to as the
"determination date," whichever is higher; or
(2) the fair market value per share of common stock on
the announcement date or determination date, whichever is
higher, in either case appropriately adjusted for any stock
dividend, stock split, combination of shares or similar events
with non-cash consideration treated similarly; and
(B) various "procedural" requirements are complied with,
including the consent solicitation of proxies according to the
rules of the SEC and no decrease in regular dividends, if any,
after the interested stockholder became an interested stockholder,
except as approved by a majority of the continuing directors.
An "interested stockholder" is defined as anyone who is the
beneficial owner of more than 15% of the voting power of the voting stock,
other than CoreComm Holdco and any employee stock plans sponsored by us, and
includes any person who is an assignee of or has succeeded to any shares of
voting stock in a transaction not involving a public offering that were at
any time within the prior two-year period beneficially owned by an interested
stockholder. The term "beneficial owner" includes persons directly and
indirectly owning or having the right to acquire or vote the stock.
Interested stockholders participate fully in all stockholder voting.
A "business combination" includes the following transactions:
o merger or consolidation of us or any subsidiary of ours with
an interested stockholder or with any other corporation or
entity which is, or after the merger or consolidation would
be, an affiliate, associate or a Schedule 13D Related Party
of an interested stockholder;
o the sale or other disposition by us or a subsidiary of ours
of assets having a fair market value of $10,000,000 or more
if an interested stockholder, or an affiliate, an associate
or a Schedule 13D Party of an interested stockholder is a
party to the transaction;
o the adoption of any plan or proposal for our liquidation or
dissolution proposed by or on behalf of an interested
stockholder, or an affiliate, an associate or a Schedule 13D
Party of an interested stockholder; or
o any reclassification of securities, recapitalization, merger
with a subsidiary, or other transaction which has the effect,
directly or indirectly, of increasing the proportionate share
of any class of our outstanding stock, or securities
convertible into stock, or a subsidiary owned by an
interested stockholder, or an affiliate, an associate or a
Schedule 13D Party of an interested stockholder.
Determinations of the fair market value of non-cash consideration
are made by a majority of the continuing directors.
The term "continuing directors" means any member of our board of
directors, while that person is a member of our board of directors, who is
not an affiliate, associate, Schedule 13D Party or representative of the
interested stockholder and was a member of our board of directors prior to
the time that the interested stockholder became an interested stockholder,
and any successor of a continuing director while that successor is a member
of our board of directors, who is not an affiliate, associate, Schedule 13D
Party or representative of the interested stockholder and is recommended or
elected to succeed the continuing director by a majority of continuing
directors.
The term "Schedule 13D Related Party" means an individual or entity
whose beneficial ownership of securities would be required to be aggregated
on any Schedule 13D or Schedule 13G required to be filed by an interested
stockholder.
Voting requirements for some amendments to the charter. The charter
provides that the provisions set forth in this section under the heading
"Special Charter Provisions" may not be repealed or amended in any respect,
unless that action is approved by the affirmative vote of the holders of not
less than two-thirds of the voting power of the voting stock. The requirement
of an increased stockholder vote is designed to prevent a stockholder who
controls a majority of the voting power of the voting stock from avoiding the
requirements of the provisions discussed above by simply amending or
repealing those provisions.
Special By-laws Provisions
Advance notification of business to be transacted at stockholder
meetings. Our amended by-laws provide that to be properly brought before the
annual or any special stockholders' meeting, business must be either
(1) specified in the notice of meeting, or any supplement or
amendment thereto, given by or at the direction of our board of directors,
(2) otherwise properly brought before the meeting by or at the
direction of our board of directors, or
(3) otherwise properly brought before the meeting by a stockholder
by giving timely notice in writing to us.
To be timely, a stockholder's notice must be delivered to or mailed and
received at our principal executive offices not less than 75 days nor more
than 90 days prior to the meeting; provided, that in the event that less than
90 days' notice or prior public disclosure of the date of the meeting is
given or made to stockholders, notice by the stockholder to be timely must be
received by us not later than the close of business on the fifteenth day
following the day on which the notice of the date of the meeting was mailed
or the public disclosure was made, whichever first occurs.
Election of directors. Our amended by-laws provide that our board of
directors consists of between three and 15 directors, the exact number as
fixed from time to time by the board of directors.
Stockholder nominations. Except for the right of Michael Karp and
Booth American Company to designate directors in accordance with the exchange
agreement, a stockholder may nominate directors only if the stockholder
delivers written notice to us not less than 75 days nor more than 90 days
prior to an annual meeting of our stockholders; provided, however, that in
the event that less than 90 days' notice or prior public disclosure of the
date of the meeting is given or made to stockholders, notice by the
stockholder to be timely must be received by us not later than the close of
business on the fifteenth day following the day on which the notice of the
date of the meeting was mailed or the public disclosure was made, whichever
first occurs.
The Stockholder Rights Plan
We adopted a stockholder rights plan on December 17, 2001. In
connection with the stockholder rights plan, our board of directors declared
and paid a dividend of one preferred share purchase right for each share of
our common stock outstanding on December 17, 2001. Each right entitles the
holder, under some circumstances, to purchase from us one one-thousandth of a
share of our Series A Junior Participating Preferred Stock, par value $0.01
per share, at an exercise price of initially four times the average closing
price of our common stock over the first five days of trading following the
SEC declaring this registration statement effective, subject to adjustment.
There are 1,000,000 shares of Series A preferred stock authorized for
issuance under the plan.
Initially, the rights are attached to outstanding certificates
representing our common stock, and no separate certificates representing the
rights are distributed. The rights will separate from our common stock, be
represented by separate certificates and will become exercisable upon the
earlier of:
o ten business days following a public announcement that a
person or group has acquired or has obtained the right to
acquire 15% or more of our outstanding common stock; or
o ten business days, or a later date as may be determined by
the action of the board of directors prior to the time that
any person or group becomes an acquiring person, after the
commencement of, or announcement of an intention to make, a
tender offer or exchange offer for 15% or more of our
outstanding common stock.
If after the rights become exercisable we agree to merge into
another entity, another entity merges into us or we sell or transfer more
than 50% of our assets, each right will entitle the holder to purchase a
number of shares of common stock of the resulting entity at a discount.
If after someone has acquired 15% or more of our common stock or our
board of directors declares any person to be an adverse person upon a
determination that a person has become the beneficial owner of a substantial
amount of our common stock, which shall in no event be less than 5% of the
outstanding common stock, each holder of a right will be entitled to receive
shares of our common stock at a discount. Any rights that are or were owned
by an acquirer of more than 15% of our outstanding common stock or any person
that the board of directors declares to be an adverse person will be null and
void.
We may exchange the rights at a ratio of one share of common stock
for each right at any time after someone acquires 15% or more of our common
stock but before that person acquires 50% or more of our common stock. We may
also redeem the rights at our option at a price of $0.01 per right, subject
to adjustment, at any time before the tenth day following the announcement
that someone has acquired 15% or more of our common stock. The rights expire
on the earliest of December 17, 2011, an exchange or redemption of the rights
as described above, or the completion of a merger as described above. The
rights distribution is not taxable to stockholders.
The stockholder rights plan is intended to encourage a potential
acquirer to negotiate directly with the board of directors, but may have
anti-takeover effects. The stockholder rights plan could significantly dilute
the ownership interests of an acquirer in CoreComm Holdco and therefore may
have the effect of delaying, deterring or preventing a change in control of
CoreComm.
For further description, please refer to the stockholder rights
plan, which was filed with the SEC as Exhibit 4.2 to the registration
statement of which this prospectus forms a part.
Transfer Agent and Registrar
Our transfer agent and registrar for our common stock is Continental
Stock Transfer & Trust Company.
Section 203 of the Delaware General Corporation Law
Generally, Section 203 of the Delaware General Corporation Law
prohibits a publicly held Delaware corporation from engaging in any business
combination with an interested stockholder for a period of three years
following the time that a stockholder becomes an interested stockholder,
unless:
o prior to that time either the business combination or the
transaction which resulted in the stockholder becoming an
interested stockholder is approved by the board of directors
of the corporation;
o upon consummation of the transaction which resulted in the
stockholder becoming an interested stockholder, the
interested stockholder owned at least 85% of the voting stock
of the corporation outstanding at the time the transaction
commenced, excluding, for purposes of determining the number
of shares outstanding, those shares held by persons who are
both directors and officers and employee stock plans; or
o at or after that time the business combination is approved by
the board and authorized at an annual or special meeting of
stockholders, and not by written consent, by the affirmative
vote of at least two-thirds of the outstanding voting stock
which is not owned by the interested stockholder.
A business combination includes mergers, consolidations, asset
sales, transfers and other transactions resulting in a financial benefit to
the interested stockholder. An interested stockholder is a person who,
together with affiliates and associates, owns 15% or more of the
corporation's voting stock.
Indemnification Provisions
Section 145 of the Delaware General Corporation Law authorizes a
corporation to indemnify its directors, officers, employees and agents
against expenses, including attorneys' fees, judgments, fines and amounts
paid in settlement reasonably incurred, including liabilities under the
Securities Act, provided they act in good faith and in a manner reasonably
believed to be in or not opposed to the best interests of the corporation,
although in the case of proceedings brought by or on behalf of the
corporation, indemnification is limited to expenses and is not permitted if
the individual is adjudged liable to the corporation, unless the court
determines otherwise. Our charter and amended by-laws require us to indemnify
our officers and directors to the full extent permitted by Delaware law.
Section 102(b)(7) of the Delaware General Corporation Law authorizes
a corporation to limit or eliminate its directors' liability to the
corporation or its stockholders for monetary damages for breaches of
fiduciary duties, other than for
(1) breaches of the duty of loyalty,
(2) acts or omissions not in good faith or that involve
intentional misconduct or knowing violations of law,
(3) unlawful payments of dividends, stock purchases or
redemptions, or
(4) transactions from which a director derives an improper
personal benefit.
Section 145 of the Delaware General Corporation Law authorizes a
corporation to purchase and maintain insurance on behalf of any person who is
or was a director, officer, employee or agent of the corporation against any
liability asserted against him or her and incurred by him or her in his or
her capacity as a director, officer, employee or agent of the corporation, or
arising out of his or her status as a director, officer, employee or agent of
the corporation. Our charter and amended by-laws provide that we may, to the
full extent permitted by law, purchase and maintain insurance on behalf of
any of our directors, officers, employees or agents against any liability
that may be asserted against him or her and we currently maintain this
insurance. We have liability insurance covering our directors and officers
for claims asserted against them or incurred by them in their capacity as
directors and officers, including claims brought under the Securities Act.
Insofar as indemnification for liabilities arising from the
Securities Act may be permitted to directors, officers or persons controlling
the registrant pursuant to the foregoing provisions, the registrant has been
informed that in the opinion of the SEC, this indemnification is against
public policy as expressed in the Securities Act and is therefore
unenforceable.
DESCRIPTION OF OUR INDEBTEDNESS
Other Indebtedness
As of September 30, 2001, as adjusted for the Holdco
Recapitalization, some of our other indirect subsidiaries have $11.5 million
of indebtedness in capital leases and other notes. For more information,
please refer to our historical financial statements and the related notes. In
addition, our subsidiaries may incur substantial indebtedness in the future.
Senior Secured Credit Facility
On September 28, 2000, we entered into a senior secured credit
facility with The Chase Manhattan Bank as lender, administrative agent and
collateral agent that was amended and restated on April 11, 2001. Our senior
secured credit facility provides for both a term loan facility and a
revolving credit facility. Our term loan facility is for an initial aggregate
amount of $106.1 million and has a final maturity of April 1, 2006 that,
subject to the satisfaction of conditions, may be extended to September 22,
2008. At December 31, 2001, we had $106.1 million outstanding under our term
loan facility. Our revolving credit facility is for a total of $50.0 million
and has a termination date of April 1, 2006 that, subject to the satisfaction
of conditions, may be extended to September 22, 2008. At December 31, 2001,
we had $50.0 million outstanding under our revolving credit facility.
The interest rate on both our term loan facility and our revolving
credit facility is initially, at our option, either:
o 3.50% per annum plus the base rate, which is the higher of:
-- the rate as publicly announced from time to time by
The Chase Manhattan Bank as its "prime rate", or
-- the federal funds effective rate plus 0.50% per annum; or
o the reserve-adjusted London Interbank Offered Rate (Adjusted
LIBOR) plus 4.50% per annum.
The applicable margin for our facilities will be subject to
reductions based on the ratio of our consolidated total debt to annualized
EBITDA.
At December 31, 2001, the interest rate on our term loan facility
was 6.86%. At December 31, 2001, the interest rate on our revolving credit
facility was 6.86%. We are able to repay and reborrow on our revolving credit
facility. Availability under our revolving credit facility is subject to a
commitment fee equal to 1.50%, subject to reduction to 1.00% per annum based
upon the rate of utilization of our facilities. This commitment fee is
payable quarterly in arrears until termination of the lender's commitment.
We pay a letter of credit fee for the pro rata account of each
lender in an amount equal to the dollar equivalent of the daily amount
available to be drawn or outstanding under letters of credit, if any are
outstanding, at a per annum rate equal to the interest rate applicable to the
revolving credit facility. In addition, we pay a per annum fronting fee equal
to 0.25% of the daily amount available to be drawn down under any letters of
credit.
The loans under our term loan facility are subject to quarterly
amortization payments over the life of the facility. In addition, we will
have to make partial repayments of our term loans, subject to exceptions for:
o net proceeds from a sale of assets;
o net proceeds from an issuance of debt or equity;
o net proceeds from insurance following a casualty event; and
o excess cash flow.
Once the term loans have been repaid, the term loans will not be
permitted to be reborrowed.
We and all of our present and future direct and indirect
subsidiaries (other than subsidiaries that we may designate as unrestricted
subsidiaries) unconditionally guarantee payment under our senior secured
credit facility. These guarantees are secured by a pledge of and a perfected
security interest in all of the assets of these entities, including 100% of
the stock of our subsidiaries.
Our senior secured credit facility contains customary covenants and
restrictions on our ability and the ability of our subsidiaries to engage in
some activities, including, but not limited to:
o issuing new indebtedness;
o creating liens;
o incurring capital expenditures;
o making investments;
o declaring dividends, repurchasing or redeeming capital stock
and prepaying subordinated debt;
o entering into any merger, consolidation, acquisition, sale of
assets or lease; and
o entering into hedging transactions.
Our senior secured credit facility also requires us and our
subsidiaries to observe the following customary financial covenants:
o a minimum active access lines and minimum on-net access lines
requirement;
o a minimum consolidated services revenue requirement;
o a maximum consolidated total secured debt to total capital
ratio and a maximum consolidated total debt to total capital
ratio;
o a positive EBITDA requirement;
o a maximum consolidated total secured debt to annualized
EBITDA ratio and a maximum consolidated total debt to
annualized EBITDA ratio;
o a minimum consolidated EBITDA to consolidated cash interest
expense;
o a minimum consolidated EBITDA to consolidated fixed charge
ratio; and
o a maximum capital expenditures requirement.
Our senior secured credit facility contains customary events of
default, including payment defaults, breach of representations and
warranties, covenant defaults, cross-defaults on other indebtedness, events
of bankruptcy and insolvency, ERISA defaults, judgment defaults, failure of
any guaranty or security agreement supporting our senior secured credit
facility to be in full force and effect, and change in control of us.
10.75% Unsecured Convertible PIK Note due 2011
On April 12, 2001, CoreComm Holdco and CoreComm Limited issued, as
joint and several obligors, a 10.75% Unsecured Convertible PIK Note due 2011
to NTL Incorporated in the principal amount of $15,000,000, referred to as
the "2011 PIK Note," for the purchase price of $15,000,000, which was paid in
cash. The principal features of the 2011 PIK Note are as follows:
o Ranking. The 2011 PIK Note ranks as a senior debt obligation
of CoreComm Holdco and as a subordinated debt obligation of
CoreComm Limited.
o Interest. The 2011 PIK Note accrues interest at a rate of
10.75% per annum, to be paid semiannually on October 15 and
April 15 of each year, commencing October 15, 2001. Interest
on the 2011 PIK Note is to be paid in kind through the
issuance of additional notes in principal amounts equal to
the interest payments then due, referred to as the "PIK
Notes." The terms of the PIK Notes will be substantially
identical to the 2011 PIK Note, except that:
(1) the conversion rate of each PIK Note will reflect that
the conversion price of CoreComm Limited common stock to be issued
upon conversion is the greater of:
(a) a 20% premium to the 25-day average market
price of the CoreComm Limited common stock on the date of issuance
of the PIK Note; and
(b) $1.00;
(2) the maturity date of each PIK Note will be April
12, 2011; and
(3) the special conversion price of each PIK Note will
be the greater of:
(a) 66 2/3% of the 25-day average market price
of the CoreComm Limited common stock immediately preceding the
record date for the issuance of the PIK Note; and
(b) the change of control price as determined in
the 2011 PIK Note. To the extent that there exists any accrued and
unpaid interest attributable to the principal amount of the 2011 PIK
Note to be converted at the time of conversion, the number of shares
of CoreComm Limited common stock to be delivered by CoreComm Limited
will be increased in an amount equal to the quotient of the accrued
and unpaid interest as of the conversion date divided by 120% of the
25-day average market price of the CoreComm Limited common stock on
the conversion date.
On December 31, 2001, the aggregate principal amount outstanding of
the 2011 PIK Note and the PIK Note paid as interest on October 15,
2001, together with accrued and unpaid interest thereon was
$16,173,982.
o Maturity Date. The 2011 PIK Note and all PIK Notes mature on
April 12, 2011.
o Redemption. Beginning on April 12, 2003, CoreComm Holdco and
CoreComm Limited have the option, as joint and several
obligors, to redeem the 2011 PIK Note in whole or in part
upon thirty days prior written notice to a holder of the 2011
PIK Note, at the redemption prices set forth in the 2011 PIK
Note along with any accrued and unpaid interest. Any
redemption initiated by CoreComm Holdco or CoreComm Limited
will be tolled for up to 90 days, solely for the purpose of
allowing the holder of the 2011 PIK Note to satisfy any
applicable legal or regulatory approvals required to effect
the conversion into shares of CoreComm Limited common stock.
The tolling period may be extended if CoreComm Holdco or
CoreComm Limited do not comply with their obligations under
the 2011 PIK Note to assist in effecting conversion.
o Conversion. The holder of the 2011 PIK Note may convert the
2011 PIK Note into shares of CoreComm Limited common stock at
the conversion rate of one share for every $1 in principal
amount, subject to adjustment in the circumstances set forth
in the 2011 PIK Note. However, the holder of these notes and
CoreComm Limited and CoreComm Holdco have entered into an
agreement relating to the conversion feature of the note
following the Holdco Recapitalization. Through that
agreement, consistent with the original terms of the note,
CoreComm Limited and CoreComm Holdco have agreed to exercise
their right under the note such that, following the
successful completion of our exchange offer to the holders of
CoreComm Limited common stock to exchange their shares of
CoreComm Limited common stock for shares of our common stock,
the convertibility feature of the note will be altered so
that rather than the note being convertible into shares of
CoreComm Limited common stock, it will become convertible
into shares of our common stock. At that time, the conversion
price of $1.00 will be equitably adjusted by applying the
exchange ratio in the exchange offers, which results in a new
conversion price of $116.70 per share of our common stock.
The holder has agreed not to exercise its rights to convert
into CoreComm Limited common stock for six months from
February 5, 2002 (unless that right has previously ceased as
a result of the completion of the exchange offer and the
change in the convertibility feature). In the event that we
are unsuccessful in completing the exchange offer, the
conversion feature would remain into CoreComm Limited common
stock. These notes are redeemable, in whole or in part, at
our option, at any time in April 2003, at a redemption price
of 103.429% that declines annually to 100% in April 2007, in
each case together with accrued and unpaid interest to the
redemption date.
o Change of Control. If a change of control occurs, as
determined under the terms of the 2011 PIK Note, a holder of
the 2011 PIK Note has a one-time option, for a period of 30
days following written notice from CoreComm Limited, which
written notice must be given at least 15 days prior to the
expected date of the change of control, to convert the
principal amount of the 2011 PIK Note, including any accrued
and unpaid interest, into shares of CoreComm Limited common
stock at the change of control conversion rate set forth in
the 2011 PIK Note. If the holder of the 2011 PIK Note fails
to convert at this special conversion rate, then following
the change of control transaction the holder may convert the
2011 PIK Note into the type of consideration received by the
CoreComm Limited common stock holders in the change of
control transaction, in an amount that reflects the number of
shares of CoreComm Limited common stock into which the 2011
PIK Note was convertible immediately prior to the change of
control transaction.
o Transfer Restrictions. The 2011 PIK Note was issued in a
transaction exempt from the registration requirements of the
Securities Act, and so cannot be transferred except by way of
a valid registration statement or an exemption from, or in a
transaction not subject to, the registration requirements of
the Securities Act.
o Other Matters. The 2011 PIK Note does not contain any
provisions relating to:
(1) establishment or maintenance of a sinking fund;
(2) restrictions on liens to secure indebtedness and
issuance of disqualified preferred stock;
(3) restrictions on incurring additional indebtedness or
refinancing existing indebtedness;
(4) events of default;
(5) restrictions on the declaration or payment of
dividends on CoreComm Holdco capital stock; and
(6) covenants with respect to
(a) maintenance of cash-flow to interest
expense,
(b) asset ratio,
(c) restricted payments,
(d) transactions with affiliates, and
(e) use of proceeds from an asset sale.
PLAN OF DISTRIBUTION
Shares of our common stock are being registered to permit public
secondary trading of them by the holders of them from time to time after the
date of this prospectus. We will not receive any of the proceeds from the
sale by the selling securityholders of shares of our common stock. We will
bear all fees and expenses incident to our obligation to register the shares
of our common stock.
The selling securityholders or any decree or pledgee of them acting
as principals may sell all or a portion of the shares of our common stock
beneficially owned by them and offered by this prospectus from time to time
directly to purchasers or through one or more underwriters, broker-dealers or
agents. If the shares of our common stock are sold through underwriters or
broker-dealers, the selling securityholder will be responsible for
underwriting discounts, concessions, commissions or agent's commissions.
Shares of our common stock may be sold in one or more transactions at fixed
prices, at prevailing market prices at the time of the sale, at prices
related to the prevailing market prices, at varying prices determined at the
time of sale, or at negotiated prices. Sales may be effected in transactions
(which may involve crosses or block transactions):
(1) on any national securities exchange or quotation
service on which the shares of our common stock
may be listed or quoted at the time of sale
(including, without limitation, the Nasdaq
National Market);
(2) in the over-the-counter market;
(3) otherwise than on those exchanges or services or
in the over-the-counter market;
(4) involving the lending of shares of our common stock;
(5) through the writing of options (whether the
options are listed on an options exchange or
otherwise) relating to the shares of our common
stock, the short sale of shares of our common
stock;
(6) through the distribution of the shares of our
common stock by any selling securityholder to
its partners, members or stockholders;
(7) through gifting of the shares of our common
stock by any selling securityholder to its
family members; or
(8) through a combination of any of the above.
In connection with sales of the shares of our common stock or
otherwise, the selling securityholders may enter into hedging transactions
with broker-dealers or other financial institutions, which may in turn engage
in short sales of the shares of our common stock in the course of hedging in
positions they assume. The selling securityholders may also sell shares of
our common stock short and deliver shares of our common stock to close out
short positions, or loan or pledge shares of our common stock to
broker-dealers that in turn may sell the shares of our common stock. If the
selling securityholders effect transactions by selling shares of our common
stock to or through underwriters, broker-dealers or agents, these
underwriters, brokers, dealers or agents may receive commissions in the form
of discounts, concessions or commissions from the selling securityholders or
commissions from purchasers of shares of our common stock for whom they may
act as agent or to whom they may sell as principal, which discounts,
concessions or commissions as to particular underwriters, brokers-dealers or
agents may be in excess of those customary in the types of transactions
involved.
Currently no public market exists for the shares of our common
stock. Pursuant to conversations we have had with Nasdaq, we intend to
transfer the existing listing of CoreComm Limited's common stock on the
Nasdaq National Market to our common stock in the future. However, there is
no assurance that we will be able to continue to meet the continued listing
requirements of the Nasdaq National Market. CoreComm Limited's outstanding
common stock currently trades under the symbol "COMM" on the Nasdaq National
Market.
The selling securityholders and any broker-dealer participating in
the distribution of the shares of our common stock may be deemed to be
"underwriters" within the meaning of the Securities Act, and any commissions
paid, or any discounts or concessions allowed to any of the broker-dealers
may be deemed to be underwriting commissions or discounts under the
Securities Act.
Under the securities laws of some states, the shares of our common
stock may be sold in those states only through registered or licensed brokers
or dealers. In addition, in some states the shares of our common stock may
not be sold unless the shares of our common stock have been registered or
qualified for sale in the state or an exemption from registration or
qualification is available and is complied with.
We cannot assure you that any selling securityholder will sell any
or all of the shares of our common stock registered under the shelf
registration statement, of which this prospectus forms a part. In addition,
any securities covered by this prospectus that qualify for sale under Rule
144 or Rule 144A of the Securities Act may be sold under Rule 144 or Rule
144A rather than under this prospectus.
The selling securityholders and any other person participating in
the distribution will be subject to applicable provisions of the Exchange Act
and the rules and regulations under the Exchange Act, including, without
limitation, Regulation M of the Exchange Act, which may limit the timing of
purchases and sales of any of the shares of our common stock by the selling
securityholders and any other relevant person. Furthermore, Regulation M may
restrict the ability of any person engaged in the distribution of the shares
of our common stock to engage in market-making activities with respect to the
particular shares of our common stock being distributed. All of the above may
affect the marketability of the shares of our common stock and the ability of
any person or entity to engage in market-making activities with respect to
the shares of our common stock.
All expenses of the registration of the common stock covered by this
prospectus will be paid by us, including, without limitation, SEC filing fees
and expenses of compliance with state securities or "blue sky" laws;
provided, however, that the selling securityholders will pay all underwriting
discounts and selling commissions, if any.
Upon sale under the shelf registration statement, of which this
prospectus forms a part, the shares of our common stock will be freely
tradable in the hands of persons other than our affiliates.
LEGAL MATTERS
The legality of the common stock offered by this prospectus will be
passed upon for us by Skadden, Arps, Slate, Meagher & Flom LLP, New York, New
York.
EXPERTS
Ernst & Young LLP, independent auditors, have audited our
consolidated financial statements and schedules at December 31, 2000 and 1999
and for the years ended December 31, 2000 and 1999 and for the period from
April 1, 1998 to December 31, 1998, as set forth in their reports. Our
financial statements are included in this prospectus in reliance on Ernst &
Young LLP's report, given on their authority as experts in accounting and
auditing.
Ernst & Young LLP, independent auditors, have audited the
consolidated financial statements and schedule of our predecessor, OCOM
Corporation Telecoms Division, for the period from January 1, 1998 to May 31,
1998, as set forth in their reports. We have included these financial
statements in this prospectus in reliance on Ernst & Young LLP's report,
given on their authority as experts in accounting and auditing.
BDO Seidman, LLP, independent auditors, have audited the combined
financial statements of ATX Telecommunications Services Group as of December
31, 1999 and for each of the two years in the period ended December 31, 1999
as set forth in their report. ATX's financial statements have been included
in this prospectus in reliance on BDO Seidman, LLP's report, given on their
authority as experts in accounting and auditing.
PricewaterhouseCoopers LLP, independent auditors, have audited the
consolidated financial statements of Voyager.net, Inc. as of December 31,
1999 and 1998, and for the years ended December 31, 1999, 1998 and 1997, as
set forth in their report. Voyager's financial statements have been included
in this prospectus in reliance on PricewaterhouseCoopers LLP's report, given
on their authority as experts in accounting and auditing.
WHERE YOU CAN FIND MORE INFORMATION
This prospectus constitutes a part of a registration statement on
Form S-1 (together with all amendments, supplements, schedules and exhibits
to the registration statement, referred to as the registration statement)
which we have filed with the SEC, under the Securities Act, with respect to
the common stock offered in this prospectus. This prospectus does not contain
all of the information included in the registration statement. Certain parts
of the registration statement are omitted as allowed by the rules and
regulations of the SEC. We refer you to the registration statement for
further information about our company and the securities offered in this
prospectus. References in this prospectus to any of our contracts or other
documents are not necessarily complete, and you should refer to the exhibits
attached to the registration statement for copies of the actual contract or
document. You may read and copy the registration statement, the related
exhibits and the other materials we file with the SEC at the public reference
facilities the SEC maintains at:
Judiciary Plaza
Room 1024
450 Fifth Street, N.W.
Washington, D.C. 20549
233 Broadway
New York, NY 10279
Citicorp Center
500 West Madison Street
Suite 1400
Chicago, IL 60661
Upon the effectiveness of the registration statement, we will become
subject to the information requirements of the Exchange Act. We will then
file reports, proxy statements and other information under the Exchange Act
with the SEC. Copies of these materials can also be obtained by mail at
prescribed rates from the Public Reference Section of the SEC, 450 Fifth
Street, N.W., Washington, D.C. 20549 or by calling the SEC at 1-800-SEC-0330.
The SEC maintains a Web site that contains reports, proxy statements and
other information regarding us. The address of the SEC Web site is
http://www.sec.gov.
INDEX TO FINANCIAL STATEMENTS
CoreComm Holdco, Inc.
---------------------
Reports of Independent Auditors .............................................F-2
Consolidated Balance Sheets - September 30, 2001
(unaudited), December 31, 2000 and 1999...................................F-4
Consolidated Statements of Operations - Nine months
ended September 30, 2001 and 2000 (unaudited)............................F-5
Consolidated Statements of Operations - Years Ended December 31, 2000 and
1999, for the Period from April 1, 1998 (date operations commenced) to
December 31, 1998 and for the Period from January 1, 1998 to
May 31, 1998 ...........................................................F-6
Consolidated Statement of Shareholder's Equity - Nine months
ended September 30, 2001 (unaudited),Years Ended December 31, 2000
and 1999 and for the Period from April 1, 1998
(date operations commenced) to December 31, 1998 ........................F-7
Statement of Parent's Investment - For the Period from
January 1, 1998 to May 31, 1998.........................................F-8
Condensed Consolidated Statements of Cash Flows - Nine
months ended September 30, 2001 and 2000 (unaudited).....................F-9
Consolidated Statements of Cash Flows - Years Ended December 31, 2000
and 1999, for the Period from April 1, 1998 (date operations commenced)
to December 31, 1998 and for the Period from
January 1, 1998 to May 31, 1998 .......................................F-10
Notes to Consolidated Financial Statements .................................F-12
Voyager.net, Inc.
-----------------
Condensed Consolidated Balance Sheet - June 30, 2000 (unaudited)............F-36
Condensed Consolidated Statements of Operations - Six Months
ended June 30, 1999 and 2000 (unaudited)...............................F-37
Condensed Consolidated Statement of Stockholders'
Equity - Six Months ended June 30, 2000 (unaudited)....................F-38
Condensed Consolidated Statements of Cash Flows - Six Months
ended June 30, 1999 and 2000 (unaudited)...............................F-39
Notes to Condensed Consolidated Financial Statements (unaudited)............F-40
Report of Independent Accountants...........................................F-42
Consolidated Balance Sheets - December 31, 1998 and 1999....................F-43
Consolidated Statements of Operations - Years ended
December 31, 1997, 1998 and 1999.......................................F-44
Consolidated Statements of Stockholders' Equity (Deficit) -
Years ended December 31, 1997, 1998 and 1999...........................F-45
Consolidated Statements of Cash Flows - Years ended
December 31, 1997, 1998 and 1999.......................................F-47
Notes to Consolidated Financial Statements..................................F-48
ATX Telecommunications Services, Inc.
-------------------------------------
Financial Statements
Balance Sheet - June 30, 2000 (unaudited)...............................F-57
Statements of Operations - Six Months ended
June 30, 2000 and 1999 (unaudited)......................................F-58
Changes in Equity/Partners' Capital - Six Months
ended June 30, 2000 and 1999 (unaudited)................................F-59
Cash Flows - Six Months ended June 30, 2000 and 1999 (unaudited)........F-60
Notes to Unaudited Financial Statements.....................................F-61
Auditors' Report of Independent Certified Public Accountants................F-63
Combined Financial Statements
Balance Sheets - December 31, 1999......................................F-64
Statements of Operations - Years ended December 31, 1999 and 1998.......F-65
Changes in Partners' Capital - Years ended December 31, 1999 and 1998...F-66
Statements of Cash Flows - Years ended December 31, 1999 and 1998.......F-67
Notes to Combined Financial Statements......................................F-68
REPORT OF INDEPENDENT AUDITORS
Shareholder and Board of Directors
CoreComm Holdco, Inc.
We have audited the consolidated balance sheets of CoreComm Holdco,
Inc. and Subsidiaries as of December 31, 2000 and 1999, and the related
consolidated statements of operations, shareholder's equity and cash flows
for the years ended December 31, 2000 and 1999 and for the period from April
1, 1998 (date operations commenced) to December 31, 1998. These financial
statements are the responsibility of the Company's management. Our
responsibility is to express an opinion on these financial statements based
on our audits.
We conducted our audits in accordance with auditing standards
generally accepted in the United States. Those standards require that we plan
and perform the audits to obtain reasonable assurance about whether the
financial statements are free of material misstatement. An audit includes
examining, on a test basis, evidence supporting the amounts and disclosures
in the financial statements. An audit also includes assessing the accounting
principles used and significant estimates made by management, as well as
evaluating the overall financial statement presentation. We believe that our
audits provide a reasonable basis for our opinion.
In our opinion, the consolidated financial statements referred to
above present fairly, in all material respects, the consolidated financial
position of CoreComm Holdco, Inc. and Subsidiaries at December 31, 2000 and
1999, and the consolidated results of their operations and their cash flows
for the years ended December 31, 2000 and 1999 and for the period from April
1, 1998 (date operations commenced) to December 31, 1998 in conformity with
accounting principles generally accepted in the United States.
/s/ ERNST & YOUNG LLP
New York, New York
March 12, 2001
REPORT OF INDEPENDENT AUDITORS
Shareholder
OCOM Corporation Telecoms Division
We have audited the statements of operations, parent's investment
and cash flows of OCOM Corporation Telecoms Division ("OCOM") for the period
from January 1, 1998 to May 31, 1998. These financial statements are the
responsibility of the Company's management. Our responsibility is to express
an opinion on these financial statements based on our audit.
We conducted our audit in accordance with auditing standards
generally accepted in the United States. Those standards require that we plan
and perform the audit to obtain reasonable assurance about whether the
financial statements are free of material misstatement. An audit includes
examining, on a test basis, evidence supporting the amounts and disclosures
in the financial statements. An audit also includes assessing the accounting
principles used and significant estimates made by management, as well as
evaluating the overall financial statement presentation. We believe that our
audit provides a reasonable basis for our opinion.
In our opinion, the financial statements referred to above present
fairly, in all material respects the results of operations and the cash flows
of OCOM Corporation Telecoms Division for the period from January 1, 1998 to
May 31, 1998 in conformity with accounting principles generally accepted in
the United States.
/s/ ERNST & YOUNG LLP
New York, New York
February 26, 1999
CORECOMM HOLDCO, INC. AND SUBSIDIARIES
AND ITS PREDECESSOR OCOM CORPORATION TELECOMS DIVISION
CONSOLIDATED BALANCE SHEETS
September 30, December 31,
2001 2000 1999
-------------------- ------------------ ------------------
(unaudited)
Assets
Current assets:
Cash and cash equivalents $46,713,000 $22,773,000 $11,248,000
Marketable securities - 2,686,000 -
Accounts receivable-trade, less allowance for doubtful accounts of
$9,251,000 (2001), $11,034,000 (2000) and $3,949,000 (1999) 36,337,000 34,148,000 7,658,000
Due from affiliates 480,000 638,000 439,000
Due from NTL Incorporated - 17,345,000 195,000
Other 3,693,000 9,038,000 5,186,000
-------------------- ------------------ ------------------
Total current assets 87,223,000 86,628,000 24,726,000
Fixed assets, net 120,464,000 179,379,000 90,347,000
Goodwill, net of accumulated amortization of $98,333,000 (2001),
$42,028,000 (2000) and $7,262,000 (1999) 355,448,000 600,859,000 57,888,000
Intangible assets, net 5,790,000 6,092,000 38,388,000
Other, net of accumulated amortization of $837,000 (2001), $211,000
(2000) and $22,000 (1999) 14,105,000 23,648,000 5,528,000
-------------------- ------------------ ------------------
$583,030,000 $896,606,000 $216,877,000
==================== ================== ==================
Liabilities and shareholder's equity Current liabilities:
Accounts payable $43,687,000 $72,876,000 $13,736,000
Equipment payable - - 4,702,000
Accrued expenses 71,029,000 64,558,000 29,040,000
Due to NTL Incorporated 78,000 - -
Current portion of long-term debt, notes payable
and capital lease obligations 40,772,000 20,182,000 19,127,000
Deferred revenue 29,896,000 29,696,000 1,400,000
-------------------- ------------------ ------------------
Total current liabilities 185,462,000 187,312,000 68,005,000
Long-term debt 146,800,000 91,127,000 4,318,000
Notes payable to related parties 32,869,000 16,170,000 -
Capital lease obligations 324,000 2,693,000 14,564,000
Commitments and contingent liabilities
Shareholder's equity:
Series preferred stock - $.01 par value, authorized 10,000,000
shares; issued and outstanding none - - -
Common stock - $.01 par value; authorized 250,000,000 shares;
issued and outstanding 9,514,000 shares 95,000 95,000 95,000
Additional paid-in capital 1,021,469,000 1,039,083,000 246,890,000
Deferred non-cash compensation (11,936,000) (21,638,000) -
(Deficit) (792,053,000) (418,236,000) (116,995,000)
-------------------- ------------------ ------------------
217,575,000 599,304,000 129,990,000
-------------------- ------------------ ------------------
$583,030,000 $896,606,000 $216,877,000
==================== ================== ==================
See accompanying notes.
CORECOMM HOLDCO, INC. AND SUBSIDIARIES
AND ITS PREDECESSOR OCOM CORPORATION TELECOMS DIVISION
CONSOLIDATED STATEMENTS OF OPERATIONS
(unaudited)
Nine Months Ended September 30,
2001 2000
----------------------- --------------------------
Revenues $ 220,055,000 $ 56,155,000
Costs and expenses
Operating 175,942,000 77,321,000
Selling, general and administrative 75,021,000 70,783,000
Corporate 3,854,000 7,465,000
Non-cash compensation 9,702,000 35,420,000
Reorganization charges 37,395,000 775,000
Write-down of intangibles 167,599,000 -
Depreciation 34,626,000 19,416,000
Amortization 75,390,000 9,793,000
----------------------- --------------------------
579,529,000 220,973,000
----------------------- --------------------------
Operating (loss) (359,474,000) (164,818,000)
Other income (expense)
Interest income and other, net 1,875,000 589,000
Interest expense (18,467,000) (2,767,000)
----------------------- --------------------------
(Loss) before income taxes and extraordinary item (376,066,000) (166,996,000)
Income tax benefit (provision) 33,000 (154,000)
----------------------- --------------------------
(Loss) before extraordinary item (376,033,000) (167,150,000)
Gain from extinguishment of debt 2,216,000 -
----------------------- --------------------------
Net (loss) $(373,817,000) $(167,150,000)
======================= ==========================
Basic and diluted net loss per common share:
(Loss) before extraordinary item $(39.52) $(17.57)
Gain from extinguishment of debt .23 -
----------------------- --------------------------
Net (loss) $(39.29) $(17.57)
======================= ==========================
Weighted average number of shares 9,514,000 9,514,000
======================= ==========================
In the nine months ended September 30, 2001, non-cash compensation
expense includes $1.5 million that would have been included in operating
expense, $6.2 million that would have been included in selling, general and
administrative expense and $2.0 million that would have been included in
corporate expense had the compensation been paid in cash. In the nine months
ended September 30, 2000, non-cash compensation expense includes $5.4 million
that would have been included in operating expense, $22.6 million that would
have been included in selling, general and administrative expense and $7.4
million that would have been included in corporate expense had the
compensation been paid in cash.
See accompanying notes.
CONSOLIDATED STATEMENTS OF OPERATIONS
The Predecessor
For the Period (OCOM)
from April 1, --------------------
1998 (date For the Period
operations from January 1,
commenced) to 1998 to
Year Ended December 31, December 31, May 31,
2000 1999 1998 1998
-------------------- --------------------- ------------------- --------------------
Revenues $ 131,526,000 $ 57,151,000 $ 6,713,000 $ 1,452,000
Costs and expenses
Operating 142,323,000 57,551,000 5,584,000 772,000
Selling, general and administrative 109,197,000 72,821,000 11,940,000 3,205,000
Corporate 11,224,000 6,686,000 2,049,000 -
Non-cash compensation 43,440,000 1,056,000 - -
Other charges 12,706,000 - - -
Write-down of intangibles 35,920,000 - - -
Depreciation 30,641,000 10,916,000 749,000 255,000
Amortization 42,396,000 8,630,000 231,000 2,000
-------------------- --------------------- ------------------- --------------------
427,847,000 157,660,000 20,553,000 4,234,000
-------------------- --------------------- ------------------- --------------------
Operating (loss) (296,321,000) (100,509,000) (13,840,000) (2,782,000)
Other income (expense)
Interest income and other, net 1,134,000 55,000 46,000 -
Interest expense (5,929,000) (2,624,000) (21,000) -
-------------------- --------------------- ------------------- --------------------
(Loss) before income taxes (301,116,000) (103,078,000) (13,815,000) (2,782,000)
Income tax provision (125,000) (102,000) - -
-------------------- --------------------- ------------------- --------------------
Net (loss) $(301,241,000) $(103,180,000) $(13,815,000) $(2,782,000)
==================== ===================== =================== ====================
Basic and diluted net (loss)
per common share $(31.66) $(10.85) $(1.45) $(.29)
==================== ===================== =================== ====================
Weighted average number of shares 9,514,000 9,514,000 9,514,000 9,514,000
==================== ===================== =================== ====================
In the year ended December 31, 2000, non-cash compensation expense
includes $5.9 million that would have been included in operating expense,
$25.0 million that would have been included in selling, general and
administrative expense and $12.5 million that would have been included in
corporate expense had the compensation been paid in cash. In the year ended
December 31, 1999, non-cash compensation expense includes $345,000 that would
have been included in operating expense and $711,000 that would have been
included in selling, general and administrative expense had the compensation
been paid in cash.
See accompanying notes.
CONSOLIDATED STATEMENT OF SHAREHOLDER'S EQUITY
For the Period from April 1, 1998 (date operations
commenced) to December 31, 1998, for the Years Ended
December 31, 1999 and 2000
and for the nine months ended September 30, 2001 (unaudited)
Common Stock Additional Deferred
------------------------- ---------- Non-Cash
Shares Par Paid-In Capital Compensation (Deficit)
------ --- --------------- ------------- ---------
Initial contribution 9,514,000 $95,000 $22,090,000
Capital contributions 27,908,000
Net (loss) for the period from April 1,
1998 (date operations commenced) to
December 31, 1998 $(13,815,000)
----------- ------------- ---------------- ---------------- -----------------
Balance, December 31, 1998 9,514,000 95,000 49,998,000 (13,815,000)
Capital contributions 196,892,000
Net (loss) for the year ended December
31, 1999 (103,180,000)
----------- ------------- ---------------- ---------------- -----------------
Balance, December 31, 1999 9,514,000 95,000 246,890,000 (116,995,000)
Capital contributions 792,193,000
Deferred non-cash compensation $(31,338,000)
Non-cash compensation expense 9,700,000
Net (loss) for the year ended December
31, 2000 (301,241,000)
----------- ------------- ---------------- ---------------- -----------------
Balance, December 31, 2000 9,514,000 95,000 1,039,083,000 (21,638,000) (418,236,000)
Capital distributions (unaudited) (17,614,000)
Non-cash compensation expense
(unaudited) 9,702,000
Net (loss) for the nine months
ended September 30, 2001 (unaudited) (373,817,000)
----------- ------------- ---------------- ---------------- -----------------
Balance, September 30, 2001 9,514,000 $95,000 $1,021,469,000 $(11,936,000) $(792,053,000)
(unaudited) =========== ============= ================ ================ =================
See accompanying notes.
STATEMENT OF PARENT'S INVESTMENT
OF OCOM CORPORATION TELECOMS DIVISION (THE PREDECESSOR)
For the Period from January 1, 1998 to May 31, 1998
Balance, December 31, 1997 $ 321,000
Capital contributions 4,261,000
Net (loss) for the five months ended May 31, 1998 (2,782,000)
------------------------
Balance, May 31, 1998 $1,800,000
========================
See accompanying notes.
CONDENSED CONSOLIDATED STATEMENTS OF CASH FLOWS
(unaudited)
Nine Months Ended September 30,
2001 2000
--------------------------------------------
Net cash (used in) operating activities $(33,448,000) $(118,590,000)
Investing activities
Purchase of fixed assets (4,243,000) (43,484,000)
Acquisitions, net of cash acquired - (92,320,000)
Proceeds from sales of marketable securities 2,737,000 -
--------------------------------------------
Net cash (used in) investing activities (1,506,000) (135,804,000)
Financing activities
Capital contributions (distributions) (23,064,000) 211,659,000
Proceeds from borrowing, net of financing costs 88,679,000 71,266,000
Principal payments (1,001,000) (4,217,000)
Principal payments of capital lease obligations (5,720,000) (11,766,000)
---------------------- ---------------------
Net cash provided by financing activities 58,894,000 266,942,000
---------------------- ---------------------
Increase in cash and cash equivalents 23,940,000 12,548,000
Cash and cash equivalents at beginning of period 22,773,000 11,248,000
---------------------- ---------------------
Cash and cash equivalents at end of period $46,713,000 $23,796,000
====================== =====================
Supplemental disclosure of cash flow information
Cash paid for interest $10,195,000 $3,398,000
Income taxes paid - 154,000
Supplemental schedule of non-cash investing activities
Capital contributions of non-cash net assets $5,450,000 $702,288,000
Liabilities incurred to acquire fixed assets 6,450,000 37,529,000
See accompanying notes.
CONSOLIDATED STATEMENTS OF CASH FLOWS
The Predecessor
(OCOM)
For the Period from -------------------
April 1, 1998 (date For the Period
operations from January 1,
commenced) to 1998 to
Year Ended December 31, December 31, May 31,
2000 1999 1998 1998
-------------------------------------------------------------------------------
Operating activities
Net (loss) $(301,241,000) $(103,180,000) $(13,815,000) $(2,782,000)
Adjustments to reconcile net (loss) to
net cash (used in) operating
activities:
Depreciation and amortization 73,037,000 19,546,000 980,000 257,000
Non-cash compensation 43,440,000 1,056,000 - -
Provision for losses on accounts
receivable 7,130,000 3,241,000 501,000 92,000
Write-down of intangible assets 35,920,000 - - -
Accretion of interest on marketable
securities 24,000 - - -
Other 996,000 19,000 5,000 -
Changes in operating assets and
liabilities, net of effect from
business acquisitions:
Accounts receivable (7,405,000) 3,333,000 (480,000) (262,000)
Due from affiliates (17,349,000) 1,193,000 (1,826,000) -
Other current assets 576,000 (3,152,000) (218,000) (179,000)
Other assets (1,249,000) (3,447,000) (2,010,000) -
Accounts payable 17,574,000 5,275,000 1,261,000 (311,000)
Accrued expenses (5,078,000) 3,388,000 2,814,000 (453,000)
Deferred revenue 17,213,000 (61,000) 93,000 -
-------------------------------------------------------------------------------
Net cash (used in) operating activities (136,412,000) (72,789,000) (12,695,000) (3,638,000)
Investing activities
Purchase of fixed assets (65,211,000) (20,296,000) (2,341,000) (623,000)
Acquisitions, net of cash acquired (98,613,000) (47,056,000) - -
Purchase of marketable securities (2,710,000) - - -
-------------------------------------------------------------------------------
Net cash (used in) investing activities (166,534,000) (67,352,000) (2,341,000) (623,000)
CONSOLIDATED STATEMENTS OF CASH FLOWS (Continued)
For the Period The Predecessor
from April 1, 1998 (OCOM)
(date operations For the Period from
commenced) to January 1, 1998 to
Year Ended December 31, December 31, May 31,
2000 1999 1998 1998
------------------ ---------------------- -------------------- ----------------------
Financing activities
Capital contributions 232,472,000 151,885,000 19,912,000 4,261,000
Proceeds from borrowings, net of
financing costs 103,503,000 480,000 - -
Principal payments (5,936,000) (3,469,000) - -
Principal payments of capital lease
obligations (15,568,000) (2,379,000) (4,000) -
------------------ ---------------------- -------------------- ----------------------
Net cash provided by financing
activities 314,471,000 146,517,000 19,908,000 4,261,000
------------------ ---------------------- -------------------- ----------------------
Increase in cash and cash 11,525,000 6,376,000 4,872,000 -
equivalents
Cash and cash equivalents at beginning of
period 11,248,000 4,872,000 - -
------------------ ---------------------- -------------------- ----------------------
Cash and cash equivalents at end of
period $22,773,000 $ 11,248,000 $4,872,000 $ -
================== ====================== ==================== ======================
Supplemental disclosure of cash flow
Information
Cash paid for interest $4,008,000 $2,032,000 $4,000 $ -
Income taxes paid 159,000 185,000 - -
Supplemental schedule of non-cash
investing activities
Capital contributions of non-cash net
Assets $559,721,000 $45,007,000 $30,181,000 $ -
Liabilities incurred to acquire fixed
Assets 35,626,000 19,621,000 175,000 -
See accompanying notes.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
(unaudited with respect to the nine months ended September 30,
2001 and 2000)
1. Organization and Business
CoreComm Holdco, Inc. (the "Company") was formed in May 1998 as a
Bermuda corporation. It was a wholly-owned subsidiary of CoreComm Limited
until December 2001. In July 1999, the Company was domesticated under the
laws of Delaware.
CoreComm Limited, formerly a wholly-owned subsidiary of Cellular
Communications of Puerto Rico, Inc. ("CCPR"), was formed in March 1998 in
order to succeed to the businesses and assets that were operated by OCOM
Corporation and as an appropriate vehicle to pursue new telecommunications
opportunities outside of Puerto Rico and the U.S. Virgin Islands. Operations
commenced in April 1998. In September 1998, CCPR made a cash contribution to
Limited of $150,000,000 and distributed 100% of the outstanding shares of
Limited on a one-for-one basis to CCPR's shareholders.
The Company's competitive local exchange carrier ("CLEC"), cellular
long distance, landline long distance and cellular resale businesses were
formerly owned and operated by OCOM Corporation Telecoms Division ("OCOM").
CCPR acquired the operating assets and related liabilities of these
businesses from OCOM on June 1, 1998. OCOM is the predecessor business to the
Company.
The Company provides integrated telephone, Internet and high-speed
data services to business and residential customers in targeted markets
throughout the United States. As of December 31, 2000, the Company's
customers are located throughout the United States, although much of the
Company's business is conducted in Pennsylvania, Ohio and Michigan.
2. Recapitalization Plan
In April 2001, the Company completed a reevaluation of its
business plan in light of current market conditions and made significant
modifications to its plans. The Company is devoting its resources to the
more profitable areas of its business and is substantially reducing its
operations and related costs in the other areas of its business. The
Company is currently engaged in a process to potentially sell its non-CLEC
assets and businesses, and retained advisors for the purpose of conducting
this sale.
In July 2001, the Company finalized the streamlining of its
operating structure to focus on its two most successful and promising lines
of business. The first is integrated communications products and other high
bandwidth/data/web-oriented services for the business market and the second
is bundled local telephony and Internet products efficiently sold, serviced
and provisioned via Internet-centric interfaces to the residential market.
In October 2001, the Company and CoreComm Limited commenced the
Holdco Recapitalization. In the first phase, CoreComm Limited entered into
agreements with numerous holders of its 6% Convertible Subordinated Notes
Due 2006 whereby the holders agreed, among other things, to exchange their
notes for approximately $5 million in cash (representing the October 1,
2001 interest payment that had not been paid) and shares of the Company's
common stock as part of a recapitalization plan. The exchange was completed
in December 2001, including the payment of the approximately $5 million by
CoreComm Limited.
On December 28, 2001, the Company completed the next phase of the
Holdco Recapitalization, which was the exchange of shares of its common
stock for substantial amounts of the outstanding indebtedness of CoreComm
Limited, substantial amounts of the outstanding indebtedness of CoreComm
Limited and the Company as co-obligors and all of the outstanding preferred
stock of CoreComm Limited. This exchange was completed pursuant to an
exchange agreement with CoreComm Limited and (1) holders of 10.75%
Unsecured Convertible PIK Notes due 2011 and 10.75% Senior Unsecured
Convertible PIK Notes due 2010, both of which were a joint obligation of
CoreComm Limited and the Company, in the initial principal amounts of
$10,000,000 and $16,100,000, respectively, together with any interest paid
thereon, (2) the holders of Senior Unsecured Notes due September 29, 2003
of CoreComm Limited in the principal amount of $105.7 million, and (3) the
holders of all of the preferred stock of CoreComm Limited in the initial
principal amount of $300 million together with any dividends paid thereon.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
(Continued) (unaudited with respect to the nine months ended
September 30, 2001 and 2000)
2. Recapitalization Plan (Continued)
The following summarizes the indebtedness and preferred stock that
was exchanged for shares of the Company's common stock in December 2001:
---------------------------------------------------------------------------------------------------------------------------
Principal Amount or
Description Date Issued Issuer Stated Value when Issued
---------------------------------------------------------------------------------------------------------------------------
10.75% Unsecured Convertible PIK Notes CoreComm Limited and
due 2011 April 2001 the Company $10.0 million
---------------------------------------------------------------------------------------------------------------------------
10.75% Senior Unsecured Convertible PIK CoreComm Limited and
Notes Due 2010 December 2000 the Company $16.1 million
---------------------------------------------------------------------------------------------------------------------------
Senior Unsecured Notes Due
September 29, 2003 September 2000 CoreComm Limited $108.7 million
---------------------------------------------------------------------------------------------------------------------------
6% Convertible Subordinated
Notes Due 2006 October 1999 CoreComm Limited $175.0 million (1)
---------------------------------------------------------------------------------------------------------------------------
Series A and Series A-1 Preferred Stock September 2000 CoreComm Limited $51.1 million
---------------------------------------------------------------------------------------------------------------------------
Series B Preferred Stock September 2000 CoreComm Limited $250.0 million
---------------------------------------------------------------------------------------------------------------------------
-------------
(1) $164.75 million was outstanding as of September 30, 2001, of which $160 million was exchanged.
As a result of the completed exchanges in December 2001,
approximately 87% of the Company's outstanding shares, or 8,685,602 shares,
are owned by the former holders of indebtedness of CoreComm Limited and the
Company and the former holders of preferred stock of CoreComm Limited, and
approximately 13% of the Company's outstanding shares, or 1,314,416 shares,
continue to be held by CoreComm Limited. The Company holds $160 million
principal amount of CoreComm Limited's 6% Convertible Subordinated Notes
due 2006, approximately $105.7 million principal amount of CoreComm
Limited's Senior Unsecured Notes due September 29, 2003, approximately
51,000 shares of CoreComm Limited's Series A preferred stock and 250,000
shares of CoreComm Limited's Series B preferred stock as a result of the
exchanges. In addition, the Company exchanged the approximately $10.8
million principal and accrued interest of 10.75% Unsecured Convertible PIK
Notes due 2011 and the approximately $18.0 million principal and accrued
interest of 10.75% Senior Unsecured Convertible PIK Notes due 2010 for
shares of its common stock. The Company entered into an agreement with
CoreComm Limited modifying or waiving several of the material terms of
these instruments. See "Certain Relationships and Related Transactions --
Exchange Agreement Between CoreComm Limited and CoreComm Holdco."
The Company will determine the gain on restructuring of its
indebtedness and the carrying value of its investment in CoreComm Limited's
notes and preferred stock based on the fair value of its shares issued in
the recapitalization. As a result of the issuance of over 80% of its
outstanding shares to new shareholders, the Company is performing an
analysis of the fair value of its net tangible assets as if a purchase
business combination occurred.
The Company intends to offer its common stock to CoreComm
Limited's stockholders through a registered public exchange offer. This
offer will also be made to solicit any remaining holders of CoreComm
Limited's 6% Convertible Subordinated Notes, who will be offered a pro rata
share in the aggregate equity consideration described above. The Company
has adopted a new stock option plan for its employees. The Company has
agreed to file a shelf registration statement under the Securities Act of
1933, as amended, to permit the sale of the Company's common stock that was
issued in the Holdco Recapitalization.
In connection with the Holdco Recapitalization, CoreComm Limited
and the Company were granted an exception by Nasdaq, absent which, CoreComm
Limited and the Company would have had to obtain stockholder approval prior
to the completion of the Holdco Recapitalization. Following the
consummation of the registered public exchange offer, based upon
discussions with Nasdaq, the Company expects to become the Nasdaq listed
entity and to be subject to the continued inclusion requirements of the
Nasdaq National Market.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
(Continued) (unaudited with respect to the nine months ended
September 30, 2001 and 2000)
2. Recapitalization Plan (Continued)
The Company anticipates that it will have sufficient cash to execute
its revised business plan. However, there can be no assurance that: (1)
actual costs will not exceed the amounts estimated or that additional funding
will not be required, (2) the Company and its subsidiaries will be able to
generate sufficient cash from operations to meet capital requirements, debt
service and other obligations when required, (3) the Company will be able to
access such cash flow, (4) the Company will be able to sell assets or
businesses, or (5) the Company will not be adversely affected by interest
rate fluctuations.
The Company does not anticipate that it and its subsidiaries will
generate sufficient cash flow from operations to repay at maturity the entire
principal amount of its outstanding indebtedness. Accordingly, the Company
may be required to consider a number of measures, including: (1) refinancing
all or a portion of such indebtedness, (2) seeking modifications to the terms
of such indebtedness, (3) seeking additional debt financing, which may be
subject to obtaining necessary lender consents, (4) seeking additional equity
financing, or (5) a combination of the foregoing.
The Company's ability to raise additional capital in the future will
be dependent on a number of factors, such as general economic and market
conditions, which are beyond its control. If the Company is unable to obtain
additional financing or obtain it on favorable terms, it may be required to
further reduce its operations, forego attractive business opportunities, or
take other actions which could adversely affect its business, results of
operations and financial condition.
3. Significant Accounting Policies
Use of Estimates
The preparation of financial statements in conformity with
generally accepted accounting principles requires management to make
estimates and assumptions that affect the amounts reported in the financial
statements and accompanying notes. Such estimates and assumptions impact,
among others, the following: the amount of uncollectible accounts
receivable, the amount to be paid to terminate certain agreements included
in reorganization costs, the amount to be paid to settle certain toll and
interconnection liabilities, the amount to be paid as a result of certain
sales and use tax audits, potential liabilities arising from other sales
tax matters and estimates related to the value of goodwill and other
intangible assets. Actual results could differ from those estimates.
Principles of Consolidation
The consolidated financial statements include the accounts of the
Company, its wholly-owned subsidiaries and those entities where the Company's
interest is greater than 50%. Significant intercompany accounts and
transactions have been eliminated in consolidation.
Cash Equivalents
Cash equivalents are short-term highly liquid investments purchased
with a maturity of three months or less. Cash equivalents were approximately
$22 million and none at December 31, 2000 and 1999, respectively, and
consisted of corporate commercial paper.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
(Continued) (unaudited with respect to the nine months ended
September 30, 2001 and 2000)
3. Significant Accounting Policies (Continued)
Marketable Securities
Marketable securities are classified as available-for-sale, which
are carried at fair value. Unrealized holding gains and losses on securities,
net of tax, are carried as a separate component of shareholder's equity. The
amortized cost of debt securities is adjusted for amortization of premiums
and accretion of discounts to maturity. Such amortization is included in
interest income. Realized gains and losses and declines in value judged to be
other than temporary will be included in interest income. The cost of
securities sold or matured is based on the specific identification method.
Interest on securities is included in interest income.
Marketable securities at December 31, 2000 consisted of corporate
commercial paper. During the nine months ended September 30, 2001, the years
ended December 31, 2000 and 1999 and for the period from April 1, 1998 (date
operations commenced) to December 31, 1998, there were no realized gains or
losses on sales of securities. All of the marketable securities as of
December 31, 2000 had a contractual maturity of less than one year.
Allowance For Doubtful Accounts
The Company records an estimate of uncollectible accounts receivable
based on the current aging of its receivables and its prior collection
experience.
Fixed Assets
Fixed assets are stated at cost. Depreciation is computed by the
straight-line method over the estimated useful lives of the assets. Estimated
useful lives are as follows: operating equipment - 3 to 15 years, computer
hardware and software - 3 or 5 years and other equipment - 2 to 7 years,
except for leasehold improvements for which the estimated useful lives are
the term of the lease.
Long-lived assets are reviewed for impairment whenever events or
changes in circumstances indicate that the carrying amount may not be
recoverable. If the sum of the expected future undiscounted cash flows is
less than the carrying amount of the asset, a loss is recognized for the
difference between the fair value and carrying value of the asset.
Goodwill
Goodwill is the excess of the purchase price over the fair value of
net assets acquired in business combinations accounted for as purchases.
Goodwill is amortized on a straight-line basis over the period benefited,
which is estimated to be 5 or 7 years. The Company continually evaluates
whether events and circumstances warrant revised estimates of useful lives or
recognition of a charge-off of carrying amounts. The Company continually
reviews the recoverability of goodwill, including enterprise level goodwill.
The recoverability of goodwill is assessed by determining whether the
amortization of the goodwill balance over its remaining life can be recovered
through undiscounted cash flows. The carrying value of goodwill would be
adjusted to the present value of the future operating cash flows if the
undiscounted cash flows analysis indicates it cannot be recovered over its
remaining life. The present value of the future operating cash flows would be
calculated using a discount rate that is equivalent to the rate that would be
required for a similar investment with like risks. If a portion or separable
group of assets of an acquired company is being disposed of, goodwill would
be allocated to the assets to be disposed of based on the relative fair
values of those assets at the date of acquisition, unless another method of
allocation is more appropriate.
LMDS License Costs
The costs incurred to acquire the Local Multipoint Distribution
Service ("LMDS") licenses from the Federal Communications Commission (the
"FCC") were deferred and will be amortized on a straight-line basis over the
term of the licenses upon the commencement of operations. The Company
continually reviews the recoverability of the carrying value of LMDS licenses
using the same methodology that it uses for the evaluation of its other
long-lived assets.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
(Continued) (unaudited with respect to the nine months ended
September 30, 2001 and 2000)
3. Significant Account Policies (Continued)
Intangible Assets
Intangible assets include workforce and customer lists. These are
acquisition-related assets which are stated at their estimated fair value as
of the date acquired in a business combination accounted for as a purchase,
less accumulated amortization. Amortization is recorded on a straight-line
basis over estimated useful lives of 2 and 7 years. The Company continually
reviews the recoverability of the carrying value of the intangible assets
using the same methodology that it uses for the evaluation of its other
long-lived assets.
Other Assets
Other assets include deferred financing costs and notes receivable
from former officers of an acquired business. Deferred financing costs were
incurred in connection with the issuance of debt and are charged to interest
expense over the term of the related debt. The notes receivable earn interest
at 5% per annum and are due in 2002 and 2003.
Net (Loss) Per Share
The Company reports its basic and diluted net (loss) per share in
accordance with SFAS No. 128, "Earnings Per Share." The weighted average
shares used for the computation of net (loss) per share reflects the stock
split in 2001 on a retroactive basis.
Revenue Recognition and Certain Cost Classifications
Revenues are recognized at the time the service is rendered to the
customer or the performance of the service has been completed. Charges for
services that are billed in advance are deferred and recognized when earned.
Operating costs includes direct costs of sales and network costs.
Direct cost of sales includes the costs directly incurred primarily with
other telecommunications carriers in order to render services to customers.
Network costs include the costs of fiber and access, points of presence,
repairs and maintenance, rent, utilities and property taxes of the telephone,
Internet and data network, as well as salaries and related expenses of
network personnel.
Advertising Expense
The Company charges the cost of advertising to expense as incurred.
Advertising costs for the years ended December 31, 2000 and 1999, for the
period from April 1, 1998 (date operations commenced) to December 31, 1998
and for the period from January 1, 1998 to May 31, 1998 were $8,683,000,
$4,407,000, $812,000 and $79,000, respectively.
Stock-Based Compensation
The Company's employees participate in the CoreComm Limited stock
option plans. CoreComm Limited has adopted the disclosure-only provisions of
SFAS No. 123, "Accounting for Stock-Based Compensation". CoreComm Limited
applies APB Opinion No. 25, "Accounting for Stock Issued to Employees" and
related interpretations in accounting for its stock option plans. The
Company's financial statements include amounts for stock-based compensation
charged by CoreComm Limited to the Company.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
(Continued) (unaudited with respect to the nine months ended
September 30, 2001 and 2000)
4. Recent Accounting Pronouncements
In August 2001, the FASB issued SFAS No. 144, "Accounting for the
Impairment or Disposal of Long-Lived Assets," effective for the Company on
January 1, 2002. This Statement supercedes SFAS No. 121, "Accounting for the
Impairment of Long-Lived Assets and for Long-Lived Assets to Be Disposed Of"
and other related accounting guidance. The Company is in the process of
evaluating the financial statement impact of the adoption of SFAS No. 144.
In June 2001, the FASB issued SFAS No. 143, "Accounting for Asset
Retirement Obligations," effective for the Company on January 1, 2003. This
Statement addresses financial accounting and reporting for obligations
associated with the retirement of tangible fixed assets and the associated
asset retirement costs. The Company is in the process of evaluating the
financial statement impact of the adoption of SFAS No. 143.
In June 2001, the FASB issued SFAS No. 141, "Business
Combinations," and No. 142, "Goodwill and Other Intangible Assets." SFAS
No. 141 requires that the purchase method of accounting be used for all
business combinations initiated after June 30, 2001. Use of the
pooling-of-interests method is no longer permitted. SFAS No. 141 also
includes guidance on the initial recognition and measurement of goodwill
and other intangible assets acquired in a business combination that is
completed after June 30, 2001.
SFAS No. 142 ends the amortization of goodwill and indefinite-lived
intangible assets. Instead, these assets must be reviewed annually (or more
frequently under certain conditions) for impairment in accordance with this
statement. This impairment test uses a fair value approach rather than the
undiscounted cash flow approach previously required by SFAS No. 121,
"Accounting for the Impairment of Long-Lived Assets and for Long-Lived Assets
to Be Disposed Of." The Company is required to adopt SFAS No. 142 as of
January 1, 2002. In addition, the Company is reviewing the carrying value of
its long-lived assets for impairment in accordance with SFAS No. 121,
although it is not currently possible to predict the outcome of this review.
In December 1999, the SEC issued Staff Accounting Bulletin No. 101
("SAB 101"), "Revenue Recognition in Financial Statements." SAB 101 provides
guidance on the recognition, presentation and disclosure of revenue in
financial statements. SAB 101 was adopted retroactive to January 1, 2000. The
adoption of SAB 101 had no significant effect on revenues or results of
operations.
In June 1998, the FASB issued SFAS No. 133, "Accounting for
Derivative Instruments and Hedging Activities," as amended by SFAS Nos. 137
and 138. This new accounting standard was required to be adopted by the
Company effective January 1, 2001. The adoption of this new standard had no
significant effect on the results of operations, financial condition or cash
flows of the Company.
In 1998, the Company adopted SFAS No. 130, "Reporting
Comprehensive Income" and SFAS No. 131, "Disclosures About Segments of an
Enterprise and Related Information," both of which had no effect on the
consolidated financial statements. The Company operates in a single
business segment.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
(Continued) (unaudited with respect to the nine months ended
September 30, 2001 and 2000)
5. Certain Risks and Uncertainties
The Company's performance is affected by, among other things, its
ability to implement expanded interconnection and collocation with the
facilities of incumbent local exchange carriers ("ILECs") and develop
efficient and effective working relationships with the ILECs and other
carriers. The Company has installed its own switches and related equipment in
certain of its markets. The Company will continue to lease the unbundled
local loop needed to connect its customers to its switches. The Company
purchases capacity from the ILECs on a wholesale basis pursuant to contracts
and sells it at retail rates to its customers. The Company depends upon the
ILECs to maintain the quality of their service to the Company's customers.
Also, except for CLEC customers who are connected to one of the Company's
switches and Internet services customers, the Company depends upon the ILECs
for accurate and prompt billing information in order for the Company to bill
its customers.
The Company's business is highly competitive which results in
pricing pressure and increasing customer acquisition costs. The competition
in the local exchange business includes the larger, better capitalized ILECs
as well as other CLECs, other providers of telecommunications services and
cable television companies. The competition in the Internet services market
includes established online services, such as AOL, the ILECs, cable
television companies and other local, regional and national Internet service
providers. The competitive environment may result in price reductions in the
Company's fees for services, increased spending on marketing and product
development, a reduction in the Company's ability to increase revenues and
gross margin from its core businesses, a limit on the Company's ability to
grow its customer base or attrition in the Company's customer base. The
Company's operating results and cash flows would be negatively impacted by
any of these events.
6. Revenues
The following is the revenues from external customers for each of
the Company's communication services:
Nine Months Ended September 30,
2001 2000
----------------- --------------------
(unaudited)
Local Exchange Services $71,026,000 $39,058,000
Toll-related Telephony Services 60,876,000 6,919,000
Internet, Data and Web-related Services 69,240,000 9,324,000
Other (a) 18,913,000 854,000
----------------- --------------------
$220,055,000 $56,155,000
================= ====================
(a) Other includes wireless, paging and information services.
The Predecessor
(OCOM)
----------------------------------------------------------------------------------------
For the Period from For the
April 1, 1998 (date Period from
operations commenced) January 1, 1998
Year Ended December 31, to December 31, to May 31,
2000 1999 1998 1998
----------------------------------------------------------------------------------------
Telecommunications $102,033,000 $47,456,000 $2,993,000 $ 217,000
Internet and Data 28,788,000 6,996,000 155,000 -
Other (a) 705,000 2,699,000 3,565,000 1,235,000
----------------------------------------------------------------------------------------
$131,526,000 $57,151,000 $6,713,000 $1,452,000
========================================================================================
(a) Other includes cellular long distance, wireless and paging revenue.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
(Continued) (unaudited with respect to the nine months ended
September 30, 2001 and 2000)
7. Intangible Assets
Intangible assets consist of:
September 30, December 31,
2001 2000 1999
------------------- -------------------- -------------------
(unaudited)
LMDS license costs $4,230,000 $ 4,230,000 $25,366,000
Workforce, net of accumulated amortization of
$250,000 (2001), $198,000 (2000) and $310,000 (1999) - 52,000 1,160,000
Customer lists, net of accumulated amortization of
$780,000 (2001), $530,000 (2000) and $1,478,000 (1999)
1,560,000 1,810,000 11,862,000
------------------- -------------------- -------------------
$5,790,000 $6,092,000 $38,388,000
=================== ==================== ===================
On September 29, 2000, CoreComm Limited completed two significant
acquisitions. CoreComm Limited acquired ATX Telecommunications Services,
Inc. ("ATX"), a CLEC providing integrated voice and high-speed data
services, including long distance, local, wireless and network services
through the use of telephone switching equipment and other physical
facilities in the New York - Virginia corridor. ATX was acquired for
approximately $39.4 million in cash, approximately $108.7 million principal
amount of CoreComm Limited's senior unsecured notes due 2003, 12,398,000
shares of CoreComm Limited's common stock and 250,000 shares of CoreComm
Limited's Series B preferred stock with a stated value of $250.0 million.
The common stock was valued at $178.7 million, the fair value at the time
of the third amendment to the ATX merger agreement on July 31, 2000. The
senior unsecured notes and the Series B preferred stock were valued at
$94.0 million and $67.3 million, respectively, the fair value on the date
of issuance. In addition, CoreComm Limited incurred acquisition related
costs of approximately $12.4 million.
CoreComm Limited also acquired Voyager.net, Inc. ("Voyager"), a
large independent Internet communications company focused on the Midwestern
United States. Voyager was acquired for approximately $36.1 million in cash
and 19,435,000 shares of CoreComm Limited's common stock. The common stock
was valued at $154.6 million, the fair value at the time of the closing of
the transaction. In addition, CoreComm Limited incurred acquisition related
costs of approximately $9.4 million and repaid approximately $24.0 million
of Voyager debt including accrued interest.
The assets of ATX and Voyager were contributed to subsidiaries of
the Company.
These acquisitions have been accounted for as purchases, and,
accordingly the net assets and results of operations of the acquired
businesses have been included in the consolidated financial statements from
the date of acquisition. The aggregate purchase price of $615.9 million
exceeded the estimated fair value of net tangible assets acquired by $588.5
million, which was allocated to goodwill.
The pro forma unaudited consolidated results of operations for the
nine months ended September 30, 2000 assuming consummation of the
acquisitions as of January 1, 2000 are as follows:
Total revenue $222,479,000
Net (loss) (257,185,000)
Basic and diluted net (loss) per share (27.03)
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
(Continued) (unaudited with respect to the nine months ended
September 30, 2001 and 2000)
7. Intangible Assets (Continued)
In May 1999, CoreComm Limited acquired 100% of the stock of MegsINet
Inc., a national Internet Service Provider ("ISP") in Chicago for a total
consideration of $16.8 million in cash and 3,245,000 shares of CoreComm
Limited's common stock. In addition, CoreComm Limited exchanged MegsINet
stock options for options to purchase 444,000 shares of CoreComm Limited's
common stock, repaid $2.0 million of MegsINet debt and incurred acquisition
related costs of $1.2 million. The common stock portion of the consideration
was valued at $30.8 million, the fair value on the date prior to the
announcement. The stock options were valued at $4.0 million using the
Black-Scholes option pricing model.
Also in May 1999, CoreComm Limited acquired the wireline assets of
USN Communications, Inc., which was a CLEC that operated on a resale basis,
for a cash payment of $26.4 million, warrants to purchase 563,000 shares of
CoreComm Limited's common stock at a price of $13.33 per share and 225,000
shares at a price of $22.22 per share, and a potential contingent cash
payment which was capped at $58.6 million. The contingent payment was payable
only if the USN assets met or exceeded operating performance thresholds. A
contingent payment is not expected to be required. The warrants were valued
at $9.1 million, the fair value on the date of issuance. In addition,
CoreComm Limited incurred acquisition related costs of $1.0 million.
The assets of MegsINet and USN were contributed to subsidiaries of
the Company.
These acquisitions have been accounted for as purchases, and,
accordingly, the net assets and results of operations of the acquired
businesses have been included in the consolidated financial statements from
the dates of acquisition. The aggregate purchase price of $91.3 million
exceeded the fair value of the net tangible assets acquired by $75.6 million,
which was allocated as follows: $13.3 million to customer lists, $1.5 million
to workforce and $60.8 million to goodwill.
The pro forma unaudited consolidated results of operations for the
years ended December 31, 2000 and 1999 assuming consummation of the
acquisitions as of January 1, 1999 are as follows:
Year Ended December 31,
2000 1999
------------------------------------
Total revenue $297,850,000 $296,873,000
Net (loss) (419,707,000) (270,076,000)
Basic and diluted net (loss) per share (44.11) (28.39)
A significant component of the 1999 pro forma results is
associated with the acquisition of certain assets of USN. Although USN
quickly developed a large customer list and revenue base in 1997 and 1998,
it had difficulties under its previous management providing services,
including billing, customer care and other operational areas, and filed for
bankruptcy in February 1999. The revenues from the USN customer base peaked
in the third quarter of 1999 after our acquisition in May 1999 and, as
expected, declined thereafter.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
(Continued) (unaudited with respect to the nine months ended
September 30, 2001 and 2000)
7. Intangible Assets (Continued)
In accordance with our accounting policy, at December 31, 2000 the
Company wrote-off the carrying amount of intangible assets from certain
business combinations. The aggregate write-off of $14,784,000 included
goodwill of $6,690,000, workforce of $577,000 and customer lists of
$7,517,000. These assets were primarily related to the Company's resale CLEC
business, which was acquired in 1999. The underlying operations, customer
relationships and future revenue streams had deteriorated significantly since
the acquisition. These were indicators that the carrying amount of these
resale-related assets was not recoverable. The Company estimated that the
fair value of these assets was zero due to the lack of potential buyers, the
overall deterioration of the resale CLEC business environment and because of
the negative cash flow of these resale businesses for the foreseeable future.
The goodwill had useful lives of 5 and 10 years, and the other intangibles
had useful lives of 3 and 5 years.
At March 31, 2001, the Company reduced the carrying amount of
goodwill related to the Voyager and MegsINet acquisitions by $167,599,000.
In connection with the reevaluation of its business plan and the decision
to sell its non-CLEC assets and business announced in April 2001, the
Company was required to report all long-lived assets and identifiable
intangibles to be disposed of at the lower of carrying amount or estimated
fair value less cost to sell. The carrying amount of goodwill related to
these acquisitions is eliminated before reducing the carrying amounts of
other assets. The estimated fair value of these businesses was determined
based on information provided by the investment bank retained for the
purpose of conducting this sale.
8. LMDS License Costs
Cortelyou Communications Corp. ("Cortelyou"), a wholly-owned
subsidiary of the Company, was the successful bidder for 15 Block A LMDS
licenses in Ohio. The LMDS licenses were acquired for an aggregate of $25.4
million, which includes costs incurred of $125,000. LMDS frequencies are
used for the provision of voice and data services to businesses and homes
in competition with ILECs and/or cable television operators. The FCC has
allocated two blocks of frequencies to be licensed in each of the 493 Basic
Trading Areas in the United States and its territories based on an auction
that ended in March 1998. In connection with the reevaluation of its
business plan announced in April 2001, at December 31, 2000, the Company
reduced the carrying amount of the LMDS licenses by $21,136,000 to reflect
their estimated fair value. The estimated fair value was determined based
on an analysis of sales of other LMDS licenses.
9. Fixed Assets
Fixed assets consist of:
September 30, December 31,
2001 2000 1999
--------------------------------------------------------------------------------
(unaudited)
Operating equipment $122,526,000 $124,335,000 $50,290,000
Computer hardware and software 52,851,000 53,092,000 17,183,000
Other equipment 13,905,000 21,182,000 9,292,000
Construction-in-progress 2,201,000 22,097,000 24,681,000
--------------------------------------------------------------------------------
191,483,000 220,706,000 101,446,000
Accumulated depreciation (71,019,000) (41,327,000) (11,099,000)
--------------------------------------------------------------------------------
$120,464,000 $179,379,000 $90,347,000
================================================================================
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
(Continued) (unaudited with respect to the nine months ended
September 30, 2001 and 2000)
10. Accrued Expenses
Accrued expenses consist of:
September 30, December 31,
2001 2000 1999
---------------------------------------------------------------------------
(unaudited)
Payroll and related $7,156,000 $5,032,000 $2,903,000
Professional fees 1,013,000 2,331,000 1,710,000
Taxes, including income taxes 12,486,000 13,730,000 5,995,000
Accrued equipment purchases 180,000 14,460,000 13,455,000
Toll and interconnect 37,982,000 20,628,000 637,000
Reorganization costs 8,183,000 1,835,000 -
Other 4,029,000 6,542,000 4,340,000
---------------------------------------------------------------------------
$71,029,000 $64,558,000 $29,040,000
===========================================================================
11. Long-Term Debt
Long-term debt consists of:
September 30, December 31,
2001 2000 1999
-------------------- ------------------ ----------------
(unaudited)
Senior secured credit facility, less unamortized discount of
$9,164,000 (2001) $146,936,000 $91,100,000 $
-
10.75% unsecured convertible notes plus accrued interest 10,502,000 - -
Equipment payable, less unamortized discount of $1,134,000 16,032,000 - -
Working capital promissory note, interest at 8.5% 1,225,000 1,496,000 3,077,000
Note payable for equipment, interest at 12.75% 800,000 3,331,000 6,238,000
Other 66,000 160,000 283,000
-------------------- ------------------ ----------------
175,561,000 96,087,000 9,598,000
Less current portion 28,761,000 4,960,000 5,280,000
------------------ ----------------
--------------------
$146,800,000 $91,127,000 $4,318,000
==================== ================== ================
In September 2000, subsidiaries of the Company entered into a
senior secured credit facility with The Chase Manhattan Bank as lender,
administrative agent and collateral agent. The facility was amended and
restated in April 2001. The senior secured credit facility provides for
both a term loan facility and a revolving credit facility. The aggregate
amount available was amended to $156.1 million of which the term loan
facility is $106.1 million and the revolving credit facility is $50
million. As of April 2001 the Company had borrowed the entire amount
available under the senior secured credit facility.
The term loan facility will amortize in quarterly installments of
principal commencing on December 31, 2003 with a final maturity on
September 22, 2008. In the event our remaining approximately $4.75 million
of 6% Convertible Senior Notes have not been converted or refinanced on or
prior to April 1, 2006, then the facilities become payable in full on April
1, 2006. At December 31, 2000, the Company had $50.0 million outstanding
under the term loan facility. The revolving credit facility shall be
automatically and permanently reduced in increasing quarterly installments
of principal commencing on December 31, 2003 with a termination date on
September 22, 2008. At December 31, 2000, the Company had $41.1 million
outstanding under the revolving credit facility.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
(Continued) (unaudited with respect to the nine months ended
September 30, 2001 and 2000)
11. Long-Term Debt (Continued)
The interest rate on both the term loan facility and the revolving
credit facility was initially, at the Company's option, either 3.25% per
annum plus the base rate, which is the higher of the prime rate or the
federal funds effective rate plus 0.5% per annum; or the reserve-adjusted
London Interbank Offered Rate (Adjusted LIBOR) plus 4.25% per annum. At
December 31, 2000, the effective interest rate on the amounts outstanding was
10.982%. In April 2001 the interest rate was amend to, at the Company's
option, either 3.5% per annum plus the base rate, which is the higher of the
prime rate or the federal funds effective rate plus 0.5% per annum, or the
reserve-adjusted London Interbank Offered Rate plus 4.5% per annum. Interest
is payable at least quarterly. The unused portion of the facility is subject
to a commitment fee equal to 1.25% per annum payable quarterly, subject to
reduction to 1.00% per annum based upon the amount borrowed under the
facility. At September 30, 2001, the effective interest rate on the amounts
outstanding was 8.29%. Beginning October 12, 2001 and ending April 12, 2002,
the interest rate is 6.86%.
America Online, Inc. ("AOL") is a lender in the amended credit
facility. In connection with the financing in April 2001, the Company entered
into a marketing agreement with AOL to market a joint CoreComm/AOL bundled
package in the Company's market areas. In addition, in connection with the
financing in April 2001, CoreComm Limited issued warrants to purchase shares
of its common stock. The estimated value of the warrants plus the excess of
the advertising commitment over its estimated fair value to the Company
aggregating $12,454,000 was recorded as a debt discount in April 2001.
MegsINet originally borrowed $4,000,000 under a working capital
promissory note dated August 1998. MegsINet was required to make monthly
principal and interest payments of $148,000 through January 2002. The Company
ceased making payments in 2001, and in December 2001, the holder of the note
agreed to accept cash of $400,000 in full settlement of all amounts due under
the note and certain capital leases.
In 1998, MegsINet entered into an agreement whereby MegsINet could
purchase operating equipment under a promissory note. Monthly payments of
principal and interest commenced in 1999. MegsINet was required to make
monthly principal and interest payments that decline each month from $366,000
beginning in January 2000 through September 2001. In September 2001, the
Company and the holder of the note agreed to a modification of the note such
that the principal amount was reduced to $800,000 which was paid on October
1, 2001. The Company recorded an extraordinary gain on the extinguishment of
debt of $2,216,000 for the difference between the $3,016,000 obligation and
the $800,000 liability.
The Company issued a note payable in the amount of $362,000 in
connection with an acquisition. Interest on the note accrues at 5.542% per
annum. The note is payable in twelve consecutive quarterly payments of
principal and interest of $33,000 which commenced in May 1999. The note is
collateralized by the acquired assets.
The senior secured credit facility restricts the payment of cash
dividends and loans to the Company. At December 31, 2000, restricted net
assets were approximately $600 million.
As of December 31, 2000, the aggregate principal amounts of notes
payable scheduled for repayment are as follows:
Year Ending December 31,
2001 $4,960,000
2002 27,000
2003 1,139,000
2004 5,694,000
2005 14,804,000
Thereafter 69,463,000
-------------------
$96,087,000
===================
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
(Continued) (unaudited with respect to the nine months ended
September 30, 2001 and 2000)
11. Long-Term Debt (Continued)
In April 2001, CoreComm Limited and the Company issued to Booth
American Company as co-obligators $10 million aggregate principal amount of
10.75% Unsecured Convertible PIK Notes Due April 2011. Interest on the
notes was at an annual rate of 10.75% payable semiannually on October 15
and April 15 of each year, commencing October 15, 2001. The interest was
payable in kind by the issuance of additional 10.75% Unsecured Convertible
PIK Notes Due April 2011 in such principal amount as shall equal the
interest payment that was then due. The notes were convertible into
CoreComm Limited common stock prior to maturity at a conversion price of
$1.00 per share, subject to adjustment. Additional notes issued for
interest had an initial conversion price equal to 120% of the weighted
average closing price of CoreComm Limited common stock for a specified
period. All of the outstanding 10.75% Unsecured Convertible PIK Notes Due
April 2011 were exchanged for shares of the Company in December 2001.
In May 2001, the Company entered into an agreement with one of its
equipment vendors whereby $17,166,000 due to the vendor would be paid in
three payments in January, May and August 2002. Based on the imputed
interest rate of 9.11% per annum, a discount of $1,612,000 was recorded as
a reduction to fixed assets in May 2001. In December 2001, the Company and
the vendor agreed to a modification of this arrangement in which the
Company paid $2 million and returned certain of the equipment in full
settlement of the amount due.
12. Other Charges
Other charges include a reserve of $8,700,000 for notes receivable
from former officers of Voyager, and restructuring costs of $4,006,000. The
restructuring costs relate to the Company's announcements in March and
December 2000 of reorganizations of certain of its operations. The charge
consisted of employee severance and related costs of $2,089,000 for
approximately 250 employees to be terminated and lease exit costs of
$1,917,000. As of December 31, 2000, $2,171,000 of these provisions had
been used, including $775,000 for employee severance and related costs and
$1,396,000 for lease exit costs. As of December 31, 2000, none of the
employees to be terminated were still employed by the Company. The
remaining provision for leases will be used through 2003.
13. Reorganization Charges
Reorganization charges of $37,395,000 in 2001 relate to the
Company's announcements in May and July 2001 that it was taking additional
actions to reorganize, re-size and reduce operating costs and create
greater efficiency in various areas of the Company. An aggregate of
$21,497,000 of these costs are for equipment and other assets that will not
require any future cash outlays. The employee severance and related costs
in 2000 were for approximately 250 employees to be terminated, none of whom
are still employed by the Company. These costs in 2001 are for
approximately 630 employees to be terminated of which approximately 40
employees are still employed by the Company as of September 30, 2001. The
major actions involved in the 2001 reorganization include (1) consolidation
of functions such as network operations, customer service and finance, (2)
initiatives to increase gross margins and (3) discussions with vendors to
reduce or eliminate current payable balances or purchase commitments. The
consolidation of functions resulted in employee terminations and the
closing of offices. Employee severance and related costs, lease exit costs
and fixed assets and prepayment write-downs include charges related to
these actions. Initiatives to increase gross margins resulted in
consolidation of network assets and elimination of redundant and less
profitable facilities. Charges for these actions include lease exit costs
and fixed assets and prepayment write-downs. Finally, reductions or
elimination of purchase commitments resulted in agreement termination
charges. All of these actions are expected to be completed by June 30,
2002. Fixed assets and prepayments written-off include $5.3 million related
to vacated offices, $13.4 million for network assets in abandoned markets
and $2.8 million for prepayments in respect of ILEC facilities in abandoned
markets.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
(Continued) (unaudited with respect to the nine months ended
September 30, 2001 and 2000)
13. Reorganization Charges (Continued)
The following table summarizes the reorganization charges incurred and
utilized in 2000 and 2001:
Employee Fixed
Severance Lease Assets
And Related Exit Agreement And
Costs Costs Terminations Prepayments Total
-------------------------------------------------------------------------------------
(in thousands)
Charged to expense $2,089 $1,917 $- $- $4,006
Utilized (775) (1,396) - - (2,171)
-------------------------------------------------------------------------------------
Balance, December 31, 2000 1,314 521 - - 1,835
Charged to expense 3,262 6,977 6,582 21,883
38,704
Adjustments (996) 73 - (386)
(1,309)
Utilized (2,701) (4,137) (2,712) (21,497) (31,047)
-------------------------------------------------------------------------------------
Balance, September 30, 2001 $879 $3,434 $3,870 $- $8,183
=====================================================================================
14. Fair Values of Financial Instruments
The following methods and assumptions were used by the Company in
estimating its fair value disclosures for financial instruments:
Cash and cash equivalents: The carrying amounts reported in the
consolidated balance sheets approximate fair value.
Long-term debt: The carrying amount of the variable rate senior
secured credit facility approximates the fair value. The fair value of the
Company's notes payable are estimated using discounted cash flow analyses,
based on the Company's incremental borrowing rates for similar types of
borrowing arrangements as of December 31, 2000 and 1999.
The carrying amounts and fair values of the Company's financial
instruments are as follows:
December 31, 2000 December 31, 1999
---------------------------------- ---------------------------------
Carrying Fair Carrying Fair
Amount Value Amount Value
----------------- ---------------- ---------------- ----------------
(in thousands)
Cash and cash equivalents $ 22,773 $ 22,733 $ 11,248 $ 11,248
Long-term debt:
Working capital promissory note 1,496 1,392 3,077 2,721
Equipment note 3,331 2,496 6,238 5,561
Senior secured credit facility 91,100 91,100 - -
Notes payable to related parties 16,170 15,355 - -
Other 160 138 283 248
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
(Continued) (unaudited with respect to the nine months ended
September 30, 2001 and 2000)
15. Leases
The Company has capital leases for certain of its operating
equipment. Leased property included in operating equipment consists of:
December 31,
2000 1999
----------------------- -----------------------
Operating equipment $41,859,000 $33,941,000
Accumulated depreciation 14,699,000 5,901,000
----------------------- -----------------------
$27,160,000 $28,040,000
======================= =======================
Future minimum annual payments under these leases at December 31, 2000 are as
follows:
Year Ending December 31,
2001 $16,611,000
2002 3,719,000
2003 231,000
---------------------
Total minimum lease payments 20,561,000
Less amount representing interest
(at rates ranging from 8.5% to 26.44%) 2,646,000
---------------------
Present value of net minimum obligations 17,915,000
Current portion 15,222,000
---------------------
$ 2,693,000
=====================
As of December 31, 2000, the Company had leases for office space
and equipment which extend through 2013. Total rent expense for the years
ended December 31, 2000 and 1999, for the period from April 1, 1998 (date
operations commenced) to December 31, 1998 and for the period from January
1, 1998 to May 31, 1998 under operating leases was $7,764,000, $5,151,000,
$354,000 and $98,000, respectively.
Future minimum annual lease payments under noncancellable operating
leases at December 31, 2000 are as follows: $10,748,000 (2001); $9,877,000
(2002); $9,193,000 (2003); $7,492,000 (2004); $6,963,000 (2005) and
$17,306,000 thereafter.
As a result of the cancellation of certain of these leases in 2001,
the future minimum annual lease payments under noncancellable operating
leases at December 31, 2000, after giving effect to the cancellations, are as
follows (unaudited): $8,632,000 (2001); $7,725,000 (2002); $7,021,000 (2003);
$5,261,000 (2004); $5,058,000 (2005) and $10,868,000 thereafter.
16. Related Party Transactions
Notes payable to related parties consists of:
September 30, December 31,
2001 2000
------------------------- ---------------------
(unaudited)
10.75% Senior Unsecured Convertible PIK Notes Due December 2010, plus
accrued interest $17,494,000 $16,170,000
10.75% Unsecured Convertible PIK Notes Due April 2011, plus accrued
interest, less unamortized discount of $377,000 15,375,000 -
------------------------- ---------------------
$32,869,000 $16,170,000
========================= =====================
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
(Continued) (unaudited with respect to the nine months ended
September 30, 2001 and 2000)
16. Related Party Transactions (Continued)
In December 2000, the Company issued $16,100,000 aggregate principal
amount of 10.75% Senior Unsecured Convertible PIK Notes Due December 2010,
which were a joint obligation of CoreComm Limited and the Company, to
officers and directors of CoreComm Limited and the Company. Interest on the
notes was at an annual rate of 10.75% payable semiannually on January 1 and
July 1 of each year, commencing July 1, 2001. The interest was payable in
kind by the issuance of additional Senior Unsecured Convertible PIK Notes Due
December 2010 in such principal amount as shall equal the interest payment
that is then due. The notes were convertible into CoreComm Limited common
stock prior to maturity at a conversion price of $5.00 per share, subject to
adjustment. The additional notes issued for interest had an initial
conversion price equal to 120% of the weighted average closing price of
CoreComm Limited's common stock for a specified period. All of the
outstanding 10.75% Senior Unsecured Convertible PIK Notes Due December 2010
were exchanged for shares of the Company in December 2001.
Some of the officers and directors of the Company are also officers
or directors of NTL Incorporated ("NTL"). In April 2001, CoreComm Limited and
the Company as co-obligors issued to NTL $15 million aggregate principal
amount of 10.75% Unsecured Convertible PIK Notes Due April 2011. In addition,
in April 2001, CoreComm Limited issued warrants to NTL, and CoreComm Limited
and the Company entered into a network and software agreement with NTL. The
estimated value of the warrants of $397,000 was recorded as a debt discount
in April 2001. Pursuant to the network and software agreement with NTL, the
Company will provide U.S. network access for U.K. Internet traffic from NTL's
U.K. customers for three years, as well as a royalty free license to use
certain provisioning software and know-how.
Interest on the notes is at an annual rate of 10.75% payable
semiannually on October 15 and April 15 of each year, commencing October 15,
2001. The interest is payable in kind by the issuance of additional 10.75%
Unsecured Convertible PIK Notes Due April 2011 in such principal amount as
shall equal the interest payment that is then due. Additional notes issued
for interest will have an initial conversion price equal to 120% of the
weighted average closing price of the CoreComm Limited common stock for a
specified period. The notes are convertible into CoreComm Limited common
stock prior to maturity at a conversion price of $1.00 per share, subject to
adjustment. However, the holder of these notes and CoreComm Limited and
CoreComm Holdco have entered into an agreement relating to the conversion
feature of the note following the Holdco Recapitalization. Through that
agreement, consistent with the original terms of the note, CoreComm Limited
and CoreComm Holdco have agreed to exercise their right under the note such
that, following the successful completion of our exchange offer to the
holders of CoreComm Limited common stock to exchange their shares of CoreComm
Limited common stock for shares of our common stock, the convertibility
feature of the note will be altered so that rather than the note being
convertible into shares of CoreComm Limited common stock, it will become
convertible into shares of our common stock. At that time, the conversion
price of $1.00 will be equitably adjusted by applying the exchange ratio in
the exchange offers, which results in a new conversion price of $116.70 per
share of our common stock. The holder has agreed not to exercise its rights
to convert into CoreComm Limited common stock for six months from February 5,
2002 (unless that right has previously ceased as a result of the completion
of the exchange offer and the change in the convertibility feature). In the
event that we are unsuccessful in completing the exchange offer, the
conversion feature would remain into CoreComm Limited common stock. These
notes are redeemable, in whole or in part, at our option, at any time in
April 2003, at a redemption price of 103.429% that declines annually to 100%
in April 2007, in each case together with accrued and unpaid interest to the
redemption date.
NTL provides the Company with management, financial, legal and
technical services, access to office space and equipment and use of supplies.
Amounts charged to the Company by NTL consist of salaries and direct costs
allocated to the Company where identifiable, and a percentage of the portion
of NTL's corporate overhead which cannot be specifically allocated to NTL.
Effective January 1, 2001, the percentage used to allocate corporate overhead
was reduced. NTL's charges to the Company commenced in October 1998. It is
not practicable to determine the amounts of these expenses that would have
been incurred had the Company operated as an unaffiliated entity. In the
opinion of management, this allocation method is reasonable. In 2000, 1999
and 1998, NTL charged the Company $1,186,000, $2,330,000 and $313,000,
respectively, and in the nine months ended September 30, 2001 and 2000, NTL
charged the Company $340,000 and $907,000, respectively, which is included in
corporate expenses.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
(Continued) (unaudited with respect to the nine months ended
September 30, 2001 and 2000)
16. Related Party Transactions (Continued)
The Company provided NTL with access to office space and equipment
and the use of supplies until August 2001. In the fourth quarter of 1999, the
Company began charging NTL a percentage of the Company's office rent and
supplies expense. It is not practicable to determine the amounts of these
expenses that would have been incurred had the Company operated as an
unaffiliated entity. In the opinion of management, this allocation method is
reasonable. In 2000 and 1999, the Company charged NTL $267,000 and $62,000,
respectively, which reduced corporate expenses.
A subsidiary of the Company provides billing and software
development services to subsidiaries of NTL. General and administrative
expenses were reduced by $1,400,000, $800,000, $275,000 and $138,000 for the
years ended December 31, 2000 and 1999, for the period from April 1, 1998
(date operations commenced) to December 31, 1998 and for the period from
January 1, 1998 to May 31, 1998, respectively, as a result of these charges.
General and administrative expenses were reduced by $1,428,000 and $709,000
for the nine months ended September 30, 2001 and 2000, respectively, as a
result of the charges for these services.
In October 2000, the Company billed NTL $6,674,000 for billing and
software development services to be rendered from January to September 2001.
In March 2000, the Company and NTL announced that they had entered into an
agreement to link their networks in order to create an international Internet
backbone. In November 2000, the Company billed NTL $9,128,000 primarily for
usage of the network in 2001. The $15,802,000 total is included in due from
NTL and deferred revenue at December 31, 2000. In February 2001, the
international Internet backbone commenced operations and the Company
recognized revenue of $255,000 for the network usage in the nine months ended
September 30, 2001.
17. 401(k) Plan
The Company sponsors a 401(k) Plan in which all full-time employees
who have completed 90 days of employment and are 21 years of age may
participate. The Company's matching contribution is determined annually by
the board of directors. Participants may make salary deferral contributions
of 1% to 15% of their compensation not to exceed the maximum allowed by law.
The expense for the years ended December 31, 2000 and 1999, for the period
from April 1, 1998 (date operations commenced) to December 31, 1998 and for
the period from January 1, 1998 to May 31, 1998 was $486,000, $350,000,
$103,000 and $29,000, respectively.
18. Stockholder's Equity
Stock Split
The Company declared a 6,342.944 to 1 stock split which was
effective on December 17, 2001. The Company's outstanding shares increased
from 1,500 to 9,514,416 as a result of this stock split. The consolidated
financial statements and the notes thereto give retroactive effect to the
stock split.
Non-Cash Compensation
In April 2000, the compensation and option committee of the
CoreComm Limited board of directors approved the issuance of options to
purchase approximately 2,747,000 shares of CoreComm Limited's common stock
to employees of the Company at an exercise price of $14.55, which was less
than the fair market value of CoreComm Limited's common stock on the date
of the grant. In accordance with APB Opinion No. 25, "Accounting for Stock
Issued to Employees," in April 2000, the Company recorded a non-cash
compensation expense of approximately $29.0 million and a non-cash deferred
expense of approximately $31.3 million. From April 2000 to December 31,
2000, $9.7 million of the deferred non-cash compensation was charged to
expense. The Company will charge the deferred expense to non-cash
compensation expense over the vesting period of the CoreComm Limited stock
options.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
(Continued) (unaudited with respect to the nine months ended
September 30, 2001 and 2000)
18. Stockholder's Equity (Continued)
In November 2000, the board of directors of CoreComm Limited
approved the rescission of certain previously exercised employee stock
options. CoreComm Limited issued notes to employees of the Company for the
repurchase of the 671,000 shares of CoreComm Limited's common stock for an
aggregate of $6,803,000, which exceeded the fair market value of its common
stock on the date of repurchase. The notes earned interest at a rate of
4.5% and were redeemed by the Company in December 2000. The Company
recorded non-cash compensation of $4.7 million from these transactions.
The non-cash compensation charge of $1.1 million in 1999 was
recorded in accordance with APB Opinion No. 25, related to a change in
CoreComm Limited employee stock option agreements of certain of the
Company's employees.
In June 2001, CoreComm Limited's board of directors approved the
repricing of certain CoreComm Limited stock options granted to employees of
the Company. George Blumenthal, the then Chairman of the board of directors
of CoreComm Limited, Barclay Knapp, the then President of CoreComm Limited,
and the board of directors of CoreComm Limited did not participate in the
repricing. Options to purchase an aggregate of approximately 10.2 million
shares of CoreComm Limited's common stock with an average exercise price of
$10.70 per share were repriced to $.25, $.75 or $1.25 per share, depending
upon the original exercise price. In accordance with APB No. 25 and related
interpretations, the Company is accounting for the repriced options as a
variable plan. The Company will recognize non-cash compensation expense for
the difference between the quoted market price of the common stock and the
exercise price of the repriced options while the options remain
outstanding. The CoreComm Limited board of directors has taken this action
to continue to provide the appropriate performance incentives to those
affected.
Stockholder Rights Plan
The Company adopted a stockholder rights plan in December 2001. In
connection with the stockholder rights plan, the Board of Directors
declared and paid a dividend of one preferred share purchase right for each
share of common stock outstanding on December 17, 2001. Each right entitles
the holder, under certain potential takeover events, to purchase from the
Company one one-thousandth of a share of Series A Junior Participating
Preferred Stock ("Series A Preferred Stock") at an exercise price of
initially four times the average closing price of the Company's common
stock over the first five days of trading, subject to adjustment. The
rights expire on December 17, 2011 unless an exchange or redemption or a
completion of a merger occurs first. There are 1,000,000 shares of Series A
Preferred Stock authorized for issuance under the plan. No shares of Series
A Preferred Stock are issued or outstanding.
The Series A Preferred Stock will be entitled to a minimum
preferential quarterly dividend payment of an amount equal to the greater
of $.01 per share or 1,000 times the aggregate per share amount of all
dividends declared on the Company's common stock since the immediately
preceding dividend payment date. In the event of liquidation, the holders
of Series A Preferred Stock will be entitled to liquidation payment of $1
per share plus accrued and unpaid dividends. Each share of Series A
Preferred Stock will have 1,000 votes on all matters and will vote as a
single class with the holders of the Company's common stock.
Warrants
CoreComm Limited had the following warrants outstanding as of
December 31, 2000: (1) warrants to purchase an aggregate of 29,000 shares
of common stock at $13.75 per share issued in 1999 that expire in August
2008, (2) warrants to purchase an aggregate of 225,000 shares of common
stock at $22.22 per share issued in 1999 that expire in May 2004, (3)
warrants to purchase an aggregate of 563,000 shares of common stock at
$13.33 per share issued in 1999 that expire in May 2002 and (4) warrants to
purchase an aggregate of 403,000 shares of common stock at $3.39 per share
issued in 2000 that expire in December 2010. In connection with the
amendment and restatement of the senior secured credit facility in April
2001, CoreComm Limited issued to lenders warrants to purchase approximately
10.6 million shares of common stock at an exercise price of $.01 per share
that expire in April 2011. Warrants issued in 2000 to purchase an aggregate
of 1.4 million shares of common stock were canceled upon the issuance of
these new warrants.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
(Continued) (unaudited with respect to the nine months ended
September 30, 2001 and 2000)
18. Stockholder's Equity (Continued)
The Company intends to offer its common stock to CoreComm
Limited's stockholders through a registered public exchange offer. If this
exchange offer is consummated, CoreComm Limited's warrants will be
exercisable into common shares of the Company on an as-converted basis,
subject to any exchange ratio in the exchange offer.
Stock Options
In December 2001, the Company adopted a new stock option plan for
its employees. A total of 2.9 million shares of common stock were reserved
for issuance under the plan, which represents 22.5% of the total fully
diluted shares of the Company. In January 2002, the Board of Directors
approved a grant of options to purchase an aggregate of approximately 2.58
million shares of the Company's common stock, representing approximately
20% of the total fully diluted shares. The exercise price of these options
is $3.00 per share, the estimated fair market value on the date of grant.
The number of shares available under the plan and the number of shares into
which each option is exercisable are subject to adjustment in the event of
stock splits and other similar transactions.
The Company's option plan provides that incentive stock options be
granted at the fair market value of the Company's common stock on the date
of grant, and nonqualified stock options be granted at a price determined
by the compensation and option committee of CoreComm Holdco's board of
directors. Options are generally exercisable as to 33.34% of the shares
subject thereto on the date of grant and become exercisable as to an
additional 33.34% of the shares subject thereto on each January 1
thereafter, while the optionee remains an employee of CoreComm Holdco or
its affiliates. Options will expire ten years after the date of the grant.
As of December 31, 2000, there were approximately 33,051,000
shares of Limited common stock reserved for issuance under the CoreComm
Limited stock option plans (the "Limited Plans"), and there were
approximately 11.3 million shares available for issuance. As of December
31, 2001, there were options to purchase approximately 22.1 million shares
of CoreComm Limited common stock outstanding. In December 2001, the
CoreComm Limited board of directors, in connection with the Holdco
Recapitalization, accelerated all outstanding options to acquire shares of
CoreComm Limited common stock so that all are presently fully vested and
exercisable. CoreComm Limited options are not exercisable for shares of
CoreComm Holdco's common stock. In the event that CoreComm Holdco is
successful in consummating the exchange offers, CoreComm Limited would
become a subsidiary of CoreComm Holdco. Subsequent to that time, CoreComm
Holdco and CoreComm Limited may agree to effect a merger between CoreComm
Limited and a subsidiary of CoreComm Holdco which would have the effect of
converting holders of any remaining outstanding shares of CoreComm Limited
common stock not owned by CoreComm Holdco into shares of CoreComm Holdco at
an exchange ratio identical to that being offered in the exchange offers.
Between now and that time, if holders of CoreComm Limited options exercise
their options, they would, at the time of a merger, have the same rights as
other holders of CoreComm Limited common stock to have their shares of
CoreComm Limited converted to shares of CoreComm Holdco at that exchange
ratio. CoreComm Holdco may be required to record non-cash compensation upon
the ultimate resolution of the CoreComm Limited Stock options.
The Limited Plans provide that incentive stock options be granted
at the fair market value of CoreComm Limited's common stock on the date of
grant, and nonqualified stock options be granted at a price determined by
the compensation and option committee of the CoreComm Limited board of
directors. Options are generally exercisable as to 20% of the shares
subject thereto on the date of grant and become exercisable as to an
additional 20% of the shares subject thereto on each January 1 thereafter,
while the optionee remains an employee of CoreComm Limited or its
affiliates. Options will expire ten years after the date of the grant.
In connection with the distribution of CoreComm Limited to CCPR's
shareholders, CoreComm Limited issued warrants to purchase shares of its
common stock to holders of CCPR stock options who elected to receive
warrants. Otherwise, CoreComm Limited issued stock options to holders of
CCPR stock options. All of these warrants were exercised by December 31,
2000. These warrants are included in the following disclosures of warrants
and stock options.
Pro forma information regarding net loss and net loss per share is
required by SFAS No. 123, and has been determined as if CoreComm Limited
had accounted for its employee warrants and stock options under the fair
value method of that Statement. The fair value for these warrants and
options was estimated at the date of grant using the Black-Scholes
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
(Continued) (unaudited with respect to the nine months ended
September 30, 2001 and 2000)
18. Stockholder's Equity (Continued)
option pricing model with the following weighted-average assumptions for
2000, 1999 and 1998: risk-free interest rate of 5.30%, 6.81% and 5.02%,
respectively, dividend yield of 0%, volatility factor of the expected market
price of CoreComm Limited's common stock of .804, .465 and .810,
respectively, and a weighted-average expected life of the warrants and
options of 10 years.
The Black-Scholes option valuation model was developed for use in
estimating the fair value of traded options which have no vesting
restrictions and are fully transferable. In addition, option valuation
models require the input of highly subjective assumptions including the
expected stock price volatility. Because CoreComm Limited's distribution
warrants and stock options have characteristics significantly different
from those of traded options and because changes in the subjective input
assumptions can materially affect the fair value estimate, in management's
opinion, the existing models do not necessarily provide a reliable single
measure of the fair value of its distribution warrants and stock options.
For purposes of pro forma disclosures, the estimated fair value of
the distribution warrants and options is amortized to expense over the
options' vesting periods. Following is the Company's pro forma information
as if the Company and not CoreComm Limited had issued the distribution
warrants and stock options:
Year Ended December 31, For the Period from April
1, 1998 (date operations
commenced) to
2000 1999 December 31, 1998
-------------------- ------------------ ---------------------------
Pro forma net (loss) $(376,557,000) $(128,451,000) $(45,575,000)
Pro forma net (loss) per share - basic and $(39.58) $(13.50) $(4.79)
diluted
A summary of CoreComm Limited's distribution warrants and stock
option activity and related information, as if the Company and not CoreComm
Limited had issued the distribution warrants and stock options, for the years
ended December 31, 2000 and 1999 and for the period from April 1, 1998 (date
operations commenced) to December 31, 1998 follows:
2000 1999 1998
------------------------------ ------------------------------ -----------------------------
Number of Weighted- Number of Weighted- Number of Weighted-Average
Warrants and Average Warrants and Average Warrants and Exercise
Options Exercise Price Options Exercise Price Options Price
-------------- --------------- -------------- --------------- -------------- --------------
Outstanding - beginning
of period 10,754,000 $15.37 9,765,000 $5.51 - $ -
Granted 10,404,000 10.98 7,925,000 19.56 9,767,000 5.51
Exercised 1,640,000 7.61 5,606,000 6.27 2,000 5.86
Forfeited 169,000 14.09 1,330,000 6.27 - -
-------------- -------------- -------------- --------------
Outstanding - end of 19,349,000 $13.69 10,754,000 $15.37 9,765,000 $5.51
period
============== ============== ============== ==============
Exercisable at end of 10,112,000 $12.51 3,438,000 $10.11 7,747,000 $5.42
period
============== ============== ============== ==============
Weighted-average fair value of distribution warrants and options, calculated
using the Black-Scholes option pricing model, granted during 2000, 1999 and
1998 is $14.04, $14.28 and $4.33, respectively.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
(Continued) (unaudited with respect to the nine months ended
September 30, 2001 and 2000)
18. Stockholder's Equity (Continued)
The following table summarizes the status of the CoreComm Limited
distribution warrants and stock options outstanding and exercisable at
December 31, 2000, as if the Company and not CoreComm Limited had issued
the distribution warrants and stock options:
Warrants and
Warrants and Stock Options Outstanding Stock Options Exercisable
------------------------------------------------------ -------------------------------------
Range of Exercise Number of Weighted-Remaining Weighted- Number of Weighted-
Warrants and Average Warrants and Average
Prices Options Contractual Life Exercise Price Options Exercise Price
---------------------------------------------------------------------------------------------------------------------
$0.02 to $3.36 3,146,000 9.0 Years $ 2.085 2,803,000 $ 1.988
$5.28 to $8.13 4,346,000 8.9 Years $ 7.197 1,294,000 $ 6.814
$11.94 to $14.78 3,373,000 9.4 Years $ 14.205 1,950,000 $ 14.005
$15.63 to $18.95 901,000 8.6 Years $ 18.185 487,000 $ 17.756
$19.18 to $22.45 7,156,000 8.7 Years $ 20.759 3,394,000 $ 20.621
$24.92 to $27.13 185,000 8.7 Years $ 25.115 77,000 $ 25.200
$30.00 to $33.75 28,000 9.3 Years $ 31.168 16,000 $ 31.239
$34.33 to $37.33 5,000 9.1 Years $ 36.889 3,000 $ 36.889
$38.07 to $41.75 182,000 9.1 Years $ 39.480 74,000 $ 39.536
$45.75 to $46.00 27,000 9.2 Years $ 45.826 14,000 $ 45.806
---------------------------------------------------------------------------------------------------------------------
Total 19,349,000 10,112,000
=====================================================================================================================
19. Income Taxes
The provision for income taxes consists of the following:
For the Period from
April 1, 1998 (date
operations
commenced) to
Year Ended December 31, December 31,
2000 1999 1998
------------------- -------------------- ------------------
Current:
Federal $ - $ - $ -
State and local 125,000 102,000 -
------------------- -------------------- ------------------
Total current 125,000 102,000 -
------------------- -------------------- ------------------
Deferred:
Federal - - -
State and local - - -
------------------- -------------------- ------------------
Total deferred - - -
------------------- -------------------- ------------------
$125,000 $102,000 $ -
=================== ==================== ==================
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
(Continued) (unaudited with respect to the nine months ended
September 30, 2001 and 2000)
19. Income Taxes (Continued)
Deferred income taxes reflect the net tax effects of temporary
differences between the carrying amounts of assets and liabilities for
financial reporting purposes and the amounts used for income tax purposes.
Significant components of the Company's deferred tax assets are as follows:
December 31,
2000 1999
------------------- ---------------
Deferred tax assets:
Depreciation $ 1,214,000 $ 875,000
Net operating losses 107,220,000 35,168,000
Allowance for doubtful accounts 4,414,000 1,599,000
Amortization of goodwill 7,405,000 653,000
Accrued expenses 35,820,000 10,359,000
Asset impairments 8,546,000 -
Other 174,000 200,000
------------------- ---------------
164,793,000 48,854,000
Valuation allowance for deferred tax assets (164,793,000) (48,854,000)
------------------- ---------------
Net deferred tax assets $ - $ -
=================== ===============
The deferred tax assets have been fully offset by a valuation allowance due
to the uncertainty of realizing such tax benefit. The deferred tax assets
include $39 million which, if realized, would be accounted for as a reduction
of goodwill or an increase in equity.
At December 31, 2000, the Company had net operating loss carryforwards of
approximately $245 million for federal income tax purposes that begin to
expire in 2018, of which $38 million and $68 million may be limited pursuant
to separate return limitation rules and change in ownership rules,
respectively.
The reconciliation of income taxes computed at U.S. federal statutory rates
to income tax expense is as follows:
For the Period from
April 1, 1998 (date
operations
commenced) to
Year Ended December 31, December 31,
2000 1999 1998
--------------------- -------------------- ---------------------
Benefit at federal statutory rate (35%) $(105,391,000) $(36,077,000) $(4,835,000)
State and local income taxes 125,000 102,000 -
Expenses not deductible for tax purposes 33,619,000 2,160,000 1,623,000
Foreign income not subject to U.S. tax - (362,000) -
U.S. losses with no benefit 71,772,000 34,279,000 3,212,000
--------------------- -------------------- ---------------------
$ 125,000 $ 102,000 $ -
===================== ==================== =====================
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
(Continued) (unaudited with respect to the nine months ended
September 30, 2001 and 2000)
20. Commitments and Contingent Liabilities
As of December 31, 2000, the Company had purchase commitments of
approximately $52,000,000 outstanding, which includes approximately
$18,000,000 pursuant to a contract that ends in January 2009.
As of September 30, 2001, the Company had purchase commitments of
approximately $5,000,000 outstanding. The Company significantly reduced the
amount of outstanding commitments through cancellations and renegotiations
during 2001.
The Company is involved in various disputes and litigation arising
in the ordinary course of its business None of these matters are expected to
have a material adverse effect on the Company's financial position, results
of operations or cash flows.
VOYAGER.NET, INC.
CONDENSED CONSOLIDATED BALANCE SHEETS
June 30,
2000
(unaudited)
Assets
Current assets:
Cash and cash equivalents....................... $ 12,329,741
Accounts receivable, less allowance............. 7,837,616
Prepaid and other assets........................ 1,729,869
-------------
Total current assets.................... 21,897,226
Property and equipment, net....................... 25,524,813
Intangible assets, net............................ 56,665,195
-------------
Total assets............................ $ 104,087,234
=============
Liabilities and stockholders' equity Current liabilities:
Current portion of obligations under capital leases $ 3,157,610
Accounts payable................................ 805,961
Other liabilities............................... 2,898,448
Deferred revenue................................ 12,269,517
-------------
Total current liabilities............... 19,131,536
Commitments and contingencies.....................
Obligations under capital leases.................. 2,116,236
Long-term debt.................................... 23,750,000
Stockholders' equity:
Preferred stock, 8% cumulative, non-voting, $.01
par Value, $100 redemption value: 5,000,000 shares
authorized, none outstanding................. --
Common stock, $.0001 par value; authorized 50,000,000
Shares in 1999 and 2000; issued and outstanding
31,650,108 and 31,654,758 shares in 1999 and
2000, respectively................................ 2,712
Additional paid-in capital...................... 112,151,544
Receivables for preferred and common stock...... (6,441,935)
Notes and interest receivable, stockholder...... (5,768,418)
Deferred compensation........................... 161,420
Accumulated deficit............................. (41,015,861)
-------------
Total stockholders' equity.............. 59,089,462
-------------
Total liabilities and stockholders' equity $ 104,087,234
=============
The accompanying notes are an integral part of the condensed consolidated
financial statements.
CONDENSED CONSOLIDATED STATEMENTS OF OPERATIONS
(unaudited)
Three Months Ended Six Months Ended
June 30, June 30,
---------------------------- ----------------------
2000 1999 2000 1999
------------- ------------- ------------- ---------
Revenue:
Internet access service............ $18,444,717 $10,537,560 $ 36,484,158 $18,942,762
Other.............................. 173,064 176,339 245,901 290,363
----------- ----------- ------------ -----------
Total revenue.............. 18,617,781 10,713,899 36,730,059 19,233,125
----------- ----------- ------------ -----------
Operating expenses:
Internet access service............ 7,398,439 3,602,005 14,628,026 6,391,681
Sales and marketing................ 2,221,192 1,229,038 4,358,192 2,198,069
General and administrative......... 5,931,172 3,081,402 11,912,961 5,544,602
Depreciation and amortization...... 10,166,904 5,004,953 18,377,773 8,531,777
Compensation charge for issuance of
Common stock and stock options.. 25,000 1,044,000 50,000 2,509,000
----------- ----------- ------------ -----------
Total operating expenses... 25,742,707 13,961,398 49,326,952 25,175,129
----------- ----------- ------------ -----------
Loss from operations before other
income (7,124,926) (3,247,499) (12,596,893) (5,942,004)
----------- ----------- ------------ -----------
(expense)..........................
Other income (expense):
Interest income.................... 266,077 4,822 515,076 31,594
Interest expense................... (839,873) (1,047,378) (1,453,949) (1,845,663)
Other.............................. (218,262) -- (258,969) --
----------- ----------- ------------ -----------
Total other expense........ (792,058) (1,042,556) (1,197,842) (1,814,069)
----------- ----------- ------------ -----------
Net loss............................. (7,916,984) (4,290,055) (13,794,735) (7,756,073)
Preferred stock dividends............ -- (165,496) -- (330,992)
----------- ----------- ------------ -----------
Net loss applicable to common
stockholders............. $(7,916,984) $(4,455,551) $(13,794,735) $(8,087,065)
----------- ----------- ------------ -----------
Per share data:
Basic and diluted net loss per share
Applicable to common stockholders $ (0.25) $ (0.19) $ (0.44) $ (0.35)
============ ============ ============ ============
Weighted average common shares outstanding:
Basic and diluted............... 31,654,758 23,766,309 31,653,466 23,163,442
=========== =========== ============ ===========
The accompanying notes are an integral part of the condensed consolidated
financial statements.
CONDENSED CONSOLIDATED STATEMENT OF STOCKHOLDERS' EQUITY
(unaudited)
Receivables
for
Common Stock Preferred
--------------------------- Additional and Notes and Total
Paid-in Common Interest Deferred Accumulated Stockholders'
Shares Amount Capital Stock Receivable Compensation Deficit Equity
------------ ------------ ------------ ------------ ------------ ------------ ------------ ------------
Balance January 1,
2000 31,650,108 $ 2,712 $ 112,129,038 $(6,291,935) $(5,630,418) $ 111,420 $(27,221,126) $73,099,691
Interest on
receivables.... -- -- -- (150,000) (138,000) -- -- (288,000)
Exercise of stock
options........ 4,650 -- 22,506 -- -- -- -- 22,506
Deferred
compensation... -- -- -- -- -- 50,000 -- 50,000
Net loss -- -- -- -- -- -- (13,794,735) (13,794,735)
--------- ------- ------------- ----------- ----------- --------- ------------ ------------
Balance June 30,
2000 31,654,758 $ 2,712 $ 112,151,544 $(6,441,935) $(5,768,418) $ 161,420 $(41,015,861) $ 59,089,462
========== ======= ============= =========== =========== ========= ============ ============
The accompanying notes are an integral part of the condensed consolidated financial statements.
CONDENSED CONSOLIDATED STATEMENTS OF CASH FLOWS
(unaudited)
Six Months Ended
June 30,
2000 1999
-------------- ---------
Cash flows from operating activities:
Net loss............................................. $(13,794,735) $ (7,756,073)
Adjustments to reconcile net loss to net cash provided
by
operating activities:
Depreciation and amortization........................ 18,377,773 8,531,777
Loss on disposal/sale of equipment................... 124,878 4,572
Compensation charge for issuance of common stock and
stock 50,000 2,509,000
options...........................................
Changes in assets and liabilities excluding effects of
business combinations, net........................ (3,105,198) 1,272,295
------------ ------------
Net cash provided by operating activities....... 1,652,718 4,561,571
Cash flows used in investing activities:
Business acquisition costs, net of cash acquired..... (5,290,361) (23,577,768)
Purchase of property and equipment................... (4,793,294) (2,658,104)
------------ ------------
Net cash used in investing activities........... (10,083,655) (26,235,872)
Cash flows provided by financing activities:
Payments on capital leases........................... (1,424,224) (262,767)
Loan/payments to related party....................... -- (500,000)
Payment of bank financing fees....................... -- (1,124,770)
Proceeds from issuance of debt....................... 4,100,000 25,200,000
Proceeds from common stock issuance.................. 22,506 248
Proceeds from preferred stock........................ -- 666,700
------------ ------------
Net cash provided by financing activities....... 2,698,282 23,979,411
------------ ------------
Net (decrease) increase in cash and cash equivalents... (5,732,655) 2,305,110
Cash and cash equivalents at beginning of period....... 18,062,396 2,350,292
------------ ------------
Cash and cash equivalents at end of period............. $ 12,329,741 $ 4,655,402
============ ============
The accompanying notes are an integral part of the condensed consolidated financial statements.
NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS
(unaudited)
1. Basis of Presentation:
These condensed consolidated financial statements of Voyager.net,
Inc. and its subsidiaries (the "Company") for the three and six months
ended June 30, 2000 and 1999 and the related footnote information are
unaudited and have been prepared by the Company pursuant to the rules and
regulations of the SEC. These financial statements included herein should
be read in conjunction with the Company's audited consolidated financial
statements and the related notes to the consolidated financial statements
as of and for the year ended December 31, 1999, which are included in the
Company's Form 10-K filed with the SEC and dated March 31, 2000. In
management's opinion, the accompanying unaudited financial statements
contain all adjustments (consisting of normal, recurring adjustments) which
management considers necessary to present the consolidated financial
position of the Company at June 30, 2000 and the results of its operations
and cash flows for the three and six months ended June 30, 2000 and 1999.
Certain information and footnote disclosures normally included in the
financial statements prepared in accordance with generally accepted
accounting principles have been condensed or omitted pursuant to such rules
and regulations. The results of operations for the three and six months
ended June 30, 2000 are not necessarily indicative of the results of
operations expected for the year ended December 31, 2000.
2. Business Combinations:
During the six months ended June 30, 2000, the Company acquired
certain assets used in connection with the Internet access service business
of two entities as described below:
February 11, 2000, the Company purchased assets of Valley Business
Equipment, Inc. for approximately $4,050,000. Approximately $3,910,000 was
allocated to the acquired customer base cost as a result of this transaction.
March 12, 2000, the Company purchased assets of Livingston On-Line
for approximately $325,000. Approximately $310,000 was allocated to the
acquired customer base cost as a result of this transaction.
The unaudited pro forma combined historical results, as if the
entities listed above had been acquired at the beginning of the six months
ended June 30, 2000 and 1999, respectively, and if all entities acquired in
1999 had been acquired at the beginning of 1999 are included in the table
below.
(in thousands except
per share data)
Six Months Ended
June 30,
--------
2000 1999
--------- -------
Revenues.................... $ 37,060 $ 31,223
Net loss.................... (13,900) (15,925)
Basic and diluted loss per (0.44) (0.70)
share.......................
The pro forma results above include amortization of intangibles and
interest expense on debt assumed issued to finance the acquisitions. The pro
forma results are not necessarily indicative of what actually would have
occurred if the acquisitions had been completed as of the beginning of each
of the fiscal periods presented, nor are they necessarily indicative of
future consolidated results.
3. Debt:
The Company has a revolving available credit facility with a bank
group in the amount of $60 million, with the option to extend to $70 million,
on similar terms and conditions. The credit facility matures on June 30,
2005. The revolving credit facility agreement allows the Company to elect an
interest rate as of any borrowing date based on either the (1) prime rate, or
(2) LIBOR, plus a margin ranging from 0.5% to 2.75% depending on the ratio of
funded debt to EBITDA. The elected rate as of June 30, 2000 is approximately
8.70%. Automatic and permanent reductions of the maximum commitments begin
June 30, 2001 and continue until maturity.
NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS - (continued)
(unaudited)
4. Earnings Per Share:
The impact of dilutive shares is not significant. Net loss per
share is computed using the weighted average number of common shares
outstanding during the period. Inclusion of common share equivalents of
3,983,847 would be antidilutive and have been excluded from per share
calculations.
5. Supplemental Disclosure of Cash Flow Information:
The following is the supplemental cash flow information for all
periods presented:
Six Months Ended
June 30,
------------------------
2000 1999
------------- ---------
Cash paid during the period for interest........ $ 1,731,501 $ 1,359,051
Noncash financing and investing activities:
In conjunction with the acquisitions described
in Note
2, liabilities were assumed as follows:
Fair value of assets acquired.............. 5,848,698 27,343,972
Business acquisition costs, net of cash (5,290,361) (23,577,768)
----------- ------------
acquired........................................
Liabilities assumed............................. $ 558,337 $ 3,766,204
=========== ============
Acquisition of equipment through capital lease.. $ 2,455,598 $ 1,478,600
Issuance of compensatory common stock and options $ 50,000 $ 1,044,000
6. Stock-Based Compensation Plan:
During the six months ended June 30, 2000, the Company granted
545,381 options to purchase common stock to certain members of management,
employees and non-employees. At the grant date, all of the options granted
vest in four equal annual installments beginning January 6, 2001. The
exercise price for these options was not less than the fair market value of
the Company's common stock on the grant date. Therefore, no additional
compensation expense has been recognized in the six months ended June 30,
2000 for these options.
During the six months ended June 30, 2000, the Company recognized
compensation expense of $50,000 relating to options granted prior to
January 1, 2000.
7. Recent Accounting Interpretation:
On December 3, 1999, the Securities and Exchange Commission ("SEC")
issued Staff Accounting Bulletin 101 ("SAB 101"), Revenue Recognition in
Financial Statements. SAB 101 summarizes some of the SEC's interpretations of
the application of generally accepted accounting principles to revenue
recognition. Revenue recognition under SAB 101 was initially effective for
the Company's first quarter 2000 financial statements. However, SAB 101B,
which was released June 26, 2000, delayed adoption of SAB 101 until no later
than the fourth fiscal quarter 2000. Changes resulting from SAB 101 require
that a cumulative effect of such changes for 1999 and prior years be recorded
as an adjustment to net income on January 1, 2000 plus adjust the statement
of operations for the three months ended in the quarter of adoption.
Although the Company is still in the process of reviewing SAB 101,
it believes that its revenue recognition practices are in substantial
compliance with SAB 101 for the year ending December 31, 2000 or that
adoption of its provisions would not be material to its annual or quarterly
results of operations.
8. Merger Agreement:
On March 12, 2000, the Company entered into an agreement to merge
with CoreComm Limited in a stock and cash transaction. The transaction is
subject to stockholder approval, certain regulatory approvals and other
conditions.
REPORT OF INDEPENDENT ACCOUNTANTS
To the Board of Directors and the Stockholders of
Voyager.net, Inc.:
In our opinion, the accompanying consolidated balance sheets and
the related consolidated statements of operations, stockholders' equity
(deficit) and cash flows, present fairly, in all material respects, the
financial position of Voyager.net, Inc. and its subsidiaries (the
"Company") at December 31, 1999 and 1998, and the results of their
operations and their cash flows for each of the three years in the period
ended December 31, 1999, in conformity with accounting principles generally
accepted in the United States. These financial statements are the
responsibility of the Company's management; our responsibility is to
express an opinion on these financial statements based on our audits. We
conducted our audits of these statements in accordance with auditing
standards generally accepted in the United States which require that we
plan and perform the audit to obtain reasonable assurance about whether the
financial statements are free of material misstatement. An audit includes
examining, on a test basis, evidence supporting the amounts and disclosures
in the financial statements, assessing the accounting principles used and
significant estimates made by management, as well as evaluating the overall
financial statement presentation. We believe that our audits provide a
reasonable basis for our opinion expressed above.
/s/ PricewaterhouseCoopers LLP
Grand Rapids, Michigan February 10, 2000, except for Note 18, for which the
date is March 12, 2000
PICK UP HERE
CONSOLIDATED BALANCE SHEETS
December 31,
------------------------
1998 1999
------------- ---------
Assets
Currents assets:
Cash and cash equivalents........................ $ 2,350,292 $ 18,062,396
Accounts receivable, less allowance for doubtful
accounts 950,381 4,994,026
of $99,000 and $500,000 in 1998 and 1999......
Prepaid and other assets......................... 154,059 1,460,356
------------ -------------
Total current assets..................... 3,454,732 24,516,778
Property and equipment, net........................ 9,528,372 21,298,456
Intangible assets, net............................. 28,741,650 66,638,733
------------ -------------
Total assets............................. $ 41,724,754 $ 112,453,967
============ =============
Liabilities and Stockholders' Equity
Current liabilities:
Current portion of obligations under capital leases $ 303,562 $ 2,049,878
Notes payable, related party..................... 2,252,713 --
Accounts payable................................. 659,351 520,326
Other liabilities................................ 855,727 3,696,845
Deferred revenue................................. 5,625,627 11,244,633
------------ -------------
Total current liabilities................ 9,696,980 17,511,682
Commitments and contingencies......................
Obligations under capital leases................... 751,613 2,192,594
Long-term debt..................................... 30,000,000 19,650,000
Stockholders' equity:
Preferred stock, 8% cumulative, non-voting, $.01
par value, $100 redemption value: 100,000 shares
authorized, issued and outstanding in 1998
(includes 8,274,819 --
6,667 shares in 1998 subject to purchase),
authorized
5,000,000 shares in 1999, none outstanding....
Common stock, $.0001 par value, authorized
25,000,000
shares in 1998 and 50,000,000 shares in 1999;
issued 1,792 2,712
and outstanding, 22,216,308 shares in 1998 and
31,650,108 shares in 1999.....................
Additional paid-in capital....................... 3,214,748 112,129,038
Receivable and interest for preferred and common (666,700) (6,291,935)
stock..............................................
Notes and interest receivable, stockholder....... -- (5,630,418)
Deferred compensation............................ 1,008,420 111,420
Accumulated deficit.............................. (10,556,918) (27,221,126)
------------ -------------
Total stockholders' equity............... 1,276,161 73,099,691
------------ -------------
Total liabilities and stockholders' equity $ 41,724,754 $ 112,453,967
============ =============
The accompanying notes are an integral part of the consolidated financial statements.
CONSOLIDATED STATEMENTS OF OPERATIONS
Years Ended December 31,
1997 1998 1999
------------- ------------- ---------
Revenue:
Internet access service..................... $3,440,212 $10,588,963 $47,423,462
Other....................................... 14,063 133,199 1,074,173
---------- ----------- -----------
Total revenue....................... 3,454,275 10,722,162 48,497,635
---------- ----------- -----------
Operating expenses:
Internet access service..................... 1,318,163 3,607,665 15,933,377
Sales and marketing......................... 1,038,459 1,987,113 6,401,810
General and administrative.................. 1,461,720 3,405,870 14,150,924
Depreciation and amortization............... 394,385 3,862,041 23,836,385
Compensation charge for issuance of common
stock -- 4,218,407 2,563,311
---------- ----------- -----------
and stock options........................
Total operating expenses............ 4,212,727 17,081,096 62,885,807
---------- ----------- -----------
Loss from operations before other income
(expenses).................................. (758,452) (6,358,934) (14,388,172)
Other income (expense):
Interest income............................. 11,312 30,987 905,080
Interest expense............................ (72,932) (942,766) (2,645,857)
---------- ----------- -----------
Total other expense................. (61,620) (911,779) (1,740,777)
---------- ----------- -----------
Net loss...................................... (820,072) (7,270,713) (16,128,949)
Preferred stock dividends..................... (73,456) (348,494) (367,265)
---------- ----------- -----------
Net loss applicable to common
stockholders...................... $ (893,528) $(7,619,207) $(16,496,214)
========== =========== ============
Per Share Data:
Basic and diluted net loss per share applicable
to $ (.10) $ (.43) $ (.61)
========== ============ ============
common stockholders.........................
Weighted average common shares outstanding:
Basic and diluted............................. 8,878,498 17,655,484 27,238,084
========== =========== ===========
The accompanying notes are an integral part of the consolidated financial
statements.
CONSOLIDATED STATEMENTS OF STOCKHOLDERS' EQUITY (DEFICIT)
Preferred Stock Common Stock Additional
--------------------- ---------------------- Paid-in
Shares Amount Shares Amount Capital
------ ----------- ---------- ------- -------------
Balance at January 1, 1997.......... 20,000 $ 2,000,000 5,351,840 $ 432 $ 44,374
Redemption of common stock.......... -- -- (2,341,120) (189) (44,374)
Issuance of common stock............ -- -- 11,862,235 957 3,292
Issuance of preferred stock......... 5,000 500,000 -- -- --
Net loss............................ -- -- -- -- --
------ ----------- --------- ------- -------------
Balance at December 31, 1997........ 25,000 2,500,000 14,872,955 1,200 3,292
Conversion of notes payable to
preferred
stock and issuance of preferred and 40,324 4,032,419 446,400 36 144
common stock......................
Issuance of preferred and common
stock............................. 15,000 1,500,000 4,664,953 376 1,505
Conversion of preferred dividends to
preferred stock................... 2,424 242,400 -- -- --
Issuance of common stock and options -- -- 2,232,000 180 3,209,807
Deferred compensation............... -- -- -- -- --
Net loss............................ -- -- -- -- --
------ ----------- --------- ------- -------------
Balance at December 31, 1998........ 82,748 8,274,819 22,216,308 1,792 3,214,748
Issuance of common stock............ -- -- 1,240,000 100 7,354,900
Issuance of loans to stockholders... -- -- -- -- --
Proceeds from initial public offering -- -- 7,425,000 743 99,454,156
Proceeds from preferred stock....... -- -- -- -- --
Redemption of preferred stock....... (82,748) (8,274,819) -- -- --
Payment of preferred stock dividends -- -- -- -- --
Exercise of stock options and vesting
of -- -- 768,800 77 2,105,234
restricted stock..................
Deferred compensation............... -- -- -- -- --
Net loss............................ -- -- -- -- --
------ ----------- --------- ------- -------------
Balance at December 31, 1999........ -- $ -- 31,650,108 $ 2,712 $ 112,129,038
====== =========== ========== ======= =============
The accompanying notes are an integral part of the consolidated financial
statements.
CONSOLIDATED STATEMENTS OF STOCKHOLDERS' EQUITY (DEFICIT) - (continued)
Receivable
For
Preferred Total
and Notes and Stockholders'
Common Interest Deferred Accumulated Equity
Stock Receivable Compensation Deficit (Deficit)
----------- ----------- ----------- ------------ ------------
Balance at January 1, 1997. $ -- $ -- $ -- $ (2,193,296) $ (148,490)
Redemption of common stock. -- -- -- (30,437) (75,000)
Issuance of common stock... -- -- -- -- 4,249
Issuance of preferred
Stock.................... -- -- -- -- 500,000
Net loss................... -- -- -- (820,072) (820,072)
----------- ----------- ----------- ------------ ------------
Balance at December 31,
1997..................... -- -- -- (3,043,805) (539,313)
Conversion of notes payable
to preferred stock and
issuance of preferred and
common stock............. (666,700) -- -- -- 3,365,899
Issuance of preferred and
common stock............. -- -- -- -- 1,501,881
Conversion of preferred
dividends to preferred
stock.................... -- -- -- (242,400) --
Issuance of common stock and
Options.................. -- -- -- -- 3,209,987
Deferred compensation...... -- -- 1,008,420 -- 1,008,420
Net loss................... -- -- -- (7,270,713) (7,270,713)
----------- ----------- ----------- ------------ ------------
Balance at December 31,
1998..................... (666,700) -- 1,008,420 (10,556,918) 1,276,161
Issuance of common stock... (6,291,935) -- -- -- 1,063,065
Issuance of loans to
Stockholders............. -- (5,630,418) -- -- (5,630,418)
Proceeds from initial public
Offering................. -- -- -- -- 99,454,899
Proceeds from preferred
Stock.................... 666,700 -- -- -- 666,700
Redemption of preferred
Stock.................... -- -- -- -- (8,274,819)
Payment of preferred stock
Dividends................ -- -- -- (535,259) (535,259)
Exercise of stock options and
vesting of restricted
stock.................... -- -- (1,090,000) -- 1,015,311
Deferred compensation...... -- -- 193,000 -- 193,000
Net loss................... -- -- -- (16,128,949) (16,128,949)
----------- ----------- ----------- ------------ ------------
Balance at December 31,
1999..................... $(6,291,935) $(5,630,418) $ 111,420 $(27,221,126) $ 73,099,691
=========== =========== =========== ============ ============
The accompanying notes are an integral part of the consolidated financial
statements.
CONSOLIDATED STATEMENTS OF CASH FLOWS
Years Ended December 31,
---------------------------------------
1997 1998 1999
------------- ------------- ---------
Cash flows from operating activities:
Net loss.................................. $ (820,072) $ (7,270,713) $(16,128,949)
Adjustments to reconcile net loss to net cash
provided by (used in) operating activities:
Depreciation and amortization.......... 394,385 3,862,041 23,836,385
Interest on stockholder notes and
Receivable........................... -- -- (422,353)
(Gain) loss on sale of equipment....... (7,071) 5,952 --
Compensation charge for issuance of common -- 4,218,407 2,563,311
stock and stock options..............
Changes in assets and liabilities excluding
effects of business combinations:
Accounts receivable.................. (28,199) (513,909) (3,292,112)
Prepaids and other assets............ (24,251) (104,990) (1,939,885)
Accounts payable..................... (237,551) 512,591 (329,443)
Accrued expenses..................... 137,486 831,577 2,708,626
Deferred revenue..................... 187,203 1,160,698 (468,851)
---------- ------------ ------------
Net cash provided by (used in) operating
Activities...................... (398,070) 2,701,654 6,526,729
Cash flows used in investing activities:
Business acquisition costs, net of cash
Acquired............................... -- (32,850,289) (55,630,048)
Purchase of property and equipment........ (661,312) (1,514,323) (5,032,682)
Proceeds from the sale of equipment....... 87,282 28,248 --
---------- ------------ ------------
Net cash used in investing (574,030) (34,336,364) (60,662,730)
activities..................................
Cash flows provided by financing activities:
Payments on capital leases................ (54,216) (54,565) (2,122,110)
Proceeds from notes payable............... -- 2,800,000 --
Proceeds from common stock................ 4,249 2,061 311
Proceeds from preferred stock............. 500,000 2,065,719 666,700
Redemption of common stock................ (75,000) -- --
Advances from related party............... 1,127,777 4,047 --
Payments to related party................. (15,000) (25,521) --
Issuance of loan to stockholder........... -- -- (5,500,000)
Payment of bank financing fees............ -- (1,325,530) (1,474,770)
Proceeds from issuance of debt............ -- 30,000,000 49,850,000
Payment of preferred stock dividends...... -- -- (535,259)
Payment of debt........................... -- -- (60,200,000)
Proceeds from initial public offering..... -- -- 101,925,743
Payment of initial public offering expenses -- -- (2,470,844)
Redemption of preferred stock............. -- -- (8,274,819)
Payment of note payable................... -- -- (2,016,847)
---------- ------------ ------------
Net cash provided by financing
activities...................... 1,487,810 33,466,211 69,848,105
---------- ------------ ------------
Net increase in cash........................ 515,710 1,831,501 15,712,104
Cash and cash equivalents at beginning of year 3,081 518,791 2,350,292
---------- ------------ ------------
Cash and cash equivalents at end of year.... $ 518,791 $ 2,350,292 $ 18,062,396
========== ============ ============
The accompanying notes are an integral part of the consolidated financial
statements.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
1. Summary of Significant Accounting Policies
Organization and basis of presentation
Voyager.net, Inc. (the "Company ") owns 100% of Voyager
Information Networks, Inc., which was incorporated in the State of Michigan
in 1994. Voyager.net was incorporated in 1998 in the State of Delaware
under the name Voyager Holdings, Inc. The Company's name was changed to
Voyager.net, Inc. on April 29, 1999. The Company provides full service
access to the Internet for corporate and residential users in Michigan,
Illinois, Indiana, Minnesota, Ohio and Wisconsin.
Revenue recognition
The Company recognizes revenue for dial-up Internet access services,
dedicated Internet access services and value-added Web services when the
services are provided. Dial-up and dedicated Internet access service plans
range from one month to one year. Value-added Web services are sold on a
monthly basis. Advance collections relating to future access services are
recorded as deferred revenue and recognized as revenue when earned.
Cash equivalents
The Company considers all highly liquid investments purchased with
an initial maturity of three months or less to be cash equivalents.
Property and equipment
Property and equipment are stated at cost and depreciated over their
estimated useful lives using the straight-line method. Equipment acquired
under capital leases is depreciated over the related lease terms or the
estimated productive useful lives, depending on the criteria met in
determining the qualification as a capital lease. Costs of repair and
maintenance are charged to expense as incurred.
Intangible assets
Intangible assets consist primarily of the cost of the acquired
customer base. The acquired customer base is amortized using the
straight-line method over 3 years based on the estimated customer churn rate.
Bank financing fees, included in intangible assets, are being amortized on a
straight-line basis over the term of the related debt. Other intangible
assets are amortized over a 10 year period. Impairments, if any, are measured
based upon discounted cash flow analyses and are recognized in operating
results in the period in which the impairment in value is determined.
Advertising costs
Advertising costs are expensed as incurred. Advertising expense of
approximately $372,000, $185,000 and $1,174,000 was charged to operations in
1997, 1998 and 1999, respectively.
Financial instruments
The Company's financial instruments, as defined by Statement of
Financial Accounting Standards ("SFAS") No. 107 "Disclosures About Fair Value
of Financial Instruments," consist of cash, notes payable and long-term debt.
The Company's estimate of the fair value of these financial instruments
approximates their carrying amounts at December 31, 1998 and 1999.
Use of estimates
The preparation of financial statements in conformity with generally
accepted accounting principles requires management to make estimates and
assumptions that affect the reported amounts of assets and liabilities and
disclosure of contingent assets and liabilities at the date of the financial
statements and the reported amounts of revenues and expenses during the
reporting period. Actual results could differ from those estimates.
Income taxes
A current tax liability or asset is recognized for the estimated
taxes payable or refundable on tax returns for the year. Deferred tax
liabilities or assets are recognized for the estimated future tax effects of
temporary differences between financial and tax accounting.
2. Business Combinations
In 1998 and 1999, the Company acquired certain assets used in
connection with the Internet access service business as follows:
Purchase
Acquisition Date Acquired Assets Price
----------------- ------------------------------------------ ------------
1998:
July 1 CDL Corp. $ 69,000
July 1 Internet-Michigan, Inc. 215,000
July 31 Freeway, Inc. 3,991,000
September 23 EXEC-PC, Inc. 24,815,000
October 2 Netimation, Inc. 318,000
October 2 NetLink Systems, L.L.C. 3,428,000
November 20 Add, Inc. 14,000
------------
$32,850,000
1999:
January 15 Hoosier On-Line Systems, Inc $ 2,347,000
February 24 Infinite Systems, Ltd 3,100,000
March 10 Exchange Network Services, Inc 3,531,000
April 23 StarNet, Inc 2,013,000
May 7 GDR Enterprises, Inc 9,125,000
June 4 Edgeware, Inc. d/b/a PCLink.com 1,922,000
June 17 Core Digital Communications, Inc 1,320,000
June 25 American Information Services, Inc 1,206,000
September 2 Data Management Consultants, Inc 2,073,000
September 8 Net Direct 4,519,000
September 14 Raex 4,370,000
September 21 Internet Connection Services, LLC 708,000
September 22 MichWeb, Inc 521,000
October 4 ComNet, LLC 8,886,000
October 7 TDI Internet Services, Inc 1,831,000
October 7 Choice Dot Net, LLC 1,765,000
November 9 Internet Illinois 1,811,000
December 10 Wholesale ISP 4,693,000
------------
$ 55,741,000
The aforementioned acquisitions were accounted for using the
purchase method of accounting. The operations of the entities are included in
the income statement of Voyager.net from the acquisition date forward. For
each acquisition, the excess of cost of the acquired assets less liabilities
assumed resulted in a substantial portion of the purchase price being
allocated to the acquired customer base (see Note 4).
The unaudited pro forma combined historical results for the year
of acquisition and the preceding year, as if the entities listed above had
been acquired at the beginning of the year ended December 31, 1997, 1998 or
1999, respectively, are included in the table below. The pro forma combined
historical results for CDL Corp., Internet-Michigan, Inc., Netimation,
Inc., Add, Inc., StarNet, Inc., American Information Services, Inc. and
Internet Connection Services, LLC were not deemed to be material and are
not included for the year ended December 31, 1997, 1998 and 1999.
Year Ended December 31,
------------------------------------
1997 1998 1999
----------- ----------- -----------
Revenue........................ $ 14,120 $ 43,296 $ 62,858
Net Loss....................... (12,590) (37,656) (24,918)
Basic and diluted net loss per (1.43) (2.13) (0.91)
share..........................
The pro forma results above include amortization of intangibles and
interest expense on debt assumed issued to finance the acquisitions. The pro
forma results are not necessarily indicative of what actually would have
occurred if the acquisition had been completed as of the beginning of each of
the fiscal periods presented, nor are they necessarily indicative of future
consolidated results.
3. Property and Equipment
Cost of property and equipment and depreciable lives are summarized
as follows:
Depreciable
1998 1999 Life-Years
------------ ------------ -----------
Computer equipment................ $ 8,461,789 $ 18,649,572 5
Office equipment.................. 230,009 1,293,331 7
Furniture and fixtures............ 96,559 776,886 5-7
Software.......................... 389,863 862,403 3-5
Equipment acquired under capital 1,178,525 5,365,475 5
lease.............................
Vehicles.......................... 32,807 32,807 5
Building improvements............. 860,526 1,386,534 7-10
------------ ------------
11,250,078 28,367,008
Less accumulated depreciation..... (1,721,706) (7,068,552)
------------ ------------
Property and equipment, net....... $ 9,528,372 $ 21,298,456
============ ============
Depreciation expense of approximately $393,000, $842,000 and
$4,992,000 was charged to operations in 1997, 1998 and 1999, respectively.
4. Intangible Assets
Intangible assets consist of the following:
1998 1999
------------ ------------
Acquired customer base..... $ 30,127,837 $ 85,311,158
Bank financing fees........ 1,348,182 2,625,563
Other...................... 237,658 299,864
------------ ------------
31,713,677 88,236,585
Less accumulated amortization (2,972,027) (21,597,852)
------------ ------------
Intangible assets, net..... $ 28,741,650 $ 66,638,733
============ ============
5. Capital Leases
The Company leases computer equipment under capital leases expiring
in various years through the year 2002. The assets under capital leases are
recorded at the lower of the present value of the minimum lease payments or
the fair value of the asset. The net book value of these assets as of
December 31, 1998 and 1999 was $982,222 and $4,319,370, respectively.
Depreciation of assets under capital leases is included in depreciation
expense.
Future minimum lease payments under capital leases as of December
31, 1999 are as follows:
2000.......................................... $ 2,355,280
2001.......................................... 2,015,212
2002.......................................... 341,263
-----------
Total minimum lease payments.................. 4,711,755
Less amount representing interest............. (469,283)
-----------
Present value of net minimum lease payments... $ 4,242,472
Less current portion.......................... (2,049,878)
-----------
Long-term portion of obligations under capital $ 2,192,594
===========
leases........................................
6. Related Party Transactions
The notes payable, related party, represent principal and interest
payable on demand to Horizon Cable I Limited Partnership, an entity under
common management. Interest on the notes was at rates of 10.5 percent in
1997, 8.0 and 8.5 percent in 1998 and in 1999. Concurrent with the Company's
initial public offering, these notes, including accumulated interest, were
paid in the amount of $2,336,174.
On July 31, 1998, the Company issued to a majority stockholder
$2,800,000 in notes payable at interest of 8 percent per annum. These notes,
along with $32,526 of accrued interest and cash in the amount of $533,333,
were converted into 33,657 shares of preferred stock for $100 per share and
446,400 shares of common stock for $1,881.
7. Other Liabilities
Other liabilities consist of the following:
1998 1999
--------- ----------
Accrued payroll and related $ 272,654 $ 983,197
expenses.........................
Accrued expenses................. 465,732 2,697,350
Other............................ 117,341 16,298
--------- ----------
$ 855,727 $3,696,845
8. Debt
In July 1999, the Company re-negotiated its revolving available
credit facility with its bank group concurrent with its initial public
offering (see Note 11) for a $60 million line of credit, with the option to
extend to $70 million on similar terms and conditions. The credit facility
matures on September 30, 2005. At December 31, 1999, $19,650,000 was
outstanding under the credit facility. Interest is payable quarterly through
maturity. The revolving credit facility agreement allows the Company to elect
an interest rate as of any borrowing date based on either the (1) prime rate,
or (2) LIBOR, plus a margin ranging from 1.0% to 2.75% depending on the ratio
of funded debt to EBITDA. The elected rate as of December 31, 1999 is
approximately 9.0% with an effective weighted average rate of approximately
8.6% and 8.4% at December 31, 1998 and 1999, respectively. Commitment fees on
the unused credit facility are 0.5%. Automatic and permanent reductions of
the maximum commitments begin April 2001 and continue until maturity. Based
on the balance as of December 31, 1999, the scheduled permanent reductions of
long-term debt are as follows:
Year
----------
2000...... $ --
2001...... 982,500
2002...... 2,456,250
2003...... 4,421,250
2004...... 6,263,438
Thereafter 5,526,562
------------
$ 19,650,000
The revolving credit facility is collateralized by all of the
Company's tangible and intangible personal property and fixtures as well as
substantially all of the issued and outstanding equity securities of the
Company.
The revolving credit facility is subject to an agreement that
contains, among other provisions, certain financial covenants. These
financial covenants include maintenance of a minimum fixed charges ratio, a
total interest coverage ratio, and a leverage ratio.
9. Income Taxes
The Company's effective tax rate varies from the statutory rate as
follows:
1997 1998 1999
------ ------ -----
Statutory rate............. 35.0% 35.0% 35.0%
Effect of graduated tax rate (1.0) (1.0) (1.0)
Change in valuation allowance (34.0) (34.0) (34.0)
----- ----- -----
0.0% 0.0% 0.0%
===== ===== =====
Based on the Company's current financial status, realization of the
Company's deferred tax assets does not meet the "more likely than not"
criteria under SFAS No. 109 and accordingly a valuation allowance for the
entire deferred tax asset amount has been recorded. The components of the net
deferred tax asset (liability) and the related valuation allowance are as
follows:
1997 1998 1999
------------ ------------ -----------
Net operating loss $ 1,055,000 $ 2,750,000 $ 1,700,000
carryforward................
Intangible assets........... -- 755,000 5,900,000
Fixed assets................ 18,000 13,000 (800,000)
----------- ----------- -----------
Deferred tax assets......... 1,073,000 3,518,000 6,800,000
Valuation allowance......... (1,073,000) (3,518,000) (6,800,000)
----------- ----------- -----------
Net deferred tax assets..... $ -- $ -- $ --
=========== =========== ===========
Net operating loss ("NOL") carryforwards expire in years 2013
through 2018. NOLs totaled $3,102,000, $5,500,000 and $5,000,000 at December
31, 1997, 1998 and 1999, respectively.
10. Retirement Savings Plan
In 1997, the Company established a retirement savings 401(k) plan
for all employees. The Company can make discretionary matching contributions
to the plan. Contributions to the plan totaled approximately $7,300, $15,000
and $53,000 in 1997, 1998 and 1999, respectively.
11. Equity Transactions
On July 21, 1999, the Company completed its initial public offering
in which it sold 7,425,000 shares of common stock at $15.00 per share
resulting in net proceeds of $99,454,899. In addition, a total of 1,575,000
shares were offered for sale by the stockholders. Upon the closing of the
offering, $60,622,173 of senior bank debt and accrued interest and fees were
repaid, $8,810,078 of preferred stock and cumulative dividends were redeemed,
and $2,336,174 of subordinated notes and accrued interest were repaid. The
remainder of the proceeds were used for general corporate purposes, including
acquisitions and capital expenditures.
On January 11, 1999, the Company issued to a member of management
and the Chairman of the Board, an aggregate 1,240,000 shares of common stock
at $4.84 per share in exchange for promissory notes receivable in the
aggregate amount of $6,000,000 which are due January 11, 2003 and have an
interest rate of 5% per annum compounded annually. The notes are
collateralized by a pledge of the related shares of common stock and are a
recourse obligation to these individuals in the amount of 25% of the
outstanding principal and 100% of the accrued interest.
In April 1999, the Company loaned a member of senior management
$500,000. It is payable in three years and accrues interest at 5% per year.
The loan is uncollateralized and the Company has full recourse against the
borrower. Additionally, in July 1999, the Company loaned $5 million to the
same individual. It is due in 2003 and accrues interest at 5% per year. The
loan is collateralized by a pledge of 416,667 shares of common stock and is a
recourse obligation of the borrower in the amount of 25% of the outstanding
principal and 100% of the accrued interest on the loan.
In May 1999, the Company sold an aggregate 6,667 shares of series A
preferred stock to certain shareholders pursuant to the exercise of an option
to purchase shares of series A preferred stock in the stock purchase
agreement, for an aggregate purchase price of $666,700.
On September 23, 1998, the Company issued 33,657 shares of preferred
stock at $100 per share and 446,400 shares of common stock in exchange for
$2,800,000 notes payable to its majority stockholders along with $32,566 in
accrued interest and $533,513 in cash. Also on September 23, 1998, the
Company converted accumulated preferred stock dividends in the amount of
$242,400 through September 23, 1998 into 2,424 shares of preferred stock at
$100 per share.
On June 24, 1999, July 6, 1998 and August 22, 1997, the Board of
Directors declared a stock split of 1.24 for 1, a 20 for 1 and a 100 for 1,
respectively. All references to the number of common shares and per share
amounts in the consolidated financial statements and related footnotes have
been restated to reflect the effect of these stock splits for all periods
presented.
12. Stock-Based Compensation Plan
In 1998, a Stock Option and Incentive Plan (the "Plan") was
established. The Plan provides for the ability to issue Stock Options (either
Incentive Stock Options or Non-Qualified Stock Options), Stock Appreciation
Rights, Restricted Stock Awards, Deferred Stock Awards, Unrestricted Stock
Awards, Performance Share Awards and Dividend Equivalent Rights. As of
December 31, 1999, there were 4,816,160 options to purchase common stock
authorized with 1,626,658 options available for issuance.
The Plan provides for the granting of options to officers,
employees, consultants, members of the Board of Directors and other key
persons for purchase of the Company's common shares. The Plan is administered
by the Board of Directors. No option can be for a term of more than ten years
from the grant date. The option price and the vesting provisions are
determined by the Board of Directors at the time of the grant.
Stock option activity under the Plan during the year ended December
31, 1998 and 1999 (there were no stock options granted during 1997) are as
follows:
Weighted
Number Average
of Exercise
Options Price
Outstanding at January 1, 1998. -------- ----------
Granted........................ 768,800 $ .0004
Exercised, forfeited and expired -- --
-------- ---------
Outstanding at December 31, 1998 768,800 .0004
-------- ----------
Granted........................ 3,297,980 13.431
Exercised...................... 768,800 .0004
Forfeited...................... -- --
Expired........................ 101,894 14.6609
-------- ----------
Outstanding at December 31, 1999 3,196,086 $ 13.3992
========= ==========
Exercisable at December 31, 1999 558,000 $ 15.00
======== ==========
The Company applies Accounting Principles Board Opinion No. 25,
"Accounting for Stock Issued to Employees," and related interpretations, in
accounting for its stock and stock options issued to employees. During 1998,
the Company granted 768,800 options to purchase common stock to certain
members of management of which 582,800 options were fully vested and the
remaining 186,000 options became fully vested in January 1999. During 1999,
the Company granted 3,297,980 options to purchase common stock; 3,130,580
were granted at market prices and 167,400 were granted at $4.84 per share
which was less than market price. The weighted-average remaining contractual
life of the options outstanding at December 31, 1999 is in approximately 10
years. During 1998, the Company issued 2,232,000 shares of restricted common
stock to certain members of management for a nominal amount; 496,000 of which
were subject to certain vesting provisions at December 31, 1998 through
October 2002. During 1999, the Company issued an aggregate of 1,240,000
shares of restricted common stock at $4.84 per share to a member of
management and the Chairman of the Board. Certain of these shares were
subject to vesting through 2003. Prior to the Company's initial public
offering, all shares of the unvested restricted common stock were accelerated
and became 100% fully vested. The weighted average fair value at issuance for
the restricted common stock and options were $1.77 and $6.16 per share at
December 31, 1998 and 1999, respectively. Accordingly, the Company recorded
compensation expense of $4,218,407 and $2,563,311 for the years ended
December 31, 1998 and 1999, respectively.
Under SFAS No. 123, "Accounting for Stock-Based Compensation" (SFAS
123), compensation cost is measured at the grant date based on the value of
the award and is recognized over the service (or vesting) period. Under SFAS
123, the Company's net loss and loss per share for the years ended December
31, 1998 and 1999 would have been adjusted to the pro forma amounts indicated
in the following table:
1998 1999
------------ -------------
Net loss applicable to common stockholders:
As reported.......................... $(7,619,207) $(16,496,215)
Pro forma............................ $(8,737,394) $(26,346,231)
Loss per share:
As reported:
Basic and diluted................. $ (.43) $ (.61)
Pro forma:
Basic and diluted................. $ (.49) $ (.97)
The fair value of each option granted was estimated on the date of
grant using the Black-Scholes option pricing model with the following
assumptions:
1998 1999
-------- --------
Risk free rate..... 5.7% 4.6%
Expected dividends. -- --
Expected life...... 5 years 4 years
Volatility assumption 76% 75%
13. Earnings Per Share
The following table sets forth the computation of basic and diluted
earnings per share:
Years Ended December 31
------------------------------------------
1997 1998 1999
------------- ------------- ------------
Net loss............................... $ (820,072) $(7,270,713) $(16,128,949)
Less preferred stock dividends......... (73,456) (348,494) (367,265)
---------- ----------- ------------
Net loss applicable to common
Stockholders......................... $ (893,528) $(7,619,207) $(16,496,214)
---------- ----------- ------------
Basic and diluted weighted average common
Shares outstanding................... 8,878,498 17,655,484 27,238,084
========== =========== ============
Basic and diluted net loss per share
Applicable to common stockholders.... $ (.10) $ (.43) $ (.61)
========== ============ =============
Net loss per share is computed using the weighted average number of
common shares outstanding during the period. Inclusion of common share
equivalents would be anti-dilutive and have been excluded from the per share
calculations for 1999. The impact of dilutive shares was not significant for
1997 and 1998.
14. Supplemental Disclosure of Cash Flow Information
The following is the supplemental cash flow information for all
periods presented:
Years Ended December 31
-----------------------------------------
1997 1998 1999
------------ ------------- ------------
Cash paid during the year for interest... $ 7,604 $ 632,027 $ 2,718,404
Noncash financing and investing activities:
In connection with the acquisitions
described
In Note 2, liabilities were assumed as Follows:
Fair value of assets acquired....... -- 37,890,628 60,721,084
Business acquisition costs, net of
cash -- (32,850,289) (55,630,048)
--------- ------------ ------------
acquired..........................
Liabilities assumed...................... -- $ 5,040,339 $ 5,091,036
========= ============ ============
Acquisition of equipment through capital
Lease.................................. $ 159,974 $ 951,117 $ 4,861,250
Conversion of note payable and accumulated
Dividends to preferred stock........... $ -- $ 3,042,400 $ --
Issuance of compensatory common stock and
Options................................ $ -- $ 4,218,407 $ 2,563,311
Issuance of common stock in exchange for
Promissory notes....................... $ -- $ -- $ --
15. Commitments and Contingencies
The Company leases office facilities, point of presence locations,
certain network equipment and vehicles under operating lease agreements that
expire in the years 2000, 2001, 2002, 2003, 2004 and 2007. The following is a
schedule of future minimum rental payments under these leases:
Year
----------
2000...... $ 1,004,738
2001...... 813,663
2002...... 768,092
2003...... 673,190
2004...... 380,748
Thereafter 922,703
-----------
$ 4,563,134
In addition to these leases, the Company also leases point of
presence locations under lease terms of less than one year.
Rent expense under all operating leases of approximately $103,000,
$190,000 and $760,000 was charged to operations in 1997, 1998 and 1999,
respectively.
16. Segment Reporting
The Company has a single operating segment, Internet access
services. The Company has no organizational structure dictated by product
lines, geography or customer type. Sales are substantially derived from one
service line, Internet access service, and are residential and business
customers in the Midwestern United States. The Company evaluates performance
based on profit or loss from operations before interest, income taxes,
depreciation and amortization and non-recurring, non-cash compensation
charges.
17. Quarterly Financial Data (Unaudited)
For the Three Months Ended
1999
------------------------------------------------------
March 31 June 30 Sept. 30 Dec. 31
------------ ------------ ------------ ------------
Total revenue........................... $ 8,519,226 $ 10,713,899 $ 12,904,996 $ 16,359,514
Loss from operations before other income
(expense)............................. (2,694,505) (3,247,499) (3,169,243) (5,276,925)
Net loss................................ (3,466,018) (4,290,055) (3,357,604) (5,015,272)
Basic and diluted net loss per share
applicable to common stockholders..... $ (.16) $ (.19) $ (.11) $ (.16)
Weighted average common shares outstanding,
basic and diluted..................... 22,987,865 23,776,309 30,084,336 31,650,108
1998
-------------------------------------------------------
March 31 June 30 Sept. 30 Dec. 31
------------ ------------ ------------ --------------
Total revenue........................... $ 1,135,244 $ 1,222,266 $ 2,045,296 $ 6,319,356
Income (loss) from operations before other
income (expense)...................... 102,866 (39,587) (944,947) (5,477,266)
Net income (loss)....................... 63,825 (77,981) (1,040,681) (6,215,876)
Basic and diluted net loss per share
applicable to common stockholders..... $ -- $ (.01) $ (.06) $ (.29)
Weighted average common shares outstanding,
basic and diluted..................... 14,998,673 15,021,831 18,255,050 22,210,920
18. Subsequent Events (Unaudited)
On February 11, 2000, the Company purchased assets from Valley
Business Equipment, Inc. for approximately $4,100,000 of which approximately
$3,700,000 was remitted to Valley Business Equipment, Inc. and the remainder
was deposited in an escrow account. Approximately $4,000,000 was allocated to
the acquired customer base cost as a result of this transaction.
On March 12, 2000, the Company entered into an agreement to merge
with CoreComm Limited in a stock and cash transaction. The transaction is
subject to stockholder approval, certain regulatory approvals and other
conditions.
ATX TELECOMMUNICATIONS SERVICES, INC.
F-60
ATX TELECOMMUNICATIONS SERVICES, INC.
F-57
BALANCE SHEET
(unaudited)
June 30,
2000
-------------
Assets
Current assets
Cash and cash equivalents..................... $ 3,530,871
Accounts receivable, net of allowances for
doubtful 25,669,479
accounts and credits of $2,108,000.........
Other current assets.......................... 744,860
-------------
Total current assets............................ 29,945,210
Property and equipment, net..................... 13,310,781
Intangible assets, net.......................... 638,210
Other assets.................................... 261,864
-------------
Total assets.......................... $44,156,065
=============
Liabilities and Equity/Partners' Capital
Current liabilities
Accounts payable.............................. $ 28,465,971
Accrued expenses.............................. 1,069,050
Accrued payroll and related expenses.......... 4,886,165
Sales and excise taxes payable................ 2,023,133
Payables, related parties..................... 1,445,168
-------------
Total current liabilities....................... 37,889,487
-------------
Total liabilities............................... 37,889,487
-------------
Contingencies
Phantom Unit Compensation....................... 1,200,000
Equity/Partners' Capital........................ 5,066,578
-------------
Total liabilities and equity/partners'
capital............................... $44,156,065
=============
See accompanying notes to unaudited financial statements.
STATEMENTS OF OPERATIONS
(unaudited)
Three Months Three Months Six Months Six Months
Ended Ended Ended Ended
June 30, 2000 June 30, 1999 June 30, 2000 June 30, 1999
------------- ------------- ------------- -------------
Revenues............. $40,303,265 $33,465,119 $76,566,416 $64,398,923
----------- ----------- ----------- -----------
Expenses
Cost of revenues... 29,586,139 20,914,123 51,337,853 39,949,002
Selling, general and
administrative.. 15,927,345 12,912,934 32,175,309 24,459,164
----------- ----------- ----------- -----------
Total expenses....... 45,513,484 33,827,057 83,513,162 64,408,166
----------- ----------- ----------- -----------
Loss from operations. (5,210,219) (361,938) (6,946,746) (9,243)
----------- ----------- ----------- -----------
Interest income, net. 16,136 19,899 50,327 24,317
----------- ----------- ----------- -----------
Net (loss) Income.... $(5,194,083) $ (342,039) $(6,896,419) $ 15,074
=========== =========== =========== ===========
See accompanying notes to unaudited financial statements.
STATEMENTS OF CHANGES IN EQUITY/PARTNERS' CAPITAL
(unaudited)
Balance, December 31, 1999................. $ 12,164,122
Net loss for the Six Months ended June 30, (6,896,419)
2000.......................................
Capital contributions...................... 4,064,560
Partners' distributions.................... (4,265,685)
------------
Balance, June 30, 2000..................... $ 5,066,578
============
See accompanying notes to unaudited financial statements.
STATEMENTS OF CASH FLOWS
(unaudited)
Six Months Six Months
Ended Ended
June 30, 2000 June 30, 1999
------------- -------------
Cash flows from operating activities
Net (loss) income............................. $(6,896,419) 15,074
Adjustments to reconcile net (loss) income to
net cash
(used in) provided by operating activities 1,445,010 962,703
Depreciation and amortization..............
Provision for allowances................... 199,500 98,000
Phantom unit compensation.................. (200,000) (200,000)
Changes in assets and liabilities
(Increase) decrease in assets
Accounts receivable................... (5,229,893) (1,733,868)
Other current assets.................. (643,684) 250,576
Increase (decrease) in liabilities
Accounts payable...................... 16,125,512 512,443
Accrued payroll and related expenses.. 185,283 (321,030)
Accrued expenses...................... 2,870 110,956
Sales and excise taxes payable........ (233,383) (528,691)
----------- ---------
Net cash provided by (used in) operating activities 4,754,796 (833,837)
----------- ---------
Cash flows from investing activities
Purchase of property and equipment............ (6,306,632) (1,361,048)
Increase (decrease) in receivables and payable,
related (305,668) 197,733
----------- ---------
parties....................................
Net cash used in investing activities........... (6,612,300) (1,163,315)
----------- ----------
Cash flows from financing activities
Payment of long term debt..................... -- (275,000)
Capital Distributions......................... (691,190)
Capital contributions......................... 2,200,000 --
----------- ---------
Net cash provided by (used in) financing activities 2,200,000 (966,190)
----------- ---------
Net increase (decrease) in cash and cash
equivalents................................... 342,496 (2,963,342)
Beginning cash and cash equivalents............. 3,188,375 5,067,315
----------- ---------
Ending cash and cash equivalents................ $ 3,530,871 2,103,973
=========== =========
See accompanying notes to unaudited financial statements.
NOTES TO UNAUDITED FINANCIAL STATEMENTS
1. Organization and Business
ATX Telecommunication Services, Inc. ("ATX, Inc." or "the Company")
was organized in the state of Delaware on February 9, 2000 upon the consent
of the former partners of ATX Telecommunications LP ("ATX") and Global
Telecom LP ("Global"). The financial position of the Company as of June 30,
2000 included the net assets contributed by the former partnerships of ATX
and Global to ATX, Inc. on February 9, 2000 at their historical costs basis.
For financial reporting purposes, the results of operations for the Six
Months ended June 30, 2000 include the results of operations of the former
partnerships of ATX and Global. These partnerships were terminated on
February 9, 2000 upon their merger into ATX, Inc. ATX, Inc. was capitalized
with 10,000 shares of common stock at $.01 par value. Upon the merger, 1,000
shares of common stock was issued to the former partners of ATX and Global.
Upon the merger into ATX, Inc., distributions were made to certain
former partners of ATX to satisfy their loans and advances.
The Company is a single-source provider of voice and data services
offering a full range of telecommunications services, including long
distance, local, data, private line, cellular, PC-based billing, prepaid
calling, paging, Internet access and World Wide Web consulting, development
and hosting.
The ATX Shareholders Agreement and former Partnership Agreements
provided for bonuses to certain executives totaling $8,000,000 per year. The
Company has recorded $4,000,000 of compensation expense for these bonuses
included in selling, general and administrative expenses for the Six Months
ended June 30, 2000 and June 30, 1999. These bonuses will be eliminated upon
the merger agreement as discussed on Note 2.
2. Plan of Recapitalization and Merger
On April 9, 2000, ATX, Inc. and its stockholders ("ATX
Stockholders") entered into a plan of recapitalization and merger ("Merger
Agreement") with CoreComm Limited ("CoreComm"). Under the terms of the merger
agreement, as amended, the ATX stockholders will exchange their issued and
outstanding common stock for the following aggregate consideration: (i)
approximately 12.4 million shares of CoreComm common stock; (ii) $250 million
of CoreComm's Series B preferred stock and (iii) $150 million in cash from
CoreComm. Such amounts may be subject to adjustments as defined in the merger
agreement. In the event CoreComm has not completed a debt or equity financing
prior to the closing date, CoreComm may elect to issue short term notes of
$119.0 million and reduce the cash consideration by such amount. The Merger
Agreement is subject to regulatory and CoreComm shareholder approval, amongst
other conditions.
In July 2001, the Company finalized the streamlining of its
operating structure to focus on its two most successful and promising lines
of business. The first is integrated communications products and other high
bandwidth/data/web-oriented services for the business market and the second
is bundled local telephony and Internet products efficiently sold, serviced
and provisioned via Internet-centric interfaces to the residential market.
3. Basis of Presentation
In the opinion of management, all adjustments which have been made
are necessary to present fairly the financial position of the Company as of
June 30, 2000 and 1999 and the results of operations for the six month
periods ended June 30, 2000 and 1999. The results of operations for the six
month period ending June 30, 2000 are not necessarily indicative of the
results to be experienced for the fiscal year ending December 31, 2000.
The Statements and related notes herein have been prepared pursuant
to the rules and regulations of the Securities and Exchange Commission.
Accordingly, certain information and footnote disclosures normally included
in financial statements prepared in accordance with generally accepted
accounting principles have been omitted pursuant to such rules and
regulations. The accompanying notes should therefore be read in conjunction
with the Company's December 31, 1999 financial statements included elsewhere
herein.
4. Income Taxes
Upon the incorporation of ATX, Inc as of February 9, 2000, ATX is
subject to federal and state income taxation. ATX did not provide for an
income tax benefit for the Six Months ended June 30, 2000 based on the
uncertainty of future earnings and profits.
Prior to the incorporation of ATX, Inc., the partners were required
to report their respective share of the Company's profits and losses in their
individual income tax returns. Accordingly, no provision for federal, state
and local income taxes is reflected in these statements for periods prior to
February 9, 2000.
5. Phantom Unit Plan
The Phantom Unit Plan ("the Plan") provides for the issuance of a
total of 5,000,000 phantom units. The phantom units shall become payable on
the earlier of termination or a change of control. Upon the termination of
employment, such phantom unit holders shall be entitled to compensation. Such
compensation shall be payable over a 36-month period beginning in the
thirteenth month after termination. Compensation is determined by the Phantom
Unit Plan's formula and is based on average net income as defined in the Plan
for the three years prior to termination.
Upon a change in control as defined in the Plan, the Company will
record a compensation charge equal to the fair market value of the phantom
units. Such event would be the consummation of the Merger Agreement above
resulting in a charge of approximately 5% of the fair market value of the
aggregate consideration as described in Note 2.
6. Supplemental Cash Flow Information
Prior to the merger into ATX, Inc. distributions were made to the
former partners of ATX of approximately $4.3 million to satisfy their loan
balances. Additionally, loans to an officer of the Company were forgiven of
approximately $1.9 million and shown as a contribution to equity.
REPORT OF INDEPENDENT CERTIFIED PUBLIC ACCOUNTANTS
ATX Telecommunications Services Group
Bala Cynwyd, Pennsylvania
We have audited the accompanying combined balance sheets of ATX
Telecommunications Services Group as of December 31, 1999, and the related
combined statements of operations, changes in partners' capital, and cash
flows for each of the two years in the period ended December 31, 1999. These
financial statements are the responsibility of the management of ATX
Telecommunications Services Group. Our responsibility is to express an
opinion on these financial statements based on our audits.
We conducted our audits in accordance with generally accepted
auditing standards. Those standards require that we plan and perform the
audit to obtain reasonable assurance about whether the financial statements
are free of material misstatement. An audit includes examining, on a test
basis, evidence supporting the amounts and disclosures in the financial
statements. An audit also includes assessing the accounting principles used
and significant estimates made by management, as well as evaluating the
overall financial statement presentation. We believe that our audits provide
a reasonable basis for our opinion.
In our opinion, the combined financial statements referred to above
present fairly, in all material respects, the financial position of ATX
Telecommunications Services Group as of December 31, 1999, and the results of
their operations and their cash flows for each of the two years in the period
ended December 31, 1999 in conformity with generally accepted accounting
principles.
/s/ BDO Seidman, LLP
Philadelphia, Pennsylvania
March 10, 2000
ATX TELECOMMUNICATIONS SERVICES, INC.
COMBINED BALANCE SHEETS
December 31,
1999
-------------
Assets
Current assets
Cash and cash equivalents............... $ 3,188,375
Accounts receivable, net of allowances for
doubtful accounts and credits of
$1,909,000........................... 20,639,086
Other current assets.................... 101,176
Receivables, related parties............ --
-----------
Total current assets...................... 23,928,637
Property and equipment, net............... 8,359,873
Intangible assets, net.................... 727,496
Other assets.............................. 261,864
Receivables, partners..................... 4,265,685
-----------
Total assets.............................. $37,543,555
===========
Liabilities and Partners' Capital
Current liabilities
Accounts payable........................ $12,340,460
Accrued expenses........................ 1,066,180
Accrued payroll and related expenses.... 4,700,882
Accrued partners' distributions......... --
Sales and excise taxes payable.......... 2,256,516
Current portion of long-term debt....... --
Payables, related parties............... 1,750,835
-----------
Total current liabilities................. 22,114,873
Long-term debt............................ --
Payables, related parties................. 1,864,560
-----------
Total liabilities......................... 23,979,433
Commitments and contingencies
Phantom Unit Compensation................. 1,400,000
Partners' capital......................... 12,164,122
-----------
Total liabilities and partners' capital... $37,543,555
===========
See accompanying notes to combined financial statements.
COMBINED STATEMENTS OF OPERATIONS
Year ended December 31,
----------------------------
1999 1998
------------- ---------
Revenues........................ $ 135,020,849 $113,654,155
------------- ------------
Expenses
Cost of revenues.............. 85,477,119 68,435,883
Selling, general and 51,213,416 43,280,185
------------- ------------
administrative..................
Total expenses.................. 136,690,535 111,716,068
------------- ------------
(Loss) income from operations... (1,669,686) 1,938,087
Interest income, net............ 71,844 115,042
------------- ------------
Net (loss) income............... $(1,597,842) $ 2,053,129
============= ============
See accompanying notes to combined financial statements.
COMBINED STATEMENTS OF CHANGES IN PARTNERS' CAPITAL
Balance, December 31, 1997.................. $ 13,517,493
Net income for the year ended December 31, 2,053,129
1998........................................
Partners' contributions..................... 2,000,000
Partners' distributions..................... (8,595,978)
------------
Balance, December 31, 1998.................. 8,974,644
Net loss for the year ended December 31, 1999 (1,597,842)
Partners' contributions..................... 4,847,739
Partners' distributions..................... (60,419)
------------
Balance, December 31, 1999.................. $ 12,164,122
============
See accompanying notes to combined financial statements.
COMBINED STATEMENTS OF CASH FLOWS
Year ended December 31,
-------------------------
1999 1998
------------- ---------
Cash flows from operating activities
Net (loss) income............................. $(1,597,842) $ 2,053,129
Adjustments to reconcile net (loss) income to
net cash
provided by operating activities 1,820,453 1,947,830
Depreciation and amortization............
Provision for allowances................. 196,000 301,000
Loss on sale of equipment................ -- 5,380
Phantom unit compensation................ (400,000) 1,800,000
Changes in assets and liabilities
(Increase) decrease in assets
Accounts receivable................... (3,977,729) (4,171,074)
Other current assets.................. 1,166,620 (343,569)
Other assets.......................... (261,864) --
Increase (decrease) in liabilities
Accounts payable...................... 2,630,645 3,173,463
Accrued expenses...................... (6,475) 141,155
Accrued payroll and related expenses.. 181,913 4,043,422
Sales and excise taxes payable........ 347,932 (620,294)
----------- -----------
Net cash provided by operating activities....... 99,653 8,330,442
----------- -----------
Cash flows from investing activities
Proceeds from the sale of property and equipment -- 11,000
Purchase of property and equipment............ (3,697,390) (4,814,235)
Purchase of intangible assets................. -- --
Decrease (increase) in receivables and payable,
related parties............................ 1,072,042 5,296,898
Increase in loans to partners................. (2,228,065) (117,178)
----------- -----------
Net cash (used in) provided by investing
activities.................................... (4,853,413) 376,485
----------- -----------
Cash flows from financing activities
Payment of long-term debt..................... (562,500) (275,000)
Partners' contributions....................... 4,847,739 2,000,000
Partners' distributions....................... (1,410,419) (8,595,978)
----------- -----------
Net cash provided by (used in) financing
activities.................................... 2,874,820 (6,870,978)
----------- -----------
Net (decrease) increase in cash and cash
equivalents................................... (1,878,940) 1,835,949
Cash and cash equivalents at beginning of year.. 5,067,315 3,231,366
----------- -----------
Cash and cash equivalents at end of year........ $ 3,188,375 $ 5,067,315
=========== ===========
See accompanying notes to combined financial statements.
NOTES TO COMBINED FINANCIAL STATEMENTS
1. Organization and Business
The combined financial statements of ATX Telecommunications Services
Group ("the Company") include the accounts of ATX Telecommunications Services
Ltd. ("ATX") and Global Telecom Services, Ltd. ("Global") which were under
common control and ownership by the same partners/family members. ATX and
Global were limited partnerships organized under the laws of the Commonwealth
of Pennsylvania. ATX and Global are single-source providers of voice and data
services offering a full range of telecommunications services, including long
distance, local, data, private line, cellular, PC-based billing, prepaid
calling, paging, Internet access and World Wide Web consulting, development
and hosting.
These partnerships were terminated on February 9, 2000 upon their
merger into ATX Telecommunication Services, Inc. ("ATX, Inc."). ATX, Inc. was
incorporated on the above date in the state of Delaware upon the consent of
the Company's partners. ATX, Inc. was capitalized with 10,000 shares of
common stock at $.01 par value. Upon the merger, 1,000 shares of common stock
was issued to the former partners of ATX and Global. On such date, the
Company contributed its assets and its liabilities were assumed by ATX, Inc.
at their historical cost basis.
The partnership agreement provides for the allocation of profits and
losses on an annual basis. Profits and losses are allocated among partners
based on the partnership agreement.
Distributions, other than liquidating distributions, shall be made
to all partners in proportion to their percentage interests except as
otherwise stipulated in the partnership agreement.
The partnership agreement required that during 1999 certain partners
receive distributions totaling $1,350,000 for prior years. This agreement
also provides for bonuses to these partners totaling $8,000,000 per year for
the years 1998 through 2002. The Company has recorded compensation expenses
for these bonuses included in selling, general and administrative expenses
for the years ended December 31, 1999 and 1998, respectively.
If a sale or public offering of the Company does not occur before
January 31, 2003, certain minority partners have an option to put their
respective interests to the Company at fair value, as defined within the
partnership agreement. The total amount to be paid to these partners for
their respective interests will be paid over a seven and one-half year
period.
2. Plan of Recapitalization and Merger
On March 9, 2000, ATX, Inc. and its stockholders ("ATX
Stockholders") entered into a plan of recapitalization and merger ("Merger
Agreement") with CoreComm Limited ("CoreComm"). Under the terms of the merger
agreement, ATX will be recapitalized such that the ATX Stockholders will
receive the following aggregate consideration: (i) approximately 12.4 million
shares of CoreComm common stock; (ii) $250 million of CoreComm's 3% senior
preferred stock and (iii) $150 million in cash from CoreComm. Such amounts
may be subject to adjustments as defined in the merger agreement. In the
event CoreComm has not completed a debt or equity financing prior to the
closing date, CoreComm may elect to issue short term notes of $70 million and
reduce the cash consideration by such amount. The Merger Agreement is subject
to regulatory and CoreComm shareholder approval, among other conditions.
3. Summary of Significant Accounting Policies
Revenue Recognition
The Company recognizes revenue based on the customers' usage of
services. Revenues are presented net of estimated discounts. Additionally,
the Company accrues for unbilled telecommunication revenue as a result of its
billing cycle and such amounts are included in accounts receivable.
Cost of Revenues
Cost of revenues includes network costs which consist of access,
transport, and termination costs. Such costs are recognized when incurred in
connection with the provision of telecommunication services.
Cash Equivalents
The Company considers all highly liquid debt instruments purchased
with a maturity of three months or less to be cash equivalents.
Property and Equipment
Property and equipment are stated at cost. Depreciation and
amortization are provided by the straight-line method over the estimated
useful lives of the respective assets. Property and equipment are depreciated
over useful lives ranging from five to seven years and leasehold improvements
are amortized over the terms of the lease.
Intangible Assets
Intangible assets represent acquired customer lists which are being
amortized using the straight line method over a 7-year period. Intangible
assets are presented net of accumulated amortization of $522,504.
Impairment of Assets
The Company's long-lived assets and identifiable intangibles are
reviewed for impairment whenever events or changes in circumstances indicate
that the net carrying amount may not be recoverable. When such events occur,
the Company measures impairment by comparing the carrying value of the
long-lived asset to the estimated undiscounted future cash flows expected to
result from the use of the assets and their eventual disposition. The Company
determined that, as of December 31, 1999, there had been no impairment in the
carrying value of the long-lived and intangible assets.
Advertising and Marketing Costs
All costs related to advertising and marketing the Company's
products and services are expensed in the period incurred.
Income Taxes
The partners are required to report their respective share of the
Company's profits and losses in their individual income tax returns.
Accordingly, no provision for federal, state and local income taxes is
reflected in the financial statements.
Concentrations of Credit Risk
The Company maintains its cash deposits and temporary cash
investments with high-quality institutions at levels which may exceed
federally insured limits. The Company has not experienced any losses on cash
deposits or temporary cash investments maintained in this manner.
The Company sells its telecommunications services and products to
customers operating primarily in the Northeastern region of the United
States. The Company performs ongoing credit evaluation of its customers, and
it generally does not require collateral from those customers.
Fair Value of Financial Instruments
The carrying value of all financial instruments approximates their
fair value due to the short maturity of the respective instruments.
Use of Estimates
The preparation of financial statements in conformity with generally
accepted accounting principles requires management to make estimates and
assumptions that affect the amounts reported in the financial statements and
accompanying notes. Actual results could differ from those estimates.
4. Property and Equipment
Property and equipment are summarized as follows:
December 31
1999
-----------
Computer and switching equipment $19,964,627
Furniture and fixtures......... 1,150,108
Automobiles.................... 352,113
Leasehold improvements......... 79,492
-----------
21,546,340
Less accumulated depreciation and
Amortization................. 13,186,467
-----------
$ 8,359,873
5. Long-Term Debt
In connection with an acquisition of customer lists during 1997 for
$1,250,000, Global issued a note for $837,500. The note provided for payments
of $275,000 and $562,500 with interest at 5.5% in 1998 and 1999,
respectively. During 1999, the note was repaid in full. Global recorded
interest expense of $47,238 and $39,724 for the years ended 1999 and 1998.
6. Lease Commitments
The Company leases various facilities classified as operating
leases. Under terms of these leases, the Company is required to pay its
proportionate share of real estate taxes, operating expenses and other
related costs. Rent expense for the years ended December 31, 1999 and 1998
was $1,619,083 and $1,444,456, respectively.
Additionally, the Company leases its principal office and equipment
space from various partnerships in which the general partner was also a
partner of the Company. The Company recorded rent included in the above
amounts aggregating $1,227,010 and $1,182,515 to these partnerships for the
years ended December 31, 1999 and 1998, respectively.
Future minimum rental payments, including those due to related
parties, are summarized as follows:
Year ending December 31, Amount
------------------------ ---------
2000...................... $1,902,000
2001...................... 1,927,000
2002...................... 1,954,000
2003...................... 1,565,000
2004...................... 537,000
Thereafter................ 105,000
----------
$7,990,000
7. Related Party Transactions
There are various transactions with a partner of the Company
relating to certain professional services approximating $1,000,000 for each
of the years 1999 and 1998. These transactions resulted in intercompany
balances shown as payables to related parties, with the related costs
reflected in general and administrative expenses. Additionally, companies
affiliated with this partner advanced funds to the Company for their
operations and purchases of certain telecommunication equipment. These
amounts have no formal repayment terms or interest rates and are shown as
payables, related party.
Additionally, the Company advanced funds to certain partners. These
amounts are included in receivables, partners and had no formal repayment
terms or interest rates. Subsequent to December 31, 1999, prior to the
partnerships' merger into ATX, Inc., a distribution of approximately $4.3
million was declared and satisfied by the above mentioned receivables,
partners.
8. Contingencies
The Company is a defendant in various lawsuits relative to its
business operations. Management believes that the outcome of these pending
lawsuits will not materially effect the financial position, results of
operations or cash flows of the Company.
9. Employee Benefits
The Company and affiliated business entities controlled by a partner
of the Company maintain a self-insured health plan for their employees and
partners. The Company is responsible for participant claims, stop loss
premiums and administrative fees. Such plan does not provide for post
retirement benefits.
10. Retirement Plan
The Company's employees participate in a defined contribution profit
sharing plan established under Section 401(k) of the Internal Revenue Code.
The plan allows employees to defer up to 15% of their income through
contributions to the plan on a pretax basis, subject to a statutory dollar
limitation. In accordance with the provisions of the plan, the employer may
match employees' contributions. In addition, the employer may make optional
contributions to the plan. The Company and other business entities controlled
by a partner of the Company participate in this plan. The Company made
matching contributions to the plan for the years ended December 31, 1999 and
1998 of $176,166 and $127,670, respectively.
11. Phantom Unit Plan
During 1998, ATX adopted the 1998 Phantom Unit Plan (the "Plan").
The Plan provides for the issuance of a total of 5,000,000 phantom units
representing a phantom 5% equity interest in ATX. Eligible employees may
receive phantom units or equivalent consideration as determined by a
committee appointed by ATX to administer the Plan. The committee has the
authority at its sole discretion to designate the employees eligible to
participate in the Plan. In addition, the committee may terminate or amend
the Plan at its discretion. Termination or amendment of the Plan shall not
affect phantom awards previously granted. Typically, the awards vest over a
seven-year period from the date of grant; however, an employee may receive
credit for employment time prior to the date of the award at the discretion
of the committee. The Plan is unfunded.
The phantom units become payable to a participant on the earlier of
his termination of employment or a change of control. Upon termination of
employment, a participant is entitled to compensation under the Plan. Such
compensation is payable over a 36-month period beginning in the thirteenth
month after termination. The participant's compensation is determined by his
proportionate ownership of units and the Plan's formula for determining
value, which is 10 times average net cash income as defined in the Plan for
the prior three fiscal years.
The Company has recorded a noncash (benefit) charge of ($400,000)
and $1,800,000 for the years ended December 31, 1999 and 1998, respectively,
related to the issuance of the phantom units.
Upon a change in control as defined in the Plan, the participants
will become entitled to receive compensation based upon the exchange or
transaction value of ATX's equity. ATX, Inc. will record a compensation
charge equal to the fair market value of the consideration payable to the
Plan participants less amounts previously recorded. The consummation of the
Merger Agreement, described in Note 2 above, would result in a non-cash
charge of approximately $44 million.
The following table contains information on phantom units for units
granted under the Plan from the date of adoption of the Plan through December
31, 1999:
Number of
Phantom Units
-------------
Outstanding at January 1, 1998. --
Granted........................ 3,350,000
Cancelled...................... (75,000)
--------
Outstanding at December 31, 1998 3,275,000
Granted........................ 1,725,000
Cancelled...................... --
--------
Outstanding at December 31, 1999 5,000,000
=========
12. Supplemental Disclosure of Cash Flow Information
Global financed $837,500 in 1997 related to the purchase of customer
lists and paid interest of $47,238 and $39,724 in 1999 and 1998,
respectively, in connection with this note.
===============================================================================
You should rely only on the information contained in this document
or that we have referred you to. We have not authorized anyone to provide you
with any other information. This prospectus may be delivered to you after the
date of this prospectus. However, you should realize that the affairs of
CoreComm Holdco, Inc. may have changed since the date of this prospectus.
This prospectus will not reflect such changes. You should not consider this
prospectus to be an offer or solicitation relating to the securities in any
jurisdiction in which such an offer or solicitation is not authorized.
Furthermore, you should not consider this prospectus to be an offer or
solicitation relating to the securities if the person making the offer or
solicitation is not qualified to do so, or if it is unlawful for you to
receive such an offer or solicitation.
---------------
Table of Contents
Page
----
PROSPECTUS SUMMARY....................4
THE OFFERING..........................6
SUMMARY HISTORICAL AND PRO FORMA
FINANCIAL DATA........................7
RISK FACTORS..........................9
USE OF PROCEEDS......................23
DIVIDEND POLICY......................23
CAPITALIZATION.......................24
UNAUDITED PRO FORMA FINANCIAL DATA...26
SELECTED HISTORICAL FINANCIAL DATA...37
MANAGEMENT'S DISCUSSION AND ANALYSIS
OF FINANCIAL CONDITION AND RESULTS OF
OPERATIONS...........................39
BUSINESS.............................47
GOVERNMENT REGULATION OF THE
TELECOMMUNICATIONS SERVICES BUSINESS.59
MANAGEMENT AND EXECUTIVE COMPENSATION66
SECURITY OWNERSHIP OF CERTAIN
BENEFICIAL OWNERS AND MANAGEMENT.....72
SELLING SECURITYHOLDERS..............73
CERTAIN RELATIONSHIPS AND RELATED
TRANSACTIONS.........................75
DESCRIPTION OF CAPITAL STOCK.........77
DESCRIPTION OF OUR INDEBTEDNESS......85
PLAN OF DISTRIBUTION.................89
LEGAL MATTERS........................90
EXPERTS..............................90
WHERE YOU CAN FIND MORE INFORMATION..91
INDEX TO FINANCIAL STATEMENTS.......F-1
==============================================================================
8,685,602 Shares of
Common Stock
CoreComm Holdco, Inc.
---------------
PROSPECTUS
---------------
____________, 2002
==============================================================================
PART II
INFORMATION NOT REQUIRED IN PROSPECTUS
Item 13. Other Expenses of Issuance and Distribution
The following is an itemization of all expenses, subject to future
contingencies, payable by the registrant in connection with the sale of the
common stock being registered. All amounts are estimates except the SEC
registration fee. None of the below listed expenses will be borne by the
selling securityholders.
SEC registration fee........... $ 2,398
Legal fees and expenses........ $ 250,000
Accounting fees and expenses... $ 50,000
Printing and engraving fees.... $ 40,000
Miscellaneous expenses......... $ 25,000
------------
------------
Total................ $ 367,398
============
Item 14. Indemnification of Directors and Officers
Section 145 of the Delaware General Corporation Law authorizes a
corporation to indemnify its directors, officers, employees and agents
against expenses (including attorneys' fees), judgments, fines and amounts
paid in settlement reasonably incurred, including liabilities under the
Securities Act, provided they act in good faith and in a manner reasonably
believed to be in or not opposed to the best interests of the corporation,
although in the case of proceedings brought by or on behalf of the
corporation, this indemnification is limited to expenses and is not permitted
if the individual is adjudged liable to the corporation, unless the court
determines otherwise. Our charter and amended by-laws require us to indemnify
our officers and directors to the full extent permitted by Delaware law.
Section 102 of the Delaware General Corporation Law authorizes a
corporation to limit or eliminate its directors' liability to the corporation
or its stockholders for monetary damages for breaches of fiduciary duties,
other than for (i) breaches of the duty of loyalty, (ii) acts or omissions
not in good faith or that involve intentional misconduct or knowing
violations of law, (iii) unlawful payments of dividends, stock purchases or
redemptions, or (iv) transactions from which a director derives an improper
personal benefit. Our charter contains provisions limiting the liability of
our directors to us and to our stockholders to the full extent permitted by
Delaware law.
Section 145 of the Delaware General Corporation Law authorizes a
corporation to purchase and maintain insurance on behalf of any person who is
or was a director, officer, employee or agent of the corporation against any
liability asserted against him or her and incurred by him or her in his or
her capacity as a director, officer, employee or agent of the corporation, or
arising out of his or her status as such. Our charter and amended by-laws
provide that we may, to the full extent permitted by law, purchase and
maintain insurance on behalf of any of our directors, officers, employees or
agents against any liability that may be asserted against him or her and we
currently maintain this insurance. We currently maintain liability insurance
covering our directors and officers for claims asserted against them or
incurred by them in their capacity as directors and officers, including
claims brought under the Securities Act.
Item 15. Recent Sales of Unregistered Securities
Since January 1, 1999, we have issued securities in the following
transactions not registered under the Securities Act:
1. On July 19, 1999, in connection with the establishment of
CoreComm Holdco as a wholly-owned subsidiary of CoreComm Limited, CoreComm
Holdco issued 1,500 shares of its common stock to CoreComm Limited.
2. On December 18, 2001, in connection with the Holdco
Recapitalization, CoreComm Holdco issued 485,602 shares of its common stock
to holders of CoreComm Limited's 6% Convertible Subordinated Notes due 2006
in exchange for all of CoreComm Limited's 6% Convertible Subordinated Notes
due 2006 held by these holders. This issuance of securities was exempt from
registration pursuant to Rule 506 promulgated under the Securities Act as
each holder participating in this transaction was an "accredited investor" as
defined in Rule 501(a) promulgated under the Securities Act, there was no
public offering of securities in connection with this transaction and the
other requirements of Rule 506 were met.
3. In December 2001, Thomas Gravina, our current President and Chief
Executive Officer and a director and Michael Peterson, our current Executive
Vice President, Chief Operating Officer, Chief Financial Officer and a
director, each paid $3,750 to a holder of CoreComm Limited's 6% Convertible
Subordinated Notes due 2006 to induce that holder to tender his notes to us
in exchange for the October 1, 2001 interest payment on those notes that had
not been paid, and received 7,588 shares of our common stock each as
consideration for that transaction. That number of shares is identical to the
number of shares a holder of the same amount of the notes tendered would have
been entitled under the agreements that had been reached with 94% of those
holders in the Holdco Recapitalization.
4. On December 28, 2001, in connection with the Holdco
Recapitalization, we issued 8,200,000 shares of our common stock to George
Blumenthal (200,000 shares), Booth American Company (2,000,000 shares), Debra
Buruchian (1,080,000 shares), Thomas Gravina (1,080,000 shares), Michael Karp
(3,202,899 shares), The Florence Karp Trust (197,101 shares), Barclay Knapp
(400,000 shares), Richard Lubasch (21,818 shares) and Ted McCourtney (18,182
shares) in consideration of the above listed holders exchanging shares of
preferred stock of CoreComm Limited, debt securities of CoreComm Limited
and/or debt securities that were a joint obligation of CoreComm Limited and
CoreComm Holdco held by them. This issuance of securities was exempt from
registration pursuant to Rule 506 promulgated under the Securities Act as
each holder participating in this transaction was an "accredited investor" as
defined in Rule 501(a) promulgated under the Securities Act, there was no
public offering of securities in connection with this transaction and the
other requirements of Rule 506 were met.
Item 16. Exhibits and Financial Statement Schedules
(a) The Exhibit Index is hereby incorporated by reference.
(b) The financial statement schedules are included in this
registration statement beginning on page S-1.
Item 17. Undertakings
(a) The undersigned registrant hereby undertakes:
(1) To file, during any period in which offers or sales are being
made, a post-effective amendment to this registration statement:
(i) To include any prospectus required by Section 10(a)(3) of
the Securities Act of 1933;
(ii) To reflect in the prospectus any facts or events arising
after the effective date of the registration statement (or the most
recent post-effective amendment thereof) which, individually or in the
aggregate, represent a fundamental change in the information set forth in
the registration statement. Notwithstanding the foregoing, any increase
or decrease in volume of securities offered (if the total dollar value of
securities offered would not exceed that which was registered) and any
deviation from the low or high end of the estimated maximum offering
range may be reflected in the form of a prospectus pursuant to Rule
424(b) if, in the aggregate, the changes in volume and price represent no
more than a 20 percent change in the maximum aggregate offering price set
forth in the "Calculation of Registration Fee" table in the effective
registration statement; and
(iii) To include any material information with respect to the
plan of distribution not previously disclosed in the registration
statement or any material change to such information in the registration
statement.
(2) That, for the purpose of determining any liability under the
Securities Act of 1933, each such post-effective amendment shall be deemed to
be a new registration statement relating to the securities offering therein,
and the offering of such securities at that time shall be deemed to be the
initial bona fide offering thereof.
(3) To remove from registration by means of a post-effective
amendment any of the securities being registered which remain unsold at the
termination of the offering.
(b) The undersigned registrant hereby undertakes that, for
purposes of determining any liability under the Securities Act of 1933,
each filing of the registrant's annual report pursuant to Section 13(a)
or 15(d) of the Securities Exchange Act of 1934 (and, where applicable,
each filing of an employee benefit plan's annual report pursuant to
Section 15(d) of the Securities Exchange Act of 1934) that is
incorporated by reference in the registration statement shall be deemed
to be a new registration statement relating to the securities offered
therein, and the offering of such securities at that time shall be deemed
to be the initial bona fide offering thereof.
INDEX TO FINANCIAL SCHEDULES
Report of Independent Auditor on Schedules ............................... S-2
Schedule I - Condensed Financial Information of CoreComm Holdco, Inc....... S-4
Schedule II - Valuation and Qualifying Accounts ........................... S-9
All other schedules for which provision is made in the applicable
accounting regulation of the Securities and Exchange Commission are not
required under the related instructions or are inapplicable, and therefore
have been omitted.
REPORT OF INDEPENDENT AUDITOR ON SCHEDULES
We have audited the consolidated financial statements of CoreComm
Holdco, Inc. as of December 31, 2000 and 1999, and for each of the years then
ended and the period from April 1, 1998 (date operations commenced) to
December 31, 1998, and have issued our report thereon dated March 12, 2001
(included elsewhere in this Registration Statement). Our audits also included
the financial statement schedules listed in Item 16(b) of this Registration
Statement. These schedules are the responsibility of the Company's
management. Our responsibility is to express an opinion based on our audits.
In our opinion, the financial statement schedules referred to above,
when considered in relation to the basic financial statements taken as a
whole, present fairly in all material respects the information set forth
therein.
/s/ ERNST & YOUNG LLP
New York, New York
March 12, 2001
REPORT OF INDEPENDENT AUDITOR ON SCHEDULES
We have audited the consolidated financial statements of OCOM
Corporation Telecoms Division for the period from January 1, 1998 to May 31,
1998, and have issued our report thereon dated February 26, 1999 (included
elsewhere in this Registration Statement). Our audit also included the
financial statement schedule listed in Item 16(b) of this Registration
Statement. This schedule is the responsibility of the Company's management.
Our responsibility is to express an opinion based on our audit.
In our opinion, the financial statement schedule referred to above,
when considered in relation to the basic financial statements taken as a
whole, present fairly in all material respects the information set forth
therein.
/s/ ERNST & YOUNG LLP
New York, New York
February 26, 1999
SCHEDULE I - CONDENSED FINANCIAL INFORMATION OF CORECOMM HOLDCO, INC.
CONDENSED BALANCE SHEETS
December 31,
2000 1999
------------------- ------------------
Assets
Current assets:
Cash and cash equivalents $ 6,198,000 $ 1,882,000
Marketable securities 1,343,000 -
Other 1,600,000 480,000
------------------- ------------------
Total current assets 9,141,000 2,362,000
Investments in and loans to subsidiaries 605,274,000 127,628,000
Other 1,059,000 -
------------------- ------------------
$615,474,000 $129,990,000
=================== ==================
Liabilities and shareholder's equity
Notes payable $16,170,000 $-
Commitments and contingent liabilities
Shareholder's equity:
Common stock 95,000 95,000
Additional paid-in capital 1,039,083,000 246,890,000
Deferred non-cash compensation (21,638,000) -
(Deficit) (418,236,000) (116,995,000)
------------------- ------------------
599,304,000 129,990,000
------------------- ------------------
$615,474,000 $129,990,000
=================== ==================
See accompanying notes.
SCHEDULE I - CONDENSED FINANCIAL INFORMATION OF CORECOMM HOLDCO, INC. (Continued)
CONDENSED STATEMENTS OF OPERATIONS
For the Period from
April 1, 1998 (date
operations commenced)
Year Ended December 31, to December 31,
2000 1999 1998
-------------------- ------------------- -----------------------
Costs and expenses
Corporate $ - $ 13,000 $ -
-------------------- ------------------- -----------------------
Operating (loss) - (13,000) -
Other income (expense)
Interest income and other, net 2,787,000 1,638,000 384,000
Interest expense (70,000) - -
-------------------- ------------------- -----------------------
Income before income taxes and equity
in net (loss) of subsidiaries 2,717,000 1,625,000 384,000
Income tax provision - (7,000) -
-------------------- ------------------- -----------------------
Income before equity in net (loss) of
subsidiaries 2,717,000 1,618,000 384,000
Equity in net (loss) of subsidiaries (303,958,000) (104,798,000) (14,199,000)
-------------------- ------------------- -----------------------
Net (loss) $(301,241,000) $(103,180,000) $(13,815,000)
==================== =================== =======================
See accompanying notes.
SCHEDULE I - CONDENSED FINANCIAL INFORMATION OF CORECOMM HOLDCO, INC. (Continued)
CONDENSED STATEMENTS OF CASH FLOWS
For the Period from
April 1, 1998 (date
operations commenced)
to December 31,
Year Ended December 31,
2000 1999 1998
-----------------------------------------------------------------
Net cash provided by operating activities $539,000 $2,320,000 $ 639,000
Investing activities
Acquisitions, net of cash acquired (98,613,000) (47,056,000) -
Purchase of marketable securities (1,343,000) - -
Increase in investments in and loans to subsidiaries (144,909,000) (105,267,000) (20,551,000)
-----------------------------------------------------------------
Net cash (used in) investing activities (244,865,000) (152,323,000) (20,551,000)
Financing activities
Capital contributions 232,472,000 151,885,000 19,912,000
Proceeds from borrowings, net of financing costs 16,170,000 - -
-------------------- -------------------- ---------------------
Net cash provided by financing activities 248,642,000 151,885,000 19,912,000
-------------------- -------------------- ---------------------
Increase in cash and cash equivalents 4,316,000 1,882,000 -
Cash and cash equivalents at beginning of period 1,882,000 - -
-------------------- -------------------- ---------------------
Cash and cash equivalents at end of period $ 6,198,000 $ 1,882,000 $ -
==================== ==================== =====================
Supplemental schedule of non-cash investing activities
Capital contributions of non-cash net assets $559,721,000 $45,007,000 $30,181,000
See accompanying notes.
SCHEDULE I - CONDENSED FINANCIAL INFORMATION OF CORECOMM HOLDCO, INC.(Continued)
NOTES TO CONDENSED FINANCIAL STATEMENTS
1. Organization
CoreComm Holdco, Inc. (the "Company") was formed in May 1998 as a
Bermuda corporation. It was a wholly-owned subsidiary of CoreComm Limited
("Limited") until December 2001. In July 1999, the Company was domesticated
under the laws of Delaware.
2. Basis of Presentation
In the Company's condensed financial statements, the Company's
investment in subsidiaries is stated at cost plus equity in the undistributed
earnings of the subsidiaries. The Company's share of net loss of its
subsidiaries is included in net loss using the equity method of accounting.
The condensed financial statements should be read in conjunction with the
Company's consolidated financial statements.
3. Notes Payable
In December 2000, the Company issued $16,100,000 aggregate principal
amount of 10.75% Senior Unsecured Convertible PIK Notes Due December 2010,
which were a joint obligation of Limited and the Company, to officers and
directors of Limited and the Company. Interest on the notes was at an annual
rate of 10.75% payable semiannually on January 1 and July 1 of each year,
commencing July 1, 2001. The interest was payable in kind by the issuance of
additional Senior Unsecured Convertible PIK Notes Due December 2010 in such
principal amount as shall equal the interest payment that is then due. The
notes were convertible into Limited common stock prior to maturity at a
conversion price of $5.00 per share, subject to adjustment. The additional
notes issued for interest had an initial conversion price equal to 120% of
the weighted average closing price of Limited's common stock for a specified
period. All of the outstanding 10.75% Senior Unsecured Convertible PIK Notes
Due December 2010 were exchanged for shares of the Company in December 2001.
Some of the officers and directors of the Company are also officers
or directors of NTL Incorporated ("NTL"). In April 2001, CoreComm Limited and
the Company as co-obligors issued to NTL $15 million aggregate principal
amount of 10.75% Unsecured Convertible PIK Notes Due April 2011. Interest on
the notes is at an annual rate of 10.75% payable semiannually on October 15
and April 15 of each year, commencing October 15, 2001. The interest is
payable in kind by the issuance of additional 10.75% Unsecured Convertible
PIK Notes Due April 2011 in such principal amount as shall equal the interest
payment that is then due. The notes are convertible into common stock prior
to maturity at a conversion price of $1.00 per share, subject to adjustment.
However, the holder of these notes and CoreComm Limited and CoreComm Holdco
have entered into an agreement relating to the conversion feature of the note
following the Holdco Recapitalization. Through that agreement, consistent
with the original terms of the note, CoreComm Limited and CoreComm Holdco
have agreed to exercise their right under the note such that, following the
successful completion of our exchange offer to the holders of CoreComm
Limited common stock to exchange their shares of CoreComm Limited common
stock for shares of our common stock, the convertibility feature of the note
will be altered so that rather than the note being convertible into shares of
CoreComm Limited common stock, it will become convertible into shares of our
common stock. At that time, the conversion price of $1.00 will be equitably
adjusted by applying the exchange ratio in the exchange offers, which results
in a new conversion price of $116.70 per share of our common stock. The
holder has agreed not to exercise its rights to convert into CoreComm Limited
common stock for six months from February 5, 2002 (unless that right has
previously ceased as a result of the completion of the exchange offer and the
change in the convertibility feature). In the event that we are unsuccessful
in completing the exchange offer, the conversion feature would remain into
CoreComm Limited common stock. These notes are redeemable, in whole or in
part, at our option, at any time in April 2003, at a redemption price of
103.429% that declines annually to 100% in April 2007, in each case together
with accrued and unpaid interest to the redemption date. Additional notes
issued for interest will have an initial conversion price equal to 120% of
the weighted average closing price of the common stock for a specified
period.
4. Guarantees of the Registrant
In September 2000, subsidiaries of the Company entered into a senior
secured credit facility with The Chase Manhattan Bank as lender,
administrative agent and collateral agent. The facility was amended and
restated in April 2001. As of April 2001, the entire amount available under
the senior secured credit facility of $156.1 million has been borrowed. The
Company is a guarantor of the credit facility.
5. Other
No cash dividends were paid to the registrant by subsidiaries from
April 1, 1998 (date operations commenced) through December 31, 2000.
CORECOMM HOLDCO, INC. AND SUBSIDIARIES
SCHEDULE II - VALUATION AND QUALIFYING ACCOUNTS
Balance at Charged to
Beginning of Costs and Charged to Balance at End
Description Period Expenses Other Accounts Deductions of Period
---------------------------------------------------------------------------------------------------------------------------
Year ended December 31, 2000:
Allowance for doubtful accounts $3,949,000 $7,130,000 $- $ (45,000) (a) $11,034,000
Year ended December 31, 1999:
Allowance for doubtful accounts $ 742,000 $3,241,000 $- $ (34,000) (b) $3,949,000
For the period from April 1, 1998
(date operations commenced) to
December 31, 1998:
Allowance for doubtful accounts $ - $ 501,000 $- $241,000 (c) $ 742,000
----------------------------
(a) Uncollectible accounts written-off, net of recoveries, of $9,269,000
offset by $9,224,000 allowance for doubtful accounts as of acquisition
date from business combinations.
(b) Uncollectible accounts written-off, net of recoveries, of $24,688,000
offset by $24,654,000 allowance for doubtful accounts as of acquisition
date from business combinations.
(c) Uncollectible accounts written-off, net of recoveries, of $117,000
offset by $358,000 allowance for doubtful accounts as of acquisition
date from business combinations.
OCOM CORPORATION TELECOMS DIVISION
SCHEDULE II - VALUATION AND QUALIFYING ACCOUNTS
Description Balance at
Beginning of Charged to Costs Charged to Other Balance at
Period and Expenses Account Deductions End of Period
------------------------------------------------------------------------------------------------------------------------
For the period from
January 1, 1998 to May
31, 1998:
Allowance for doubtful
Accounts $46,000 $92,000 $ - $60,000 (a) $78,000
-------------------------
(a) Uncollectible accounts written-off, net of recoveries.
SIGNATURES
Pursuant to the requirements of the Securities Act, the registrant
has duly caused this registration statement to be signed on its behalf by the
undersigned, thereunto duly authorized, in the City of New York, State of New
York on February 8, 2002.
CORECOMM HOLDCO, INC.
By: /s/ Michael A. Peterson
-----------------------------------
Name: Michael A. Peterson
Title: Executive Vice President,
Chief Operating Officer and
Chief Financial Officer
KNOW ALL PERSONS BY THESE PRESENTS, that each person whose signature
appears below constitutes and appoints Michael A. Peterson such person's true
and lawful attorney-in-fact and agent, with full power of substitution and
revocation, for such person and in such person's name, place and stead, in
any and all capacities (until revoked in writing), to sign any and all
amendments (including post-effective amendments) to this registration
statement filed pursuant to Rule 462 under the Securities Act, and to file
the same with all exhibits thereto, and the other documents in connection
therewith, with the Securities and Exchange Commission, granting unto said
attorney-in-fact and agent full power and authority to do and perform each
and every act and things requisite and necessary to be done, as fully to all
intents and purposes as such person might or could do in person, hereby
ratifying and confirming all that said attorney-in-fact and agent, or his
substitute or substitutes, may lawfully do or cause to be done by virtue
hereof.
Pursuant to the requirements of the Securities Act, this
registration statement has been signed by the following persons in the
capacities and on the dates indicated.
SIGNATURE TITLE DATE
/s/ Barclay Knapp Chairman of the Board of Directors February 8, 2002
-------------------------------
Barclay Knapp
/s/ Thomas Gravina President and Chief Executive February 8, 2002
-------------------------------
Thomas Gravina Officer (Principal Executive Officer);
Director
/s/ Michael A. Peterson Executive Vice President, Chief February 8, 2002
-------------------------------
Michael A. Peterson Operating Officer and Chief
Financial Officer (Principal Financial
Officer); Director
/s/ Gregg N. Gorelick Senior Vice President-- Controller and February 8, 2002
-------------------------------
Gregg N. Gorelick Treasurer
/s/ George S. Blumenthal Chairman Emeritus; Director February 8, 2002
-------------------------------
George S. Blumenthal
/s/ Ralph H. Booth, II Director February 8, 2002
-------------------------------
Ralph H. Booth, II
/s/ Alan J. Patricof Director February 8, 2002
-------------------------------
Alan J. Patricof
/s/ Warren Potash Director February 8, 2002
-------------------------------
Warren Potash
EXHIBIT INDEX
Exhibits Description
-------- -----------
2.1 Exchange Agreement, dated as of December 14, 2001, by
and among CoreComm Holdco, Inc., CoreComm Limited and
each of the parties set forth under the heading
"Security Holders" on the signature pages thereto
3.1 Restated Certificate of Incorporation of CoreComm
Holdco, Inc.
3.2 Certificate of Amendment to the Restated Certificate
of Incorporation of CoreComm Holdco, Inc.
3.3 Certificate of Correction to the Certificate of
Amendment to the Restated Certificate of
Incorporation of CoreComm Holdco, Inc.
3.4 Amended By-laws of CoreComm Holdco, Inc.
4.1 Specimen common stock certificate (front and reverse
side)
4.2 Rights Agreement, dated as of December 17, 2001, by
and between CoreComm Holdco, Inc. and Continental
Stock Transfer & Trust Company, including form of
rights certificate
4.3 10.75% Unsecured Convertible PIK Note due 2011, dated
as of April 12, 2001, made jointly by CoreComm
Holdco, Inc. and CoreComm Limited (incorporated by
reference to Exhibit 10.3 to CoreComm Limited's Form
8-K, dated April 13, 2001)
5.1 Opinion of Skadden, Arps, Slate, Meagher & Flom LLP
10.1 2001 Stock Option Plan of CoreComm Holdco, Inc.
10.2 Exchange Agreement, dated as of December 14, 2001, by
and between CoreComm Holdco, Inc. and CoreComm
Limited
10.3 Credit Agreement, dated as of September 28, 2000, as
amended and restated on April 11, 2001, among
CoreComm Limited, CoreComm Communications, Inc.,
CoreComm Holdco, Inc., the lenders party thereto and
The Chase Manhattan Bank, as Administrative Agent and
Collateral Agent (incorporated by reference to
Exhibit 10.52 to CoreComm Limited's registration
statement on Form S-1, file no. 333-47984)
10.4 First Amendment and Waiver dated as of October 31,
2001 to the Credit Agreement, dated as of September
28, 2000, as amended and restated on April 11, 2001,
among CoreComm Limited, CoreComm Communications,
Inc., CoreComm Holdco, Inc., the lenders party
thereto and JP Morgan Chase Bank, as Administrative
Agent and Collateral Agent
10.5 Second Amendment dated as of December 14, 2001 to the
Credit Agreement, dated as of September 28, 2000, as
amended and restated on April 11, 2001, and amended
by the First Amendment and Waiver dated as of October
31, 2001, among CoreComm Limited, CoreComm
Communications, Inc., CoreComm Holdco, Inc., the
lenders party thereto and JP Morgan Chase Bank, as
Administrative Agent and Collateral Agent
10.6 Lease Agreement dated as of January 18, 1994 between
Monument Road Associates and ATX Telecommunications
Services, Inc. (incorporated by reference to Exhibit
10.2 to CoreComm Limited's registration statement on
Form S-4, file no. 333-44028)
10.7 Addendum, dated as of January 25, 1996, to Lease
Agreement dated as of January 18, 1994 between
Monument Road Associates and ATX Telecommunications
Services, Inc. (incorporated by reference to Exhibit
10.3 to CoreComm Limited's registration statement on
Form S-4, file no. 333-44028)
10.8 Addendum, dated as of January 1, 1998, to Lease
Agreement dated as of January 18, 1994 between
Monument Road Associates and ATX Telecommunications
Services, Inc. (incorporated by reference to Exhibit
10.4 to CoreComm Limited's registration statement on
Form S-4, file no. 333-44028)
10.9 Addendum, dated as of October 1, 1998, to Lease
Agreement dated as of January 18, 1994 between
Monument Road Associates and ATX Telecommunications
Services, Inc. (incorporated by reference to Exhibit
10.5 to CoreComm Limited's registration statement on
Form S-4, file no. 333-44028)
10.10 Addendum, dated as of November 1, 1999, to Lease
Agreement dated as of January 18, 1994 between
Monument Road Associates and ATX Telecommunications
Services, Inc. (incorporated by reference to Exhibit
10.6 to CoreComm Limited's registration statement on
Form S-4, file no. 333-44028)
10.11 Lease Agreement dated as of January 2, 1993 between
Walnut Bridge Associates and ATX Telecommunications
Services, Inc. (incorporated by reference to Exhibit
10.7 to CoreComm Limited's registration statement on
Form S-4, file no. 333-44028)
10.12 Addendum, dated as of July 1, 1995, to Lease
Agreement dated as of January 2, 1993 between Walnut
Bridge Associates and ATX Telecommunications
Services, Inc. (incorporated by reference to Exhibit
10.8 to CoreComm Limited's registration statement on
Form S-4, file no. 333-44028)
10.13 Addendum, dated as of November 1, 1999, to Lease
Agreement dated as of January 2, 1993 between Walnut
Bridge Associates and ATX Telecommunications
Services, Inc. (incorporated by reference to Exhibit
10.9 to CoreComm Limited's registration statement on
Form S-4, file no. 333-44028)
10.14 Addendum, dated as of March 1, 2000, to Lease
Agreement dated as of January 2, 1993 between Walnut
Bridge Associates and ATX Telecommunications
Services, Inc. (incorporated by reference to Exhibit
10.10 to CoreComm Limited's registration statement on
Form S-4, file no. 333-44028)
10.15 Letter of Credit dated October 30, 1998 (incorporated
by reference to Exhibit 10.14 to CoreComm Limited's
registration statement on Form S-4, file no.
333-44028)
10.16 Summary of Principal Terms of Employment Arrangements
with Thomas J. Gravina and Michael A. Peterson
10.17 Summary of provision of services to ATX
Telecommunications Services, Inc. by University City
Housing (incorporated by reference to Exhibit 10.17
to CoreComm Limited's registration statement on Form
S-4, file no. 333-44028)
20.1 Letter sent to holders of CoreComm Limited common
stock disclosing CoreComm Limited's reliance on
financial viability exception to stockholder approval
requirements under Nasdaq Marketplace Rule 4350(i)(2)
21.1 Subsidiaries of CoreComm Holdco, Inc.
23.1 Consent of Ernst & Young LLP
23.2 Consent of Ernst & Young LLP
23.3 Consent of BDO Seidman LLP
23.4 Consent of PricewaterhouseCoopers LLP
23.5 Consent of Skadden, Arps, Slate, Meagher & Flom LLP
(included in Exhibit 5.1)
24.1 Powers of Attorney (included on signature page of
this registration statement)
EXHIBIT 2.1
EXECUTION COPY
EXCHANGE AGREEMENT
This Exchange Agreement (this "Agreement"), is entered into as of
December 14, 2001, by and among CoreComm Limited, a Delaware corporation
("Limited"), CoreComm Holdco, Inc., a Delaware corporation and a direct,
wholly-owned subsidiary of Limited ("Holdco" which shall be deemed to include
any successor to Holdco by way of merger, consolidation, combination, sale of
assets or otherwise), and each of the parties set forth under the heading
"Security Holders" on the signature pages attached hereto (collectively, the
"Security Holders").
WHEREAS, each Security Holder currently holds the shares of
preferred stock, par value $0.01 per share, of Limited set forth in Section 1
of such Security Holder's respective Schedule 2(a) attached hereto under the
heading "Preferred Stock" (collectively, the "Preferred Stock");
WHEREAS, each Security Holder currently holds the principal amount
of debt securities of Limited and/or Holdco set forth in Section 1 of such
Security Holder's respective Schedule 2(a) attached hereto under the heading
"Debt Securities" (collectively, the "Debt Securities" and together with the
Preferred Stock, the "Securities");
WHEREAS, as part of a restructuring plan (the "Restructuring Plan"),
a summary of which was previously made available by Limited to each Security
Holder, holders of convertible preferred stock of Limited, holders of debt
securities of Limited and certain holders of debt securities which are joint
obligations of Limited and Holdco desire to exchange all of the Preferred
Stock and Debt Securities held by such holders for shares of common stock,
par value $0.01 per share, of Holdco (the "Holdco Common Stock" or "Exchange
Securities") pursuant to and subject to the terms and conditions herein
contained;
WHEREAS, each Security Holder desires to exchange all of the
Securities set forth in Section 1 of such Security Holder's respective
Schedule 2(a) attached hereto for the number of shares of Holdco Common Stock
set forth in Section 2 of such Security Holder's respective Schedule 2(a)
attached hereto pursuant to and subject to the terms and conditions herein
contained; and
WHEREAS, after the Closing (as defined in Section 2(b)), Limited and
Holdco intend for Holdco to commence an exchange offer as part of the
Restructuring Plan, whereby Holdco will offer to exchange shares of Holdco
Common Stock for outstanding Public Notes (as defined in Section 1), and
Limited Common Stock (as defined in Section 1) consistent with the Holdco Pro
Forma Capitalization (as defined in Section 4(b)) (the "Exchange Offer").
NOW THEREFORE BE IT RESOLVED, that in consideration of the foregoing
premises and in consideration of the mutual agreements and covenants herein
contained and intending to be legally bound hereby, the parties, except as
otherwise noted, severally and not jointly, hereby agree as follows:
Section 1. Definitions(A). For the purposes of this Agreement, the
following terms shall have the following respective meanings:
(a) "Affiliate" means, with respect to any specified
Person, any other Person that directly, or indirectly through one or more
intermediaries, Controls, is Controlled by, or is under common Control
with, such specified Person.
(b) "Associate" means, with respect to any specified
Person, (i) a corporation or organization of which such Person is an
officer or partner or is, directly or indirectly, the beneficial owner of
10 percent or more of any class of equity securities, (ii) any trust or
other estate in which such Person has a substantial beneficial interest or
as to which such Person serves as trustee or in a similar capacity, (iii)
any relative or spouse of such Person, or any relative of such spouse, who
has the same home as such Person and (iv) a Person whose beneficial
ownership of securities would be required to be aggregated on any Schedule
13D or Schedule 13G required to be filed by such specified Person pursuant
to the Exchange Act.
(c) "ATX Registration Rights Agreement" shall mean the
Registration Rights Agreement, dated as of September 29, 2000, by and among
Limited, Michael Karp, Debra Buruchian, Thomas Gravina and The Florence
Karp Trust.
(d) "beneficial owner" (which shall include "beneficially
owned" or other similar phrasing as used herein) shall have the meaning set
forth in Rule 13d-3 under the Exchange Act.
(e) "Booth" shall mean Booth American Company.
(f) "Booth Registration Rights Agreement" shall mean the
Registration Rights Agreement, dated as of September 28, 2000, as amended
on April 12, 2001, by and between Limited and the Booth.
(g) "Business Day" shall mean any day other than a
Saturday, Sunday or a day on which banking institutions in the State of New
York are authorized or obligated by law or executive order to close.
(h) "Commission" shall mean the United States Securities
and Exchange Commission.
(i) "Control" (including the terms "Controlling,"
"Controlled by" and "under common Control with") means the possession,
direct or indirect, of the power to direct or cause the direction of the
management and policies of a Person, whether through ownership of voting
securities, by contract or otherwise.
(j) "Exchange Act" means the United States Securities
Exchange Act of 1934, as amended, and the rules and regulations promulgated
thereunder.
(k) "Existing Stockholder Agreement" shall mean the
Stockholder Agreement, dated as of September 29, 2000, by and among
Limited, Michael Karp, Debra Buruchian, Thomas Gravina and The Florence
Karp Trust.
(l) "Forbearance Agreements" shall mean the letter
agreements previously entered into between Limited and certain holders of
the Public Notes whereby such holders agreed, among other things, to
surrender all Public Notes held by such holders to Limited in exchange for
Limited Common Stock or common stock of such other entity that Limited uses
to restructure Limited's debt.
(m) "Governmental Authority" shall mean any public body,
governmental, quasi-governmental, legislative, administrative or regulatory
authority (including any self regulatory organization), agency, committee,
panel, instrumentality or commission, including courts of competent
jurisdiction and arbitral tribunals, whether federal, state, local or
foreign.
(n) "Holdco Debt Securities" shall mean the following
indebtedness: (i) 10.75% Unsecured Convertible PIK Notes Due 2011, which
are a joint obligation of Limited and Holdco, in the initial principal
amount of $10,000,000, together with any interest paid thereon in
additional principal amount of 10.75% Unsecured Convertible PIK Notes Due
2011, which are a joint obligation of Limited and Holdco; and (ii) 10.75%
Senior Unsecured Convertible PIK Notes Due 2010, which are a joint
obligation of Limited and Holdco, in the initial principal amount of
$16,100,000, together with any interest paid thereon in additional
principal amount of 10.75% Senior Unsecured Convertible PIK Notes Due 2010,
which are a joint obligation of Limited and Holdco.
(o) "Limited Common Stock" shall mean the common stock,
par value $0.01 per share, of Limited.
(p) "Material Agreement" of a party shall mean (i) in the
case of Limited and Holdco, the Credit Agreement (as defined in Section
4(e)), and (ii) any contract, agreement or arrangement pursuant to which
such party or its Affiliates (x) or by which the property of such party or
its Affiliates, is bound or (y) is obligated to purchase, pay for or sell
services, products or assets (including for the leasing of real or personal
property), in the case of (x) or (y), in an aggregate amount exceeding
$5,000,000 in any fiscal year (excluding the triggering of any acceleration
provisions therein).
(q) "Person" means any individual, partnership,
association, joint venture, corporation, business, trust, joint stock
company, limited liability company, any unincorporated organization, any
other entity, a "group" of such persons, as that term is defined in Rule
13d-5(b) under the Exchange Act or a Governmental Authority.
(r) "Public Notes" shall mean the 6% Convertible
Subordinated Notes due 2006 of Limited.
(s) "Senior Notes" shall mean the Senior Unsecured Notes
due September 29, 2003 of Limited.
(t) "Series A Preferred Stock" shall mean the following
preferred stock, par value $0.01 per share, of Limited: the 8.5% Senior
Convertible Preferred Stock, Series A (together with all accrued and unpaid
dividends thereon), and the 8.5% Senior Convertible Preferred Stock, Series
A-1 (together with all accrued and unpaid dividends thereon).
(u) "subsidiary" means, with respect to any specified
Person, any corporation, partnership, joint venture, limited liability
company, trust, estate or other Person of which (or in which), directly or
indirectly, more than 50% of (i) the issued and outstanding capital stock
having ordinary 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), (ii) the interest in the
capital or profits of such partnership, joint venture or limited liability
company or other Person or (iii) the beneficial interest in such trust or
estate is at the time owned by such first Person, by such first Person and
one or more of its other subsidiaries or by one or more of such Person's
other subsidiaries.
(v) "Total Voting Power" shall mean the aggregate voting
power of all Voting Securities outstanding at the time of any
determination. In determining Total Voting Power for purposes of Schedule
5(d)(iv), a Restricted Holder (as defined in Section 5(d)(iv)) may
conclusively rely on the most recent reports filed by Holdco with the
Commission in which the number of Voting Securities outstanding is set
forth or from which Total Voting Power can reasonably be derived, it being
understood that each Restricted Holder shall not be considered to be in
breach of Schedule 5(d)(iv) if he, she or it has acted in good faith on the
basis of a determination of Total Voting Power as contemplated herein,
unless such Restricted Holder has information obtained from Holdco
inconsistent with such publicly available information.
(w) "Voting Securities" means (i) all securities of
Holdco which by their terms may be voted on all matters submitted to
stockholders of Holdco generally, (ii) any securities convertible into or
exchangeable for, under any circumstance, the securities set forth in (i)
above and (iii) any rights, warrants or options to acquire (through
purchase, exchange, conversion or otherwise) any of the securities set
forth in (i) above, under any circumstance.
Section 2. The Exchange.
(a) Exchange of Securities. On the terms and subject to
the conditions of this Agreement, on the Closing Date (as defined below),
each Security Holder shall assign, transfer, convey and deliver all of the
Securities set forth in Section 1 of such Security Holder's respective
Schedule 2(a) attached hereto to Holdco free and clear of all liens,
encumbrances, pledges, security interests, equities, claims, rights of set
off, indemnifications, escrows, restrictions (other than on transfer under
federal and state securities laws and the Existing Stockholder Agreement,
if such Security Holder is a party thereto), voting trusts, voting
agreements, proxies, options, calls, collars, puts, contracts, deposits,
commitments, demands and rights of the Security Holder or of others (other
than the right of Limited to redeem the Series A Preferred Stock and the
right of Holdco or Limited to redeem the Holdco Debt Securities), whether
through notice, lapse of time, or both (collectively, "Liens"), and in
exchange Holdco shall issue and deliver to such Security Holder the number
of shares of Holdco Common Stock set forth in Section 2 of such Security
Holder's respective Schedule 2(a) attached hereto pursuant to the terms and
conditions herein contained. If any shares of Preferred Stock are held in
"street name" by a Security Holder, such Security Holder agrees to arrange
for appropriate transfer to Holdco hereunder.
(b) Closing. Upon the terms and subject to the conditions
of this Agreement, the closing of the exchange of Exchange Securities for
Securities as contemplated by this Agreement (the "Closing"), shall take
place at the offices of Skadden, Arps, Slate, Meagher & Flom LLP, Four
Times Square, New York, New York 10036-6522, as soon as reasonable after
the satisfaction or waiver of all of the conditions set forth in Sections
6, 7 and 8 of this Agreement or at such other time and place as each of the
parties hereto may agree (the "Closing Date").
(c) Waiver. Subject to the consummation of the Closing,
each Security Holder hereby (i) agrees that the Preferred Stock (together
with accrued and unpaid dividends through the Closing Date), if any, and
the Debt Securities (together with accrued and unpaid interest through the
Closing Date) exchanged by or on behalf of such Security Holder pursuant to
this Agreement shall be deemed paid and satisfied in full with respect to
such Security Holder without any further action of such Security Holder,
Limited or Holdco and (ii) waives any and all rights to receive any
payments or other amounts, including, without limitation, liquidation
preference, accrued and unpaid dividends, principal amount, accrued and
unpaid interest and/or late fees with respect to, related to, or arising
out of, the Securities (whether through notice, lapse of time, or both)
exchanged by or on behalf of such Security Holder, and agrees that
Limited's and Holdco's obligations to such Security Holder under this
Agreement supersede and replace in their entirety Limited's and Holdco's
obligations, if any, to such Security Holder under the Securities or any
contract, agreement, arrangement, commitment, understanding or instrument,
either written or oral, relating thereto, without any further action of
such Security Holder, Limited or Holdco and upon the consummation of the
Closing with respect to such Security Holder, any obligation of Limited
and/or Holdco for the benefit of such Security Holder contained in any such
contract, agreement, arrangement, commitment, understanding or instrument
shall terminate and be of no further force and effect.
(d) Deliveries. At the Closing, any certificates and
other documents required or contemplated to be delivered pursuant to this
Agreement will be exchanged among the parties.
Section 3. Security Holder Representations and Warranties(C). Each
Security Holder, severally and not jointly, represents and warrants to
Limited and Holdco that:
(a) Title to Securities. Such Security Holder (i) is the
record and beneficial owner of, and has good, valid and legal title, free
and clear of all Liens, to, the Preferred Stock, if any, and Debt
Securities set forth in Section 1 of such Security Holder's respective
Schedule 2(a) attached hereto and (ii) is not the record or beneficial
owner of any other convertible preferred stock of Limited, any other debt
securities which are a joint obligation of Holdco and Limited or any other
debt securities of Limited.
(b) No Voting Agreements. Except for the Existing
Stockholder Agreement (if such Security Holder is a party thereto), such
Security Holder has not entered into or agreed to enter into any contract,
agreement, arrangement, understanding or commitment with any Person, either
written or oral, whether or not contingent upon the happening of any event
or circumstance, for the voting, consenting or tendering (or not voting,
consenting or tendering) of the Securities or the shares of Limited Common
Stock underlying such Securities, if any.
(c) Authority. Such Security Holder has full power and
authority to enter into this Agreement and consummate the transactions
contemplated by this Agreement by such Security Holder in accordance with
the terms and conditions herein contained.
(d) Due Authorization. This Agreement has been duly
authorized, executed and delivered by such Security Holder and is a valid
and binding obligation of such Security Holder enforceable in accordance
with the terms set forth herein, subject, as to enforcement, to applicable
bankruptcy, insolvency, fraudulent transfer, preferences, moratorium and
similar laws affecting the rights of creditors generally and by general
principles of equity (regardless of whether enforcement is sought in equity
or at law).
(e) No Conflict. The authorization, execution, delivery
and performance by such Security Holder of this Agreement and the
consummation of the transactions contemplated by this Agreement by such
Security Holder will not conflict with, violate or result in the breach of,
any of the material terms or conditions (whether through failure to provide
notice, lapse of time, or both) of any material contracts of such Security
Holder.
(f) Consents. No consent, authorization, approval, notice
or waiver is required pursuant to any Material Agreement of such Security
Holder for the execution, delivery and performance by such Security Holder
of this Agreement and the consummation of the transactions contemplated by
this Agreement by such Security Holder in accordance with the terms and
conditions herein contained.
(g) Unregistered Shares of Holdco Common Stock. Such
Security Holder hereby acknowledges and agrees that the Exchange Securities
have not been, and are not required to be, registered under the Securities
Act of 1933, as amended, and the rules and regulations promulgated
thereunder (the "Securities Act"), and the Exchange Securities set forth in
Section 2 of such Security Holder's respective Schedule 2(a) attached
hereto may not be offered or sold, except pursuant to registration or to an
exemption from, or in a transaction not subject to, the registration
requirements of the Securities Act and applicable prospectus delivery
requirements. Such Security Holder was not offered, nor will be sold, the
Exchange Securities through any form of general solicitation or general
advertising by Holdco or any Person acting on behalf of Holdco.
(h) Substantial Risks. Such Security Holder hereby
represents that it understands that the exchange of Securities for Exchange
Securities in accordance with the terms and conditions of this Agreement
involves substantial risk. Such Security Holder hereby represents that it
has experience as an investor in securities of companies in similar
industries and/or with similar financial and operational metrics and
acknowledges that it is able to fend for itself, can bear the economic risk
of its investment in Exchange Securities and has such knowledge and
experience in financial and business matters, that it is capable of
evaluating the merits and risks of an investment in Exchange Securities and
protecting its own interests in connection with such exchange and
investment. Such Security Holder hereby represents that it is an
"accredited investor" as defined in Rule 501(a) promulgated under the
Securities Act and will be an accredited investor on the Closing Date.
(i) Investment Intent. Such Security Holder hereby
represents and warrants that it is acquiring Exchange Securities for
investment for its own account, not as a nominee or agent, and not with a
view to the public resale or distribution thereof within the meaning of the
Securities Act. Such Security Holder hereby agrees and covenants that it
has not entered and will not enter into any contract, arrangement or other
agreement with respect to the distribution or delivery of Exchange
Securities, other than (A) pursuant to Rule 144 under the Securities Act,
if available, (B) pursuant to any transaction that does not require
registration under the Securities Act, (C) with the prior written consent
of Holdco or (D) upon registration of Exchange Securities pursuant to
Section 5(c) of this Agreement, assuming such registration is effective at
the time of any disposition.
(j) Access to Information. Such Security Holder has had
an opportunity to ask questions of, and receive answers from, the officers,
employees, agents, accountants and representatives of Limited and Holdco
and the subsidiaries thereof regarding the management, business plan,
condition (financial or otherwise), results of operations, properties,
assets, liabilities, cash flow, cash position and prospects of Limited and
Holdco and the subsidiaries thereof and has received all materials and
information it has deemed necessary or appropriate as a prudent and
knowledgeable investor in evaluating the exchange of Securities for
Exchange Securities. Such Security Holder understands that there can be no
assurance the business or financial objectives of Limited or Holdco will be
obtained. Such Security Holder has sought such accounting, legal and tax
advice as it has considered necessary to make an informed decision with
respect to the exchange of Securities for Exchange Securities.
(k) No Brokers. Such Security Holder has no contract,
arrangement or understanding with any broker, finder or similar agent with
respect to the transactions contemplated by this Agreement.
(l) No other Representations and Warranties.
Notwithstanding anything in this Agreement to the contrary, except for the
representations and warranties contained in this Section 3, none of the
Security Holders, nor any other Person acting for or on behalf of such
Security Holder, makes any representation or warranty, whether express or
implied.
Section 4. Limited and Holdco Representations and Warranties.
Limited and Holdco, jointly and severally, represent and warrant to each
Security Holder, individually, that: -
(a) Holdco Capitalization. As of the date of this
Agreement, the authorized capital stock of Holdco consists solely of 1,500
shares of Holdco Common Stock, of which 1,500 shares are issued and
outstanding. As of the date of this Agreement, all of the outstanding
shares of Holdco's capital stock (i) are duly authorized, validly issued,
fully paid and nonassessable and (ii) are held of record and beneficially
by Limited free and clear of all Liens, except those arising out of the
Credit Agreement. As of the date of this Agreement, there are no other
shares of capital stock of Holdco issued. As of the date of this Agreement,
there are no outstanding (i) securities of Holdco convertible into or
exchangeable for shares of capital stock of Holdco or (ii) options,
warrants, calls or other rights to acquire from Holdco, or other
obligations or understandings or arrangements of Holdco to issue, any
capital stock or securities convertible into or exchangeable for capital
stock of Holdco, except as contemplated by this Agreement, the Forbearance
Agreements and the Exchange Offer. As of the date of this Agreement, there
are no outstanding obligations of Holdco to repurchase, redeem or otherwise
acquire any capital stock of Holdco (or any of the other securities set
forth in the previous sentence). Except pursuant to this Agreement, the
Forbearance Agreements, the form of the Restated Certificate of
Incorporation of Holdco attached hereto as Exhibit A and the Credit
Agreement, neither Holdco nor Limited is a party to, or bound by, any
arrangement, agreement, instrument or order relating to (i) the transfer of
any capital stock among stockholders of Holdco, (ii) the dividend or voting
rights of any capital stock of Holdco or (iii) rights to registration under
the Securities Act of any capital stock of Holdco, including any
stockholders or similar agreement.
(b) Pro Forma Holdco Capitalization. Attached hereto as
Exhibit B-1 is a pro forma capitalization table of Holdco as of the Closing
Date assuming that all of the outstanding (i) shares of convertible
preferred stock of Limited, (ii) shares of Limited Common Stock, (iii)
Public Notes, (iv) Senior Notes and (v) Holdco Debt Securities, have been
exchanged for shares of Holdco Common Stock (the "Holdco Pro Forma
Capitalization"). Nothing herein contained is intended to limit Holdco's
ability to engage in future issuances, redemptions and exchanges of stock,
debt or derivative securities in the ordinary course of business and/or in
connection with option issuances and exercises, warrant issuances and
exercises, conversions, financings, acquisitions or other transactions.
(c) Authority. Each of Limited and Holdco has the
corporate power and corporate authority to enter into this Agreement and
consummate the transactions contemplated by this Agreement by it in
accordance with the terms and conditions herein contained.
(d) Due Authorization. This Agreement has been duly
authorized, executed and delivered by each of Limited and Holdco and is a
valid and binding obligation of such party enforceable in accordance with
the terms set forth herein, subject, as to enforcement, to applicable
bankruptcy, insolvency, fraudulent transfer, preferences, moratorium and
similar laws affecting the rights of creditors generally and by general
principles of equity (regardless of whether enforcement is sought in equity
or at law).
(e) Consents. Except for the matters contemplated by this
Agreement and the consent of The Chase Manhattan Bank pursuant to the
Credit Agreement, dated as of September 28, 2000, as amended and restated
as of April 11, 2001 (the "Credit Agreement"), by and among CoreComm
Communications, Inc., Limited, Holdco, the lenders party thereto, The Chase
Manhattan Bank, as Administrative Agent and Collateral Agent and Chase
Securities Inc., as Book Manager and Lead Arranger, no consent,
authorization, approval, notice or waiver is required pursuant to any
Material Agreement of Holdco for the execution, delivery and performance by
Holdco of this Agreement and the consummation of the transactions
contemplated by this Agreement by Holdco in accordance with the terms and
conditions herein contained.
(f) Validly Authorized Shares of Holdco Common Stock.
Subject to the terms and conditions of this Agreement, the shares of
Exchange Securities that will be delivered at the Closing to such Security
Holder have been duly and validly authorized by Holdco and, when delivered
to such Security Holder in exchange for the Securities that will be
delivered by such Security Holder at the Closing free and clear of all
Liens, will be duly and validly issued and fully paid and nonassessable.
(g) Valid Exemption from Registration. Assuming the
accuracy of the representations and warranties of each Security Holder
contained in Section 3 of this Agreement, it is not, and will not be,
necessary in connection with the offer, sale or delivery of the Exchange
Securities to such Security Holder in the manner contemplated in this
Agreement to register such shares under the Securities Act.
(h) No Brokers. Neither Limited nor Holdco has any
contract, arrangement or understanding with any broker, finder or similar
agent with respect to the transactions contemplated by this Agreement.
(i) No Other Agreements. This Agreement represents the
only agreement or arrangement between Limited and/or Holdco, on the one
hand, and any Security Holder on the other hand, with respect to the
exchange of Securities for Exchange Securities pursuant to this Agreement.
(j) No Other Representations or Warranties.
Notwithstanding anything in this Agreement to the contrary, except for the
representations and warranties contained in this Section 4, neither Limited
nor Holdco, nor any other Person acting for or on behalf of Limited and/or
Holdco, makes any representation or warranty, whether express or implied.
Section 5. Covenants.
(a) Best Efforts. Each party shall use its best efforts
to timely satisfy each of the conditions to be satisfied by it as provided
in Sections 6, 7 and 8 of this Agreement.
(b) Charter and By-laws. Immediately prior to the
Closing, the Certificate of Incorporation and By-laws of Holdco shall be
amended in the form attached hereto as Exhibits A and C, respectively.
(c) Registration of Holdco Common Stock.
(i) Holdco hereby agrees, at its expense, to (A)
use its reasonable best efforts to file under the Securities Act
no later than 45 days after the Closing Date (the "Expected Filing
Date"), a "shelf" registration statement providing for the
registration of, and the sale on a continuous or delayed basis by
the holders of, all of the shares of Holdco Common Stock issued on
the Closing Date (the "Holdco Registrable Securities"), pursuant
to Rule 415 under the Securities Act and/or any similar rule that
may be adopted by the Commission (the "Holdco Shelf
Registration"), (B) use its reasonable best efforts to cause the
Holdco Shelf Registration to become or be declared effective no
later than 150 days after the Closing Date (the "Expected
Effective Date"), and to keep such Holdco Shelf Registration
continuously effective for a period ending on the earlier of the
fourth anniversary of the Closing Date or such time as there are
no longer any Holdco Registrable Securities outstanding, (C)
supplement or make amendments to the Holdco Shelf Registration, as
and when required by the rules, regulations or instructions
applicable to the registration form used by Holdco for such Holdco
Shelf Registration under the Securities Act and for purposes of
replacing a selling stockholder in the selling stockholder section
of the Holdco Shelf Registration upon receipt by Holdco of a
written request of a selling stockholder or such Person's
transferee, (D) use reasonable best efforts to list or have quoted
the Holdco Registrable Securities registered pursuant to the
Holdco Shelf Registration with any securities exchange or
automated inter-dealer quotation system on which Holdco Common
Stock is then listed or quoted or, if Holdco Common Stock is not
so listed or quoted, such other system on which Holdco Common
Stock is then listed, quoted or traded, if any, subject to the
rules and regulations of the applicable self regulatory
organization.
(ii) In the event the Commission has not
declared the Holdco Shelf Registration effective under the
Securities Act on or prior to the Expected Effective Date solely
due to Holdco's failure to take reasonable measures in seeking to
have the Holdco Shelf Registration declared effective under the
Securities Act, including failing to (A) file the Holdco Shelf
Registration on or prior to the Expected Filing Date and (B)
timely respond to any comments provided to Holdco by the
Commission with respect to the Holdco Shelf Registration, then, in
the event that the Holdco Shelf Registration is not declared
effective prior to the end of any subsequent 30-day period first
commencing on the date of the Expected Effective Date, Holdco
shall, within 10 Business Days following the end of any such
30-day period, pay in cash to each Security Holder who has Holdco
Registrable Securities included in the Holdco Shelf Registration
such Security Holder's pro rata share, based upon the number of
shares of Holdco Registrable Securities such Security Holder has
included in the Holdco Shelf Registration, of $25,000.
(iii) Subject to and effective as of the
consummation of the Closing, each Security Holder that is a party
to, or is otherwise entitled to any rights or benefits under,
either of the Booth Registration Rights Agreement or the ATX
Registration Rights Agreement, hereby releases and waives any
rights and benefits it has thereunder.
(d) Certain Stockholder Restrictions.
(i) Each Security Holder hereby covenants and
agrees that such Security Holder shall not, directly or
indirectly, offer, sell, assign, pledge, hypothecate, encumber or
otherwise dispose of or transfer in any manner (collectively,
"Transfer") any Exchange Security, unless such Transfer is
pursuant to an (x) effective registration statement under the
Securities Act or (y) exemption from registration under the
Securities Act and all applicable state securities laws. For the
avoidance of doubt, nothing contained in this Section 5(d)(i) is
intended to restrict any Security Holder from making any Transfer
of Exchange Securities that would not be in violation of any
federal or state securities laws.
(ii) No Security Holder may Transfer any
Exchange Security that is not registered under the Securities Act
without giving prior written notice to Holdco of such Security
Holder's intention to effect such Transfer. The written notice
shall describe in reasonable details the manner and circumstances
of the proposed Transfer and shall be accompanied by a written
opinion of counsel addressed to Holdco and reasonably satisfactory
to Holdco that the proposed Transfer may be effected without such
registration. In addition, such Security Holder shall cause any
transferee of the Exchange Securities in a transaction exempt
from, or not subject to, the Securities Act, as a condition to the
consummation of such Transfer, to agree to be subject to the
provisions of this section of the Agreement.
(iii) The restrictions on Transfer contained
herein shall not be exclusive and each Security Holder shall be
subject to any other provisions or restrictions on Transfer
contained in any other documents of which such Security Holder is
a party.
(iv) The terms and conditions contained in
Schedule 5(d)(iv) attached hereto shall apply to any Security
Holder that, together with its Affiliates and Associates, has,
directly or indirectly, record or beneficial ownership of at least
15% of the shares of Holdco Common Stock then outstanding at any
time after the consummation of the transactions contemplated in
this Agreement (such Security Holder, together with its Affiliates
and Associates, a "Restricted Holder").
(v) (A) None of a Security Holder, its
Affiliates or its Associates shall acquire, agree to acquire or
offer or propose to acquire, directly or indirectly, or in
conjunction with or through any Person, record or beneficial
ownership of any Voting Securities, except: (I) by way of stock
splits, reclassifications or stock dividends or other
distributions or offerings made on a pro rata basis to holders of
Voting Securities or any class of Voting Securities; (II) from
another Security Holder, or an Affiliate or Associate thereof, by
bequest (including, without limitation, through the creation of a
trust), gift, will, pledge or hypothecation; (III) pursuant to a
bequest or similar gift or transfer from a Person who is not a
Security Holder, or an Affiliate or Associate thereof, including,
without limitation, through the creation of a trust for the
benefit of a Security Holder, or an Affiliate or Associate
thereof; (IV) pursuant to a will or the laws of descent and
distribution from a Person who is not a Security Holder, or an
Affiliate or Associate thereof; or (V) pursuant to the grant or
exercise of stock options or the receipt of other compensation or
benefits involving Voting Securities granted to a Security Holder,
or an Affiliate or Associate thereof, in such Security Holder's,
or its Affiliate's or Associate's, as the case may be, capacity
(if applicable) as an employee of, or consultant to, Holdco or any
subsidiary of Holdco; provided, however, that if, in connection
with the transfer of Voting Securities to a Security Holder, or an
Affiliate or Associate thereof, pursuant to clauses (III) and (IV)
of this Section 5(d)(v)(A), a trust, corporation or other entity
is formed for the purpose of holding, or otherwise holds, Voting
Securities for the benefit of a Security Holder, or an Affiliate
or Associate thereof (other than solely as an income beneficiary
of a trust), then, as a condition precedent to the receipt by such
Security Holder, or an Affiliate or Associate thereof, of any
direct or indirect beneficial interest in such Voting Securities,
such trust, corporation or other entity shall agree to be bound by
the terms and conditions of a stockholder agreement having the
same terms and conditions as this Section 5(d)(v). Notwithstanding
anything in this Section 5(d)(v)(A) to the contrary, any Security
Holder, together with its Affiliates and Associates, may, during
the calendar year commencing January 1, 2002 and each subsequent
calendar year, acquire, agree to acquire or offer or propose to
acquire, directly or indirectly, or in conjunction with or through
any Person, record or beneficial ownership of Voting Securities
(on an as converted basis) comprising, in the aggregate, a number
of shares of Holdco Common Stock sufficient to maintain such
Security Holder's ownership of Voting Securities (on an as
converted basis) in accordance with the applicable percentages of
outstanding shares of Holdco Common Stock set forth on Exhibit B-2
attached hereto; provided, however, that in no event shall any
Security Holder, together with its Affiliates and Associates, own
beneficially or of record, directly or indirectly, Voting
Securities (on an as converted basis) equal to greater than an
aggregate of 39.0% of the outstanding shares of Holdco Common
Stock. Notwithstanding the foregoing, nothing contained herein
shall be deemed to prohibit a Security Holder from engaging in any
of the activities set forth in Sections 1.1, 1.2, 1.3, 1.4 and 1.5
of Schedule 5(d)(iv) attached hereto (each a "Restricted
Activity") after the nine month anniversary of the date that the
Commission declares the Holdco Shelf Registration effective under
the Securities Act; provided that the foregoing exception shall
not apply in the event that such Security Holder's engaging in
such Restricted Activity would result in such Security Holder
acquiring "beneficial ownership" (as such term is defined under
Rule 13d-3 of the Exchange Act) of any Voting Securities from
another Person, other than where such acquisition of Voting
Securities would otherwise be permitted under this Section
5(d)(v). For the avoidance of doubt, nothing in this Agreement
(including the proviso contained in the immediately preceding
sentence) shall restrict or prohibit any Security Holder from
soliciting another, or entering into any agreement or arrangement
or participating in a group, to vote with another in any
particular way on any particular matter after the nine month
anniversary of the date that the Commission declares the Holdco
Shelf Registration effective under the Securities Act.
(B) If a Security Holder, or an Affiliate or
Associate thereof, shall acquire, directly or indirectly, record
or beneficial ownership of, or the right to acquire, any Voting
Securities in contravention of this Agreement, then such Security
Holder shall promptly notify Holdco, and Holdco, in its sole
discretion, may either (x) purchase (or cause its designee(s) to
purchase) any or all of such acquired Voting Securities at a price
equal to the price paid by such Security Holder, or its Affiliates
or Associates, as the case may be, or (y) require such Security
Holder, or its Affiliates or Associates, as the case may be, to
dispose of, within 30 days from the date on which Holdco requests
such Security Holder, or its Affiliates or Associates, as the case
may be, to do so, only in accordance with the provisions of
clauses (ii) or (iv) of Section 1.4(a) of Schedule 5(d)(iv)
attached hereto, the Voting Securities acquired in violation of
Section 5(d)(v)(A); provided that any such sale may be delayed as
necessary by such Security Holder, or its Affiliates or
Associates, as the case may be, to avoid a violation of Section
16(b) of the Exchange Act or any other provisions of the Exchange
Act or Securities Act, including, without limitation, any
applicable volume limits under Rule 144 of the Securities Act, or
any successor rules or regulations permitting sales of
unregistered or otherwise restricted securities. Each Security
Holder hereby acknowledges that any acquisition of Voting
Securities in contravention of Section 5(d)(v)(A) of this
Agreement shall constitute a breach of Section 5(d)(v)(A) of this
Agreement and that Holdco' s right to purchase or require the
disposition of Voting Securities pursuant to this Section
5(d)(v)(B) shall not be exclusive and shall be in addition to any
other rights and remedies Holdco may have in connection with a
breach of this Section 5(d)(v).
(C) If Holdco enters into a definitive
agreement with a third party or accepts, approves or recommends an
offer from a third party to acquire greater than 50% of the Voting
Securities (on an as converted basis) (the "Third-Party Offer"),
Holdco shall give each Security Holder reasonable prior notice of
any of the above circumstances or events, and each Security Holder
shall have the right, on a pro-rata basis commensurate with its
then level of ownership of Voting Securities (on an as converted
basis), to offer to acquire (with respect to manner of sale or
type of transaction, e.g., if the Third-Party Offer is to acquire
shares in the open market or in an offer to holders, then such
Security Holder's right shall be the equivalent) the number of
Voting Securities (on an as converted basis) that is equal to or
greater than the number of Voting Securities (on an as converted
basis) that is contemplated to be acquired pursuant to the
Third-Party Offer, and Holdco shall not take any action that would
confer a timing advantage to the Person making the Third-Party
Offer.
(D) Notwithstanding the foregoing
restrictions, any Security Holder, together with its Associates
and Affiliates, may make a bona fide written offer to acquire or
purchase 100% of the capital stock of Holdco; provided that such
transaction is definitive in nature or provides for a make-whole
premium or similar significant penalty payable to stockholders of
Holdco other than such offering Security Holder and its Affiliates
and Associates, in the event such Security Holder, together with
its Affiliates and Associates, does not complete such a
transaction.
(e) Exchange Offer. From and after the Closing, each
Security Holder hereby agrees without further consideration that such
Security Holder shall (i) take all reasonable actions necessary by such
Security Holder as a stockholder of Holdco to assist in the consummation of
the Exchange Offer on a timely basis, including, without limitation, if
applicable, voting in favor of, and publicly supporting, the Exchange Offer
and (ii) refrain from taking any action which could delay, prohibit,
prevent, restrain, restrict or otherwise impair the Exchange Offer and the
transactions contemplated thereby.
(f) Irrevocable Proxy. Notwithstanding anything contained
in this Agreement or in any Schedule hereto to the contrary, each Security
Holder hereby irrevocably appoints George S. Blumenthal, Barclay Knapp,
Alan J. Patricof and Warren Potash, and each of them, with full power of
substitution and resubstitution, proxies to represent such Security Holder
at any meeting(s) of the stockholders of Holdco and at any adjournments or
postponements thereof (and waives any required notice under Holdco's
By-laws in connection therewith), and thereat to vote all of the shares of
stock which such Security Holder would be entitled to vote, with all the
powers such Security Holder would possess if personally present, in favor
of (i)(x) a stock split (whether forward or reverse) of shares of Holdco
Common Stock upon a determination by the Holdco Board of Directors that
such a stock split is advisable and in the best interest of Holdco to more
accurately reflect the capitalization of Holdco pursuant to the
Restructuring Plan and (y) an amendment to Holdco's Certificate of
Incorporation to effect such stock split and/or (ii)(x) a change in the
corporate name of CoreComm Holdco, Inc. to a suitable corporate name upon a
determination by the Holdco Board of Directors that such a corporate name
change is advisable and in the best interest of Holdco and (y) an amendment
to Holdco's Certificate of Incorporation to effect such corporate name
change. This subsection shall be binding on all successors and assigns of
the Security Holders, including transferees of the Exchange Securities.
(g) Board Representation.
(i) (A) Following the Closing, and for so long
as the Karp Parties (as defined below) own at least 15% of the
outstanding shares of Holdco Common Stock, Michael Karp shall have
the right to designate (or substitute, at his discretion, in the
event of the resignation, or any other event that creates a
vacancy, of a Karp Director (as defined below)) that number of
directors to the Holdco Board of Directors that is proportionate
to the Karp Parties' ownership of the outstanding shares of Holdco
Common Stock, rounded up or down to the nearest number of seats
(each a "Karp Director"). As used in this Section 5(g), "Karp
Parties" shall mean Michael Karp together with his Affiliates and
Associates. At all times that the Karp Parties own at least 15% of
the outstanding shares of Holdco Common Stock, Michael Karp shall
have the right to designate at least one director to the Holdco
Board of Directors.
(B) Holdco shall use its best efforts to
ensure that, at the initial designation of the Karp Directors,
such directors shall be designated to the classes of directors
with the longest unexpired term, but with no more than one Karp
Director in each class of directors.
(C) If, at any time and from time to time, the
level of the Karp Parties' ownership of outstanding shares of
Holdco Common Stock would, pursuant to Section 5(g)(i)(A) of this
Agreement, result in Michael Karp being entitled to designate
fewer Karp Directors than are serving as Karp Directors on the
Holdco Board of Directors at such time, then the number of Karp
Directors which exceed the number to which Michael Karp would be
entitled to designate pursuant to Section 5(g)(i)(A) of this
Agreement shall be deemed to have resigned from the Holdco Board
of Directors; provided that Michael Karp may first select which
director(s) shall resign in any instance where a resignation is
required pursuant to this sentence; provided further that if
Michael Karp does not promptly select which directors shall resign
and notify the Holdco Board of Directors of the name(s) of the
resigning directors, the Holdco Board of Directors (other than the
Karp Directors) shall make such selection; provided, however, that
the Holdco Board of Directors may not select Michael Karp until
such time as all other Karp Directors shall have been selected.
(D) Within 30 days from the date of this
Agreement Holdco shall take all actions necessary to constitute
the Holdco Board of Directors to include the Karp Directors.
(ii) Following the Closing, and for so long as
the Booth Parties (as defined below) own at least 15% of the
outstanding shares of Holdco Common Stock, Booth American Company
("Booth") shall have the right to designate one director to the
Holdco Board of Directors (the "Booth Director"). If at any time
the Booth Parties' ownership is less than 15% of the outstanding
shares of Holdco Common Stock, then the Booth Director shall be
deemed to have immediately resigned from the Holdco Board of
Directors without further action. As used in this Section 5(g),
"Booth Parties" shall mean Booth together with its Affiliates and
Associates.
(h) Further Assurances. At any time and from time to time
after the date of this Agreement and/or after the Closing Date, each of the
parties hereto, at the request of any other party hereto and without
further consideration, will execute and deliver or cause to be executed and
delivered such other instruments of sale, transfer, conveyance, assignment,
confirmation, powers of attorney and other documents as may be reasonably
requested in order to more effectively transfer, convey and assign to
Holdco and to confirm Holdco's title to, the Securities set forth in
Section 1 of such Security Holder's respective Schedule 2(a) attached
hereto and to carry out the intent and accomplish the purposes of this
Agreement and the consummation of the transactions contemplated herein.
Section 6. Conditions to the Obligations of the Parties(E) . The
respective obligations of each party to this Agreement to consummate and
effect this Agreement and the transactions contemplated hereby shall be
subject to the satisfaction on or prior to the Closing Date of each of the
following conditions, any of which may be waived, in writing, by agreement
of the necessary parties:
(a) Statutes; Court Orders. No statute, rule or
regulation shall have been enacted or promulgated by any Governmental
Authority which prohibits the consummation of the Closing and there shall
be no order or injunction of a court of competent jurisdiction in effect
prohibiting consummation of the Closing.
(b) Third Party Consents. Each of the parties hereto
shall have received, each in form and substance reasonably satisfactory to
such party, all third party consents required pursuant to Material
Agreements of such party which the parties hereto deem necessary for the
consummation of the transactions contemplated by this Agreement.
Section 7. Conditions to Limited's and Holdco's Obligations at
Closing(F) . The obligation of each of Limited and Holdco to consummate the
transactions contemplated herein is subject to the satisfaction, on or
before the Closing Date, of each of the following conditions, provided that
these conditions are for Limited's and Holdco's benefit and may be waived
by Limited and Holdco at any time in their sole discretion by providing a
Security Holder with prior written notice thereof:
(a) Minimum Amount. Persons holding (i) an aggregate of
100% of the outstanding principal amount of the Holdco Debt Securities and
(ii) an aggregate of 100% of the outstanding principal amount of the Senior
Notes shall have executed and delivered to Holdco and Limited this
Agreement with respect to all such debt securities held by such Persons.
(b) Representations, Warranties and Covenants. The
representations and warranties of each Security Holder shall be true and
correct in all material respects as of the date when made and as of the
Closing Date as though made at that time, and each Security Holder shall
have, in all material respects, performed, satisfied and complied with all
covenants, agreements and conditions herein contained required to be
performed, satisfied or complied with by such Security Holder on or prior
to the Closing Date, except for those matters which can only be satisfied
at the Closing, subject to the satisfaction at the Closing of such
conditions.
Section 8. Conditions to each Security Holder's Obligations at
Closing(G) . The obligation of each Security Holder hereunder to tender the
Securities set forth in Section 1 of such Security Holder's respective
Schedule 2(a) attached hereto for exchange at the Closing is subject to the
satisfaction, on or before the Closing Date, of each of the following
conditions, provided that these conditions are for each Security Holder's
sole benefit and may be waived by such Security Holder at any time in its
sole discretion by providing Limited and Holdco with prior written notice
thereof:
(a) Charter and By-laws. The Certificate of Incorporation
and By-laws of Holdco shall have been amended in the form attached hereto
as Exhibits A and C, respectively, and shall be effective.
(b) Representations, Warranties and Covenants. The
representations and warranties of Limited and Holdco shall be true and
correct in all material respects as of the date when made and as of the
Closing Date as though made at that time (except for representations and
warranties that speak as of a specific date which shall be true and correct
in all material respects only as of such date), and each of Limited and
Holdco shall have, in all material respects, performed, satisfied and
complied with the covenants, agreements and conditions herein contained
required to be performed, satisfied or complied with by Limited and Holdco
on or prior to the Closing Date, except for those matters which can only be
satisfied at the Closing, subject to the satisfaction at the Closing of
such conditions.
Section 9. Miscellaneous(H).
(a) Legend. Each Security Holder understands that until
such time as Exchange Securities held by such Security Holder have been
sold under the Holdco Shelf Registration or any other registration
statement pursuant to the Securities Act or otherwise may be sold pursuant
to Rule 144(k) of the Securities Act, such shares shall bear a restrictive
legend in substantially the form set forth in subsection (i) below (and a
stop-transfer order may be placed against transfer of the certificate(s)
for such Exchange Securities), in addition to the other legends set forth
below:
(i) "THE SHARES REPRESENTED BY THIS CERTIFICATE
HAVE NOT BEEN REGISTERED UNDER THE SECURITIES ACT OF 1933, AS
AMENDED. THE SHARES REPRESENTED BY THIS CERTIFICATE MAY NOT BE
SOLD, OFFERED FOR SALE, TRANSFERRED, PLEDGED OR HYPOTHECATED IN
THE ABSENCE OF AN EFFECTIVE REGISTRATION STATEMENT AS TO THE
SECURITIES UNDER SAID ACT OR A WRITTEN OPINION OF COUNSEL
REASONABLY SATISFACTORY TO THE CORPORATION THAT SUCH REGISTRATION
IS NOT REQUIRED."
(ii) "THE SHARES REPRESENTED BY THIS CERTIFICATE
ARE SUBJECT TO THE PROVISIONS OF AN EXCHANGE AGREEMENT, DATED AS
OF DECEMBER 14, 2001, BY AND AMONG THE CORPORATION AND EACH OF THE
PARTIES SET FORTH UNDER THE HEADING "SECURITY HOLDERS" ON THE
SIGNATURE PAGES THERETO (THE "EXCHANGE AGREEMENT"), AND MAY NOT BE
SOLD, OFFERED FOR SALE, TRANSFERRED, PLEDGED OR HYPOTHECATED,
EXCEPT IN ACCORDANCE THEREWITH. THE EXCHANGE AGREEMENT AND
SCHEDULE 5(d)(iv) THERETO CONTAIN RESTRICTIONS ON TRANSFER, AMONG
OTHER MATTERS. A COPY OF THE EXCHANGE AGREEMENT IS ON FILE AT THE
OFFICES OF THE SECRETARY OF THE CORPORATION."
(iii) "THE SHARES REPRESENTED BY THIS
CERTIFICATE ARE SUBJECT TO, AND HAVE THE BENEFITS OF, REGISTRATION
RIGHTS AS SET FORTH IN THE EXCHANGE AGREEMENT. "
(iv) "THE SHARES REPRESENTED BY THIS CERTIFICATE
ARE BOUND BY, AND SUBJECT TO, AN IRREVOCABLE PROXY WITH RESPECT TO
CERTAIN MATTERS SET FORTH IN THE EXCHANGE AGREEMENT. "
The legend set forth in subsection (i) above shall be removed and Holdco
shall issue a certificate without such legend to the holder of any Exchange
Securities upon which it is stamped, if, unless otherwise required by
applicable state securities laws, such (x) Exchange Securities have been sold
under the Holdco Shelf Registration or any other registration statement
pursuant to the Securities Act or otherwise may be sold pursuant to Rule
144(k) of the Securities Act or (b) the holder of such Exchange Securities
provides Holdco with a written opinion of counsel addressed to Holdco and
reasonably satisfactory to Holdco to the effect that a public sale or
transfer of such Exchange Securities may be made without registration under
the Securities Act and such sale or transfer is effected. Each Security
Holder hereby agrees to sell all its Exchange Securities, including those
represented by a certificate(s) from which the legend has been removed, in
compliance with applicable prospectus delivery requirements, if any.
(b) Notices. All notices, requests, consents and other
communications hereunder shall be in writing, shall be addressed to the
receiving party's address set forth below or to such other address as a
party may designate by written notice hereunder, and shall be either (i)
delivered by hand, (ii) made by telex, telecopy or facsimile transmission,
(iii) sent by recognized overnight courier or (iv) sent by registered or
certified mail, return receipt requested, postage prepaid.
If to Limited, to:
CoreComm Limited
110 East 59th Street, 26th Floor
New York, NY 10022
Facsimile: (212) 752-1157
Attention: General Counsel
If to Holdco, to:
CoreComm Holdco, Inc.
c/o CoreComm Limited
110 East 59th Street, 26th Floor
New York, NY 10022
Facsimile: (212) 752-1157
Attention: General Counsel
in each case, with a copy to:
Skadden, Arps, Slate, Meagher & Flom LLP
Four Times Square
New York, NY 10036-6522
Facsimile: (917) 777-2526
Attention: Thomas H. Kennedy, Esq.
If to any Security Holder, to it at the address and facsimile number set
forth on Limited's or Holdco's books and records, as the case may be.
All notices, requests, consents and other communications hereunder shall be
deemed to have been received (i) if by hand, at the time of the delivery
thereof to the receiving party at the address of such party set forth above,
(ii) if made by telex, telecopy or facsimile transmission, at the time that
receipt thereof has been acknowledged by electronic confirmation or
otherwise, (iii) if sent by overnight courier, on the next business day
following the day such written notice is delivered to the courier service or
(iv) if sent by registered or certified mail, return receipt requested,
postage prepaid, on the third business day following the day such mailing is
made.
(c) Governing Law. This Agreement shall be governed under
the laws of the State of New York, without regard to principles of
conflicts of laws thereof. THE PARTIES HERETO SUBMIT TO THE EXCLUSIVE
JURISDICTION OF ANY STATE OR FEDERAL COURT LOCATED IN NEW YORK, NEW YORK
AND WAIVE ANY RIGHT TO A TRIAL BY JURY IN CONNECTION WITH ANY ACTION OR
PROCEEDING RELATING HERETO.
(d) Counterparts. This Agreement may be executed and
delivered (including by facsimile transmission) in one or more
counterparts, and by the different parties hereto in separate counterparts,
each of which when executed shall be deemed to be an original, but all of
which taken together shall constitute one and the same agreement.
(e) No Separate Compensation. No Security Holder shall be
entitled, whether upon the signing and delivery of this Agreement or
thereafter, to any separate compensation, remuneration, reimbursement or
forgiveness of indebtedness relating to or in connection with the
transactions contemplated by this Agreement.
(f) Entire Agreement. This Agreement (including all
Exhibits and Schedules hereto) constitutes the entire agreement of the
parties hereto with respect to the subject matter of this Agreement and
supersedes all prior agreements and undertakings, both written and oral,
among the parties hereto with respect to the subject matter of this
Agreement.
(g) Remedies. The parties hereto agree that irreparable
damage would occur in the event the Closing was not performed in accordance
with, and subject to, the terms of this Agreement, and that the parties
shall be entitled to specific performance in respect thereof, in addition
to any other remedy at law or equity.
(h) Amendment; Assignment; Waiver. This Agreement may not
be amended, modified or assigned, or any provision herein contained waived,
except by an instrument in writing signed by each of the parties hereto.
This Agreement shall be binding on the permitted successors and assigns of
this Agreement.
(i) Expenses. Except as otherwise provided in Section
5(c) of this Agreement, each of the parties hereto is responsible for all
of its own costs and expenses arising out of the negotiation and/or
entering into of this Agreement and consummation of the transactions
contemplated by this Agreement, whether or not the Closing is consummated.
(j) Public Announcements. Without the consent of Limited
and Holdco in each case, no Security Holder shall issue, and each Security
Holder shall instruct its officers, directors, Affiliates, Associates,
employees, investment bankers, attorneys and other advisers or
representatives not to issue, any press release or make any announcement or
statement to a third party with regard to this Agreement or the Closing or
any of the transactions contemplated herein, except to the extent
disclosure may be required by applicable law or stock exchange or
inter-dealer quotation system rules applicable to a party (subject to
giving Limited and Holdco reasonable advance written notice of the
intention to make such disclosure).
(k) Severability. In the event that any court of
competent jurisdiction shall finally determine that any provision, or any
portion thereof, contained in this Agreement shall be void or unenforceable
in any respect, then such provision shall be deemed limited to the extent
that such court determines it enforceable, and as so limited shall remain
in full force and effect. In the event that such court shall determine any
such provision, or portion thereof, wholly unenforceable, the remaining
provisions of this Agreement shall nevertheless remain in full force and
effect.
(l) Interpretation. The parties hereto acknowledge and
agree that: (a) each party and its counsel reviewed and negotiated the
terms and provisions of this Agreement and have contributed to its
revision; (b) the rule of construction to the effect that any ambiguities
are resolved against the drafting party shall not be employed in the
interpretation and enforcement of this Agreement; and (c) the terms and
provisions of this Agreement shall be construed fairly as to all parties
hereto and not in favor of or against any party, regardless of which party
was generally responsible for the preparation of this Agreement.
(m) Headings and Captions. The headings and captions of
the various subdivisions of this Agreement are for convenience of reference
only and shall in no way modify, or affect, or be considered in construing
or interpreting the meaning or construction of any of the terms or
provisions of this Agreement.
(n) Release. In consideration of entering into this
Agreement and the covenants and undertakings herein contained, and other
good and valuable consideration, the receipt and adequacy of which is
hereby acknowledged, (i) each Security Holder hereby agrees as follows:
(A) none of such Security Holder, its present
and former representatives, counsel, agents, predecessors,
successors, assigns, heirs, executors, trustees, administrators,
parents, subsidiaries, Affiliates, Associates, partners,
stockholders, creditors, officers, directors and employees, or
other Persons and the successors or assigns of any of the
foregoing claiming by, through, or on behalf of, it (collectively,
the "Security Holder Releasing Parties") has threatened or
commenced or assigned the right to commence, directly or
indirectly, any action, suit, investigation or proceeding against
(x) Limited, (y) Holdco and/or (z) Limited's and Holdco's present
and former representatives, counsel, agents, predecessors,
successors, assigns, heirs, executors, administrators, parents,
subsidiaries, Affiliates, Associates, partners, stockholders,
creditors, officers, directors and employees, or other Persons and
the successors or assigns of any of the foregoing (such Persons
listed in clauses (x), (y) and (z) collectively, the "CoreComm
Released Parties") to, or before, any Governmental Authority;
(B) such Security Holder, for the Security
Holder Releasing Parties, does hereby remise, release and forever
discharge to the fullest extent permitted by law the CoreComm
Released Parties from any and all claims, statements of claim,
actions, causes of action, suits, proceedings, debts, dues,
amounts, rights, offsets, setoffs, escrows, indemnifications,
demands, sums of money, accounts, damages and judgments
whatsoever, of whatever kind or nature, including of a contingent
nature, whether known or unknown, direct or indirect, which the
Security Holder Releasing Parties ever had, now have or ever will
or may have, for, upon, or by any matter, cause or thing
whatsoever, in connection with, arising out of, or related to any
facts, circumstances, actions, omissions or occurrences (other
than solely those obligations of Holdco and/or Limited to be
performed after the date of this Agreement) up to and through the
Closing Date (the "Security Holder Release"); provided, however,
that the Security Holder Release shall be of no further force or
effect after January 31, 2002 if the Closing is not consummated on
or prior to such date;
(C) none of the Security Holder Releasing
Parties shall join, become a party to, opt in or provide
information or materials to, or otherwise assist or aid, directly
or indirectly, in any action, suit, investigation or proceeding
commenced by or on behalf of any holders of Limited Common Stock
and/or Public Notes; and
(D) such Security Holder hereby acknowledges
that it has discussed the terms and conditions contained in this
Section 9(n)(i) with counsel, and that, counsel has fully
explained the meaning and ramifications of such terms and
conditions; and
(ii) each of Holdco and Limited hereby agrees as
follows:
(A) none of Holdco or Limited or their
respective present and former representatives, counsel, agents,
predecessors, successors, assigns, parents, subsidiaries,
Affiliates, Associates, stockholders, creditors, officers,
directors and employees, or other Persons and the successors or
assigns of any of the foregoing claiming by, through, or on behalf
of, Holdco or Limited (collectively, the "CoreComm Releasing
Parties") has threatened or commenced or assigned the right to
commence, directly or indirectly, any action, suit, investigation
or proceeding against (x) any Security Holder and/or (y) any
Security Holder's present and former representatives, counsel,
agents, predecessors, successors, assigns, heirs, executors,
administrators, parents, subsidiaries, Affiliates, Associates,
partners, stockholders, creditors, officers, directors and
employees, or other Persons and the successors or assigns of any
of the foregoing (such Persons listed in clauses (x) and (y)
collectively, the "Security Holder Released Parties") to, or
before, any Governmental Authority;
(B) each of Holdco and Limited, for the
CoreComm Releasing Parties, does hereby remise, release and
forever discharge to the fullest extent permitted by law the
Security Holder Released Parties from any and all claims,
statements of claim, actions, causes of action, suits,
proceedings, debts, dues, amounts, rights, offsets, setoffs,
escrows, indemnifications, demands, sums of money, accounts,
damages and judgments whatsoever, of whatever kind or nature,
including of a contingent nature, whether known or unknown, direct
or indirect, which the CoreComm Releasing Parties ever had, now
have or ever will or may have, for, upon, or by any matter, cause
or thing whatsoever, in connection with, arising out of, or
related to any facts, circumstances, actions, omissions or
occurrences (other than solely those obligations of a Security
Holder to be performed after the date of this Agreement) up to and
through the Closing Date (the "CoreComm Release"); provided,
however, that the CoreComm Release shall be of no further force or
effect after January 31, 2002 if the Closing is not consummated on
or prior to such date; and
(C) each of Holdco and Limited hereby
acknowledges that it has discussed the terms and conditions
contained in this Section 9(n)(ii) with counsel, and that, counsel
has fully explained the meaning and ramifications of such terms
and conditions.
(o) No Third Party Beneficiaries. Nothing herein
expressed or implied is intended or should be construed to confer upon or
give to any Person other than the parties hereto and their successors and
assigns any rights or remedies under or by reason of this Agreement. No
purchaser of the Exchange Securities from any Security Holder shall be
deemed a successor or assign with respect to this Agreement solely by
reason of such purchase.
(p) Capacity. Each of George S. Blumenthal and Barclay
Knapp hereby agrees to the provisions contained in Schedule 9(p)-1 attached
hereto. Thomas Gravina hereby agrees to the provisions contained in
Schedule 9(p)-2 attached hereto. Richard J. Lubasch hereby agrees to the
provisions contained in Schedule 9(p)-3 attached hereto.
(The balance of this page is intentionally left blank.)
IN WITNESS WHEREOF, each of the undersigned parties has caused
this Agreement to be duly executed and delivered on behalf of such party
with effect from the date first set forth above.
CORECOMM LIMITED
By: /s/ MICHAEL PETERSON
--------------------------------------
Name: Michael Peterson
Title: Vice President
CORECOMM HOLDCO, INC.
By: /s/ MICHAEL PETERSON
-------------------------------------
Name: Michael Peterson
Title: Vice President
SECURITY HOLDERS
/s/ GEORGE S. BLUMENTHAL
-----------------------------------------
George S. Blumenthal
BOOTH AMERICAN COMPANY
By: /s/ RALPH H. BOOTH, II
--------------------------------------
Name: Ralph H. Booth, II
Title: Chairman and CEO
/s/ DEBRA BURUCHIAN
-----------------------------------------
Debra Buruchian
/s/ THOMAS GRAVINA
-----------------------------------------
Thomas Gravina
/s/ MICHAEL KARP
-----------------------------------------
Michael Karp
THE FLORENCE KARP TRUST
By: /s/ LISA G. KAMINSKY
--------------------------------------
Name: Lisa G. Kaminsky
Title: Trustee
/s/ BARCLAY KNAPP
-----------------------------------------
Barclay Knapp
/s/ RICHARD J. LUBASCH
-----------------------------------------
Richard J. Lubasch
/s/ TED H. McCOURTNEY
-----------------------------------------
Ted H. McCourtney
Schedule 5(d)(iv)
-----------------
Certain Stockholder Restrictions
--------------------------------
Capitalized terms used in this Schedule 5(d)(iv) but not otherwise
defined herein shall have the meanings given such terms in the Agreement.
Section 1. Covenants with respect to Voting Securities.
1.1 No Voting Trusts. No Restricted Holder shall, directly or
indirectly, (a) deposit any Voting Securities in a voting trust or in any
other manner, except pursuant to this Schedule 5(d)(iv) or (b) subject any
Voting Securities to any arrangement or agreement with respect to the
voting thereof.
1.2 No Election Contests. No Restricted Holder shall, directly or
indirectly, solicit proxies or become a "participant" in a "solicitation"
in opposition to the recommendation of Holdco's Board of Directors with
respect to any matter, including, without limitation, any "election
contest" relating to the election of directors of Holdco (as such terms are
defined in Regulation 14A under the Exchange Act), or initiate, propose or
otherwise solicit stockholders of Holdco for the approval of one or more
stockholder proposals at any time, or induce or attempt to induce any other
Person to initiate any stockholder proposal; provided, however, that each
Restricted Holder shall vote any Voting Securities directly or indirectly
beneficially owned by such Restricted Holder in any "election contest" (x)
in the same proportion as the votes cast by all holders of Voting
Securities other than the Restricted Holders, in such "election contest,"
or (y) in the event of an "election contest" in connection with a proposed
change of control transaction for Holdco, in the manner recommended to the
stockholders by the Holdco Board of Directors; provided further, that the
Board of Directors, prior to such recommendation, shall have received an
opinion from a nationally recognized investment banking firm to the effect
that the transaction or the consideration to be received by the
unaffiliated holders of the Holdco Common Stock is fair from a financial
point of view to such stockholders; provided further, that in the absence
of such opinion such Voting Securities shall be voted as provided in clause
(x) of this Section 1.2.
1.3 No Syndications. No Restricted Holder shall, directly or
indirectly, join or encourage the formation of a partnership, limited
partnership, syndicate or other "group," or otherwise act in concert with
any other Person, for the purpose of affecting or influencing Control of
Holdco or acquiring, holding, disposing or voting of Voting Securities.
1.4 Disposition of Voting Securities. (a) Any offer, sale,
assignment, pledge, hypothecation, encumbrance or other disposition or
transfer of Voting Securities not otherwise prohibited by the Agreement
shall only be effected, to the extent otherwise legally permissible, in the
following manners: (i) pursuant to a bona fide public offering of Voting
Securities (which may include a secondary distribution effected through the
facilities of any national securities exchange on which the Voting
Securities are listed); (ii) pursuant to unsolicited open market sales (in
accordance with the requirements as to the manner of sale set forth in Rule
144(f) and (g) of the Securities Act or any successor rules or regulations
permitting sales of unregistered or otherwise restricted securities, if
such sale is subject to Rule 144 or such successor rules or regulations) on
any national securities exchange or automated inter-dealer quotation system
on which the Voting Securities are listed; (iii) pursuant to a tender offer
made by Holdco or any subsidiary of Holdco or made by a third Person to the
stockholders of Holdco as to which Holdco's Board of Directors has
recommended to the stockholders of Holdco; (iv) pursuant to a
privately-negotiated transaction with a Person who is not a Restricted
Holder; (v) pursuant to a will or the laws of descent and distribution;
provided that the estate of a Restricted Holder shall be bound by the terms
and conditions of this Schedule 5(d)(iv); (vi) pursuant to a bequest or
similar gift or transfer to any Person who is not a Restricted Holder; or
(vii) as a result of any pledge or hypothecation to a bona fide financial
institution to secure a bona fide loan, guaranty or other financial
accommodation or as a result of any foreclosure with respect thereto;
provided, however, that in connection with any transfer by a Restricted
Holder of Voting Securities pursuant to clauses (v) or (vi) of this Section
1.4(a) to a trust, corporation or other entity and a Restricted Holder
retains the authority, as trustee or otherwise, to vote, acquire or dispose
of, or to direct the voting, acquisition or disposition of, Voting
Securities to be held by such trust or other entity, then as a condition
precedent to the transfer of such shares of Voting Securities to such trust
or other entity, such Restricted Holder shall cause such trust or other
entity to be bound by the terms and conditions of a stockholder agreement
having the same terms and conditions as this Schedule 5(d)(iv).
Notwithstanding anything to the contrary contained herein, a Restricted
Holder shall not dispose of or otherwise transfer any Voting Securities in
violation of the provisions of Section 5 of the Securities Act.
Notwithstanding anything to the contrary contained herein, a Restricted
Holder shall be permitted to make transfers of Voting Securities to any
trusts (or other estate planning vehicles) that are Associates of such
Restricted Holder; provided, however, that in connection with any transfer by
a Restricted Holder of Voting Securities pursuant to this Section 1.4(c) to a
trust (or other estate planning vehicle), it shall be a condition precedent
to any such transfer that such Restricted Holder cause such trust (or other
estate planning vehicle) to be bound by the terms and conditions of a
stockholder agreement having the same terms and conditions as this Schedule
5(d)(iv).
1.5 No Solicitation. No Restricted Holder shall propose, solicit
or participate in any fashion, in any transaction relating to an
acquisition of, a business combination or similar transaction with, or a
change of control of, Holdco or make or solicit or encourage any Person to
make a tender offer for Voting Securities.
1.6 Legend on Voting Securities. (a) Each Restricted Holder agrees
that each certificate representing its Voting Securities shall bear a
legend substantially similar to the legend set forth in Section 9(a)(ii) of
the Agreement, which will remain thereon as long as such Voting Securities
are subject to the restrictions contained in this Schedule 5(d)(iv) and/or
the Agreement.
Holdco may enter a stop transfer order with the transfer agent (or agents)
and the registrar (or registrars) of the Voting Securities against the
transfer of legended Voting Securities held by a Restricted Holder except in
compliance with the requirements of this Schedule 5(d)(iv). Holdco agrees to
remove promptly any stop transfer order with respect to, and issue promptly
either legended (if the Voting Securities remain subject to the restrictions
of this Schedule 5(d)(iv) or the Agreement) or unlegended certificates in
substitution for, certificates for any such Voting Securities that are no
longer subject to or are to be transferred in compliance with the
restrictions contained in this Schedule 5(d)(iv) and the Agreement. Without
limiting the generality of the foregoing, Holdco shall promptly remove any
stop transfer order in effect with respect to such certificates, upon the
delivery to Holdco of an opinion of counsel to a Restricted Holder, in form
and substance reasonably satisfactory to Holdco, that legended certificates
representing Voting Securities are no longer subject to this Schedule
5(d)(iv) and the Agreement or that such Voting Securities are being
transferred in compliance with the provisions of Section 1.4 hereof and the
provisions of the Agreement, and shall promptly issue unlegended certificates
in substitution for such legended certificates, except if such legended
certificates are being transferred pursuant to Section 1.4 to a transferee
who shall be bound by the terms and conditions of a stockholder agreement, in
which event Holdco may issue legended certificates.
Section 2. Term. The provisions contained in Sections 1.1, 1.2,
1.3, 1.4 and 1.5 of this Schedule 5(d)(iv), regardless of ownership of
greater than 10% of the Total Voting Power, shall be of no force or effect
after the nine month anniversary of the date that the Commission declares
the Holdco Shelf Registration effective under the Securities Act. In
addition, the provisions contained in this Schedule 5(d)(iv) shall be of no
force or effect with respect to a Restricted Holder during any period when
such Restricted Holder, all transferees of Voting Securities of such
Restricted Holder (x) who are members of the immediate family of such
Restricted Holder or are a beneficiary of such Restricted Holder or (y)
pursuant to a will or the laws of descent and distribution, and all
Affiliates and Associates of the foregoing cease to own Voting Securities
having, in the aggregate, 10% or more of the Total Voting Power, unless the
transaction or transactions resulting therein shall have violated the terms
of this Schedule 5(d)(iv). For purposes hereof, ownership of Voting
Securities shall include record ownership of such securities as well as
beneficial ownership.
Schedule 9(p)-1
---------------
Capacity
Such Security Holder is entering into the Agreement to which this Schedule
9(p)-1 is attached and consummating the transactions contemplated therein
solely in such person's capacity as a holder of securities of Limited and
Holdco and not in such person's capacity as an officer or director of Limited
or Holdco.
Schedule 9(p)-2
---------------
Capacity
Such Security Holder is entering into the Agreement to which this Schedule
9(p)-2 is attached and consummating the transactions contemplated therein
solely in such person's capacity as a holder of securities of Limited and not
in such person's capacity as an officer of Limited or Holdco.
Schedule 9(p)-3
---------------
Capacity
Such Security Holder is entering into the Agreement to which this Schedule
9(p)-3 is attached and consummating the transactions contemplated therein
solely in such person's capacity as a holder of securities of Limited and
Holdco and not in such person's capacity as an officer of Limited or Holdco.
Exhibit A
---------
Restated Holdco Certificate of Incorporation
See Exhibit 3.1 to CoreComm Holdco, Inc.'s registration statement on Form S-1
to which this Exhibit 2.1 is attached.
Exhibit B-1
-----------
Pro Forma Capitalization Table of Holdco
PRO FORMA CAPITALIZATION TABLE OF HOLDCO
Pro Forma Equity Ownership
Shares of Holdco
Stockholder Common Stock % Ownership(1)
----------- ------------ -----------
Michael Karp 3,202,899 32.0%
The Florence Karp Trust 197,101 2.0%
Booth American Company 2,000,000 20.0%
Thomas Gravina 1,080,000 10.8%
Debra Buruchian 1,080,000 10.8%
Barclay Knapp 400,000 4.0%
George S. Blumenthal 200,000 2.0%
Richard J. Lubasch 21,818 0.2%
Ted H. McCourtney 18,182 0.2%
6% Convertible Note Holders 500,000(2) (3) 5.0%
Current Stockholders of Limited 1,300,000(2) (3) (4) 13.0%
------------- -------------
Total 10,000,000 100.0%
Pro Forma Long Term Holdco and Subsidiary Debt (excludes Capital Leases)
(as of 9/30/01)
Amount
-------------
Senior Secured Credit Facility $156,100,000
CoreComm Holdco Notes $15,752,500
-------------
Total $171,852,500
--------
(1) Does not include shares authorized under the adopted employee option
plan, which will be 22.5% of the initial fully diluted shares.
Percentages are rounded to equal 100.0%.
(2) Assumes 100% of holders exchange.
(3) Subject to rounding as a result of rounding fractional shares.
(4) Approximately this amount of shares shall be held by CoreComm Limited
until the consummation of the public exchange offer.
Exhibit B-2
-----------
Permitted Equity Ownership Pursuant to Section 5(d)(v)(A)
Year 1 Year 2
Shareholder % Ownership % Ownership
----------- ----------- -----------
Michael Karp 34.4% 36.7%
The Florence Karp Trust 2.1% 2.3%
Booth American Company 21.5% 22.9%
Thomas Gravina 11.6% 12.4%
Debra Buruchian 11.6% 12.4%
Barclay Knapp 4.3% 4.6%
George S. Blumenthal 2.1% 2.3%
Richard J. Lubasch 0.2% 0.3%
Ted H. McCourtney 0.2% 0.2%
Exhibit C
---------
Amended Holdco By-laws
See Exhibit 3.4 to CoreComm Holdco, Inc.'s registration statement on Form S-1
to which this Exhibit 2.1 is attached.
EXHIBIT 3.1
-----------
RESTATED
CERTIFICATE OF INCORPORATION
OF
CORECOMM HOLDCO, INC.
The undersigned, Richard J. Lubasch, certifies that he is the Senior
Vice President of CoreComm Holdco, Inc., a corporation organized and existing
under the laws of the State of Delaware (the "Corporation"); and does hereby
further certify as follows:
(1) The name of the Corporation is CoreComm Holdco, Inc., and each of
the original Certificate of Incorporation of the Corporation and the
Certificate of Domestication of the Corporation was filed with the
Secretary of State of the State of Delaware on July 9, 1999, under
the name CoreComm Ohio Limited.
(2) This Restated Certificate of Incorporation of the Corporation was
duly adopted in accordance with the provisions of Sections 242 and
245 of the General Corporation Law of the State of Delaware and by
the written consent of the sole stockholder in accordance with the
provisions of Section 228 of the General Corporation Law of the
State of Delaware.
(3) This Restated Certificate of Incorporation of the Corporation
restates and integrates and further amends the Certificate of
Incorporation of the Corporation.
(4) The text of the Restated Certificate of Incorporation of the
Corporation as amended hereby is restated to read in its entirety,
as follows:
ARTICLE I
NAME OF THE CORPORATION
The name of this corporation is CoreComm Holdco, Inc.
(hereinafter, the "Corporation").
ARTICLE II
ADDRESS; REGISTERED AGENT
The address of the registered office of the Corporation in the State
of Delaware is 9 East Loockerman Street, Dover, Kent County, Delaware 19901.
The name of its registered agent at that address is National Registered
Agents, Inc.
ARTICLE III
PURPOSE
The purpose of the Corporation is to engage in any lawful act or
activity for which a corporation may be organized under the General
Corporation Law of the State of Delaware as set forth in Title 8 of the
Delaware Code (the "GCL").
ARTICLE IV
CAPITAL STOCK
Part A. Authorized Capital. The total number of shares of capital
stock which the Corporation shall have the authority to issue is two
hundred sixty million (260,000,000) shares, consisting of two hundred fifty
million (250,000,000) shares of common stock, par value $0.01 per share
(the "Common Stock"), and ten million (10,000,000) shares of preferred
stock, par value $0.01 per share (the "Preferred Stock"). The number of
authorized shares of any of the Preferred Stock or the Common 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 in voting
power of the stock of the Corporation entitled to vote thereon irrespective
of the provisions of Section 242(b)(2) of the GCL (or any successor
provision thereto), and no vote of the holders of any of the Preferred
Stock or the Common Stock voting separately as a class shall be required
therefor. The designation, relative rights, preferences and limitations of
the shares of each class are as follows:
Part B. Preferred Stock. Authority is hereby expressly vested in
the Board of Directors of the Corporation (the "Board of Directors")
without further action by the Corporation's stockholders, subject to the
provisions of this Article IV and to the limitations prescribed by law, to
authorize the issuance from time to time in one or more classes or series
of any number of shares; provided that the aggregate number of shares
issued and not canceled of any and all such classes and series shall not
exceed the total number of shares of Preferred Stock hereinabove
authorized, and with distinctive class or serial designations, all as shall
hereafter be stated and expressed in the resolution or resolutions
providing for the issue of such shares of Preferred Stock from time to time
adopted by the Board of Directors pursuant to authority so to do which is
hereby vested in the Board of Directors. Each class or series of shares of
Preferred Stock: (a) may have such voting powers, full or limited,
including the right to elect one or more directors of the Corporation (the
"Directors"), or may be without voting powers; (b) may be subject to
redemption at such time or times and at such prices; (c) may be entitled to
receive dividends (which may be cumulative or non-cumulative) at such rate
or rates, on such conditions and at such times, and payable in preference
so, or in such relation to, the dividends payable on any other class or
classes or series of stock; (d) may have such rights upon the voluntary or
involuntary liquidation, dissolution or winding-up of, or upon any
distribution of, the assets of the Corporation; (e) may be made convertible
into or exercisable or exchangeable for, shares of any other class or
classes or of any other series of the same or any other class or classes or
series of shares of the Corporation at such price or prices or at such
rates of exchange and with such adjustments; (f) may be entitled to the
benefit of a sinking fund to be applied to the purchase or redemption of
shares of such class or series in such amount or amounts; (g) may be
entitled to the benefit of conditions and restrictions upon the creation of
indebtedness of the Corporation or any subsidiary, upon the issue of any
additional shares (including additional shares of such class or series or
of any other class or series) and/or upon the payment of dividends or the
making of other distributions on, and the purchase, redemption or other
acquisition by the Corporation or any subsidiary of, any outstanding shares
of the Corporation; and (h) may have such other relative, participating,
optional or other special rights, qualifications, limitations or
restrictions thereof; all as shall be stated in said resolution or
resolutions providing for the issue of such shares of Preferred Stock. Any
of the voting powers, designations, preferences, rights and qualifications,
limitations or restrictions of any such class or series of Preferred Stock
may be made dependent upon facts ascertainable outside of this Restated
Certificate of Incorporation of the Corporation or the resolution or
resolutions providing for the issue of such Preferred Stock adopted by the
Board of Directors pursuant to the authority vested in it by this Part B;
provided that the manner in which such facts shall operate upon the voting
powers, designations, preferences, rights and qualifications, limitations
or restrictions of such class or series of Preferred Stock is clearly and
expressly set forth in this Restated Certificate of Incorporation of the
Corporation or in the resolution or resolutions providing for the issue of
such Preferred Stock. The term "facts," as used in the immediately
preceding sentence shall have the meaning given to it in Section 151(a) of
the GCL. Shares of Preferred Stock of any class or series that have been
redeemed (whether through the operation of a sinking fund or otherwise) or
that if convertible, exercisable or exchangeable, have been converted into,
or exercised or exchanged for, shares of any other class or classes or
series shall have the status of authorized and unissued shares of Preferred
Stock of the same class or series and may be reissued as a part of the
class or series of which they were originally a part or may be reclassified
and reissued as part of a new class or series of shares of Preferred Stock
to be created by resolution or resolutions of the Board of Directors or as
part of any other class or series of shares of Preferred Stock, all subject
to the conditions or restrictions on issuance set forth in the resolution
or resolutions adopted by the Board of Directors providing for the issue of
any class or series of shares of Preferred Stock.
Part C. Series A Junior Participating Preferred Stock.
Section 1. Designation and Amount. The shares of this series of
Preferred Stock, par value $0.01 per share, shall be designated as "Series
A Junior Participating Preferred Stock," and the number of shares
constituting such series shall be one million (1,000,000).
Section 2. Dividends and Distributions.
(A) Subject to the prior and superior rights of the holders of any
shares of any series of Preferred Stock 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 shall be entitled to receive, in preference to the holders of Common
Stock, 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 fifteenth day of March, June, September and December 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) $0.01 or (b) subject to the provision for adjustment
hereinafter set forth, 1000 times the aggregate per share amount of all
cash dividends, and 1000 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 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. In the event the
Corporation shall at any time on or after December 17, 2001 (the "Rights
Declaration Date"), (i) declare 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 amount to which holders of shares of Series A
Junior Participating Preferred Stock were entitled immediately prior to
such event under clause (b) of the preceding sentence shall be adjusted by
multiplying such amount 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 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 30 days prior to the date fixed for the
payment thereof.
Section 3. Voting Rights. The holders of shares of Series A Junior
Participating Preferred Stock shall have the following voting rights:
(A) Subject to the provisions for adjustment hereinafter set
forth, each share of Series A Junior Participating Preferred Stock shall
entitle the holder thereof to 1000 votes on all matters submitted to a vote
of the holders of Common Stock. In the event the Corporation shall at any
time after the Rights Declaration Date (i) declare 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 number of votes per share to
which holders of shares of Series A Junior Participating Preferred Stock
were entitled immediately prior to such event shall be adjusted by
multiplying such 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) Except as otherwise provided herein or by law, the holders of
shares of Series A Junior Participating Preferred Stock and the holders of
shares of Common Stock shall vote together as one class on all matters
submitted to a vote of the holders of Common Stock.
(C) (i) If at any time dividends on any Series A Junior
Participating Preferred Stock shall be in arrears in an amount equal to six
(6) quarterly dividends thereon, whether or not consecutive, the occurrence
of such contingency shall mark the beginning of a period (herein called a
"default period"), which shall extend until such time when all accrued and
unpaid dividends for all previous quarterly dividend periods and for the
current quarterly dividend period on all shares of Series A Junior
Participating Preferred Stock then outstanding shall have been declared and
paid or set apart for payment. During the continuation of a default period,
all holders of Preferred Stock (who have a similar provision in the
Certificate of Designation governing their terms, including holders of the
Series A Junior Participating Preferred Stock) with dividends in arrears in
an amount equal to six (6) quarterly dividends thereon, whether or not
consecutive, voting as a class, irrespective of class or series, shall have
the right to elect two (2) Directors to the Board of Directors. If a holder
is otherwise entitled to elect one or more Directors to the Board
Directors, but is subject to an aggregate limit on the number of Directors
to be elected by such holder pursuant to contract or otherwise, this
provision is subject to such aggregate limit and shall not be construed to
increase the number of Directors such holder is otherwise entitled to
elect.
(ii) During the continuation of a default
period, such voting right of the holders of Series A Junior
Participating Preferred Stock may be exercised initially at a
special meeting called pursuant to subparagraph (iii) of this
Section 3(C) or at any annual meeting of stockholders, and
thereafter at annual meetings of stockholders; provided that
neither such voting right nor the right of the holders of any
other series of Preferred Stock, if any, to increase, in certain
cases, the authorized number of Directors shall be exercised
unless the holders of ten percent (10%) in number of shares of
Preferred Stock outstanding shall be present in person or by
proxy. The absence of a quorum of the holders of Common Stock
shall not affect the exercise by the holders of Preferred Stock of
such voting right. At any meeting at which the holders of
Preferred Stock shall exercise such voting right initially during
the continuation of a default period, they shall have the right,
voting as a class, to elect Directors to fill such vacancies, if
any, in the Board of Directors as may then exist up to two (2)
Directors or, if such right is exercised at an annual meeting, to
elect two (2) Directors. If the number which may be so elected at
any special meeting does not amount to the required number, the
holders of the Preferred Stock shall have the right to make such
increase in the number of Directors as shall be necessary to
permit the election by them of the required number. After the
holders of the Preferred Stock shall have exercised their right to
elect Directors during the continuation of a default period, the
number of Directors shall not be increased or decreased, except by
vote of the holders of Preferred Stock as herein provided or
pursuant to the rights of any equity securities ranking senior to
or pari passu with the Series A Junior Participating Preferred
Stock.
(iii) Unless the holders of Preferred Stock
shall, during the continuation of a default period, have
previously exercised their right to elect Directors, the Board of
Directors may order, or any stockholder or stockholders owning in
the aggregate not less than ten percent (10%) of the total number
of shares of Preferred Stock outstanding, irrespective of class or
series, may request, the calling of a special meeting of the
holders of Preferred Stock who have a similar provision in the
Certificate of Designation governing their terms, which meeting
shall thereupon be called by the President, a Vice-President or
the Secretary of the Corporation. Notice of such meeting and of
any annual meeting at which holders of Preferred Stock are
entitled to vote pursuant to this paragraph (C)(iii) shall be
given to each such holder of record of Preferred Stock by mailing
a copy of such notice to him at his last address as the same
appears on the books of the Corporation. Such meeting shall be
called for a time not earlier than 10 days and not later than 60
days after such order or request or in default of the calling of
such meeting within 60 days after such order or request, such
meeting may be called on similar notice by any stockholder or
stockholders owning in the aggregate not less than ten percent
(10%) of the total number of shares of Preferred Stock who have a
similar provision in the Certificate of Designation governing
their terms. Notwithstanding the provisions of this paragraph
(C)(iii), no such special meeting shall be called during the
period within 60 days immediately preceding the date fixed for the
next annual meeting of the stockholders.
(iv) During the continuation of a default
period, the holders of Common Stock, and other classes or series
of stock of the Corporation if applicable, shall continue to be
entitled to elect the whole number of Directors until the holders
of Preferred Stock who have a similar provision in the Certificate
of Designation governing their terms shall have exercised their
right to elect two (2) Directors voting as a class, after the
exercise of which right (x) the Directors so elected by the
holders of Preferred Stock shall continue in office until their
successors shall have been elected by such holders or until the
expiration of the default period and (y) any vacancy in the Board
of Directors may (except as provided in paragraph (C)(ii) of this
Section 3) be filled by vote of a majority of the remaining
Directors theretofore elected by the holders of the class of stock
which elected the Director whose office shall have become vacant.
References in this paragraph (C) to Directors elected by the
holders of a particular class of stock shall include Directors
elected by such Directors to fill vacancies as provided in clause
(y) of the foregoing sentence.
(v) Immediately upon the expiration of a default
period, the (x) right of the holders of Preferred Stock as a class
to elect Directors shall cease, (y) term of any Directors elected
by the holders of Preferred Stock as a class shall terminate and
(z) number of Directors shall be such number as may be provided
for in the Certificate of Incorporation of the Corporation or
By-laws of the Corporation irrespective of any increase made
pursuant to the provisions of paragraph (C)(ii) of this Section 3
(such number being subject, however, to change thereafter in any
manner provided by law or in the Certificate of Incorporation of
the Corporation or By-laws of the Corporation). Any vacancies in
the Board of Directors effected by the provisions of clauses (y)
and (z) in the preceding sentence may be filled by a majority of
the remaining Directors.
(D) Except as set forth herein, 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.
Section 4. Certain Restrictions.
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:
(A) 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;
(B) 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;
(C) redeem or purchase or otherwise acquire for consideration
shares of any stock ranking on a parity (either as to dividends or upon
liquidation, dissolution or winding up) with the Series A Junior
Participating Preferred Stock; provided that the Corporation may at any
time redeem, purchase or otherwise acquire shares of any such parity stock
in exchange for shares of any stock of the Corporation ranking junior
(either as to dividends or upon dissolution, liquidation or winding up) to
the Series A Junior Participating Preferred Stock; and
(D) 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
such shares 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 classes and series, shall determine in good
faith will result in fair and equitable treatment among the respective
classes and series.
Section 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 and cancelled
promptly after the acquisition thereof. All such shares shall upon their
cancellation become authorized but unissued shares of Preferred Stock and
may be reissued as part of a new class or series of Preferred Stock to be
created by resolution or resolutions of the Board of Directors, subject to
the conditions and restrictions on issuance set forth herein.
Section 6. Liquidation, Dissolution or Winding Up.
(A) Upon any liquidation (voluntary or otherwise),
dissolution or winding up of the Corporation, 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 $1 per
share, plus an amount equal to accrued and unpaid dividends and
distributions thereon, whether or not declared, to the date of such payment
(the "Series A Liquidation Preference"). Following the payment of the full
amount of the Series A Liquidation Preference, no additional distributions
shall be made to the holders of shares of Series A Junior Participating
Preferred Stock unless, prior thereto, the holders of shares of Common
Stock shall have received an amount per share (the "Common Adjustment")
equal to the quotient obtained by dividing (i) the Series A Liquidation
Preference by (ii) 1000 (as appropriately adjusted as set forth in
subparagraph C below) (such number in clause (ii), the "Adjustment
Number"). Following the payment of the full amount of the Series A
Liquidation Preference and the Common Adjustment in respect of all
outstanding shares of Series A Junior Participating Preferred Stock and
Common Stock, respectively, holders of Series A Junior Participating
Preferred Stock and holders of shares of Common Stock shall receive their
ratable and proportionate share of the remaining assets to be distributed
in the ratio of the Adjustment Number to 1 with respect to such Preferred
Stock and Common Stock, on a per share basis, respectively.
(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 or series
of Preferred Stock, if any, which rank on a parity with the Series A Junior
Participating Preferred Stock, then such remaining assets shall be
distributed ratably to the holders of such parity shares in proportion to
their respective liquidation preferences. In the event, however, that there
are not sufficient assets available to permit payment in full of the Common
Adjustment, then such remaining assets shall be distributed ratably to the
holders of Common Stock.
(C) In the event the Corporation shall at any time after the
Rights Declaration Date (i) declare 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.
Section 7. Consolidation, Merger, etc. In case the Corporation
shall enter into any consolidation, merger, combination or other
transaction in which the shares of Common Stock are exchanged for or
changed into other stock or securities, cash/or any other property, then in
any such case the shares of Series A Junior Participating Preferred Stock
shall at the same time be similarly exchanged or changed in an amount per
share (subject to the provision for adjustment hereinafter set forth) equal
to 1000 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. In the event the
Corporation shall at any time after the Rights Declaration Date (i) declare
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
amount set forth in the preceding sentence with respect to the exchange or
change of shares of Series A Junior Participating Preferred Stock shall be
adjusted by multiplying such amount 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.
Section 8. No Redemption. The shares of Series A Junior
Participating Preferred Stock shall not be redeemable.
Section 9. Ranking. The Series A Junior Participating Preferred
Stock shall rank junior to all other classes or series of Preferred Stock
as to the payment of dividends and the distribution of assets, unless the
terms of any such classes or series shall expressly provide otherwise.
Section 10. Amendment. At any time when any shares of Series A
Junior Participating Preferred Stock are outstanding, this Restated
Certificate of Incorporation of the Corporation shall not be further
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 a majority or more of the outstanding shares of Series A
Junior Participating Preferred Stock, voting separately as a class.
Section 11. Fractional Shares. Series A Junior Participating
Preferred Stock may be issued in fractions of a share which 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.
Part D. Common Stock. Except as otherwise provided by the GCL or
this Restated Certificate of Incorporation of the Corporation and subject
to the rights of holders of any class or series of Preferred Stock, the
holders of record of Common Stock shall share ratably in all dividends
payable in cash, stock or otherwise and other distributions, whether in
respect of liquidation or dissolution (voluntary or involuntary), or
otherwise and, are subject to all the powers, designations, preferences,
rights and qualifications, limitations or restrictions of any class or
series of Preferred Stock as provided in this Restated Certificate of
Incorporation of the Corporation or in any resolution or resolutions
adopted by the Board of Directors providing for the issue of any class or
series of shares of Preferred Stock. No holder of Common Stock shall have
any preemptive, subscription, redemption, conversion or sinking fund rights
with respect to the Common Stock, or to any obligations convertible
(directly or indirectly) into stock of the Corporation. Except as otherwise
provided by the GCL or this Restated Certificate of Incorporation of the
Corporation and subject to the rights of holders of any class or series of
Preferred Stock, all of the voting power of the stockholders of the
Corporation shall be vested in the holders of the Common Stock, and each
holder of Common Stock shall have one vote for each share held by such
holder on all matters voted upon by the stockholders of the Corporation;
provided, however, that, except as otherwise required by law, holders of
Common Stock, as such, shall not be entitled to vote on any amendment to
this Restated Certificate of Incorporation of the Corporation (including
any Certificate of Designation relating to any series of Preferred Stock)
that relates solely to the terms of one or more outstanding series of
Preferred Stock if the holders of such affected series are entitled, either
separately or together with the holders of one or more other such series,
to vote thereon pursuant to this Restated Certificate of Incorporation of
the Corporation (including any Certificate of Designation relating to any
series of Preferred Stock) or pursuant to the GCL. The holders of shares of
Common Stock shall not have cumulative voting rights. Subject to law and
the rights, if any, of the holders of any outstanding class or series of
Preferred Stock or any class or series of stock having a preference over,
or the right to participate with, the Common Stock with respect to the
payment of dividends, dividends may be declared and paid on the Common
Stock at such times and in such amounts as the Board of Directors in its
discretion shall determine.
ARTICLE V
BOARD OF DIRECTORS
The business and affairs of the Corporation shall be managed by or
under the direction of the Board of Directors. In addition to the powers and
authority hereinbefore or by statute expressly conferred upon them, the
Directors are hereby empowered to exercise all such powers and do all such
acts and things as may be exercised or done by the Corporation, subject,
nevertheless, to the provisions of the GCL, this Restated Certificate of
Incorporation of the Corporation, and any By-laws of the Corporation adopted
by the stockholders; provided, however, that no By-laws of the Corporation
hereafter adopted by the stockholders shall invalidate any prior act of the
Directors which would have been valid if such By-Laws of the Corporation had
not been adopted. Advance notice of nominations for the election of Directors
shall be given in the manner and to the extent provided in the By-laws of the
Corporation. The number of Directors shall be as from time to time fixed by,
or in the manner provided in, the By-laws of the Corporation. The Directors
shall be divided into three classes, designated Class I, Class II and Class
III. Each class shall consist, as nearly as may be possible, of one-third of
the total number of Directors constituting the entire Board of Directors. The
term of the Initial Class I Directors shall terminate on the date of the 2002
annual meeting of stockholders; the term of the initial Class II Directors
shall terminate on the date of the 2003 annual meeting of stockholders and
the term of the initial Class III Directors shall terminate on the date of
the 2004 annual meeting of stockholders. At each annual meeting of
stockholders beginning in 2002, successors to the class of Directors whose
term expires at that annual meeting shall be elected for a three-year term.
If the number of Directors is changed, any increase or decrease shall be
apportioned among the classes so as to maintain the number of Directors in
each class as nearly equal as possible, and any additional Directors of any
class elected to fill a vacancy resulting from an increase in such class
shall hold office for a term that shall coincide with the remaining term of
that class, but in no case will a decrease in the number of Directors shorten
the term of any incumbent Director. A Director shall hold office until the
annual meeting for the year in which such Director's term expires and until
such Director's successor shall be elected and shall qualify, subject,
however, to prior death, resignation, retirement, disqualification or removal
from office. Any vacancy on the Board of Directors, howsoever resulting, may
be filled by a majority of the Directors then in office, even if less than a
quorum, or by a sole remaining Director. Any Director elected to fill a
vacancy shall hold office for a term that shall coincide with the term of the
class to which such Director shall have been elected. Notwithstanding the
foregoing, whenever the holders of any one or more classes or series of
Preferred Stock shall have the right, voting separately by class or series,
to elect one or more Directors at an annual or special meeting of
stockholders, the election, term of office, filling of vacancies and other
features of such directorships shall be governed by the terms of this
Restated Certificate of Incorporation of the Corporation or in any resolution
or resolutions adopted by the Board of Directors providing for the issue of
any class or series of Preferred Stock, and such Directors so elected shall
not be divided into classes pursuant to this Article V unless expressly
provided by such terms. Notwithstanding anything contained in this Restated
Certificate of Incorporation of the Corporation to the contrary, it shall be
a qualification of at least eighty-one percent (81%) of the Directors that
such persons individually not be (a) beneficial owners (as defined in Rule
13d-3 of the Securities Exchange Act of 1934, as amended, and the rules and
regulations promulgated thereunder (the "Exchange Act")) of fifteen percent
(15%) or more of the Common Stock (a "15% Stockholder"), (b) affiliates or
associates (as such terms are defined in Rule 12b-2 of the Exchange Act) of
any 15% Stockholder or (c) persons whose beneficial ownership of securities
would be required to be aggregated on any Schedule 13D or Schedule 13G
required to be filed by any 15% Stockholder pursuant to the Exchange Act
(clauses (a), (b) and (c) collectively, the "15% Stockholder Parties");
provided, however, that no Security Holder (as such term is defined in the
Exchange Agreement, by and among the Corporation, CoreComm Limited and the
parties set forth under the heading "Security Holders" on the signature pages
thereto (the "Exchange Agreement")), or its designee shall be prohibited
pursuant to this sentence from serving as a Director as permitted by Section
5(g) of the Exchange Agreement; provided further, however, that any such
Security Holder or designee thereof shall be deemed, solely for the purposes
of this Article V, to be a 15% Stockholder while such person is serving as a
Director as permitted by Section 5(g) of the Exchange Agreement.
ARTICLE VI
REMOVAL OF DIRECTORS
Any or all of the Directors may be removed from office at any time,
but only for cause and only by the affirmative vote of the holders of
two-thirds (66-2/3%) of the outstanding shares of the Corporation then
entitled to vote generally in the election of Directors, considered for
purposes of this Article VI as one class. Notwithstanding the previous
sentence, whenever the holders of any class or series of Preferred Stock are
entitled to elect one (1) or more Directors by this Restated Certificate of
Incorporation of the Corporation or the resolution or resolutions providing
for the issue of any class or series of Preferred Stock, this Article VI
shall apply, in respect to the removal with cause of a Director or Directors
so elected, to the vote of the holders of the outstanding shares of that
class or series of Preferred Stock and not to the vote of the outstanding
shares as a whole.
ARTICLE VII
PROHIBITION ON ACTIONS BY WRITTEN CONSENT
OF STOCKHOLDERS
Any action required or permitted to be taken at any annual or
special meeting of stockholders may be taken only upon the vote of the
stockholders at an annual or special meeting duly noticed and called, as
provided in the By-laws of the Corporation, and may not be taken by a written
consent of the stockholders pursuant to the GCL. Notwithstanding the previous
sentence, if the resolution or resolutions providing for the issue of any
class or series of Preferred Stock permit action to be taken by written
consent in accordance with the GCL, such class or series of the Preferred
Stock shall be permitted to take action by written consent.
ARTICLE VIII
SPECIAL MEETINGS OF STOCKHOLDERS
Except as otherwise expressly set forth in this Restated Certificate
of Incorporation of the Corporation or in the resolution or resolutions
providing for the issue of any class or series of Preferred Stock, special
meetings of the stockholders of the Corporation for any purpose or purposes
may be called at any time by the Board of Directors, the Chairman of the
Board of Directors or the President. Special meetings of the stockholders of
the Corporation may not be called by any other person or persons.
ARTICLE IX
CERTAIN TRANSACTIONS
A. In addition to any affirmative vote required by law or this
Restated Certificate of Incorporation of the Corporation or the By-laws of
the Corporation, and except as otherwise expressly provided in Section B of
this Article IX, a Business Combination (as hereinafter defined) with, or
proposed by or on behalf of, any Interested Stockholder Party (as hereinafter
defined) or any person who thereafter would be an Affiliate, Associate or
Schedule 13D Related Party of such Interested Stockholder shall require the
affirmative vote of not less than sixty-six and two-thirds percent (66-2/3%)
of the votes entitled to be cast by the holders of all the then outstanding
shares of Voting Stock (as hereinafter defined), voting together as a single
class, excluding Voting Stock beneficially owned by any Interested
Stockholder Party. Such affirmative vote shall be required notwithstanding
the fact that no vote may be required, or that a lesser percentage or
separate class vote may be specified, by law or in any agreement with any
national securities exchange, inter-dealer quotation system or otherwise.
B. The provisions of Section A of this Article IX shall not be
applicable to any particular Business Combination, and such Business
Combination shall require only such affirmative vote, if any, as is required
by law or any other provision of this Restated Certificate of Incorporation
of the Corporation or the By-laws of the Corporation, if all of the
conditions specified in either of the following paragraphs 1 or 2 are met:
1. The Business Combination shall have been approved by a
majority of the Continuing Directors (as hereinafter defined).
2. All of the following conditions shall have been met:
(a) The aggregate amount of the cash and the Fair Market
Value (as hereinafter defined) as of the date of the
consummation of the Business Combination of consideration
other than cash to be received per share by holders of
Common Stock in such Business Combination shall be at least
equal to the highest amount determined under clauses (i)
and (ii) below:
(i) (if applicable) the highest per share price
(including any brokerage commissions, transfer taxes and
soliciting dealers' fees) paid by or on behalf of the
Interested Stockholder for any share of Common Stock in
connection with the acquisition by the Interested
Stockholder of beneficial ownership of shares of Common
Stock acquired by it (x) within the two-year period
immediately prior to the first public announcement of the
proposed Business Combination (the "Announcement Date"),
or (y) in the transaction in which it became an
Interested Stockholder, whichever is higher, in either
case as adjusted for any subsequent stock split, stock
dividend, subdivision or reclassification with respect to
the Common Stock; and
(ii) the Fair Market Value per share of Common
Stock on the Announcement Date or on the date on which
the Interested Stockholder became an Interested
Stockholder (the "Determination Date") whichever is
higher, as adjusted for any subsequent stock split, stock
dividend, subdivision or reclassification with respect to
the Common Stock.
(b) The aggregate amount of the cash and the Fair Market
Value as of the date of the consummation of the Business
Combination of consideration other than cash to be received
per share by holders of shares of any class or series of
outstanding Capital Stock (as hereinafter defined), other
than Common Stock, shall be at least equal to the highest
amount determined under clauses (i), (ii) and (iii) below:
(i) (if applicable) the highest per share price
(including any brokerage commissions, transfer taxes and
soliciting dealers' fees) paid by or on behalf of the
Interested Stockholder for any share of such class or
series of Capital Stock in connection with the
acquisition by the Interested Stockholder of beneficial
ownership of shares of such class or series of Capital
Stock (x) within the two year period immediately prior to
the Announcement Date or (y) in the transaction in which
it became an Interested Stockholder, whichever is higher,
in either case as adjusted for any subsequent stock
split, stock dividend, subdivision or reclassification
with respect to such class or series of Capital Stock;
(ii) the Fair Market Value per share of such
class or series of Capital Stock on the Announcement Date
or on the Determination Date, whichever is higher, as
adjusted for any subsequent stock split, stock dividend,
subdivision or reclassification with respect to such
class or series of Capital Stock; and
(iii) (if applicable) the highest preferential
amount per share to which the holders of shares of such
class or series of Capital Stock would be entitled in the
event of any voluntary or involuntary liquidation,
dissolution or winding up of the affairs of the
Corporation regardless of whether the Business
Combination to be consummated constitutes such an event.
The provisions of this paragraph 2 shall be required to be
met with respect to every class or series of outstanding
Capital Stock, whether or not the Interested Stockholder
has previously acquired beneficial ownership of any shares
of a particular class or series of Capital Stock.
(c) The consideration to be received by holders of a
particular class or series of outstanding Capital Stock
shall be in cash or in the same form as previously has been
paid by or on behalf of the Interested Stockholder in
connection with its direct or indirect acquisition of
beneficial ownership of shares of such class or series of
Capital Stock. If the consideration so paid for shares of
any class or series of Capital Stock varied as to form, the
form of consideration for such class or series of Capital
Stock shall be either cash or the form used to acquire
beneficial ownership of the largest number of shares of
such class or series of Capital Stock previously acquired
by the Interested Stockholder.
(d) After the Determination Date and prior to the
consummation of such Business Combination: (i) except as
approved by a majority of the Continuing Directors, there
shall have been no failure to declare and pay at the
regular date therefor any full quarterly dividends (whether
or not cumulative) payable in accordance with the terms of
any outstanding Capital Stock; (ii) there shall have been
no reduction in the annual rate of dividends paid on the
Common Stock (except as necessary to reflect any stock
split, stock dividend, subdivision or reclassification of
the Common Stock), except as approved by a majority of the
Continuing Directors; (iii) there shall have been an
increase in the annual rate of dividends paid on the Common
Stock as necessary to reflect any reclassification
(including any reverse stock split), recapitalization,
reorganization or any similar transaction that has the
effect of reducing the number of outstanding shares of
Common Stock, unless the failure so to increase such annual
rate is approved by a majority of the Continuing Directors;
and (iv) such Interested Stockholder shall not have become
the beneficial owner of any additional shares of Capital
Stock, except as part of the transaction that resulted in
such Interested Stockholder becoming an Interested
Stockholder, and except in a transaction that, after giving
effect thereto, would not result in any increase in the
Interested Stockholder's percentage beneficial ownership of
any class or series of Capital Stock.
(e) A proxy or information statement describing the
proposed Business Combination and complying with the
requirements of the Exchange Act (or any subsequent
provisions replacing the Exchange Act) shall be mailed to
all stockholders of the Corporation at least 30 days prior
to the consummation of such Business Combination (whether
or not such proxy or information statement is required to
be mailed pursuant to the Exchange Act or subsequent
provisions). The proxy or information statement shall
contain on the first page thereof, in a prominent place,
any statement as to the advisability (or inadvisability) of
the Business Combination that the Continuing Directors, or
any of them, may choose to make and, if deemed advisable by
a majority of the Continuing Directors, an opinion of an
investment banking firm selected by a majority of the
Continuing Directors as to the fairness (or unfairness) of
the terms of the Business Combination from a financial
point of view to the holders of the outstanding shares of
Capital Stock other than the Interested Stockholder
Parties, such investment banking firm to be paid a
reasonable fee for its services by the Corporation.
(f) Such Interested Stockholder shall not have made any
major change in the Corporation's business or equity
capital structure prior to the consummation of the Business
Combination, without the approval of a majority of the
Continuing Directors.
C. The following definitions shall apply with respect to this
Article IX:
"Affiliate" or "Associate" shall have the respective
meanings ascribed to such terms in Rule 12b-2 of the Exchange Act, as in
effect on the date this Restated Certificate of Incorporation of the
Corporation is approved by the Board of Directors (the term "registrant" in
said Rule 12b-2 meaning in this case the Corporation).
A person shall be a "beneficial owner" of any Voting Stock:
(a) which such person or any of its Affiliates or Associates beneficially
owns, directly or indirectly; (b) which such person or any of its Affiliates
or Associates has, directly or indirectly, (i) the right to acquire (whether
such right is exercisable immediately or subject only to the passage of
time), pursuant to any agreement, arrangement or understanding or upon the
exercise of conversion rights, exchange rights, warrants or options, or
otherwise, or (ii) the right to vote pursuant to any agreement, arrangement
or understanding; or (c) which is beneficially owned, directly or indirectly,
by any other person with which such person or any of its Affiliates or
Associates has any agreement, arrangement or understanding for the purpose of
acquiring, holding, voting or disposing of any shares of Capital Stock. For
the purposes of determining whether a person is an Interested Stockholder as
defined in this Section C the number of shares of Capital Stock deemed to be
outstanding shall include shares deemed beneficially owned by such person
through applications of this paragraph, but shall not include any other
shares of Capital Stock that may be issuable pursuant to an agreement,
arrangement or understanding, or upon exercise of conversion rights, warrants
or options, or otherwise.
"Business Combination" shall mean: (a) any merger or
consolidation of the Corporation or any Subsidiary (as hereinafter defined)
with (i) any Interested Stockholder or (ii) any other person (whether or not
itself an Interested Stockholder), which is or after such merger or
consolidation would be an Affiliate, Associate or Schedule 13D Related Party
of an Interested Stockholder; or (b) any sale, lease, exchange, mortgage,
pledge, transfer or other disposition or security arrangement, investment,
loan, advance, guarantee, agreement to purchase, agreement to pay, extension
of credit, joint venture participation or other arrangement (in one
transaction or a series of transactions) with or for the benefit of any
Interested Stockholder Party involving any assets, securities or commitments
of the Corporation, any Subsidiary or any Interested Stockholder Party
(except for (x) any arrangement, whether as an employee, consultant or
otherwise, other than as a Director, pursuant to which any Interested
Stockholder Party shall, directly or indirectly, have any control over or
responsibility for the management of any aspect of the business or affairs of
the Corporation, with respect to which arrangements the value tests set forth
below shall not apply, (y) the reorganization of the Corporation pursuant to
the restructuring plan of the Corporation adopted in December 2001 and (z)
any sale, mortgage, pledge, transfer or other disposition of, or security
arrangement with respect to, shares of Common Stock by an Interested
Stockholder), together with all other such arrangements (including all
contemplated future events), has an aggregate Fair Market Value and/or
involves aggregate commitments of $10,000,000 or more or constitutes more
than five percent (5%) of the book value of the total assets (in the case of
transactions involving assets or commitments other than capital stock) or
five percent (5%) of the stockholder's equity (in the case of transactions in
capital stock) of the entity in question (the "Substantial Part"), as
reflected in the most recent fiscal year-end consolidated balance sheet of
such entity existing at the time the stockholders of the Corporation would be
required to approve or authorize the Business Combination involving the
assets, securities and/or commitments constituting any Substantial Part; or
(c) the adoption of any plan or proposal for the liquidation or dissolution
of the Corporation which is voted for or consented to by any Interested
Stockholder Party; or (d) any reclassification of securities (including any
reverse stock split), or recapitalization of the Corporation, or any merger
or consolidation of the Corporation with any of its Subsidiaries or any other
transaction (whether or not with or into or otherwise involving an Interested
Stockholder) that has the effect directly or indirectly, of increasing the
proportionate share of any class or series of Capital Stock, or any
securities convertible into Capital Stock or into equity securities of any
Subsidiary, that is beneficially owned by any Interested Stockholder Party;
or (e) any agreement, contract or other arrangement providing for any one or
more of the actions specified in the foregoing clauses (a) through (d).
"Capital Stock" shall mean all capital stock of the
Corporation authorized to be issued from time to time under Article IV of
this Restated Certificate of Incorporation of the Corporation.
"Continuing Director" means any member of the Board of
Directors, while such person is a member of the Board of Directors, who is
not an Affiliate, Associate, Schedule 13D Related Party or representative of
the Interested Stockholder and was a member of the Board of Directors prior
to the time that the Interested Stockholder became an Interested Stockholder,
and any successor of a Continuing Director while such successor is a member
of the Board of Directors, who is not an Affiliate, Associate, Schedule 13D
Related Party or representative of the Interested Stockholder and is
recommended or elected to succeed the Continuing Director by a majority of
Continuing Directors.
"Fair Market Value" means: (a) in the case of cash, the
amount of such cash; (b) in the case of stock, the highest closing sale price
during the 30-day period immediately preceding the date in question of a
share of such stock on the Composite Tape for New York Stock Exchange-Listed
Stocks, or, if such stock is not quoted on the Composite Tape, on the New
York Stock Exchange, or, if such stock is not listed on such Exchange, on the
principal United States securities exchange registered under the Exchange Act
on which such stock is listed or, if such stock is not listed on any such
exchange, the highest closing bid quotation with respect to a share of such
stock during the 30-day period preceding the date in question on the National
Association of Securities Dealers, Inc. Automated Quotations System, in the
pink sheets of the National Quotation Bureau or any similar system then in
use, or if no such quotations are available, the fair market value on the
date in question of a share of such stock as determined by a majority of the
Continuing Directors in good faith; and (c) in the case of property other
than cash or stock, the fair market value of such property on the date in
question as determined in good faith by a majority of the Continuing
Directors.
"Interested Stockholder" shall mean any person (other than
the Corporation or any Subsidiary and other than any profit-sharing, employee
stock ownership or other employee benefit plan of the Corporation or any
Subsidiary or any trustee of, or fiduciary with respect to, any such plan
when acting in such capacity) who: (a) is or has announced or publicly
disclosed a plan or intention to become the beneficial owner of Voting Stock
representing fifteen percent (15%) or more of the votes entitled to be cast
by the holders of all then outstanding shares of Voting Stock; or (b) is an
Affiliate or Associate (or Schedule 13D Related Party of either of the
foregoing) of the Corporation and at any time within the two-year period
immediately prior to the date in question was the beneficial owner of Voting
Stock representing fifteen percent (15%) or more of the votes entitled to be
cast by the holders of all then outstanding shares of Voting Stock.
"Interested Stockholder Party" shall mean any Interested
Stockholder together with its Affiliates, Associates and Schedule 13D Related
Parties.
"person" shall mean any individual, firm, company or other
entity and shall include any group comprised of any person and any other
person with whom such person or any Affiliate or Associate of such person has
any agreement, arrangement or understanding, directly or indirectly, for the
purpose of acquiring, holding, voting or disposing of Capital Stock.
"Schedule 13D Related Party" with respect to a specified
Interested Stockholder, shall mean any individual, partnership, association,
joint venture, corporation, business, trust, joint stock company, limited
liability company, any unincorporated organization, any other entity or a
"group" of such persons (as such term is defined in Rule 13d-5(b) of the
Exchange Act) whose beneficial ownership of securities would be required to
be aggregated on any Schedule 13D or Schedule 13G required to be filed by any
such Interested Stockholder pursuant to the Exchange Act.
"Subsidiary" means any company of which a majority of any
class of equity security is beneficially owned by the Corporation; provided,
however, that for the purposes of the definition of Interested Stockholder
set forth in this Section C, the term "Subsidiary" shall mean only a company
of which a majority of each class of equity security is beneficially owned by
the Corporation.
"Voting Stock" shall mean all Capital Stock which by its
terms may be voted on all matters submitted to stockholders of the
Corporation generally.
In the event of any Business Combination in which the
Corporation survives, the phrase "consideration other than cash to be
received" as used in paragraphs 2(a) and 2(b) of Section B of this Article IX
shall include the shares of Common Stock and/or the shares of any other class
or series of Capital Stock retained by the holders of such shares.
D. A majority of the Continuing Directors shall have the power and
duty to determine for the purpose of this Article IX, on the basis of
information known to them after reasonable inquiry, all questions arising
under this Article IX, including, without limitation, (a) whether a person is
an Interested Stockholder, (b) the number of shares of Capital Stock or other
securities beneficially owned by any person, (c) whether a person is an
Affiliate, Associate, Schedule 13D Related Party or representative of
another, (d) whether a Proposed Action (as hereinafter defined) is with, or
proposed by, or on behalf of an Interested Stockholder or an Affiliate,
Associate or Schedule 13D Related Party of an Interested Stockholder, (e)
whether the assets that are the subject of any Business Combination have, or
the consideration to be received for the issuance or transfer of securities
by the Corporation or any Subsidiary in any Business Combination has, an
aggregate Fair Market Value of $10,000,000 or more and (f) whether the assets
or securities that are the subject of any Business Combination constitute a
Substantial Part. The good faith determination of a majority of the
Continuing Directors on such matters shall be conclusive and binding on all
parties for all purposes of this Article IX.
E. Nothing contained in this Article IX shall be construed to
relieve any Interested Stockholder from any fiduciary obligation imposed by
law.
F. The fact that any Business Combination complies with the
provisions of Section B of this Article IX shall not be construed to impose
any fiduciary duty, obligation or responsibility on the Board of Directors,
or any member thereof, to approve such Business Combination or recommend its
adoption or approval to the stockholders of the Corporation, nor shall such
compliance limit, prohibit or otherwise restrict in any manner the Board of
Directors, or any member thereof, with respect to evaluations of, or actions
and responses taken with respect to, such Business Combination.
G. For the purposes of this Article IX, a Business Combination or
any proposal to amend, repeal or adopt any provision of this Restated
Certificate of Incorporation of the Corporation inconsistent with this
Article IX (collectively, "Proposed Action") is presumed to have been
proposed by, or on behalf of, an Interested Stockholder Party or a person who
thereafter would become such if (1) after the Interested Stockholder became
such, the Proposed Action is proposed following the election of any Director
of the Corporation who with respect to such Interested Stockholder, would not
qualify to serve as a Continuing Director or (2) such Interested Stockholder
Party or person votes for or consents to the adoption of any such Proposed
Action, unless as to such Interested Stockholder Party or person a majority
of the Continuing Directors makes a good faith determination that such
Proposed Action is not proposed by or on behalf of such Interested
Stockholder Party or person, based on information known to them after
reasonable inquiry.
H. Notwithstanding any other provisions of this Restated Certificate
of Incorporation of the Corporation or the By-laws of the Corporation (and
notwithstanding the fact that a lesser percentage or separate class vote may
be specified by law, this Restated Certificate of Incorporation of the
Corporation or the By-laws of the Corporation), any proposal to amend, repeal
or adopt any provision of this Restated Certificate of Incorporation of the
Corporation inconsistent with this Article IX which is proposed by or on
behalf of an Interested Stockholder Party shall require the affirmative vote
of the holders of not less than sixty-six and two-thirds percent (66-2/3%) of
the votes entitled to be cast by the holders of all the then outstanding
shares of Voting Stock, voting together as a single class, excluding Voting
Stock beneficially owned by such Interested Stockholder or an Affiliate or
Associate of an Interested Stockholder Party; provided, however, that this
Section H shall not apply to, and such sixty-six and two-thirds percent
(66-2/3%) vote shall not be required for, any amendment, repeal or adoption
unanimously recommended by the Board of Directors if all of such Directors
are persons who would be eligible at such time to serve as Continuing
Directors within the meaning of such term as set forth in Section C of this
Article IX.
ARTICLE X
LIMITATION ON LIABILITY
No Director shall be personally liable to the Corporation or any of
its stockholders for monetary damages for breach of fiduciary duty as a
Director, except to the extent such elimination from liability or limitation
thereof is not permitted under the GCL as the same exists or may hereafter be
amended. If the GCL is amended hereafter to authorize the further elimination
or limitation of the liability of Directors, then the liability of a Director
shall be eliminated or limited to the fullest extent authorized by the GCL,
as so amended. Any repeal or amendment of this Article X shall not adversely
affect any right or protection of a Director of the Corporation existing at
the time of such repeal or amendment with respect to acts or omissions
occurring prior to such repeal or amendment.
ARTICLE XI
ACTIONS WITH RESPECT TO BY-LAWS
In furtherance and not in limitation of the powers conferred by
statute, the Board of Directors is expressly authorized to adopt, repeal,
alter, amend or rescind the By-laws of the Corporation. In addition, the
By-laws of the Corporation may be adopted, repealed, altered, amended, or
rescinded by the affirmative vote of the holders of sixty-six and two-thirds
percent (66-2/3%) of the outstanding capital stock of the Corporation
entitled to vote thereon.
ARTICLE XII
MEETINGS OF STOCKHOLDERS
Meetings of stockholders may be held within or without the State of
Delaware, as the By-Laws of the Corporation may provide. The books of the
Corporation may be kept (subject to any provision contained in the GCL)
outside the state of Delaware at such place or places as may be designated
from time to time by the Board of Directors or in the By-Laws of the
Corporation.
ARTICLE XIII
MODIFICATION OF CERTAIN PROVISIONS OF
THIS RESTATED CERTIFICATE OF INCORPORATION
Notwithstanding anything contained in this Restated Certificate of
Incorporation of the Corporation to the contrary, the affirmative vote of the
holders of at least sixty-six and two-thirds percent (66-2/3%) of the Voting
Stock, voting together as a single class, shall be required to amend, repeal
or adopt any provision inconsistent with Articles V, VI, VII, VIII, IX, X, XI
and this Article XIII of this Restated Certificate of Incorporation of the
Corporation; provided that solely with respect to the last sentence of
Article V of this Restated Certificate of Incorporation of the Corporation
with respect to the affirmative vote of the holders of sixty-six and
two-thirds percent (66-2/3%) of the Voting Stock, the calculation of such
percentage shall exclude the affirmative vote of any 15% Stockholder Party,
but the shares of Voting Stock held by a 15% Stockholder Party may count
towards satisfying quorum requirements.
ARTICLE XIV
FURTHER ACTIONS WITH RESPECT TO
THIS RESTATED CERTIFICATE OF INCORPORATION
The Corporation reserves the right to repeal, alter, amend, or
rescind any provision contained in this Restated Certificate of Incorporation
of the Corporation, in the manner now or hereafter prescribed by statute, and
all rights conferred on stockholders herein are granted subject to this
reservation.
IN WITNESS WHEREOF, CoreComm Holdco, Inc. has caused this Restated
Certificate of Incorporation to be signed by Richard J. Lubasch, its Senior
Vice President, this 13th day of December 2001.
By: /s/ RICHARD J. LUBASCH
-------------------------------------
Name: Richard J. Lubasch
Title: Senior Vice President
EXHIBIT 3.2
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CERTIFICATE OF AMENDMENT
TO THE RESTATED
CERTIFICATE OF INCORPORATION
OF
CORECOMM HOLDCO, INC.
-----------------------------------------
Pursuant to Section 242 of the General
Corporation Law of the State of Delaware
-----------------------------------------
CoreComm Holdco, Inc., a Delaware corporation
(hereinafter called the "Corporation"), does hereby certify as follows:
FIRST: Part A. of Article IV of the Corporation's
Restated Certificate of Incorporation is hereby amended to include a new
second paragraph to read as follows:
"Upon filing of this Certificate of Amendment to the Restated
Certificate of Incorporation of the Corporation with the Secretary
of State of the State of Delaware (the "Effective Time"), every one
(1) share of Common Stock outstanding immediately prior to the
Effective Time shall be automatically reclassified and continue (the
"Stock Split"), without any action on the part of the stockholder
thereof, as 6,342.944 shares of Common Stock, par value $0.01 per
share. The Corporation shall not issue fractional shares on account
of this Stock Split. The Corporation will round any such fractional
shares up to the nearest whole number of shares. At the Effective
Time, each certificate representing existing shares of Common Stock
will automatically be deemed for all purposes to evidence ownership
of the appropriate increased number of shares of Common Stock
without any action on the part of the stockholder thereof."
SECOND: That resolutions were duly adopted by the Board of
Directors of the Corporation setting forth the above-mentioned amendment to
the Restated Certificate of Incorporation of the Corporation and declaring
said amendment to be advisable. The sole stockholder of the Corporation
entitled to vote thereon duly approved said amendment in accordance with the
provisions of Section 242 of the General Corporation Law of the State of
Delaware.
IN WITNESS WHEREOF, CoreComm Holdco, Inc. has caused this
Certificate to be duly executed in its corporate name this 17th day of
December, 2001.
CORECOMM HOLDCO, INC.
By: /s/ RICHARD J. LUBASCH
------------------------------
Name: Richard J. Lubasch
Title: Senior Vice President
EXHIBIT 3.3
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CERTIFICATE OF CORRECTION TO THE
CERTIFICATE OF AMENDMENT TO THE
RESTATED CERTIFICATE OF INCORPORATION
OF CORECOMM HOLDCO, INC.
--------------------------------
Pursuant to Section 103(f) of the
Delaware General Corporation Law
--------------------------------
CoreComm Holdco, Inc. (the "Corporation"), a corporation
organized and existing under and by virtue of the Delaware General
Corporation Law (the "DGCL"), does hereby certify as follows:
FIRST: On December 17, 2001, the Corporation filed a
Certificate of Amendment to the Restated Certificate of Incorporation of
the Corporation (the "Certificate"), in which the stock split ratio was
incorrectly set forth in a new second paragraph of Part A. of Article IV of
the Corporation's Restated Certificate of Incorporation, which created an
inaccurate record of the corporate action taken in the Certificate.
SECOND: Accordingly, the text of the new second paragraph
of Part A. of Article IV of the Corporation's Restated Certificate of
Incorporation shall be corrected to read in its entirety as follows:
"Upon filing of this Certificate of Amendment to the
Restated Certificate of Incorporation of the Corporation with the Secretary
of State of the State of Delaware (the "Effective Time"), every one (1)
share of Common Stock outstanding immediately prior to the Effective Time
shall be automatically reclassified and continue (the "Stock Split"),
without any action on the part of the stockholder thereof, as 6,342.944
shares of Common Stock, par value $0.01 per share. The Corporation shall
not issue fractional shares on account of this Stock Split. The Corporation
will round any such fractional shares up to the nearest whole number of
shares. At the Effective Time, each certificate representing existing
shares of Common Stock will automatically be deemed for all purposes to
evidence ownership of the appropriate increased number of shares of Common
Stock without any action on the part of the stockholder thereof."
THIRD: This Certificate of Correction was prepared and
executed in accordance with Section 103(f) of the DGCL.
IN WITNESS WHEREOF, CoreComm Holdco, Inc. has caused this
Certificate of Correction to be duly executed in its corporate name this
18th day of December 2001.
CORECOMM HOLDCO, INC.
By: /s/ RICHARD J. LUBASCH
---------------------------------
Name: Richard J. Lubasch
Title: Senior Vice President
EXHIBIT 3.4
-----------
AMENDED
BY-LAWS
OF
CORECOMM HOLDCO, INC.
(hereinafter called the "Corporation")
ARTICLE I
OFFICES
Section 1. Registered Office. The registered office of the Corporation in
the State of Delaware is 9 East Loockerman Street, City of Dover 19901,
County of Kent. The name of its registered agent at that address is
National Registered Agents, Inc.
Section 2. Other Offices. The Corporation may also have offices at such
other places both within and without the State of Delaware as the Board of
Directors may from time to time determine.
ARTICLE II
MEETINGS OF STOCKHOLDERS
Section 1. Place of Meetings. Meetings of the stockholders for the election
of directors or for any other purpose shall be held at such time and place,
either within or without the State of Delaware as shall be designated from
time to time by the Board of Directors and stated in the notice of the
meeting or in a duly executed waiver of notice thereof.
Section 2. Annual Meetings. Annual meetings of stockholders shall be held on
such date and at such time as shall be designated from time to time by the
Board of Directors and stated in the notice of the meeting, at which meetings
the stockholders shall elect by a plurality vote a Board of Directors, and
transact such other business as may properly be brought before the meeting in
accordance with these By-laws. Written notice of the annual meeting stating
the place, date and hour of the meeting shall be given to each stockholder
entitled to vote at such meeting not less than ten nor more than sixty days
before the date of the meeting.
Section 3. Special Meetings. Special meetings of stockholders for any purpose
or purposes may be called at any time by the Board of Directors, the Chairman
of the Board of Directors or the President. Special meetings of stockholders
may not be called by any other person or persons. Written notice of a special
meeting stating the place, date and hour of the meeting and the purpose or
purposes for which the meeting is called shall be given not less than ten nor
more than sixty days before the date of the meeting to each stockholder
entitled to vote at such meeting, and only such business as is stated in such
notice shall be acted upon thereat.
Section 4. Advance Notification of Business to be Transacted at Stockholder
Meetings. To be properly brought before the annual or any special
stockholders' meeting, business must be either (a) specified in the notice of
meeting (or any supplement or amendment thereto) given by or at the direction
of the Board of Directors, (b) otherwise properly brought before the meeting
by or at the direction of the Board of Directors or (c) otherwise properly
brought before the meeting by a stockholder. In addition to any other
applicable requirements, for business to be properly brought before an annual
or any special stockholders' meeting by a stockholder, the stockholder must
have given timely notice thereof in writing to the Secretary of the
Corporation. To be timely, a stockholder's notice must be delivered to or
mailed and received at the principal executive offices of the Corporation not
less than 75 days nor more than 90 days prior to the meeting; provided,
however, that in the event that less than 90 days' notice or prior public
disclosure of the date of the meeting is given or made to stockholders,
notice by the stockholder to be timely must be received by the Secretary of
the Corporation not later than the close of business on the fifteenth day
following the day on which such notice of the date of the meeting was mailed
or such public disclosure was made, whichever first occurs. Such
stockholder's notice to the Secretary shall set forth as to each matter the
stockholder proposes to bring before the meeting (i) a brief description of
the business desired to be brought before the meeting and the reasons for
conducting such business at the meeting, (ii) the name and record address of
the stockholder proposing such business, (iii) the class, series and number
of shares of capital stock of the Corporation which are beneficially owned by
the stockholder and (iv) any material interest of the stockholder in such
business.
Notwithstanding anything in these By-laws to the contrary, no business shall
be conducted at the annual or any special stockholders' meeting except in
accordance with the procedures set forth in this Article II, Section 4,
provided, however, that nothing in this Section 4 shall be deemed to preclude
discussion by any stockholder of any business properly brought before the
meeting. The officer of the Corporation presiding at the meeting shall, if
the facts warrant, determine and declare to the meeting that business was not
properly brought before the meeting in accordance with the provisions of this
Article II, Section 4, and if such officer should so determine, such officer
shall so declare to the meeting and any such business not properly brought
before the meeting shall not be transacted.
Section 5. Quorum. Except as otherwise provided by law or by the Certificate
of Incorporation of the Corporation, the holders of a majority of the capital
stock issued and outstanding and entitled to vote thereat, present in person
or represented by proxy, shall constitute a quorum at all meetings of the
stockholders for the transaction of business. If, however, such quorum shall
not be present or represented at any meeting of the stockholders, the
stockholders entitled to vote thereat, present in person or represented by
proxy, shall have power to adjourn the meeting from time to time, without
notice other than announcement at the meeting, until a quorum shall be
present or represented. At such adjourned meeting at which a quorum shall be
present or represented, any business may be transacted which might have been
transacted at the meeting as originally noticed. If the adjournment is for
more than thirty days, or if after the adjournment a new record date is fixed
for the adjourned meeting, a notice of the adjourned meeting shall be given
to each stockholder entitled to vote at the meeting.
Section 6. Voting. Unless otherwise required by law, the Certificate of
Incorporation of the Corporation or these By-laws, any question brought
before any meeting of stockholders shall be decided by the vote of the
holders of a majority of the stock represented and entitled to vote thereat.
Unless otherwise provided in the Certificate of Incorporation of the
Corporation, each stockholder represented at a meeting of stockholders shall
be entitled to cast one vote for each share of the capital stock entitled to
vote thereat held by such stockholder. The Board of Directors, in its
discretion, or the officer of the Corporation presiding at a meeting of
stockholders, in his discretion, may require that any votes cast at such
meeting shall be cast by written ballot.
Section 7. List of Stockholders Entitled to Vote. The officer of the
Corporation who has charge of the stock ledger of the Corporation shall
prepare and make, at least ten days before every meeting of stockholders, a
complete list of the stockholders entitled to vote at the meeting, arranged
in alphabetical order, and showing the address of each stockholder and the
number of shares registered in the name of each stockholder. Such list shall
be open to the examination of any stockholder, for any purpose germane to the
meeting, during ordinary business hours, for a period of at least ten days
prior to the meeting, either at a place within the city where the meeting is
to be held, which place shall be specified in the notice of the meeting, or,
if not so specified, at the place where the meeting is to be held. The list
shall also be produced and kept at the time and place of the meeting during
the whole time thereof, and may be inspected by any stockholder of the
Corporation who is present.
Section 8. Stock Ledger. The stock ledger of the Corporation shall be the
only evidence as to who are the stockholders entitled to examine the stock
ledger, the list required by Section 7 of this Article II or the books of the
Corporation, or to vote in person or by proxy at any meeting of stockholders.
ARTICLE III
DIRECTORS
Section 1. Number and Election of Directors. Subject to the rights, if any,
of holders of preferred stock of the Corporation, the Board of Directors
shall consist of not less than three nor more than fifteen members, the exact
number of which shall be fixed from time to time by the Board of Directors.
Except as provided in Section 3 of this Article III, directors shall be
elected by a plurality of the votes cast at any meeting of stockholders and
entitled to vote on the election of directors, and each director so elected
shall hold office as provided by Article V of the Certificate of
Incorporation of the Corporation. Any director may resign at any time upon
written notice or electronic transmission to the Corporation. Directors need
not be stockholders.
Section 2. Nomination of Directors. Only persons who are nominated in
accordance with the following procedures shall be eligible for election as
directors. Nominations of persons for election to the Board of Directors of
the Corporation at the annual meeting of stockholders may be made at such
meeting by or at the direction of the Board of Directors, by any committee or
persons appointed by the Board of Directors or by any stockholder of the
Corporation entitled to vote for the election of directors at the meeting who
complies with the notice procedures set forth in this Article III, Section 2.
Such nominations, other than those made by or at the direction of the Board
of Directors, shall be made pursuant to timely notice in writing to the
Secretary of the Corporation. To be timely, a stockholder's notice must be
delivered to or mailed and received at the principal executive offices of the
Corporation not less than 75 days nor more than 90 days prior to the meeting;
provided, however, that in the event that less than 90 days' notice or prior
public disclosure of the date of the meeting is given or made to
stockholders, notice by the stockholder to be timely must be received by the
Corporation not later than the close of business on the fifteenth day
following the day on which such notice of the date of the meeting was mailed
or such public disclosure was made, whichever first occurs. Such
stockholder's notice to the Secretary shall set forth (a) as to each person
whom the stockholder proposes to nominate for election or re-election as a
director, (i) the name, age, business address and residence address of the
person, (ii) the principal occupation or employment of the person, (iii) the
class, series and number of shares of capital stock of the Corporation which
are owned of record or beneficially by the person and (iv) any other
information relating to the person that is required to be disclosed in
solicitations for proxies for election of directors pursuant to the Rules and
Regulations of the Securities and Exchange Commission under Section 14 of the
Securities Exchange Act of 1934, as amended; and (b) as to the stockholder
giving the notice, (i) the name and record address of the stockholder and
(ii) the class, series and number of shares of capital stock of the
Corporation which are owned of record or beneficially by the stockholder.
Such written notice shall be accompanied by the executed consent of each
nominee to serve as a director if so elected. The Corporation may require any
proposed nominee to furnish such other information as may reasonably be
required by the Corporation to determine the eligibility of such proposed
nominee to serve as a director of the Corporation. No person shall be
eligible for election as a director of the Corporation unless nominated in
accordance with the procedures set forth herein. The officer of the
Corporation presiding at an annual meeting of stockholders shall, if the
facts warrant, determine and declare to the meeting that a nomination was not
made in accordance with the foregoing procedure, and if such officer should
so determine, such officer shall so declare to the meeting, and the defective
nomination shall be disregarded.
Section 3. Vacancies. Any vacancy on the Board of Directors, howsoever
resulting, may be filled by a majority of the directors then in office, even
if less than a quorum, or by a sole remaining director. Any director elected
to fill a vacancy shall hold office for a term that shall coincide with the
term of the class to which such director shall have been elected.
Section 4. Duties and Powers. The business of the Corporation shall be
managed by or under the direction of the Board of Directors, which may
exercise all such powers of the Corporation and do all such lawful acts and
things as are not by statute or by the Certificate of Incorporation of the
Corporation or by these By-laws directed or required to be exercised or done
by the stockholders.
Section 5. Meetings. The Board of Directors of the Corporation may hold
meetings, both regular and special, either within or without the State of
Delaware. Regular meetings of the Board of Directors may be held without
notice at such time and at such place as may from time to time be determined
by the Board of Directors. Special meetings of the Board of Directors may be
called by the Chairman of the Board of Directors, the President or by a
majority of the Board of Directors. Notice thereof stating the place, date
and hour of the meeting shall be given to each director either by mail not
less than forty-eight (48) hours before the date of the meeting, or
personally or by telephone, telegram, telex or similar means of communication
on twenty-four (24) hours' notice, or on such shorter notice as the person or
persons calling such meeting may deem necessary or appropriate in the
circumstances.
Section 6. Quorum; Action of the Board of Directors. Except as may be
otherwise specifically provided by law, the Certificate of Incorporation of
the Corporation or these By-laws, at all meetings of the Board of Directors,
a majority of the entire Board of Directors shall constitute a quorum for the
transaction of business and the act of a majority of the directors present at
any meeting at which there is a quorum shall be the act of the Board of
Directors. If a quorum shall not be present at any meeting of the Board of
Directors, the directors present thereat may adjourn the meeting from time to
time, without notice other than announcement at the meeting, until a quorum
shall be present.
Section 7. Action by Written Consent. Any action required or permitted to be
taken at any meeting of the Board of Directors or of any committee thereof
may be taken without a meeting, if all the members of the Board of Directors
or such committee, as the case may be, consent thereto in writing or by
electronic transmission, and the writing or writings or electronic
transmission or transmissions are filed with the minutes of proceedings of
the Board of Directors or such committee. Such filing shall be in paper form
if the minutes are maintained in paper form and shall be in electronic form
if the minutes are maintained in electronic form.
Section 8. Meetings by Means of Conference Telephone. Members of the Board of
Directors of the Corporation, or any committee designated by the Board of
Directors, may participate in a meeting of the Board of Directors or such
committee by means of a conference telephone or other communications
equipment by means of which all persons participating in the meeting can hear
each other, and participation in a meeting pursuant to this Article III,
Section 8 shall constitute presence in person at such meeting.
Section 9. Committees. The Board of Directors may, by resolution passed by a
majority of the entire Board of Directors, designate one or more committees,
each committee to consist of one or more of the directors of the Corporation.
The Board of Directors may designate one or more directors as alternate
members of any committee, who may replace any absent or disqualified member
at any meeting of any such committee. In the absence or disqualification of a
member of a committee, and in the absence of a designation by the Board of
Directors of an alternate member to replace the absent or disqualified
member, the member or members thereof present at any meeting and not
disqualified from voting, whether or not such member or members constitute a
quorum, may unanimously appoint another member of the Board of Directors to
act at the meeting in the place of any absent or disqualified member. Any
committee, to the extent allowed by law and provided in the resolution
establishing such committee, shall have and may exercise all the powers and
authority of the Board of Directors in the management of the business and
affairs of the Corporation. Unless the Board of Directors or such committee
shall otherwise provide, regular and special meetings and other actions of
any shall be governed by the provisions of this Article III applicable to
meetings and actions of the Board of Directors. Each committee shall keep
regular minutes and report to the Board of Directors when required.
Section 10. Fees and Compensation. Directors and members of committees may
receive such compensation, if any, for their services, and such reimbursement
for expenses, as may be fixed or determined by the Board of Directors. No
such payment shall preclude any director from serving the Corporation in any
other capacity and receiving compensation therefor.
Section 11. Interested Directors. No contract or transaction between the
Corporation and one or more of its directors or officers, or between the
Corporation and any other corporation, partnership, association, or other
organization in which one or more of its directors or officers are directors
or officers, or have a financial interest, shall be void or voidable solely
for this reason, or solely because the director or officer is present at or
participates in the meeting of the Board of Directors or committee thereof
which authorizes the contract or transaction, or solely because any such
director's or officer's votes are counted for such purpose if: (a) the
material facts as to such director's or officer's relationship or interest
and as to the contract or transaction are disclosed or are known to the Board
of Directors or the committee, and the Board of Directors or committee in
good faith authorizes the contract or transaction by the affirmative votes of
a majority of the disinterested directors, even though the disinterested
directors be less than a quorum; or (b) the material facts as to such
director's or officer's relationship or interest and as to the contract or
transaction are disclosed or are known to the stockholders entitled to vote
thereon, and the contract or transaction is specifically approved in good
faith by vote of the stockholders; or (c) the contract or transaction is fair
as to the Corporation as of the time it is authorized, approved or ratified,
by the Board of Directors, a committee thereof or the stockholders. Common or
interested directors may be counted in determining the presence of a quorum
at a meeting of the Board of Directors or of a committee which authorizes the
contract or transaction.
ARTICLE IV
OFFICERS
Section 1. General. The officers of the Corporation shall be chosen by the
Board of Directors and shall be a President, one or more Vice Presidents, a
Secretary and a Treasurer. The Board of Directors, in its discretion, may
also choose a Chairman of the Board of Directors (who must be a director) and
Assistant Secretaries, Assistant Treasurers and other officers. Such officers
as the Board of Directors may choose shall perform such duties and have such
powers as from time to time may be assigned to them by the Board of
Directors. The Board of Directors may delegate to any other officer of the
Corporation the power to choose such other officers and to prescribe their
respective duties and powers. Any number of offices may be held by the same
person, unless otherwise prohibited by law, the Certificate of Incorporation
of the Corporation or these By-laws. The officers of the Corporation need not
be stockholders of the Corporation nor, except in the case of the Chairman of
the Board of Directors, need such officers be directors of the Corporation.
Section 2. Election. The Board of Directors at its first meeting held after
each annual meeting of stockholders shall elect the officers of the
Corporation, who shall be subject to the control of the Board of Directors
and shall hold their offices for such terms and shall exercise such powers
and perform such duties as shall be determined from time to time by the Board
of Directors, and all officers of the Corporation shall hold office until
their successors are chosen and qualified, or until their earlier resignation
or removal. Any officer elected by the Board of Directors may be removed at
any time by the Board of Directors with or without cause, subject to the
terms of any employment agreement. Any vacancy occurring in any office of the
Corporation shall be filled by the Board of Directors. The salaries of all
officers of the Corporation shall be fixed by the Board of Directors.
Section 3. Voting Securities Owned by the Corporation. Powers of attorney,
proxies, waivers of notice of meeting, consents and other instruments
relating to securities owned by the Corporation may be executed in the name
of and on behalf of the Corporation by the President or any Vice President
and any such officer may, in the name of and on behalf of the Corporation,
take all such action as any such officer may deem advisable to vote in person
or by proxy at any meeting of security holders of any corporation in which
the Corporation may own securities and at any such meeting shall possess and
may exercise any and all rights and power incident to the ownership of such
securities and which, as the owner thereof, the Corporation might have
exercised and possessed if present. The Board of Directors may, by
resolution, from time to time confer like powers upon any other person or
persons.
ARTICLE V
STOCK
Section 1. Form of Certificates. Every holder of stock in the Corporation
shall be entitled to have a certificate signed, in the name of the
Corporation by the (a) Chairman of the Board of Directors, the Vice-Chairman
of the Board of Directors, the President or a Vice President of the
Corporation and (b) Treasurer or an Assistant Treasurer, or the Secretary or
an Assistant Secretary of the Corporation, certifying the number of shares
owned by him in the Corporation.
Section 2. Signatures. Where a certificate is countersigned by (a) a transfer
agent other than the Corporation or its employee or (b) a registrar other
than the Corporation or its employee, any other signature on the certificate
may be a facsimile. In case any officer, transfer agent or registrar who has
signed or whose facsimile signature has been placed upon a certificate shall
have ceased to be such officer, transfer agent or registrar before such
certificate is issued, such certificate may be issued by the Corporation with
the same effect as if such officer, transfer agent or registrar held such
position at the date of issue.
Section 3. Lost Certificates. The Board of Directors may direct a new
certificate to be issued in place of any certificate theretofore issued by
the Corporation alleged to have been lost, stolen or destroyed, upon the
making of a written affidavit of that fact by the person claiming the
certificate of stock to be lost, stolen or destroyed. When authorizing such
issue of a new certificate, the Board of Directors may, in its discretion and
as a condition precedent to the issuance thereof, require the owner of such
lost, stolen or destroyed certificate, or such owner's legal representative,
to advertise the same in such manner as the Board of Directors shall require
and/or to give the Corporation a bond in such sum as it may direct as
indemnity against any claim that may be made against the Corporation with
respect to the certificate alleged to have been lost, stolen or destroyed.
Section 4. Transfers. Stock of the Corporation shall be transferable in the
manner prescribed by law, any agreement among the stockholders of the
Corporation and the Corporation, the Certificate of Incorporation of the
Corporation and in these By-laws. Transfers of stock shall be made on the
books of the Corporation only by the person named in the certificate or by
such person's attorney lawfully constituted in writing and upon the surrender
of the certificate therefor, which shall be cancelled before a new
certificate shall be issued.
Section 5. Record Date. In order that the Corporation may determine the
stockholders entitled to receive notice of or to vote at any meeting of
stockholders or any adjournment thereof, or entitled to receive payment of
any dividend or other distribution or allotment of any rights, or entitled to
exercise any rights in respect of any change, conversion or exchange of
stock, or for the purpose of any other lawful action, the Board of Directors
may fix, in advance, a record date, which shall not be more than sixty days
nor less than ten days before the date of such meeting, nor more than sixty
days prior to any other action. A determination of stockholders of record
entitled to notice of or to vote at a meeting of stockholders shall apply to
any adjournment of the meeting; provided, however, that the Board of
Directors may fix a new record date for the adjourned meeting.
Section 6. Beneficial Owners. The Corporation shall be entitled to recognize
the exclusive right of a person registered on its books as the owner of
shares to receive dividends, and to vote as such owner, and to hold liable
for calls and assessments a person registered on its books as the owner of
shares, and shall not be bound to recognize any equitable or other claim to
or interest in such share or shares on the part of any other person, whether
or not it shall have express or other notice thereof, except as otherwise
provided by law.
ARTICLE VI
NOTICES
Section 1. Notices. Whenever written notice is required by law, the
Certificate of Incorporation of the Corporation or these By-laws, to be given
to any director or stockholder, such notice may be given by mail, addressed
to such director or stockholder, at its address as it appears on the records
of the Corporation, with postage thereon prepaid, and such notice shall be
deemed to be given at the time when the same shall be deposited in the United
States mail. Written notice may also be given personally or by telegram,
telex, cable or facsimile transmission.
Section 2. Waivers of Notice. Whenever any notice is required by law, the
Certificate of Incorporation of the Corporation or these By-laws, to be given
to any director or stockholder, a waiver thereof in writing, signed by the
person or persons entitled to said notice, whether before or after the time
stated therein, shall be deemed equivalent thereto.
ARTICLE VII
GENERAL PROVISIONS
Section 1. Dividends. Dividends upon the capital stock of the Corporation,
subject to the provisions of the Certificate of Incorporation of the
Corporation, if any, may be declared by the Board of Directors at any regular
or special meeting pursuant to law. Dividends may be paid in cash, in
property or in shares of capital stock. Before payment of any dividend, there
may be set aside out of any funds of the Corporation available for dividends
such sum or sums as the Board of Directors from time to time, in its absolute
discretion, deems proper as a reserve or reserves to meet contingencies, or
for equalizing dividends, or for repairing or maintaining any property of the
Corporation, or for any proper purpose, and the Board of Directors may modify
or abolish any such reserve.
Section 2. Disbursements. All checks or demands for money and notes of the
Corporation shall be signed by such officer or officers or such other
person or persons as the Board of Directors may from time to time
designate.
Section 3. Fiscal Year. The fiscal year of the Corporation shall be fixed
by resolution of the Board of Directors.
Section 4. Corporate Seal. The corporate seal shall have inscribed thereon
the name of the Corporation, the year of its organization and the words
"Corporate Seal, Delaware". The seal may be used by causing it or a facsimile
thereof to be impressed or affixed or reproduced or otherwise.
ARTICLE VIII
INDEMNIFICATION
The Corporation shall indemnify to the full extent authorized or permitted by
law (as now or hereafter in effect) any person made, or threatened to be
made, a defendant or witness to any action, suit or proceeding (whether
civil, criminal, investigative or otherwise) by reason of the fact that such
person, such person's testator or intestate, is or was a director or officer
of the Corporation or by reason of the fact that such director or officer, at
the request of the Corporation, is or was serving any other corporation,
partnership, joint venture, trust, employee benefit plan or other enterprise,
in any capacity.
ARTICLE IX
AMENDMENTS
These By-laws may be repealed, altered, amended or rescinded, in whole or in
part, or new By-laws may be adopted by either the affirmative vote of the
holders of sixty-six and two-thirds percent (66-2/3%) of the outstanding
capital stock of the Corporation entitled to vote thereon or by the Board of
Directors.
EXHIBIT 4.1
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NUMBER CH 00055 SHARES SPECIMEN
CORECOMM HOLDCO, INC.
INCORPORATED UNDER THE LAWS OF THE STATE OF DELAWARE
SEE REVERSE FOR CERTAIN DEFINITIONS
COMMON STOCK CUSIP 21869T 10 2
This certifies that
SPECIMEN
is the owner of
FULLY PAID AND NON-ASSESSABLE SHARES OF COMMON STOCK OF $.01 PAR VALUE EACH
OF CORECOMM HOLDCO, INC.
transferable on the books of the Corporation in person or by attorney upon
surrender of this certificate duly endorsed or assigned. This certificate is
not valid until countersigned by the Transfer Agent.
WITNESS the facsimile seal of the Corporation and the facsimile signatures of
its duly authorized officers.
DATED: SPECIMEN
[CORPORATE SEAL OMITTED]
GREGG N. GORELICK, TREASURER THOMAS GRAVINA, PRESIDENT
COUNTERSIGNED: Continental stock transfer & Trust Company
Jersey City, NJ
Transfer Agent and Registrar
The following abbreviations, when used in the inscription of the face of this
certificate, shall be construed as though they were written out in full
according to applicable laws or regulations:
-----------------
TEN COM - as tenants in common UNIF GIFT MIN ACT - Custodian
TEN ENT - as tenants by the entireties (Cust) (Minor)
JT TEN - as joint tenants with right
of under Uniform Gifts to Minors
Survivorship and not as tenants Act________________
In common (State)
Additional abbreviations may also be used though not in the above
list.
For Value Received, _________ hereby sell, assign and transfer
unto PLEASE INSERT SOCIAL SECURITY OR OTHER IDENTIFYING NUMBER OF ASSIGNEE:
-------------------
(Please print or typewrite name and address, including zip code,
of assignee) ___________________ Shares of the stock represented by the
within Certificate, and do hereby irrevocably constitute and appoint
___________________Attorney to transfer the said stock on the books of the
within named Corporation with full power of substitution in the premises.
Dated:__________________
Notice: The signature to this assignment must correspond with the name as
written upon the face of the certificate in every particular, without
alteration or enlargement or any change whatsoever.
[APPLICABLE LEGENDS]
THE SIGNATURE OF THE ASSIGNMENT MUST CORRESPOND TO THE NAME AS WRITTEN UPON
THE FACE OF THIS CERTIFICATE IN EVERY PARTICULAR, WITHOUT ALTERATION OR
ENLARGEMENT OR ANY CHANGE WHATSOEVER, AND MUST BE GUARANTEED BY A COMMERCIAL
BANK OR TRUST COMPANY OR A MEMBER FIRM OF A NATIONAL OR REGIONAL OR OTHER
RECOGNIZED STOCK EXCHANGE IN CONFORMANCE WITH A SIGNATURE GUARANTEE MEDALLION
PROGRAM.
EXHIBIT 4.2
EXECUTION COPY
CORECOMM HOLDCO, INC.
and
CONTINENTAL STOCK TRANSFER & TRUST COMPANY (as Rights Agent)
Rights Agreement
Dated as of December 17, 2001
TABLE OF CONTENTS
Page
----
Section 1. Certain Definitions...............................................1
Section 2. Appointment of Rights Agent.......................................6
Section 3. Issuance of Rights Certificates...................................6
Section 4. Form of Rights Certificates.......................................7
Section 5. Countersignature and Registration.................................8
Section 6. Transfer, Split Up, Combination and Exchange of Rights
Certificates; Mutilated, Destroyed, Lost or Stolen Rights
Certificates......................................................9
Section 7. Exercise of Rights; Purchase Price; Expiration Date of Rights;
Termination.......................................................9
Section 8. Cancellation and Destruction of Rights Certificates..............11
Section 9. Reservation and Availability of Capital Stock....................11
Section 10. Series A Preferred Stock Record Date............................13
Section 11. Adjustment of Purchase Price, Number and Kind of Shares or
Number of Rights................................................13
Section 12. Certificate of Adjusted Purchase Price or Number of Shares......19
Section 13. Consolidation, Merger or Sale or Transfer of Assets or
Earning Power...................................................19
Section 14. Fractional Rights and Fractional Shares.........................21
Section 15. Rights of Action................................................22
Section 16. Agreement of Rights Holders.....................................23
Section 17. Rights Certificate Holder not Deemed a Stockholder..............23
Section 18. Concerning the Rights Agent.....................................24
Section 19. Merger or Consolidation or Change of Name of Rights Agent.......24
Section 20. Duties of Rights Agent..........................................25
Section 21. Change of Rights Agent..........................................26
Section 22. Issuance of New Rights Certificates.............................27
Section 23. Redemption and Termination......................................27
Section 24. Exchange........................................................28
Section 25. Notice of Certain Events........................................29
Section 26. Notices.........................................................29
Section 27. Supplements and Amendments......................................30
Section 28. Successors......................................................31
Section 29. Determinations and Actions by the Board of Directors, etc.......31
Section 30. Benefits of this Agreement......................................31
Section 31. Severability....................................................31
Section 32. Governing Law...................................................32
Section 33. Counterparts....................................................32
Section 34. Descriptive Headings............................................32
RIGHTS AGREEMENT
RIGHTS AGREEMENT, dated as of December 17, 2001 (the "Agreement"),
by and between CoreComm Holdco, Inc., a Delaware corporation ("CoreComm" or
the "Company"), and Continental Stock Transfer & Trust Company, a New York
corporation (the "Rights Agent").
W I T N E S S E T H
WHEREAS, pursuant to a restructuring plan, (i) holders of
convertible preferred stock of CoreComm Limited, a Delaware corporation and
the parent of the Company ("Limited"), holders of debt securities of Limited
and certain holders of debt securities which were joint obligations of
Limited and the Company exchanged all of such preferred stock and debt
securities held by such holders for shares of Company Common Stock (as
defined in Section 1 hereof) pursuant to the terms and conditions of the
Exchange Agreement, dated as of December 14, 2001, by and among Limited, the
Company and such holders (the "Exchange Agreement"); and (ii) the Company
plans to commence an exchange offer whereby the Company will offer to
exchange shares of Company Common Stock for remaining outstanding debt
securities of Limited and Common Stock, par value $0.01 per share ("Limited
Common Stock"), of Limited;
WHEREAS, Limited had a stockholder rights plan in effect prior to
the consummation of the restructuring plan;
WHEREAS, the Board of Directors of the Company wishes to implement
a stockholder rights plan for the stockholders of CoreComm and have
authorized that plan and all transactions contemplated by that plan by
resolutions adopted as of December 10, 2001; and
WHEREAS, the Board of Directors of the Company has authorized and
declared a dividend distribution of one preferred share purchase right (a
"Right") (as such number may be hereinafter adjusted pursuant to Section
11(p) hereof) for each share of Company Common Stock outstanding at the
Close of Business (as defined in Section 1) on December 17, 2001 (the
"Record Date"), each Right initially representing the right to purchase,
upon the terms and subject to the conditions set forth herein, one
one-thousandth (1/1,000) of a share of Series A Junior Participating
Preferred Stock, par value $0.01 per share, of the Company, having the
rights, powers and preferences set forth in the form of Restated
Certificate of Incorporation attached hereto as Exhibit A, upon the terms
and subject to the conditions hereinafter set forth. The Board of Directors
of the Company has further authorized and directed the issuance of one
Right with respect to each share of Company Common Stock that shall become
outstanding (whether originally issued or delivered from the Company's
treasury) after the Record Date and on or prior to the earliest of the
Distribution Date, the Redemption Date and the Final Expiration Date (each
as hereinafter defined).
NOW, THEREFORE, in consideration of the premises and the mutual
agreements herein set forth, the parties, intending to be legally bound,
hereby agree as follows:
Section 1. Certain Definitions. For purposes of this Agreement,
the following terms have the meanings indicated:
(q) "Acquiring Person" shall mean any Adverse Person (or
any Affiliate or Associate thereof) or Person who or which, together with
all Affiliates and Associates of such Person, after the Record Date, is the
Beneficial Owner of 15% or more of the shares of Company Common Stock then
outstanding, but shall not include the Company, any Subsidiary of the
Company, any employee benefit plan of the Company or of any Subsidiary of
the Company, or any Person organized, appointed or established by the
Company for or pursuant to the terms of any such plan; provided, however,
that any Person, who, together with all Affiliates and Associates of such
Person, immediately following the consummation of the transactions
contemplated by the Exchange Agreement on the Closing Date (as defined in
the Exchange Agreement), is the Beneficial Owner of 15% or more of the
outstanding Company Common Stock shall not be, or be deemed to be, an
"Acquiring Person" unless and until such Person becomes the Beneficial
Owner of an additional one percent (1%) or more of the outstanding Company
Common Stock; provided, however, that any such Person shall cease to be
excluded from the definition of "Acquiring Person" pursuant to the
immediately preceding proviso at such time, if any, as such Person,
together with all Affiliates and Associates of such Person, ceases to be
the Beneficial Owner of 15% or more of the shares of outstanding Company
Common Stock. Notwithstanding the foregoing, no Person shall become an
"Acquiring Person" solely as a result of an acquisition of shares of
Company Common Stock pursuant to Section 5(d)(v) of the Exchange Agreement.
Notwithstanding the foregoing, no Person shall become an "Acquiring Person"
as a result of an acquisition of shares of Company Common Stock by the
Company which acquisition, by reducing the number of shares outstanding,
increases the proportionate number of shares beneficially owned by such
Person to 15% or more of the Company Common Stock then outstanding;
provided, however, that if a Person becomes the Beneficial Owner of 15% or
more of the Company Common Stock then outstanding by reason of share
purchases by the Company and, after such share purchases, becomes the
beneficial owner of any additional shares of Company Common Stock, then
such Person shall be an "Acquiring Person." In addition, a Person shall not
be deemed an Acquiring Person who has reported or is required to report
such beneficial ownership of shares of Company Common Stock (but less than
20%) on Schedule 13G under the Exchange Act or on Schedule 13D under the
Exchange Act, which Schedule 13D does not state any intention, or reserve
the right, to control or influence the management or policies of the
Company or engage in any of the actions specified in Item 4 of such
Schedule (other than the disposition of the Company Common Stock) and,
within 10 Business Days after being requested by the Company to advise it
regarding the same, certifies to the Company that such Person acquired
shares of Company Common Stock representing 15% or more of the shares of
Company Common Stock then outstanding inadvertently or without knowledge of
the terms of the Rights and who, together with all Affiliates and
Associates, thereafter does not acquire additional shares of Company Common
Stock while the Beneficial Owner of 15% or more of the shares of Company
Common Stock then outstanding; provided, however, that if the Person
requested to so certify fails to do so within 10 Business Days, then such
Person shall become an Acquiring Person immediately after such 10-Business
Day period. Notwithstanding the foregoing, if the Board determines in good
faith that a Person who would otherwise be an "Acquiring Person," as
defined pursuant to the foregoing provisions, has become such
inadvertently, and such Person divests as promptly as practicable
sufficient shares of Company Common Stock so that such Person would no
longer be an "Acquiring Person," as defined pursuant to the foregoing
provisions, then such Person shall not be an "Acquiring Person."
(r) "Adverse Person" shall mean any Person, who (x) alone
or together with its Affiliates and Associates has become the Beneficial
Owner of an amount of shares of Company Common Stock which a majority of
the Board determines to be substantial (which amount shall in no event be
less than 5% of the shares of Company Common Stock then outstanding) and
(y) with respect to which a majority of the Board has determined after
reasonable inquiry and investigation, including consultation with such
Person as such directors shall deem appropriate, that (a) such beneficial
ownership by such Person is intended to cause the Company to repurchase the
shares of Company Common Stock beneficially owned by such Person or to
cause pressure on the Company to take action or enter into a transaction or
series of transactions intended to provide such Person with short-term
financial gain under circumstances where the Board determines that the best
long-term interests of the Company and its stockholders, would not be
served by taking such action or entering into such transaction or series of
transactions at that time or (b) such beneficial ownership is causing or is
reasonably likely to cause a material adverse impact (including, but not
limited to, impairment of relationships with customers or suppliers,
impairment of the Company's ability to maintain its competitive position,
adverse consequences to the communities in which the Company is located and
impairment of the short-term and long-term interests of the Company
(including benefits that may accrue from the continued independence of the
Company) on the business or prospects of the Company.
(s) "Affiliate" and "Associate" shall have the respective
meanings ascribed to such terms in Rule 12b-2 under the Exchange Act as in
effect on the date of this Agreement.
(t) A Person shall be deemed the "Beneficial Owner" of,
and shall be deemed to "beneficially own," any securities:
(i) that such Person or any of such Person's
Affiliates or Associates, directly or indirectly, now or hereafter
owns or has (or by agreement with the Company is, on the date of
this Agreement, entitled to receive) the right to acquire (whether
such right is exercisable immediately or only after the passage of
time) pursuant to any agreement, arrangement or understanding
(whether or not in writing) or upon the exercise of conversion
rights, exchange rights, rights (other than the Rights), warrants
or options, or otherwise; provided, however, that a Person shall
not be deemed the "Beneficial Owner" of, or to "beneficially own,"
(A) securities tendered pursuant to a tender or exchange offer
made by such Person or any of such Person's Affiliates or
Associates until such tendered securities are accepted for
purchase or exchange, or (B) securities issuable upon exercise of
Rights at any time prior to the occurrence of a Triggering Event,
or (C) securities issuable upon exercise of Rights from and after
the occurrence of a Triggering Event which Rights were acquired by
such Person or any of such Person's Affiliates or Associates prior
to the Distribution Date or pursuant to Section 3(a) or Section 22
hereof (the "Original Rights") or pursuant to Section 11(i) hereof
in connection with an adjustment made with respect to any Original
Rights; provided, further, that a Person shall not be deemed to be
the "Beneficial Owner" of, or to "beneficially own," securities
that such Person has the right to acquire (whether such right is
exercisable immediately or only after the passage of time) upon
the exercise of (D) employee stock options now or hereafter (but
prior to the Distribution Date) issued by the Company, or (E)
conversion rights conferred in any class or series of preferred
stock of the Company issued prior to the Distribution Date if the
resolutions of the Board providing for the issuance of such class
or series of preferred stock shall specifically refer to this
Agreement and provide that the right to acquire securities upon
the exercise of conversion rights so conferred shall not be deemed
to constitute beneficial ownership of such securities;
(ii) that such Person or any of such Person's
Affiliates or Associates, directly or indirectly, has the right to
vote (except as hereinafter provided) or dispose of, or of which
any of them, directly or indirectly, has "beneficial ownership" of
(as determined pursuant to Rule 13d-3 under the Exchange Act),
including, except as hereinafter provided, pursuant to any
agreement, arrangement or understanding, whether or not in
writing; provided, however, that a Person shall not be deemed the
"Beneficial Owner" of, or to "beneficially own," any security
under this subparagraph (ii) as a result of an agreement,
arrangement or understanding to vote such security if such
agreement, arrangement or understanding: (A) arises solely from a
revocable proxy given in response to a public proxy or consent
solicitation made pursuant to, and in accordance with, the
applicable provisions under the Exchange Act (and the rules and
regulations thereunder), and (B) is not also then reportable by
such Person on Schedule 13D under the Exchange Act (or any
comparable or successor report);
(iii) that are beneficially owned, directly or
indirectly, by any other Person (or any Affiliate or Associate
thereof) with which such Person (or any of such Person's
Affiliates or Associates) has any agreement, arrangement or
understanding (whether or not in writing), for the purpose of
acquiring, holding, voting (except pursuant to a revocable proxy
as described in the proviso to subparagraph (ii) of this paragraph
(d)) or disposing of any voting securities of the Company; and
that are, pursuant to the foregoing subparagraphs of this
paragraph (d), or otherwise, deemed to be owned by a voting trust,
voting agent, recipient of a proxy that is not immediately
revocable (a "Non-revocable Proxy") or any other Person to whom
such Person (the "Grantor Person") has contributed, conveyed,
delegated, given, granted, tendered, transferred or otherwise
assigned or conferred (collectively, "Given") some or all of the
voting rights attributable to the shares of Company Common Stock
of which the Grantor Person (alone or in conjunction with any
other Person) is also deemed to be a Beneficial Owner. Solely for
purposes of this Agreement, the Grantor Person shall be deemed to
be the Beneficial Owner of all shares of Company Common Stock that
such voting trust, voting agent, proxy holder or other Person has
the right, by Non-revocable Proxy, agreement, assignment, tender,
grant or otherwise, to exercise some or all of the voting rights
attributable thereto, whether or not the Grantor Person shall have
contributed or given voting rights that constitute all or less
(even substantially less) than all of the voting rights held by
the voting trust, voting Agent, proxy holder or other Person to
whom or to which the Grantor Person has given some or all of the
voting rights attributable to shares of Company Common Stock
otherwise beneficially owned by the Grantor Person; provided,
however, that nothing in this paragraph (d) shall cause a person
engaged in business as an underwriter of securities to be the
"Beneficial Owner" of, or to "beneficially own," any securities
acquired through such person's participation in good faith in a
firm commitment underwriting until the expiration of 40 days after
the date of such acquisition.
(u) "Board" shall mean the Board of Directors of the
Company.
(v) "Business Day" shall mean any day other than a
Saturday, Sunday or a day on which banking institutions in the State of New
York are authorized or obligated by law or executive order to close.
(w) "Close Of Business" on any given date shall mean 5:00
p.m., New York City time, on such date; provided, however, that if such
date is not a Business Day it shall mean 5:00 p.m., New York City time, on
the next succeeding Business Day.
(x) "Common Stock" of a Person means the capital stock of
such Person with the greatest voting power, or the equity securities or
other equity interest having power to control or direct the management, of
such Person.
(y) "Company Common Stock" shall mean the common stock,
par value $0.01 per share, of the Company.
(z) "Company Common Stock Initial Market Price" shall
mean the average of the last reported sale price for the Company Common
Stock on the principal national securities exchange or automated quotation
system on which Company Common Stock is listed or quoted as of the close of
regular trading hours for the first five Trading Days that the Company
Common Stock is traded on a national securities exchange or quotation
system following the Securities and Exchange Commission declaring the first
registration statement with respect to Company Common Stock filed under the
Securities Act (the "Registration Statement") effective. If shares of
Company Common Stock are not admitted for trading on any national
securities exchange or on an automated quotation system upon the Securities
and Exchange Commission declaring the Registration Statement effective,
"Company Common Stock Initial Market Price" shall mean the quotient of (x)
the sum of the average of the last reported closing bid and ask prices in
the over-the-counter market for each of the first five Trading Days the
Company Common Stock is traded in the over-the-counter market as reported
by the National Association of Securities Dealers' Automated Quotation
System or if not so reported, as reported by the National Quotation Bureau,
Incorporated or its successor or, if not so reported, as furnished by any
member in good standing of the National Association of Securities Dealers,
Inc., selected from time to time by the Company for that purpose divided by
(y) five.
(aa) "Distribution Date" shall have the meaning ascribed
to such term in Section 3(a) hereof.
(bb) "Exchange Act" shall mean the Securities Exchange
Act of 1934, as amended, and the rules and regulations promulgated
thereunder.
(cc) "Person" shall mean any individual, firm,
corporation, partnership or other entity.
(dd) "Principal Party" shall have the meaning ascribed to
such term in Section 13(b) hereof.
(ee) "Record Date" shall have the meaning ascribed to it
in the recitals hereto.
(ff) "Right" shall have the meaning ascribed to it in the
recitals hereto.
(gg) "Rights Certificates" shall have the meaning
ascribed to it in Section 3(a) hereof.
(hh) "Series A Preferred Stock" shall mean shares of
Series A Junior Participating Preferred Stock, par value $0.01 per share,
of the Company, and, to the extent that there are not a sufficient number
of shares of Series A Junior Participating Preferred Stock authorized to
permit the full exercise of the Rights, any other series of preferred
stock, par value $0.01 per share, of the Company designated for such
purpose containing terms substantially similar to the terms of the Series A
Junior Participating Preferred Stock.
(ii) "Section 11(a)(ii) Event" shall mean any event
described in Section 11(a)(ii) hereof.
(jj) "Section 13 Event" shall mean any event described in
clauses (x), (y) or (z) of Section 13(a) hereof.
(kk) "Securities Act" shall mean the Securities Act of
1933, as amended, and the rules and regulations promulgated thereunder.
(ll) "Stock Acquisition Date" shall mean the first date
of public announcement (which, for purposes of this definition, shall
include, without limitation, a report filed or amended pursuant to Section
13(d) or 14(d) under the Exchange Act) by the Company or an Acquiring
Person that an Acquiring Person has become such.
(mm) "Subsidiary" shall mean, with reference to any
Person, any corporation or other entity of which an amount of voting
securities sufficient to elect at least a majority of the directors of such
corporation is beneficially owned, directly or indirectly, by such Person,
or otherwise controlled by such Person.
(nn) "Trading Day" shall mean a day on which the
principal national securities exchange or automated quotation system on
which the shares of Company Common Stock are listed or admitted to trading
is open for the transaction of business or, if the shares of Company Common
Stock are not listed or admitted to trading on any national securities
exchange or automated quotation system, a Business Day.
(oo) "Triggering Event" shall mean any Section 11(a)(ii)
Event or any Section 13 Event.
All references in this Agreement to acts, laws, rules, regulations
and to forms and schedules thereunder shall be deemed, unless specifically
stated, to be references to such acts, laws, rules, regulations, forms and
schedules as amended (or to successors thereto).
Section 2. Appointment of Rights Agent. The Company hereby
appoints the Rights Agent to act as agent for the Company and the holders
of the Rights (who, in accordance with Section 3 hereof, prior to the
Distribution Date, are the holders of the Company Common Stock) in
accordance with the terms and conditions hereof, and the Rights Agent
hereby accepts such appointment and agrees to act as Rights Agent under
this Agreement. The Company may from time to time appoint such Co-Rights
Agents as it may deem necessary or desirable.
Section 3. Issuance of Rights Certificates.
(a) Until the earlier of (i) the Close of Business on the
tenth Business Day after the Stock Acquisition Date, and (ii) the Close of
Business on the tenth Business Day (or such later date as the Board shall
determine) after the date that a tender or exchange offer by any Person
(other than the Company, any Subsidiary of the Company, any employee
benefit plan of the Company or of any Subsidiary of the Company, or any
Person organized, appointed or established by the Company for or pursuant
to the terms of any such plan) is first commenced within the meaning of
Rule 14d-2(a) under the Exchange Act, if upon consummation thereof, such
Person would be the Beneficial Owner of 15% or more of the shares of
Company Common Stock then outstanding (the earlier of (i) and (ii) being
herein referred to as the "Distribution Date"), (x) the Rights shall be
evidenced (subject to the provisions of Section 3(b) hereof) by the
certificates for Company Common Stock registered in the names of the
holders of the Company Common Stock (which certificates for Company Common
Stock shall be deemed also to be certificates for Rights) and not by
separate certificates; and (y) the Rights shall be transferable only in
connection with the transfer of the underlying shares of Company Common
Stock (including a transfer to the Company). As soon as practicable after
the Distribution Date, the Rights Agent shall send, by first-class,
insured, postage prepaid mail, to each record holder of Company Common
Stock as of the Close of Business on the Distribution Date, at the address
of such holder shown on the records of the Company, one or more rights
certificates, in substantially the form of Exhibit B hereto (the "Rights
Certificates"), evidencing one Right for each share of Company Common Stock
so held, subject to adjustment as provided herein. In the event that an
adjustment in the number of Rights per share of Company Common Stock has
been made pursuant to Section 11(p) hereof, at the time of distribution of
the Rights Certificates, the Company shall make the necessary and
appropriate rounding adjustments (in accordance with Section 14(a) hereof)
so that Rights Certificates representing only whole numbers of Rights are
distributed and cash is paid in lieu of any fractional Rights. As of and
after the Distribution Date, the Rights shall be evidenced solely by such
Rights Certificates.
(b) With respect to certificates for Company Common Stock
outstanding as of the Record Date, or issued subsequent to the Record Date,
unless and until the Distribution Date shall occur, the Rights shall be
evidenced by such certificates for Company Common Stock, and the registered
holders of Company Common Stock shall also be the registered holders of the
associated Rights. Until the earliest of the Distribution Date, the
Redemption Date or the Final Expiration Date (as such term is defined in
Section 7 hereof), the surrender or transfer of any certificates
representing shares of Company Common Stock in respect of which Rights have
been issued shall also constitute the surrender or transfer (respectively)
of the Rights associated with such shares of Company Common Stock.
(c) Rights shall be issued in respect of all shares of
Company Common Stock that are issued (whether originally issued or from the
Company's treasury) after the Record Date but prior to the earliest of the
Distribution Date, the Redemption Date or the Final Expiration Date.
Certificates representing such shares of Company Common Stock shall also be
deemed to be certificates for Rights, and shall have impressed on, printed
on, written on or otherwise affixed to them the following legend:
"THIS CERTIFICATE ALSO EVIDENCES AND ENTITLES THE HOLDER
HEREOF TO CERTAIN RIGHTS AS SET FORTH IN A RIGHTS AGREEMENT BY AND
BETWEEN CORECOMM HOLDCO, INC. (THE "COMPANY") AND CONTINENTAL STOCK
TRANSFER & TRUST COMPANY (THE "RIGHTS AGENT"), DATED AS OF DECEMBER
17, 2001, AS IT MAY BE AMENDED FROM TIME TO TIME (THE "RIGHTS
AGREEMENT"), THE TERMS OF WHICH ARE HEREBY INCORPORATED HEREIN BY
REFERENCE AND A COPY OF WHICH IS ON FILE AT THE PRINCIPAL OFFICES OF
THE COMPANY. UNDER CERTAIN CIRCUMSTANCES, AS SET FORTH IN THE RIGHTS
AGREEMENT, SUCH RIGHTS SHALL BE EVIDENCED BY SEPARATE CERTIFICATES
AND SHALL NO LONGER BE EVIDENCED BY THIS CERTIFICATE. THE COMPANY
SHALL MAIL TO THE HOLDER OF THIS CERTIFICATE A COPY OF THE RIGHTS
AGREEMENT, AS IN EFFECT ON THE DATE OF MAILING, WITHOUT CHARGE
PROMPTLY AFTER RECEIPT OF A WRITTEN REQUEST THEREFOR. UNDER CERTAIN
CIRCUMSTANCES SET FORTH IN THE RIGHTS AGREEMENT, RIGHTS ISSUED TO,
OR HELD BY, ANY PERSON WHO IS, WAS OR BECOMES AN ACQUIRING PERSON OR
ANY AFFILIATE OR ASSOCIATES THEREOF (AS SUCH TERMS ARE DEFINED IN
THE RIGHTS AGREEMENT), WHETHER CURRENTLY HELD BY OR ON BEHALF OF
SUCH PERSON OR BY ANY SUBSEQUENT HOLDER, MAY BECOME NULL AND VOID."
With respect to such certificates containing the foregoing legend, until the
earlier of (i) the Distribution Date, (ii) the Redemption Date, or (iii) the
Final Expiration Date, the Rights associated with Company Common Stock
represented by such certificates shall be evidenced by such certificates
alone and registered holders of Company Common Stock shall also be the
registered holders of the associated Rights, and the transfer of any of such
certificates shall also constitute the transfer of the Rights associated with
Company Common Stock represented by such certificates.
Section 4. Form of Rights Certificates.
(a) The Rights Certificates (and the forms of election to
purchase and of assignment to be printed on the reverse thereof) shall each
be substantially in the form set forth in Exhibit B hereto and may have
such marks of identification or designation and such legends, summaries or
endorsements printed thereon as the Company may deem appropriate and as are
not inconsistent with the provisions of this Agreement, or as may be
required to comply with any applicable law or with any rule or regulation
made pursuant thereto or with any rule or regulation of any stock exchange
on which the Rights may from time to time be listed, or to conform to
usage. Subject to the provisions of Section 11 and Section 22 hereof, the
Rights Certificates, whenever distributed, shall be dated as of the Record
Date and on their face shall entitle the holders thereof to purchase such
number of one one-thousandths of a share of Series A Preferred Stock as
shall be set forth therein at the price set forth therein (such exercise
price per one one-thousandth of a share, the "Purchase Price"), but the
amount and type of securities purchasable (or other consideration to be
made available) upon the exercise of each Right and the Purchase Price
thereof shall be subject to adjustment as provided herein.
(b) Any Rights Certificate issued pursuant to Section
3(a) or Section 22 hereof that represents Rights beneficially owned by: (i)
an Acquiring Person or any Associate or Affiliate of an Acquiring Person,
(ii) a transferee of an Acquiring Person (or of any such Associate or
Affiliate) who becomes a transferee after the Acquiring Person becomes
such, or (iii) a transferee of an Acquiring Person (or of any such
Associate or Affiliate) who becomes a transferee prior to or concurrently
with the Acquiring Person becoming such and receives such Rights pursuant
to either (A) a transfer (whether or not for consideration) from the
Acquiring Person to holders of equity interests in such Acquiring Person or
to any Person with whom such Acquiring Person has any continuing agreement,
arrangement or understanding regarding the transferred Rights or (B) a
transfer that the Board has determined is part of a plan, arrangement or
understanding that has as a primary purpose or effect avoidance of Section
7(e) hereof, and any Rights Certificate issued pursuant to Section 6 or
Section 11 hereof upon transfer, exchange, replacement or adjustment of any
other Rights Certificate referred to in this sentence, shall contain (to
the extent feasible) the following legend:
"THE RIGHTS REPRESENTED BY THIS RIGHTS CERTIFICATE ARE OR
WERE BENEFICIALLY OWNED BY A PERSON WHO WAS OR BECAME AN ACQUIRING
PERSON OR AN AFFILIATE OR ASSOCIATE OF AN ACQUIRING PERSON (AS SUCH
TERMS ARE DEFINED IN THE RIGHTS AGREEMENT). ACCORDINGLY, THIS RIGHTS
CERTIFICATE AND THE RIGHTS REPRESENTED HEREBY MAY BECOME NULL AND
VOID IN THE CIRCUMSTANCES SPECIFIED IN SECTION 7(E) OF SUCH
AGREEMENT."
Section 5. Countersignature and Registration.
(a) The Rights Certificates shall be executed on behalf
of the Company by its Chairman of the Board, or its President, Chief
Executive Officer or any Vice President, either manually or by facsimile
signature, and shall have affixed thereto the Company's seal, or a
facsimile thereof which shall be attested by the Secretary or an Assistant
Secretary or Assistant Treasurer of the Company, either manually or by
facsimile signature. The Rights Certificates shall be manually
countersigned by the Rights Agent and shall not be valid for any purpose
unless so countersigned. In case any officer of the Company who shall have
signed any of the Rights Certificates shall cease to be such officer of the
Company before countersignature by the Rights Agent and issuance and
delivery by the Company, such Rights Certificates, nevertheless, may be
countersigned by the Rights Agent and issued and delivered by the Company
with the same force and effect as though the person who signed such Rights
Certificates had not ceased to be such officer of the Company; and any
Rights Certificates may be signed on behalf of the Company by any person
who, at the actual date of the execution of such Rights Certificate, shall
be a proper officer of the Company to sign such Rights Certificate,
although at the date of the execution of this Rights Agreement any such
person was not such an officer.
(b) Following the Distribution Date, the Rights Agent
shall keep or cause to be kept, at its principal office or offices
designated as the appropriate place for surrender of Rights Certificates
upon exercise or transfer, books for registration and transfer of the
Rights Certificates issued or to be issued hereunder. Such books shall show
the names and addresses of the respective holders of the Rights
Certificates, the number of Rights evidenced on its face by each of the
Rights Certificates, the certificate number of each of the Rights
Certificates and the date of each of the Rights Certificates.
Section 6. Transfer, Split Up, Combination and Exchange of Rights
Certificates; Mutilated, Destroyed, Lost or Stolen Rights Certificates.
(a) Subject to the provisions of Section 4(b), Section
7(e) and Section 14 hereof, at any time after the Close of Business on the
Distribution Date, and at or prior to the Close of Business on the earlier
of the Redemption Date or the Final Expiration Date, any Rights Certificate
or Certificates (other than Rights Certificates representing Rights that
may have been exchanged pursuant to Section 24 hereof) may be transferred,
split up, combined or exchanged for another Rights Certificate or
Certificates, entitling the registered holder to purchase a like number of
one one-thousandths of a share of Series A Preferred Stock (or, following a
Triggering Event, Company Common Stock, other securities, cash or other
assets or property, as the case may be) as the Rights Certificate or Rights
Certificates surrendered then entitled such holder (or former holder in the
case of a transfer) to purchase. Any registered holder desiring to
transfer, split up, combine or exchange any Rights Certificate or Rights
Certificates shall make such request in writing delivered to the Rights
Agent, and shall surrender the Rights Certificate or Rights Certificates to
be transferred, split up, combined or exchanged at the principal office or
offices of the Rights Agent designated, pursuant to Section 26 hereof, for
such purpose. Neither the Rights Agent nor the Company shall be obligated
to take any action whatsoever with respect to the transfer of any such
surrendered Rights Certificate until the registered holder shall have
properly completed and signed the certificate contained in the form of
assignment on the reverse side of such Rights Certificate and shall have
provided such additional evidence of the identity of the Beneficial Owner
(or former Beneficial Owner) or Affiliates or Associates thereof as the
Company shall reasonably request. Thereupon the Rights Agent shall, subject
to Section 4(b), Section 7(e), Section 14 and Section 24 hereof,
countersign and deliver to the Person entitled thereto a Rights Certificate
or Rights Certificates, as the case may be, as so requested. The Company
may require payment of a sum sufficient to cover any tax or governmental
charge that may be imposed in connection with any transfer, split up,
combination or exchange of Rights Certificates.
(b) Upon receipt by the Company and the Rights Agent of
evidence reasonably satisfactory to them of the loss, theft, destruction or
mutilation of a Rights Certificate, and, in case of loss, theft or
destruction, of indemnity or security reasonably satisfactory to them, and
reimbursement to the Company and the Rights Agent of all reasonable
expenses incidental thereto, and upon surrender to the Rights Agent and
cancellation of the Rights Certificate if mutilated, the Company shall
execute and deliver a new Rights Certificate of like tenor to the Rights
Agent for countersignature and delivery to the registered owner in lieu of
the Rights Certificate so lost, stolen, destroyed or mutilated.
Section 7. Exercise of Rights; Purchase Price; Expiration Date of
Rights; Termination.
(a) Subject to Section 7(e) hereof, the registered holder
of any Rights Certificate may exercise the Rights evidenced thereby (except
as otherwise provided herein including, without limitation, the
restrictions on exercisability set forth in Section 9(c), Section
11(a)(iii) and Section 23(a) hereof) in whole or in part at any time after
the Distribution Date upon surrender of the Rights Certificate, with the
form of election to purchase and the certificate on the reverse side
thereof duly executed, to the Rights Agent at the principal office or
offices of the Rights Agent designated, pursuant to Section 26 hereof, for
such purpose, together with payment of the aggregate Purchase Price with
respect to the total number of one one-thousandths of a share (or other
securities, cash or other assets, as the case may be) as to which such
surrendered Rights are then exercisable, at or prior to the Close of
Business on the earlier of (i) the tenth anniversary of the Record Date
(the "Final Expiration Date"), or (ii) the date on which the Rights are
redeemed as provided in Section 23 hereof (the "Redemption Date") as
provided in Section 23 hereof or (iii) the time at which such Rights are
exchanged as provided in Section 24 hereof.
(b) The Purchase Price for each one one-thousandth of a
share of Series A Preferred Stock pursuant to the exercise of a Right shall
initially be the product of (x) four times (y) the Company Common Stock
Initial Market Price, and shall be subject to adjustment from time to time
as provided in Sections 11 and 13(a) hereof and shall be payable in lawful
money of the United States of America accordance with paragraph (c) below.
(c) Upon receipt of a Rights Certificate representing
exercisable Rights, with the form of election to purchase and the
certificate duly executed, accompanied by payment, with respect to each
Right so exercised, of the Purchase Price per one one-thousandth of a share
of Series A Preferred Stock (or other shares, securities, cash or other
assets or property, as the case may be) to be purchased as set forth below
and an amount equal to any applicable tax or governmental charge required
to be paid by the holder of such Rights Certificate in accordance with
Section 9 hereof, the Rights Agent shall, subject to Section 20(k) hereof,
thereupon promptly (i) either (A) requisition from any transfer agent of
the shares of Series A Preferred Stock (or make available, if the Rights
Agent is the transfer agent for such shares) certificates for the total
number of one one-thousandths of a share of Series A Preferred Stock to be
purchased and the Company hereby irrevocably authorizes its transfer agent
to comply with all such requests, or (B) if the Company shall have elected
to deposit the total number of shares of Series A Preferred Stock issuable
upon exercise of the Rights hereunder with a depositary agent, requisition
from the depositary agent depositary receipts representing such number of
one one-thousandths of a share of Series A Preferred Stock as are to be
purchased (in which case certificates for the shares of Series A Preferred
Stock represented by such receipts shall be deposited by the transfer agent
with the depositary agent) and the Company hereby directs the depositary
agent to comply with such request, (ii) if and when necessary to comply
with this Agreement, requisition from the Company the amount of cash, if
any, to be paid in lieu of issuance of fractional shares in accordance with
Section 14 hereof, (iii) after receipt of such certificates or depositary
receipts, cause the same to be delivered to or upon the order of the
registered holder of such Rights Certificate, registered in such name or
names as may be designated by such holder, and (iv) after receipt thereof,
promptly deliver such cash, if any, to or upon the order of the registered
holder of such Rights Certificate. The payment of the Purchase Price (as
such amount may be reduced pursuant to Section 11(a)(iii) hereof) shall be
made in cash or by certified bank check or cashier's check payable to the
order of the Company. In the event that the Company is obligated to issue
other securities (including Company Common Stock), pay cash and/or
distribute other assets pursuant to Section 11(a) hereof, the Company shall
make all arrangements necessary so that such other securities, cash and/or
other assets are available for distribution by the Rights Agent, if and
when appropriate. The Company reserves the right to require prior to the
occurrence of a Triggering Event that, upon any exercise of Rights, a
number of Rights be exercised so that only whole shares of Series A
Preferred Stock would be issued.
(d) In case the registered holder of any Rights
Certificate shall exercise less than all the Rights evidenced thereby, a
new Rights Certificate evidencing Rights equivalent to the Rights remaining
unexercised shall be issued by the Rights Agent and delivered to, or upon
the order of, the registered holder of such Rights Certificate or to his
duly authorized assigns, registered in such name or names as may be
designated by such holder, subject to the provisions of Section 6 and
Section 14 hereof.
(e) Notwithstanding anything in this Agreement to the
contrary, from and after the first occurrence of a Triggering Event, any
Rights beneficially owned by (i) an Acquiring Person or an Associate or
Affiliate of an Acquiring Person, (ii) a transferee of an Acquiring Person
(or of any such Associate or Affiliate) who becomes a transferee after the
Acquiring Person becomes such, or (iii) a transferee of an Acquiring Person
(or of any such Associate or Affiliate) who becomes a transferee prior to
or concurrently with the Acquiring Person becoming such and receives such
Rights pursuant to either (A) a transfer (whether or not for consideration)
from the Acquiring Person to holders of equity interests in such Acquiring
Person or to any Person with whom the Acquiring Person has any continuing
agreement, arrangement or understanding regarding the transferred Rights or
(B) a transfer that the Board has determined is part of a plan, arrangement
or understanding that has as a primary purpose or effect the avoidance of
this Section 7(e), shall become null and void without any further action,
and no holder of such Rights shall have any rights whatsoever with respect
to such Rights, whether under any provision of this Agreement or otherwise.
The Company shall use all reasonable efforts to insure that the provisions
of this Section 7(e) and Section 4(b) hereof are complied with, but the
Company shall have no liability to any holder of Rights Certificates or
other Person as a result of the Company's failure to make any
determinations with respect to an Acquiring Person or its Affiliates,
Associates or transferees hereunder.
(f) Notwithstanding anything in this Agreement to the
contrary, neither the Rights Agent nor the Company shall be obligated to
undertake any action with respect to a registered holder upon the
occurrence of any purported exercise as set forth in this Section 7 unless
such registered holder shall have (i) properly completed and signed the
certificate contained in the form of election to purchase set forth on the
reverse side of the Rights Certificate surrendered for such exercise, and
(ii) provided such additional evidence of the identity of the Beneficial
Owner (or former Beneficial Owner) or Affiliates or Associates thereof as
the Company shall reasonably request.
Section 8. Cancellation and Destruction of Rights Certificates.
All Rights Certificates surrendered for the purpose of exercise, transfer,
split up, combination or exchange shall, if surrendered to the Company or
any of its agents, be delivered to the Rights Agent for cancellation or in
canceled form, or, if surrendered to the Rights Agent, shall be canceled by
it, and no Rights Certificates shall be issued in lieu thereof except as
expressly permitted by any of the provisions of this Agreement. The Company
shall deliver to the Rights Agent for cancellation and retirement, and the
Rights Agent shall so cancel and retire, any other Rights Certificate
purchased or acquired by the Company otherwise than upon the exercise
thereof. The Rights Agent shall deliver all canceled Rights Certificates to
the Company, or shall, at the written request of the Company, destroy such
canceled Rights Certificates, and in such case shall deliver a certificate
of destruction thereof to the Company.
Section 9. Reservation and Availability of Capital Stock.
(a) The Company shall cause to be reserved and kept
available out of its authorized and unissued shares of Series A Preferred
Stock (and, following the occurrence of a Triggering Event, out of its
authorized and unissued shares of Company Common Stock and/or other
securities or out of its authorized and issued shares held in its
treasury), the number of shares of Series A Preferred Stock (and, following
the occurrence of a Triggering Event, Company Common Stock and/or other
securities) that, as provided in this Agreement including Section
11(a)(iii) hereof, will be sufficient to permit the exercise in full of all
outstanding Rights. Prior to the occurrence of a Triggering Event, the
Company shall not be obliged to cause to be reserved and kept available out
of its authorized and unissued common stock or shares of Series A Preferred
Stock (other than the Series A Preferred Stock), any such shares of Company
Common Stock or any shares of preferred stock (other than the Series A
Preferred Stock) to permit exercise of outstanding Rights.
(b) So long as the shares of Series A Preferred Stock
(and, following the occurrence of a Triggering Event, Company Common Stock
and/or other securities) issuable and deliverable upon the exercise of the
Rights may be listed on any national securities exchange or automated
quotation system, the Company shall use its best efforts to cause, from and
after such time as the Rights become exercisable, all shares reserved for
such issuance to be listed on such exchange or automated quotation system
upon official notice of issuance upon such exercise.
(c) If then required by applicable law, the Company shall
use its best efforts to (i) file, as soon as practicable following the
earliest date after the first occurrence of a Triggering Event as to which
the consideration to be delivered by the Company upon exercise of the
Rights has been determined pursuant to this Agreement, or as soon as
required by law following the Distribution Date, as the case may be, a
registration statement under the Securities Act, with respect to the
securities purchasable upon exercise of the Rights on an appropriate form,
(ii) cause such registration statement to become effective as soon as
practicable after such filing, and (iii) cause such registration statement
to remain effective (with a prospectus at all times meeting the
requirements of the Securities Act) until the earlier of (A) the date as of
which the Rights are no longer exercisable for such securities, and (B) the
Final Expiration Date. If then required by applicable law, the Company
shall also take such action as may be appropriate under, or to ensure
compliance with, the securities or "blue sky" laws of the various states in
connection with the exercisability of the Rights. The Company may
temporarily suspend, for a period of time not to exceed ninety (90) days
after the date set forth in clause (i) of the first sentence of this
Section 9(c), the exercisability of the Rights in order to prepare and file
such registration statement and permit it to become effective. Upon any
such suspension, the Company shall issue a public announcement stating that
the exercisability of the Rights has been temporarily suspended, as well as
a public announcement at such time as the suspension is no longer in
effect. In addition, if the Company shall determine that a registration
statement is required following the Distribution Date, the Company may
temporarily suspend the exercisability of the Rights until such time as a
registration statement has been declared effective. Notwithstanding any
provision of this Agreement to the contrary, the Rights shall not be
exercisable in any jurisdiction if the requisite qualification in such
jurisdiction shall not have been obtained, the exercise thereof shall not
be permitted under applicable law or a registration statement shall not
have been declared effective.
(d) The Company shall take all such action as may be
necessary to ensure that all one one-thousandths of a share of Series A
Preferred Stock (and, following the occurrence of a Triggering Event,
Company Common Stock and/or other securities) delivered upon exercise of
Rights shall, at the time of delivery of the certificates for such shares
(subject to payment of the Purchase Price), be duly and validly authorized
and issued and fully paid and nonassessable.
(e) The Company shall pay when due and payable any and
all taxes and governmental charges that may be payable in respect of the
issuance or delivery of the Rights Certificates and of any certificates for
a number of one one-thousandths of a share of Series A Preferred Stock (or
Company Common Stock and/or other securities, as the case may be) upon the
exercise of Rights. The Company shall not, however, be required to pay any
transfer tax that may be payable in respect of any transfer or delivery of
Rights Certificates to a Person other than, or the issuance or delivery of
a number of one one-thousandths of a share of Series A Preferred Stock (or
Company Common Stock and/or other securities, as the case may be) in
respect of a name other than that of, the registered holder of the Rights
Certificates evidencing Rights surrendered for exercise or to issue or
deliver any certificates for a number of one one-thousandths of a share of
Series A Preferred Stock (or Company Common Stock and/or other securities,
as the case may be) in a name other than that of the registered holder upon
the exercise of any Rights until such tax or charge shall have been paid
(any such tax being payable by the holder of such Rights Certificate at the
time of surrender) or until it has been established to the Company's
satisfaction that no such tax or charge is due.
Section 10. Series A Preferred Stock Record Date. Each
person in whose name any certificate for a number of one one-thousandths of
a share of Series A Preferred Stock (or Company Common Stock and/or other
securities, as the case may be) is issued upon the exercise of Rights shall
for all purposes be deemed to have become the holder of record of such
fractional shares of Series A Preferred Stock (or Company Common Stock
and/or other securities, as the case may be) represented thereby on, and
such certificate shall be dated, the date upon which the Rights Certificate
evidencing such Rights was duly surrendered and payment of the Purchase
Price (and all applicable taxes and governmental charges) was made;
provided, however, that if the date of such surrender and payment is a date
upon which the Series A Preferred Stock (or Company Common Stock and/or
other securities, as the case may be) transfer books of the Company are
closed, such Person shall be deemed to have become the record holder of
such shares (fractional or otherwise) on, and such certificate shall be
dated, the next succeeding Business Day on which the Series A Preferred
Stock (or Company Common Stock and/or other securities, as the case may be)
transfer books of the Company are open. Prior to the exercise of the Rights
evidenced thereby, the holder of a Rights Certificate shall not be entitled
to any rights of a stockholder of the Company with respect to shares for
which the Rights shall be exercisable, including, without limitation, the
right to vote, to receive dividends or other distributions or to exercise
any preemptive rights, and shall not be entitled to receive any notice of
any proceedings of the Company, except as provided herein.
Section 11. Adjustment of Purchase Price, Number and Kind
of Shares or Number of Rights. The Purchase Price, the number and kind of
shares covered by each Right and the number of Rights outstanding are
subject to adjustment from time to time as provided in this Section 11.
(a) (i) In the event that the Company at any time after
the Record Date (A) declares a dividend on the Series A Preferred Stock
payable in shares of Series A Preferred Stock, (B) subdivides the
outstanding Series A Preferred Stock, (C) combines the outstanding Series A
Preferred Stock into a smaller number of shares, or (D) issues any shares
of its capital stock in a reclassification of the Series A Preferred Stock
(including any such reclassification in connection with a consolidation or
merger in which the Company is the continuing or surviving corporation),
except as otherwise provided in this Section 11(a) and Section 7(e) hereof,
the Purchase Price in effect at the time of the record date for such
dividend or of the effective date of such subdivision, combination or
reclassification, and the number and kind of shares of Series A Preferred
Stock or capital stock, as the case may be, issuable on such date, shall be
proportionately adjusted so that the holder of any Right exercised after
such time shall be entitled to receive, upon payment of the Purchase Price
then in effect, the aggregate number and kind of shares of Series A
Preferred Stock or capital stock, as the case may be, which, if such Right
had been exercised immediately prior to such date and at a time when the
Series A Preferred Stock transfer books of the Company were open, such
holder would have owned upon such exercise and been entitled to receive by
virtue of such dividend, subdivision, combination or reclassification. If
an event occurs that would require an adjustment under both this Section
11(a)(i) and Section 11(a)(ii) hereof, the adjustment provided for in this
Section 11(a)(i) shall be in addition to, and shall be made prior to, any
adjustment required pursuant to Section 11(a)(ii) hereof.
(ii) In the event that (A) a Stock Acquisition
Date occurs; or (B) a majority of the Board declares any Person to
be an Adverse Person; then, in each such case, promptly following
the occurrence of any such event, proper provision shall be made
so that each holder of a Right (except as provided below and in
Section 7(e) hereof) shall thereafter have the right to receive,
upon exercise thereof at the then current Purchase Price in
accordance with the terms of this Agreement, in lieu of Series A
Preferred Stock, such number of shares of Company Common Stock of
the Company as shall equal the result obtained by dividing (x) the
product of (1) the then current Purchase Price times (2) the then
number of one one-thousandths of a share of Series A Preferred
Stock for which a Right was exercisable immediately prior to the
first occurrence of a Section 11(a)(ii) Event (such product,
following such first occurrence, shall thereafter be the "Purchase
Price" for each Right and for all purposes of this Agreement) by
50% of the Current Market Price per share of Company Common Stock
on the date of such first occurrence (such number of shares, the
"Adjustment Shares").
(iii) In the event that (x) the total number of
shares of Company Common Stock that are issued but not outstanding
plus the total number of shares of Company Common Stock that are
authorized but unissued (less the number of shares of Company
Common Stock reserved for issuance pursuant to specific terms of
any indenture, option plan or other agreement other than this
Agreement) is not sufficient to permit the exercise in full of the
Rights in accordance with of this Section 11(a)(ii) hereof; or (y)
the total number of shares of Company Common Stock available for
exercise of the Rights in accordance with Section 11(a)(ii) hereof
is sufficient to permit such exercise in full but the Board
determines that such exercise of the Rights will not afford
adequate protection to the shareholders of the Company and that
shareholders should be given an option to acquire a substitute for
the Adjustment Shares, then, subject to such limitations as are
necessary to prevent a default under any agreement for money
borrowed to which the Company is a party and to comply with
applicable law, the Company shall (A) determine the value of the
Adjustment Shares issuable upon the exercise of a Right (the
"Current Value"), and (B) with respect to each Right (subject to
Section 7(e) hereof), make adequate provision to substitute for
the Adjustment Shares, upon the exercise of a Right and payment of
the applicable Purchase Price, (1) cash, (2) a reduction in the
Purchase Price, (3) Common Stock or other equity securities of the
Company (including, without limitation, shares, or units of
shares, of preferred stock, such as the Series A Preferred Stock,
which the Board has deemed to have essentially the same value or
economic rights as shares of Company Common Stock (such shares of
preferred stock being referred to as "Common Stock Equivalents")),
(4) debt securities of the Company, (5) other assets, or (6) any
combination of the foregoing, having an aggregate value equal to
the Current Value (less the amount of any reduction in the
Purchase Price), where such aggregate value has been determined by
the Board with the advice of a nationally recognized investment
banking firm selected by the Board; provided, however, that if the
Company shall not have made adequate provision to deliver value
pursuant to clause (B) above within thirty (30) days following the
later of (X) the first occurrence of a Section 11(a)(ii) Event and
(Y) the date on which the Company's right of redemption pursuant
to Section 23(a) expires (the later of (X) and (Y) being referred
to herein as the "Section 11(a)(ii) Trigger Date"), then the
Company shall be obligated to deliver, upon the surrender for
exercise of a Right and without requiring payment of the Purchase
Price, shares of Company Common Stock (to the extent available)
and then, if necessary, cash, which shares and/or cash have an
aggregate value equal to the Spread. For purposes of the preceding
sentence, the term "Spread" shall mean the excess of (i) the
Current Value over (ii) the Purchase Price. If the Board
determines in good faith that it is likely that sufficient
additional shares of Company Common Stock could be authorized for
issuance upon exercise in full of the Rights, the thirty (30) day
period set forth above may be extended to the extent necessary,
but not more than ninety (90) days after the Section 11(a)(ii)
Trigger Date, in order that the Company may seek all necessary
approvals for the authorization of such additional shares (such
period, as it may be extended, is herein called the "Substitution
Period"). To the extent that the Company determines that some
action needs to be taken pursuant to the first and/or third
sentences of this Section 11(a)(iii), the Company (1) shall
provide, subject to Section 7(e) hereof, that such action shall
apply uniformly to all outstanding Rights, and (2) may suspend the
exercisability of the Rights until the expiration of the
Substitution Period in order to seek the necessary approvals for
such authorization of additional shares and/or to decide the
appropriate form of distribution to be made pursuant to such first
sentence and to determine the value thereof. In the event of any
such suspension, the Company shall issue a public announcement
stating that the exercisability of the Rights has been temporarily
suspended, as well as a public announcement at such time as the
suspension is no longer in effect. For purposes of this Section
11(a)(iii), the value of each Adjustment Share shall be the
Current Market Price per share of Company Common Stock on the
Section 11(a)(ii) Trigger Date and the per share or per unit value
of any Company Common Stock Equivalent shall be deemed to equal
the Current Market Price per share of Company Common Stock on such
date.
(b) In case the Company fixes a record date for the
issuance of rights, options or warrants to all holders of Series A
Preferred Stock entitling them to subscribe for or purchase (for a period
expiring within 45 calendar days after such record date) Series A Preferred
Stock (or shares having the same rights, privileges and preferences as the
shares of Series A Preferred Stock ("equivalent preferred stock")) or
securities convertible into Series A Preferred Stock or equivalent
preferred stock at a price per share of Series A Preferred Stock or per
share of equivalent preferred stock (or having a conversion price per
share, if a security convertible into Series A Preferred Stock or
equivalent preferred stock) less than the then current market price (as
determined pursuant to Section 11(d) hereof) per share of Series A
Preferred Stock on such record date, the Purchase Price to be in effect
after such record date shall be determined by multiplying the Purchase
Price in effect immediately prior to such record date by a fraction, the
numerator of which shall be the number of shares of Series A Preferred
Stock outstanding on such record date, plus the number of shares of Series
A Preferred Stock that the aggregate offering price of the total number of
shares of Series A Preferred Stock and/or equivalent preferred stock so to
be offered (and/or the aggregate initial conversion price of the
convertible securities so to be offered) would purchase at such current
market price, and the denominator of which shall be the number of shares of
Series A Preferred Stock outstanding on such record date, plus the number
of additional shares of Series A Preferred Stock and/or equivalent
preferred stock to be offered for subscription or purchase (or into which
the convertible securities so to be offered are initially convertible). In
case such subscription price may be paid in whole or in part by delivery of
non-cash consideration, the value of such non-cash consideration shall be
as determined in good faith by the Board, whose determination shall be
described in a statement filed with the Rights Agent and shall be binding
on the Rights Agent and the holders of the Rights. Shares of Series A
Preferred Stock owned by or held for the account of the Company shall not
be deemed outstanding for the purpose of any such computation. Such
adjustments shall be made successively whenever such a record date is
fixed, and in the event that such rights or warrants are not so issued, the
Purchase Price shall be adjusted to be the Purchase Price that would then
be in effect if such record date had not been fixed.
(c) In case the Company fixes a record date for a
distribution to all holders of Series A Preferred Stock (including any such
distribution made in connection with a consolidation or merger in which the
Company is the continuing or surviving corporation) of any evidences of
indebtedness, cash (other than a regular quarterly cash dividend out of the
earnings or retained earnings of the Company), assets (other than a
dividend payable in Series A Preferred Stock, but including any dividend
payable in stock other than Series A Preferred Stock) or subscription
rights or warrants (excluding those referred to in Section 11(b) hereof),
the Purchase Price to be in effect after such record date shall be
determined by multiplying the Purchase Price in effect immediately prior to
such record date by a fraction, the numerator of which shall be the then
current market price (as determined pursuant to Section 11(d) hereof) per
share of Series A Preferred Stock on such record date, less the fair market
value (as determined in good faith by the Board, whose determination shall
be described in a statement filed with the Rights Agent) of the portion of
the cash, assets or evidences of indebtedness so to be distributed or of
such subscription rights or warrants applicable to a share of Series A
Preferred Stock and the denominator of which shall be such current market
price (as determined pursuant to Section 11(d) hereof) per share of Series
A Preferred Stock. Such adjustments shall be made successively whenever
such a record date is fixed, and in the event that such distribution is not
so made, the Purchase Price shall be readjusted to be the Purchase Price
that would have been in effect if such record date had not been fixed.
(d) (i) For the purpose of any computation hereunder, the
"Current Market Price" per share of Company Common Stock on any date shall
be the lesser of (x) the average of the daily closing prices per share of
such Company Common Stock for the 30 consecutive Trading Days immediately
prior to such date, and (y) the average of the daily closing prices per
share of such Company Common Stock for the 30 consecutive Trading Days
immediately following (but not including) such date; provided, however,
that in the event that the Current Market Price per share of Company Common
Stock is determined during a period following the announcement by the
issuer of such Company Common Stock of (A) a dividend or distribution on
such Company Common Stock payable in shares of such Company Common Stock or
securities convertible into shares of such Company Common Stock (other than
the Rights), or (B) any subdivision, combination or reclassification of
such Company Common Stock, and prior to the expiration of 20 Trading Days
after the ex-dividend date for such dividend or distribution, or the record
date for such subdivision, combination or reclassification, then the
Current Market Price shall be properly adjusted to take into account
ex-dividend trading. The closing price for each day shall be the last sale
price, regular way, or, in case no such sale takes place on such day, the
average of the closing bid and asked prices, regular way, in either case as
reported in the principal consolidated transaction reporting system with
respect to securities listed or admitted to trading on the principal
national securities exchange, if any, on which the shares of Company Common
Stock are then listed or admitted to trading, or, if the shares of Company
Common Stock are not listed or admitted to trading on any national
securities exchange, the last quoted price or, if not so quoted, the
average of the high bid and low asked prices in the over-the-counter
market, as reported by the Nasdaq or such other system then in use, or, if
on any such date the shares of Company Common Stock are not quoted by any
such organization, the average of the closing bid and asked prices as
furnished by a professional market maker making a market in Company Common
Stock selected by the Board. If on any such date no market maker is making
a market in Company Common Stock, the fair value of such shares on such
date as determined in good faith by the Board shall be used. If Company
Common Stock is not publicly held or not so listed or traded, Current
Market Price per share shall mean the fair value per share as determined in
good faith by the Board, whose determination shall be described in a
statement filed with the Rights Agent and shall be conclusive for all
purposes.
(ii) For the purpose of any computation
hereunder, the "current market price" per share of Series A
Preferred Stock shall be determined in the same manner as set
forth above for Company Common Stock in clause (i) of this Section
11(d) (other than the last sentence thereof). If the current
market price per share of Series A Preferred Stock cannot be
determined in the manner provided above or if the Series A
Preferred Stock is not publicly held or listed or traded in a
manner described in clause (i) of this Section 11(d), the current
market price per share of Series A Preferred Stock shall be
conclusively deemed to be an amount equal to 100 (as such number
may be appropriately adjusted for such events as stock splits,
stock dividends and recapitalizations with respect to Company
Common Stock occurring after the date of this Agreement)
multiplied by the Current Market Price per share of Company Common
Stock. If neither Company Common Stock nor the Series A Preferred
Stock is publicly held or so listed or traded, current market
price per share of the Series A Preferred Stock shall mean the
fair value per share as determined in good faith by the Board,
whose determination shall be described in a statement filed with
the Rights Agent and shall be conclusive for all purposes.
(e) Anything herein to the contrary notwithstanding, no
adjustment in the Purchase Price shall be required unless such adjustment
would require an increase or decrease of at least one percent in the
Purchase Price; provided, however, that any adjustments that by reason of
this Section 11(e) are not required to be made shall be carried forward and
taken into account in any subsequent adjustment. All calculations under
this Section 11 shall be made to the nearest cent or to the nearest
ten-thousandth of a share of Company Common Stock or other share or
one-millionth of a share of Series A Preferred Stock, as the case may be.
Notwithstanding the first sentence of this Section 11(e), any adjustment
provided for in this Section 11 shall be made no later than the earlier of
(i) three years after the date of the transaction that requires such
adjustment, or (ii) the Final Expiration Date.
(f) If as a result of an adjustment made pursuant to
Section 11(a) or Section 13(a) hereof, the holder of any Right thereafter
exercised becomes entitled to receive any property or securities other than
Series A Preferred Stock, thereafter the number or amount of such other
property or securities so receivable upon exercise of any Right and the
Purchase Price thereof shall be subject to adjustment from time to time in
a manner and on terms as nearly equivalent as practicable to the provisions
with respect to the Series A Preferred Stock contained in Sections 11(a),
(b), (c), (e), (g), (h), (i), (j), (k) and (m), and the provisions of
Sections 7, 9, 10, 13 and 14 hereof with respect to the Series A Preferred
Stock shall apply on like terms to any such property or securities.
(g) All Rights originally issued by the Company
subsequent to any adjustment made to the Purchase Price hereunder shall
evidence the right to purchase, at the Purchase Price adjusted as of the
date of such issuance, the number of one one-thousandths of a share of
Series A Preferred Stock purchasable hereunder upon exercise of the Rights
as of the date of such issuance, all subject to further adjustment as
provided herein.
(h) Unless the Company shall have exercised its election
as provided in Section 11(i), upon each adjustment of the Purchase Price as
a result of the calculations made in Sections 11(b) and (c), each Right
outstanding immediately prior to the making of such adjustment shall
thereafter evidence the right to purchase, at the adjusted Purchase Price,
that number of one one-thousandths of a share of Series A Preferred Stock
(calculated to the nearest one-millionth) obtained by (i) multiplying (x)
the number of one one-thousandths of a share covered by a Right immediately
prior to this adjustment, by (y) the Purchase Price in effect immediately
prior to such adjustment of the Purchase Price, and (ii) dividing the
product so obtained by the Purchase Price in effect immediately after such
adjustment of the Purchase Price.
(i) The Company may elect on or after the date of any
adjustment of the Purchase Price to adjust the number of Rights, in lieu of
any adjustment in the number of one one-thousandths of a share of Series A
Preferred Stock purchasable upon the exercise of a Right. Each of the
Rights outstanding after the adjustment in the number of Rights shall be
exercisable for the number of one one-thousandths of a share of Series A
Preferred Stock for which a Right was exercisable immediately prior to such
adjustment. Each Right held of record prior to such adjustment of the
number of Rights shall become that number of Rights (calculated to the
nearest one-ten-thousandth) obtained by dividing the Purchase Price in
effect immediately prior to adjustment of the Purchase Price by the
Purchase Price in effect immediately after adjustment of the Purchase
Price. The Company shall make a public announcement of its election to
adjust the number of Rights, indicating the record date for the adjustment,
and, if known at the time, the amount of the adjustment to be made. This
record date may be the date on which the Purchase Price is adjusted or any
day thereafter, but, if the Rights Certificates have been issued, shall be
at least 10 days later than the date of the public announcement. If Rights
Certificates have been issued, upon each adjustment of the number of Rights
pursuant to this Section 11(i), the Company shall, as promptly as
practicable, cause to be distributed to holders of record of Rights
Certificates on such record date Rights Certificates evidencing, subject to
Section 14 hereof, the additional Rights to which such holders shall be
entitled as a result of such adjustment, or, at the option of the Company,
shall cause to be distributed to such holders of record in substitution and
replacement for the Rights Certificates held by such holders prior to the
date of adjustment, and upon surrender thereof, if required by the Company,
new Rights Certificates evidencing all the Rights to which such holders
shall be entitled after such adjustment. Rights Certificates so to be
distributed shall be issued, executed and countersigned in the manner
provided for herein (and may bear, at the option of the Company, the
adjusted Purchase Price) and shall be registered in the names of the
holders of record of Rights Certificates on the record date specified in
the public announcement.
(j) Irrespective of any adjustment or change in the
Purchase Price or the number of one one-thousandths of a share of Series A
Preferred Stock issuable upon the exercise of the Rights, the Rights
Certificates theretofore and thereafter issued may continue to express the
Purchase Price per one one-thousandth of a share and the number of one
one-thousandths of a share which were expressed in the initial Rights
Certificates issued hereunder.
(k) Before taking any action that would cause an
adjustment reducing the Purchase Price below the then stated value, if any,
of the number of one one-thousandths of a share of Series A Preferred Stock
issuable upon exercise of the Rights, the Company shall take any corporate
action that may, in the opinion of its counsel, be necessary in order that
the Company may validly and legally issue fully paid and nonassessable such
number of one one-thousandths of a share of Series A Preferred Stock at
such adjusted Purchase Price.
(l) In any case in which this Section 11 requires that an
adjustment in the Purchase Price be made effective as of a record date for
a specified event, the Company may elect to defer until the occurrence of
such event the issuance to the holder of any Right exercised after such
record date the number of one one-thousandths of a share of Series A
Preferred Stock and other capital stock or securities of the Company, if
any, issuable upon such exercise over and above the number of one
one-thousandths of a share of Series A Preferred Stock and other capital
stock or securities of the Company, if any, issuable upon such exercise on
the basis of the Purchase Price in effect prior to such adjustment;
provided, however, that the Company shall deliver to such holder a due bill
or other appropriate instrument evidencing such holder's right to receive
such additional shares (fractional or otherwise) or securities upon the
occurrence of the event requiring such adjustment.
(m) Anything in this Section 11 to the contrary
notwithstanding, the Company shall be entitled to make such reductions in
the Purchase Price, in addition to those adjustments expressly required by
this Section 11, as and to the extent that in their good faith judgment the
Board shall determine to be advisable in order that any (i) consolidation
or subdivision of the Series A Preferred Stock, (ii) issuance wholly for
cash of any shares of Series A Preferred Stock at less than the current
market price, (iii) issuance wholly for cash of shares of Series A
Preferred Stock or securities that by their terms are convertible into or
exchangeable for shares of Series A Preferred Stock, (iv) stock dividends
or (v) issuance of rights, options or warrants referred to in this Section
11, hereafter made by the Company to holders of its Series A Preferred
Stock are not taxable to such stockholders.
(n) The Company shall not, at any time after the
Distribution Date consummate any Section 13 Event, if (x) at the time of or
immediately after such Section 13 Event there are any rights, warrants or
other instruments or securities outstanding or agreements in effect that
would substantially diminish or otherwise eliminate the benefits intended
to be afforded by the Rights or (y) prior to, simultaneously with or
immediately after such Section 13 Event, the shareholders of the Person who
constitutes, or would constitute, the Principal Party for purposes of
Section 13(a) hereof have received a distribution of Rights previously
owned by such Person or any of its Affiliates and Associates.
(o) The Company covenants and agrees that, after the
Distribution Date, it shall not, except as permitted by Section 23 or
Section 27 hereof, take (or permit any Subsidiary to take) any action if at
the time such action is taken it is reasonably foreseeable that such action
will diminish substantially or otherwise eliminate the benefits intended to
be afforded by the Rights; provided, however, that the issuance of
additional Rights pursuant to this Agreement shall not be deemed to violate
this Section 11(o).
(p) Anything in this Agreement to the contrary
notwithstanding, in the event that the Company at any time after the Record
Date (i) declares a dividend on the outstanding shares of Company Common
Stock payable in shares of Company Common Stock, (ii) subdivides the
outstanding shares of Company Common Stock or (iii) combines the
outstanding shares of Company Common Stock into a smaller number of shares,
the number of Rights associated with each share of Company Common Stock
then outstanding, or issued or delivered thereafter, shall be
proportionately adjusted so that the number of Rights thereafter associated
(whether before or after the Distribution Date) with each share of Company
Common Stock following any such event shall equal the result obtained by
multiplying the number of Rights associated with each share of Company
Common Stock immediately prior to such event by a fraction, the numerator
of which shall be the total number of shares of Company Common Stock
outstanding immediately prior to the occurrence of the event and the
denominator of which shall be the total number of shares of Company Common
Stock outstanding immediately following the occurrence of such event. For
purposes of this Section 11(p), any shares of Company Common Stock issued
after the Distribution Date that were not issued together with a Right
(pursuant to the preamble hereto or by action of the Board pursuant to
Section 22 hereof) shall not be counted as outstanding.
Section 12. Certificate of Adjusted Purchase Price or Number of
Shares. Whenever an adjustment is made as provided in Section 11 or Section
13 hereof, the Company shall (a) promptly prepare a certificate setting
forth such adjustment and a brief statement of the facts accounting for
such adjustment, (b) promptly file with the Rights Agent, and with each
transfer agent for the Series A Preferred Stock and Company Common Stock, a
copy of such certificate, and (c) mail a brief summary thereof to each
holder of a Rights Certificate (or, if prior to the Distribution Date, to
each holder of a certificate representing shares of Company Common Stock)
in accordance with Section 25 hereof. The Rights Agent shall be fully
protected in relying on any such certificate and on any adjustment therein
contained.
Section 13. Consolidation, Merger or Sale or Transfer of Assets or
Earning Power.
(a) In the event that, following the Stock Acquisition
Date, directly or indirectly, (x) the Company consolidates with, or merges
with and into, any other Person (other than a Subsidiary of the Company in
a transaction that complies with Section 11(o) hereof), and the Company is
not the continuing or surviving corporation of such consolidation or
merger, (y) any Person (other than a Subsidiary of the Company in a
transaction that complies with Section 11(o) hereof) consolidates with, or
merges with or into, the Company, and the Company is the continuing or
surviving corporation of such consolidation or merger and, in connection
with such consolidation or merger, all or part of the outstanding shares of
Company Common Stock is changed into or exchanged for stock or other
securities of any other Person or cash or any other property, or (z) the
Company sells or otherwise transfers (or one or more of its Subsidiaries
shall sell or otherwise transfer), in one transaction or a series of
related transactions, assets, cash flow or earning power aggregating 50% or
more of the assets, cash flow or earning power of the Company and its
Subsidiaries (taken as a whole) to any Person or Persons (other than the
Company or any Subsidiary of the Company in one or more transactions each
of that complies with Section 11(o) hereof), then, and in each such case
(except as may be contemplated by Section 13(d) hereof):
(i) proper provision shall be made so that each
holder of a Right, except as provided in Section 7(e) hereof,
thereafter has the right to receive, upon the exercise thereof at
the then current Purchase Price in accordance with the terms of
this Agreement, in lieu of Series A Preferred Stock such number of
validly authorized and issued, fully paid, non-assessable and
freely tradable shares of Common Stock of the Principal Party, not
subject to any liens, encumbrances, rights of first refusal or
other adverse claims, as shall be equal to the result obtained by
dividing (x) the product of (1) the then current Purchase Price
times (2) the number of one-one-thousandths of a share of Series A
Preferred Stock for which a Right is exercisable immediately prior
to the first occurrence of a Section 13 Event (or, if a Section
11(a)(ii) Event has occurred prior to the first occurrence of a
Section 13 Event, the product of (1) the number of such one
one-thousandths of a share for which a Right was exercisable
immediately prior to the first occurrence of a Section 11(a)(ii)
Event times (2) the Purchase Price in effect immediately prior to
such first occurrence) (such product, following the first
occurrence of a Section 13 Event, shall be the "Purchase Price"
for each Right and for all purposes of this Agreement) by (y) 50%
of the current market price (determined in the same manner as the
Current Market Price of the Company Common Stock pursuant to
Section 11(d)(i) hereof) per share of the Common Stock of such
Principal Party on the date of consummation of such Section 13
Event;
(ii) such Principal Party shall thereafter be
liable for, and shall assume, by virtue of such Section 13 Event,
all the obligations and duties of the Company under this
Agreement;
(iii) the term "Company" shall thereafter be
deemed to refer to such Principal Party, it being specifically
intended that the provisions of Section 11 hereof shall apply only
to such Principal Party following the first occurrence of a
Section 13 Event;
(iv) such Principal Party shall take such steps
(including, but not limited to, the reservation of a sufficient
number of shares of its Common Stock) in connection with the
consummation of a Section 13 Event as may be necessary to assure
that the provisions hereof shall thereafter be applicable, as
nearly as reasonably may be, in relation to its shares of Common
Stock thereafter deliverable upon the exercise of the Rights; and
(v) the provisions of Section 11(a)(ii) hereof
shall be of no further force and effect following the first
occurrence of any Section 13 Event.
(b) "Principal Party" shall mean:
(i) in the case of any transaction described in
clause (x) or (y) of the first sentence of Section 13(a), the
Person that is the issuer of any securities into which shares of
Company Common Stock are converted in such merger or
consolidation, and if no securities are so issued, the Person that
is the other party to such merger or consolidation; and
(ii) in the case of any transaction described in
clause (z) of the first sentence of Section 13(a), the Person that
is the party receiving the greatest portion of the assets or
earning power transferred pursuant to such transaction or
transactions;
provided, however, that in any such case, (1) if the Common Stock of such
Person is not at such time and has not been continuously over the preceding
12-month period registered under Section 12 of the Exchange Act, and such
Person is a direct or indirect Subsidiary of another Person the Common Stock
of which is and has been so registered, "Principal Party" shall refer to such
other Person; and (2) in case such Person is a Subsidiary, directly or
indirectly, of more than one Person, the Common Stock of two or more of which
are and have been so registered, "Principal Party" shall refer to whichever
of such Persons is the issuer of the Common Stock having the greatest
aggregate market value.
(c) The Company shall not consummate a Section 13 Event
unless (x) the Principal Party has a sufficient number of authorized shares
of its Common Stock that have not been issued or reserved for issuance to
permit the exercise in full of the Rights in accordance with this
Agreement; and (y) prior to such consummation, the Company and such
Principal Party have executed and delivered to the Rights Agent a
supplemental agreement providing for the terms set forth in paragraphs (a)
and (b) of this Section 13 and further providing that, as soon as
practicable after the date of any consolidation, merger or sale of assets
mentioned in paragraph (a) of this Section 13, the Principal Party shall:
(i) prepare and file a registration statement
under the Securities Act, with respect to the Rights and the
securities purchasable upon exercise of the Rights on an
appropriate form, and shall use its best efforts to cause such
registration statement to (A) become effective as soon as
practicable after such filing and (B) remain effective (with a
prospectus at all times meeting the requirements of the Securities
Act) until the Final Expiration Date; and
(ii) take all such other action as may be
necessary to enable the Principal Party to issue the securities
purchasable upon exercise of the Rights, including but not limited
to the registration or qualification of such securities under all
requisite securities laws of jurisdictions of the various states
and the listing of such securities on such exchanges and trading
markets as may be necessary or appropriate; and
(iii) deliver to holders of the Rights
historical financial statements for the Principal Party and each
of its Affiliates that comply in all respects with the
requirements for registration on Form 10 under the Exchange Act.
(d) The provisions of this Section 13 shall similarly
apply to successive mergers or consolidations or sales or other transfers.
In the event that a Section 13 Event shall occur at any time after the
occurrence of a Section 11(a)(ii) Event, the Rights that have not
theretofore been exercised shall thereafter become exercisable in the
manner described in Section 13(a).
Section 14. Fractional Rights and Fractional Shares.
(a) The Company shall not be required to issue fractions
of Rights, except prior to the Distribution Date as provided in Section
11(p) hereof, or to distribute Rights Certificates that evidence fractional
Rights. In lieu of such fractional Rights, there shall be paid to the
registered holders of the Rights Certificates with regard to which such
fractional Rights would otherwise be issuable, an amount in cash equal to
the same fraction of the current market value of a whole Right. For
purposes of this Section 14(a), the current market value of a whole Right
shall be the closing price of the Rights for the Trading Day immediately
prior to the date on which such fractional Rights would have been otherwise
issuable. The closing price of the Rights for any day shall be the last
sale price, regular way, or, in case no such sale takes place on such day,
the average of the closing bid and asked prices, regular way, in either
case as reported in the principal consolidated transaction reporting system
with respect to securities listed or admitted to trading on the principal
national securities exchange or automated quotation system on which the
Rights are listed or admitted to trading, or if the Rights are not listed
or admitted to trading on any national securities exchange or automated
quotation system, the last quoted price or, if not so quoted, the average
of the high bid and low asked prices in the over-the-counter market, as
reported by the Nasdaq or such other system then in use or, if on any such
date the Rights are not quoted by any such organization, the average of the
closing bid and asked prices as furnished by a professional market maker
making a market in the Rights selected by the Board. If on any such date no
such market maker is making a market in the Rights the fair value of the
Rights on such date as determined in good faith by the Board shall be used.
(b) The Company shall not be required to issue fractions
of shares of Series A Preferred Stock (other than fractions that are
integral multiples of one one-thousandth of a share of Series A Preferred
Stock) upon exercise of the Rights or to distribute certificates that
evidence fractional shares of Series A Preferred Stock (other than
fractions that are integral multiples of one one-thousandth of a share of
Series A Preferred Stock). Fractions of Series A Preferred Stock in
integral multiples of one one-thousandth of a share of Series A Preferred
Stock may, at the election of the Company, be evidenced by depositary
receipts, pursuant to an appropriate agreement between the Company and a
depositary selected by it, provided that such agreement shall provide that
the holders of such depositary receipts shall have all the rights,
privileges and preferences to which they are entitled as beneficial owners
of the Series A Preferred Stock. In lieu of fractional shares of Series A
Preferred Stock that are not integral multiples of one one-thousandth of a
share of Series A Preferred Stock, the Company may pay to the registered
holders of Rights Certificates at the time such Rights are exercised as
herein provided an amount in cash equal to the same fraction of the current
market value of one one-thousandth of a share of Series A Preferred Stock.
For purposes of this Section 14(b), the current market value of a share of
Series A Preferred Stock shall be the closing price of a share of Series A
Preferred Stock (as determined pursuant to Section 11(d)(ii) hereof) for
the Trading Day immediately prior to the date of such exercise.
(c) Following the occurrence of a Triggering Event, the
Company shall not be required to issue fractions of shares of Company
Common Stock upon exercise of the Rights or to distribute certificates that
evidence fractional shares of Company Common Stock. In lieu of fractional
shares of Company Common Stock, the Company may pay to the registered
holders of Rights Certificates at the time such Rights are exercised as
herein provided an amount in cash equal to the same fraction of the current
market value of one share of Company Common Stock. For purposes of this
Section 14(c), the current market value of one share of Company Common
Stock shall be the closing price of one share of Company Common Stock (as
determined pursuant to Section 11(d)(i) hereof) for the Trading Day
immediately prior to the date of such exercise.
(d) The holder of a Right by the acceptance of the Rights
expressly waives his right to receive any fractional Rights or any
fractional shares upon exercise of a Right, except as permitted by this
Section 14.
Section 15. Rights of Action. All rights of action in respect of
this Agreement are vested in the respective registered holders of the
Rights Certificates (and, prior to the Distribution Date, the registered
holders of Company Common Stock); and any registered holder of any Rights
Certificate (or, prior to the Distribution Date, of the Company Common
Stock), without the consent of the Rights Agent or of the holder of any
other Rights Certificate (or, prior to the Distribution Date, of Company
Common Stock), may, in his own behalf and for his own benefit, enforce, and
may institute and maintain any suit, action or proceeding against the
Company to enforce, or otherwise act in respect of, his right to exercise
the Rights evidenced by such Rights Certificate in the manner provided in
such Rights Certificate and in this Agreement. Without limiting the
foregoing or any remedies available to the holders of Rights, it is
specifically acknowledged that the holders of Rights would not have an
adequate remedy at law for any breach of this Agreement and shall be
entitled to specific performance of the obligations hereunder and
injunctive relief against actual or threatened violations of the
obligations hereunder of any Person subject to this Agreement.
Section 16. Agreement of Rights Holders. Every holder of a Right
by accepting the same consents and agrees with the Company and the Rights
Agent and with every other holder of a Right that:
(a) prior to the Distribution Date, the Rights shall be
transferable only in connection with the transfer of the Company Common
Stock associated therewith;
(b) after the Distribution Date, the Rights Certificates
shall be transferable (subject to Section 7(e) hereof) only on the registry
books of the Rights Agent if surrendered at the principal office or offices
of the Rights Agent designated for such purposes, duly endorsed or
accompanied by a proper instrument of transfer and with the appropriate
forms and certificates fully executed;
(c) subject to Section 6(a) and Section 7(f) hereof, the
Company and the Rights Agent may deem and treat the person in whose name a
Rights Certificate (or, prior to the Distribution Date, the associated
Company Common Stock certificate) is registered as the absolute owner
thereof and of the Rights evidenced thereby (notwithstanding any notations
of ownership or writing on the Rights Certificates or the associated
Company Common Stock certificate made by anyone other than the Company or
the Rights Agent) for all purposes whatsoever, and neither the Company nor
the Rights Agent, subject to the last sentence of Section 7(e) hereof,
shall be required to be affected by any notice to the contrary; and
(d) notwithstanding anything in this Agreement to the
contrary, neither the Company nor the Rights Agent shall have any liability
to any holder of a Right or other Person as a result of its inability to
perform any of its obligations under this Agreement by reason of any
preliminary or permanent injunction or other order, decree or ruling
(whether interlocutory or final) issued by a court of competent
jurisdiction or by a governmental, regulatory or administrative agency or
commission, or any statute, rule, regulation or executive order promulgated
or enacted by any governmental authority, prohibiting or otherwise
restraining performance of such obligation; provided, however, the Company
must use its reasonable best efforts to have any such order, decree or
ruling lifted or otherwise overturned as soon as possible.
Section 17. Rights Certificate Holder not Deemed a Stockholder. No
holder, as such, of any Rights Certificate shall be entitled to vote,
receive dividends or be deemed for any purpose the holder of the number of
one one-thousandths of a share of Series A Preferred Stock or any other
securities of the Company that may at any time be issuable on the exercise
of the Rights represented thereby, nor shall anything contained herein or
in any Rights Certificate be construed to confer upon the holder of any
Rights Certificate, as such, any of the rights of a stockholder of the
Company, including, without limitation, any right to vote for the election
of directors or upon any matter submitted to stockholders at any meeting
thereof, or to give or withhold consent to any corporate action, or to
receive notice of meetings or other actions affecting stockholders (except
as provided in Section 25 hereof), or to receive dividends or other
distributions, subscription rights, or otherwise, until the Right or Rights
evidenced by such Rights Certificate shall have been exercised in
accordance with the provisions hereof.
Section 18. Concerning the Rights Agent. (a) The Company agrees to
pay to the Rights Agent reasonable compensation for all services rendered
by it hereunder and, from time to time, on demand of the Rights Agent, its
reasonable expenses and counsel fees and disbursements and other
disbursements incurred in the administration and execution of this
Agreement and the exercise and performance of its duties hereunder. The
Company also agrees to indemnify the Rights Agent for, and to hold it
harmless against, any loss, liability, or expense, incurred without
negligence, bad faith or willful misconduct on the part of the Rights
Agent, for anything done or omitted by the Rights Agent in connection with
the acceptance and administration of this Agreement, including the costs
and expenses of defending against any claim of liability in the premises.
(e) The Rights Agent shall be protected and shall incur
no liability for or in respect of any action taken, suffered or omitted by
it in connection with its administration of this Agreement in reliance upon
any Rights Certificate or certificate for Company Common Stock or for other
securities of the Company, instrument of assignment or transfer, power of
attorney, endorsement, affidavit, letter, notice, direction, consent,
certificate, statement, or other paper or document believed by it to be
genuine and to be signed, executed and, where necessary, verified or
acknowledged, by the proper Person or Persons.
Section 19. Merger or Consolidation or Change of Name of Rights
Agent.
(a) Any corporation into which the Rights Agent or any
success0 or Rights Agent is merged or with which it is consolidated, or any
corporation resulting from any merger or consolidation to which the Rights
Agent or any successor Rights Agent is a party, or any corporation
succeeding to the corporate trust business of the Rights Agent or any
successor Rights Agent, shall be the successor to the Rights Agent under
this Agreement without the execution or filing of any paper or any further
act on the part of any of the parties hereto; provided, however, that such
corporation would be eligible for appointment as a successor Rights Agent
under the provisions of Section 21 hereof. In case at the time such
successor Rights Agent succeeds to the agency created by this Agreement,
any of the Rights Certificates have been countersigned but not delivered,
any such successor Rights Agent may adopt the countersignature of a
predecessor Rights Agent and deliver such Rights Certificates so
countersigned; and in case at that time any of the Rights Certificates have
not been countersigned, any successor Rights Agent may countersign such
Rights Certificates either in the name of the predecessor or in the name of
the successor Rights Agent; and in all such cases such Rights Certificates
shall have the full force and effect provided in the Rights Certificates
and in this Agreement.
(b) In case at any time the name of the Rights Agent is
changed and at such time any of the Rights Certificates have been
countersigned but not delivered, the Rights Agent may adopt the
countersignature under its prior name and deliver Rights Certificates so
countersigned; and in case at that time any of the Rights Certificates have
not been countersigned, the Rights Agent may countersign such Rights
Certificates either in its prior name or in its changed name; and in all
such cases such Rights Certificates shall have the full force and effect
provided in the Rights Certificates and in this Agreement.
Section 20. Duties of Rights Agent. The Rights Agent undertakes
the duties and obligations imposed by this Agreement upon the following
terms and conditions, by all of which the Company and the holders of Rights
Certificates, by their acceptance thereof, shall be bound:
(a) The Rights Agent may consult with legal counsel (who
may be legal counsel for the Company), and the opinion of such counsel
shall be full and complete authorization and protection to the Rights Agent
as to any action taken or omitted by it in good faith and in accordance
with such opinion.
(b) Whenever in the performance of its duties under this
Agreement the Rights Agent deems it necessary or desirable that any fact or
matter (including, without limitation, the identity of any Acquiring Person
and the determination of "current market price") be proved or established
by the Company prior to taking or suffering any action hereunder, such fact
or matter (unless other evidence in respect thereof be herein specifically
prescribed) may be deemed to be conclusively proved and established by a
certificate signed by the Chairman of the Board, the President, any Vice
President, the Treasurer, any Assistant Treasurer, the Secretary or any
Assistant Secretary of the Company and delivered to the Rights Agent; and
such certificate shall be full authorization to the Rights Agent for any
action taken or suffered in good faith by it under the provisions of this
Agreement in reliance upon such certificate.
(c) The Rights Agent shall be liable hereunder only for
its own gross negligence, bad faith or willful misconduct.
(d) The Rights Agent shall not be liable for or by reason
of any of the statements of fact or recitals contained in this Agreement or
in the Rights Certificates or be required to verify the same (except as to
its countersignature on such Rights Certificates), but all such statements
and recitals are and shall be deemed to have been made by the Company only.
(e) The Rights Agent shall not be under any
responsibility in respect of the validity of this Agreement or the
execution and delivery hereof (except the due execution hereof by the
Rights Agent) or in respect of the validity or execution of any Rights
Certificate (except its countersignature thereof); nor shall it be
responsible for any breach by the Company of any covenant or condition
contained in this Agreement or in any Rights Certificate; nor shall it be
responsible for any adjustment required under the provisions of Section 11
or Section 13 hereof or responsible for the manner, method or amount of any
such adjustment or the ascertaining of the existence of facts that would
require any such adjustment (except with respect to the exercise of Rights
evidenced by Rights Certificates after actual notice of any such
adjustment); nor shall it by any act hereunder be deemed to make any
representation or warranty as to the authorization or reservation of any
shares of Company Common Stock or Series A Preferred Stock to be issued
pursuant to this Agreement or any Rights Certificate or as to whether any
shares of Company Common Stock or Series A Preferred Stock will, when so
issued, be validly authorized and issued, fully paid and nonassessable.
(f) The Company shall perform, execute, acknowledge and
deliver or cause to be performed, executed, acknowledged and delivered all
such further and other acts, instruments and assurances as may reasonably
be required by the Rights Agent for the carrying out or performing by the
Rights Agent of the provisions of this Agreement.
(g) The Rights Agent is hereby authorized and directed to
accept instructions with respect to the performance of its duties hereunder
from the Chairman of the Board, the President, any Vice President, the
Secretary, any Assistant Secretary, the Treasurer or any Assistant
Treasurer of the Company, and to apply to such officers for advice or
instructions in connection with its duties, and it shall not be liable for
any action taken or suffered to be taken by it in good faith in accordance
with instructions of any such officer.
(h) The Rights Agent and any stockholder, director,
officer or employee of the Rights Agent may buy, sell or deal in any of the
Rights or other securities of the Company or become pecuniarily interested
in any transaction in which the Company may be interested, or contract with
or lend money to the Company or otherwise act as fully and freely as though
it were not Rights Agent under this Agreement. Nothing herein shall
preclude the Rights Agent from acting in any other capacity for the Company
or for any other legal entity.
(i) The Rights Agent may execute and exercise any of the
rights or powers hereby vested in it or perform any duty hereunder either
itself or by or through its attorneys or agents, and the Rights Agent shall
not be answerable or accountable for any act, default, neglect or
misconduct of any such attorneys or agents or for any loss to the Company
resulting from any such act, default, neglect or misconduct; provided,
however, reasonable care was exercised in the selection and continued
employment thereof.
(j) No provision of this Agreement shall require the
Rights Agent to expend or risk its own funds or otherwise incur any
financial liability in the performance of any of its duties hereunder or in
the exercise of its rights if there shall be reasonable grounds for
believing that repayment of such funds or adequate indemnification against
such risk or liability is not reasonably assured to it.
(k) If, with respect to any Right Certificate surrendered
to the Rights Agent for exercise or transfer, the certificate attached to
the form of assignment or form of election to purchase, as the case may be,
has either not been completed or indicates an affirmative response to
clause 1 and/or 2 thereof, the Rights Agent shall not take any further
action with respect to such requested exercise of transfer without first
consulting with the Company.
Section 21. Change of Rights Agent. The Rights Agent or any
successor Rights Agent may resign and be discharged from its duties under
this Agreement upon 30 days' notice in writing mailed to the Company, and
to each transfer agent of Company Common Stock and Series A Preferred
Stock, by registered or certified mail, and to the holders of the Rights
Certificates by first-class mail. The Company may remove the Rights Agent
or any successor Rights Agent upon 30 days' notice in writing, mailed to
the Rights Agent or successor Rights Agent, as the case may be, and to each
transfer agent of Company Common Stock and Series A Preferred Stock, by
registered or certified mail, and to the holders of the Rights Certificates
by first-class mail. If the Rights Agent resigns or is removed or otherwise
becomes incapable of acting, the Company shall appoint a successor to the
Rights Agent. If the Company fails to make such appointment within a period
of 30 days after giving notice of such removal or after it has been
notified in writing of such resignation or incapacity by the resigning or
incapacitated Rights Agent or by the holder of a Rights Certificate (who
shall, with such notice, submit his Rights Certificate for inspection by
the Company), then any registered holder of any Rights Certificate may
apply to any court of competent jurisdiction for the appointment of a new
Rights Agent. Any successor Rights Agent, whether appointed by the Company
or by such a court, shall be a corporation organized and doing business
under the laws of the United States or of the State of New York (or of any
other state of the United States so long as such corporation is authorized
to do business as a banking institution in the State of New York), in good
standing, having a principal office in the State of New York, which is
authorized under such laws to exercise corporate trust powers and is
subject to supervision or examination by federal or state authority and
which has at the time of its appointment as Rights Agent a combined capital
and surplus of at least $100,000,000. After appointment, the successor
Rights Agent shall be vested with the same powers, rights, duties and
responsibilities as if it had been originally named as Rights Agent without
further act or deed; but the predecessor Rights Agent shall deliver and
transfer to the successor Rights Agent any property at the time held by it
hereunder, and execute and deliver any further assurance, conveyance, act
or deed necessary for the purpose. Not later than the effective date of any
such appointment, the Company shall file notice thereof in writing with the
predecessor Rights Agent and each transfer agent of the Company Common
Stock and the Series A Preferred Stock, and mail a notice thereof in
writing to the registered holders of the Rights Certificates. Failure to
give any notice provided for in this Section 21, however, or any defect
therein, shall not affect the legality or validity of the resignation or
removal of the Rights Agent or the appointment of the successor Rights
Agent, as the case may be.
Section 22. Issuance of New Rights Certificates. Notwithstanding
any of the provisions of this Agreement or of the Rights to the contrary,
the Company may, at its option, issue new Rights Certificates evidencing
Rights in such form as may be approved by its Board of Directors to reflect
any adjustment or change in the Purchase Price and the number or kind or
class of shares or other securities or property purchasable under the
Rights Certificates made in accordance with the provisions of this
Agreement. In addition, in connection with the issuance or sale of shares
of Company Common Stock following the Distribution Date and prior to the
redemption or expiration of the Rights, the Company (a) shall, with respect
to shares of Company Common Stock so issued or sold pursuant to the
exercise of stock options or under any employee plan or arrangement,
granted or awarded as of the Distribution Date, or upon the exercise,
conversion or exchange of securities hereinafter issued by the Company, and
(b) may, in any other case, if deemed necessary or appropriate by the
Board, issue Rights Certificates representing the appropriate number of
Rights in connection with such issuance or sale; provided, however, that
(i) no such Rights Certificate shall be issued if, and to the extent that,
the Company is advised by counsel that such issuance would create a
significant risk of material adverse tax consequences to the Company or the
Person to whom such Rights Certificate would be issued, and (ii) no such
Rights Certificate shall be issued if, and to the extent that, appropriate
adjustment otherwise has been made in lieu of the issuance thereof.
Section 23. Redemption and Termination. (a) The Board may, at its
option, at any time prior to the earlier of (i) the Close of Business on
the tenth day following the Stock Acquisition Date (or, if not a Trading
Day, the nearest Trading Day after such tenth day), or (ii) the Final
Expiration Date, redeem all but not less than all the then outstanding
Rights at a redemption price of $0.01 per Right, as such amount may be
appropriately adjusted to reflect any stock split, stock dividend or
similar transaction occurring after the date hereof (such redemption price
being hereinafter referred to as the "Redemption Price"). Notwithstanding
anything contained in this Agreement to the contrary, the Rights shall not
be exercisable after the first occurrence of a Section 11(a)(ii) Event
until such time as the Company's right of redemption hereunder has expired.
The Company may, at its option, pay the Redemption Price in cash, shares of
Company Common Stock (based on the Current Market Price per share of
Company Common Stock at the time of redemption) or any other form of
consideration deemed appropriate by the Board of Directors.
(b) Upon the action of the Board ordering the redemption
of the Rights and the filing of evidence thereof with the Rights Agent,
without any further action and without any notice, the right to exercise
the Rights shall terminate, and the only right thereafter of the holders of
Rights shall be to receive the Redemption Price for each Right so held.
Promptly after the action of the Board of Directors ordering the redemption
of the Rights, the Company shall give notice of such redemption to the
Rights Agent and the holders of the then outstanding Rights by mailing such
notice to all such holders at each holder's last address as it appears upon
the registry books of the Rights Agent or, prior to the Distribution Date,
on the registry books of the Transfer Agent for Company Common Stock. Any
notice that is mailed in the manner herein provided shall be deemed given,
whether or not the holder receives the notice. Each such notice of
redemption shall state the method by which the payment of the Redemption
Price will be made.
Section 24. Exchange
(a) The Board may, at its option, at any time after the
right of the Company to redeem the Rights has expired or terminated,
exchange all or part of the then outstanding and exercisable Rights (which
shall not include Rights that become void pursuant to the provisions of the
Section 7(e) hereof) for shares of Company Common Stock or Company Common
Stock Equivalents, or any combination thereof, at an exchange ratio of one
share of Company Common Stock per Right, appropriately adjusted to reflect
any stock split, stock dividend or similar transaction occurring after the
date hereof (such exchange ratio being hereinafter referred to as the
"Exchange Ratio"). Notwithstanding the foregoing, the Board shall not be
empowered to effect such exchange at any time after any Person (other than
the Company, any Subsidiary of the Company, any employee benefit plan of
the Company or any such Subsidiary, or any entity holding Company Common
Stock for or pursuant to the terms of any such plan), together with all
Affiliates and Associates of such Person, becomes the Beneficial Owner of
50% or more of the Company Common Stock then outstanding.
(b) Immediately upon the action of the Board ordering the
exchange of any Rights pursuant to subsection (a) of this Section 24 and
without any further action and without any notice, the right to exercise
such Rights shall terminate and the only right thereafter of a holder of
such Rights shall be to receive that number of shares of Company Common
Stock and/or Company Common Stock Equivalents equal to the number of such
Rights held by such holder multiplied by the Exchange Ratio. The Company
shall promptly give public notice of any such exchange; provided, however,
that the failure to give, or any defect in, such notice shall not affect
the validity of such exchange. The Company promptly shall mail a notice of
any such exchange to all of the holders of such Rights at their latest
addresses as they appear upon the registry books of the Rights Agent. Any
notice that is mailed in the manner herein provided shall be deemed given,
whether or not the holder receives the notice. Each such notice of exchange
shall state the method by which the exchange of the shares of Company
Common Stock for Rights will be effected and, in the event of any partial
exchange, the number of Rights that will be exchanged. Any partial exchange
shall be effected pro rata based on the number of Rights (other than Rights
that have become void pursuant to the provisions of Section 7(e) hereof)
held by each holder of Rights.
(c) In the event that the number of shares of Company
Common Stock that are authorized by the Company's Certificate of
Incorporation but not outstanding or reserved for issuance for purposes
other than upon exercise of the Rights are not sufficient to permit any
exchange of Rights as contemplated in accordance with this Section 24, the
Company may, at its option, take all such action as may be necessary to
authorize additional shares of Company Common Stock for issuance upon
exchange of the Rights. In any exchange pursuant to this Section 24, the
Company, at its option, may substitute Series A Preferred Stock for Company
Common Stock at the rate of one one-thousandth of a share of Series A
Preferred Stock for each Right.
(d) The Company shall not be required to issue fractions
of shares of Company Common Stock or to distribute certificates that
evidence fractional shares of Company Common Stock. In lieu of such
fractional shares of Company Common Stock, the Company shall pay to the
registered holders of Rights with regard to which such fractional shares of
Company Common Stock would otherwise be issuable an amount in cash equal to
the same fraction of the value of a whole share of Company Common Stock.
For purposes of this Section 24, the value of a whole share of Company
Common Stock shall be the closing price (as determined pursuant to the
second sentence of Section 11(d)(i) hereof) for the Trading Day immediately
prior to the date of exchange pursuant to this Section 24, and the value of
any common stock equivalent shall be deemed to have the same value as the
common stock on such date.
Section 25. Notice of Certain Events. (a) In case the Company
shall propose, at any time after the Distribution Date, (i) to pay any
dividend payable in stock of any class to the holders of Series A Preferred
Stock or to make any other distribution to the holders of Series A
Preferred Stock (other than a regular quarterly cash dividend out of
earnings or retained earnings of the Company), or (ii) to offer to the
holders of Series A Preferred Stock rights or warrants to subscribe for or
to purchase any additional shares of Series A Preferred Stock or shares of
stock of any class or any other securities, rights or options, or (iii) to
effect any reclassification of its Series A Preferred Stock (other than a
reclassification involving only the subdivision of outstanding shares of
Series A Preferred Stock), or (iv) to effect any consolidation or merger
into or with any other Person (other than a Subsidiary of the Company in a
transaction that complies with Section 11(o) hereof), or to effect any sale
or other transfer (or to permit one or more of its Subsidiaries to effect
any sale or other transfer), in one transaction or a series of related
transactions, of 50% or more of the assets, cash flow or earning power of
the Company and its Subsidiaries (taken as a whole) to any other Person or
Persons (other than the Company and/or any of its Subsidiaries in one or
more transactions each of that complies with Section 11(o) hereof), or (v)
to effect the liquidation, dissolution or winding up of the Company, then,
in each such case, the Company shall give to each holder of a Rights
Certificate, to the extent feasible and in accordance with Section 26
hereof, a notice of such proposed action, which shall specify the record
date for the purposes of such stock dividend, distribution of rights or
warrants, or the date on which such reclassification, consolidation,
merger, sale, transfer, liquidation, dissolution, or winding up is to take
place and the date of participation therein by the holders of the shares of
Series A Preferred Stock, if any such date is to be fixed, and such notice
shall be so given in the case of any action covered by clause (i) or (ii)
above at least 20 days prior to the record date for determining holders of
the shares of Series A Preferred Stock for purposes of such action, and in
the case of any such other action, at least 20 days prior to the date of
the taking of such proposed action or the date of participation therein by
the holders of the shares of Series A Preferred Stock whichever shall be
the earlier.
(b) In case any of the events set forth in Section
11(a)(ii) hereof shall occur, then, in any such case, (i) the Company shall
as soon as practicable thereafter give to each holder of a Rights
Certificate, to the extent feasible and in accordance with Section 26
hereof, a notice of the occurrence of such event, which shall specify the
event and the consequences of the event to holders of Rights under Section
11(a)(ii) hereof, and (ii) all references in the preceding paragraph to
Series A Preferred Stock shall be deemed thereafter to refer to Company
Common Stock and/or, if appropriate, other securities.
Section 26. Notices. Notices or demands authorized by this
Agreement to be given or made by the Rights Agent or by the holder of any
Rights Certificate to or on the Company shall be sufficiently given or made
if sent by first-class mail, postage prepaid, addressed (until another
address is filed in writing with the Rights Agent) as follows:
CoreComm Holdco, Inc.
c/o CoreComm Limited
110 East 59th Street, 26th Floor
New York, New York 10022
Attention: General Counsel
Subject to the provisions of Section 21, any notice or demand authorized by
this Agreement to be given or made by the Company or by the holder of any
Rights Certificate to or on the Rights Agent shall be sufficiently given or
made if sent by first-class mail, postage prepaid, addressed (until another
address is filed in writing with the Company) as follows:
Continental Stock Transfer & Trust Company
2 Broadway
New York, New York 10004
Attention: Chairman of the Board
Notices or demands authorized by this Agreement to be given or made
by the Company or the Rights Agent to the holder of any Rights Certificate
(or, if prior to the Distribution Date, to the holder of certificates
representing shares of Company Common Stock) shall be sufficiently given or
made if sent by first-class mail, postage prepaid, addressed to such holder
at the address of such holder as shown on the registry books of the Company.
Section 27. Supplements and Amendments. Prior to the Distribution
Date and subject to this Section 27, the Company and the Rights Agent
shall, if the Company so directs, supplement or amend any provision of this
Agreement without the approval of any holders of certificates representing
shares of Company Common Stock. From and after the Distribution Date and
subject to this Section 27, the Company and the Rights Agent shall, if the
Company so directs, supplement or amend this Agreement without the approval
of any holders of Rights Certificates in order (i) to cure any ambiguity,
(ii) to correct or supplement any provision contained herein that may be
defective or inconsistent with any other provisions herein, (iii) to
shorten or lengthen any time period hereunder or (iv) to change or
supplement the provisions hereunder in any manner that the Company may deem
necessary or desirable and that shall not adversely affect the interests of
the holders of Rights Certificates (other than an Acquiring Person or an
Affiliate or Associate of an Acquiring Person); provided, this Agreement
may not be supplemented or amended to lengthen, pursuant to clause (iii) of
this sentence, (A) a time period relating to when the Rights may be
redeemed at such time as the Rights are not then redeemable, or (B) any
other time period unless such lengthening is for the purpose of protecting,
enhancing or clarifying the rights of, and/or the benefits to, the holders
of Rights. Upon the delivery of a certificate from an appropriate officer
of the Company which states that the proposed supplement or amendment is in
compliance with the terms of this Section 27, the Rights Agent shall
execute such supplement or amendment. Prior to the Distribution Date, the
interests of the holders of Rights shall be deemed coincident with the
interests of the holders of Company Common Stock. Notwithstanding anything
herein to the contrary, this Agreement may not be amended (other than
pursuant to clauses (i) or (ii) of the second sentence of this Section 27)
at a time when the Rights are not redeemable.
Section 28. Successors. All the covenants and provisions of this
Agreement by or for the benefit of the Company or the Rights Agent shall
bind and inure to the benefit of their respective successors and assigns
hereunder.
Section 29. Determinations and Actions by the Board of Directors,
etc. For all purposes of this Agreement, any calculation of the number of
shares of Company Common Stock outstanding at any particular time,
including for purposes of determining the particular percentage of such
outstanding shares of Company Common Stock of which any Person is the
Beneficial Owner, shall be made in accordance with the last sentence of
Rule 13d-3(d)(1)(i) under the Exchange Act. The Board shall have the
exclusive power and authority to administer this Agreement and to exercise
all rights and powers specifically granted to the Board or to the Company,
or as may be necessary or advisable in the administration of this
Agreement, including, without limitation, the right and power to (i)
interpret the provisions of this Agreement, and (ii) make all
determinations deemed necessary or advisable for the administration of this
Agreement (including a determination to redeem or not redeem the Rights or
to amend the Agreement). All such actions, calculations, interpretations
and determinations (including, for purposes of clause (y) below, all
omissions with respect to the foregoing) that are done or made by the Board
in good faith, shall (x) be final, conclusive and binding on the Company,
the Rights Agent, the holders of the Rights and all other parties, and (y)
not subject the Board, or any of the directors of the Board, to any
liability to the holders of the Rights.
Section 30. Benefits of this Agreement. Nothing in this Agreement
shall be construed to give to any Person other than the Company, the Rights
Agent and the registered holders of the Rights Certificates (and, prior to
the Distribution Date, registered holders of Company Common Stock) any
legal or equitable right, remedy or claim under this Agreement; but this
Agreement shall be for the sole and exclusive benefit of the Company, the
Rights Agent and the registered holders of the Rights Certificates (and,
prior to the Distribution Date, registered holders of Company Common
Stock).
Section 31. Severability. If any term, provision, covenant or
restriction of this Agreement is held by a court of competent Jurisdiction
or other authority to be invalid, void or unenforceable, the remainder of
the terms, provisions, covenants and restrictions of this Agreement shall
remain in full force and effect and shall in no way be affected, impaired
or invalidated; provided, however, that notwithstanding anything in this
Agreement to the contrary, if any such term, provision, covenant or
restriction is held by such court or authority to be invalid, void or
unenforceable and the Board determines in its good faith judgment that
severing the invalid language from this Agreement would adversely affect
the purpose or effect of this Agreement, the right of redemption set forth
in Section 23 hereof shall be reinstated and shall not expire until the
Close of Business on the tenth day following the date of such determination
by the Board of Directors. Without limiting the foregoing, if any provision
requiring a specific group of directors to act is held to by any court of
competent jurisdiction or other authority to be invalid, void or
unenforceable, such determination shall then be made by the Board in
accordance with applicable law and the Company's Restated Certificate of
Incorporation and By-laws.
Section 32. Governing Law. This Agreement, each Right and each
Rights Certificate issued hereunder 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
applicable to contracts made and to be performed entirely within such
State.
Section 33. Counterparts. This Agreement may be executed in any
number of counterparts and each of such counterparts shall for all purposes
be deemed to be an original, and all such counterparts shall together
constitute but one and the same instrument.
Section 34. Descriptive Headings. Descriptive headings of the
several Sections of this Agreement are inserted for convenience only and
shall not control or affect the meaning or construction of any of the
provisions hereof.
IN WITNESS WHEREOF, the parties hereto have caused this
Agreement to be duly executed as of the day and year first above written.
CORECOMM HOLDCO, INC.
By: /s/ RICHARD J. LUBASCH
-------------------------------
Name: Richard J. Lubasch
Title: Executive Vice President,
General Counsel and Secretary
CONTINENTAL STOCK TRANSFER
& TRUST COMPANY
By: /s/ WILLIAM F. SEEGRABER
-------------------------------
Name: William F. Seegraber
Title: Vice President
A-1
EXHIBIT A
Restated Certificate of Incorporation
See Exhibit 3.1 to CoreComm Holdco, Inc.'s registration statement on Form S-1
to which the Exhibit 4.2 is attached.
EXHIBIT B
[Form of Rights Certificate]
Certificate No. R- _________
Rights
NOT EXERCISABLE AFTER DECEMBER 17, 2011 OR EARLIER IF REDEEMED BY THE
COMPANY. THE RIGHTS ARE SUBJECT TO REDEMPTION, AT THE OPTION OF THE COMPANY,
AT $0.01 PER RIGHT ON THE TERMS SET FORTH IN THE RIGHTS AGREEMENT. UNDER
CERTAIN CIRCUMSTANCES, RIGHTS BENEFICIALLY OWNED BY AN ACQUIRING PERSON (AS
SUCH TERM IS DEFINED IN THE RIGHTS AGREEMENT) AND ANY SUBSEQUENT HOLDER OF
SUCH RIGHTS MAY BECOME NULL AND VOID. [THE RIGHTS REPRESENTED BY THIS RIGHTS
CERTIFICATE ARE OR WERE BENEFICIALLY OWNED BY A PERSON WHO WAS OR BECAME AN
ACQUIRING PERSON OR AN AFFILIATE OR ASSOCIATE OF AN ACQUIRING PERSON (AS SUCH
TERMS ARE DEFINED IN THE RIGHTS AGREEMENT). ACCORDINGLY, THIS RIGHTS
CERTIFICATE AND THE RIGHTS REPRESENTED HEREBY MAY BECOME NULL AND VOID IN THE
CIRCUMSTANCES SPECIFIED IN SECTION 7(e) OF SUCH AGREEMENT.]*
Rights Certificate
CORECOMM HOLDCO, INC.
This certifies that ________________________, or registered assigns,
is the registered owner of the number of Rights set forth above, each of
which entitles the owner thereof, subject to the terms, provisions and
conditions of the Rights Agreement, dated as of December 17, 2001 (the
"Rights Agreement"), between CoreComm Holdco, Inc., a Delaware corporation
(the "Company"), and Continental Stock Transfer & Trust Company, a New York
corporation (the "Rights Agent"), to purchase from the Company at any time
prior to 5:00 P.M. (New York City time) on December 17, 2011 at the office or
offices of the Rights Agent designated for such purpose, or its successors as
Rights Agent, one one-thousandth of a full paid, non-assessable share of
Series A Junior Participating Preferred Stock (the "Series A Preferred
Stock") of the Company, at a purchase price of $________ [the amount equal to
the product of (x) four times (y) the average closing price of Common Stock,
par value $0.01 per share (the "Company Common Stock"), of the Company for
the first five days of trading subsequent to the consummation of the initial
public offering of the Company Common Stock] per one one-thousandth of a
share (the "Purchase Price"), upon presentation and surrender of this Rights
Certificate with the Form of Election to Purchase and related Certificate
duly executed. The number of Rights evidenced by this Rights Certificate (and
the number of shares that may be purchased upon exercise thereof) set forth
above, and the Purchase Price per share set forth above, are the number and
Purchase Price as of _________, 200__ [the close of business on the fifth day
of trading subsequent to the consummation of the initial public offering of
the Company Common Stock], based on the Series A Preferred Stock as
constituted at such date. The Company reserves the right to require prior to
the occurrence of a Triggering Event (as such term is defined in the Rights
Agreement) that a number of Rights be exercised so that only whole shares of
Series A Preferred Stock will be issued.
Upon the occurrence of a Section 11(a)(ii) Event (as such term is
defined in the Rights Agreement), if the Rights evidenced by this Rights
Certificate are beneficially owned by (i) an Acquiring Person or an Affiliate
or Associate of any such Acquiring Person (as such terms are defined in the
Rights Agreement), (ii) a transferee of any such Acquiring Person, Associate
or Affiliate, or (iii) under certain circumstances specified in the Rights
Agreement, a transferee of a person who, after such transfer, became an
Acquiring Person, or an Affiliate or Associate of an Acquiring Person, such
Rights shall become null and void and no holder hereof shall have any right
with respect to such Rights from and after the occurrence of such Section
11(a)(ii) Event.
As provided in the Rights Agreement, the Purchase Price and the
number and kind of shares of Series A Preferred Stock or other securities,
that may be purchased upon the exercise of the Rights evidenced by this
Rights Certificate are subject to modification and adjustment upon the
happening of certain events, including Triggering Events.
This Rights Certificate is subject to all of the terms, provisions
and conditions of the Rights Agreement, which terms, provisions and
conditions are hereby incorporated herein by reference and made a part hereof
and to which Rights Agreement reference is hereby made for a full description
of the rights, limitations of rights, obligations, duties and immunities
hereunder of the Rights Agent, the Company and the holders of the Rights
Certificates, which limitations of rights include the temporary suspension of
the exercisability of such Rights under the specific circumstances set forth
in the Rights Agreement. Copies of the Rights Agreement are on file at the
above-mentioned office of the Rights Agent and are also available upon
written request to the Rights Agent.
This Rights Certificate, with or without other Rights Certificates,
upon surrender at the principal office or offices of the Rights Agent
designated for such purpose, may be exchanged for another Rights Certificate
or Rights Certificates of like tenor and date evidencing Rights entitling the
holder to purchase a like aggregate number of one one-thousandths of a share
of Series A Preferred Stock as the Rights evidenced by the Rights Certificate
or Rights Certificates surrendered shall have entitled such holder to
purchase. If this Rights Certificate shall be exercised in part, the holder
shall be entitled to receive upon surrender hereof another Rights Certificate
or Rights Certificates for the number of whole Rights not exercised.
Subject to the provisions of the Rights Agreement, the Rights
evidenced by this Certificate may be redeemed by the Company at its option at
a redemption price of $0.01 per Right at any time prior to the earlier of the
close of business on (i) the tenth day following the Stock Acquisition Date
(as such time period may be extended pursuant to the Rights Agreement), and
(ii) the Final Expiration Date.
No fractional shares of Series A Preferred Stock will be issued upon
the exercise of any Right or Rights evidenced hereby (other than fractions
that are integral multiples of one one-thousandth of a share of Series A
Preferred Stock, which may, at the election of the Company, be evidenced by
depositary receipts), but in lieu thereof a cash payment shall be made, as
provided in the Rights Agreement.
No holder of this Rights Certificate shall be entitled to vote or
receive dividends or be deemed for any purpose the holder of shares of Series
A Preferred Stock or of any other securities of the company that may at any
time be issuable on the exercise hereof, nor shall anything contained in the
Rights Agreement or herein be construed to confer upon the holder hereof, as
such, any of the rights of a stockholder of the Company or any right to vote
for the election of directors or upon any matter submitted to stockholders at
any meeting thereof, or to give or withhold consent to any corporate action,
or, to receive notice of meetings or other actions affecting stockholders
(except as provided in the Rights Agreement), or to receive dividends or
subscription rights, or otherwise, until the Right or Rights evidenced by
this Rights Certificate shall have been exercised as provided in the Rights
Agreement.
This Rights Certificate shall not be valid or obligatory for any
purpose until it shall have been countersigned by the Rights Agent.
WITNESS the facsimile signature of the proper officers of the
Company and its corporate seal.
Dated: ______________
ATTEST: CORECOMM HOLDCO, INC.
By: ______________________ By: ______________________
Name: Name:
Title: Title:
Countersigned:
CONTINENTAL STOCK TRANSFER
& TRUST COMPANY
By: _______________________
Name:
Title: Authorized Officer
(Form of Reverse Side of Rights Certificate)
FORM OF ASSIGNMENT
(To be executed by the registered holder if
such holder desires to transfer the Rights Certificate.)
FOR VALUE RECEIVED____________________________________________________________
hereby sells, assigns and transfers unto______________________________________
(Please print name and address of transferee)
_______________________________________________________________________________
this Rights Certificate, together with all right, title and interest therein,
and does hereby irrevocably constitute and appoint _____________________
Attorney, to transfer the within Rights Certificate on the books of the
within-named Company, with full power of substitution.
Dated: __________ , 20__
______________________________________
Signature
Signature Guaranteed:
Certificate
The undersigned hereby certifies by checking the appropriate boxes
that:
(1) this Rights Certificate [ ] is [ ] is not being sold, assigned
and transferred by or on behalf of a Person who is or was an Acquiring Person
or an Affiliate or Associate of any such Acquiring Person (as such terms are
defined pursuant to the Rights Agreement);
(2) after due inquiry and to the best knowledge of the undersigned,
it [ ] did [ ] did not acquire the Rights evidenced by this Rights
Certificate from any Person who is, was or subsequently became an Acquiring
Person or an Affiliate or Associate of an Acquiring Person.
Dated: ______________
-------------------------------------------
Signature
Signature Guaranteed:
Notice
The signature to the foregoing Assignment and Certificate must
correspond to the name as written upon the face of this Rights Certificate in
every particular, without alteration or enlargement or any change whatsoever.
FORM OF ELECTION TO PURCHASE
(To be executed if holder desires to exercise Rights represented by the Rights
Certificate)
To: CORECOMM HOLDCO, INC.:
The undersigned hereby irrevocably elects to exercise _________ Rights
represented by this Rights Certificate to purchase the shares of Series A
Preferred Stock issuable upon the exercise of the Rights (or such other
securities of the Company or of any other person that may be issuable upon
the exercise of the Rights) and requests that certificates for such shares be
issued in the name of and delivered to:
Please insert social security
or other identifying number
_______________________________________________________________________________
(Please print name and address)
_______________________________________________________________________________
If such number of Rights shall not be all the Rights evidenced by
this Rights Certificate, a new Rights Certificate for the balance of such
Rights shall be registered in the name of and delivered to:
Please insert social security
or other identifying number
_______________________________________________________________________________
(Please print name and address)
_______________________________________________________________________________
Dated: ___________, ____
___________________________
Signature
Signature Guaranteed:
Certificate
The undersigned hereby certifies by checking the appropriate boxes
that:
(1) the Rights evidenced by this Rights Certificate [ ] are [ ] are
not being exercised by or on behalf of a Person who is or was an Acquiring
Person or an Affiliate or Associate of any such Acquiring Person (as such
terms are defined pursuant to the Rights Agreement);
(2) after due inquiry and to the best knowledge of the undersigned,
it [ ] did [ ] did not acquire the Rights evidenced by this Rights
Certificate from any Person who is, was or became an Acquiring Person or an
Affiliate or Associate of an Acquiring Person.
Dated: ______________
__________________________
Signature
Signature Guaranteed:
Notice
------
The signature to the foregoing Assignment and Certificate must
correspond to the name as written upon the face of this Rights Certificate in
every particular, without alteration or enlargement or any change whatsoever.
EXHIBIT 5.1
Skadden, Arps, Slate, Meagher & Flom LLP
Four Times Square
New York, New York 10036-6522
February 8, 2002
CoreComm Holdco, Inc.
110 East 59th Street
26th Floor
New York, New York 10022
Re: CoreComm Holdco, Inc.
---------------------
Ladies and Gentlemen:
You have requested that we deliver an opinion as to the legality of
(1) the shares (the "Forbearance Shares") of common stock (the "Common
Stock"), par value $0.01 per share, together with the associated rights to
purchase Series A Junior Participating Preferred Stock, par value $0.01 per
share (the "Rights"), of CoreComm Holdco, Inc., a Delaware corporation,
issued (x) upon exchange of principal amount of 6% Convertible Subordinated
Notes Due 2006 (the "Public Notes"), of CoreComm Limited, a Delaware
corporation ("Limited"), pursuant to the letter agreements (the "Forbearance
Agreements"), dated October 23, 2001, October 31, 2001, November 13, 2001,
and December 14, 2001, and the Notices of Closing (the "Notices of Closing"),
dated December 14, 2001, in each case entered into by and between Limited and
certain holders of the Public Notes and (y) to certain members of senior
management of Holdco for cash in connection with the exchange of the Public
Notes and (2) the shares (the "Exchange Shares") of Common Stock issued upon
exchange of debt and equity securities of Limited and debt securities which
are a joint obligation of Limited and the Company (the "Private Securities"),
pursuant to the transactions contemplated by the Exchange Agreement (the
"Exchange Agreement"), dated as of December 14, 2001, by and among the
Company, Limited, and each of the security holders named as a party therein.
This opinion is being furnished in accordance with, and is limited
to, the requirements of Item 601(b)(5)(i) of Regulation S-K under the
Securities Act of 1933, as amended (the "Securities Act").
In connection with this opinion, we have examined originals or
copies, certified or otherwise identified to our satisfaction, of: (i) the
Company's registration statement on Form S-1 to be filed by the Company with
the Securities and Exchange Commission (the "Commission") on the date hereof
under the Securities Act (the "Registration Statement"); (ii) the Restated
Certificate of Incorporation of the Company, as amended to date and as
certified by the Secretary of State of the State of Delaware and currently in
effect; (iii) the By-Laws of the Company, as amended to date and currently in
effect; (iv) a specimen certificate representing the Common Stock; (v) the
Cross-Receipts, dated December 28, 2001, relating to the issuance of the
Exchange Shares and the receipt of the Securities to be received in exchange
therefor pursuant to the Exchange Agreement; (vi) an executed copy of the
Exchange Agreement; (vii) the executed closing certificates under the
Exchange Agreement; (viii) an executed copy of each Forbearance Agreement;
(ix) an executed copy of each Notice of Closing; (x) the Rights Agreement,
dated as of December 17, 2001, by and between the Company and Continental
Stock Transfer & Trust Company pursuant to which the Rights were issued or
are issuable; and (xi) certain resolutions of the Board of Directors of the
Company relating to the issuance of the Forbearance Shares, the Exchange
Shares, the Exchange Agreement, the
Corecomm Holdco, Inc.
February 8, 2002
Page 2
Forbearance Agreements, the Notices of Closing and related
matters. We have also examined originals or copies, certified or otherwise
identified to our satisfaction, of such records of the Company and such
agreements, statements, certificates and receipts of public officials,
certificates of directors, officers or other representatives of the Company
and others, and such other documents, certificates and corporate or other
records as we have deemed necessary or appropriate as a basis for the
opinions set forth herein.
In our examination, we have assumed the legal capacity of all
natural persons, the genuineness of all signatures, the authenticity of all
documents submitted to us as originals, the conformity to original documents
of all documents submitted to us as certified, conformed or photostatic
copies and the authenticity of the originals of such latter documents. In
making our examination of executed documents, we have assumed that the
parties thereto, other than the Company, had the power, corporate or other,
to enter into and perform all obligations thereunder and have also assumed
the due authorization by all requisite action, corporate or other, and
execution and delivery by such parties of such documents. In addition, in
making our examination of executed documents, we have assumed that such
documents constitute the valid and binding obligations of the parties
thereto. We have also assumed that the consideration recited in the
resolutions of the Board of Directors of the Company authorizing the issuance
of the Forbearance Shares and the Exchange Shares has been received in full
by the Company and that such consideration was not less than the par value of
the Forbearance Shares and the Exchange Shares.
As to any facts material to the opinions expressed herein which we
have not independently established or verified, we have relied upon
statements and representations of directors, officers and other
representatives of the Company and others. In rendering the opinions set
forth herein, we have assumed that the certificates representing the shares
of Common Stock issued pursuant to the transactions contemplated by the
Exchange Agreement, the Forbearance Agreements and the Notices of Closing
conform to the specimen certificate examined by us and were countersigned by
a duly authorized officer of the transfer agent for the Common Stock and duly
registered by the registrar for the Common Stock in the share record books of
the Company.
Members of our firm are admitted to the bar in the State of New
York, and we do not express any opinion as to the laws of any jurisdiction
other than the corporate laws of the State of Delaware, and we do not express
any opinion as to the effect of any other laws on the opinions stated herein.
The opinions expressed herein are based on laws in effect on the date hereof,
which laws are subject to change with possible retroactive effect.
Based upon and subject to the foregoing, and to the limitations,
qualifications, exceptions and assumptions set forth herein, we are of the
opinion that:
1. The Forbearance Shares issued upon exchange of, and in connection
with the exchange of, the Public Notes pursuant to the Forbearance
Agreements and the Notices of Closing have been validly issued and
are fully paid and nonassessable.
2. The Exchange Shares issued upon exchange of the Private Securities
pursuant to the Exchange Agreement have been validly issued and are
fully paid and nonassessable.
We hereby consent to the filing of this opinion with the
Commission as an exhibit to the Registration Statement. We also consent to
the reference to our firm under the caption "Legal Matters" in the
Registration Statement. In giving this consent, we do not thereby admit that
we are
Corecomm Holdco, Inc.
February 8, 2002
Page 3
included in the category of persons whose consent is required under
Section 7 of the Securities Act or the rules and regulations of the
Commission.
Very truly yours,
/s/ SKADDEN, ARPS, SLATE, MEAGHER &
FLOM LLP
EXHIBIT 10.1
CORECOMM HOLDCO, INC.
2001 STOCK OPTION PLAN
1. PURPOSE; CONSTRUCTION.
This CoreComm Holdco, Inc. 2001 Stock Option Plan (the "Plan"), is
intended to encourage stock ownership by employees and non-employees who are
directors of CoreComm Holdco, Inc. (the "Corporation") and its divisions and
subsidiary corporations and other affiliates, so that they may acquire or
increase their proprietary interest in the Corporation, and to encourage such
employees and non-employee directors to remain in the employ or service of
the Corporation or its affiliates and to put forth maximum efforts for the
success of the business.
2. DEFINITIONS.
As used in this Plan, the following words and phrases shall have the
meanings indicated:
(a) "CODE" shall mean the Internal Revenue Code of 1986, as
amended.
(b) "DISABILITY" shall mean an Optionee's inability to engage
in any substantial gainful activity by reason of any
medically determinable physical or mental impairment that
can be expected to result in death or that has lasted or
can be expected to last for a continuous period of not
less than twelve (12) months.
(c) "EXCHANGE ACT" shall mean the Securities Exchange Act of
1934, as amended and the rules and regulations
promulgated thereunder.
(d) "FAIR MARKET VALUE" per share as of a particular date
shall mean (i) if the shares of common stock, par value
$.01 per share, of the Corporation ("Common Stock") are
then traded on an over-the-counter market, the average of
the closing bid and asked prices for the shares of Common
Stock in such over-the-counter market for the last
preceding date on which there was a sale of such Common
Stock in such market, (ii) if the shares of Common Stock
are then listed on the NASDAQ Stock Market's National
Market or other national securities exchange, the closing
sales price per share on the date of grant or on the last
preceding date on which there was a sale of such Common
Stock on such exchange, or (iii) if the shares of Common
Stock are not then traded in an over-the-counter market
or listed on NASDAQ or a national securities exchange,
such value as the Committee in its discretion may
determine.
(e) "OPTIONEE" shall mean a person who has been granted an
Option (as defined in Section 3 hereof) under the Plan.
(f) "PARENT CORPORATION" shall mean any corporation (other
than the Corporation) in an unbroken chain of
corporations ending with the Corporation if, at the time
of granting an Option, each of the corporations other
than the Corporation 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 such
chain.
(g) "RULE 16b-3" shall mean Rule 16b-3 promulgated under
Section 16 of the Exchange Act (or any other comparable
provisions in effect at the time or times in question).
(h) "SUBSIDIARY CORPORATION" shall mean any corporation
(other than the Corporation) in an unbroken chain of
corporations beginning with the Corporation if, at the
time of granting an Option, each of the corporations
other than the last corporation in the unbroken chain
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 such chain.
(i) "TEN PERCENT STOCKHOLDER" shall mean an Optionee who, at
the time an Incentive Stock Option is granted, owns stock
possessing more than ten percent (10%) of the total
combined voting power of all classes of stock of the
Corporation or of its Parent Corporation or Subsidiary
Corporations.
3. ADMINISTRATION.
The Plan shall be administered by the Compensation and Option
Committee (the "Committee") of the Corporation's Board of Directors (the
"Board") or such other committee appointed either by the Board or by the
Committee; provided, however, to the extent determined necessary to satisfy
the requirements for exemption from Section 16(b) of the Exchange Act, with
respect to the acquisition or disposition of securities hereunder, action by
the Committee may be by a subcommittee of a committee of the Board composed
solely of two or more "non-employee directors," within the meaning of Rule
16b-3, appointed by the Board or by the Committee and, provided further, to
the extent determined necessary to satisfy the requirements for the exception
for qualified performance based compensation under Section 162(m) of the Code
and the treasury regulations promulgated thereunder, action by the Committee
may be by a committee comprised solely of two or more "outside directors,"
within the meaning of Section 162(m) of the Code and the treasury regulations
promulgated thereunder, appointed by the Board or by the Committee.
Notwithstanding anything in the Plan to the contrary, and to the extent
determined to be necessary to satisfy an exemption under Rule 16b-3 with
respect to a grant hereunder (and, as applicable, with respect to the
disposition to the Corporation of a security hereunder), or as otherwise
determined advisable by the Committee, the terms of such grant and
disposition under the Plan shall be subject to the prior approval of the
Board. Any prior approval of the Board, as provided in the preceding
sentence, shall not otherwise limit or restrict the authority of the
Committee to make grants under the Plan, including, but not limited to, the
authority of the Committee to make grants qualifying for the
performance-based compensation exception under Section 162(m) of the Code and
the treasury regulations promulgated thereunder.
The Committee shall have the authority in its discretion, subject to
and not inconsistent with the express provisions of the Plan, to administer
the Plan and to exercise all the powers and authorities either specifically
granted to it under the Plan or necessary or advisable in the administration
of the Plan, including, without limitation, the authority to grant options to
purchase Common Stock ("Options"); to determine which Options shall
constitute "incentive stock options" ("Incentive Stock Options") within the
meaning of Section 422 of the Code, and which Options shall constitute
nonqualified stock options ("Nonqualified Stock Options"); to determine the
purchase price of the shares of Common Stock covered by each Option (the
"Option Price"); to determine the persons to whom, and the time or times at
which, Options shall be granted; to determine the number of shares to be
covered by each Option; to interpret the Plan; to prescribe, amend and
rescind rules and regulations relating to the Plan; to determine the terms
and provisions of the Options (which need not be identical) entered into in
connection with Options granted under the Plan; and to make all other
determinations deemed necessary or advisable for the administration of the
Plan. The Committee may delegate to one or more of its members or to one or
more agents such administrative duties as it may deem advisable, and the
Committee or any person to whom it has delegated duties as aforesaid may
employ one or more persons to render advice with respect to any
responsibility the Committee or such person may have under the Plan.
The Board shall fill all vacancies, however caused, on the
Committee. The Board may from time to time appoint additional members to the
Committee, and may at any time remove one or more Committee members and
substitute others. One member of the Committee may be selected by the Board
as chairman. The Committee shall hold its meetings at such times and places
as it shall deem advisable. All determinations of the Committee shall be made
by a majority of its members either present in person or participating by
conference telephone at any meeting or by written consent. The Committee may
appoint a secretary and make such rules and regulations for the conduct of
its business as it shall deem advisable, and shall keep minutes of its
meetings.
No member of the Board or Committee shall be liable for any action
taken or determination made in good faith with respect to the Plan or any
Option granted hereunder.
4. ELIGIBILITY.
Options may be granted (i) to employees (including, without
limitation, officers and directors who are employees) of the Corporation, its
present or future divisions, Subsidiary Corporations and Parent Corporations
and (ii) in the case of Nonqualified Stock Options, to non-employee directors
of the Corporation and to employees of an affiliated entity of the
Corporation (an "Affiliated Entity") which is designated by the Board to
participate in the Plan. In determining the persons to whom Options shall be
granted and the number of shares of Common Stock to be covered by each
Option, the Committee shall take into account the duties of the respective
persons, their present and potential contributions to the success of the
Corporation and such other factors as the Committee shall deem relevant or
appropriate in connection with accomplishing the purpose of the Plan.
An Optionee shall be eligible to receive more than one grant of an
Option during the term of the Plan, but only on the terms and subject to the
restrictions set forth hereinafter, and as set forth in any applicable Option
Notice (as defined in Section 8 herein).
5. STOCK.
The stock subject to Options hereunder shall be shares of Common
Stock. Such shares may, in whole or in part, be authorized but unissued
shares or shares that shall have been or that may be reacquired by the
Corporation. The aggregate number of shares of Common Stock as to which
Options may be granted from time to time under the Plan may equal but shall
not exceed 2,900,000. The limitation established by the preceding sentence
shall be subject to adjustment as provided in Section 8(j) hereof. However,
the number of shares of Common Stock underlying any Substitute Options (as
defined in Section 8(j) hereof) shall be counted against the aggregate number
of shares of Common Stock available for Options under the Plan.
In the event that any outstanding Option under the Plan for any
reason expires or is canceled, surrendered or otherwise terminated without
having been exercised in full, the shares of Common Stock allocable to the
unexercised portion of such Option shall (unless the Plan shall have been
terminated) become available for subsequent grants of Options under the Plan.
Notwithstanding the foregoing, the expiration, cancellation, surrender or
termination of an Option, to the extent consistent with Section 162(m) of the
Code and the treasury regulations promulgated thereunder, shall not be
disregarded for purposes of applying the individual limit on the maximum
number of shares, as provided in Section 8(f), that may be purchased in
connection with Options granted under the Plan with respect to any
individual.
6. INCENTIVE STOCK OPTIONS.
Options granted pursuant to this Section 6 are intended to
constitute Incentive Stock Options and shall be subject to the following
special terms and conditions, in addition to the general terms and conditions
specified in Section 8 hereof.
(j) VALUE OF SHARES. In no event may Incentive Stock Options
be granted to an Optionee to the extent that the
aggregate Fair Market Value (determined as of the date
the Incentive Stock Option is granted) of the shares of
Common Stock with respect to which such Options granted
under this Plan and all other option plans of the
Corporation and any Parent Corporation or Subsidiary
Corporation which would become exercisable for the first
time by an Optionee during any calendar year exceeds
$100,000.
(k) TEN PERCENT STOCKHOLDER. In the case of an Incentive
Stock Option granted to a Ten Percent Stockholder, (i)
the Option Price of an Incentive Stock Option shall not
be less than one hundred ten percent (110%) of the Fair
Market Value of the shares of Common Stock on the date of
grant of such Incentive Stock Option and (ii) the
exercise period shall not exceed five (5) years from the
date of grant of such Incentive Stock Option.
7. NONQUALIFIED STOCK OPTIONS.
Options granted pursuant to this Section 7 are intended to
constitute Nonqualified Stock Options and shall be subject only to the
general terms and conditions specified in Section 8 hereof.
8. TERMS AND CONDITIONS OF OPTIONS.
Each Option granted pursuant to the Plan shall be evidenced by a
written Option Notice (an "Option Notice") between the Corporation and the
Optionee, which agreement shall comply with, and be subject to, the following
terms and conditions:
(a) NUMBER OF SHARES. Each Option Notice shall state the
number of shares of Common Stock to which the Option
relates.
(b) TYPE OF OPTION. Each Option Notice shall specifically
identify the portion, if any, of the Option which
constitutes an Incentive Stock Option.
(c) OPTION PRICE. The Option Price shall be specified by the
Committee, provided, however, that in the case of an
Incentive Stock Option the Option Price shall be not less
than one hundred percent (100%) of the Fair Market Value
of the shares of Common Stock on the date of grant of the
Option. The Option Price shall be subject to adjustment
as provided in Section 8(j) hereof.
(d) MEDIUM AND TIME OF PAYMENT. Options may be exercised in
whole or in part at any time during the option period by
giving written notice of exercise to the Corporation
specifying the number of shares of Common Stock to be
purchased, accompanied by payment of the purchase price.
Payment of the purchase price shall be made in such
manner as the Committee may provide in the Option Notice,
which may include:
(i) cash (including cash equivalents, such as by
certified or bank check payable to the
Corporation);
(ii) delivery of unrestricted shares of Common
Stock that have been owned by the Optionee or, as
applicable, a transferee (as provided in Section
8(i)) for at least six months;
(iii) if the Optionee is an employee of the
Corporation, a Parent Corporation, or a Subsidiary
Corporation or an affiliate thereof, by cash for a
portion of the aggregate exercise price not less
than the par value of the shares being acquired
and the Optionee's promissory note in a form
approved by the Corporation for the balance of the
aggregate exercise price as described below; or
(iv) by any other manner permitted by law as
determined by the Committee, or any combination
of the foregoing.
(e) TERM AND EXERCISE OF OPTIONS. Options shall be
exercisable over the exercise period as and at the times
and upon the conditions that the Committee may determine,
as reflected in the applicable Option Notice; provided,
however, that the Committee shall have the authority to
accelerate the exercisability of any outstanding Option
at such time and under such circumstances as it, in its
sole discretion, deems appropriate; and further provided,
however, that such exercise period shall not exceed ten
(10) years from the date of grant of such Option. The
exercise period may be subject to earlier termination as
provided in Section 8(g) and 8(h) hereof. An Option may
be exercised, as to any or all full shares of Common
Stock as to which the Option has become exercisable, by
giving written notice of such exercise to the Committee
or to such individuals as the Committee may from time to
time designate.
(f) LIMITATION ON AWARDS. Grants of Options under the Plan to
any individual in any calendar year shall be limited to
Options to purchase no greater than sixty percent of the
shares of Common Stock available for issuance under this
plan.
(g) TERMINATION. The Committee may provide that an Option may
not be exercised unless the Optionee is then in the
employ of (or in the case of a non-employee director, in
the service of) the Corporation or a division or any
corporation which was at the time of grant of such
Option, a Subsidiary Corporation or Parent Corporation
thereof (or a corporation or a Parent Corporation or
Subsidiary Corporation of such corporation issuing or
assuming the Option in a transaction to which Section
424(a) of the Code applies) or an affiliated entity, and
unless the Optionee has remained continuously so employed
(or in the case of a non-employee director, continuously
in such service) since the date of grant of the Option.
The Committee may further terminate (other than by reason
of death, Disability or, in the case of Nonqualified
Stock Options, retirement), all Options granted to such
Optionee or transferred by such Optionee (as provided in
Section 8(i)) that are exercisable at the time of such
termination. Options may, unless earlier terminated in
accordance with their terms, be exercised within three
(3) months after such termination; provided, however,
that if the employment (or in the case of a non-employee
director, the service) of such an Optionee shall
terminate for cause (as determined by the Committee, in
its good faith discretion), all Options theretofore
granted to such Optionee or transferred by such Optionee
(as provided in Section 8(i)) shall, to the extent not
theretofore exercised, terminate forthwith. Nothing in
the Plan or in any Option granted pursuant hereto shall
confer upon an individual any right to continue in the
employ or service of the Corporation or any of its
divisions, Parent Corporation or Subsidiary Corporations
or Affiliated Entities or interfere in any way with the
right of the Corporation or any such division, Parent
Corporation or Subsidiary Corporation or Affiliated
Entity to terminate such employment or service. An Option
subject to the provisions of this Section 8(g) is
referred to herein as an "Employment Option."
(h) DEATH, DISABILITY OR RETIREMENT OF OPTIONEE. If an
Optionee who has been granted an Employment Option shall
die while employed by the Corporation or a division or
any corporation which was, at the time of grant of such
Employment Option, a Subsidiary Corporation or Parent
Corporation thereof (or a corporation or a Parent
Corporation or Subsidiary Corporation of such corporation
issuing or assuming the Employment Option in a
transaction to which Section 424(a) of the Code applies)
or an Affiliated Entity, or within three (3) months after
the termination of such Optionee's employment, other than
for cause, or if the Optionee's employment shall
terminate by reason of Disability (or, in the case of
Nonqualified Stock Options, retirement), all Employment
Options theretofore granted to such Optionee or
transferred by such Optionee (as provided in Section
8(i)), to the extent otherwise exercisable at the time of
death or termination of employment, may, unless earlier
terminated in accordance with their terms, be exercised
by the Optionee or by the Optionee's estate or by a
person who acquired the right to exercise such Employment
Option by bequest or inheritance or otherwise by reason
of death or Disability of the Optionee or by a transferee
(as provided in Section 8(i)), at any time within one
year after the date of death, Disability or retirement of
the Optionee.
(i) NONTRANSFERABILITY OF OPTIONS. Except as provided in this
Section 8(i), no Option granted hereunder shall be
transferable by the Optionee to whom granted, other than
by will or the laws of descent or distribution, and the
Option may be exercised during the lifetime of such
Optionee only by the Optionee or such Optionee's guardian
or legal representative. Subject to such conditions as
the Committee may prescribe, an Optionee may, upon
providing written notice to the General Counsel of the
Corporation, elect to transfer the Nonqualified Stock
Option granted to such Optionee, without consideration
therefor, to members of his or her immediate family (as
defined below), to a trust or trusts maintained solely
for the benefit of the Optionee and/or the members of his
or her immediate family, or to a partnership whose only
partners are the Optionee and/or the members of his or
her immediate family. Any purported assignment,
alienation, pledge, attachment, sale, transfer, or
encumbrance that does not qualify as a permissible
transfer under this Section 8(i) shall be void and
unenforceable against the Plan and the Corporation. For
purposes of this Section 8(i), the term "immediate
family" shall mean, with respect to a particular
Optionee, the Optionee's spouse, children or
grandchildren, and such other persons as may be
determined by the Committee. The terms of any such Option
Notice and the Plan shall be binding upon a permissible
transferee, and the beneficiaries, heirs and successors
of the Optionee and, as applicable, a permissible
transferee. Notwithstanding anything in the Plan to the
contrary, the Committee or Board may also provide that
certain Options granted pursuant to the Plan shall be
fully and immediately transferable.
(j) EFFECT OF CERTAIN CHANGES.
(i) If there is any change in the number of shares
of Common Stock through the declaration of stock
or cash dividends, or recapitalization resulting
in stock splits, or combinations or exchanges of
such shares or other corporate transactions
affecting the capitalization of the Corporation,
the aggregate number of shares of Common Stock
available for Options, the aggregate number of
shares of Common Stock available for distribution
under the Plan to any single individual with
respect to Options granted hereunder, the number
of such shares covered by outstanding Options, the
number of shares set forth in Section 8(f) hereof
and the price per share of such Options shall be
adjusted by the Committee to reflect any increase
or decrease in the number of issued shares of
Common Stock; provided, however, that any
fractional shares resulting from such adjustment
shall be eliminated. In the event of any other
extraordinary corporate transaction, including,
but not limited to distributions of cash or other
property to the Corporation's stockholders, or in
connection with the transaction described in
Section 424(a) of the Code, the Committee may, in
its sole discretion, equitably adjust outstanding
Options, in any and all ways, as it deems
appropriate, and the Committee's powers shall
include without limitation, the power to adjust
the number and/or kind of shares or property in
respect to which Options may be exercised, and the
power to change the issuer of the Option to give
appropriate effect to any such transaction. The
Committee may equitably adjust outstanding Options
as it deems appropriate.
(ii) Options may, in the discretion of the
Committee, be granted under the Plan in assumption
of, or in substitution for, outstanding awards
previously granted by the Corporation or an entity
acquired by the Corporation or with which the
Corporation combines ("Substitute Options").
(2) In the event that the stockholders of the
Corporation approve of a dissolution or
liquidation of the Corporation, in the event of
any corporate separation or division, including,
but not limited to, split-up, split-off or
spin-off, or in the event of a merger or
consolidation of the Corporation with another
corporation, the Committee may provide that the
holder of each Option then exercisable shall have
the right to exercise such Option (at its then
Option Price) solely for the kind and amount of
shares of stock and other securities, property,
cash or any combination thereof receivable upon
such dissolution, liquidation, or corporate
separation or division, or merger or consolidation
by a holder of the number of shares of Common
Stock for which such Option might have been
exercised immediately prior to such dissolution,
liquidation, or corporate separation or division,
or merger or consolidation; or the Committee may
provide, in the alternative, that each Option
granted under the Plan shall terminate as of a
date to be fixed by the Committee; provided,
however, that not less than thirty (30) days'
written notice of the date so fixed shall be given
to each Optionee, who shall have the right, during
the period of thirty (30) days preceding such
termination, to exercise the Options (unless
earlier terminated in accordance with their terms)
as to all or any part of the shares of Common
Stock covered thereby, including shares as to
which such Options would not otherwise be
exercisable; provided, further, that failure to
provide such notice shall not invalidate or affect
the action with respect to which such notice was
required.
(3) If while unexercised Options remain outstanding
under the Plan;
(i) any corporation, person or other entity (other
than the Corporation, a Subsidiary Corporation or
a Parent Corporation) makes a tender or exchange
offer for shares of the Common Stock pursuant to
which purchases are made ("Offer"), excluding any
tender or exchange offer that would result in the
voting securities of the Corporation outstanding
immediately prior thereto continuing to represent
(either by remaining outstanding or by being
converted into voting securities of the surviving
entity or any parent thereof) at least 60% of the
combined voting power of the securities of the
Corporation or such surviving entity or any parent
thereof outstanding immediately after such
transaction; or
(ii) there is consummated a merger or
consolidation of the Corporation with or into
another corporation or a sale or other disposition
of all or substantially all of its assets, or
adoption of a plan of liquidation, excluding (x)
any merger, consolidation, sale or other
disposition that would result in the voting
securities of the Corporation outstanding
immediately prior to such merger or consolidation
continuing to represent (either by remaining
outstanding or by being converted into voting
securities of the surviving entity or any parent
thereof) at least 60% of the combined voting power
of the securities of the corporation or such
surviving entity or any parent thereof outstanding
immediately after such transaction and (y) any
transactions contemplated by the Exchange
Agreement, dated December 14, 2001, by and among
CoreComm Limited, the Corporation, and certain
security holders (the "Exchange Agreement"); or
(iii) the "beneficial ownership" (as defined in
Rule 13d-3 under the Exchange Act) of securities
representing more than 20% of the combined voting
power of the Corporation is acquired by any
"person" as defined in Sections 13(d) and 14(d) of
the Exchange Act, excluding (x) securities
acquired directly from the Corporation and (y) any
securities acquired by any "person" pursuant to or
in accordance with the provisions of the Exchange
Agreement;
(iv) during any consecutive 24 month period, a
change in the composition of the Board occurs such
that the "Continuity Directors" cease for any
reason to constitute at least a two-thirds
majority of the Board (for purposes of this
clause, "Continuity Directors" means those members
of the Board who either (x) were directors at the
beginning of such consecutive 24 month period, or
(y) were elected by, or on the nomination or
recommendation of, at least a two-thirds majority
of the then-existing Board of Directors), then
from and after the date of the first purchase of
Common Stock pursuant to such Offer, or the date
of any such stockholder approval or adoption, or
the date of consummation of the acquisition of
such percentage shall have been made, or the date
on which the change in the composition of the
Board set forth above shall have occurred,
whichever is applicable (the applicable date being
referred to hereinafter as the "Acceleration
Date"), all Options shall be exercisable in full,
whether or not otherwise exercisable. Following
the Acceleration Date, the Committee shall, in the
case of a merger, consolidation or sale or
disposition of assets, promptly make an
appropriate adjustment to the number and class of
shares of Common Stock available for Options, and
to the amount and kind of shares or other
securities or property receivable upon exercise of
any outstanding Options after the effective date
of such transaction, and the price thereof.
(4) (i) Paragraphs (2) and (3) of this
Section 8(j) shall not apply to a
merger or consolidation in which the
Corporation is the surviving
corporation and shares of Common Stock
are not converted into or exchanged for
stock, securities of any other
corporation, cash or any other thing of
value.
(ii) The determination of the applicability of
this Section 8(j)(4) shall be made in the sole and
complete discretion of the Committee.
Notwithstanding the preceding sentence, in case of
any consolidation or merger of another corporation
into the Corporation in which the Corporation is
the surviving corporation and in which there is a
reclassification or change (including a change to
the right to receive cash or other property) of
the shares of Common Stock (other than a change in
par value, or from par value to no par value, or
as a result of a subdivision or combination, but
including any change in such shares into two or
more classes or series of shares), the Committee
may provide that the holder of each Option then
exercisable shall have the right to exercise such
Option solely for the kind and amount of shares of
stock and other securities (including those of any
new direct or indirect receivable upon such
reclassification, change, consolidation or merger
by the holder of the number of shares of Common
Stock for which such Option might have been
exercised).
(5) In the event of a change in the Common
Stock as presently constituted, which
is limited to a change of all of its
authorized shares with par value into
the same number of shares with a
different par value or without par
value, the shares resulting from any
such change shall be deemed to be the
Common Stock within the meaning of the
Plan.
(6) To the extent that the foregoing
adjustments relate to stock or
securities of the Corporation, such
adjustments shall be made by the
Committee, whose determination in that
respect shall be final, binding and
conclusive, provided that each
Incentive Stock Option granted pursuant
to this Plan shall not be adjusted in a
manner that causes an Option which is
intended to be an Incentive Stock
Option to fail to continue to qualify
as an Incentive Stock Option.
(7) Except as hereinbefore expressly
provided in this Section 8(j), the
Optionee shall have no rights by reason
of any subdivision or consolidation of
shares of stock of any class or the
payment of any stock dividend or any
other increase or decrease in the
number of shares of stock of any class
or by reason of any dissolution,
liquidation, merger, or consolidation
or spin-off of assets or stock of
another corporation; and any issue by
the Corporation of shares of stock of
any class, or securities convertible
into shares of stock of any class,
shall not affect, and no adjustment by
reason thereof shall be made with
respect to, the number or price of
shares of Common Stock subject to the
Option. The grant of an Option pursuant
to the Plan shall not affect in any way
the right or power of the Corporation
to make adjustments, reclassifications,
reorganizations or changes of its
capital or business structures or to
merge or to consolidate or to dissolve,
liquidate or sell, or transfer all or
part of its business or assets.
(k) RIGHTS AS A STOCKHOLDER. An Optionee or a transferee of
an Option shall have no rights as a stockholder with
respect to any shares covered by the Option until the
date of the issuance of a stock certificate to him for
such shares. No adjustment shall be made for dividends
(ordinary or extraordinary, whether in cash, securities
or other property) or distribution of other rights for
which the record date is prior to the date such stock
certificate is issued, except as provided in Section 8(j)
hereof.
(l) OTHER PROVISIONS. The Option Notices authorized under the
Plan shall contain such other provisions, including,
without limitation, (i) the imposition of restrictions
upon the exercise of an Option, and (ii) in the case of
an Incentive Stock Option, the inclusion of any condition
not inconsistent with such Option qualifying as an
Incentive Stock Option, as the Committee shall deem
advisable.
Without limiting the generality of the foregoing, the Committee
shall have the power to grant options with renewable features as hereinafter
described. To the extent an Option with a renewable feature (an "Original
Option") subsequently is exercised (including exercise through delivery of
(X) previously acquired shares of Common Stock, (Y) cash, or (Z) shares
acquired through the exercise of such Original Option), the Optionee
automatically will be granted at the time of such exercise, a new Option (the
"Renewed Option") to purchase the number of shares of Common Stock so
delivered, provided, however, that no such Renewed Option shall be granted
if, at the time of exercise of the Original Option, insufficient shares are
available under the Plan to cover the grant of the Renewed Option. Each
Renewed Option will be exercisable upon substantially the same terms and
conditions as the Original Option to which it relates, except that (A) the
per share exercise price of the Renewed Option shall be 100% of the Fair
Market Value of the Common Stock on the date of exercise of the Original
Option, and (B) the Renewed Option shall not itself have renewable features.
Notwithstanding the foregoing, the Committee shall have full authority to
alter the terms of any Renewed Option at the time of exercise of the Original
Option to which it relates.
9. AGREEMENT BY OPTIONEE REGARDING WITHHOLDING TAXES.
If the Committee shall so require, as a condition of exercise, each
Optionee shall agree that;
(a) no later than the date of exercise of any Option granted
hereunder, the Optionee will pay to the Corporation or
make arrangements satisfactory to the Committee regarding
payment of any federal, state or local taxes of any kind
required by law to be withheld upon the exercise of such
Option, and (b) the Corporation shall, to the extent
permitted or required by law, have the right to deduct
federal, state and local taxes of any kind required by
law to be withheld upon the exercise of such Option from
any payment of any kind otherwise due to the Optionee.
10. TERM OF PLAN.
Options may be granted pursuant to the Plan from time to time within
a period of ten (10) years from the date the Plan is adopted by the Board.
11. AMENDMENT AND TERMINATION OF THE PLAN.
The Board at any time and from time to time may suspend, terminate,
modify or amend the Plan; provided, however, that no amendment that requires
stockholder approval under applicable law, under the rules or regulations of
any securities exchange or regulatory agency, or in order for the Plan to
continue to comply with Rule 16b-3 or, if applicable, to comply with the
exception for qualified performance-based compensation under Code Section
162(m), or in order for Options intended to constitute Incentive Stock
Options to satisfy the requirements of Section 422 of the Code shall be
effective unless the same shall be approved by the requisite vote of the
stockholders of the Corporation. Except as provided in Section 8 hereof, no
suspension, termination, modification or amendment of the Plan may adversely
affect any Option previously granted, unless the written consent of the
Optionee or, as applicable, a transferee, is obtained.
12. INTERPRETATION.
The Plan is designed and intended to comply with Rule 16b-3 and, to
the extent applicable, Sections 162(m) and 422 of the Code, and all
provisions hereof shall be construed in a manner to so comply.
13. EFFECT OF HEADINGS.
The section and subsection headings contained herein are for
convenience only and shall not affect the construction hereof.
14. GOVERNING LAW.
The Plan shall be governed by the laws of the State of Delaware.
15. EFFECTIVE DATE OF PLAN.
The effective date of the Plan is the date the Plan is adopted by
the Board.
EXHIBIT 10.2
EXECUTION COPY
EXCHANGE AGREEMENT
This Exchange Agreement (this "Agreement"), is entered into as of
December 14, 2001, by and between CoreComm Limited, a Delaware corporation
("Limited") and CoreComm Holdco, Inc., a Delaware corporation and currently a
subsidiary of Limited ("Holdco" which shall be deemed to include any
successor to Holdco by way of merger, consolidation, combination, sale of
assets or otherwise).
WHEREAS, as part of a restructuring plan (the "Restructuring Plan"),
holders of convertible preferred stock of Limited, holders of debt securities
of Limited and certain holders of debt securities which are joint obligations
of Limited and Holdco (collectively, "Security Holders") entered into an
Exchange Agreement, dated as of December 14, 2001 (the "Exchange Agreement")
with Limited and Holdco whereby the Security Holders agreed to exchange all
of such preferred stock and debt securities held by them for shares of common
stock, par value $0.01 per share, of Holdco (the "Holdco Common Stock")
pursuant to and subject to the terms and conditions therein contained;
WHEREAS, after the Closing (as defined in Section 2(b) of the
Exchange Agreement), Limited and Holdco intend for Holdco to commence an
exchange offer as part of the Restructuring Plan, whereby Holdco will offer
to exchange shares of Holdco Common Stock for outstanding 6% Convertible
Notes (as defined in Section 1), and Limited Common Stock (as defined in
Section 1) consistent with the Holdco Pro Forma Capitalization (as defined in
Section 4(b) of the Exchange Agreement) (the "Exchange Offer"); and
WHEREAS, as part of the Recapitalization, Holdco will become the
holder of certain indebtedness and preferred stock of Limited.
NOW THEREFORE BE IT RESOLVED, that in consideration of the foregoing
premises and in consideration of the mutual agreements and covenants herein
contained, the adequacy of which is hereby acknowledged, and intending to be
legally bound hereby, the parties hereby agree as follows:
Section 1. Definitions. For the purposes of this Agreement, the
following terms shall have the following respective meanings:
(a) "Booth Notes" shall mean the 10.75% Unsecured
Convertible PIK Notes Due 2011, which are a joint obligation of Limited and
Holdco, in the initial principal amount of $10,000,000, together with any
interest paid thereon in additional principal amount of 10.75% Unsecured
Convertible PIK Notes Due 2011, which are a joint obligation of Limited and
Holdco.
(b) "Credit Agreement" shall mean the Credit Agreement,
dated as of September 28, 2000, as amended and restated as of April 11,
2001, as further amended on December 14, 2001, by and among CoreComm
Communications, Inc., Limited, Holdco, the lenders party thereto, The Chase
Manhattan Bank, as Administrative Agent and Collateral Agent and Chase
Securities, Inc., as Book Manager and Lead Arranger.
(c) "Governmental Authority" shall mean any public body,
governmental, quasi-governmental, legislative, administrative or regulatory
authority (including any self regulatory organization), agency, committee,
panel, instrumentality or commission, including courts of competent
jurisdiction and arbitral tribunals, whether federal, state, local or
foreign.
(d) "Limited Common Stock" shall mean the common stock,
par value $0.01 per share, of Limited.
(e) "Management Notes" shall mean the 10.75% Senior
Unsecured Convertible PIK Notes Due 2010, which are a joint obligation of
Limited and Holdco, in the initial principal amount of $16,100,000,
together with any interest paid thereon in additional principal amount of
10.75% Senior Unsecured Convertible PIK Notes Due 2010, which are a joint
obligation of Limited and Holdco.
(f) "Note Purchase Agreement" shall mean the Note
Purchase Agreement, dated as of September 29, 2000, by and among Limited,
Thomas Gravina, Debra Buruchian, Michael Karp and The Florence Karp Trust.
(g) "Person" means any individual, partnership,
association, joint venture, corporation, business, trust, joint stock
company, limited liability company, any unincorporated organization, any
other entity, a "group" of such persons, as that term is defined in Rule
13d-5(b) under the Exchange Act or a Governmental Authority.
(h) "PIK Notes" shall mean the Management Notes and the
Booth Notes.
(i) "Preferred Stock" shall mean the Series A Preferred
Stock and the Series B Convertible Exchangeable Preferred Stock, par value
$0.01 per share, of Limited.
(j) "Senior Notes" shall mean the Senior Unsecured Notes
due September 29, 2003 of Limited.
(k) "Series A Preferred Stock" shall mean the following
preferred stock, par value $0.01 per share, of Limited: the 8.5% Senior
Convertible Preferred Stock, Series A, and the 8.5% Senior Convertible
Preferred Stock, Series A-1.
(l) "6% Convertible Notes" shall mean that amount of
Limited's 6% Convertible Subordinated Notes.
Section 2. Exchange of Shares for Waiver.
(a) Surrender of Shares. Limited hereby agrees that, from
time to time, as requested by Holdco pursuant to a written notice (a
"Surrender Notice"), Limited will deliver to Holdco shares of Holdco Common
Stock held by Limited in such number as requested by Holdco (the
"Surrendered Shares"). Delivery of such shares shall be made as soon as
practicable following the issuance of the Surrender Notice. Upon receipt of
a Surrender Notice, Limited shall automatically, regardless of physical
delivery, be deemed to have no ownership or voting rights in the shares to
be delivered pursuant to such Surrender Notice. Delivery of the Surrendered
Shares will be to the address specified for Holdco below.
(b) Waiver of Rights. As of the date that Holdco acquires
such securities, Holdco agrees that:
(i) Holdco shall waive any and all rights it may
have to interest payments pursuant to the PIK Notes, the 6%
Convertible Notes and the Senior Notes;
(ii) The Maturity Date (as defined in the Booth
Notes) shall be amended to be April 12, 2031, the maturity date of
each of the Management Notes shall be amended to be December 16,
2030 and the Maturity Date (as defined in the Senior Notes) shall
be amended to be September 29, 2023;
(iii) Holdco shall waive the right to convert
(A) the Management Notes into shares of Limited Common Stock or
shares of common stock of Fiberco (as defined in the Management
Notes), and (B) the Booth Notes into shares of Limited Common
Stock;
(iv) The following sections of the Senior Notes
shall be deleted in their entirety: Section 2(b) (Scheduled
Prepayments), Section 2(c) (Mandatory Prepayments), and Section 3
(Liens);
(v) The following provisions of the Note
Purchase Agreement shall be deleted in their entirety: Section 6.1
(Accounting), Section 6.2 (Financial Statements and Other
Information), Section 6.3 (Inspection Rights), Section 7.1
(Insurance), Section 7.2 (Payment of Taxes), Section 7.3
(Compliance with Laws), Section 7.4 (Corporate Existence), Section
8.1 (Indebtedness Incurred), Section 8.2 (Refinancing), Section
8.3 (Liens), Section 8.4 (Liquidation, Dissolution, etc.), Section
8.5 (Covenants Restricting Payment), Section 8.6 (Transactions
with Affiliates; Fees), and Article IX (Events of Default); and
(vi) Any and all of the following rights with
respect to the Preferred Stock shall be waived: (A) rights to
receive dividends; (B) mandatory redemption rights; (C) conversion
rights; and (D) governance rights.
It is expressly understood between the parties that the foregoing waiver of
rights in this Section 2(b) shall be subject to equitable adjustment in the
event that the transactions contemplated by the Exchange Agreement, including
but not limited to, the registered public exchange offer by Holdco to the
stockholders of Limited, and by Holdco to the holders of 6% Convertible
Notes, are not consummated as contemplated, or are in any way challenged,
reversed, subject to litigation or otherwise compromised in any manner.
Holdco shall determine if, and when, such an adjustment is necessary.
Section 3. Limited Representations and Warranties. Limited
represents and warrants to Holdco that:
(a) Title to Shares of Holdco Common Stock. As of the
date of this Agreement, Limited is the record and beneficial owner of, and
has good, valid and legal title, free and clear of all Liens (except for
those arising out of the Credit Agreement), to 1,500 shares of Holdco
Common Stock and is not the record or beneficial owner of any other shares
of Holdco Common Stock.
(b) Authority. Limited has the corporate power and
corporate authority to enter into this Agreement and consummate the
transactions contemplated by this Agreement by it in accordance with the
terms and conditions herein contained.
(c) Due Authorization. This Agreement has been duly
authorized, executed and delivered by Limited and is a valid and binding
obligation of Limited enforceable in accordance with the terms set forth
herein, subject, as to enforcement, to applicable bankruptcy, insolvency,
fraudulent transfer, preferences, moratorium and similar laws affecting the
rights of creditors generally and by general principles of equity
(regardless of whether enforcement is sought in equity or at law).
(d) No other Representations and Warranties.
Notwithstanding anything in this Agreement to the contrary, except for the
representations and warranties contained in this Section 3, Limited, nor
any other Person acting for or on behalf of Limited, makes any
representation or warranty, whether express or implied.
Section 4. Holdco Representations and Warranties(A) . Holdco
represents and warrants to Limited that:
(a) Authority. Holdco has the corporate power and
corporate authority to enter into this Agreement and consummate the
transactions contemplated by this Agreement by it in accordance with the
terms and conditions herein contained.
(b) Due Authorization. This Agreement has been duly
authorized, executed and delivered by Holdco and is a valid and binding
obligation of Holdco enforceable in accordance with the terms set forth
herein, subject, as to enforcement, to applicable bankruptcy, insolvency,
fraudulent transfer, preferences, moratorium and similar laws affecting the
rights of creditors generally and by general principles of equity
(regardless of whether enforcement is sought in equity or at law).
(c) No Other Representations or Warranties.
Notwithstanding anything in this Agreement to the contrary, except for the
representations and warranties contained in this Section 4, neither Holdco,
nor any other Person acting for or on behalf Holdco, makes any
representation or warranty, whether express or implied.
Section 5. Miscellaneous.
(a) Notices. All notices, requests, consents and other
communications hereunder shall be in writing, shall be addressed to the
receiving party's address set forth below or to such other address as a
party may designate by written notice hereunder, and shall be either (i)
delivered by hand, (ii) made by telex, telecopy or facsimile transmission,
(iii) sent by recognized overnight courier or (iv) sent by registered or
certified mail, return receipt requested, postage prepaid.
If to Limited, to:
CoreComm Limited
110 East 59th Street, 26th Floor
New York, NY 10022
Facsimile: (212) 752-1157
Attention: General Counsel
If to Holdco, to:
CoreComm Holdco, Inc.
c/o CoreComm Limited
110 East 59th Street, 26th Floor
New York, NY 10022
Facsimile: (212) 752-1157
Attention: General Counsel
in each case, with a copy to:
Skadden, Arps, Slate, Meagher & Flom LLP
Four Times Square
New York, NY 10036-6522
Facsimile: (917) 777-2526
Attention: Thomas H. Kennedy, Esq.
All notices, requests, consents and other communications hereunder shall be
deemed to have been received (i) if by hand, at the time of the delivery
thereof to the receiving party at the address of such party set forth above,
(ii) if made by telex, telecopy or facsimile transmission, at the time that
receipt thereof has been acknowledged by electronic confirmation or
otherwise, (iii) if sent by overnight courier, on the next business day
following the day such written notice is delivered to the courier service or
(iv) if sent by registered or certified mail, return receipt requested,
postage prepaid, on the third business day following the day such mailing is
made.
(b) Governing Law. This Agreement shall be governed under
the laws of the State of New York, without regard to principles of
conflicts of laws thereof. THE PARTIES HERETO SUBMIT TO THE EXCLUSIVE
JURISDICTION OF ANY STATE OR FEDERAL COURT LOCATED IN NEW YORK, NEW YORK
AND WAIVE ANY RIGHT TO A TRIAL BY JURY IN CONNECTION WITH ANY ACTION OR
PROCEEDING RELATING HERETO.
(c) Counterparts. This Agreement may be executed and
delivered (including by facsimile transmission) in one or more
counterparts, and by the different parties hereto in separate counterparts,
each of which when executed shall be deemed to be an original, but all of
which taken together shall constitute one and the same agreement.
(d) Entire Agreement. This Agreement constitutes the
entire agreement of the parties hereto with respect to the subject matter
of this Agreement and supersedes all prior agreements and undertakings,
both written and oral, between the parties hereto with respect to the
subject matter of this Agreement.
(e) Remedies. The parties hereto agree that irreparable
damage would occur in the event any covenant, item or matter was not
performed in accordance with, and subject to, the terms of this Agreement,
and that the parties shall be entitled to specific performance in respect
thereof, in addition to any other remedy at law or equity.
(f) Amendment; Assignment; Waiver. This Agreement may not
be amended, modified or assigned, or any provision herein contained waived,
except by an instrument in writing signed by the party to be charged. This
Agreement shall be binding on the permitted successors and assigns of this
Agreement.
(g) Expenses. Each of the parties hereto is responsible
for all of its own costs and expenses arising out of the negotiation and/or
entering into of this Agreement and consummation of the transactions
contemplated by this Agreement.
(h) Severability. In the event that any court of
competent jurisdiction shall finally determine that any provision, or any
portion thereof, contained in this Agreement shall be void or unenforceable
in any respect, then such provision shall be deemed limited to the extent
that such court determines it enforceable, and as so limited shall remain
in full force and effect. In the event that such court shall determine any
such provision, or portion thereof, wholly unenforceable, the remaining
provisions of this Agreement shall nevertheless remain in full force and
effect.
(i) Interpretation. The parties hereto acknowledge and
agree that: (a) each party reviewed and negotiated the terms and provisions
of this Agreement and have contributed to its revision; (b) the rule of
construction to the effect that any ambiguities are resolved against the
drafting party shall not be employed in the interpretation and enforcement
of this Agreement; and (c) the terms and provisions of this Agreement shall
be construed fairly as to all parties hereto and not in favor of or against
any party, regardless of which party was generally responsible for the
preparation of this Agreement.
(j) Headings and Captions. The headings and captions of
the various subdivisions of this Agreement are for convenience of reference
only and shall in no way modify, or affect, or be considered in construing
or interpreting the meaning or construction of any of the terms or
provisions of this Agreement.
(k) No Third Party Beneficiaries. Nothing herein
expressed or implied is intended or should be construed to confer upon or
give to any Person other than the parties hereto and their permitted
successors and assigns any rights or remedies under or by reason of this
Agreement.
(l) Further Assurances. Each party shall do and perform
or cause to be done and performed, all such further acts and things (or
refrain from doing acts and things), and shall prepare, execute and deliver
all such other agreements, certificates, instruments and documents, in each
case without further remuneration or expense, as the other party may
reasonably request in order to carry out the intent and accomplish the
purposes of this Agreement and the consummation of the transactions
contemplated hereby.
(The balance of this page is intentionally left blank.)
IN WITNESS WHEREOF, each of the undersigned parties has caused this
Agreement to be duly executed and delivered on behalf of such party with
effect from the date first set forth above.
CORECOMM LIMITED
By: /s/ RICHARD J. LUBASCH
-------------------------------------------
Name: Richard J. Lubasch
Title: Executive Vice President, General
Counsel and Secretary
CORECOMM HOLDCO, INC.
By: /s/ RICHARD J. LUBASCH
-------------------------------------------
Name: Richard J. Lubasch
Title: Executive Vice President, General
Counsel and Secretary
EXHIBIT 10.4
FIRST AMENDMENT AND WAIVER dated as of October 31,
2001 (this "Amendment"), to the Credit Agreement
dated as of September 28, 2000, as amended and
restated as of April 11, 2001 (the "Credit
Agreement"), among CoreComm Limited (the
"Parent"), CoreComm Holdco, Inc. ("CCI"), CoreComm
Communications, Inc. (the "Borrower"), the lenders
party thereto, and The Chase Manhattan Bank, as
administrative agent and collateral agent.
WHEREAS, the Parent, CCI and the Borrower have requested
that the Required Lenders (such term and each other capitalized term used but
not otherwise defined herein having the meaning assigned to such terms in the
Credit Agreement) approve amendments to certain provisions of the Credit
Agreement and waive certain provisions thereof; and
WHEREAS, the undersigned Required Lenders are willing, on
the terms and subject to the conditions set forth herein, to approve such
amendments and waivers to the Credit Agreement.
NOW, THEREFORE, in consideration of these premises, the
parties hereto hereby agree as follows:
1. Amendments. (a) Section 1.01 of the Credit Agreement
is hereby amended by inserting the following definition immediately prior
to the definition of "Secured Debt":
"Scheduled Indebtedness" means Indebtedness of the Parent or any
Restricted Subsidiary identified and agreed to in writing by the
Agent and the Borrower from time to time, such Indebtedness to be
Scheduled Indebtedness to the extent indicated in any such writing.
(b) The definition of "Material Indebtedness" in Section
1.01 of the Credit Agreement is hereby amended by replacing the first
sentence of the definition thereof with the following:
"Material Indebtedness" means Indebtedness (other than the Loans and
Letters of Credit, and other than any Scheduled Indebtedness), or
obligations in respect of one or more Hedging Agreements, of any one
or more of the Parent, the Borrower and the other Restricted
Subsidiaries in an aggregate principal amount exceeding $5,000,000.
2. Limited Waiver. (a) The Required Lenders hereby
expressly waive any Default or Event of Default arising from any breach by
the Loan Parties of, or failure by the Loan Parties to comply with, Section
7(f) or 7(g) of the Credit Agreement, solely to the extent such Default or
Event of Default occurs in connection with the failure to make any payment of
interest in respect of the Convertible Notes. The waiver set forth in this
paragraph shall expire on the earlier of (i) 5:00 p.m., New York time,
December 15, 2001, and (ii) such time as any holder of any Convertible Note
or the Trustee, as defined in the Indenture dated as of October 6, 1999 (the
"Indenture"), between the Parent and HSBC Bank USA, as successor trustee,
exercise any remedies under the terms of the Indenture in respect of any
Event of Default (as defined therein).
(b) As a condition precedent to the effectiveness of the
waiver set forth in this Section 2, the Parent shall have caused the holders
of the Convertible Notes to have entered into agreements with the Parent, the
result of which shall prevent any holder of Convertible Notes from exercising
any remedies available to it under the terms of the Indenture or the
Convertible Notes, other than an individual holder's right to sue for damages
for breach of contract, or other common law remedy, until December 15, 2001,
in connection with the failure of the Parent to make any payment of interest
on the Convertible Notes.
3. No Other Amendments or Waivers; Confirmation. Except as
expressly amended or waived hereby, the provisions of the Credit Agreement
are and shall remain in full force and effect. Nothing herein shall be deemed
to entitle any Loan Party to a consent to, or a waiver, amendment,
modification or other change of, any of the terms, conditions, obligations,
covenants or agreements contained in the Credit Agreement or any other Loan
Document in similar or different circumstances.
4. Representations and Warranties. The Parent and the
Borrower each hereby represent and warrant to the Agent and the Lenders
that, as of the date hereof:
(a) No Default or Event of Default has occurred and is
continuing; and
(b) All representations and warranties of each Loan Party
set forth in the Loan Documents are true and correct in all material
respects except to the extent that any representation or warranty
expressly relates to an earlier date (in which case such
representation or warranty shall be correct as of such earlier
date).
5. Conditions Precedent to Effectiveness. This Amendment
shall become effective on the date on which each of the following
conditions is satisfied (the "Effective Date"):
(a) The Agent shall have received counterparts hereof
duly executed and delivered by the Parent, CCI, the Borrower and
the Required Lenders; and
(b) The Agent shall have received all fees and other
amounts due and payable on or prior to the Effective Date, including
reimbursement or payment of all out-of-pocket expenses (including
fees, charges and disbursements of counsel) required to be
reimbursed or paid by any Loan Party hereunder or under any Loan
Document.
6. Expenses. The Borrower agrees to reimburse the Agent
for its out-of-pocket expenses in connection with this Amendment, including
the fees, charges and disbursements of Cravath, Swaine & Moore, counsel for
the Agent.
7. Governing Law; Counterparts. (a) This Amendment and
the rights and obligations of the parties hereto shall be governed by, and
construed and interpreted in accordance with, the laws of the State of New
York.
(b) This Amendment may be executed by one or more of the
parties to this Amendment on any number of separate counterparts, and all of
said counterparts taken together shall be deemed to constitute one and the
same instrument. This Amendment may be delivered by facsimile transmission of
the relevant signature pages hereof.
IN WITNESS WHEREOF, the Parent, CCI, the Borrower and the
undersigned Required Lenders have caused this Amendment to be duly executed
by their duly authorized officers, all as of the date first above written.
CORECOMM LIMITED
By: /s/ MICHAEL PETERSON
-----------------------------------
Name: Michael Peterson
Title: V.P. Corp. Development
CORECOMM HOLDCO, INC.
By: /s/ MICHAEL PETERSON
-----------------------------------
Name: Michael Peterson
Title: V.P. Corp. Development
CORECOMM COMMUNICATIONS, INC.
By: /s/ MICHAEL PETERSON
-----------------------------------
Name: Michael Peterson
Title: V.P. Corp. Development
THE CHASE MANHATTAN BANK,
Individually and as Agent
By: /s/ MARY ELLEN EGBERT
------------------------------------
Name: Mary Ellen Egbert
Title: Managing Director
AMERICA ONLINE, INC.
By:
------------------------------------
Name:
Title:
GOLDMAN SACHS CREDIT PARTNERS L.P.
By:
------------------------------------
Name:
Title:
MORGAN STANLEY SENIOR FUNDING INC.
By:
------------------------------------
Name:
Title:
EXHIBIT 10.5
EXECUTION COPY
SECOND AMENDMENT dated as of December 14, 2001
(this "Amendment"), to the Credit Agreement dated
as of September 28, 2000, as amended and restated
as of April 11, 2001, and amended by the First
Amendment dated as of October 31, 2001 (the
"Credit Agreement"), among CoreComm Limited (the
"Parent"), CoreComm Holdco, Inc. ("CCI"), CoreComm
Communications, Inc. (the "Borrower"), the lenders
party thereto, and JPMorgan Chase Bank, as
administrative agent and collateral agent (in such
capacity, the "Agent").
WHEREAS, the Parent, CCI and the Borrower desire to
exchange outstanding debt of CCI and outstanding debt and preferred stock of
the Parent with common stock of CCI;
WHEREAS, the Parent, CCI and the Borrower have requested
that the Required Lenders (such term and each other capitalized term used but
not otherwise defined herein having the meaning assigned to such term in the
Credit Agreement) approve amendments to certain provisions of the Credit
Agreement to allow the exchange; and
WHEREAS, the undersigned Required Lenders are willing, on
the terms and subject to the conditions set forth herein, to approve such
amendments to the Credit Agreement to allow the exchange.
NOW, THEREFORE, in consideration of these premises, the
parties hereto hereby agree as follows:
1. Amendments to the Credit Agreement. (a) Section 1.01 of
the Credit Agreement is hereby amended by inserting the following definitions
in their proper alphabetical order in Section 1.01, each such definition to
replace the existing definition in its entirety in Section 1.01 where such
definitions exist:
"Change of Control" means (a) the
acquisition of ownership, directly or indirectly,
beneficially or of record, by any Person other than CCI of
any Equity Interest in the Borrower; (b) the acquisition of
ownership, directly or indirectly, beneficially or of
record, by any Person or group (within the meaning of the
Securities Exchange Act of 1934 and the rules of the
Securities and Exchange Commission thereunder as in effect
on the date hereof) of Equity Interests representing more
than 35% of the aggregate ordinary voting power represented
by the issued and outstanding Equity Interests in the
Parent or CCI (it being understood that the Permitted Debt
Exchange and the transactions related thereto shall not
constitute a Change of Control hereunder); (c) occupation
of a majority of the seats (other than vacant seats) on the
board of directors of the Parent by Persons who were
neither (i) nominated by the board of directors of the
Parent on the date hereof nor (ii) appointed by directors
so nominated; or (d) the occurrence of a "Change of
Control" or similar event (i) as defined in any indenture
or other agreement governing Long-Term Indebtedness of the
Parent or CCI which gives holders of such Indebtedness the
right (pursuant to a tender offer or otherwise) to have it
repurchased by the Parent or CCI or to declare such
Indebtedness due and payable or (ii) as described in the
agreement governing the commitment to provide the Senior
Unsecured Facility, until the commitment to provide such
facility has been terminated for a reason other than a
"Change of Control" or similar event.
"Consolidated Cash Interest Expense"
means, for any period, the excess of (a) the sum of (i) the
interest expense (including imputed interest expense in
respect of Capital Lease Obligations) of the Parent, the
Borrower and the other Restricted Subsidiaries for such
period, determined on a consolidated basis in accordance
with GAAP, (ii) any interest accrued during such period in
respect of Indebtedness (other than any Permitted Exchanged
Indebtedness) of the Parent, the Borrower or any other
Restricted Subsidiary that is required to be capitalized
rather than included in consolidated interest expense for
such period in accordance with GAAP, (iii) any cash
payments made during such period in respect of obligations
referred to in clause (b)(ii) below that were amortized or
accrued in a previous period, minus (b) the sum of (i) to
the extent included in such consolidated interest expense
for such period, non-cash amounts attributable to
amortization of financing costs paid in a previous period,
plus (ii) to the extent included in such consolidated
interest expense for such period, non-cash amounts
attributable to amortization of debt discounts or accrued
interest payable in kind for such period.
"Consolidated Fixed Charges" means, for
any period, the sum of (a) Consolidated Cash Interest
Expense for such period, (b) the aggregate amount of
scheduled principal payments made during such period in
respect of Long-Term Indebtedness (other than any Permitted
Exchanged Indebtedness), including Capital Lease
Obligations, of the Parent, the Borrower and the other
Restricted Subsidiaries, (c) the aggregate amount of rental
expense of the Parent, the Borrower and the other
Restricted Subsidiaries during such period in respect of
leases other than Capital Lease Obligations, (d) the
aggregate amount of Capital Expenditures during such period
and (e) the aggregate amount of Taxes paid in cash by the
Parent, the Borrower and the other Restricted Subsidiaries
during such period.
"Contributed Capital" means, at any date,
the sum (without duplication) of (a) $326,836,000, plus (b)
Equity Proceeds received by the Parent subsequent to June
30, 2000, or by CCI subsequent to December 14, 2001, plus
(c) the amount of Conversion Proceeds received by the
Parent after June 30, 2000, or by CCI subsequent to
December 14, 2001 in respect of convertible securities that
were not included in the combined stockholders equity of
the Parent, the Borrower and the other Restricted
Subsidiaries as of June 30, 2000, plus (d) the undrawn
commitments under the Senior Unsecured Facility on such
date which have neither expired or been terminated, plus
(e) the amount of Exchanged Indebtedness exchanged for
Capital Stock of CCI as part of any Permitted Debt Exchange
that is not otherwise included in (a) through (c) above.
"Conversion Proceeds" means an amount
deemed for purposes hereof to have been received by the
Parent at the time of conversion of any convertible debt
securities (other than New Convertible Notes) or preferred
stock (other than Non-Cash Pay Preferred Stock) of the
Parent or CCI into common stock or Non-Cash Pay Preferred
Stock of the Parent or CCI equal to the principal amount
(or Imputed Principal Amount, as applicable) of such debt
securities or preferred stock so converted.
"Exchanged Indebtedness" means Parent
Convertible Notes, ATX Notes, New Convertible Notes,
outstanding New Preferred Stock and outstanding Non-Cash
Pay Preferred Stock.
"Equity Proceeds" means the cash Net
Proceeds received by the Parent or CCI from the issuance
and sale of common stock of the Parent or CCI or Non-Cash
Pay Preferred Stock of the Parent or CCI.
"Material Indebtedness" means
Indebtedness (other than the Loans and Letters of Credit
and other than any Permitted Exchanged Indebtedness), or
obligations in respect of one or more Hedging Agreements,
of any one or more of the Parent, the Borrower and the
other Restricted Subsidiaries in an aggregate principal
amount exceeding $5,000,000. For purposes of determining
Material Indebtedness, the "principal amount" of the
obligations of the Parent, the Borrower or any other
Restricted Subsidiary in respect of any Hedging Agreement
at any time shall be the maximum aggregate amount (giving
effect to any netting agreements) that the Parent, the
Borrower or such other Restricted Subsidiary would be
required to pay if such Hedging Agreement were terminated
at such time (or is required to pay, if such Hedging
Agreement has been terminated).
"Permitted Debt Exchange" means any
transaction entered into whereby Exchanged Indebtedness is
exchanged solely for Capital Stock of CCI and contributed
to CCI in connection with such exchange.
"Permitted Exchanged Indebtedness" means
any Exchanged Indebtedness that is exchanged pursuant to a
Permitted Debt Exchange, the obligations of which are
either (a) indefeasibly satisfied in full concurrent with
such exchange or (b) owed solely by the Parent (and no
Guarantees of any Person exist in respect thereof) and held
solely by CCI.
"Total Debt" means, on any date, the sum
of (a) all Indebtedness (other than Indebtedness under the
Senior Unsecured Facility and the New Convertible Notes and
other than any Permitted Exchanged Indebtedness) of the
Parent, the Borrower and the other Restricted Subsidiaries
that would be reflected as a liability on a consolidated
balance sheet of the Parent, the Borrower and the other
Restricted Subsidiaries prepared as of such date in
accordance with GAAP plus (b) the Imputed Principal Amount
of any New Preferred Stock outstanding on such date.
(b) Section 3.12(a) of the Credit Agreement is
hereby replaced in its entirety with the following:
"SECTION 3.12. Certain Assets; Subsidiaries. (a) The Parent
has no assets other than its Equity Interest in CCI,
Fiberstream, CoreComm Billing, Inc. ("Billing"), and
CoreComm Wireless Group, Inc. ("Wireless") and other than
cash not in excess of $200,000. CCI has no assets other
than its Equity Interest in the Borrower and, following any
Permitted Debt Exchange, any Permitted Exchanged
Indebtedness. Each Subsidiary of the Parent other than CCI,
the Borrower, Billing, Wireless and Fiberstream (and the
Subsidiaries of Fiberstream and Wireless existing on the
date hereof) is a Wholly Owned Subsidiary of the Borrower.
Schedule 3.12 sets forth the name of, and the ownership
interest of the Parent, CCI and the Borrower in each
Subsidiary of the Parent and identifies each Subsidiary
that is a Subsidiary Loan Party, in each case as of the
Restatement Effectiveness Date."
(c) Section 6.01(a) of the Credit Agreement is
hereby amended by (i) deleting the text occurring before the proviso of
clause (vi) and replacing such text with "Indebtedness incurred to
refinance Indebtedness permitted under clause (ii) of this Section 6.01(a)
(other than any Exchanged Indebtedness);", and (ii) deleting the first
reference to "other" in clause (viii).
(d) Section 6.05(a) of the Credit Agreement is
hereby amended by replacing the reference to "CCI" in clause (i) thereof
with "any Restricted Subsidiary".
(e) Section 6.06(e) of the Credit Agreement is
hereby replaced in its entirety with the following:
"(e) acquisitions of Exchanged Indebtedness in a Permitted Debt
Exchange;"
(f) Section 6.06 of the Credit Agreement is
further amended by replacing the period at the end of clause (1) thereof
with a semicolon and adding the following proviso at the end thereof:
"provided, however, that notwithstanding the foregoing
clauses (a) through (l), the Parent will not make or permit
to exist any Investments of the Parent in any other Person,
or purchase or otherwise acquire any assets of any other
Person, except for its Equity Interest in CCI, Fiberstream,
Billing and Wireless."
(g) Section 6.07 of the Credit Agreement is
hereby amended by (i) inserting in clause (b) thereof after the reference
to "Fiberstream" a reference to "or the Parent" and deleting the reference
to "or the Parent" at the end thereof, (ii) deleting the reference to "and"
at the end of subsection (d), (iii) deleting the period at the end of
subsection (e) and replacing it with the reference to "; and", (iv)
inserting the text "(f) the exchange of outstanding Capital Stock of CCI in
any Permitted Debt Exchange or in connection with any exchange offer
pursuant to which the holders of outstanding shares of the Capital Stock of
the Parent or any outstanding Parent Convertible Notes exchange their
shares or notes solely for the Capital Stock of CCI." as a new clause (f),
and (v) replacing the reference to "(b) and (d) above" with a reference to
"(b), (d) and (f) above" in the last proviso thereof.
(h) Section 6.09(a) of the Credit Agreement is
hereby amended by replacing clause (v) thereof in its entirety with the
following:
"(v) so long as no Default exists or would result
therefrom, the Borrower may pay cash dividends to CCI to
service its Indebtedness permitted hereunder and pay its
other liabilities incurred in the ordinary course of
business."
(i) Section 6.09(b) of the Credit Agreement is
hereby amended by (i) deleting the reference to "and" at the end of clause
(v), (ii) deleting the period at the end of clause (vi) and replacing it
with the phrase "; and", and (iii) inserting the following provision at the
end thereof:
"(vii) the exchange of any Permitted Exchanged Indebtedness
pursuant to a Permitted Debt Exchange."
(j) Section 6.09(e) of the Credit Agreement is
hereby amended by inserting the phase "or exchanged pursuant to a Permitted
Debt Exchange" immediately after the first reference to "prepaid".
(k) Section 6.10 of the Credit Agreement is
hereby amended by (i) deleting the reference to "the Parent," in clause (b)
thereof, (ii) deleting the reference to "and" at the end of clause (c), and
(iii) inserting the phrase "and (e) any Permitted Debt Exchange"
immediately preceding the period at the end thereof.
(l) Clause (p) of Article VII of the Credit
Agreement is hereby amended by (i) deleting clause (i) thereof and
replacing it with the following: "(i) voluntarily resigns or is terminated
and as a result ceases to be either Chairman of the Board or chief
executive officer of the Parent and the Borrower" and (ii) inserting the
phrase "Chairman of the Board or" prior to the phrase "chief executive
officer" in clause (ii) thereof.
2. Limited Waiver Extension. The limited waiver set forth
in Section 2 of the First Amendment and Waiver, dated October 31, 2001,
among the Parent, CCI, the Borrower, the Lenders and the Agent is hereby
extended and shall expire on the earlier of 5:00 p.m. New York time January
15, 2002, and such time as any holder of any Convertible Note or the
Trustee, as defined in the Indenture dated as of October 6, 1999 (the
"Indenture"), between the Parent and HSBC Bank USA, as successor trustee,
exercise any remedies under the terms of the Indenture in respect of any
Event of Default (as defined therein).
3. No Other Amendments or Waivers; Confirmation. Except
as expressly amended hereby, the provisions of the Credit Agreement and
each other Loan Document are and shall remain in full force and effect.
Nothing herein shall be deemed to entitle any Loan Party to a consent to,
or a waiver, amendment, modification or other change of, any of the terms,
conditions, obligations, covenants or agreements contained in the Credit
Agreement or any other Loan Document in similar or different circumstances.
4. Representations and Warranties. Each Loan Party hereby
represents and warrants to the Agent and the Lenders that, as of the date
hereof:
(a) No Default or Event of Default has occurred and is continuing;
(b) All representations and warranties of each Loan Party set forth
in the Loan Documents (including the provisions incorporated therein
by the effectiveness hereof) are true and correct in all material
respects except to the extent that any representation or warranty
expressly relates to an earlier date (in which case such
representation or warranty shall be correct as of such earlier
date); and
(c) The execution and delivery of this Amendment and the
effectiveness of the provisions hereof will not violate or result in
a default under any indenture, or any material agreement or other
material instrument binding upon the Parent, CCI, the Borrower or
any of their Subsidiaries or their assets, or give rise to a right
thereunder to require any payment to be made by the Parent, CCI, the
Borrower or any of their Subsidiaries, and will not result in the
creation or imposition of any Lien on any asset of the Parent, CCI,
the Borrower or any of the other Restricted Subsidiaries.
5. Conditions Precedent to Effectiveness. This Amendment
shall become effective on the date on which each of the following
conditions is satisfied (the "Effective Date"):
(a) The Agent shall have received counterparts hereof duly
executed and delivered by the Parent, CCI, the Borrower, the Agent
and the Required Lenders; and
(b) The Agent shall have received all amounts due hereunder
or under the Credit Agreement and payable on or prior to the
Effective Date, including reimbursement or payment of all
out-of-pocket expenses (including fees, charges and disbursements of
counsel) required to be reimbursed or paid by any Loan Party
hereunder or under any Loan Document.
6. Expenses. The Borrower agrees to reimburse the Agent
for its out-of-pocket expenses in connection with this Amendment, including
the fees, charges and disbursements of Cravath, Swaine & Moore, counsel for
the Agent.
7. Governing Law; Counterparts. (a) This Amendment and
the rights and obligations of the parties hereto shall be governed by, and
construed and interpreted in accordance with, the laws of the State of New
York.
(b) This Amendment may be executed by one or more of the
parties to this Amendment on any number of separate counterparts, and all of
said counterparts taken together shall be deemed to constitute one and the
same instrument. This Amendment may be delivered by facsimile transmission of
the relevant signature pages hereof.
IN WITNESS WHEREOF, the Parent, CCI, the Borrower, the
Agent and the undersigned Required Lenders have caused this Amendment to be
duly executed by their duly authorized officers, all as of the date first
above written.
CORECOMM LIMITED,
CORECOMM LIMITED
by: /s/ MICHAEL PETERSON
-----------------------------------------
Name: Michael Peterson
Title: V.P. Corp. Development
CORECOMM HOLDCO, INC.
by: /s/ MICHAEL PETERSON
-----------------------------------------
Name: Michael Peterson
Title: V.P. Corp. Development
CORECOMM COMMUNICATIONS, INC.
by: /s/ MICHAEL PETERSON
-----------------------------------------
Name: Michael Peterson
Title: V.P. Corp. Development
JP MORGAN CHASE BANK,
individually and as Agent,
by: /s/ MARY ELLEN EGBERT
-----------------------------------------
Name: Mary Ellen Egbert
Title: Managing Director
AMERICA ONLINE, INC.,
by:
----------------------------------
Name:
Title:
GOLDMAN SACHS CREDIT PARTNERS L.P.,
by:
----------------------------------
Name:
Title:
MORGAN STANLEY SENIOR FUNDING, INC.,
by:
----------------------------------
Name:
Title:
EXHIBIT 10.16
Summary of Principal Terms of Employment Arrangements
The following represent the principal terms of employment
arrangements for Thomas J. Gravina, our President - Chief Executive Officer
and a director, and Michael A. Peterson, our Executive Vice President - Chief
Operating Officer, Chief Financial Officer and a director, that have been
agreed in principal between the compensation committee of the board of
directors and the named executive, but are subject to formalization in fully
executed employment contracts. Therefore, such contracts may contain
different or additional material terms when finalized and executed.
Thomas J. Gravina:
Term: Three years, plus automatic one year renewals
unless six months notice of non-renewal by
executive or CoreComm Holdco
Title: President and Chief Executive Officer
Base salary: $900,000
Bonuses: Quarterly bonus targets of $300,000 for 2002;
quarterly bonus targets of $225,000 for each
calendar year after 2002, in each case based on
meeting financial targets; bonus of $700,000
payable in connection with successful completion
of the Holdco Recapitalization Process; and
additional bonuses commensurate with position,
performance and awards to other senior executives
Options: Initial grant of options to purchase 350,000
shares of our common stock(1)
Benefits: Appropriate for executive's position, including
401(k), savings, pension, profit sharing, life
insurance, disability and medical insurance; term
life insurance providing $3,000,000 death benefit;
and long-term disability insurance providing a
benefit of at least $300,000 per year
Termination
without cause: Up to 2 years bonus and salary payable upon
termination, plus 2 year option acceleration
Non-competition: Customary non-compete and non-solicitation provisions
Michael A. Peterson:
Term: Three years, plus automatic one year renewals
unless six months notice of non-renewal by
executive or CoreComm Holdco
Title: Executive Vice President, Chief Operating
Officer and Chief Financial Officer
Base salary: $500,000
Bonuses: Quarterly bonus targets of $150,000 for 2002;
quarterly bonus targets of $112,500 for each
calendar year after 2002, in each case based on
meeting financial targets; bonus of $350,000
payable in connection with successful completion
of the Holdco Recapitalization Process; additional
bonuses commensurate with position, performance
and awards to other senior executives
Options: Initial grant of options to purchase 495,000
shares of our common stock(1)
Benefits: Appropriate for executive's position, including
401(k), savings, pension, profit sharing, life
insurance, disability and medical insurance; term
life insurance providing $3,000,000 death benefit;
and long-term disability insurance providing a
benefit of at least $300,000 per year
Termination
without cause: Up to two years bonus and salary payable upon
termination, plus two year option acceleration
Non-competition: Customary non-compete and non-solicitation provisions
-------------
(1) These options were granted to the named executive in January 2002.
EXHIBIT 20.1
CoreComm Limited
110 E. 59th Street
New York, New York 10022
December 18, 2001
Dear Stockholder,
CoreComm Limited ("CoreComm") announced today that it has entered into
definitive agreements to recapitalize a substantial amount of CoreComm's debt
and all of its outstanding preferred stock, pursuant to which CoreComm
Holdco, Inc. ("Holdco"), a first tier, wholly-owned subsidiary of CoreComm
(i) will exchange shares of its common stock for substantial amounts of
outstanding indebtedness of CoreComm (including CoreComm's outstanding 6%
Convertible Subordinated Notes (the "Notes")), substantial amounts of
outstanding indebtedness of CoreComm and Holdco as co-obligors and all of the
outstanding preferred stock of CoreComm; and (ii) intends to launch a
registered public exchange offer to the common stockholders of CoreComm, as
well as to any holders of Notes who have not previously exchanged the Notes
held by them, to exchange their securities for shares of Holdco common stock.
The full details of the recapitalization are set forth in the attached press
release, which was released this morning.
Nasdaq has taken the view that, pursuant to Nasdaq Marketplace Rule
4350(i)(1)(B), stockholder approval is required for this transaction.
However, CoreComm has requested from Nasdaq an exception to this stockholder
approval requirement pursuant to Nasdaq Marketplace Rule 4350(i)(2). Rule
4350(i)(2) provides that "exceptions may be made upon application to Nasdaq
when: (A) the delay in securing stockholder approval would seriously
jeopardize the financial viability of the enterprise; and (B) reliance by the
company on this exception is expressly approved by the Audit Committee or a
comparable body of the Board of Directors." CoreComm requested the exception
on the basis that it would not be possible for CoreComm to prepare and file a
proxy statement with the Securities and Exchange Commission and hold a
stockholders' meeting to approve the transactions in the time that it has
available to consummate the recapitalization, and that absent the exception
CoreComm was at risk of not being able to consummate the recapitalization at
all. CoreComm's Audit Committee, Board of Directors and senior management
unanimously expressly approved CoreComm's reliance on the exception provided
under Nasdaq Marketplace Rule 4350(i)(2). Nasdaq has granted us the requested
exception. Nasdaq Marketplace Rule 4350(i)(2) requires us to inform you not
later than ten days before the consummation of the transaction that would
otherwise require stockholder approval of our omission to seek stockholder
approval. This notice has been mailed to you in order for CoreComm to meet
that requirement.
Very truly yours,
CoreComm Limited
The foregoing reference to the registered public exchange offer
shall not constitute an offer to sell or the solicitation of an offer to buy,
nor shall there be any sale of shares of common stock of Holdco in any state
in which such offer, solicitation or sale would be unlawful prior to
registration or qualification under the securities laws of any such state.
Investors and security holders are urged to read the following documents
(including amendments that may be made to them) once they are completed,
regarding the exchange offers for the shares of CoreComm common stock and the
Notes because they will contain important information:
- Holdco's preliminary prospectus, prospectus supplements and final
prospectus; and
- Holdco's Registration Statement on Form S-4,
containing such documents and other information.
These documents and amendments to these documents will be filed with
the United States Securities and Exchange Commission. When these and other
documents are filed with the SEC, they may be obtained free at the SEC's web
site at www.sec.gov. You may also obtain for free each of these documents
(when available) from Holdco by directing your request to the contact
information on the attached press release.
[CoreComm Limited Logo]
FOR IMMEDIATE RELEASE
CORECOMM LIMITED ANNOUNCES RECAPITALIZATION
A Total of Approximately $600 million in Debt
and Preferred Stock to be Exchanged
New York, New York (December 18, 2001) - CoreComm Limited (Nasdaq:
COMM), announced today that it has signed binding agreements for transactions
that would allow the company to exchange a total of approximately $600
million of its debt and preferred stock. As previously announced, CoreComm
has been engaged in a program to recapitalize a significant portion of its
debt, and consummation of these transactions will represent the completion of
this process.
Under the recapitalization, the following securities will be
exchanged: at least 97% ($160 million) of the Company's $164.75 million of 6%
Convertible Subordinated Notes; 100% of the Company's $105.6 million of
Senior Notes; 64% ($28 million) of the Company's $43.7 million in Senior
Convertible Notes; and 100% of the Company's approximately $300 million in
Preferred Stock.
Pro forma for the recapitalization, the only remaining debt
obligations of the recapitalized company will be its $156.1 million credit
facility, $15.8 million in Senior Convertible Notes, and approximately $11.9
million in capital leases. There will be no preferred stock outstanding
immediately following the recapitalization.
Thomas Gravina, COO of CoreComm, said: "These transactions represent
the culmination of more than a year of rapid developments for CoreComm. We
have successfully responded to the significant downturn in the financial
markets that began last year. Today's transactions give the Company a capital
structure that is appropriate for the current state of our business, the
industry and the current financial environment. We believe that the plan we
are announcing today represents the best approach to recapitalize the
Company's debt and preferred stock in a timely, efficient manner. We are very
pleased that CoreComm has been able to respond so successfully to its
challenges, and believe that the Company is now positioned to be one of the
strong competitive providers in the industry going forward.
"We believe that the Company is further along in the execution and
implementation of its revised business plan than many of our competitors. The
Company has and will continue to execute successfully on its plans to
increase profitability, improve efficiency, reduce expenses, and continue
revenue growth. As shown in our recent financial results, we have reduced our
operating losses substantially, and we believe that we are in a position to
generate positive EBITDA in early 2002 and become free cash flow positive in
late 2002. The demand for telecommunications products and services continues
to be strong, and we expect continued acceptance in the market for CoreComm's
voice and data services.
"This recapitalization transaction builds on the significant success
we have had operationally. The Company's significant amount of debt and
preferred stock was an impediment to our ability to execute our plan
effectively, and this recapitalization represents a necessary step in
creating a company with an efficient capital structure that can effectively
compete in our growing industry."
The total consideration to be paid or exchanged under the
recapitalization is approximately $5 million in cash and the issuance of
approximately 87% of the equity in the recapitalized company. The entity
issuing such equity will be the current first-tier wholly owned subsidiary of
CoreComm Limited - CoreComm Holdco, Inc. ("Holdco"), which will be the
recapitalized public company going forward. In accordance with the previously
announced agreements, holders of the $164.75 million 6% Convertible
Subordinated Notes will receive, in the aggregate, approximately $5 million
in cash and 5% of the common stock in Holdco. The other senior debt and
preferred stock holders will receive no cash, and approximately 82% of the
common stock in Holdco. The current holders of shares of common stock and
warrants of CoreComm Limited will have a pro forma ownership of approximately
13% of Holdco. Common stock in Holdco will be offered to CoreComm Limited
shareholders through a registered public exchange offer (which will also be
made to solicit any remaining holders of the 6% Convertible Subordinated
Notes, who will be offered a pro rata share in the aggregate cash and equity
consideration described above). Holdco has also adopted a new option plan for
its employees.
In conjunction with the recapitalization, CoreComm also eliminated
approximately $15.5 million in other cash obligations for 2002. The Company
will continue to negotiate agreements with its vendors and trade payables to
further delever its balance sheet.
The closing of the recapitalization transactions has commenced with
the closing of the previously announced 6% Convertible Subordinated Notes
exchange. The majority of the remaining recapitalization transactions are
expected to be completed by the end of the year. The planned registered
public exchange offer is expected to occur in early 2002. Investors are
encouraged to read the information regarding the public exchange offer at the
end of this release
Holdco has agreed to file a shelf registration statement under the
Securities Act of 1933, as amended, to permit the sale of the Holdco common
stock being issued in most of the recapitalization transactions.
In connection with the recapitalization, CoreComm and Holdco have
been granted an exception by Nasdaq absent which, CoreComm and Holdco would
have had to obtain stockholder approval prior to the completion of the
recapitalization transactions. Accordingly, following the consummation of the
registered public exchange offer, Holdco will become the Nasdaq listed
entity, and will be subject to the continued inclusion requirements of the
Nasdaq National Market. A notice describing this exception to the stockholder
approval requirement is being mailed to CoreComm's common stockholders today.
The company completed an amendment to its outstanding secured credit
facility which permits the recapitalization transactions to occur under that
agreement. The company is currently in discussions with its senior lenders
seeking an increase in availability under the facility. There is no assurance
that such financing will be obtained.
The Company expects the recapitalization transaction to have no
impact on its customers.
*******
The foregoing reference to the registered public exchange offer
shall not constitute an offer to sell or the solicitation of an offer to buy,
nor shall there be any sale of shares of common stock of Holdco in any state
in which such offer, solicitation or sale would be unlawful prior to
registration or qualification under the securities laws of any such state.
Investors and security holders are urged to read the following documents
(including amendments that may be made to them) once they are completed,
regarding the exchange offers for the shares of CoreComm common stock and the
6% Convertible Subordinated Notes because they will contain important
information:
- Holdco's preliminary prospectus, prospectus supplements and final
prospectus; and
- Holdco's Registration Statement on Form S-4,
containing such documents and other information.
These documents and amendments to these documents will be filed with
the United States Securities and Exchange Commission. When these and other
documents are filed with the SEC, they may be obtained free at the SEC's web
site at www.sec.gov. You may also obtain for free each of these documents
(when available) from Holdco by directing your request to the numbers listed
below.
Safe Harbor Statement Under the Private Securities Litigation Reform Act of 1995
In addition to the historical information presented, this release also
includes certain forward-looking statements concerning financing, the
recapitalization transactions and trends in operating results. Such
statements represent the CoreComm's reasonable judgment on the future and are
based on assumptions and factors that could cause actual results to differ
materially. Examples of relevant assumptions and factors include, but are not
limited to, general economic and business conditions, industry trends,
technological developments, CoreComm's ability to continue to design and
deploy efficient network routes, obtain and maintain any required regulatory
licenses or approvals and finance network development, all in a timely
manner, at reasonable costs and on satisfactory terms and conditions, as well
as assumptions about customer acceptance, churn rates, overall market
penetration and competition from providers of alternative services, the
impact of restructuring and integration actions, the impact of new business
opportunities requiring significant up-front investment, interest rate
fluctuations, and availability, terms and deployment of capital. CoreComm
assumes no obligation to update these forward-looking statements to reflect
actual results, changes in assumptions or changes in factors affecting such
statements.
For further information contact: Michael A. Peterson, Vice President -
Corporate Development or Richard J. Lubasch, Senior Vice President -
General Counsel at (212) 906-8485
EXHIBIT 21.1
SUBSIDIARIES OF CORECOMM HOLDCO, INC.
All of the entities listed below were incorporated or formed, as the
case may be, in Delaware, except where otherwise noted, and are wholly owned
subsidiaries of CoreComm Holdco, Inc.:
CoreComm Communications, Inc.
CoreComm Newco, Inc.
Prepaid Communications Corp.
FCC Holdco I, Inc.
Cortelyou Communications Corp.
CoreComm Services, LLC
Digicom, Inc. (Ohio)
CoreComm Internet Group, Inc.
MegsINet, Inc. (Illinois)
CoreComm Arizona, Inc.
CoreComm Arkansas, Inc.
CoreComm California, Inc.
CoreComm Colorado, Inc.
CoreComm Connecticut, Inc.
CoreComm Delaware, Inc.
CoreComm District of Columbia, Inc.
CoreComm Florida, Inc.
CoreComm Illinois, Inc.
CoreComm Indiana, Inc.
CoreComm Kansas, Inc.
CoreComm Kentucky, Inc.
CoreComm Louisiana, Inc.
CoreComm Maine, Inc.
CoreComm Maryland, Inc.
CoreComm Massachusetts, Inc
CoreComm Michigan, Inc.
CoreComm Minnesota, Inc.
CoreComm Mississippi, Inc.
CoreComm Missouri, Inc.
CoreComm Montana, Inc.
CoreComm Nebraska, Inc.
CoreComm Nevada, Inc.
CoreComm New Hampshire, Inc.
CoreComm New Jersey, Inc.
CoreComm New Mexico, Inc.
CoreComm New York, Inc.
CoreComm North Carolina, Inc.
CoreComm Ohio, Inc.
CoreComm Oregon, Inc.
CoreComm Pennsylvania, Inc.
CoreComm Rhode Island, Inc.
CoreComm Tennessee, Inc.
CoreComm Texas, Inc.
CoreComm Utah, Inc.
CoreComm Vermont, Inc.
CoreComm Virginia, Inc.
CoreComm Washington, Inc.
CoreComm West Virginia, Inc.
CoreComm Wisconsin, Inc.
CoreComm-ATX, Inc.
ATX Licensing, Inc. (Pennsylvania)
ATX Telecommunications Services of Virginia LLC
CoreComm-Voyager, Inc.
Voyager Data Services, Inc.
Voyager Information Networks, Inc. (Michigan)
GDR Enterprises, Inc. (Ohio)
Erinet Telecom, Inc. (Ohio)
Mall 2000, Inc. (Ohio)
TDIN, Inc. (Ohio)
Horizon Telecommunications, Inc. (Michigan)
EXHIBIT 23.1
CONSENT OF INDEPENDENT AUDITORS
We consent to the reference to our firm under the caption "Experts" and to
the use of our reports dated February 26, 1999, with respect to the financial
statements and schedules of OCOM Corporation Telecoms Division included in
the Registration Statement (Form S-1) and related Prospectus of CoreComm
Holdco, Inc. for the registration of 8,685,602 shares of its common stock.
/s/ ERNST & YOUNG LLP
New York, New York
February 5, 2002
EXHIBIT 23.2
CONSENT OF INDEPENDENT AUDITORS
We consent to the reference to our firm under the caption "Experts" and to
the use of our reports dated March 12, 2001, in the Registration Statement
(Form S-1) and related Prospectus of CoreComm Holdco, Inc. for the
registration of 8,685,602 shares of its common stock.
/s/ ERNST & YOUNG LLP
New York, New York
February 5, 2002
EXHIBIT 23.3
CONSENT OF INDEPENDENT CERTIFIED PUBLIC ACCOUNTANTS
CoreComm Holdco, Inc.
New York, New York
We hereby consent to the use in the Prospectus constituting a part of this
Registration Statement of CoreComm Holdco, Inc. on Form S-1 of our report
dated March 10, 2000, relating to the combined financial statements of ATX
Telecommunications Service Group as of December 31, 1999 and for each of the
two years in the period ended December 31, 1999.
We also consent to the reference to us under the caption "Experts" in the
Prospectus constituting part of the Registration Statement on Form S-1
BDO Seidman, LLP
Philadelphia, Pennsylvania
February 4, 2002
EXHIBIT 23.4
Consent of Independent Accountants
To the Board of Directors and Stockholders
of CoreComm Holdco, Inc.:
We hereby consent to the use in this Registration Statement on Form S-1 of
our report dated February 10, 2000, except for Note 18, for which the date is
March 12, 2000, relating to the financial statements of Voyager.net, Inc.
which appear in such Registration Statement. We also consent to the reference
to us under the heading "Experts" in such Registration Statement.
/s/ PricewaterhouseCoopers LLP
Grand Rapids, MI
February 5, 2002