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AS FILED WITH THE SECURITIES AND EXCHANGE COMMISSION ON MARCH 15, 2001
REGISTRATION NO. 333-54790
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SECURITIES AND EXCHANGE COMMISSION
WASHINGTON, D.C. 20549
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AMENDMENT NO. 1
TO
FORM S-3
REGISTRATION STATEMENT UNDER THE SECURITIES ACT OF 1933
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XO COMMUNICATIONS, INC.
(EXACT NAME OF REGISTRANT AS SPECIFIED IN ITS CHARTER)
DELAWARE 54-1983517
(STATE OR OTHER JURISDICTION OF INCORPORATION OR (I.R.S. EMPLOYER
ORGANIZATION) IDENTIFICATION NUMBER)
11111 SUNSET HILLS ROAD
RESTON, VIRGINIA 20190
(703) 547-2000
(ADDRESS, INCLUDING ZIP CODE, AND TELEPHONE NUMBER, INCLUDING AREA CODE, OF
REGISTRANT'S PRINCIPAL EXECUTIVE OFFICES)
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GARY D. BEGEMAN, ESQ.
SENIOR VICE PRESIDENT, GENERAL COUNSEL AND SECRETARY
XO COMMUNICATIONS, INC.
11111 SUNSET HILLS ROAD
RESTON, VIRGINIA 20190
(703) 547-2000
(NAME, ADDRESS, INCLUDING ZIP CODE, AND TELEPHONE NUMBER, INCLUDING AREA CODE,
OF AGENT FOR SERVICE)
COPIES TO:
DAVID P. PORTER, ESQ.
JONES, DAY, REAVIS & POGUE
NORTH POINT
901 LAKESIDE AVENUE
CLEVELAND, OHIO 44114-1190
(216) 586-3939
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APPROXIMATE DATE OF COMMENCEMENT OF PROPOSED SALE TO THE PUBLIC: From time
to time as determined by market conditions and other factors following the
effective date of this registration statement.
If the only securities being registered on this form are being offered
pursuant to dividend or interest reinvestment plans, please check the following
box. [ ]
If any of the securities being registered on this form are to be offered on
a delayed or continuous basis pursuant to Rule 415 under the Securities Act of
1933, other than securities offered only in connection with dividend or interest
reinvestment plans, check the following box. [X]
If this form is filed to register additional securities for an offering
pursuant to Rule 462(b) under the Securities Act, please check the following box
and list the Securities Act registration statement number of the earlier
effective registration statement for the same offering. [ ] __________
If this form is a post-effective amendment filed pursuant to Rule 462(c)
under the Securities Act, check the following box and list the Securities Act
registration statement number of the earlier effective registration statement
for the same offering. [ ] __________
If delivery of the prospectus is expected to be made pursuant to Rule 434,
please check the following box. [ ]
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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 COMMISSION, ACTING PURSUANT TO SAID SECTION 8(a),
MAY DETERMINE.
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THE INFORMATION IN THIS PROSPECTUS IS NOT COMPLETE AND MAY BE CHANGED.
WE MAY NOT SELL THESE SECURITIES UNTIL THE REGISTRATION STATEMENT FILED
WITH THE SECURITIES AND EXCHANGE COMMISSION BECOMES EFFECTIVE. THIS
PROSPECTUS IS NOT AN OFFER TO SELL THESE SECURITIES AND WE ARE NOT
SOLICITING AN OFFER TO BUY THESE SECURITIES IN ANY STATE WHERE THE OFFER
OR SALE IS PROHIBITED.
SUBJECT TO COMPLETION, DATED MARCH 15, 2001
XO COMMUNICATIONS, INC.
$2,000,000,000
Class A Common Stock
Preferred Stock
Depositary Shares
Debt Securities
Warrants
Stock Purchase Contracts and Stock Purchase Units
XO Communications, Inc. intends to offer from time to time Class A common
stock, preferred stock, depositary shares, debt securities, warrants, stock
purchase contracts and stock purchase units. We may sell any combination of
these securities in one or more offerings up to a total dollar amount of
$2,000,000,000. We will provide specific terms of these securities in
supplements to this prospectus. You should read this prospectus and any
prospectus supplement carefully before you invest.
We may sell the securities directly or to or through underwriters or
dealers, and also to other purchasers or through agents. The names of any
underwriters or agents that are included in a sale of securities to you, and any
applicable commissions or discounts, will be stated in an accompanying
prospectus supplement.
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Our Class A common stock is quoted on The Nasdaq National Market under the
symbol "XOXO." The closing price of our Class A common stock on The Nasdaq
National Market on March 14, 2001 was $12.3125. None of the other securities
that we may offer under this prospectus are currently publicly traded.
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SEE "RISK FACTORS" ON PAGE 1 FOR A DISCUSSION OF MATTERS THAT YOU SHOULD
CONSIDER BEFORE INVESTING IN THESE SECURITIES.
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THESE SECURITIES HAVE NOT BEEN APPROVED OR DISAPPROVED BY THE SECURITIES
AND EXCHANGE COMMISSION OR ANY STATE SECURITIES COMMISSION NOR HAS THE
SECURITIES AND EXCHANGE COMMISSION OR ANY STATE SECURITIES COMMISSION PASSED
UPON THE ACCURACY OR ADEQUACY OF THIS PROSPECTUS. ANY REPRESENTATION TO THE
CONTRARY IS A CRIMINAL OFFENSE.
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This prospectus is dated , 2001
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TABLE OF CONTENTS
XO Communications, Inc. .................................... 1
Risk Factors................................................ 1
Forward-Looking Statements.................................. 10
Ratio of Earnings to Fixed Charges and Preferred Stock
Dividends................................................. 10
Use of Proceeds............................................. 11
Summary Description of the Securities We May Issue.......... 11
Description of Debt Securities We May Offer................. 11
Description of Preferred Stock We May Offer................. 21
Description of Depositary Shares We May Offer............... 24
Description of Common Stock We May Offer.................... 27
Description of Warrants We May Offer........................ 28
Description of Stock Purchase Contracts and Stock Purchase
Units We May Offer........................................ 31
Legal Ownership of Certain Securities....................... 32
Description of Other Material Indebtedness.................. 35
Description of Outstanding Preferred Stock.................. 43
Plan of Distribution........................................ 49
Validity of Securities...................................... 50
Experts..................................................... 50
About This Prospectus....................................... 50
Where You Can Find More Information......................... 50
Incorporation of Documents by Reference..................... 51
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XO COMMUNICATIONS, INC.
Since 1996, we have provided high-quality bundled local and long distance,
as well as dedicated voice, telecommunications services to the rapidly growing
business market. We expanded our services through our acquisition of Concentric
Network Corporation on June 16, 2000 to offer a complete, single source of
telecommunications services to our customers by combining our data and voice
services. The data services we offer include internet access, virtual private
networks, hosting services and ethernet services.
We believe that increasing usage of both telephone service and newer data
application and information services will continue to increase demand for
telecommunications capacity, and for new communications services, and
applications. To serve our customers' broad and expanding telecommunications
needs, we have assembled a collection of metro and inter-city network assets, in
both the United States and Europe, that incorporate state-of-the-art fiber optic
cable and transmission equipment and fixed wireless spectrum and related
equipment, each of which is capable of carrying high volumes of data, voice,
video and Internet traffic.
We intend to integrate our network assets with advanced communications
technologies to enable us to provide a comprehensive array of communications
services entirely over our network, from point of initiation of the voice or
data transmission to the point of termination, which we refer to as end-to-end
service. To accomplish this, we are creating two fiber optic networks, one in
North America and one in Europe, which will be interconnected by high speed
transatlantic fiber optic capacity that we have acquired. Each of these networks
consists of a series of rings of fiber optic cables that encircle the central
business districts of numerous metropolitan areas, which we refer to as metro
networks, that are interconnected by a network of numerous fiber optic cables,
which we refer to as an inter-city network. Our combination of metro and
inter-city networks will enable us to provide high-speed, high-capacity
communications services between customers connected to our network and among
customers with multiple locations entirely over our network.
Since our inception, we have incurred substantial and increasing net losses
and negative cash flow from operations, and we expect these results to continue
over the next several years. We also have substantial existing debt and expect
to incur substantial additional obligations in the future as we continue to
implement our business plan.
Additional information about us, including our audited financial statements
and descriptions of our business, is contained in the documents incorporated by
reference in this prospectus.
We are incorporated in the State of Delaware. Our executive offices are
located at 11111 Sunset Hills Road, Reston, Virginia 20190 and our telephone
number is (703) 547-2000.
RISK FACTORS
You should consider carefully these risk factors together with all of the
information included or incorporated by reference in this prospectus before you
decide to purchase securities offered by this prospectus. In addition, you
should note that the prospectus supplement that will accompany this prospectus
will include additional risk factors that will specifically apply to the type of
security that we will offer under the prospectus supplement.
RISKS RELATED TO LIQUIDITY AND FINANCIAL RESOURCES
WE HAVE A HISTORY OF INCREASING NET LOSSES AND NEGATIVE CASH FLOW FROM
OPERATIONS AND WE MAY NEVER BE ABLE TO SATISFY OUR CASH NEEDS FROM OPERATIONS.
For each period since inception, we have incurred substantial and
increasing net losses and negative cash flow from operations. For 1999, we
posted a net loss attributable to common stockholders of approximately $627.9
million and showed negative cash flow from operations of approximately $358.9
million. For the nine month period ended September 30, 2000, we posted a net
loss attributable to common stockholders of approximately $717.2 million and
showed negative cash flows from operations of
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approximately $238.6 million. Our accumulated deficit was approximately $1,934.7
million at September 30, 2000. We expect that losses and negative cash flow from
operations will continue over the next several years.
Our existing operations do not currently, and are not expected in the near
future to, generate cash flows from which we can make interest payments on our
outstanding notes, make dividend payments on our outstanding preferred stock or
fund continuing operations and planned capital expenditures. We cannot know
when, if ever, net cash generated by our internal business operations will
support our growth and continued operations. If we are unable to generate cash
flow in the future sufficient to cover our fixed charges and are unable to raise
sufficient funds from other sources, we may be required to:
- refinance all or a portion of our debt and redeemable preferred stock; or
- sell all or a portion of our assets.
WE HAVE SUBSTANTIAL EXISTING DEBT AND PREFERRED STOCK AND WE WILL INCUR
SUBSTANTIAL ADDITIONAL OBLIGATIONS THAT WILL INCREASE THE RISK OF A DEFAULT.
As of September 30, 2000, we had outstanding ten issues of senior notes and
one issue of convertible subordinated notes totaling $4,508.5 million in
principal amount and accreted value (on a pro forma basis, giving effect to our
offering of convertible subordinate notes on January 12, 2001), approximately
$27.6 million in miscellaneous debt obligations of our subsidiaries, and eight
series of redeemable preferred stock with an aggregate liquidation preference of
$2,086.9 million. In addition, we have a $1,000.0 million senior secured credit
facility, under which $375.0 million was drawn at September 30, 2000. Based on
the existing interest rates for obligations with variable interest rates and
assuming payment of dividends in additional shares of preferred stock for the
three series of our preferred stock that permit this type of dividend payment,
we estimate that $430.0 million would be needed to pay cash interest and
dividend obligations in 2001 under our outstanding debt and preferred stock
(including the interest payable on our convertible subordinate notes issued on
January 12, 2001 and the additional $237.5 million drawn under our senior
secured credit facility in February 2001).
The indentures under which our notes have been issued, and our senior
secured credit facility, permit us to incur substantial additional debt. We
fully expect to draw down the remaining $625.0 million available under our
senior secured credit facility and borrow substantial funds in the next several
years. This additional indebtedness will further increase the risk of a default
unless we can establish an adequate revenue base and generate sufficient cash
flow to repay our indebtedness. We may never establish an adequate revenue base
to produce an operating profit or generate adequate positive cash flow to
provide future capital expenditures and repayment of debt.
WE DO NOT HAVE SUFFICIENT ADDITIONAL FINANCING COMMITMENTS TO MEET OUR LONG TERM
NEEDS AND, IF WE ARE NOT SUCCESSFUL IN RAISING ADDITIONAL CAPITAL, WE WILL NOT
BE ABLE TO BUILD AND MAINTAIN OUR BUSINESS, WHICH MAY ADVERSELY AFFECT OUR
ABILITY TO COMPETE.
Building our business will require substantial additional capital spending.
Our capital spending plans have increased substantially over time, as our
strategy has evolved and our planned networks have grown larger and more robust.
We will need to raise additional capital because our anticipated future capital
requirements exceed the $2,710.2 million in cash and marketable securities we
had on hand as of September 30, 2000, the $625.0 million currently available
under our senior secured credit facility (which is our only current commitment
for additional financing) and the net proceeds of approximately $503 million
from the convertible subordinated notes sold by us on January 12, 2001. If we
fail to raise sufficient capital, we may be required to delay or abandon some of
our planned future expansion or expenditures, which could have a material
adverse effect on our growth and our ability to compete in the
telecommunications services industry and generate profits for stockholders, and
could even result in a payment default on our existing debt.
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THE COVENANTS IN OUR INDENTURES AND SENIOR SECURED CREDIT FACILITY RESTRICT OUR
FINANCIAL AND OPERATIONAL FLEXIBILITY, WHICH COULD HAVE AN ADVERSE AFFECT ON OUR
RESULTS OF OPERATIONS AND ON THE VALUE OF YOUR INVESTMENT.
The indentures under which our senior notes have been issued and our senior
secured credit facility contain covenants that restrict, among other things, our
ability to borrow money, make particular types of investments or other
restricted payments, sell assets or merge or consolidate. Our senior secured
credit facility also requires us to maintain specified financial ratios. If we
fail to comply with these covenants or meet these financial ratios, the holders
of our senior notes or the lenders under our senior secured credit facility
could declare a default and demand immediate repayment. Unless we cure any such
default, they could seek a judgment and attempt to seize our assets to satisfy
the debt to them. The security for our senior secured credit facility consists
of all of the assets purchased with the proceeds thereof, the stock of certain
of our direct subsidiaries, all of our assets and, to the extent of $125 million
of guaranteed debt, assets of our subsidiaries. A default under any of these
agreements could adversely affect our rights under other commercial agreements.
In addition, we are required to use the net proceeds from the sale of
certain series of senior notes and senior discount notes, and a portion of the
proceeds drawn under our senior secured credit facility, to fund expenditures
for the construction, improvement and acquisition of new and existing networks
and other assets used in our business and direct and indirect investments in
certain joint ventures to fund similar expenditures. Prior to the application of
all such proceeds, we may invest them in marketable securities.
Our existing debt obligations and outstanding redeemable preferred stock
also could affect our financial and operational flexibility, as follows:
- they may impair our ability to obtain additional financing in the future;
- they will require that a substantial portion of our cash flow from
operations and financing activities be dedicated to the payment of
interest on debt and dividends on preferred stock, which will reduce the
funds available for other purposes;
- they may limit our flexibility in planning for or reacting to changes in
market conditions; and
- they may cause us to be more vulnerable in the event of a downturn in our
business.
RISKS RELATED TO NETWORK DEVELOPMENT
IF WE CANNOT QUICKLY AND EFFICIENTLY INSTALL OUR NETWORK HARDWARE, WE WILL BE
UNABLE TO GENERATE REVENUE, WHICH WOULD ADVERSELY AFFECT OUR OPERATING RESULTS.
Each of our networks consists of many different pieces of hardware,
including switches, routers, fiber optic cables, electronics and combination
radio transmitter/receivers, known as transceivers, and associated equipment,
which are difficult to install. If we cannot install this hardware quickly, the
time in which customers can be connected to our network and we can begin to
generate revenue from our network will be delayed. You should be aware that the
construction of our North American inter-city fiber optic network is not under
our control, but is under the control of Level 3 Communications. If Level 3
fails to complete its network on time or if it fails to perform as specified,
our strategy of linking our local networks to one another and creating an
end-to-end North American network will be delayed. In addition, you should be
aware that the construction of our European inter-city and metro networks are
also under the control of Level 3, and, if Level 3 fails to complete any of
these networks on time or if it fails to perform as specified, our European
strategy will be delayed.
THE FAILURE OF OUR OPERATIONS SUPPORT SYSTEMS TO PERFORM AS WE EXPECT COULD
IMPAIR OUR ABILITY TO RETAIN CUSTOMERS AND OBTAIN NEW CUSTOMERS OR RESULT IN
INCREASED CAPITAL EXPENDITURES, WHICH WOULD ADVERSELY AFFECT OUR REVENUES.
Some of the operations support systems we employ are proprietary. In
addition, we are continuing to integrate the operations support systems
previously employed by Concentric Network Corporation, which
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we acquired on June 16, 2000, into our operation support systems. Our operations
support systems are expected to be an important factor in our success. If any of
these systems fail or do not perform as expected, we could suffer customer
dissatisfaction, loss of business or the inability to add customers on a timely
basis, any of which would adversely affect our revenues. Furthermore, problems
may arise with higher processing volumes or with additional automation features,
which could potentially result in system breakdowns and delays and additional
unanticipated expense to remedy the defect or to replace the defective system
with an alternative system.
IF OUR SELECTION OF IP TECHNOLOGY IS INCORRECT, INEFFECTIVE OR UNACCEPTABLY
COSTLY, IMPLEMENTATION OF OUR BUSINESS STRATEGY COULD BE DELAYED, WHICH WOULD
ADVERSELY AFFECT OUR GROWTH AND OPERATING RESULTS.
We plan to rely on IP technology as the basis for our planned end-to-end
network. Although IP technology is used throughout the Internet, its extension
to support other telecommunications applications, such as voice and video, has
not yet been perfected, and IP technology currently has several deficiencies,
including poor reliability and quality. Integrating this technology into our
network may prove difficult and may be subject to delays. In addition,
improvements to the IP technology may not become available in a timely fashion
or at reasonable cost, if at all. If the technology choices we make prove to be
incorrect, ineffective or unacceptably costly, our strategy of creating an
end-to-end network could be delayed, which would adversely affect our growth and
operating results.
WE MAY NOT BE ABLE TO CONTINUE TO CONNECT OUR NETWORK TO THE INCUMBENT CARRIER'S
NETWORK OR MAINTAIN INTERNET PEERING ARRANGEMENTS ON FAVORABLE TERMS, WHICH
WOULD IMPAIR OUR GROWTH AND PERFORMANCE.
We must be a party to interconnection agreements with the incumbent carrier
in order to connect our customers to the public telephone network. We may not be
able to renegotiate or maintain interconnection agreements in all of our markets
on favorable terms. If we are unable to renegotiate or maintain interconnection
agreements in all of our markets on favorable terms, it could adversely affect
our ability to provide services in the affected markets.
We require continued peering arrangements with other ISPs, particularly the
large, national ISPs, to implement our planned expansion of data services
including Internet access services. Peering arrangements are agreements among
Internet backbone providers to exchange data traffic. Depending on the relative
size of the carriers involved, these exchanges may be made without settlement
charge. We may not be able to renegotiate or maintain peering arrangements on
favorable terms, which would impair our growth and performance.
PHYSICAL SPACE LIMITATIONS IN OFFICE BUILDINGS AND LANDLORD DEMANDS FOR FEES OR
REVENUE SHARING COULD LIMIT OUR ABILITY TO CONNECT CUSTOMERS DIRECTLY TO OUR
NETWORKS AND REDUCE OUR OPERATING MARGINS, WHICH WOULD ADVERSELY IMPACT OUR
RESULTS.
Connecting a customer who is a tenant in an office building directly to our
network requires installation of in-building cabling through the building's
risers from the customer's office to our fiber in the street or our antenna on
the roof. In some office buildings, particularly the premier buildings in the
largest markets, the risers are already close to their maximum physical capacity
due to the entry of other competitive carriers into the market. Moreover, the
owners of these buildings are increasingly requiring competitive
telecommunications service providers like XO to pay fees or otherwise share
revenue as a condition of access. We have not been required to pay these fees in
the smaller markets we have served in the past, but may be required to do so to
penetrate larger markets, which would reduce our operating margins. In addition,
some major office building owners have equity interests in, or joint ventures
with, companies offering broadband communications services over fiber optic
networks and may have an incentive to encourage their tenants to choose those
companies' services over ours or to grant those companies more favorable terms
for installation of in-building cabling.
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THE AVAILABILITY OF EQUIPMENT THAT TAKES ADVANTAGE OF THE MULTIPOINT
CHARACTERISTICS OF OUR BROADBAND WIRELESS SPECTRUM LICENSES HAS BEEN ONLY
RECENTLY DEVELOPED AND MAY CONTINUE TO CAUSE PERFORMANCE PROBLEMS OR DELAYS.
Our broadband fixed wireless licenses permit us to transmit from a fixed
point to multiple receivers, which may reduce our installation costs, as
compared with traditional point-to-point links. Since this is a newly-authorized
service, vendors are only beginning to offer multipoint equipment, and we
encountered performance problems with it in its initial deployment. These
performance problems may not be satisfactorily resolved, which could delay our
plans to extend our services to customers through wireless connections.
Fixed wireless direct connections require us to obtain access to rooftops
from building owners and to satisfy local construction and zoning rules for
antennas and transmitters. The need to obtain these authorizations could be an
additional source of cost and delay.
OUR INABILITY TO ACCURATELY PREDICT THE TOTAL COST OF OUR BROADBAND WIRELESS
FIRST MILE DEPLOYMENT COULD HAVE AN ADVERSE IMPACT ON OUR RESULTS.
Although we have selected vendors from which we may purchase broadband
wireless equipment, because our fixed wireless deployment strategy contemplates
utilizing a number of equipment vendors, we do not know precisely how much the
equipment we will need will cost. Installation costs are expected to vary
greatly, depending on the particular characteristics of the locations to be
served. After initial installation, we expect to incur additional costs to
reconfigure, redeploy and upgrade our wireless direct connections as
technologies improve.
IT IS EXPENSIVE AND DIFFICULT TO SWITCH NEW CUSTOMERS TO OUR NETWORK, AND LACK
OF COOPERATION OF THE INCUMBENT CARRIER CAN SLOW THE NEW CUSTOMER CONNECTION
PROCESS, WHICH COULD IMPACT OUR ABILITY TO COMPETE.
It is expensive and difficult for us to switch a new customer to our
network because:
- a potential customer faces switching costs if it decides to become our
customer, and
- we require cooperation from the incumbent carrier in instances where
there is no direct connection between the customer and our network.
Our principal competitors, the incumbent carriers, are already established
providers of local telephone services to all or virtually all telephone
subscribers within their respective service areas. Their physical connections
from their premises to those of their customers are expensive and difficult to
duplicate. To complete the new customer provisioning process, we rely on the
incumbent carrier to process certain information. The incumbent carriers have a
financial interest in retaining their customers, which could reduce their
willingness to cooperate with our new customer provisioning requests.
WE DEPEND ON OUR KEY PERSONNEL AND QUALIFIED TECHNICAL STAFF AND IF WE LOSE
THEIR SERVICES, OUR ABILITY TO MANAGE THE DAY-TO-DAY ASPECTS OF OUR COMPLEX
NETWORK WILL BE WEAKENED. WE MAY NOT BE ABLE TO HIRE AND RETAIN QUALIFIED
PERSONNEL, WHICH COULD ADVERSELY AFFECT OUR OPERATING RESULTS.
We are highly dependent on the services of our management and other key
personnel. The loss of the services of our senior executive management team or
other key personnel could cause us to make less successful strategic decisions,
which could hinder the introduction of new services or the entry into new
markets. We could also be less prepared for technological or marketing problems,
which could reduce our ability to serve our customers and lower the quality of
our services.
We believe that a critical component for our success will be the attraction
and retention of qualified professional and technical personnel. In addition, we
must also develop and retain a large and sophisticated sales force, particularly
in connection with our plan to target larger national customers. We have
experienced intense competition for qualified personnel in our business with the
technical and other skill
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sets that we seek. We may not be able to attract, develop, motivate and retain
experienced and innovative personnel. If we fail to do so, there will be an
adverse effect on our ability to generate revenue and, consequently, our
operating cash flow.
RISKS RELATED TO COMPETITION AND OUR INDUSTRY
WE FACE COMPETITION IN LOCAL MARKETS FROM OTHER CARRIERS, PUTTING DOWNWARD
PRESSURE ON PRICES, WHICH COULD IMPAIR OUR RESULTS.
We face competition in each of our markets principally from the incumbent
carrier in that market, but also from recent and potential market entrants,
including long distance carriers seeking to enter, reenter or expand entry into
the local exchange marketplace. This competition places downward pressure on
prices for local telephone service and data services, which can adversely affect
our operating results. In addition, we expect competition from other companies,
such as cable television companies, electric utilities, microwave carriers,
wireless telephone system operators and private networks built by large end-
users. If we are not able to compete effectively with these industry
participants, our operating results could be adversely affected.
WE FACE COMPETITION IN LONG DISTANCE MARKETS, PUTTING DOWNWARD PRESSURE ON
PRICES, WHICH COULD IMPAIR OUR RESULTS.
We also face intense competition from long distance carriers in the
provision of long distance services. This competition has substantially reduced
prices for long distance services in recent years. Although the long distance
market is dominated by three major competitors, AT&T, WorldCom and Sprint,
hundreds of other companies, such as Qwest, also compete in the long distance
marketplace. The incumbent carriers also are beginning to compete in the long
distance market. If we are not able to effectively compete with these industry
participants, our operating results could be adversely affected.
WE FACE COMPETITION IN CREATING A NATIONAL BROADBAND NETWORK, PUTTING DOWNWARD
PRESSURE ON PRICES, WHICH COULD IMPAIR OUR RESULTS.
Several of our competitors, such as AT&T, WorldCom, Qwest, Level 3, and
Williams, are creating broadband networks that would compete directly with the
network we are building. In addition, other competitors have the ability to do
so as well. If we are not able to successfully compete with these service
providers, our operating results could be adversely affected.
WE FACE COMPETITION FOR DATA SERVICES, PUTTING DOWNWARD PRESSURE ON PRICES,
WHICH COULD ADVERSELY AFFECT OUR RESULTS.
Competitors for data services consist of online service providers, Internet
service providers and Web hosting providers. New competitors continue to enter
this market and include large computer hardware, software, media and other
technology and telecommunications companies, including the incumbent carriers.
Many communications companies and online services providers are currently
offering or have announced plans to offer Internet or online services or to
expand their network services. This competition puts downward pressure on
prices. If we are unable to successfully compete with these data service
providers, our operating results could be adversely affected.
TECHNOLOGICAL ADVANCES AND REGULATORY CHANGES ARE ERODING TRADITIONAL BARRIERS
BETWEEN FORMERLY DISTINCT TELECOMMUNICATIONS MARKETS, WHICH COULD INCREASE THE
COMPETITION WE FACE AND IMPAIR OUR GROWTH.
New technologies, such as voice-over-IP, and regulatory
changes -- particularly those permitting incumbent local telephone companies to
provide long distance services -- are blurring the distinctions between
traditional telecommunications markets. In addition, the increasing importance
of data services has focused the attention of most telecommunications companies
on this growing sector. As a result, a competitor in any of our business areas
is potentially a competitor in our other business areas, which could impair our
prospects and growth.
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MANY OF OUR COMPETITORS HAVE SUPERIOR RESOURCES, WHICH COULD PLACE US AT A COST
AND PRICE DISADVANTAGE.
Many of our current and potential competitors have market presence,
engineering, technical and marketing capabilities and financial, personnel and
other resources substantially greater than ours. As a result, some of our
competitors can raise capital at a lower cost than we can, and they may be able
to develop and expand their communications and network infrastructures more
quickly, adapt more swiftly to new or emerging technologies and changes in
customer requirements, take advantage of acquisition and other opportunities
more readily, and devote greater resources to the marketing and sale of their
products and services than we can. Also, our competitors' greater brand name
recognition may require us to price our services at lower levels in order to win
business. Finally, our competitors' cost advantages give them the ability to
reduce their prices for an extended period of time if they so choose.
THE TECHNOLOGIES WE USE MAY BECOME OBSOLETE, WHICH WOULD LIMIT OUR ABILITY TO
COMPETE EFFECTIVELY AND ADVERSELY IMPACT OUR RESULTS.
The telecommunications industry is subject to rapid and significant changes
in technology. Most technologies and equipment that we use or will use,
including wireline and wireless transmission technologies, circuit and packet
switching technologies, multiplexing technologies, data transmission
technologies, including the DSL, ATM and IP technologies, and server and storage
technologies may become obsolete. If we do not replace or upgrade technology and
equipment that becomes obsolete, we will be unable to compete effectively
because we will not be able to meet the expectations of our customers, which
could cause our results to suffer.
The introduction of new technologies may reduce the cost of services
similar to those that we plan to provide. As a result, our most significant
competitors in the future may be new entrants to the telecommunications
industry. These new entrants may not be burdened by an installed base of
outdated equipment, and therefore may be able to more quickly respond to
customer demands.
Additionally, the markets for data and Internet-related services are
characterized by rapidly changing technology, evolving industry standards,
changes in customer needs, emerging competition and frequent new product and
service introductions. The future success of our data services business will
depend, in part, on our ability to accomplish the following in a timely and
cost-effective manner:
- effectively use leading technologies;
- continue to develop technical expertise;
- develop new services that meet changing customer needs; and
- influence and respond to emerging industry standards and other
technological changes.
Our pursuit of necessary technological advances may require substantial
time and expense.
WE MAY BE REQUIRED TO PAY PATENT LICENSING FEES, WHICH WILL DIVERT FUNDS WHICH
COULD BE USED FOR OTHER PURPOSES AND COULD ADVERSELY IMPACT OUR RESULTS.
From time to time, we receive claims by third parties to the effect that
technology or processes used by us in our business are covered by those third
parties' alleged patent rights and related requests to consider licensing
certain patents held by those third parties. Should we be required to pay
license fees in the future, such payments, if substantial, could have a material
adverse effect on our results of operations.
OUR COMPANY AND INDUSTRY ARE HIGHLY REGULATED, WHICH RESTRICTS OUR ABILITY TO
COMPETE IN OUR TARGET MARKETS AND IMPOSES SUBSTANTIAL COMPLIANCE COSTS ON US
THAT ADVERSELY IMPACT OUR RESULTS.
We are subject to varying degrees of regulation from federal, state and
local authorities, as well as from various national and local agencies in Europe
and Canada. This regulation imposes substantial compliance costs on us. It also
restricts our ability to compete. For example, in each state in which we desire
to offer our services, we are required to obtain authorization from the
appropriate state commission. In addition, we will be required to obtain
authorizations from various governmental agencies in the countries in which we
plan to expand our existing European operations and Canada. If we do not receive
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authorization for markets or services to be launched in the future, our ability
to offer services in our target markets could be adversely affected.
THE REQUIREMENT THAT WE OBTAIN PERMITS AND RIGHTS-OF-WAY TO DEVELOP OUR NETWORK
INCREASES OUR COST OF DOING BUSINESS AND COULD ADVERSELY AFFECT OUR PERFORMANCE
AND RESULTS.
In order for us to acquire and develop our fiber networks, we must obtain
local franchises and other permits, as well as rights-of-way and fiber capacity
from entities such as incumbent carriers and other utilities, railroads, long
distance companies, state highway authorities, local governments and transit
authorities. The process of obtaining these permits and rights-of-way is
time-consuming and burdensome and increases our cost of doing business.
We may not be able to maintain our existing franchises, permits and
rights-of-way that we need to implement our business. We may also be unable to
obtain and maintain the other franchises, permits and rights that we require. A
sustained and material failure to obtain or maintain these rights could
materially adversely affect our business in the affected metropolitan area.
CREDIT RISKS ASSOCIATED WITH OUR INTERNET-RELATED CUSTOMERS MAY ADVERSELY AFFECT
OUR RESULTS.
Many of our customers are in various Internet-related businesses, including
internet service providers, some of which have been adversely affected by recent
business trends in that sector. To the extent the credit quality of these
customers deteriorates or these customers seek bankruptcy protection, our
ability to collect our receivables, and ultimately our operating results, may be
adversely affected.
RISKS RELATED TO GROWTH AND DEVELOPMENT OF DATA SERVICES
IF WE ARE UNABLE TO MANAGE OUR GROWTH, THE CONTINUED RAPID GROWTH OF OUR
NETWORK, SERVICES AND SUBSCRIBERS COULD BE SLOWED, WHICH WOULD ADVERSELY IMPACT
OUR RESULTS.
We have rapidly expanded and developed our network and service offerings
and increased the number of our subscribers, and expect to continue to do so.
This has placed and will continue to place significant demands on our
management, technical staff, operational and financial systems and procedures
and controls. We may not be able to manage our anticipated growth effectively,
which would harm our business, results of operations and financial condition.
Further expansion and development of our network, service offerings and
subscriber base will depend on a number of factors, including:
- technological developments, including improvements in IP technology;
- our ability to hire, train and retain qualified personnel in a
competitive labor market;
- availability of rights-of-way, building access and antenna sites;
- development of customer billing, order processing and network management
systems that are capable of serving our growing customer base; and
- cooperation of the incumbent local telephone companies.
IF WE ARE NOT ABLE TO SUCCEED IN THE DATA SERVICES MARKET, THE VALUE OF YOUR
INVESTMENT COULD BE ADVERSELY IMPACTED.
Our ability to succeed in the data services market depends to a large
extent on our ability to build a tailored, value-added network services
business. Our ability to do so is subject to the following risks:
- the data services markets are relatively new, and current and future
competitors are likely to introduce competing services or products, which
may result in market saturation;
- critical issues concerning commercial use of tailored, value-added
services and Internet services, including security, reliability, ease and
cost of access, and quality of service, remain unresolved and may impact
the growth of such services;
- the market for data services may fail to grow or grow more slowly than
anticipated;
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- our inability to obtain sufficient quantities of sole- or limited-source
components required to provide data services or to develop alternative
sources, if required, could result in delays and increased costs in
expanding, and overburdening of, our network infrastructure;
- suppliers may not provide us with products or components that comply with
Internet standards or that properly inter-operate with other products or
components used in our network infrastructure;
- the failure of any link in the delivery chain, including the networks
with which we may establish public or private peering arrangements or
private transit, could impact our ability to serve customers;
- the market for tailored value-added network services is extremely
competitive, and we expect that competition will intensify in the future;
- we could experience interruptions in service due to a natural disaster,
such as an earthquake, or other unanticipated problem; and
- we could have liability for information disseminated through our network.
WE FACE RISKS THAT COULD HAVE A MATERIAL ADVERSE EFFECT ON OUR PLANNED
INTERNATIONAL EXPANSION.
Through the Concentric acquisition, we have acquired a subsidiary in the
United Kingdom and The Netherlands, and have entered into agreements to acquire
metro and inter-city networks in Europe and in connection with our planned
expansion into other European countries. We also have an interest in a joint
venture located in Canada. We may in the future expand into other international
markets, either through acquisition of businesses or assets, organic
development, or a combination thereof. The following risks are inherent in doing
business on an international level:
- unexpected changes in regulatory requirements or tax consequences;
- export restrictions;
- tariffs and other trade barriers;
- difficulties in staffing and managing foreign operations;
- problems in collecting accounts receivable;
- fluctuations in currency exchange rates; and
- seasonal reductions in business activity during the summer months in
Europe and certain other parts of the world.
One or more of these factors may have a material adverse effect on our
future international operations.
OTHER RISKS
CRAIG O. MCCAW, WHO CONTROLS XO, MAY HAVE INTERESTS WHICH ARE ADVERSE TO YOUR
INTERESTS AND HE MAY ACT IN A MANNER THAT ADVERSELY IMPACTS THE VALUE OF YOUR
INVESTMENT.
Craig O. McCaw, primarily through his majority ownership and control of
Eagle River Investments, L.L.C., currently controls more than 50% of our total
voting power, and holds proxies that are likely to continue to assure that Mr.
McCaw will hold a majority of that voting power. Because Mr. McCaw has the
ability to control our direction and future operations and has interests in
other companies that may compete with us, he may make decisions which are
adverse to your interests and the interests of our other security holders.
Mr. McCaw effectively controls a decision whether a change of control of XO
will occur. Moreover, Delaware corporate law could make it more difficult for a
third party to acquire control of us, even if a change of control could be
beneficial to you.
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FORWARD-LOOKING STATEMENTS
Our forward-looking statements are subject to a variety of factors that
could cause actual results to differ significantly from current beliefs.
Some statements and information contained in this offering memorandum and
in the documents incorporated by reference into this offering memorandum are not
historical facts, but are "forward-looking statements", as such term is defined
in the Private Securities Litigation Reform Act of 1995. These forward-looking
statements can be identified by the use of forward-looking terminology such as
"believes," "expects," "plans," "may," "will," "would," "could," "should," or
"anticipates" or the negative of these words or other variations of these words
or other comparable words, or by discussions of strategy that involve risks and
uncertainties. Such forward-looking statements include, but are not limited to,
statements regarding:
- market development and the number and location of markets we expect to
serve;
- network development, including those with respect to IP and ATM network
and facilities development and deployment, switches using soft-switch
technology, broadband fixed wireless technology, testing and
installation, high speed technologies such as DSL, and matters relevant
to our national network; and
- liquidity and financial resources, including anticipated capital
expenditures, funding of capital expenditures and anticipated levels of
indebtedness.
All such forward-looking statements are qualified by the inherent risks and
uncertainties surrounding expectations generally, and also may materially differ
from our actual experience involving any one or more of these matters and
subject areas. The operation and results of our business also may be subject to
the effect of other risks and uncertainties in addition to the relevant
qualifying factors identified in the "Risk Factors" section and elsewhere in
this offering memorandum, including, but not limited to:
- general economic conditions in the geographic areas that we are targeting
for communications services;
- the ability to achieve and maintain market penetration and average per
access line revenue levels sufficient to provide financial viability to
our business;
- access to sufficient debt or equity capital to meet our operating and
financing needs;
- the quality and price of similar or comparable communications services
offered or to be offered by our competitors; and
- future telecommunications-related legislation or regulatory actions.
RATIO OF EARNINGS TO FIXED CHARGES AND PREFERRED STOCK DIVIDENDS
The following table shows our consolidated ratio of earnings to fixed
charges and our consolidated ratio of earning to fixed charges and preferred
dividends:
YEAR ENDED DECEMBER 31, NINE MONTHS
-------------------------------- ENDED
1995 1996 1997 1998 1999 SEPTEMBER 30, 2000
---- ---- ---- ---- ---- ------------------
Consolidated ratio of earnings to fixed
charges....................................... NA NA NA NA NA NA
Consolidated ratio of earnings to fixed charges
and preferred dividends....................... NA NA NA NA NA NA
For the years ended December 31, 1995, 1996, 1997, 1998 and 1999, and the
nine months ended September 30, 2000, earnings were insufficient to cover fixed
charges during the periods presented by a deficiency in the amount of $12.7
million, $70.0 million, $127.9 million, $279.0 million, $564.2 million, and
$626.6 million, respectively.
For the years ended December 31, 1995, 1996, 1997, 1998 and 1999, and the
nine months ended September 30, 2000, earnings were insufficient to cover fixed
charges and preferred dividends by a
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deficiency in the amount of $12.7 million, $70.0 million, $167.2 million, $337.7
million, $633.4 million, and $734.1 million, respectively.
USE OF PROCEEDS
Except as otherwise set forth in an accompanying prospectus supplement, we
plan to use substantially all of the net proceeds from the sale of any
securities, together with internally generated funds and possible future
borrowings, to expand our networks and services, and related infrastructure, and
to fund operating losses, working capital and possible acquisitions. Until we
use the proceeds in this manner, we may temporarily use them to make short-term
investments or to reduce short-term borrowings.
SUMMARY DESCRIPTION OF THE SECURITIES WE MAY ISSUE
We may use this prospectus to offer up to $2,000,000,000 (or its
equivalent) of:
- Senior debt securities. These debt securities may be convertible or
exchangeable into preferred stock, depositary shares or Class A common
stock. They will be unsecured and will rank equally with all of our other
unsubordinated and unsecured debt.
- Subordinated debt securities. These debt securities may be convertible
or exchangeable into preferred stock, depositary shares or Class A common
stock. They will be unsecured and will rank equally with all of our other
subordinated and unsecured debt.
- Class A common stock, par value $.02 per share.
- Preferred stock, par value $.01 per share. The preferred stock may be
convertible or exchangeable into debt securities, other preferred stock
or Class A common stock. We can offer different series of preferred stock
with different dividend, liquidation, redemption, conversion and voting
rights.
- Depositary Shares. We have the option of issuing depositary shares that
would represent a fraction of a share of preferred stock.
- Warrants to purchase any of the foregoing securities.
- Stock Purchase Contracts and Stock Purchase Units. We have the option of
issuing stock purchase contracts, which represent the right to purchase
our Class A common stock or preferred stock, and stock purchase units,
which consist of a stock purchase contract and our debt securities or
preferred stock.
A prospectus supplement will describe the specific types, amounts, prices
and detailed terms of any of these securities.
DESCRIPTION OF DEBT SECURITIES WE MAY OFFER
As required by U.S. federal law for all bonds and notes of companies that
are publicly offered, our debt securities will be governed by a document called
an indenture. The indenture is a contract between us and a trustee. The trustee
has two main roles:
- First, the trustee can enforce your rights against us if we default.
There are, however, some limitations on the extent to which the trustee
acts on your behalf, described later under "-- Remedies if an Event of
Default Occurs."
- Second, the trustee performs administrative duties for us, such as
sending you interest payments, transferring your securities to new buyers
and sending you notices.
We may, in our discretion, issue several distinct series of debt securities
under the indentures. This section summarizes terms of the debt securities that
are common to all series and some other terms that may be applicable. Most of
the financial terms of each specific series of debt securities will be described
in
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the applicable prospectus supplement. Those terms may vary from the terms
described here and may contain some or all of the following:
- the title and series of the debt securities;
- whether the debt securities are senior or subordinated debt securities;
- any limit on the aggregate principal amount of the debt securities;
- the purchase price of the debt securities, expressed as a percentage of
the principal amount;
- the date or dates on which the principal of and any premium on the debt
securities will be payable or the method for determining the date or
dates;
- if the debt securities will bear interest, the interest rate or rates or
the method by which the rate or rates will be determined;
- if the debt securities will bear interest, the date or dates from which
any interest will accrue, the interest payment dates, the record dates
for those interest payment dates and the basis upon which interest shall
be calculated;
- if the debt securities will be issued at a discount, the amount of
original issue discount, the method by which the accreted value of the
securities will be determined and the dates from and to which original
issue discount will accrue;
- if other than the location specified in this prospectus, the place or
places where payments on the debt securities will be made and where the
debt securities may be surrendered for registration of transfer or
exchange;
- if we will have the option to redeem all or any portion of the debt
securities, the terms and conditions upon which the debt securities may
be redeemed;
- the terms and conditions of any sinking fund, repurchase right or other
similar provisions obligating us or permitting a holder to require us to
redeem or purchase all or any portion of the debt securities prior to
final maturity;
- the currency or currencies in which the debt securities are denominated
and payable if other than U.S. dollars;
- whether the amount of any payments on the debt securities may be
determined with reference to an index, formula or other method and the
manner in which such amounts are to be determined;
- any additions or changes to the events of default in the respective
indentures;
- any additions or changes with respect to the other covenants in the
respective indentures;
- the terms and conditions, if any, upon which the debt securities may be
convertible into preferred stock, depositary shares, Class A common stock
or other securities;
- the applicability of the defeasance and covenant defeasance provisions of
the applicable indenture; and
- any other terms of the debt securities consistent with the provisions of
the applicable indenture not specified in this prospectus.
The prospectus supplement may also describe special federal income tax
consequences of the debt securities, including any special U.S. federal income
tax, accounting and other considerations applicable to original issue discount
securities.
This section and the applicable prospectus supplement summarize all the
material terms of the indenture and your debt securities. They do not, however,
describe every aspect of the indenture and your debt securities. The indenture
and its associated documents, including your debt securities, contain the full
text of the matters described in this section and the applicable prospectus
supplement.
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FORM, EXCHANGE AND TRANSFER
Unless otherwise specified in the prospectus supplement, the securities
will be issued:
- only in fully registered form without coupons; and
- in denominations that are even multiples of $1,000.
You may have your securities broken into more securities of smaller
denominations or combined into fewer securities of larger denominations, as long
as the denomination is authorized and the total principal amount is not changed.
In circumstances described in "Legal Ownership -- Special Situations When a
Global Security Will Be Terminated," interests in a global security may be
exchanged for certificated securities. Any of these events is called an
"exchange."
You may exchange or transfer your securities at the office of the
registrar. The registrar acts as our agent for registering securities in the
names of holders and for transferring and exchanging securities, as well as
maintaining the list of registered holders.
We can designate additional registrars or paying agents, acceptable to the
trustee, and they would be named in the prospectus supplement. We may cancel the
designation of any particular registrar or paying agent. We may also approve a
change in the office through which any registrar or paying agent acts. We must
maintain a registrar and paying agent office in the Borough of Manhattan in New
York City. If at any time we do not maintain a registrar or paying agent, the
trustee will act as the registrar, the paying agent, or both.
There is no charge for exchanges and transfers. You will not be required to
pay a service charge to transfer or exchange securities, but you may be required
to pay for any tax or other governmental charge associated with the exchange or
transfer. The transfer or exchange will only be made if the registrar is
satisfied with your proof of ownership.
At certain times, you may not be able to transfer or exchange your
securities. If we redeem any series of securities, or any part of any series,
then we may prevent you from transferring or exchanging these securities. We may
do this during the period beginning 15 days before the day we mail the notice of
redemption and ending on the day of that mailing, in order to freeze the list of
holders so we can prepare the mailing. We may also refuse to register transfers
or exchanges of securities selected for redemption, except that we will continue
to permit transfers and exchanges of the unredeemed portion of any security
being partially redeemed.
REPLACING YOUR LOST OR DESTROYED CERTIFICATES
If you bring a mutilated certificate or coupon to the trustee, we will
issue a new certificate or coupon to you in exchange for the mutilated one.
Please note that the trustee may have additional requirements that you must meet
in order to do this.
If you claim that a certificate or coupon has been lost, completely
destroyed, or wrongfully taken from you, then the trustee will give you a
replacement certificate or coupon if you meet the trustee's requirements. Also,
we may require you to provide reasonable security or indemnity to protect us
from any loss we may incur from replacing your certificates or coupons. We may
also charge you for our expenses in doing this.
PAYMENT AND PAYING AGENTS
We will pay interest to you if you are a direct holder listed in the
registrar's records at the close of business on a particular day in advance of
each due date for interest, even if you no longer own the security on the
interest due date. That particular day, usually about two weeks in advance of
the interest due date, is called the "record date" and will be stated in the
prospectus supplement. Holders buying and selling securities must work out
between them how to compensate for the fact that we will pay all the interest
for an interest period to the one who is the registered holder on the record
date. The most
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common manner is to adjust the sales price of the securities to prorate interest
fairly between buyer and seller. This prorated interest amount is called
"accrued interest."
We will pay interest, principal and any other money due on the securities
at the corporate trust office of the trustee in New York City. We may also
choose to pay interest by mailing checks. "Street name" and other indirect
holders should consult their banks or brokers for information on how they will
receive payments.
We may also arrange for additional payment offices, and may cancel or
change these offices, including our use of the trustee's corporate trust office.
These offices are called "paying agents." We may also choose to act as our own
paying agent.
NOTICES
We and the trustee will send notices regarding the securities only to
direct holders, using their addresses as listed in the trustee's records.
Regardless of who acts as paying agent, all money we forward to a paying
agent that remains unclaimed will, at our request, be repaid to us at the end of
two years after the amount was due to the direct holder. After that two-year
period, you may look only to us for payment and not to the trustee, any other
paying agent or anyone else.
SPECIAL SITUATIONS
MERGERS AND SIMILAR TRANSACTIONS
We are generally permitted to consolidate or merge with another company. We
are also permitted to sell substantially all of our assets to another company or
to buy substantially all of the assets of another company. However, we may not
take any of these actions unless all the following conditions are met:
- If we merge out of existence or sell our assets, the acquiring company
may not be organized under the laws of a foreign country. It must be a
corporation, limited liability company, partnership or trust organized
under the laws of a State or the District of Columbia or under federal
law.
- The company we merge into or sell to must agree to be legally responsible
for our debt securities.
- Immediately after the transaction no event of default will exist.
- We have delivered to the trustee a certificate of an officer and an
opinion of counsel, each stating that the transaction complies with the
indenture and that all conditions precedent to the transaction set forth
in the indenture have been satisfied.
In addition to those conditions mentioned above, our senior indenture
prohibits mergers and similar transactions unless immediately following such
transaction the following conditions are met:
- The consolidated net worth of the successor company is equal to or
greater than ours immediately prior to the transaction; and
- If, as a result of the transaction, our property or assets would become
subject to a lien prohibited by the senior indenture, then the company
must first secure the senior debt securities.
Certain of our subsidiaries may be designated as "restricted" under the
indentures. These conditions regarding sales of substantially all assets do not
apply to the following types of transactions involving restricted subsidiaries:
- a transfer of assets from one restricted subsidiary to another; and
- a transfer of ownership interests in a restricted subsidiary from us to
another restricted subsidiary.
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MODIFICATION AND WAIVER OF YOUR CONTRACTUAL RIGHTS
Under certain circumstances, we can make changes to the indentures and the
securities. Some types of changes require the approval of each security holder
affected, some require approval by a majority vote with respect to each affected
series of securities, some require approval by a majority vote of all affected
securities, voting together as a single class, and some changes do not require
any approval at all.
Changes Requiring Your Approval. First, there are changes that cannot be
made to your securities without your specific approval. Following is a list of
those types of changes:
- change the due date of the principal of, or any installment of interest
on, any security;
- reduce the principal amount of, or rate of interest on, any security,
including, in the case of any original discount security, the amount
payable upon acceleration of the maturity of that security;
- change the place or currency of payment of principal of, or interest on,
any security;
- waive a default in the payment of principal of, or interest on, any
security;
- impair the right to institute suit for enforcement of any payment on or
with respect to any security;
- reduce the percentage of outstanding securities that must consent to a
modification or amendment of the indenture;
- reduce the percentage of outstanding securities that must consent to a
waiver of compliance with certain provisions of the indenture or for
waiver of certain defaults;
- following the mailing of any notice for certain repurchase offers, modify
the provisions of the offer in a manner materially adverse to the holders
of the securities;
- in the case of convertible securities, make changes to your conversion or
exchange rights that would be adverse to your interests;
- in the case of subordinated debt securities, modify the subordination
provisions to expand the category of debt to which such debt is
subordinated; or
- make any change to this list of changes that requires your specific
approval.
Changes Requiring a Majority Vote of the Holders of a Series of
Securities. The second type of change to the indentures and the securities is
the kind that requires a vote in favor by security holders owning a majority of
the principal amount of the particular series affected.
Changes falling in this category relate to actions:
- directing the time, method, and place of conducting any proceeding for
any remedy available to the Trustees for that series, or exercising any
power conferred upon such Trustee; or
- consenting or waiving, on behalf of all holders of securities of that
series, any past default and its consequences.
We cannot obtain a waiver of a payment default or any other aspect of the
indenture or the securities listed in the first category described previously
under "Changes Requiring Your Approval" unless we obtain your individual consent
to the waiver.
Changes Requiring a Majority Vote of the Holders of All Series and Classes
of Securities Affected. The third type of change will be effective against all
holders of an affected series if either:
- the holders of a majority of the principal amount of that series vote in
favor of the change; or
- the holders of a majority of the principal amount of all the following
debt securities, voting together as a single class, vote in favor of the
change:
- all affected series of securities under the indentures; and
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- all other affected classes of debt securities to be issued by us,
whose terms specifically provide that they will vote as one class with
securities issued under the indentures on matters that affect all such
series and clauses.
Only the holders of securities of series under the indentures or other
classes of debt securities that will be affected by the change may vote on the
change, and all such holders will vote together as a single class. If the
holders of a majority of the principal amount of all such securities vote for
the change, it will be effective as to all holders of all series and classes
entitled to vote on the change, even if the holders of a majority of the
principal amount of any one or more series or classes do not vote in favor of
the change.
Most changes fall into this category, except for clarifying changes and
certain other changes that would not adversely affect holders of the securities.
However, we cannot obtain a waiver of a payment default or any other aspect of
the indenture or the securities listed in the first category described
previously under "Changes Requiring Your Approval" unless we obtain your
individual consent to the waiver. We also cannot obtain a waiver of a past
default or a consent to change any other aspect of the indenture or the
securities listed in the second category described previously under "Changes
Requiring a Majority Vote of the Holders of a Series of Securities" without the
consent of the holders of a majority of the principal amount of the affected
series.
Changes Not Requiring Your Approval. The fourth type of change does not
require any vote by holders of securities. This type is limited to changes to
reflect the succession of another entity to us and the assumption by that entity
of our obligations and to clarifications of ambiguous contract terms and other
changes that would not adversely affect holders of the securities.
Securities will not be considered outstanding, and therefore not eligible
to vote, if we have deposited or set aside in trust for you money for their
payment or redemption. A security does not cease to be outstanding because we or
an affiliate of us is holding the security, but will be deemed not outstanding
in determining whether the holders of the requisite amount of securities have
acted under the indenture.
We will generally be entitled to set any day as a record date for the
purpose of determining the holders of outstanding securities that are entitled
to vote or take other action under the indenture. However, the indenture does
not oblige us to fix any record date at all. If we set a record date for a vote
or other action to be taken by holders of a particular series, that vote or
action may be taken only by persons who are holders of outstanding securities of
that series on the record date and must be taken within 180 days following the
record date.
"Street name" and other indirect holders should consult their banks or
brokers for information on how approval may be granted or denied if we seek to
change the indenture or the securities or request a waiver.
DEFEASANCE AND COVENANT DEFEASANCE
When we establish a series of debt securities, we may provide that the
series be subject to the defeasance and discharge provisions of the applicable
indenture. If those provisions are made applicable, we may elect either:
- to defease and be discharged from, subject to some limitations, all of
our obligations with respect to those debt securities; or
- to be released from our obligations to comply with specified covenants
relating to those debt securities as described in the prospectus
supplement.
To effect the defeasance or covenant defeasance, we must irrevocably
deposit in trust with the relevant trustee an amount in any combination of funds
or government obligations, which, through the payment of principal and interest
in accordance with their terms, will provide money sufficient to make payments
on those debt securities and any mandatory sinking fund or analogous payments on
those debt securities.
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On such a defeasance, we will not be released from obligations:
- to pay additional amounts, if any, upon the occurrence of some events;
- to register the transfer or exchange of those debt securities;
- to replace some of those debt securities;
- to maintain an office relating to those debt securities; or
- to hold moneys for payment in trust.
To establish such a trust we must, among other things, deliver to the
relevant trustee an opinion of counsel to the effect that the holders of those
debt securities:
- will not recognize income, gain or loss for U.S. federal income tax
purposes as a result of the defeasance or covenant defeasance; and
- will be subject to U.S. federal income tax on the same amounts, in the
same manner and at the same times as would have been the case if the
defeasance or covenant defeasance had not occurred. In the case of
defeasance, the opinion of counsel must be based upon a ruling of the IRS
or a change in applicable U.S. federal income tax law occurring after the
date of the applicable indenture.
If we effect covenant defeasance with respect to any debt securities, the
amount on deposit with the relevant trustee will be sufficient to pay amounts
due on the debt securities at the time of their stated maturity. However, those
debt securities may become due and payable prior to their stated maturity if
there is an event of default with respect to a covenant from which we have not
been released. If that happens, the amount on deposit may not be sufficient to
pay all amounts due on the debt securities at the time of the acceleration.
The prospectus supplement may further describe the provisions, if any,
permitting defeasance or covenant defeasance, including any modifications to the
provisions described above.
REDEMPTION
The indenture under which your debt securities are issued may permit us to
redeem your securities. If so, we may be able to pay off your securities before
their normal maturity. If we have this right with respect to your specific
securities, the right will be mentioned in the prospectus supplement. It will
also specify when we can exercise this right and how much we will have to pay in
order to redeem your securities.
If we choose to redeem your securities, we will mail written notice to you
not less than 30 days and not more than 60 days prior to redemption. Also, you
may be prevented from exchanging or transferring your securities when they are
subject to redemption, as described under "-- Form, Exchange and Transfer"
above.
RANKING COMPARED TO OTHER CREDITORS
The securities are not secured by any of our property or assets.
Accordingly, your ownership of securities means you are one of our unsecured
creditors.
SENIOR SECURITIES
Senior debt securities will be issued under the senior indenture. If your
securities are senior, they will rank equally in right of payment with one
another, with all our other outstanding unsecured and senior indebtedness, and
with our future unsecured and senior indebtedness. All subordinated debt,
including, but not limited to, all subordinated securities, will be subordinated
to the senior debt securities and other outstanding senior indebtedness.
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SUBORDINATED SECURITIES
Subordinate Indenture. Subordinated debt securities will be issued under
the subordinated indenture. Payments on the subordinated securities will be
subordinated to our senior indebtedness, whether outstanding on the date of the
subordinated indenture or incurred after that date. The applicable prospectus
supplement for each issuance of subordinated securities will specify the
aggregate amount of our outstanding indebtedness as of the most recent
practicable date that would rank senior to and equally with the offered
subordinated securities.
Ranking. If your securities are subordinated, they will rank equally in
right of payment with one another, with all our other outstanding unsecured and
subordinated indebtedness and with our future unsecured and subordinated
indebtedness.
Subordination provisions. If any of the events specified below occur, the
holders of our senior indebtedness must receive payment of the full amount due
on the senior indebtedness, or that payment must be duly provided for, before we
may make payments on the subordinated securities. These events are:
- the occurrence and continuation of a payment default on any senior
indebtedness;
- a declaration of the principal of any series of the senior debt
securities, or, in the case of original issue discount securities, the
portion of the principal amount specified under their terms, as due and
payable, that has not been rescinded and annulled; or
- any distribution of our assets upon our liquidation, reorganization or
other similar transaction except for a distribution in connection with a
merger or other transaction complying with the covenant described above
under "-- Special Situation -- Mergers and Similar Transactions."
In addition, in the event of the acceleration of any series of subordinated
securities, the holders of senior indebtedness outstanding at the time of the
acceleration of those subordinated securities will be entitled to receive
payment of the full amount due on that senior indebtedness, or such payment must
be duly provided for, before we make payments on the subordinated securities.
The prospectus supplement may include additional terms implementing the
subordination feature.
As a result of the subordination provisions, some of our general creditors,
including holders of our senior indebtedness, may recover more, ratably, than
the holders of the subordinated securities in the event of insolvency.
Regardless of whether you hold senior or subordinated debt securities, the
trustee has a right to receive payment for its administrative services prior to
any payment to security holders after a default.
EVENTS OF DEFAULT
You will have special rights if an event of default occurs and is not
cured, as described later in this subsection.
WHAT IS AN EVENT OF DEFAULT?
The term "event of default" with respect to any series of senior or
subordinated debt securities means any of the following:
- we fail to make any interest payment on a security when it is due, and we
do not cure this default within 30 days;
- we fail to make any payment of principal when it is due at the maturity
of any security or upon redemption;
- We fail to deposit a sinking fund payment when due when required by a
particular series of debt.
- we fail to comply with or perform the conditions identified above under
"-- Special Situations -- Mergers and Similar Transactions."
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- we fail to comply with any of our other agreements regarding a particular
series of securities or with the indenture, and after we have been
notified of the default by the trustee or holders of 25% in principal
amount of the series, we do not cure the default within 60 days;
- we default under the terms of any instrument evidencing or securing our
debt or the debt of any of our material subsidiaries having a specific
outstanding principal amount, which default results in the acceleration
of the payment of such debt;
- judgments, not subject to appeal, are rendered against us or any of our
significant subsidiaries in a specific amount that remains undischarged
or unstayed for a period of 45 days after the right to appeal such
judgments has expired;
- we or any of our material subsidiaries file for bankruptcy, or other
events in bankruptcy, insolvency or reorganization occur; or
- any other event of default described in the prospectus supplement occurs.
REMEDIES IF AN EVENT OF DEFAULT OCCURS
You will have the following remedies if an event of default occurs:
Acceleration. If an event of default other than an event of default
relating to events in bankruptcy, insolvency or reorganization has occurred and
has not been cured or waived, then the trustee or the holders of 25% in
principal amount of the securities of the affected series may declare the entire
principal amount of and any accrued interest on all the securities of that
series to be due and immediately payable. An acceleration of maturity may be
cancelled by the holders of at least a majority in principal amount of the
securities of the affected series, if all events of default have been cured or
waived.
If an event of default relating to events in bankruptcy, insolvency or
reorganization has occurred as to us or any of our significant subsidiaries, all
unpaid principal and accrued and unpaid interest, and liquidated damages, if
any, become immediately due and payable without any declaration or other act of
the trustee or any holder.
Special Duties of Trustee. If an event of default occurs, the trustee will
have some special duties. In that situation, the trustee will be obligated to
use those of its rights and powers under the indenture, and to use the same
degree of care and skill in doing so, that a prudent person would use in that
situation in conducting his or her own affairs.
Majority Holders May Direct the Trustee to Take Actions to Protect Their
Interests. The trustee is not required to take any action under the indenture
at the request of any holders unless the holders offer the trustee reasonable
protection from expenses and liability. This is called an "indemnity." If the
trustee is provided with an indemnity reasonably satisfactory to it, the holders
of a majority in principal amount of the relevant series of debt securities may
direct the time, method and place of conducting any lawsuit or other formal
legal action seeking any remedy available to the trustee. These majority holders
may also direct the trustee in performing any other action under the indenture.
Individual Actions You May Take if the Trustee Fails to Act. Before you
bypass the trustee and bring your own lawsuit or other formal legal action or
take other steps to enforce your rights or protect your interests relating to
the securities, the following must occur:
- you must give the trustee written notice that an event of default has
occurred and remains uncured;
- the holders of 25% in principal amount of all outstanding securities of
the relevant series must make a written request that the trustee take
action because of the default, and must offer reasonable indemnity to the
trustee against the cost and other liabilities of taking that action;
- the trustee must not have taken action for 60 days after receipt of the
above notice and offer of indemnity; and
- during the 60-day period, the holders of a majority in principal amount
of the securities of that series do not give the trustee a direction
inconsistent with the request.
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However, you are entitled at any time to bring an individual lawsuit for
the payment of the money due on your security on or after its due date.
WAIVER OF DEFAULT
The holders of a majority in principal amount of the relevant series of
debt securities may waive a default for all the relevant series of debt
securities. If this happens, the default will be treated as if it has not
occurred. No one can waive a payment default on your debt security, however,
without your individual approval.
WE WILL GIVE THE TRUSTEE INFORMATION ABOUT DEFAULTS PERIODICALLY
Every fiscal quarter we will give to the trustee a written statement of one
of our officers certifying that to the best of his or her knowledge we are in
compliance with the indenture and the debt securities, or else specifying any
default. The trustee may withhold from you notice of any uncured default, except
for payment defaults, if it determines that withholding notice is in your
interest.
"Street name" and other indirect holders should consult their banks or
brokers for information on how to give notice or direction to or make a request
of the trustee and how to make or cancel a declaration of acceleration.
ORIGINAL ISSUE DISCOUNT SECURITIES
The debt securities of any series may be issued as original issue discount
securities, which means they will be offered and sold at a substantial discount
from their principal amount. Only a discounted amount will be due and payable
when the trustee declares the acceleration of the maturity of these debt
securities after an event of default has occurred and continues, as described
under "-- Remedies if an Event of Default Occurs" above.
CONVERTIBLE DEBT SECURITIES
Your debt securities may be convertible into our preferred stock,
depositary shares representing preferred stock, or Class A common stock. If your
debt securities are convertible, the prospectus supplement will include
provisions as to whether conversion is mandatory, at your option or at our
option. The prospectus supplement will specify the conversion rate or price. If
the debt securities are convertible at your option, you may have the right to
convert a portion of the security in any multiple of $1,000.
Your convertible debt securities also may provide that we may cause your
right of conversion to terminate if conditions specified in the prospectus
supplement are satisfied. If we satisfy these conditions and elect to terminate
your conversion rights, we will provide you with a notice as set forth in the
prospectus supplement. In addition, the prospectus supplement may provide for
adjustment to the conversion price upon the occurrence of specified events, such
as certain stock combinations or stock-splits of our stock or the issuance of
shares of stock as a dividend.
WE MAY NOT ADJUST THE CONVERSION PRICE
Unless it is specified in the prospectus supplement, we will not adjust the
conversion price of your debt securities for interest on your securities or for
any dividends payable on the new securities you will receive, other than as a
result of the applicable adjustment provisions summarized above. However, if you
convert your securities between a regular record date for the payment of
interest and the next following interest payment date, your securities to be
converted must be accompanied by a payment equal to the interest that would be
payable on your securities on this following interest payment date. The payment
will not have to accompany convertible debt securities surrendered for
conversion if those convertible debt securities have been called for redemption
during that period.
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We will not be required to issue fractional shares of preferred stock,
depositary shares or Class A common stock on conversion, but, unless we
otherwise specify in the prospectus supplement, we will pay you a cash
adjustment on conversion calculated on the basis of the following:
- for debt securities convertible into preferred stock or depositary
shares, the liquidation preference of the series of preferred stock or
depositary shares; and
- for debt securities convertible into Class A common stock, the market
value of the Class A common stock.
DESCRIPTION OF PREFERRED STOCK WE MAY OFFER
The following discussion briefly summarizes the material terms of our
preferred stock other than pricing and other particular terms of any series of
preferred stock which will be disclosed in the accompanying prospectus
supplement relating to that series. You should read the particular terms of any
series of preferred stock we offer, which will be described in more detail in
the prospectus supplement relating to that series. The prospectus supplement
will also state whether any of the terms summarized below do not apply to the
series of preferred stock being offered. In addition, for each series of
preferred stock, we will file a certificate of designations containing the
specific terms of the series as an exhibit to the registration statement or we
will incorporate it by reference before we issue the preferred stock.
GENERAL
Our amended and restated certificate of incorporation and the Delaware
General Corporation Law give our board of directors the authority, without
further stockholder action, to issue a maximum of 25,000,000 shares of preferred
stock.
Of the 25,000,000 shares of preferred stock that we are authorized to issue
under our amended and restated certificate of incorporation, there remains
7,045,000 shares of preferred stock as to which our board of directors has yet
to designate the rights and terms. Our board of directors has the authority to
fix the following terms with respect to the undesignated shares of any series of
preferred stock:
- the designation of the series;
- the number of shares to comprise the series;
- the dividend rate or rates payable with respect to the shares of the
series;
- the redemption price or prices, if any, and the terms and conditions of
any redemption;
- the voting rights;
- any sinking fund provisions for the redemption or purchase of the shares
of the series;
- the terms and conditions upon which the shares are convertible or
exchangeable, if they are convertible or exchangeable; and
- any other relative rights, preferences and limitations pertaining to the
series.
The preferred stock we may offer will have the rights described in this
section unless the applicable prospectus supplement provides otherwise. You
should read the prospectus supplement relating to the particular series of the
preferred stock for specific terms, including:
- the designation, stated value and liquidation preference of that series
of the preferred stock and the number of shares offered;
- the initial public offering price at which the shares will be issued;
- the dividend rate or rates or method of calculation of dividends, the
dividend periods, the date or dates on which dividends will be payable
and whether such dividends will be cumulative or noncumulative and, if
cumulative, the dates from which dividends shall commence to cumulate;
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- any redemption or sinking fund provisions;
- any conversion or exchange provisions;
- the procedures for any auction and remarketing, if any, of that series of
preferred stock;
- whether interests in that series of preferred stock will be represented
by our depositary shares; and
- any additional dividend, liquidation, redemption, sinking fund and other
rights, preferences, privileges, limitations and restrictions of that
series of preferred stock.
When we issue shares of preferred stock against payment for the shares,
they will be fully paid and nonassessable. This means that the full purchase
price for those shares will have been paid and the holders of those shares will
not be assessed any additional monies for those shares. Holders of preferred
stock will have no preemptive rights to subscribe for any additional securities
that we may issue.
VOTING RIGHTS
Unless the applicable prospectus supplement states otherwise, or except as
expressly required by applicable law, the holders of preferred stock will not be
entitled to vote.
DIVIDENDS
The holders of the preferred stock may be entitled to receive dividends, if
declared by our board of directors out of our assets that we can legally use to
pay dividends. The prospectus supplement relating to a particular series of
preferred stock will describe the dividend rates, if any, and dates on which any
dividends will be payable. The rates may be fixed or variable or both. If the
dividend rate is variable, the prospectus supplement will describe the formula
used for determining the dividend rate for each dividend period. We will pay any
dividends to the holders of record as they appear on our stock books on the
record dates fixed by our board of directors. The prospectus supplement will
specify whether dividends will be paid in the form of cash, shares of preferred
stock or shares of Class A common stock.
The applicable prospectus supplement will also state whether dividends on
any series of preferred stock are cumulative or noncumulative. If our board of
directors does not declare a dividend payable on a dividend payment date on any
noncumulative series of preferred stock, then the holders of that series will
not be entitled to receive a dividend for that dividend period. In those
circumstances, we will not be obligated to pay the dividend accrued for that
period, whether or not dividends on such preferred stock are declared or paid on
any future dividend payment dates.
Our board of directors may not declare and pay a dividend on any of our
stock ranking, as to dividends, equal with or junior to any series of preferred
stock unless full dividends on that series have been declared and paid, or
declared and sufficient money is set aside for payment. We will not owe any
interest, or any money in lieu of interest, on any dividend payment(s) on any
series of the preferred stock which may be past due.
LIQUIDATION RIGHTS
Unless the applicable prospectus supplement states otherwise, if we
liquidate, dissolve or wind up our business, the holders of shares of each
series of the preferred stock will be entitled to receive:
- liquidation distributions according to the order of preference of such
applicable series; and
- all accrued and unpaid dividends whether or not earned or declared.
We will pay these amounts to the holders of shares of each series of the
preferred stock, and all amounts owing on any preferred stock ranking equally
with that series of preferred stock as to liquidating distributions, out of our
assets available for distribution to stockholders. These payments will be made
before any distribution is made to holders of any securities ranking junior to
the series of preferred stock upon liquidation.
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If we liquidate, dissolve or wind up our business and the assets available
for distribution to the holders of the preferred stock of any series and any
other shares of our stock ranking equal with that series as to liquidating
distributions are insufficient to pay all amounts to which the holders are
entitled, then we will make pro rata distributions to the holders of all shares
ranking equal as to liquidating distributions. This means that the distributions
we pay to these holders will bear the same relationship to each other that the
full distributable amounts for which these holders are respectively entitled
upon liquidation of our business bear to each other.
After we pay the full amount of the liquidation distribution to which the
holders of a series of the preferred stock are entitled, those holders will have
no right or claim to any of our remaining assets.
REDEMPTION
Preferred stock may be redeemable, in whole or in part, at our option, and
may be subject to mandatory redemption through a sinking fund or otherwise as
may be described in the applicable prospectus supplement.
If a series of preferred stock is subject to mandatory redemption, the
prospectus supplement will specify the number of shares that we will redeem each
year and the redemption price. If preferred stock is redeemed, we will pay all
accrued and unpaid dividends on those shares to, but excluding, the redemption
date. In the case of any noncumulative series of preferred stock, accrued and
unpaid dividends will not include any accumulation of dividends for prior
dividend periods. The prospectus supplement will also specify whether we will
pay the redemption price in cash or other property. If the redemption price for
preferred stock of any series is payable only from the net proceeds of the
issuance of our capital stock, the terms of that preferred stock may provide for
its automatic conversion upon the occurrence of certain events.
If fewer than all of the outstanding shares of any series of the preferred
stock are to be redeemed, our board of directors will determine the number of
shares to be redeemed. We may redeem the shares pro rata from the holders of
record in proportion to the number of shares held by them, with adjustments to
avoid redemption of fractional shares, or by lot in a manner determined by our
board of directors.
Even though the terms of a series of preferred stock may permit redemption
of shares of preferred stock in whole or in part, if any dividends, including
accumulated dividends, on that series are past due:
- we will not redeem any preferred stock of that series unless we
simultaneously redeem all outstanding shares of preferred stock of that
series; and
- we will not purchase or otherwise acquire any preferred stock of that
series.
The prohibition discussed in the prior sentence will not prohibit us from
purchasing or acquiring preferred stock of that series through a purchase or
exchange offer if we make the offer on the same terms to all holders of that
series.
Unless the prospectus supplement specifies otherwise, we will give notice
of a redemption by mailing a notice to each record holder of the shares to be
redeemed, between 30 to 60 days prior to the date fixed for redemption. We will
mail the notices to the holders' addresses as they appear on our stock records.
Each notice will state:
- the redemption date;
- the number of shares and the series of the preferred stock to be
redeemed;
- the redemption price;
- the place or places where holders can surrender the certificates for the
preferred stock for payment of the redemption price;
- that dividends on the shares to be redeemed will cease to accrue on the
redemption date; and
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- the date when the holders' conversion rights, if any, will terminate.
If we redeem fewer than all shares of any series of the preferred stock
held by any holder, we will also specify the number of shares to be redeemed
from the holder in the notice.
If we have given notice of the redemption and have provided the funds for
the payment of the redemption price, then beginning on the redemption date:
- the dividends on the preferred stock called for redemption will no longer
accrue;
- such shares will no longer be considered outstanding; and
- the holders will no longer have any rights as stockholders except to
receive the redemption price.
When the holders of these shares surrender the certificates representing
these shares, in accordance with the notice, the redemption price described
above will be paid out of the funds we provide. If fewer than all the shares
represented by any certificate are redeemed, a new certificate will be issued
representing the unredeemed shares without cost to the holder of those shares.
CONVERSION RIGHTS
The prospectus supplement relating to a series of preferred stock that is
exchangeable or convertible will state the terms on which shares of that series
are exchangeable for or convertible into Class A common stock, another series of
preferred stock or debt securities. If your preferred stock is exchangeable or
convertible, the prospectus supplement will include provisions as to whether
exchange or conversion is mandatory, at your option or at our option. The
prospectus supplement will specify the exchange or conversion price or rate. If
the preferred stock is exchangeable or convertible at your option, you may have
the right to exchange or convert a portion of it. In addition, your preferred
stock may provide that we may cause your right of exchange or conversion to
terminate if conditions specified in the prospectus supplement are satisfied. If
we satisfy these conditions and elect to terminate your exchange or conversion
rights, we will provide you with a notice as set forth in the prospectus
supplement.
In addition, the prospectus supplement may provide for adjustment to the
exchange or conversion price or rate upon the occurrence of specified events,
such as certain stock combinations or stock-splits of our stock or the issuance
of shares of stock as a dividend. Unless it is specified in the prospectus
supplement, we will not adjust the exchange or conversion price of your
preferred stock for interest or for any dividends payable on the new securities
you will receive, other than as a result of the applicable adjustment provisions
summarized above. However, if you exchange or convert your securities between a
regular dividend date for the payment of dividends and the next following
dividend payment date, your securities to be converted must be accompanied by a
payment equal to the dividends that would be payable on your securities on this
following dividend payment date. The payment will not have to accompany
convertible debt securities surrendered for conversion if those convertible debt
securities have been called for redemption during that period.
We are not required to issue fractional shares of preferred stock or Class
A common stock on conversion, but, unless we otherwise specify in the prospectus
supplement, we will pay you a cash adjustment on conversion calculated on the
basis of the following:
- for preferred stock convertible into another series of preferred stock,
the liquidation preference of the series of preferred stock; and
- for preferred stock convertible into Class A common stock, the market
value of the Class A common stock.
DESCRIPTION OF DEPOSITARY SHARES WE MAY OFFER
The following information outlines some of the provisions of the deposit
agreement, the depositary shares and the depositary receipts. This information
may not be complete in all respects and is qualified
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entirely by reference to the relevant deposit agreement and depositary receipts
with respect to the depositary shares relating to any particular series of
preferred stock. The specific terms of any series of depositary shares will be
described in the relevant prospectus supplement. If so described in the
prospectus supplement, the terms of that series of depositary shares may differ
and supersede some or all of the terms presented below.
GENERAL
We may elect to offer fractional interests in shares of preferred stock
instead of whole shares of preferred stock. If so, we will allow a depositary to
issue depositary shares to the public, each of which will represent a fractional
interest in a share of the relevant series of preferred stock, as described in
the relevant prospectus supplement, of a share of preferred stock.
The shares of the preferred stock underlying any depositary shares will be
deposited under a separate deposit agreement between us and a bank or trust
company acting as depositary with respect to that series. The depositary will
have its principal office in the United States and have a combined capital and
surplus of at least $50,000,000. The relevant prospectus supplement relating to
a series of depositary shares will mention the name and address of the
depositary. Under the relevant deposit agreement, each owner of a depositary
share will be entitled, in proportion to its fractional interest in a share of
the preferred stock underlying that depositary share, to all the rights and
preferences of that preferred stock, including dividend, voting, redemption,
conversion, exchange and liquidation rights.
Depositary shares will be evidenced by one or more depositary receipts
issued under the relevant deposit agreement.
Pending the preparation of definitive engraved depositary receipts, a
depositary may, upon our order, issue temporary depositary receipts
substantially identical to and entitling their holders to all the rights
pertaining to the definitive depositary receipts, but not in definitive form.
Definitive depositary receipts will be prepared without unreasonable delay, and
the temporary depositary receipts will be exchangeable for definitive depositary
receipts at our expense.
DIVIDENDS AND OTHER DISTRIBUTIONS
The depositary will distribute all cash dividends or other cash
distributions in respect of the preferred stock to the record depositary
shareholders based on the number of the depositary shares owned by that holder
on the relevant record date. The depositary will distribute only that amount
which can be distributed without attributing to any depositary shareholders a
fraction of one cent, and any balance not so distributed will be added to and
treated as part of the next sum received by the depositary for distribution to
the depositary shareholders of record.
If there is a distribution other than in cash, the depositary will
distribute property to the depositary shareholders of record on a pro rata
basis, unless the depositary determines that it is not feasible to make that
distribution. In that case, the depositary may, with our consultation, adopt a
method it deems equitable and practicable for making that distribution,
including any sale of property and the distribution of the net proceeds from
that sale to the concerned holders.
Each deposit agreement will also contain provisions relating to the manner
in which any subscription or similar rights we offer to preferred stockholders
of the relevant series will be made available to depositary shareholders.
WITHDRAWAL OF STOCK
Upon surrender of depositary receipts at the depositary's office, the
holder of the relevant depositary shares will be entitled to the number of whole
shares of the related series of preferred stock and any money or other property
those depositary shares represent. Depositary shareholders will be entitled to
receive whole shares of the related preferred stock series on the basis
described in the relevant prospectus supplement, but holders of those whole
preferred stock shares will not afterward be entitled to receive
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depositary shares in exchange for their shares. If the depositary receipts the
holder delivers evidence a depositary share number exceeding the whole share
number of the related preferred stock series to be withdrawn, the depositary
will deliver to that holder a new depositary receipt evidencing the excess
depositary share number.
REDEMPTION; LIQUIDATION
The terms on which the depositary shares relating to the preferred stock of
any series may be redeemed, and any amounts distributable upon our liquidation,
dissolution or winding up, will be described in the relevant prospectus
supplement.
CONVERSION
The depositary shares, as such, are not convertible or exchangeable into
our common stock or any of our other securities or property. Nevertheless, the
prospectus supplement relating to an offering of depositary shares may provide
that the holders of depositary receipts may surrender their depositary receipts
to the depositary with written instructions to the depositary to instruct us to
cause the conversion or exchange of the preferred stock represented by these
depositary shares.
VOTING
Upon receiving notice of any meeting at which preferred stockholders of any
series of preferred stock underlying the depositary shares are entitled to vote,
the depositary will mail the information contained in that notice to the
depositary shareholders of record relating to that series of preferred stock.
Each depositary shareholder on the record date will be entitled to instruct the
depositary on how to vote the shares of preferred stock underlying that holder's
depositary shares. The depositary will vote the preferred stock shares
underlying those depositary shares according to those instructions, and we will
take actions we deem necessary to enable the depositary to do so. If the
depositary does not receive specific instructions from the depositary
shareholders relating to that series of preferred stock, it will abstain from
voting those preferred stock shares, unless otherwise mentioned in the relevant
prospectus supplement.
AMENDMENT AND TERMINATION OF DEPOSIT AGREEMENT
The depositary receipt form evidencing the depositary shares and the
relevant deposit agreement may be amended by us and the depositary. However, any
amendment that significantly affects the rights of the depositary shareholders
will not be effective unless a majority of the outstanding depositary
shareholders approve that amendment. We or the depositary may terminate a
deposit agreement only if:
- we have redeemed or reacquired all outstanding depositary shares relating
to the deposit agreement;
- all preferred stock of the relevant series has been withdrawn;
- there has been a final distribution in respect of the relevant series of
preferred stock in connection with our liquidation, dissolution or
winding up and that distribution has been made to the relevant depositary
shareholders;
- all outstanding depository shares have been converted into or exchanged
for other securities; or
- upon determination by XO to terminate the deposit agreement.
CHARGES OF DEPOSITARY
We will pay all charges of each depositary in connection with the initial
deposit and any redemption of the preferred stock. Depositary shareholders will
be required to pay any other transfer and other taxes and governmental charges
and any other charges expressly provided in the deposit agreement to be for
their accounts.
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MISCELLANEOUS
Each depositary will forward to the relevant depositary shareholders all
reports and communications that we are required to furnish to our preferred
stockholders.
Neither any depositary nor XO will be liable if it is prevented or delayed
by law or any circumstance beyond its control in performing its obligations
under any deposit agreement. The obligations of each depositary under any
deposit agreement will be limited to performance in good faith of their duties
under that agreement, and they will not be obligated to prosecute or defend any
legal proceeding in respect of any depositary shares or preferred stock unless
they are provided with satisfactory indemnity. They may rely upon written advice
of counsel or accountants, or information provided by persons presenting
preferred stock for deposit, depositary shareholders or other persons believed
to be competent, and on documents believed to be genuine.
TITLE
We, each depositary and any of their agents may treat the registered owner
of any depositary share as the absolute owner of that share, whether or not any
payment for that depositary share is overdue and despite any notice to the
contrary, for any purpose. See "Legal Ownership of Securities."
RESIGNATION AND REMOVAL OF DEPOSITARY
A depositary may resign at any time by delivering to us notice of its
election to resign, and we may remove a depositary, and resignation or removal
will take effect upon the appointment of a successor depositary and its
acceptance of appointment.
DESCRIPTION OF COMMON STOCK WE MAY OFFER
We may issue, either separately or together with other securities, shares
of our Class A common stock. A prospectus supplement relating to an offering of
Class A common stock, or other securities convertible or exchangeable for, or
exercisable into, Class A common stock, will describe the relevant terms,
including the number of shares offered, any initial offering price, and market
price and dividend information, as well as, if applicable, information on other
related securities. Holders of Class A common stock will have no preemptive
rights to subscribe for any additional securities that we may issue.
We have summarized all material terms and provisions of our outstanding
common stock in this section. However, you should read our amended and restated
certificate of incorporation and our restated bylaws for additional information
before you purchase any of our common stock.
AUTHORIZED COMMON STOCK
Total Shares. We have the authority to issue a total of 1,120,000,000
shares of common stock consisting of:
- 1,000,000,000 shares of Class A common stock, par value $0.02 per share;
and
- 120,000,000 shares of Class B common stock, par value $0.02 per share.
Class A Common Stock. As of January 5, 2001, the number of shares of Class
A common stock issued and outstanding were 262,062,366.
Class B Common Stock. As of January 5, 2001, the number of shares of Class
B common stock issued and outstanding were 105,414,226.
Preemptive Rights. The holders of Class A common stock and Class B common
stock do not have preemptive rights to purchase or subscribe for any of our
stock or other securities.
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CLASS A COMMON STOCK
Voting Rights. Each outstanding share of Class A common stock is entitled
to one vote per share and votes with the Class B common stock as a single class
on all matters on which holders of common stock are entitled to vote.
Dividends. Class A common stock participates equally in any dividend, when
and as declared by our board of directors out of funds lawfully available
therefor, with the Class B common stock.
Liquidation Rights. In the event of the liquidation or distribution of our
assets, whether voluntary or involuntary, and subject to the rights, if any, of
any outstanding shares of preferred stock, the Class A common stock participates
equally with the Class B common stock.
CLASS B COMMON STOCK
Voting Rights. Each outstanding share of Class B common stock is entitled
to ten votes per share and votes with the Class A common stock as a single class
on all matters on which holders of common stock are entitled to vote.
Dividends. Class B common stock participates equally in any dividend, when
and as declared by our board of directors out of funds lawfully available
therefor, with the Class A common stock.
Liquidation Rights. In the event of the liquidation or distribution of our
assets, whether voluntary or involuntary, and subject to the rights, if any, of
any outstanding shares of preferred stock, the Class B common stock participates
equally with the Class A common stock.
Conversion. Each share of Class B common stock is convertible, at any time
and at the option of the holder thereof, into one share of Class A common stock.
In addition, each share of Class B common stock is convertible, at the option of
our board of directors, into one share of our Class A common stock at any time
the Class B common stock is transferred or presented to us for transfer on our
records by the holder thereof.
DESCRIPTION OF WARRANTS WE MAY OFFER
We may issue warrants for the purchase of debt securities, Class A common
stock, preferred stock or depositary shares. Warrants may be issued
independently or together with any debt securities, Class A common stock,
preferred stock or depositary shares offered by any prospectus supplement and
may be attached to or separate from those securities.
Each series of warrants will be issued under a separate warrant agreement
to be entered into between us and a bank or trust company, as warrant agent, all
as set forth in a prospectus supplement relating to the particular issue of the
warrants. The warrant agent will act solely as an agent of XO in connection with
warrant certificates evidencing the warrants and will not assume any obligation
or relationship of agency or trust for or with any holders of certificates
evidencing warrants or beneficial owners of warrants.
The relevant prospectus supplement relating to a series of warrants will
describe the terms of the offered warrants, including, where applicable, the
following:
- the offering price;
- the currency or currency units in which the purchase price for offered
warrants may be payable;
- the designation, aggregate principal amount, currency or currency units
and other terms of debt securities purchasable upon exercise of the
offered warrants;
- the terms of the securities issuable upon the exercise of the offered
warrants;
- the designation and terms of the other securities, if any, with which the
warrants are to be issued and the number of warrants issued with such
securities;
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- the date on and after which the offered warrants and the related
securities will be separately transferable;
- the price and currency or currency units at which the amount of debt
securities or shares of preferred stock or Class A common stock, as the
case may be, may be purchased upon exercise;
- the dates on which the right to exercise the offered warrants will
commence and expire;
- United States federal income tax consequences of holding or exercising
the warrants; and
- any other terms of the offered warrants.
Warrant certificates may be exchanged for new warrant certificates of
different denominations, may be presented for registration of transfer and may
be exercised at the warrant agent's corporate trust office or any other office
indicated in an applicable prospectus supplement. Prior to the exercise of any
warrants, holders of such warrants will not have any of the rights of holders of
the debt securities, preferred stock or Class A common stock, as the case may
be, purchasable upon such exercise, including the right to receive payments of
principal of, premium, if any, or interest, if any, on the debt securities or to
enforce covenants in any indenture, or to receive payments of dividends, if any,
on the Class A common stock or to exercise any applicable right to vote.
EXERCISE OF WARRANTS
Each warrant will entitle the holder to purchase the securities specified
in the applicable prospectus supplement at the exercise price set forth in, or
calculable from, the applicable prospectus supplement. Warrants may be exercised
at any time up to 5:00 P.M., New York time, on the expiration date set forth in
the applicable prospectus supplement. After the close of business on the
expiration date, any unexercised warrants will become void.
Warrants may be exercised by delivery of the warrant certificate to the
warrant agent, payment as provided in the applicable prospectus supplement of
the amount required to purchase the securities purchasable upon such exercise,
and certain information. The information required to be delivered will be on the
reverse side of the warrant certificate and in the applicable prospectus
supplement. Upon receipt of such payment and the warrant certificate properly
completed and duly executed at the corporate trust office of the warrant agent
or any other office indicated in an applicable prospectus supplement prior to
the close of business on the expiration date, we will, as soon as practicable,
issue and deliver the debt securities or shares of Class A common stock or
preferred stock or depositary shares issuable upon exercise. If fewer than all
of the warrants represented by the warrant certificate are exercised, a new
warrant certificate will be issued for the remaining amount of warrants.
In the case of warrants to purchase Class A common stock, the exercise
price payable and the number of shares of Class A common stock purchasable upon
warrant exercise may be adjusted in certain events, including:
- the issuance of a stock dividend to Class A common stockholders or a
combination, subdivision or reclassification of common stock;
- the issuance of rights, warrants or options to all Class A common
stockholders entitling them to purchase Class A common stock for an
aggregate consideration per share less than the current market price per
share of Class A common stock;
- any distribution to Class A common stockholders of evidences of our
indebtedness or of assets, excluding cash dividends or distributions
referred to above; and
- any other events mentioned in the applicable prospectus supplement.
No fractional shares will be issued upon warrant exercise, but we will pay
the cash value of any fractional shares otherwise issuable.
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MODIFICATION
XO and the relevant warrant agent may amend any warrant agreement and the
terms of the related warrants by executing a supplemental warrant agreement,
without the consent of any warrantholders, for the purpose of:
- curing any ambiguity, any defective or inconsistent provision contained
in the warrant agreement, or making any other corrections to the warrant
agreement that are not inconsistent with the provisions of the warrant
certificates;
- evidencing the succession of another corporation to XO and their
assumption of XO's covenants contained in the warrant agreement and the
warrants;
- appointing a successor depositary, if the warrants are issued in the form
of global securities;
- evidencing a successor warrant agent's acceptance of appointment with
respect to the warrants;
- issuing warrants in definitive form, if such warrants are initially
issued in the form of global securities;
- adding to our covenants for the warrantholders' benefit or surrendering
any right or power conferred upon us under the warrant agreement; or
- amending the warrant agreement and the warrants as we deem necessary or
desirable and that will not adversely affect the warrantholders'
interests in any material respect.
We may, with the warrant agent, also amend any warrant agreement and the
related warrants by a supplemental agreement with the consent of the holders of
a majority of the unexercised warrants that such amendment would affect, for the
purpose of adding, changing or eliminating any of the warrant agreement's
provisions or of modifying the holders' rights. However, without the consent of
each holder affected by the amendment, no such amendment may be made that:
- changes the number or amount of securities purchasable upon warrant
exercise or so as to increase the exercise price;
- shortens the time period during which the warrants may be exercised;
- otherwise adversely affects the exercise rights of such warrantholders in
any material respect; or
- reduces the number of unexercised warrants the consent of holders of
which is required for amending the warrant agreement or the related
warrants.
MERGER, CONSOLIDATION AND SALE OF ASSETS
Each warrant agreement will provide that we may consolidate or merge with
another company or sell substantially all of our assets to another company, or
buy substantially all of the assets of another company. However, we may not take
any of these actions, in the event we would no longer be a continuing company,
unless all of the following conditions are met:
- Where we merge out of existence or sell our assets, the other company may
not be organized under the laws of a foreign country. It must be a
corporation organized under the laws of a State or the District of
Columbia or under federal law;
- The company we merge into or sell to must agree to be legally responsible
for the performance of all covenants and conditions of the relevant
warrant agreement; and
- XO or that successor corporation must not immediately be in default under
that warrant agreement.
ENFORCEABILITY OF RIGHTS BY HOLDERS OF WARRANTS
Each warrant agent will act solely as our agent under the relevant warrant
agreement and will not assume any obligation or relationship of agency or trust
for any warrantholder. A single bank or trust company may act as warrant agent
for more than one issue of warrants. A warrant agent will have no duty
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or responsibility in case we default in performing our obligations under the
relevant warrant agreement or warrant, including any duty or responsibility to
initiate any legal proceedings or to make any demand upon XO. Any warrantholder
may, without the warrant agent's consent or of any other warrantholder, enforce
by appropriate legal action its right to exercise, and receive the securities
purchasable upon exercise of, that warrant.
REPLACEMENT OF WARRANT CERTIFICATES
We will replace any lost, stolen, destroyed or mutilated warrant
certificate upon delivery to us and the relevant warrant agent of satisfactory
evidence of the ownership of that warrant certificate and of the loss, theft,
destruction or mutilation of that warrant certificate, and, in the case of
mutilation, surrender of that warrant certificate to the relevant warrant agent,
unless XO or the warrant agent has received notice that the warrant certificate
has been acquired by a bona fide purchaser. That warrantholder will also be
required to provide indemnity satisfactory to the relevant warrant agent and XO
before a replacement warrant certificate will be issued.
TITLE
XO, the warrant agents and any of their agents may treat the registered
holder of any warrant certificate as the absolute owner of the warrants
evidenced by that certificate for any purpose and as the person entitled to
exercise the rights attaching to the warrants so requested, despite any notice
to the contrary.
DESCRIPTION OF STOCK PURCHASE CONTRACTS AND
STOCK PURCHASE UNITS WE MAY OFFER
We may issue stock purchase contracts, including contracts obligating
holders to purchase from us, and obligating us to sell to the holders, a
specified number of shares of our Class A common stock, or our preferred stock,
at a future date or dates. The price per share of Class A common stock or
preferred stock may be fixed at the time the stock purchase contracts are issued
or may be determined by a specific reference to a formula set forth in the stock
purchase contracts. The stock purchase contracts may be issued separately or as
part of stock purchase units consisting of (1) a stock purchase contract and (2)
debt securities, preferred securities or debt obligations of third parties,
including U.S. Treasury securities, securing the holders' obligations to
purchase our Class A common stock or the preferred stock under the stock
purchase contracts. The stock purchase contracts may require us to make periodic
payments to the holders of the stock purchase units or vice versa, and such
payments may be unsecured or prefunded on some basis. The stock purchase
contracts may require holders to secure their obligations thereunder in a
specified manner. The prospectus supplement will describe the terms of any stock
purchase contracts or stock purchase units.
Unless otherwise specified in the prospectus supplement, the securities
related to the stock purchase contracts will be pledged to a collateral agent,
for our benefit, under a pledge agreement. The pledged securities will secure
the obligations of the holders of stock purchase contracts to purchase shares of
our Class A common stock or our preferred stock under the related stock purchase
contracts. The rights of holders of stock purchase contracts to the related
pledged securities will be subject to our security interest in those pledged
securities.
The security interest in the pledged securities will be created by a pledge
agreement. No holder of stock purchase contracts will be permitted to withdraw
the pledged securities related to such stock purchase contracts from the pledge
arrangement except upon the termination or early settlement of the related stock
purchase contracts. Subject to that security interest and the terms of the
purchase contract agreement and the pledge agreement, each holder of a stock
purchase contract will retain full beneficial ownership of the related pledged
securities.
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Except as described in the applicable prospectus supplement, the collateral
agent will, upon receipt of distributions on the pledged securities, distribute
those payments to us or a purchase contract agent, as provided in the pledge
agreement. The purchase contract agent will in turn distribute payments it
receives as provided in the stock purchase contract.
LEGAL OWNERSHIP OF CERTAIN SECURITIES
We can issue debt securities, warrants, preferred stock, depositary shares
or stock purchase units in registered form or in the form of one or more global
securities. We refer to those who have securities registered in their own names
on the books that we or the trustee maintain for this purpose as the "holders"
of those securities. These persons are the legal holders of the securities. We
refer to those who, indirectly through others, own beneficial interests in
securities that are not registered in their own names as "indirect holders" of
those securities. As we discuss below, indirect holders are not legal holders,
and investors in securities issued in book-entry form or in street name will be
indirect holders.
BOOK-ENTRY HOLDERS
We may issue securities in book-entry form only, as we will specify in the
applicable prospectus supplement. This means securities may be represented by
one or more global securities registered in the name of a financial institution
that holds them as depositary on behalf of other financial institutions that
participate in the depositary's book-entry system. These participating
institutions, in turn, hold beneficial interests in the securities on behalf of
themselves or their customers.
For registered securities, only the person in whose name a security is
registered is recognized as the holder of that security. Securities issued in
global form will be issued in the form of a global security registered in the
name of the depositary or its nominee. Consequently, for securities issued in
global form, we will recognize only the depositary as the holder of the
securities and we will make all payments on the securities to the depositary.
The depositary passes along the payments it receives to its participants, which
in turn pass the payments along to their customers who are the beneficial
owners. The depositary and its participants do so under agreements they have
made with one another or with their customers; they are not obligated to do so
under the terms of the securities.
As a result, investors in a book-entry security will not own securities
directly. Instead, they will own beneficial interests in a global security,
through a bank, broker or other financial institution that participates in the
depositary's book-entry system or holds an interest through a participant. As
long as the securities are issued in global form, investors will be indirect
holders, and not holders, of the securities.
STREET NAME HOLDERS
In the future we may terminate a global security or issue securities
initially in non-global form. In these cases, investors may choose to hold their
securities in their own names or in "street name." Securities held by an
investor in street name would be registered in the name of a bank, broker or
other financial institution that the investor chooses, and the investor would
hold only a beneficial interest in those securities through an account he or she
maintains at that institution.
For securities held in street name, we will recognize only the intermediary
banks, brokers and other financial institutions in whose names the securities
are registered as the holders of those securities and we will make all payments
on those securities to them. These institutions pass along the payments they
receive to their customers who are the beneficial owners, but only because they
agree to do so in their customer agreements or because they are legally required
to do so. Investors who hold securities in street name will be indirect holders,
not holders, of those securities.
LEGAL HOLDERS
Our obligations, as well as the obligations of the trustee and those of any
third parties employed by us or the trustee, run only to the legal holders of
the securities. We do not have obligations to investors who
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hold beneficial interests in global securities, in street name or by any other
indirect means. This will be the case whether an investor chooses to be an
indirect holder of a security or has no choice because we are issuing the
securities only in global form.
For example, once we make a payment or give a notice to the holder, we have
no further responsibility for the payment or notice even if that holder is
required, under agreements with depositary participants or customers or by law,
to pass it along to the indirect holders but does not do so. Similarly, if we
want to obtain the approval of the holders for any purpose -- e.g., to amend the
applicable indenture or to relieve us of the consequences of a default or of our
obligation to comply with a particular provision of the applicable
indenture -- we would seek approval only from the holders, and not the indirect
holders, of the securities. Whether and how the holders contact the indirect
holders is up to the holders.
When we refer to you, we mean those who invest in the securities being
offered by this prospectus, whether they are the holders or only indirect
holders of those securities. When we refer to your securities, we mean the
securities in which you hold a direct or indirect interest.
SPECIAL CONSIDERATIONS FOR INDIRECT HOLDERS
If you hold securities through a bank, broker or other financial
institution, either in book-entry form or in street name, you should check with
your own institution to find out:
- how it handles securities payments and notices;
- whether it imposes fees or charges;
- how it would handle a request for the holders' consent, if ever required;
- whether and how you can instruct it to send you securities registered in
your own name so you can be a holder, if that is permitted in the future;
- how it would exercise rights under the securities if there were a default
or other event triggering the need for holders to act to protect their
interests; and
- if the securities are in book-entry form, how the depositary's rules and
procedures will affect these matters.
WHAT IS A GLOBAL SECURITY?
A global security is a security held by a depositary which represents one
or any other number of individual securities. Generally, all securities
represented by the same global securities will have the same terms.
Each security issued in book-entry form will be represented by a global
security that we deposit with and register in the name of a financial
institution or its nominee that we select. The financial institution that we
select for this purpose is called the depositary. Unless we specify otherwise in
the applicable prospectus supplement, The Depository Trust Company, New York,
New York, known as DTC, will be the depositary for all securities issued in
book-entry form.
A global security may not be transferred to or registered in the name of
anyone other than the depositary, its nominee or a successor depositary, unless
special termination situations arise. We describe those situations below under
"-- Special Situations When a Global Security Will Be Terminated." As a result
of these arrangements, the depositary, or its nominee, will be the sole
registered owner and holder of all securities represented by a global security,
and investors will be permitted to own only beneficial interests in a global
security. Beneficial interests must be held by means of an account with a
broker, bank or other financial institution that in turn has an account with the
depositary or with another institution that does. Thus, an investor whose
security is represented by a global security will not be a holder of the
security, but only an indirect holder of a beneficial interest in the global
security.
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If the prospectus supplement for a particular security indicates that the
security will be issued in global form only, then the security will be
represented by a global security at all times unless and until the global
security is terminated. We describe the situations in which this can occur below
under "-- Special Situations When a Global Security Will Be Terminated." If
termination occurs, we may issue the securities through another book-entry
clearing system or decide that the securities may no longer be held through any
book-entry clearing system.
SPECIAL CONSIDERATIONS FOR GLOBAL SECURITIES
As an indirect holder, an investor's rights relating to a global security
will be governed by the account rules of the investor's financial institution
and of the depositary, as well as general laws relating to securities transfers.
We do not recognize this type of investor as a holder of securities and instead
deal only with the depositary that holds the global security.
If securities are issued only in the form of a global security, an investor
should be aware of the following:
- an investor cannot cause the securities to be registered in his or her
name, and cannot obtain non-global certificates for his or her interest
in the securities, except in the special situations we describe below;
- an investor will be an indirect holder and must look to his or her own
bank or broker for payments on the securities and protection of his or
her legal rights relating to the securities, as we describe under
"-- Legal Holders" above;
- an investor may not be able to sell interests in the securities to some
insurance companies and to other institutions that are required by law to
own their securities in non-book-entry form;
- an investor may not be able to pledge his or her interest in a global
security in circumstances where certificates representing the securities
must be delivered to the lender or other beneficiary of the pledge in
order for the pledge to be effective;
- the depositary's policies, which may change from time to time, will
govern payments, transfers, exchanges and other matters relating to an
investor's interest in a global security. We and the trustee have no
responsibility for any aspect of the depositary's actions or for its
records of ownership interests in a global security. We and the trustee
also do not supervise the depositary in any way;
- the depositary may (and we understand that DTC will) require that those
who purchase and sell interests in a global security within its
book-entry system use immediately available funds and your broker or bank
may require you to do so as well; and
- financial institutions that participate in the depositary's book-entry
system, and through which an investor holds its interest in a global
security, may also have their own policies affecting payments, notices
and other matters relating to the securities. There may be more than one
financial intermediary in the chain of ownership for an investor. We do
not monitor and are not responsible for the actions of any of those
intermediaries.
SPECIAL SITUATIONS WHEN A GLOBAL SECURITY WILL BE TERMINATED
In a few special situations described below, the global security will
terminate and interests in it will be exchanged for physical certificates
representing those interests. After that exchange, the choice of whether to hold
securities directly or in street name will be up to the investor. Investors must
consult their own bank or brokers to find out how to have their interests in
securities transferred to their own name, so that they will be direct holders.
We have described the rights of holders and street name investors above.
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The global security will terminate when the following special situations
occur:
- if the depositary notifies us that it is unwilling, unable or no longer
qualified to continue as depositary for that global security and we do
not appoint another institution to act as depositary;
- if we notify the trustee that we wish to terminate that global security;
or
- if an event of default has occurred with regard to securities represented
by that global security and has not been cured or waived. We discuss
defaults above under "Description of Debt Securities We May
Offer -- Events of Default."
The prospectus supplement may also list additional situations for
terminating a global security that would apply only to the particular series of
securities covered by the prospectus supplement. When a global security
terminates, the depositary -- and not we or the trustee -- is responsible for
deciding the names of the institutions that will be the initial direct holders.
In the description of the debt securities, warrants and depositary shares
that we may offer, "you" means direct holders and not "street name" or other
indirect holders of securities. Indirect holders should read the previous
subsection entitled "-- Special Considerations for Indirect Holders."
DESCRIPTION OF OTHER MATERIAL INDEBTEDNESS
The following is a description of all material terms of our material
outstanding indebtedness. Copies of our senior secured credit facility and the
indentures to which each outstanding issue of notes relates are available upon
request to us.
SENIOR SECURED CREDIT FACILITY
In February 2000, we entered into a $1,000.0 million senior secured credit
facility underwritten by a syndicate of banks and other financial institutions.
The credit facility consists of a $387.5 million tranche A term loan facility, a
$225.0 million tranche B term loan facility and a $387.5 million revolving
credit facility. We borrowed $375.0 million under this facility at the closing
and have made no additional borrowings under the facility since the closing.
All obligations under the credit facility are secured by the
telecommunications assets purchased using the proceeds thereof, other assets up
to $125.0 million, all intercompany receivables owed to us by our subsidiaries
and the stock of our direct subsidiaries. Our subsidiaries have guaranteed
$125.0 million of the obligations allocated ratably among the credit facility.
Both the revolving credit facility and the tranche A term loan facility
mature on December 31, 2006, and the tranche B term loan facility matures on
June 30, 2007. The maturity date for each of the facilities will automatically
be accelerated to October 31, 2005, unless we have refinanced our $350.0 million
12 1/2% Senior Notes by April 15, 2005.
Amounts drawn under the revolving credit facility and the term loans bear
interest, at our option, at the alternate base rate or reserve-adjusted London
Interbank Offered Rate (LIBOR) plus, in each case, applicable margins. As of
September 30, 2000, the interest rates on our outstanding borrowings under our
revolving credit facility was 9.44%, under our tranche A term loan was 9.44% and
under our tranche B term loan was 9.94%.
The credit agreement requires us to meet and maintain specific financial
ratios and tests. The following ratios and tests are applicable through the
first fiscal quarter of 2003:
- a minimum revenues test;
- a minimum access lines test;
- a maximum senior secured debt to capitalization ratio;
- a maximum total net debt to total capitalization ratio;
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- a maximum total senior secured debt to gross property, plant and
equipment ratio; and
- a maximum senior secured debt to annualized adjusted EBITDA ratio.
Beginning with the second fiscal quarter of 2003, the credit agreement
requires us to meet and maintain the following financial ratios:
- a maximum total senior secured debt to annualized consolidated EBITDA
ratio;
- a maximum consolidated total debt to annualized consolidated EBITDA
ratio;
- a minimum consolidated EBITDA to consolidated cash interest expense
ratio; and
- a minimum annualized consolidated EBITDA to pro forma consolidated debt
service ratio.
The credit agreement also contains customary negative covenants restricting
and limiting our ability to engage in certain activities, including but not
limited to:
- limitations on indebtedness, guarantee obligations and the incurrence of
liens;
- restrictions on sale lease back transactions, consolidations, mergers,
liquidations, dissolutions, leases, sale of assets, transactions with
affiliates, loans, advances and investments;
- restrictions on issuance of preferred stock, dividends and distributions
on capital stock and other similar distributions; and
- optional payments and modifications of other debt instruments,
transactions with affiliates, changes in fiscal year, and engaging in any
business other than the telecommunications and data and voice
transmission business (including enhanced services delivered over data
and/or telecommunications networks).
The secured credit facility contains customary events of default. Upon a
change of control, we must prepay in full the outstanding principal amount of
all loans under the credit facility, together with all accrued interest, fees
and other expenses owing under the credit facility and related agreements.
SENIOR NOTES AND SENIOR DISCOUNT NOTES
As of September 30, 2000, we had outstanding ten issues of senior notes and
senior discount notes totaling $3,991.0 million in principal amount and accreted
value, as follows:
AS OF
SEPTEMBER 30, 2000
----------------------
(DOLLARS IN THOUSANDS)
12 1/2% Senior Notes due 2006............................. $ 350,000
9 5/8% Senior Notes due 2007.............................. 400,000
9% Senior Notes due 2008.................................. 334,496
9.45% Senior Notes due 2008............................... 502,855
10 3/4% Senior Notes due 2008............................. 500,000
10 3/4% Senior Notes due 2009............................. 675,000
12 1/4% Senior Discount Notes due 2009.................... 380,978
10 1/2% Senior Notes due 2009............................. 400,000
12 1/8% Senior Discount Notes due 2009.................... 277,653
12 3/4% Senior Notes due 2007............................. 170,014
----------
Total..................................................... $3,990,996
==========
The senior notes and senior discount notes are our unsecured senior
obligations and will rank equally in right of payment with one another, with all
our other existing senior obligations and with our future senior obligations.
They will rank senior in right of payment to our existing subordinated notes and
to any subordinated notes we issue in the future.
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Each of the indentures governing each of our senior notes and senior
discount notes restricts, among other things, our ability to incur additional
indebtedness, pay dividends or make certain other restricted payments, incur
certain liens to secure debt which is subordinated to or ranks equally with such
notes, engage in any sale and leaseback transaction, sell, assign, transfer,
lease, convey or otherwise dispose of substantially all of our assets, enter
into certain transactions with affiliates, or incur indebtedness that is
subordinate in right of payment to any senior indebtedness and senior in right
of payment to such notes. Each such indenture permits, under certain
circumstances, our subsidiaries to be deemed unrestricted subsidiaries and thus
not subject to the restrictions of such indenture.
Except in connection with a Change of Control or an Asset Disposition (as
defined in each such indentures), we are not required to make mandatory
redemption or sinking fund payments with respect to such notes. In connection
with a Change of Control, we must make an offer to purchase all of our then
outstanding senior notes and senior discount notes at a purchase price of 101%
of their principal amount plus accrued and unpaid interest to the date of
purchase. In connection with an Asset Disposition, we must use the proceeds to
make an offer to purchase all of our then outstanding senior notes and senior
discount notes at a purchase price of 100% of their principal amount plus
accrued and unpaid interest to the date of purchase, unless such repurchase is
prohibited by any Bank Credit Agreement or Vendor Financing Facility (as defined
in each such indentures) then in place.
Each such indenture contains standard events of default, including:
- defaults in the payment of principal, premium or interest;
- defaults in the compliance with covenants contained in the indenture;
- cross defaults on more than $10 million of other indebtedness;
- failure to pay more than $10 million of judgments; and
- certain events of our subsidiaries.
DESCRIPTION OF THE 12 1/2% SENIOR NOTES DUE 2006
General. We, together with XO Capital, Inc., our wholly owned subsidiary,
issued $350 million of 12 1/2% Senior Notes due April 15, 2006 pursuant to an
indenture among us, XO Capital and United States Trust Company of New York, as
trustee.
Principal, Maturity and Interest. The 12 1/2% Notes due 2006 are limited
in aggregate principal amount to $350 million and will mature on April 15, 2006.
Interest on the 12 1/2% Notes due 2006 accrues at 12 1/2% per annum and is
payable semi-annually in arrears on April 15 and October 15 of each year.
Optional Redemption. The 12 1/2% Notes due 2006 are redeemable on or after
April 15, 2001, at our option, in whole or in part, at the following redemption
prices, expressed as percentages of principal amount, plus accrued interest, if
redeemed during the twelve-month period beginning on April 15 of the years
indicated below:
YEAR PERCENTAGE
---- ----------
2001........................................................ 106.250%
2002........................................................ 104.167%
2003........................................................ 102.083%
2004 and thereafter......................................... 100.000%
DESCRIPTION OF THE 9 5/8% SENIOR NOTES DUE 2007
General. We issued $400 million of 9 5/8% Senior Notes due 2007 pursuant
to an indenture between us and United States Trust Company of New York, as
trustee.
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Principal, Maturity and Interest. The 9 5/8% Notes due 2007 are limited in
aggregate principal amount to $400 million and will mature on October 1, 2007.
Interest on the 9 5/8% Notes due 2007 accrues at 9 5/8% per annum and is payable
semi-annually in arrears on April 1 and October 1 of each year.
Optional Redemption. The 9 5/8% Notes due 2007 are redeemable on or after
October 1, 2002, at our option, in whole or in part, at the following redemption
prices, expressed as percentages of principal amount, plus accrued interest, if
redeemed during the twelve-month period beginning on October 1 of the years
indicated below:
YEAR PERCENTAGE
---- ----------
2002........................................................ 104.813%
2003........................................................ 103.208%
2004........................................................ 101.604%
2005 and thereafter......................................... 100.000%
DESCRIPTION OF THE 9% SENIOR NOTES DUE 2008
General. We issued $335 million of 9% Senior Notes due 2008 pursuant to an
indenture between us and United States Trust Company of New York, as trustee.
Principal, Maturity and Interest. The 9% Notes due 2008 are limited in
aggregate principal amount to $335 million and will mature on March 15, 2008.
Interest on the 9% Notes due 2008 accrues at 9% per annum and is payable
semi-annually in arrears on March 15 and September 15 of each year.
Optional Redemption. The 9% Notes due 2008 are redeemable on or after
March 15, 2003, at our option, in whole or in part, at the following redemption
prices, expressed as percentages of principal amount, plus accrued interest, if
redeemed during the twelve-month period beginning on March 15 of the years
indicated below:
YEAR PERCENTAGE
---- ----------
2003........................................................ 104.500%
2004........................................................ 103.000%
2005........................................................ 101.500%
2006 and thereafter......................................... 100.000%
DESCRIPTION OF THE 9.45% SENIOR DISCOUNT NOTES DUE 2008
General. We issued $636,974,000 aggregate principal amount at stated
maturity of 9.45% Senior Discount Notes due 2008 under an indenture between us
and United States Trust Company of New York, as trustee.
Principal, Maturity and Interest. The 9.45% Notes due 2008 are limited to
$636,974,000 aggregate principal amount at stated maturity and will mature on
April 15, 2008. The 9.45% Notes due 2008 were issued at a discount from their
principal amount to generate aggregate gross proceeds of approximately $400
million. The 9.45% Notes due 2008 accrete at a rate of 9.45% compounded
semi-annually to an aggregate principal amount of $636,974,000 by April 15,
2003. No interest will accrue on the 9.45% Notes due 2008 prior to April 15,
2003. The 9.45% Notes due 2008 bear interest at 9.45% per annum payable
semi-annually on April 15 and October 15 of each year, commencing October 15,
2003, accruing from April 15, 2003, or from the most recent interest payment
date to which interest has been paid or provided.
Optional Redemption. The 9.45% Notes due 2008 are redeemable on or after
April 15, 2003, at our option, in whole or in part, and prior to maturity in
amounts of $1,000 principal amount at maturity or an integral multiple of $1,000
at the following redemption prices, expressed as percentages of the principal
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amount, plus accrued interest, if redeemed during the twelve-month period
beginning on April 15 of the years indicated below:
YEAR PERCENTAGE
---- ----------
2003........................................................ 104.725%
2004........................................................ 103.150%
2005........................................................ 101.575%
2006 and thereafter......................................... 100.000%
In addition, at any time on or before April 15, 2001, we may redeem up to
33 1/3% of the original aggregate principal amount of the 9.45% Notes due 2008
with the net proceeds of a sale of common equity, at a redemption price equal to
109.45% of the Accreted Value (as defined in the indenture relating to the 9.45%
Notes due 2008), provided that at least 66 2/3% of the original aggregate
principal amount of the 9.45% Notes due 2008 remains outstanding after such
redemption.
DESCRIPTION OF THE 10 3/4% SENIOR NOTES DUE 2008
General. We issued $500 million principal amount of 10 3/4% Senior Notes
due 2008 under an indenture between us and United States Trust Company of New
York, as trustee.
Principal, Maturity and Interest. The 10 3/4% Notes due 2008 are limited
in aggregate principal amount to $500 million and will mature on November 15,
2008. Interest on the 10 3/4% Notes due 2008 accrues at 10 3/4% per annum and is
payable semi-annually in arrears on May 15 and November 15 of each year.
Optional Redemption. The 10 3/4% Notes due 2008 are redeemable on or after
November 15, 2003, at our option, in whole or in part, at the following
redemption prices, expressed as percentages of principal amount, described below
plus accrued interest, if redeemed during the twelve-month period beginning on
November 15 of the years indicated below:
YEAR PERCENTAGE
---- ----------
2003........................................................ 105.375%
2004........................................................ 103.583%
2005........................................................ 101.792%
2006 and thereafter......................................... 100.000%
In addition, at any time on or before November 15, 2001, we may redeem up
to 33 1/3% of the original aggregate principal amount of the 10 3/4% Notes due
2008 with the net proceeds of a sale of common equity at a redemption price
equal to 112.75% of the principal amount thereof, plus accrued interest,
provided that at least 66 2/3% of the original aggregate principal amount of
10 3/4% Notes due 2008 remains outstanding after such redemption.
DESCRIPTION OF THE 12 1/4% SENIOR DISCOUNT NOTES DUE 2009
General. We issued $588,926,000 aggregate principal amount at stated
maturity of 12 1/4% Senior Discount Notes due 2009 under an indenture between us
and U.S. Trust Company of Texas, as trustee.
Principal, Maturity and Interest. The 12 1/4% Notes due 2009 are limited
to $588,926,000 aggregate principal amount at stated maturity and will mature on
June 1, 2009. The 12 1/4% Notes due 2009 were issued at a discount from their
principal amount to generate aggregate gross proceeds of approximately $325
million. The 12 1/4% Notes due 2009 accrete at a rate of 12 1/4% compounded
semi-annually to an aggregate principal amount of $588,926,000 by June 1, 2004.
No interest will accrue on the 12 1/4% Notes due 2009 prior to June 1, 2004. The
12 1/4% Notes due 2009 bear interest at 12 1/4% per annum payable semi-annually
on June 1 and December 1 of each year, commencing December 1, 2004, accruing
from June 1, 2004, or from the most recent interest payment date to which
interest has been paid or provided.
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Optional Redemption. The 12 1/4% Notes due 2009 are redeemable on or after
June 1, 2004, at our option, in whole or in part, and prior to maturity in
amounts of $1,000 principal amount at maturity or an integral multiple of $1,000
at the following redemption prices (expressed as percentages of the principal
amount) plus accrued interest, if redeemed during the twelve-month period
beginning on June 1 of the years indicated below:
YEAR PERCENTAGE
---- ----------
2004........................................................ 106.125%
2005........................................................ 104.083%
2006........................................................ 102.042%
2007 and thereafter......................................... 100.000%
In addition, at any time on or before June 1, 2002, we may redeem up to
33 1/3% of the original aggregate principal amount of the 12 1/4% Notes due 2009
with the net proceeds of a sale of common equity at a redemption price equal to
112.25% of the Accreted Value (as defined in the indenture relating to the
12 1/4% Notes due 2009), plus accrued and unpaid interest, provided that at
least 66 2/3% of the original principal amount of the 12 1/4% Notes due 2009
remains outstanding after such redemption.
DESCRIPTION OF THE 10 3/4% NOTES DUE 2009
General. We issued $675 million principal amount of 10 3/4% Senior Notes
due 2009 under an indenture between us and United States Trust Company of New
York, as trustee.
Principal, Maturity and Interest. The 10 3/4% Notes due 2009 are limited
in aggregate principal amount to $675 million and will mature on June 1, 2009.
Interest on the 10 3/4% Notes due 2009 accrues at 10 3/4% per annum and is
payable semi-annually in arrears on June 1 and December 1 of each year,
commencing on December 1, 1999.
Optional Redemption. The 10 3/4% Notes due 2009 are redeemable on or after
June 1, 2004, at our option, in whole or in part, at the following redemption
prices (expressed as percentages of principal amount) plus accrued interest, if
redeemed during the twelve-month period beginning on June 1 of the years
indicated below:
YEAR PERCENTAGE
---- ----------
2004........................................................ 105.375%
2005........................................................ 103.583%
2006........................................................ 101.792%
2007 and thereafter......................................... 100.000%
In addition, at any time on or before June 1, 2002, we may redeem up to
33 1/3% of the original aggregate principal amount of the 10 3/4% Notes due 2009
with the net proceeds of a sale of common equity at a redemption price equal to
110.75% of the principal amount thereof, plus accrued interest, provided that at
least 66 2/3% of the original aggregate principal amount of 10 3/4% Notes due
2009 remains outstanding after such redemption.
DESCRIPTION OF THE 12 1/8% SENIOR DISCOUNT NOTES DUE 2009
General. We issued $455 million aggregate principal amount of 12 1/8%
Senior Discount Notes due 2009 under an indenture between us and U.S. Trust
Company of Texas, as trustee.
Principal, Maturity And Interest. The 12 1/8% Notes due 2009 are limited
to an aggregate principal amount of $455 million at stated maturity and will
mature on December 1, 2009. The 12 1/8% Notes due 2009 were issued at a discount
from their principal amount to generate aggregate gross proceeds of $251.4
million. The 12 1/8% Notes due 2009 accrue at a rate of 12 1/8% compounded
semi-annually to an aggregate principal amount of $455 million by December 1,
2004. No interest will accrue on the 12 1/8% Notes due 2009 prior to December 1,
2004. The 12 1/8% Notes due 2009 bear interest at 12 1/8% per annum,
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payable semi-annually on June 1 and December 1 of each year, commencing June 1,
2005, accruing from December 1, 2004 or from the most recent interest payment
date from which interest has been paid or provided.
Optional Redemption. The 12 1/8% Notes due 2009 are redeemable on or after
December 1, 2004, at our option, in whole or in part, at the following
redemption prices (expressed as percentages of principal amount) plus accrued
interest, if redeemed during the twelve-month period beginning on December 1 of
the years indicated below:
YEAR PERCENTAGE
---- ----------
2004........................................................ 106.063%
2005........................................................ 104.042%
2006........................................................ 102.021%
2007 and thereafter......................................... 100.000%
In addition, at any time on or before December 1, 2002, we may redeem up to
33 1/3% of the original aggregate principal amount of the 12 1/8% Notes due 2009
with the net proceeds of a sale of common equity at a redemption price equal to
112.125% of the principal amount thereof, plus accrued interest, provided that
at least 66 2/3% of the original aggregate principal amount of 12 1/8% Notes due
2009 remains outstanding after such redemption.
DESCRIPTION OF THE 10 1/2% SENIOR NOTES DUE 2009
General. We issued $400 million principal amount of 10 1/2% Senior Notes
due 2009 under an indenture between us and United States Trust Company of New
York, as trustee.
Principal, Maturity And Interest. The 10 1/2% Notes due 2009 are limited
in aggregate principal amount to $400 million and will mature on December 1,
2009. Interest on the 10 1/2% Notes accrues at 10 1/2% per annum and is payable
semi-annually in arrears on June 1 and December 1 of each year, commencing on
June 1, 2000.
Optional Redemption. The 10 1/2% Notes due 2009 are redeemable on or after
December 1, 2004, at our option, in whole or in part, at the following
redemption prices (expressed as percentages of principal amount) plus accrued
interest, if redeemed during the twelve-month period beginning on December 1 of
the years indicated below:
YEAR PERCENTAGE
---- ----------
2004........................................................ 105.250%
2005........................................................ 103.500%
2006........................................................ 101.750%
2007 and thereafter......................................... 100.000%
In addition, at any time on or before June 1, 2002, we may redeem up to
33 1/3% of the original aggregate principal amount of the 10 1/2% Notes due 2009
with the net proceeds of a sale of common equity at a redemption price equal to
110.5% of the principal amount thereof, plus accrued interest, provided that at
least 66 2/3% of the original aggregate principal amount of 10 1/2% Notes due
2009 remains outstanding after such redemption.
DESCRIPTION OF THE 12 3/4% SENIOR NOTES DUE 2007
General. In connection with the Concentric merger, we assumed $150 million
principal amount of 12 3/4% Senior Notes due 2007 issued by Concentric under an
indenture between Concentric and Chase Manhattan Bank and Trust Company,
National Association, as trustee.
Principal, Maturity and Interest. The 12 3/4% Notes due 2007 are limited
in aggregate principal amount to $150 million and will mature on December 15,
2007. Interest on the 12 3/4% Notes due 2007
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accrues at 12 3/4% per annum and is payable semi-annually in arrears on June 15
and December 15 of each year, commencing on June 15, 1998.
Optional Redemption. The 12 3/4% Notes due 2007 are redeemable on or after
December 15, 2002, at our option, in whole or in part, at the following
redemption prices (expressed as percentages of principal amount) plus accrued
interest, if redeemed during the twelve-month period beginning on December 15 of
the years indicated below:
YEAR PERCENTAGE
---- ----------
2002........................................................ 106.375%
2003........................................................ 104.250%
2004........................................................ 102.125%
2005 and thereafter......................................... 100.000%
SUBORDINATED NOTES
Our subordinated notes are unsecured obligations and will rank equally in
right of payment with one another, with all our other existing subordinated
obligations and with our future subordinated obligations.
We are not required to make any mandatory or sinking fund payments with
respect to our subordinated notes.
The indenture governing our subordinated notes contains standard events of
default, including:
- defaults in the payment of principal, premium or interest;
- defaults in the compliance with covenants contained in the indenture;
- cross defaults on more than $10 million of other indebtedness;
- failure to pay more than $10 million of judgments; and
- certain events of our subsidiaries.
5 3/4% CONVERTIBLE SUBORDINATED NOTES DUE 2009
General. On January 12, 2001 we issued $517.5 million principal amount of
5 3/4% Convertible Subordinated Notes due 2009 under an indenture between us and
U.S. Trust Company, National Association, as trustee.
Principal, Maturity And Interest. The 5 3/4% Notes due 2009 are limited in
aggregate principal amount to $517.5 million and will mature on January 15,
2009. Interest on the 5 3/4% Notes accrues at 5 3/4% per annum and is payable
semi-annually in arrears on January 15 and July 15 of each year, commencing on
July 15, 2001.
Redemption. The 5 3/4% Notes due 2009 are not redeemable prior to
maturity.
Conversion. The 5 3/4% Notes due 2009 are convertible at any time prior to
maturity into 39.1484 shares of our class A common stock for each $1,000 of
outstanding principal amount, equivalent to a conversion price of approximately
$25.5438 per share of class A common stock, subject to adjustment as set forth
in the indenture. On or after January 18, 2003, we may terminate the conversion
rights of holders. We may terminate the conversion rights only if the current
market price of our Class A common stock equals or exceeds 150%, on or prior to
January 18, 2004, or 135%, thereafter, of the conversion price then in effect
for at least 20 trading days in any 30-day trading period, including the last
day of the period. If the conversion termination date occurs on or before
January 18, 2004, we will make a make-whole payment in cash with respect to the
notes converted into Class A common stock after the date of the press release
announcing the termination. The amount of the make-whole payment will be the
present value of all interest payments that thereafter would have been payable
on the notes on each semi-annual interest
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payment date from the conversion termination date through January 15, 2004. If
the conversion termination date occurs on or after January 19, 2004, we will not
make any make-whole payment.
DESCRIPTION OF OUTSTANDING PREFERRED STOCK
At September 30, 2000, we had eight series of preferred stock outstanding.
These series, the respective number of shares issued and outstanding, and the
respective aggregate liquidation preferences, which amounts are equal to the
respective redemption amounts, are summarized in the table below (dollars in
thousands):
AGGREGATE
SHARES ISSUED & LIQUIDATION
OUTSTANDING AS OF PREFERENCE AS OF
SEPTEMBER 30, 2000 SEPTEMBER 30, 2000
------------------ ---------------------
14% Series A Senior Exchangeable Redeemable Preferred
Shares................................................... 9,445,213 $ 472,261
6 1/2% Series B Cumulative Convertible Preferred Stock..... 2,122,795 106,140
Series C Cumulative Convertible Participating Preferred
Stock.................................................... 584,375 584,375
Series D Convertible Participating Preferred Stock......... 265,625 265,625
13 1/2% Series E Senior Redeemable Exchangeable Preferred
Stock.................................................... 201,663 203,932
7% Series F Convertible Redeemable Preferred Stock......... 54,229 54,545
Series G Cumulative Convertible Participating Preferred
Stock.................................................... 268,750 268,750
Series H Convertible Participating Preferred Stock......... 131,250 131,250
---------- ----------
Total................................................. 13,073,900 $2,086,878
========== ==========
We have summarized selected terms of our issued and outstanding preferred
stock in this section. The summary is not complete. You should read our amended
and restated certificate of incorporation, our restated bylaws and the
certificate of designations relating to the applicable series of the preferred
stock that we file with the SEC for additional information.
14% SERIES A SENIOR EXCHANGEABLE REDEEMABLE PREFERRED SHARES
Voting Rights. Holders of series A preferred stock are not entitled to
vote on any matter required or permitted to be voted upon by our stockholders
except where such vote will effect their liquidation priority, their rights
under our certificate of incorporation or by-laws, or result in a prohibited
merger, acquisition, or asset sale.
Dividends. Holders of series A preferred stock are entitled to a dividend
of 14% of the liquidation preference per share, when, as and if declared by the
board of directors, out of funds legally available, payable quarterly. No
interest shall be payable in respect to any dividends that may be in arrears.
All dividends shall be cumulative, whether or not earned or declared, on a daily
basis from their date of issuance and shall be payable quarterly in arrears on
each Dividend Payment Date (as defined in the certificate of designation of the
series A preferred stock). Dividends are payable in cash, except that on each
dividend payment date that occurs on or before February 1, 2002, we may, at our
option, pay the dividend by issuing additional shares of series A preferred
stock with an aggregate liquidation preference equal to the amount of such
dividend.
Exchange. We may, at our option, subject to certain notice and other
administrative provisions, on any scheduled dividend payment date for the series
A preferred stock, exchange the series A preferred stock for our 14% senior
subordinated notes due 2009. The exchange rate is $1.00 principal amount of our
14% senior subordinated notes due 2009 for each $1.00 of aggregate liquidation
preference of series A preferred stock. We may not exchange the series A
preferred stock unless on the date of such exchange there are no accumulated and
unpaid dividends (including the dividend payable on the exchange date) on the
series A preferred stock or other contractual impediments to the exchange. In
addition, we may not execute the exchange if a default or event of default under
either the indenture governing the 14% senior subordinated notes or our 12 1/2%
senior notes dues 2006, would exist.
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Conversion. Holders of our series A preferred stock have no rights to
convert the shares into or exchange the shares for shares of any other class of
our capital stock.
Liquidation Rights. In the event of the liquidation or distribution of our
assets, whether voluntary or involuntary, the series A preferred stock shall
receive its liquidation preference on parity with the distribution to our series
E preferred stock, but prior to any distribution to our series B, series C,
series D, series F, series G and series H preferred stock and each class of our
common stock.
Redemption. We are required to redeem all of the series A preferred stock
outstanding on February 1, 2009 at a redemption price equal to 100% of the
liquidation preference thereof, plus accumulated and unpaid dividends to the
date of redemption. Subject to provisions of our indentures, we may amend our
certificate of incorporation to provide for redemption of the series A preferred
stock, in whole or in part, at our option, at any time on or after February 1,
2002, at redemption rates expressed as a percentage of the liquidation
preference, commencing with 107% on February 1, 2002 and declining to 100% on
February 1, 2006, plus accumulated and unpaid dividends to the date of
redemption.
6 1/2% SERIES B CUMULATIVE CONVERTIBLE PREFERRED STOCK
Voting Rights. Holders of series B preferred stock are not entitled to
vote on any matter required or permitted to be voted upon by our shareholders
except where such vote will effect their liquidation priority, their rights
under our certificate of incorporation or by-laws, or result in a prohibited
merger, acquisition, or asset sale.
Dividends. Holders of series B preferred stock are entitled to a dividend
of 6 1/2% of the liquidation preference per share, when, as and if declared by
the board of directors, out of funds legally available, payable quarterly. No
interest shall be payable in respect to any dividends that may be in arrears.
All dividends shall be cumulative, whether or not earned or declared, on a daily
basis from their date of issuance and shall be payable quarterly in arrears on
each Dividend Payment Date (as defined in the certificate of designation of the
series B preferred stock). Dividends are payable in cash.
Conversion. Each share of our series B preferred stock is convertible, at
the option of the holder, into 4.58 shares, subject to adjustment, of our class
A common stock. We may cause this conversion right to expire at any time from
April 15, 2001 through and including April 15, 2006, upon notice, if the closing
price of our class A common stock is greater than 120% of the Implied Conversion
Price (as defined in the certificate of designations for the series B preferred
stock) for 20 trading days in any period of 30 consecutive trading days. We may
not cause the conversion right to expire if there are any accrued but unpaid
dividends on the series B preferred stock.
Liquidation Rights. In the event of the liquidation or distribution of our
assets, whether voluntary or involuntary, the series B preferred stock shall
receive its liquidation preference after the distribution to our series A,
series C, series D, series E, series G, and series H preferred stock, on parity
with the distribution to our series F preferred stock and, but prior to any
distribution to each class of our common stock.
Redemption. We are required to redeem all of the series B preferred stock
outstanding on March 31, 2010 at a redemption price equal to 100% of the
liquidation preference thereof, plus accumulated and unpaid dividends to the
date of redemption. We may redeem the series B preferred stock any time after
April 16, 2006 at a redemption price equal to 100% of the liquidation
preference. In May 2000, certain holders of the series B preferred stock
converted their shares into approximately 8.1 million shares of our Class A
common stock based on a conversion rate of 4.58 shares of Class A common stock
for each share of series B preferred stock converted, in consideration for our
cash payment of approximately $4.7 million, which has been reported as a
preferred stock dividend in the second quarter of 2000.
SERIES C CUMULATIVE CONVERTIBLE PARTICIPATING PREFERRED STOCK
Voting Rights. Holders of series C preferred stock are entitled to vote on
an as-converted bases with all classes of our common stock as a single class on
all matters presented to the holders of all classes of our common stock for a
vote, other than the election of directors. The holders of the series C
preferred
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stock are entitled to vote their shares as a separate series for the election of
one director nominated by the holders of the series C preferred stock.
Dividends. Holders of series C preferred stock are entitled to a dividend
of $54.5455 per share in cash, per annum, when, as and if declared by the board
of directors, out of funds legally available. All dividends shall be cumulative,
whether or not earned or declared, on a daily basis from their date of issuance
and shall be payable quarterly in arrears on March 31, June 30, September 30 and
December 31 of each year.
Conversion. Each share of our series C preferred stock is convertible, at
the option of the holder, into the number of shares of our class A common stock
equal to the Aggregate Series C Conversion Shares (as defined in the certificate
of designations for the series C preferred stock) divided by the total number of
shares of series C preferred stock then outstanding. Upon the exercise of this
conversion option, a proportional amount of the series D preferred stock shall
automatically convert into shares of our class A common stock in accordance with
the terms of the certificate of designations of the series D preferred stock.
Selection of the shares of series D preferred stock called for automatic
conversion will be made by us in accordance with the terms of the certificate of
designations for the series D preferred stock. In addition, the outstanding
shares of series C preferred stock and series D preferred stock, taken together,
are convertible into the number of shares of our class A common stock equal to
the aggregate liquidation preferences of the series C preferred stock and the
series D preferred stock as of the date of conversion divided by $31.625,
subject to adjustment.
Liquidation Rights. In the event of the liquidation or distribution of our
assets, whether voluntary or involuntary, the series C preferred stock shall
receive its liquidation preference after the distribution to our series A and E
preferred stock, on parity with the distribution to our series D, series G, and
series H preferred stock, but prior to any distribution to our series B and
series F preferred stock and any distribution to each class of our common stock.
Redemption. Holders of the series C preferred stock may require us to
redeem those shares during the 180-day period commencing January 20, 2010 at a
redemption price equal to 100% of the liquidation preference. We may redeem the
series C preferred stock at any time after the later of January 20, 2005 and the
date when we have redeemed our 12 1/2% Senior Notes due 2006 in full.
Right of First Purchase. Holders of our series C preferred stock have a
right of first purchase with respect to specified issuances of capital stock
that rank senior to our Class A common stock, other than public offerings and
specific private offerings to institutional investors of this senior capital
stock.
SERIES D CONVERTIBLE PARTICIPATING PREFERRED STOCK
Voting Rights. Holders of series D preferred stock are entitled to vote on
an as-converted basis with all classes of our common stock as a single class on
all matters presented to the holders of all classes of our common stock for a
vote, other than the election of directors. The holders of the series D
preferred stock are entitled to vote their shares as a separate series for the
election of one director nominated by the holders of the series D preferred
stock.
Dividends. If we pay a dividend in cash on our common stock, holders of
series D preferred stock are entitled to a dividend of 62.5% of the amount of
dividends that would be paid with respect to the series C preferred stock and
the series D preferred stock taken together if converted into common stock on
the record date for the dividend.
Conversion. Each share of our series D preferred stock is convertible, at
the option of the holder, into the number of shares of our class A common stock
equal to the Aggregate Series D Conversion Shares (as defined in the certificate
of designations for the series D preferred stock) divided by the total number of
shares of series D preferred stock then outstanding. If the holders of shares of
series C preferred stock exercise the conversion option provided in the
certificate of designations for the series C preferred stock, a proportional
amount of the series D preferred stock shall automatically convert into the
number of shares of our class A common stock equal to the Aggregate Series D
Conversion Shares.
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Selection of the shares of series D preferred stock called for automatic
conversion will be made by us in accordance with the terms of the certificate of
designations for the series D preferred stock. In addition, the outstanding
shares of series C preferred stock and series D preferred stock, taken together,
are convertible into the number of shares of our class A common stock equal to
the aggregate liquidation preferences of the series C preferred stock and the
series D preferred stock as of the date of conversion divided by $31.625,
subject to adjustment.
Liquidation Rights. In the event of the liquidation or distribution of our
assets, whether voluntary or involuntary, the series D preferred stock shall
receive its liquidation preference after the distribution to our series A and
series E preferred stock, on parity with the distribution to our series C,
series G, and series H preferred stock, but prior to any distribution to our
series B and series F preferred stock and any distribution to each class of our
common stock.
Redemption. Holders of the series D preferred stock may require us to
redeem those shares during the 180-day period commencing January 20, 2010. We
may redeem the series D preferred stock at any time after the later of January
20, 2005 and the date when we have redeemed our 12 1/2% Senior Notes due 2006 in
full.
Right of First Purchase. Holders of our series D preferred stock have a
right of first purchase with respect to specified issuances of capital stock
that rank senior to our Class A common stock, other than public offerings and
specific private offerings to institutional investors of this senior capital
stock.
13 1/2% SERIES E SENIOR REDEEMABLE EXCHANGEABLE PREFERRED STOCK DUE 2010
Voting Rights. Holders of series E preferred stock are not entitled to
vote on any matter required or permitted to be voted upon by our stockholders.
However, upon the occurrence of certain events, series E preferred stock holders
may be permitted to elect additional directors to the board of directors.
Dividends. Holders of series E preferred stock are entitled to a dividend
of 13 1/2% of the liquidation preference per share, when, as and if declared by
the board of directors, out of funds legally available. All dividends shall be
cumulative, whether or not earned or declared, on a daily basis from their date
of issuance and shall be payable quarterly in arrears on each of March 1, June
1, September 1, and December 1 of each year. Dividends are payable in cash,
except that on each dividend payment date occurring on or prior to June 1, 2003,
dividends may be paid, at our option, by the issuance of additional shares of
series E preferred stock having an aggregate liquidation preference equal to the
amount of such dividend.
Exchange. We may, at our option, subject to certain notice and other
administrative provisions, on any scheduled dividend payment date for the series
E preferred stock, exchange the series E preferred stock for our 13 1/2% senior
subordinated debentures due 2010. The exchange rate is $1.00 principal amount of
our 13 1/2% senior subordinated debentures due 2010 for each $1.00 of aggregate
liquidation preference of series E preferred stock. We may not exchange the
series E preferred stock unless on the date of such exchange there are no
accumulated and unpaid dividends (including the dividend payable on the exchange
date) on the series E preferred stock or other contractual impediments to the
exchange. In addition, we may not execute the exchange if a default or event of
default under the indenture governing the debentures would exist.
Conversion. Holders of our series E preferred stock have no rights to
convert the shares into or exchange the shares for shares of any other class of
our capital stock.
Liquidation Rights. In the event of the liquidation or distribution of our
assets, whether voluntary or involuntary, the series E preferred stock shall
receive its liquidation preference on parity with the distribution to our series
A preferred stock, but prior to any distribution to our series B, series C,
series D, series F, series G, and series H preferred stock and each class of our
common stock.
Redemption. We are required to redeem the series E preferred stock at
their liquidation preference, plus accumulated and unpaid dividends, on June 1,
2010. We may redeem the series E preferred stock in
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whole or in part, at any time on or after June 1, 2003, at redemption rates
expressed as a percentage of the liquidation preference commencing with 106.75%
on June 1, 2003, and declining to 100% on June 1, 2008, plus accumulated and
unpaid dividends to the date of redemption. In addition, prior to June 1, 2001,
we may, at our option, redeem up to a maximum of 35% of the initially issued
series E preferred stock from the net proceeds of one or more public equity
offerings or the sale of common stock to a strategic investor at a redemption
rate of 113.5% of the liquidation preference.
7% SERIES F CONVERTIBLE REDEEMABLE PREFERRED STOCK DUE 2010
Voting Rights. Except as required by law, holders of series F preferred
stock are not entitled to vote on any matter required or permitted to be voted
upon by our stockholders.
Dividends. Holders of series F preferred stock are entitled to a dividend
of 7% of the liquidation preference per share, when, as and if declared by the
board of directors, out of funds legally available. All dividends shall be
cumulative, whether or not earned or declared, on a daily basis from their date
of issuance and shall be payable quarterly in arrears on each of March 1, June
1, September 1, and December 1 of each year. Dividends are payable in cash,
except that dividends may be paid, at our option, by the issuance of additional
shares of series F preferred stock having an aggregate liquidation preference
equal to the amount of such dividend.
Conversion. Each share of our series F preferred stock is convertible, at
the option of the holder, into the number of shares of our class A common stock
equal to the aggregate liquidation preference on the shares of series F
preferred stock to be converted (plus, in the event the shares are converted on
a date other than a dividend payment date, accrued and unpaid dividends on the
shares through the date of the conversion), divided by the conversion price of
$62.0516, subject to adjustment.
Liquidation Rights. In the event of the liquidation or distribution of our
assets, whether voluntary or involuntary, the series F preferred stock shall
receive its liquidation preference after the distribution to our series A,
series C, series D, series E, series G, and series H preferred stock, on parity
with the distribution to our series B preferred stock, but prior to any
distribution to each class of our common stock.
Redemption. We are required to redeem the series F preferred stock at
their liquidation preference, plus accumulated and unpaid dividends, on
September 1, 2010. We may redeem the series F preferred stock, in whole or in
part, at any time on or after June 1, 2003, at redemption rates commencing with
105.125%, and declining to 100% on June 1, 2010.
SERIES G CUMULATIVE CONVERTIBLE PARTICIPATING PREFERRED STOCK
Voting Rights. Holders of series G preferred stock are entitled to vote on
an as-converted basis with all classes of our common stock as a single class on
all matters presented to the holders of all classes of our common stock for a
vote, other than for election of directors. So long as the holders of series C
preferred stock are entitled to designate and elect a director nominated by such
holders, the holders of series G preferred stock are not entitled to vote for
the election of any directors. If the holders of series C preferred stock no
longer have such right, the holders of series G preferred stock are entitled to
vote their shares as a separate series for the election of one director
nominated by the holders of series G preferred stock.
Dividends. Holders of series G preferred stock are entitled to receive a
dividend of $55.814 per share in cash, per annum, when, as and if declared by
the board of directors, out of funds legally available. All dividends shall be
cumulative, whether or not earned or declared, on a daily basis from their date
of issuance and shall be payable quarterly in arrears on March 31, June 30,
September 30 and December 31 of each year.
Conversion. Each share of our series G preferred stock is convertible, at
the option of the holder, into the number of shares of our class A common stock
equal to the Aggregate Series G Conversion Shares (as defined in the certificate
of designations for the series G preferred stock) divided by the total number of
shares of series G preferred stock then outstanding. Upon the exercise of this
conversion option,
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a proportional amount of the series H preferred stock shall automatically
convert into shares of our class A common stock in accordance with the terms of
the certificate of designations of the series H preferred stock. Selection of
the shares of series H preferred stock called for automatic conversion will be
made by us in accordance with the terms of the certificate of designations for
the series H preferred stock. In addition, the outstanding shares of series G
preferred stock and series H preferred stock, taken together, are convertible
into the number of shares of our class A common stock equal to the aggregate
liquidation preferences of the series G preferred stock and the series H
preferred stock as of the date of conversion divided by $31.625, subject to
adjustment.
Liquidation Rights. In the event of the liquidation or distribution of our
assets, whether voluntary or involuntary, the series G preferred stock shall
receive its liquidation preference after the distribution to our series A and
series E preferred stock, on parity with the distribution to our series C,
series D, and series H preferred stock, but prior to any distribution to our
class of series B and series F preferred stock and any distribution to each
class of our common stock.
Redemption. Holders of the series G preferred stock may require us to
redeem those shares during the 180-day period commencing on July 6, 2010. We may
redeem the series G preferred stock at any time after the later of July 6, 2005
and the date when we have redeemed our 12 1/2% Senior Notes due 2006 in full.
Right of First Purchase. Holders of our series G preferred stock have a
right of first purchase with respect to specified issuances of capital stock
that rank senior to our Class A common stock, other than public offerings and
specific private offerings to institutional investors of this senior capital
stock.
SERIES H CONVERTIBLE PARTICIPATING PREFERRED STOCK
Voting Rights. Holders of series H preferred stock are entitled to vote on
an as-converted basis with all classes of our common stock as a single class on
all matters presented to the holders of all classes of our common stock for a
vote, other than for election of directors. So long as the holders of series D
preferred stock are entitled to designate and elect a director nominated by such
holders, the holders of series H preferred stock are not entitled to vote for
the election of any directors. If the holders of series D preferred stock no
longer have such right, the holders of series H preferred stock are entitled to
vote their shares as a separate series for the election of one director
nominated by the holders of series H preferred stock.
Dividends. If we pay a dividend in cash on our common stock, holders of
the Series H preferred stock are entitled to a dividend of 62.5% of the amount
of dividends that would be paid with respect to the series G preferred stock and
the series H preferred stock taken together if converted into common stock on
the record date for the dividend.
Conversion. Each share of our series H preferred stock is convertible, at
the option of the holder, into the number of shares of our class A common stock
equal to the Aggregate Series H Conversion Shares (as defined in the certificate
of designations for the series H preferred stock) divided by the total number of
shares of series H preferred stock then outstanding. If the holders of shares of
series G preferred stock exercise the conversion option provided in the
certificate of designations for the series G preferred stock, a proportional
amount of the series H preferred stock shall automatically convert into the
number of shares of our class A common stock equal to the Aggregate Series H
Conversion Shares. Selection of the shares of series H preferred stock called
for automatic conversion will be made by us in accordance with the terms of the
certificate of designations for the series H preferred stock. In addition, the
outstanding shares of series G preferred stock and series H preferred stock,
taken together, are convertible into the number of shares of our class A common
stock equal to the aggregate liquidation preferences of the series G preferred
stock and the series H preferred stock as of the date of conversion divided by
$31.625, subject to adjustment.
Liquidation Rights. In the event of the liquidation or distribution of our
assets, whether voluntary or involuntary, the series H preferred stock shall
receive its liquidation preference after the distribution to our
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series A and series E preferred stock, on parity with the distribution to our
series C, series D, and series G preferred stock, but prior to any distribution
to our series B and series F preferred stock and any distribution to each class
of our common stock.
Redemption. Holders of the series H preferred stock may require us to
redeem those shares during the 180-day period commencing on July 6, 2010. We may
redeem the series H preferred stock at any time after the later of July 6, 2005
and the date when we have redeemed our 12 1/2% Senior Notes due 2006 in full.
Right of First Purchase. Holders of our series H preferred stock have a
right of first purchase with respect to specified issuances of capital stock
that rank senior to our Class A common stock, other than public offerings and
specific private offerings to institutional investors of this senior capital
stock.
PLAN OF DISTRIBUTION
We may sell securities directly to purchasers, through agents, to dealers,
to underwriters or in any combination of these ways. Agents or dealers may be
deemed to be "underwriters" within the meaning of the Securities Act and any
discounts or commissions received by them from us and any profit on the resale
of securities by them may be considered underwriting discounts and commissions
under the Securities Act. Any such underwriter or agent will be identified, and
any such compensation received from us will be described in the prospectus
supplement relating to those securities.
We may directly solicit offers to purchase securities or designate agents
to do so. Any agent will be named, and any commissions payable by us to such
agent (or the method by which such commissions can be determined) will be set
forth, in the applicable prospectus supplement.
If we use underwriters or dealers in a sale, the securities will be
acquired by the underwriters or dealers for their own account. The underwriters
or dealers may resell the securities from time to time in one or more
transactions, including negotiated transactions at a fixed public offering price
or at varying prices determined at the time of sale. The securities may be
offered to the public either through underwriting syndicates represented by one
or more managing underwriters or directly by one or more of such firms. Unless
otherwise indicated in the applicable prospectus supplement, the obligations of
the underwriters to purchase all the securities of the series offered will be
subject to customary conditions and the underwriters will be obligated to
purchase all the securities of the series offered if any are purchased. Any
initial public offering price and any discounts or concessions allowed or
reallowed or paid to dealers may be changed from time to time.
We may authorize underwriters, dealers and agents to solicit offers by
institutional investors to purchase offered securities under contracts providing
for payment and delivery on a future date specified in the prospectus
supplement. The prospectus supplement will also describe the public offering
price for the securities and the commission payable for solicitation of these
delayed delivery contracts. Delayed delivery contracts will contain definite
fixed price and quantity terms. The obligations of a purchaser under these
delayed delivery contracts will be subject to only two conditions:
- that the institution's purchase of the securities at the time of delivery
of the securities is not prohibited under the law of any jurisdiction to
which the institution is subject; and;
- that we shall have sold to the underwriters the total principal amount of
the offered securities, less the principal amount covered by the delayed
delivery contracts.
We may have agreements with agents, dealers and underwriters to indemnify
them against specified liabilities, including liabilities under the Securities
Act, or to contribute to payments they may be required to make in respect of
these liabilities. Agents, dealers or underwriters may engage in transactions
with or perform services for us in the ordinary course of business.
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VALIDITY OF SECURITIES
The validity of any securities offered hereby will be passed upon for XO by
Jones, Day, Reavis & Pogue, Cleveland, Ohio.
EXPERTS
The consolidated financial statements of XO (formerly NEXTLINK
Communications, Inc.) as of December 31, 1999 and for each of the three years in
the period ended December 31, 1999, included in the annual report on Form 10-K
of XO Communications for the year ended December 31, 1999, incorporated by
reference in this prospectus have been audited by Arthur Andersen LLP,
independent public accountants, as indicated in its report with respect thereto,
and are included herein in reliance upon the authority of said firm as experts
in giving such report.
The consolidated financial statements and financial statement schedule of
Concentric Network Corporation for the year ended December 31, 1999,
incorporated by reference in this prospectus from our Form 8-K/A, filed with the
SEC on August 21, 2000, have been audited by Ernst & Young LLP, independent
auditors as set forth in their report thereon incorporated by reference and
incorporated herein by reference. Such consolidated financial statements and
financial statement schedule are incorporated herein by reference in reliance
upon the report of such firm given upon their authority as experts in accounting
and auditing.
ABOUT THIS PROSPECTUS
This document is called a prospectus and is part of a registration
statement that we filed with the Securities and Exchange Commission using a
"shelf" registration or continuous offering process. Under this shelf process,
we may from time to time sell any combination of the securities described in
this prospectus in one or more offerings up to a total dollar amount of
$2,000,000,000.
This prospectus provides you with a general description of the securities
we may offer. Each time we sell securities, we will provide a prospectus
supplement containing specific information about the terms of the securities
being offered. That prospectus supplement will include a detailed and current
discussion of any risk factors or other special considerations applicable to
those securities. The prospectus supplement may also add, update or change
information in this prospectus. If there is any inconsistency between the
information in this prospectus and any prospectus supplement, you should rely on
the information in that prospectus supplement together with additional
information described under the heading "Where You Can Find More Information."
You should rely only on the information provided in this prospectus and in
any prospectus supplement, including the information incorporated by reference.
Neither we, nor any underwriters or agents, have authorized anyone to provide
you with different information. We are not offering the securities in any state
where the offer is prohibited. You should not assume that the information in
this prospectus, any prospectus supplement, or any document incorporated by
reference, is truthful or complete at any date other than the date mentioned on
the cover page of these documents.
WHERE YOU CAN FIND MORE INFORMATION
XO is subject to the informational requirements of the Securities Exchange
Act of 1934 and, in accordance therewith, files reports and other information
with the SEC. Our reports and other information we file can be inspected and
copied at the Public Reference Section of the SEC located at Room 1024,
Judiciary Plaza, 450 Fifth Street, N.W., Washington, D.C. 20549. Copies of these
materials can be obtained from the Public Reference Section of the SEC at
prescribed rates. Please call the SEC at 1-800-SEC-0330 for more information on
the Public Reference Section. The SEC maintains a web site at http://www.sec.gov
that contains reports, proxy and information statements and other information on
a delayed basis regarding registrants, including us, that file electronically
with the SEC.
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Our Class A common stock is listed on The Nasdaq National Market and any
reports, proxy and information statements and other information we file with the
SEC may also be inspected and copied at the offices of the National Association
of Securities Dealers, Inc. at 1735 K Street, N.W., Washington, D.C. 20001.
Effective as of October 25, 2000 we changed our name from NEXTLINK
Communications, Inc. to XO Communications, Inc. The reports and other
information that we filed with the SEC prior to October 25, 2000 will be under
the NEXTLINK name.
INCORPORATION OF DOCUMENTS BY REFERENCE
Some of the information that you may want to consider in deciding whether
to invest in any of our securities is not included in this prospectus, but
rather is incorporated by reference to specific reports that we have filed with
the SEC. This allows us to disclose important information to you by referring
you to those documents rather than repeating them in full in this prospectus.
The information incorporated by reference in this prospectus contains important
business and financial information. In addition, information that we file with
the SEC after the date of this prospectus automatically updates and supersedes
the information contained in this prospectus and incorporated filings. We have
previously filed the following documents with the SEC (File No. 0-30900) and are
incorporating them by reference into this prospectus:
- Current Report on Form 8-K of XO Communications, Inc. dated and filed
with the SEC July 13, 2000 (filed under the name NEXTLINK Communications,
Inc.);
- Current Report on Form 8-K of XO Communications, Inc. dated and filed
with the SEC July 20, 2000 (filed under the name NEXTLINK Communications,
Inc.);
- Current Report on Form 8-K/A of XO Communications, Inc. dated and filed
with the SEC August 21, 2000 (filed under the name NEXTLINK
Communications, Inc.);
- Quarterly Report on Form 10-Q for the quarter ended June 30, 2000 (filed
under the name NEXTLINK Communications, Inc.);
- Quarterly Report on Form 10-Q for the quarter ended September 30, 2000
(filed under the name XO Communications, Inc.);
- Current Report on Form 8-K of XO Communications, Inc. dated and filed
with the SEC January 12, 2001; and
- Current Report on Form 8-K/A of XO Communications, Inc. dated and filed
with the SEC January 18, 2001.
The following documents previously filed by NEXTLINK Communications, Inc.
(File No. 000-22939) are incorporated into this prospectus by reference:
- Annual Report of NEXTLINK Communications, Inc. on Form 10-K for the year
ended December 31, 1999;
- Current Report on Form 8-K of NEXTLINK Communications, Inc. dated and
filed with the SEC January 11, 2000;
- Current Report on Form 8-K of NEXTLINK Communications, Inc. dated and
filed with the SEC January 24, 2000;
- Current Report on Form 8-K of NEXTLINK Communications, Inc. dated and
filed with the SEC February 16, 2000;
- Quarterly Report on Form 10-Q of NEXTLINK Communications, Inc. for the
quarter ended March 31, 2000;
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- Current Report on Form 8-K of NEXTLINK Communications, Inc. dated and
filed with the SEC May 23, 2000;
- Current Report on Form 8-K of NEXTLINK Communications, Inc. dated and
filed with the SEC June 22, 2000; and
- The description of our Class A common stock set forth in the Registration
Statement on Form 8-A, dated and filed on August 4, 1997, as amended by
the description of our Class A common stock set forth in the Registration
Statement on Form 8-A/A-1, dated and filed on September 18, 1997.
We also incorporate by reference all documents subsequently filed by us
under Section 13(a), 13(c), 14 or 15(d) of the Securities Exchange Act of 1934
after the date of this prospectus until our offering is completed.
We will provide you, upon written or oral request, with a copy of any of
these documents, at no cost. You should direct your request, either in writing
or by telephone, to:
XO Communications, Inc.
11111 Sunset Hills Road
Reston, Virginia 20190
Attn: Corporate Secretary
Telephone: (703) 547-2000
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PART II
INFORMATION NOT REQUIRED IN PROSPECTUS
ITEM 14. OTHER EXPENSES OF ISSUANCE AND DISTRIBUTION
The following is a list of the estimated expenses to be incurred by us in
connection with the issuance and distribution of the securities being registered
hereby, other than underwriting discounts and commissions.
Registration Statement filing fees.......................... $ 500,000
Trustees', Registrar and Transfer Agents', Depositaries' and
Warrant Agents' fees and expenses......................... 15,000*
Legal fees and expenses..................................... 150,000*
Fees of Rating Agencies..................................... 15,000*
Blue Sky fees and expenses.................................. 15,000*
Accounting fees and expenses................................ 100,000*
Printing fees............................................... 150,000*
Listing fees and expenses................................... 10,000*
Miscellaneous............................................... 45,000*
----------
Total............................................. $1,000,000
- ---------------
* Estimated
ITEM 15. INDEMNIFICATION OF DIRECTORS AND OFFICERS
XO Communications, Inc. is a Delaware corporation. In its Certificate of
Incorporation, we have adopted the provisions of Section 102(b)(7) of the
Delaware General Corporation Law (the "Delaware Law"), which enables a
corporation in its original certificate of incorporation or an amendment thereto
to eliminate or limit the personal liability of a director for monetary damages
for breach of the director's fiduciary duty, except (i) for any breach of the
director's duty of loyalty to the corporation or its stockholders, (ii) for acts
or omissions not in good faith or which involve intentional misconduct or a
knowing violation of law, (iii) pursuant to Section 174 of the Delaware Law
(providing for liability of directors for unlawful payment of dividends or
unlawful stock purchases or redemptions) or (iv) for any transaction from which
a director will personally receive a benefit in money, property or services to
which the director is not legally entitled.
We have also adopted indemnification provisions pursuant to Section 145 of
the Delaware Law, which provides that a corporation may indemnify any person who
is or was a party to any actual or threatened legal action, whether criminal,
civil, administrative or investigative, by reason of the fact that the person is
or was an officer, director or agent of the corporation, or is or was serving at
the request of the corporation as a director, officer or agent of another
corporation, partnership or other enterprise, against expenses (including
attorney's fees), judgments, fines and settlement payments reasonably and
actually incurred by him or her in connection with such proceeding, if he or she
acted in good faith and in a manner he or she reasonably believed to be in or
not opposed to the best interests of the corporation and, with respect to any
criminal action or proceeding, had no reasonable cause to believe was unlawful,
except that, with respect to any legal action by or in the right of the
corporation itself, an officer, director or agent of the corporation is entitled
to indemnification only for expenses (including attorney's fees) reasonably and
actually incurred, and is not entitled to indemnification in respect of any
claim, issue or matter as to which he or she is found liable to the corporation,
unless the court determines otherwise.
We have entered into indemnification agreements with each of our officers
and directors.
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ITEM 16. EXHIBITS
EXHIBIT
NUMBER DESCRIPTION OF DOCUMENT
- ------- -----------------------
*1.1 Form of Equity Securities Underwriting Agreement (U.S.
version)
*1.2 Form of Equity Securities Underwriting Agreement
(International version)
*1.3 Form of Debt Securities Underwriting Agreement (U.S.
version)
*1.4 Form of Debt Securities Underwriting Agreement
(International version)
*4.1 Form of Senior Indenture
*4.2 Form of Subordinated Indenture
*4.3 Form of Warrant Agreement with Form of Warrant Certificate
*4.4 Form of Deposit Agreement with Form of Depositary Receipt
**4.5 Form of Stock Purchase Contract Agreement
**4.6 Form of Pledge Agreement
*5.1 Opinion of Jones, Day, Reavis & Pogue
*12.1 Statement of computation of ratio of earnings to fixed
charges
*12.2 Statement of computation of ratio of earnings to fixed
charges and preference dividends
*23.1 Consent of Jones, Day, Reavis & Pogue (included in Exhibit
5.1)
23.2 Consent of Arthur Andersen LLP, independent public
accountants
23.3 Consent of Ernst & Young LLP, independent auditors
*24.1 Power of Attorney (included on signature page in initial
filing)
*25.1 Statement of Eligibility and Qualification on Form T-1 of
Senior Trustee under the Trust Indenture Act of 1939, as
amended
*25.2 Statement of Eligibility and Qualification on Form T-1 of
Subordinated Trustee under the Trust Indenture Act of 1939,
as amended
- ---------------------
* Previously filed.
** To be filed by amendment.
ITEM 17. UNDERTAKINGS.
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 the 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 prospectus filed with the Commission
pursuant to Rule 424(b) if, in the aggregate, the changes in volume and
price represent no more than 20 percent change in the maximum aggregate
offering price set forth in the "Calculation of Registration Fee" table in
the effective registration statement.
(iii) To include any material information with respect to the plan of
distribution not previously disclosed in the registration statement or any
material change to such information in the registration statement;
provided, however, that paragraphs (a)(1)(i) and (a)(1)(ii) do not apply if
the registration statement is on Form S-3, Form S-8 or Form F-3, and the
information required to be included in a post-effective amendment by those
paragraphs is contained in periodic reports filed with or furnished to the
Commission by the registrant pursuant to Section 13 or 15(d) of the
Securities Exchange Act of 1934 that are incorporated by reference in the
registration statement.
(2) That, for the purpose of determining any liability under the Securities
Act of 1933, each such post-effective amendment shall be deemed to be a new
registration statement relating to the securities
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offered 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.
The undersigned registrant hereby undertakes that, for the 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
an initial bona fide offering thereof.
Insofar as indemnification arising under the Securities Act of 1933 may be
permitted to directors, officers and controlling persons of the registrant
pursuant to the foregoing provisions, or otherwise, the registrant has been
advised that in the opinion of the Securities and Exchange Commission such
indemnification is against public policy as expressed in the Act and is,
therefore, unenforceable. In the event that a claim for indemnification against
such liabilities (other than the payment by the registrant of expenses incurred
or paid by a director, officer or controlling person of the registrant in the
successful defense of any action, suit or proceeding) is asserted by such
director, officer or controlling person in connection with the securities being
registered, the registrant will, unless in the opinion of its legal counsel the
matter has been settled by controlling precedent, submit to a court of
appropriate jurisdiction the question whether such indemnification by it is
against public policy as expressed in the Act and will be governed by the final
adjudication of such issue.
The undersigned registrant hereby undertakes to file an application for the
purpose of determining the eligibility of the trustee to act under subsection
(a) of Section 310 of the Trust Indenture Act in accordance with the rules and
regulations prescribed by the Commission under Section 305(b)(2) of the Act.
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59
SIGNATURES
Pursuant to the requirements of the Securities Act of 1933, the registrant
certifies that it has reasonable grounds to believe that it meets all of the
requirements for filing on Form S-3 and has duly caused this amendment no. 1 to
the registration statement to be signed on its behalf by the undersigned,
thereunto duly authorized in the city of Reston, State of Virginia, on March 14,
2001.
XO COMMUNICATIONS, INC.
By: /s/ GARY D. BEGEMAN
------------------------------------
Name: Gary D. Begeman
Title: Senior Vice President, General
Counsel and Secretary
Pursuant to the requirements of the Securities Act of 1933, this amendment
no. 1 to the registration statement has been signed by the following persons in
the capacities and on the dates indicated.
* Chairman, Chief Executive March 14, 2001
- --------------------------------------------------- Officer (Principal Executive
DANIEL F. AKERSON Officer) and Director
* Senior Vice President, Chief March 14, 2001
- --------------------------------------------------- Financial Officer (Principal
WAYNE M. REHBERGER Financial Officer and
Principal Accounting Officer)
* Director and President and March 14, 2001
- --------------------------------------------------- Chief Operating Officer
NATHANIEL A. DAVIS
* Director March 14, 2001
- ---------------------------------------------------
JOSEPH L. COLE
* Director March 14, 2001
- ---------------------------------------------------
SANDRA J. HORBACH
Director March 14, 2001
- ---------------------------------------------------
NICOLAS KAUSER
Director March 14, 2001
- ---------------------------------------------------
CRAIG O. MCCAW
Director March 14, 2001
- ---------------------------------------------------
SHARON L. NELSON
* Director March 14, 2001
- ---------------------------------------------------
HENRY F. NOTHHAFT
Director March 14, 2001
- ---------------------------------------------------
JEFFREY S. RAIKES
II-4
60
* Director March 14, 2001
- ---------------------------------------------------
PETER C. WAAL
* Director March 14, 2001
- ---------------------------------------------------
DENNIS M. WEIBLING
*Gary D. Begeman, by signing his name hereto, does hereby execute this amendment
no. 1 to the registration statement on behalf of the directors and officers of
the registrant indicated above by asterisks, pursuant to powers of attorney
duly executed by such directors and officers, which were previously filed with
the Securities and Exchange Commission on behalf of such directors and
officers.
By: /s/ GARY D. BEGEMAN
------------------------------------
Gary D. Begeman
Attorney-in-Fact
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61
EXHIBIT INDEX
EXHIBIT
NUMBER DESCRIPTION OF DOCUMENT
- ------- -----------------------
*1.1 Form of Equity Securities Underwriting Agreement (U.S.
version)
*1.2 Form of Equity Securities Underwriting Agreement
(International version)
*1.3 Form of Debt Securities Underwriting Agreement (U.S.
version)
*1.4 Form of Debt Securities Underwriting Agreement
(International version)
*4.1 Form of Senior Indenture
*4.2 Form of Subordinated Indenture
*4.3 Form of Warrant Agreement with Form of Warrant Certificate
*4.4 Form of Deposit Agreement with Form of Depositary Receipt
**4.5 Form of Stock Purchase Contract Agreement
**4.6 Form of Pledge Agreement
*5.1 Opinion of Jones, Day, Reavis & Pogue
*12.1 Statement of computation of ratio of earnings to fixed
charges
*12.2 Statement of computation of ratio of earnings to fixed
charges and preference dividends
*23.1 Consent of Jones, Day, Reavis & Pogue (included in Exhibit
5.1)
23.2 Consent of Arthur Andersen LLP, independent public
accountants
23.3 Consent of Ernst & Young LLP, independent auditors
*24.1 Power of Attorney (included on signature page in initial
filing)
*25.1 Statement of Eligibility and Qualification on Form T-1 of
Senior Trustee under the Trust Indenture Act of 1939, as
amended
*25.2 Statement of Eligibility and Qualification on Form T-1 of
Subordinated Trustee under the Trust Indenture Act of 1939,
as amended
- ---------------------
* Previously filed.
** To be filed by amendment.