<PAGE>
SECURITIES AND EXCHANGE COMMISSION
WASHINGTON, D.C. 20549
FORM 10-KSB
(Mark One)
|X| ANNUAL REPORT UNDER SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF
1934.
For the fiscal year ended December 31, 1999
OR
|_| TRANSITION REPORT UNDER SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT
OF 1934.
For the transition period from to
Commission file number 33-7841
FiberNet Telecom Group, Inc.
(Name of Small Business Issuer in Its Charter)
Delaware 13-3859938
(State or Other Jurisdiction of (I.R.S. Employer
Incorporation or Organization) Identification No.)
570 Lexington Avenue, New York, NY 10022
(Address of Principal Executive Offices) (Zip Code)
(212) 405-6200
(Issuer's Telephone Number, Including Area Code)
Securities registered under Section 12(b) of the Exchange Act: None
Securities registered under Section 12(g) of the Exchange Act:
Common Stock, par value $.001 per share
(Title of Class)
Check whether the issuer: (1) filed all reports required to be filed by
Section 13 or 15(d) of the Exchange Act during the past 12 months (or for such
shorter period that the registrant was required to file such reports), and (2)
has been subject to such filing requirements for past 90 days.
Yes |X| No |_|
Check if there is no disclosure of delinquent filers in response to Item
405 of Regulation S-B is not contained in this form, and no disclosure will be
contained, to the best of registrant's knowledge, in definite proxy or
information statements incorporated by reference in Part III of this Form 10-KSB
or any amendment to this Form 10-KSB. |_|
Registrant's revenues for its most recent fiscal year: $ 0.00
The aggregate market value of the voting stock held by non-affiliates
computed by reference to the price at which the stock was sold, or the average
bid and asked prices of such stock, was $392,228,518 as of December 31, 1999.
The number of shares outstanding of each of issuer's classes of common
equity, as of December 31, 1999, was 25,932,464 shares of Common Stock, $.001
par value.
Documents Incorporated by Reference: None
Transitional Small Business Disclosure Format (check one):
Yes |_| No |X|
1
<PAGE>
PART I
THIS ANNUAL REPORT ON FORM 10-KSB (THE "ANNUAL REPORT") CONTAINS CERTAIN
FORWARD LOOKING STATEMENTS WITHIN THE MEANING OF SECTION 21 OF THE SECURITIES
EXCHANGE ACT OF 1934, AS AMENDED, (THE "EXCHANGE ACT"), INCLUDING STATEMENTS
THAT INDICATE WHAT THE COMPANY "BELIEVES", "EXPECTS" AND "ANTICIPATES" OR
SIMILAR EXPRESSIONS. THESE STATEMENTS INVOLVE KNOWN AND UNKNOWN RISKS,
UNCERTAINTIES AND OTHER FACTORS WHICH MAY CAUSE ACTUAL RESULTS, PERFORMANCE OR
ACHIEVEMENTS OF THE COMPANY TO DIFFER MATERIALLY FROM THOSE EXPRESSED OR IMPLIED
BY SUCH FORWARD-LOOKING STATEMENTS. READERS ARE CAUTIONED NOT TO PLACE UNDUE
RELIANCE ON THESE FORWARD LOOKING STATEMENTS, WHICH SPEAK ONLY AS OF THE DATE OF
THIS ANNUAL REPORT. THERE CAN BE NO ASSURANCE THAT THE FORWARD LOOKING
INFORMATION CONTAINED HEREIN WILL IN FACT TRANSPIRE. THE COMPANY UNDERTAKES NO
OBLIGATION TO PUBLICLY UPDATE OR REVISE ANY FORWARD LOOKING STATEMENTS, WHETHER
AS A RESULT OF NEW INFORMATION, FUTURE EVENTS OR OTHERWISE.
ITEM 1. DESCRIPTION OF BUSINESS.
Overview
FiberNet Telecom Group, Inc. ("FiberNet" or the "Company") is an
all-optical facilities-based communications provider focused on providing
wholesale broadband connectivity for data, voice and video transmission on its
state-of-the-art fiber optic networks in major metropolitan areas. The Company
offers an advanced high bandwidth fiber optic solution to support the growing
demand for network capacity in the intra-city market, or local loop. The Company
believes that its end-to-end connectivity, quality of service and rapid
provisioning time will make it the preferred carrier's carrier for transport
capacity and services.
The Company has established operations in the New York metropolitan area
and is expanding into other major metropolitan areas, including Chicago. The
Company integrates three core assets to provide its optical local loop solution:
On-net buildings. The Company typically has entered into exclusive license
agreements with building owners to design, deploy and operate fully redundant,
self-healing, Synchronous Optical Network, or SONET, rings in multi-tenant
commercial office buildings in Manhattan. These FiberNet In-building Networks,
or FINs, can extend from the basement of on-net buildings to telecommunications
closets on every floor to provide a central distribution system for broadband
communications services in the building.
Metropolitan transport network. The Company has entered into a twenty-year
license agreement with Metromedia Fiber Network Services, Inc., or MFN, pursuant
to which the Company has leased the right to use a substantial amount of dark
fiber in multiple metropolitan markets. The Company lights the dark fiber in
ring configurations with optical networking gear, establishing connectivity
between carrier point facilities and on-net buildings. The Company has lit
multiple OC-48 SONET rings in the New York metropolitan area and will utilize
dense wave division multiplexing, or DWDM, technology to increase capacity in
its metropolitan transport network.
Carrier point facilities. The Company has developed carrier point
facilities to enable the interconnection of its network with other carriers'
networks. In addition, the Company offers colocation and cross-connection
services to its carrier customers at these facilities. The Company's primary
carrier point facility, located at 60 Hudson Street in New York City, is also
the site of its network operations center, which provides network monitoring,
management and maintenance.
This connectivity between carrier interconnection points and floors of the
Company's on-net buildings delivers the seamless transmission of communications
traffic in the local loop. By extending a carrier-class backbone directly to the
access edge of the network, FiberNet believes it is enabling the convergence of
core telecommunications networks with diverse customer premise technologies.
Industry and Market Opportunities
The Company believes that there is and will continue to be a significant
demand for broadband transmission capacity to accommodate bandwidth-intensive
data applications, such as Internet access, virtual private networks,
e-commerce, video conferencing and multimedia applications. As a result of the
liberalization of the communications industry, these broadband applications are
being provided by a growing number of competitive service providers. In an
effort to meet the increasing network capacity demands of these service
providers, there has been a build-out of inter-city, long-haul fiber optic
networks transmitting traffic between metropolitan cities. These fiber optic
networks generally offer large circuit capacity, reliability and scalability.
The Company believes, however, that an intra-city bottleneck has developed as
the build-out of metropolitan fiber optic networks has not kept pace with the
long-haul build-outs and the increasing demand for local loop communications
transport.
Moreover, the vast majority of existing communications transport networks
in metropolitan areas, including in-building infrastructure, consist of original
copper wiring installed by incumbent local exchange carriers, or ILECs, and
regional Bell operating companies, or RBOCs. The Company believes that this
legacy infrastructure, built for low speed voice and data services, does not
support new technologies or meet the scalable bandwidth requirements of
broadband data communications.
2
<PAGE>
Accordingly, communications providers are lacking a cost-effective, high
performance network that will enable the delivery of high speed data, Internet
and next generation multimedia services. The Company believes that it provides a
solution to these providers' needs, by offering wholesale fiber optic capacity
on its state-of-the-art network for end-to-end local loop connectivity.
Our Solution
The Company is focused on replicating and expanding the geographic and
physical penetration of the ILEC in major metropolitan areas, but in the context
of a fully integrated all-fiber optic solution. The Company designs, installs
and operates its local loop networks to provide end-to-end, broadband
connectivity that is scalable, reliable and secure.
End-to-end connectivity. The integration of the Company's carrier point
facilities, metropolitan transport network and FINs offers other communications
service providers access to a complete all-optical local loop network that
includes:
o Inter-building connectivity - transport connecting carrier
points and floors of on-net buildings on the metropolitan
transport network and FINs.
o Intra-building connectivity - transport connecting floors
within an on-net building on the FIN.
o Inter-carrier point connectivity - transport connecting two or
more carrier points on the metropolitan transport network.
o Intra-carrier point connectivity - transport connecting the
Company's carrier point facilities to other carriers'
facilities in a carrier point.
High-bandwidth. The Company's fiber optic communications network is
capable of using the highest commercially available transmission capacity at
10.0 gigabits per second, or Gbps, (OC-192) and can currently transmit data at
2.5 Gbps (OC-48), which is equivalent to more than 37,000 simultaneous voice
conversations. The Company's network can handle advanced, capacity-intensive
data applications such as voice over Internet Protocol, video teleconferencing,
multimedia and Internet-related applications, utilizing multiple transmission
protocols, including SONET, Ethernet, Frame Relay, ATM and Internet Protocol.
In addition, the Company's network architecture supports multiplexing
technology that is capable of increasing the transmission capacities of each
fiber optic strand in its network. For example, the network supports DWDM. Fiber
optic systems use laser-generated light to transmit voice, data and video in
digital formats through ultra thin strands of glass. DWDM significantly
increases the capacity of fiber optic cable by splitting the laser-generated
light into different colors, opening more channels for transport on a single
strand of fiber. The Company believes that continuing developments in
multiplexing technology and equipment will increase the capacity of each fiber
strand and provide more bandwidth carrying capacity in a cost effective manner.
Scalability. Through the use of high-level optical gear and DWDM
technology the Company's local loop network is scalable to the highest bandwidth
capacity currently available (OC-192). The Company is capable of remotely
provisioning new circuits within three to five business days through its
centralized network operations center. As a result, the Company is rapidly able
to allocate network capacity to meet its customers' growing bandwidth
requirements.
Reliability. As communications networks are increasingly used for mission
critical applications, including electronic commerce, data storage and disaster
recovery, there is an increasing need for reliable connectivity. The Company
designs its networks using a diversely routed, self-healing SONET architecture,
which is deployed in a ring topology, with multiple fibers providing full
redundancy. The self-healing ring architecture has the ability to route digital
traffic in either direction around the network ring, ensuring that there is no
single point of failure on the network. If a fiber is cut or broken, traffic
will be rapidly rerouted around the ring, restoring transmission nearly
instantaneously, preventing a network outage and making the interruption mostly
undetectable to the user. This network architecture, used in both the Company's
metropolitan transport network and in its FINs, extends core backbone
reliability to the edge of the network.
In addition, the Company's network is monitored to maintain quality
control 24 hours, 7 days a week. Network monitoring is primarily performed by
experienced Company personnel, with off-hours monitoring currently being
outsourced to Nortel Networks, Inc., or Nortel. The system alerts the Company to
any degradation or loss of connectivity and automatically reroutes traffic in
the event of a network outage.
Flexibility. The Company is focused on providing a network that can meet
its customers changing needs. The Company's open architecture supports new
broadband technologies and multiple transmission protocols. Although SONET is
the primary transmission protocol, the network is compatible with IP, ATM, Frame
Relay and Ethernet overlays and other evolving transport standards. In addition,
the open architecture enables the interconnection of the Company's network with
any other carriers' network, broadening the Company's potential customer base.
3
<PAGE>
Strategy
The Company's objective is to become the preferred facilities-based
provider of fiber optic network capacity in the local loop. The following are
key elements of the Company's strategy in achieving its objective:
o Establish the Company's position as a leading carriers' carrier in
the local loop;
o Maintain standing as a leading optical networking service provider;
o Expand its portfolio of on-net buildings with exclusive license
agreements;
o Replicate its fiber optic network solution in additional gateway
cities;
o Provide responsive customer service with rapid provisioning time;
o Enhance its product offerings by providing ancillary services; and
o Pursue strategic alliances with leading-edge network technology
companies.
Products and Services
Local Network
Through its subsidiary, Local Fiber, LLC, the Company is building local
fiber optic networks to provide carriers with wholesale transport in major
metropolitan areas. The Company leases dark fiber rights, installs its own
optical transmission equipment to light the fiber and then provides lit circuits
to carriers for the transport of digital traffic in the out-of-building local
loop. In addition, the Company provides colocation and cross connection services
at its carrier point facilities.
The Company has an existing New York metropolitan transport network, which
consists of multiple rings deployed in three geographic locations, midtown
Manhattan, downtown Manhattan and a New York/New Jersey connection. The Company
intends to expand this existing network and to establish a metropolitan
transport network in Chicago by the end of 2000.
Customers. The Company's targeted customers include communications
service providers that are seeking cost-effective, flexible, reliable, broadband
network connectivity. This customer base also includes carriers that have their
own local networks, but do not have sufficient bandwidth to meet their customers
needs or are seeking shorter installation intervals and will benefit from the
Company's faster provisioning times.
The Company's believes that its potential carrier customers include a
broad range of companies, including:
o ILECs and RBOCs;
o competitive local exchange carriers, or CLECs;
o interexchange carriers, or IXCs;
o Internet service providers, or ISPs;
o application service providers, or ASPs; and
o integrated communications providers, or ICPs.
Network design and architecture. The Company's local out-of-building
network consists of:
o Carrier point facilities. Carrier point facilities are
environmentally controlled, secure sites designed to house the
Company's transmission and networking equipment. At these facilities
the Company establishes the interconnection of its local network
with other carriers' networks. This interconnection of networks
enables the Company to transfer other carriers' traffic onto its
local network and provide transport services to them. In addition,
the Company utilizes its carrier point facilities to provide
colocation and cross connection services to other carriers.
The Company's primary carrier point facility in New York is located
at 60 Hudson Street in downtown Manhattan. The Company has leased
approximately 15,200 square feet through 2008. The Company also has
a lease at 111 Eighth Avenue in Manhattan for approximately 5,600
square feet, expiring in 2015. The Company currently offers
colocation services at 60 Hudson Street and plans to offer these
services at 111 Eighth Avenue.
The Company intends to continue to expand its network to include
multiple carrier point facilities in each of its markets. Each
additional point of presence will increase the
4
<PAGE>
Company's ability to interconnect with other communications service
providers, increasing its potential customer base and revenue
opportunities with existing customers.
o Colocation services. The Company offers colocation services at
certain of its carrier point facilities by providing carriers with
access and space to install their own communications and networking
equipment in a safe and secure technical operating environment. The
demand for colocation services has increased as carriers expand into
geographic areas in which they do not have appropriate space or
technical personnel to support their equipment and operations. By
locating their equipment at the Company's carrier point facilities
in close proximity to the equipment of the Company and other
carriers, communications service providers can facilitate network
interconnections. The Company also offers ancillary services,
including AC/DC power, HVAC, fire protection and security. The
Company currently has colocation facilities at 60 Hudson Street and
will offer colocation at 111 Eighth Avenue and in the central
equipment rooms in the basements of certain of its on-net buildings.
o Metropolitan network transport. The Company has entered into a
twenty-year license agreement with MFN pursuant to which the Company
has leased the right to use a substantial amount of dark fiber in
multiple metropolitan markets. The Company lights the dark fiber in
ring configurations with optical networking gear, establishing
connectivity between carrier point facilities and on-net buildings.
The Company has lit multiple OC-48 SONET rings in the New York
metropolitan area and will utilize DWDM technology to increase
capacity in its metropolitan transport network.
o Network operations center. The Company has a network operations
center located at its carrier point facility at 60 Hudson Street.
This network operations center enables the Company to monitor and
manage the traffic on its network and to provide customer support
and maintenance from a centralized location. Network monitoring and
maintenance is available 24 hours, 7 days a week and is primarily
performed by experienced Company personnel, with off-hours
monitoring currently being outsourced to Nortel. The Company's
customers are also able to monitor their traffic on the network with
full look-through capabilities.
FiberNet In-building Network
Through its subsidiary, FiberNet Equal Access, LLC, the Company is
designing, deploying and operating fiber optic networks in multi-tenant
commercial office buildings and major carrier points to provide floor-by-floor
fiber optic connectivity to tenants. Moreover, there is dedicated connectivity
between the FiberNet In-building Networks and the Company's metropolitan
transport network. The Company's metropolitan transport network enters an on-net
building at one or two discrete points and interconnects with the FIN in the
central equipment room established by the Company in the basement of the
building. Diverse routing and interconnection in the building basement enables
the seamless transfer of traffic between the FIN and the Company's high-
bandwidth metropolitan transport network. By offering dedicated bandwidth
without over-subscription directly between the tenants' premises and the carrier
point facility, congestion or a bottleneck is avoided as traffic is transmitted
from the FIN to the out-of-building network.
In-building network infrastructure. The Company's in-building network
fiber optic infrastructure consists of:
o Central equipment room. The Company usually leases approximately 100
to 1,500 square feet in the basement of its on-net buildings to
establish a central equipment room, where it installs and manages
communications networking equipment. Here the Company connects the
FIN to its metropolitan transport network thereby linking the on-net
building to all of the Company's other points of presence. The
equipment in this facility aggregates and disseminates traffic to
and from the building. The central equipment rooms are built to the
Company's specifications with power supplies and HVAC systems for
environment control. The Company offers colocation services in
certain of its central equipment rooms.
o Redundant, Vertical Riser System. The Company configures, installs,
owns and manages a fiber optic network in the building's vertical
shafts, also known as its riser system. The Company believes its
FINs are designed to ensure reliability and scalability by deploying
over one hundred strands of fiber in dual risers, allowing for
redundant fiber paths in a ring architecture. A FIN generally
extends from the Company's central equipment room throughout the
building, with a termination point on each floor. Typically, the
Company installs secure telecommunications closets on each floor of
the building to house the network equipment and redundant power
supplies. This footprint on every floor facilitates the rapid
provisioning of transmission capacity to tenants, the scalability
for growth in bandwidth and the flexibility to accommodate new
technologies. The Company believes its FINs will be the preferred
wholesale network for other communications service providers. The
Company has lit OC-3 SONET rings in each of its on-net buildings.
Advantages of the FiberNet In-building Network to carriers and building
owners.
o Benefit to carriers. The Company believes that carriers benefit from
the Company's in-building network solution in the following ways:
5
<PAGE>
- access to a high-bandwidth, cost-effective network, without
having to incur capital expenditures associated with building
their own networks;
- direct access to all of the tenants in each on-net building;
- a scalable network, enabling them to meet tenants'
communications needs more quickly;
- reliability and redundancy, allowing them to offer tenants
quality of service guarantees;
- ease of interconnection;
- fast provisioning, accelerating time to market;
- a comprehensive solution to their network capacity needs in
the local loop; and
- access to a network that will accommodate new communications
technologies.
o Benefits to building owners. The Company believes that the
installation of its state-of the-art communications network in
commercial buildings offers building owners:
- a single state-of-the-art infrastructure in their building;
- an increase in the value of their property, at no cost to
themselves;
- a percentage of the in-building revenues generated by the
Company;
- free choice for tenants in selection of communications service
providers;
- improvement in leasing and tenant retention, particularly
those businesses with bandwidth intensive communications
requirements; and
- the ability to offer equal access to multiple communications
service providers with minimal disruption in the building.
Building Selection and License Agreements. The company considers a number
of factors in selecting buildings for the installation of its in-building
network. The Company typically targets buildings with more than 500,000 square
feet of rentable space and multiple tenants. Other factor include:
o location;
o size;
o occupancy levels;
o tenant mix;
o proximity to its points of presence and local fiber optic networks;
o relationship to other on-net buildings;
o feasibility of installation of network infrastructure;
o cost-effectiveness of construction; and
o existing broadband communications infrastructure in the building.
The Company has and intends to continue to enter into exclusive license
agreements with building owners for the installation and operation of its in-
building network within selected buildings. These licenses provide the Company
with the exclusive right to provide wholesale transport services in the
building. However, ILECs may resell their existing infrastructure in the
building, and other communications providers may deploy their own infrastructure
solely to provide retail services, as requested by tenants. The Company's
typical license agreement has an initial term of fifteen years, with renewal
options of up to ten years.
Design and implementation. The Company has a team of communications
professionals and engineers that design and oversee the installation of its
in-building networks. Prior to the commencement of construction of a fiber
network inside an office building, the Company's technical staff conducts a
formal, detailed building site survey. The Company's engineers then develop a
network design specific to the building based on its standard in-building
network design. Design of the network also includes the build-out of the
Company's central equipment room.
The Company typically outsources the construction of its in-building
network to carefully selected construction managers and general contractors. The
Company's in-house technical staff works closely with these construction
managers, general contractors and their subcontractors during the construction
process.
6
<PAGE>
The Company believes that the total construction time for the completion
of the Company's in-building network and related point of presence is typically
between 90 and 120 days, and the Company typically spends $400,000 to $1,000,000
per building. These construction costs vary with building size, location,
complexity of the construction project and other factors.
Connection to our customers and tenants. Once the Company has completed
the construction and installation of its in-building network and has received an
order from a customer, it connects the tenant's local area network or
telecommunications infrastructure to its in-building network at the
telecommunications closet on the tenant's floor. This connection transfers the
tenant's traffic from their premise network onto the Company's in-building
network and then onto its metropolitan transport network, which hauls the
traffic back to carrier points of presence. Typically this connection can be
completed within three to five days. The Company does not provide the horizontal
wiring required to connect a tenant's network or infrastructure to the Company's
FIN.
Relationships with building owners. To date, the Company has constructed
its in-building network in five buildings in Manhattan, four of which are owned
and managed by Tishman Speyer Properties, L.P. The Company has also entered into
and is in the process of negotiating additional license agreements for
in-building networks in a significant number of buildings in multiple
metropolitan markets with national and local property owners.
Sales and Marketing
The Company has a two-tiered sales and marketing strategy:
Selling to carriers. Senior level management personnel and experienced
sales representatives with extensive knowledge of and key contacts within the
industry, market our wholesale services to carriers. Carrier customers are
segmented into two target groups. The first target group includes carriers with
significant bandwidth demands between carrier points for their aggregation of
network traffic. These carriers need to cross-connect high capacity circuits
with other carriers' networks. This group typically includes large long distance
providers and international carriers. The second target group includes
communications service providers needing connectivity to their retail customers
in the Company's on-net buildings. The required service levels in this group
generally are for less bandwidth intensive circuits. Carrier customers in this
category could include CLECs, ISPs, fixed wireless communications companies and
other in-building retail service providers.
Marketing to tenants. Although the Company only sells its services to
other communications carriers, it works with carriers and the owners of its on-
net buildings to generate tenant awareness of the availability of the Company's
fiber optic communications infrastructure. The Company believes that if tenants
are aware of the capacity, reliability and security of its network, they will be
encouraged to select carriers using its FINs to provide their communications
services. This in turn will increase the amount of capacity carriers lease from
the Company.
Competition
The market for broadband network capacity and related services is very
competitive. The Company faces significant competition from many communications
providers with significantly greater financial resources, well-established brand
names, larger customer bases and diverse strategic plans and technologies. The
Company expects significant competition from traditional and new communications
companies, including the following:
Local telephone companies. In New York City and other major metropolitan
areas where the Company plans to do business, it faces significant competition
from ILECs, which currently dominate local communications markets, and CLECs,
which are increasing their market penetration for local telecommunications
services. As a result of the Telecommunications Act of 1996, ILECS are required
to provide other carriers with access to end users via their existing networks.
This type of access is in direct competition to the Company's services. Various
other competitive communications providers also own telecommunications
infrastructure in the local loop. Each of these carriers could, and some do,
compete with FiberNet in the market for providing broadband transmission
capacity in the local loop.
Other in-building communications providers. Certain integrated
communications providers are deploying their own network infrastructure in
commercial office properties in FiberNet's target markets to provide
telecommunications services to tenants. These companies include, but are not
limited to, Advanced Radio Telecom, Allied Riser Communications, Broadband
Office, Cypress Communications, Intermedia, NEXTLINK, OnSite Access, RCN Telecom
Services, SiteLine, Teligent, and Winstar. In particular, these companies build
their networks only to offer their own retail services. Consequently, they could
indirectly compete against FiberNet by not utilizing the Company's FIN to gain
connectivity to tenants. Additionally, many of these companies are seeking to
establish license agreements with building owners to provide them with access to
the buildings. FiberNet has and will continue to compete with certain of these
companies for license agreements with owners of target buildings.
Metropolitan network providers. Many of the leading telecommunications
companies, including AT&T, MCI WorldCom, Sprint, Level 3 and Qwest, have
constructed or are constructing fiber optic networks nationwide. These companies
utilize their networks for their own transmission requirements and in certain
circumstances provide excess network capacity to other carriers. Other
communications companies, such as MFN and Telergy, build metropolitan dark fiber
networks that are leased or sold to other carriers and large corporate users.
The Company competes directly and indirectly with these companies in its current
market and intends to compete with them in target markets.
7
<PAGE>
History
FiberNet Telecom, Inc. ("FiberNet Telecom") was organized under the laws
of the State of Delaware on August 10, 1994. On November 24, 1997, Desert Native
Designs Inc. ("DND"), an existing public company incorporated in the State of
Nevada, acquired FiberNet Telecom pursuant to an agreement and plan of merger
dated as of the same date. Upon consummation of the merger, FiberNet Telecom
became a wholly-owned subsidiary of DND, which subsequently changed its name to
FiberNet Telecom Group, Inc. ("FiberNet Nevada"). On February 4, 2000, FiberNet
Nevada changed its state of incorporation from Nevada to Delaware by merging
with and into FiberNet Telecom Group, Inc., a Delaware corporation ("FiberNet"
or the "Company").
The Company is a holding company that owns all of the outstanding common
stock of FiberNet Telecom, Inc., a Delaware corporation and an intermediate
level holding company. FiberNet Telecom, Inc. owns all of the outstanding
membership interests in Local Fiber, LLC ("Local Fiber"), a New York limited
liability company, and FiberNet Equal Access, LLC ("Equal Access"), also a New
York limited liability company, subject to a warrant owned by Tishman Speyer
Properties, L.P. to purchase up to 10% of Equal Access. The Company conducts its
primary business operations through its operating subsidiaries, Local Fiber and
Equal Access.
Employees
As of December 31, 1999, the Company had a total of 34 full-time
employees. The Company considers its employee relations to be good. None of the
employees of the Company is covered by a collective bargaining agreement.
Recent Transactions
The following is a description of selected major events and contracts that
occurred in the fiscal year ended December 31, 1999:
Bechtel. In February 2000, the Company entered into a two year Services
Agreement with Bechtel Corporation and Bechtel Associates Professional
Corporation (collectively "Bechtel")pursuant to which Bechtel will provide
engineering services, labor, materials and equipment in connection with the
design and installation of the Company's fiber optic networks.
Metromedia Fiber Network Services, Inc. In December 1999, the Company
entered into a 20 year license agreement with MFN. Pursuant to the agreement, in
exchange for 5 million shares of the Company's common stock, MFN granted the
Company the exclusive right to use a significant number of fiber miles of
intra-city dark fiber in multiple major metropolitan areas, nationwide. The
Company entered into this transaction with the intent of strengthening the
Company's New York City network and accelerating its expansion into other
national markets. The transaction dramatically increases the total amount of
dark fiber that the Company can access for its metropolitan transport networks.
As part of the transaction, the Company also acquired MFN's ten percent
membership interest in Local Fiber.
Nortel Networks, Inc. In December 1999, the Company entered into a Master
Purchase Agreement with Nortel, pursuant to which the Company may purchase
products and services from Nortel over a three year term at predetermined
volume-based pricing.
Regulation
General Regulatory Environment
The Company is subject to federal, state and local regulations that affect
its product offerings, competition, demand, costs and other aspects of its
operations. The regulation of the telecommunications industry is changing
rapidly, and varies from state to state. The Company's operations are also
subject to a variety of environmental, safety, health and other governmental
regulations. The Company cannot guarantee that future regulatory, judicial or
legislative activities will not have a material adverse effect on it, or that
domestic or international regulators or third parties will not raise material
issues with regard to its compliance or noncompliance with applicable
regulations.
The Telecommunications Act of 1996
Federal regulation has the greatest impact on the telecommunications
industry and has undergone major changes in the last four years as the result of
the adoption by Congress of the Telecommunications Act of 1996 (the "1996 Act"
or "Act") on February 8, 1996. The 1996 Act is the most comprehensive reform of
the nation's telecommunications laws since the Communications Act was enacted in
1934. The 1996 Act imposes a number of access and interconnection requirements
on telecommunications carriers and on all local exchange providers, including
CLECs, with additional requirements imposed on incumbent local exchange
carriers. The 1996 Act provides a detailed list of items which are subject to
these interconnection requirements, as well as a detailed set of duties for all
affected carriers. All telecommunications carriers must interconnect with the
facilities of other carriers and not install features that will interfere with
the interoperability of networks. All LECs, including CLECs, have a duty to (i)
not unreasonably limit the resale of their services; (ii) provide number
portability if technically feasible; (iii) provide dialing parity to competing
providers and nondiscriminatory access to telephone numbers, directory
assistance, operator services and directory listings; (iv) provide access to
poles, ducts, conduits and rights-of-way; and (v) establish reciprocal
compensation arrangements for the transport and termination of
telecommunications. In addition to those general duties of all LECs, ILECs have
additional duties to (a) interconnect at any technically feasible point and
provide service equal in quality to that provided to their
8
<PAGE>
customers or the ILEC itself; (b) provide unbundled access to network elements
at any technically feasible point at just, reasonable and nondiscriminatory
rates, terms and conditions; (c) offer retail services at wholesale prices for
the use of telecommunication carriers; (d) provide reasonable public notice of
changes in the network or the information necessary to use the network or which
affect interoperability; and (e) provide for physical collocation. "Physical
collocation" is an offering by an ILEC that enables another telecommunications
carrier to enter the ILEC's premises to install, maintain and repair its own
equipment that is necessary for interconnection or access to the ILEC's network
elements. An ILEC must allocate reasonable amounts of space to
telecommunications carriers on a first-come first-served basis. If space
limitations or practical or technical reasons prohibit physical collocation, an
ILEC must offer "virtual collocation," by which the other telecommunications
carrier may specify ILEC equipment to be dedicated to its use and electronically
monitor and control communications terminating in such equipment.
After lengthy legal proceedings, the FCC adopted revised guidelines
implementing the interconnection and local competition provisions of the 1996
Act. In order to foster competition in the local exchange market, the FCC
required ILECs to offer access to their telecommunications networks to CLECs at
cost-based rates. These regulations affect the growth opportunities for some of
the Company's customers and thus demand for the Company's services.
The 1996 Act also established criteria for RBOCs to satisfy in order to
provide long distance service in their local service areas. Before the passage
of the 1996 Act, an RBOC was prohibited from offering long distance service in
an area where it was an incumbent local exchange carrier. With the passage of
the Act, however, an RBOC can now gain entry into the long distance market if it
satisfies certain market-opening criteria to the FCC's satisfaction. On December
21, 1999, Bell Atlantic, in the state of New York, became the first RBOC to gain
such approval from the FCC. Other applications are pending. As more RBOCs gain
entry into the long distance market, they will become more effective
competitors. This change in the telecommunications landscape may exert
competitive pressures on the Company.
On December 9, 1999, the FCC ordered incumbent local telephone companies
to offer line sharing arrangements that will permit competing carriers to offer
digital subscriber line services over the same copper loop facilities used by
the incumbent local telephone company to provide voice telephone service. The
prices for these arrangements will be determined by state utility commissions.
If these prices are set at low levels, it could allow our competitors to offer
low-cost alternatives to the Company's service and put downward pressure on the
Company's prices for transport services.
Liability for Internet Content
There have been various statutes, regulations and court cases relating to
liability of Internet service providers and other on-line service providers for
information carried on or through their services or equipment, including in the
areas of copyright, indecency, obscenity, defamation and fraud. The laws in this
area are unsettled and there may be new legislation and court decisions that may
affect the Company's services and expose the Company to liability.
Regulatory Status
The Company's subsidiary, Local Fiber, is regulated as a "common carrier"
by virtue of its provision of telecommunications services directly to the public
for a fee. A "telecommunications service," as defined by the Act, means the
transmission of information between points specified by the user. Common
carrier's are subject to extensive federal, state and local telecommunications
regulation.
The Company's subsidiary, Equal Access, is not subject to common carrier
regulation. Unlike a common carrier, Equal Access does not hold its offerings
out to the public, nor does it provide transmission services. Equal Access
generally enters into exclusive agreements with building owners to provide
intra-building fiber capacity to telecommunications carriers on a private
contractual basis. As such, Equal Access merely provides the capacity over which
certain carriers may provide telecommunications services. However, certain
proposals have been made before Congress and the FCC that could have an adverse
impact on Equal Access' exclusive contractual rights, in certain buildings, to
provide such capacity.
Local Fiber, LLC
Federal Regulation
As a competitive provider of telecommunications services, Local Fiber is
subject to federal common carrier regulation. Common carriers are subject to
contributions to the FCC's Universal Service Fund, a fund that was established
to ensure the availability of affordable basic telecommunications services. The
anticipated rate of assessment is approximately 5.8% of gross interstate
end-user revenues for the year 2000, and may be higher in subsequent years.
Local Fiber is also required to comply with a number of other federal regulatory
requirements, including, but not limited to rate regulation, reporting
requirements, special assessments, and access charges. Although compliance with
these regulatory requirements imposes certain administrative burdens, similarly
situated competitors are subject to comparable regulatory obligations.
State Regulation
9
<PAGE>
The Telecommunications Act generally prohibits state and local governments
from enforcing any law, rule or legal requirement that prohibits or has the
effect of prohibiting any person from providing any interstate or intrastate
telecommunications service. However, states retain jurisdiction to adopt
regulations necessary to preserve universal service, protect public safety and
welfare, ensure the continued quality of communications services and safeguard
the rights of consumers.
Local Fiber must obtain and maintain certificates of authority from
regulatory bodies in states where it offers intrastate telecommunications
services. In most states, telecommunications providers must also file and obtain
prior regulatory approval of tariffs for its regulated intrastate services.
Certificates of authority can generally be conditioned, modified or revoked by
state regulatory authorities for failure to comply with state law or
regulations. Fines and other penalties also may be imposed for such violations.
Local Fiber is currently authorized to provide intrastate services in New York
and may seek additional authority in other states.
State regulatory commissions generally regulate the rates local Bell
operating companies charge for intrastate services, including intrastate access
services paid by providers of intrastate long distance services. Intrastate
access rates affect the costs of carriers providing intrastate long distance
services and demand for the services the Company and other carriers provide.
Under the Telecommunications Act, state commissions have jurisdiction to
arbitrate and review negotiations between local telephone companies and CLECs
regarding the prices local telephone companies charge CLECs for interconnection
and resale. In setting these prices, state commissions must use the forward-
looking cost methodology prescribed by the FCC, and later upheld by the Supreme
Court. A state may also impose telecommunications taxes and fees for state-level
universal service and other programs on providers of services within that state.
Local Regulation
In addition to federal and state laws, local governments exercise legal
authority that may impact Local Fiber's operations. For example, local
governments retain the authority to license public rights-of-way, subject to the
limitation that local governments may not prohibit the provision of
telecommunications services. Local authorities affect the timing and costs
associated with the use of public rights-of-way. These regulations may have an
adverse effect on the Company's business to the extent Local Fiber requires
access to such public rights-of-way.
Equal Access
Equal Access is subject to numerous local regulations such as building and
electrical codes, licensing requirements and construction requirements. These
regulations vary on a city-by-city and county-by-county basis.
Equal Access generally secures multi-year license agreements with real
estate owners for the exclusive right to lease intra-building fiber capacity to
third parties. Under current FCC regulations, commercial real estate owners have
the right to control wiring within their premises, beyond the demarcation point
at which telecommunications carriers terminate their facilities. The demarcation
point is typically at a minimum point of entry to the building such as the
basement. These rules allow the real estate owners or managers to install and
maintain their own inside wiring, or to contract with companies, such as Equal
Access, to maintain wiring on their behalf. If laws or regulations are enacted
that effectively require building owners to give inside wiring access to all
requesting telecommunications providers on nondiscriminatory terms, Equal
Access' ability to secure and maintain exclusive inside wiring contracts may be
inhibited.
Currently, there is no federal legal requirement that owners or managers
of commercial office buildings give access to competitive providers of
telecommunications services. However, such laws have been adopted in certain
states. For example, laws in Connecticut and Texas generally require commercial
real estate owners to provide nondiscriminatory access to requesting
telecommunications providers that have customers within a building, and limit
what the real estate owner may charge for such access. Although these laws
require that telecommunications carriers be permitted to install their own
inside wiring, there is no requirement that real estate owners allow such
carriers to use existing inside wiring. Thus, in certain states,
telecommunications carriers are permitted to construct inside wiring within
buildings even if a provider such as Equal Access already has existing
facilities.
Federal laws and regulations concerning building access have been
considered in the past and may be adopted in the future. On June 10, 1999, the
FCC initiated an inquiry into riser access in multiple tenant environments and
requested comment on the following issues:
- the FCC's tentative conclusion that utilities must allow
telecommunications and cable service providers access to rooftop and other
rights-of-way and utility shaft conduit in multiple tenant environments on
just, reasonable and nondiscriminatory rates, terms and conditions;
- whether incumbent local telephone companies should make available
unbundled access to riser cable and wiring within multiple tenant
environments; and
- whether building owners offering access to any telecommunications
provider should be required to make comparable access available to all
such providers on a nondiscriminatory basis, and whether the FCC has the
authority to impose such a requirement.
10
<PAGE>
In addition, legislation has recently been introduced in the U.S. House of
Representatives that covers similar issues concerning access to building risers
and rights-of-way. Legislation has also been introduced in both the Senate and
the House that addresses issues relating to telecommunications access to
buildings owned or used by the federal government. The Company cannot predict
the outcome of the FCC's proceeding or of any legislation, nor what effect, if
any, it may have on its business.
Other
The Company's operations are subject to various federal, state, local and
foreign environmental, safety and health laws and governmental regulations.
These laws and regulations govern matters such as the generation, storage,
handling, use and transportation of hazardous materials, the emission and
discharge of hazardous materials into the atmosphere, the emission of
electromagnetic radiation, the protection of wetlands, historic sites and
endangered species and the health and safety of its employees.
Although the Company monitors compliance with environmental, safety and
health laws and regulations, the Company cannot ensure that it has been or will
be in complete compliance with these laws and regulations. The Company may be
subject to fines or other sanctions imposed by governmental authorities if the
Company fails to obtain certain permits or violate the laws and regulations. The
Company does not expect any capital or other expenditures for compliance with
laws, regulations or permits relating to the environment, safety and health to
be material in 1999 or 2000.
In addition, the Company may be subject to environmental laws requiring
the investigation and cleanup of contamination at sites it owns or operates or
at third party waste disposal sites. These laws often impose liability even if
the owner or operator did not know of, or was not responsible for, the
contamination. Although the Company operates numerous sites in connection with
its operations, it is not aware of any liability relating to contamination at
these sites or third party waste disposal sites that could have a material
adverse effect on the company.
ITEM 2. DESCRIPTION OF PROPERTIES
The principal offices of FiberNet are located at 570 Lexington Avenue, New
York, New York, consisting of approximately 5,106 square feet of space. FiberNet
leases this space under agreements which expire in 2008, at a current annual
base rental of approximately $275,000. The Company also has leased two
facilities at major carrier hotels in New York, New York. These facilities are
located at 60 Hudson Street and at 111 Eighth Avenue. The lease for the 15,239
square feet facility at 60 Hudson Street extends through 2008 and has an annual
base rental of approximately $310,000. The lease for the 5,672 square feet
facility at 111 Eighth Avenue extends through 2015 and has an annual base rental
of approximately $190,000. The Company also leases space in the basements of its
on-net buildings for its central equipment rooms.
ITEM 3. LEGAL PROCEEDINGS
To the knowledge of management, there is no material litigation pending or
threatened against the Company which would have a material adverse effect on the
Company.
ITEM 4. SUBMISSION OF MATTERS TO A VOTE OF SECURITY HOLDERS
On December 10, 1999, by unanimous written consent, the Board of Directors
of FiberNet Nevada, the Company's predecessor entity, and the Board of Directors
of FiberNet, approved the terms of a merger as described in an Agreement and
Plan of Merger (the "Plan of Merger") by FiberNet Nevada merged with and into
FiberNet in order to change the Company's state of incorporation. The Plan of
Merger was approved by FiberNet Nevada, which was the sole stockholder of
FiberNet prior to the Merger, and by the stockholders holding a majority of the
voting shares of stock in FiberNet Nevada. Stockholder approval of the Merger
was obtained by written consent in lieu of a stockholders meeting on December
10, 1999. 25,391,904 shares voted in favor of the Plan of Merger out of a total
of 36,536,425 shares entitled to vote, constituting a majority of the voting
shares of stock in FiberNet Nevada.
The Merger was effective on February 4, 2000 upon the filing of a
Certificate of Merger with the Secretary of State of the State of Delaware and
the Articles of Merger with the Secretary of State of the State of Nevada.
In addition, the Board of Directors of the Company approved the 1999 Stock
Option Plan to provide for the issuance of options to employees, directors and
consultants to purchase an aggregate of 2,500,000 shares of Common Stock of the
Company thereunder. The 1999 Stock Option Plan was also approved by stockholders
of the Company holding a majority of voting shares of stock in the Company.
Stockholder approval was obtained by written consent in lieu of a stockholders
meeting on December 10, 1999. 25,391,904 shares voted in favor of the 1999 Stock
Option Plan out of a total of 36,536,425 shares entitled to vote, constituting a
majority of the voting shares of stock in the Company. An amendment to the 1999
Stock Option Plan was approved by the Board of Directors to increase the number
of shares of Common Stock of the Company reserved for issuance under the 1999
Stock Option Plan by 2,000,000 shares, to an aggregate of 4,500,000
11
<PAGE>
shares. Stockholder approval was obtained by written consent in lieu of a
stockholders meeting on December 16, 1999. 25,391,904 shares voted in favor of
the Amendment out of a total of 36,536,425 shares entitled to vote, constituting
a majority of the voting shares of stock in the Company.
ITEM 5. MARKET FOR REGISTRANT'S COMMON EQUITY AND RELATED STOCK HOLDER MATTERS
The Company's Common Stock is currently eligible for quotation on the NASD
Electronic Bulletin Board under the symbol "FTGX". As of February 22, 1999, the
Company currently had a minimum of 1,402 shareholders of record.
The following table sets forth the high and low sales prices for each
quarter for the Company's Common Stock as reported on the NASD Electronic
Bulletin Board during the fiscal year 1999:
---------------------------------------------------------------------
Fiscal 1998 Fiscal 1999
---------------------------------------------------------------------
High Low High Low
---------------------------------------------------------------------
Quarter ending March 31 $8.375 $4.500 $3.250 $1.250
---------------------------------------------------------------------
Quarter ending June 30 $6.000 $4.000 $5.313 $2.938
---------------------------------------------------------------------
Quarter ending September 30 $4.688 $1.875 $7.500 $4.250
---------------------------------------------------------------------
Quarter ending December 31 $2.375 $1.000 $17.438 $4.875
---------------------------------------------------------------------
All of the above quotations were obtained from Bloomberg, L.P.
The Company has not paid any dividends with respect to its Common Stock
and does not expect to pay dividends on its Common Stock in the foreseeable
future. Any future dividends will be declared at the discretion of the Board of
Directors and will depend, among other things, upon the financial condition,
capital requirements, earnings and liquidity of the Company.
RECENT SALES OF UNREGISTERED SECURITIES
Bridge Warrants. On March 23, 1999 the Company issued a warrant to
purchase 400,000 shares of Common Stock to Trident Technology Partners LLC at a
purchase price of $0.50 per share in connection with a bridge loan (the "Bridge
Warrant"). The Bridge Warrant may be exercised, in whole or in part, at any
time from March 23, 1999 through March 23, 2004, upon payment of the exercise
price. The Bridge Warrant may also be exercised without paying the exercise
price by surrendering the warrant in exchange for a number of shares calculated
pursuant to a formula set forth in the Bridge Warrant. The transaction was a
private placement and exempt from registration pursuant to Regulation D of the
Securities Act of 1933, as amended.
Option grant to Richard D. Sayers. On May 7, 1999, the Company granted an
option to purchase 250,000 shares of Common Stock to Richard D. Sayers at an
exercise price of $1.875 per share pursuant to an Employment Agreement (the
"Employment Agreement"). The option to purchase 125,000 shares vested upon the
effective date of the Employment Agreement and 125,000 shares vest in equal
monthly installments during the one year term of the Agreement. The option grant
was exempt from registration pursuant to Section 4(2) of the Securities Act of
1933, as amended.
Conversion Warrants. On June 30, 1999 the Company entered into an
agreement (the "Chiaino Warrant") with Frank Chiaino ("Chiaino") pursuant to
which it issued to Chiaino 41,664 shares of Common Stock and 27,498 warrants to
purchase Common Stock at a purchase price of $0.67 per share.
On June 30, 1999 the Company also entered into an agreement (the
"Petrocelli Warrant" and together with the Chiaino Warrant, the "Conversion
Warrants") with Petrocelli Electric Company Inc., LPS Consultants, Inc. and LTJ
Group pursuant to which the Company issued (i) 309,865 shares of Common Stock of
the Company; (ii) 204,511 warrants to purchase Common Stock at a purchase price
of $0.67 per share; and (iii) 390,000 warrants to purchase Common Stock at a
purchase price of $1.50 per share.
The Conversion Warrants may be exercised, in whole or in part, at any time
from June 30, 1999 through June 30, 2004, upon payment of the applicable
exercise price. The Conversion Warrants may also be exercised without paying the
exercise price by surrendering the warrant in exchange for a number of shares
calculated pursuant to a formula set forth in the Conversion Warrants. The
exercise prices may be adjusted from time to time, as provided in the Conversion
Warrants, in order to prevent dilution of the rights granted under the
Conversion Warrants.
4% and 8% Senior Secured Convertible Notes due May 7, 2004. On May 7,
1999, the Company entered into a Securities Purchase Agreement (the "May
Purchase Agreement") with certain purchasers (the "May Purchasers"), pursuant to
which the Company issued (i) 4% and 8% Senior Secured Convertible Notes of the
Company, due May 7,
12
<PAGE>
2004 (the "May Notes") in the principal aggregate amount of $13.9 million,
convertible into shares of Common Stock of the Company at a price of $1.50 per
share; (ii) 133,333 shares of Series C Preferred Stock, $.001 par value of the
Company for a purchase price of $1.50 per share, convertible into Common Stock
of the Company; (iii) 6,204,000 warrants to purchase Common Stock at a purchase
price of $0.67 per share (the "Class A Warrants"); and (iv) 1,700,000 warrants
to purchase share of Common Stock of the Company at a purchase price of $1.50
per share (the "Class B Warrants").
Under the terms of the May Notes, each holder had the right, up until the
time of repayment, to convert the unpaid principal and interest into shares of
Common Stock of the Company at a price of $1.50 per share. The May Notes also
provided that upon written notice of the conversion of the Notes held by the
Majority in Interest, as that term is defined in the May Purchase Agreement, the
remaining holders of the May Notes would be deemed to have automatically
converted their Notes into shares of Common Stock. On November 30, 1999, Signal
Equity Partners, L.P., the Majority in Interest, converted its May Notes, which
automatically converted all of the May Notes into Common Stock. Pursuant to a
Conversion and Exchange Agreement, by and among the Company and certain
Noteholders (as defined therein)(the "Conversion and Exchange Agreement") the
holders of the 4% May Notes were given the option of exchanging their Common
Stock for Series D Preferred Stock, and the holders of the 8% May Notes were
given the option of exchanging their Common Stock for Series E Preferred Stock.
The Class A Warrants and Class B Warrants may be exercised, in whole or in
part, at any time from May 7, 1999 through May 7, 2004, upon payment of the
exercise price. The Class A Warrants may also be exercised without paying the
exercise price by surrendering the warrant in exchange for a number of shares
calculated pursuant to a formula set forth in the May Purchase Agreement. The
exercise price may be adjusted from time to time, as provided in the Class A
Warrants, in order to prevent dilution of the rights granted under the Class A
Warrants.
The Series C Preferred may be converted into Common Stock at any time at
the option of the holder. Additionally, the Series C Preferred shall
automatically convert into Common Stock upon the consummation of a qualified
public offering, as defined in the Stockholders Agreement, dated May 7, 1999,
between the Company and certain stockholders (the "Stockholders Agreement").
Additionally, any shares of Series C Preferred held by holders of Common Stock
received upon the conversion of the May Notes automatically convert upon (i) the
conversion of Series C Preferred owned or held by the Majority in Interest; (ii)
the conversion or repayment of the May Notes owned or held by the Majority in
Interest, in accordance with the terms of the May Notes. The conversion ratio
for the Series C Preferred is one share of Common Stock for every one share of
Series C Preferred Stock, subject to certain customary anti-dilution adjustments
made from time to time pursuant to the Certificate of Designation of the Series
C Preferred.
The transaction was a private placement and exempt from registration
pursuant to Regulation D of the Securities Act of 1933, as amended.
8% Senior Secured Convertible Notes due September 28, 2004. On September
28, 1999, the Company entered into a Securities Purchase Agreement (the
"September Purchase Agreement") with certain purchasers (the "September
Purchasers"), pursuant to which the Company issued 8% Senior Secured Convertible
Notes due September 28, 2004 ("September Notes") in the aggregate principal
amount of $12.5 million, convertible into shares of Common Stock of the Company
at a price of $3.00 per share.
Under the terms of the September Notes, each holder had the right, up
until the time of repayment, to convert the unpaid principal and interest into
shares of Common Stock of the Company at a price of $3.00 per share. The
September Notes also provided that upon written notice of the conversion of the
September Notes held by the Majority in Interest, as that term is defined in the
May Purchase Agreement (described above), the remaining holders of the September
Notes would be deemed to have automatically converted their respective
September Notes into shares of Common Stock. On November 30, 1999, Signal Equity
Partners, L.P., the Majority in Interest, converted its September Notes, which
automatically converted all of the September Notes into Common Stock. Pursuant
to the Conversion and Exchange Agreement, the holders the September Notes were
given the option of exchanging their Common Stock for Series F Preferred Stock.
The transaction was a private placement and exempt from registration
pursuant to Regulation D of the Securities Act of 1933, as amended.
Tishman Speyer Properties, L.P. On June 30, 1999 the Company granted
Tishman Speyer Properties, L.P. ("TSP") an option, pursuant to an Option
Agreement dated June 30, 1999, as amended, to purchase 1,000,000 shares of
Common Stock of the Company for a purchase price of $1.50 per share. On February
1, 2000, TSP exercised its option to purchase all 1,000,000 shares.
Metromedia Fiber Network Services, Inc. Pursuant to a Private Network
Agreement dated as of December 17, 1999 by and between MFN and the Company, and
a related Exchange and Registration dated as of the same date between MFN and
the Company, the Company issued 5,000,000 shares of the Company's Common Stock
to MFN. The transaction assumed a per share price of $8.69. As a result of the
transaction, MFN held approximately ten percent of the Company's Common Stock as
of the date of the agreement. The transaction was a private placement and exempt
from registration pursuant to Regulation D of the Securities Act of 1933, as
amended.
Pacer International, Inc. Pursuant to an Option Agreement dated as of
October 1, 1999 between Pacer International, Inc. ("Pacer") and the Company, the
Company issued to Pacer an option to purchase 600,000 shares of its Common Stock
at $3.00 per share. On February 29, 2000, Pacer exercised its option with
respect to all 600,000 shares. The transaction was a private placement and
exempt from registration pursuant to Regulation D of the Securities Act of 1933,
as amended.
Options granted pursuant to 1999 Stock Option Plan. The Company granted
approximately 3.4 million options to purchase shares of Common Stock to 40
employees, directors and consultants pursuant to its 1999 Stock Option Plan. The
options typically vest annually over three years from the date of grant. The
exercise price for the options ranges from $3.00 to $11.06 per share. The option
grants were exempt from registration pursuant to Section 4(2) of the Securities
Act of 1933, as amended.
13
<PAGE>
Settlement Agreement. On February 28, 2000 the Company agreed to issue to
Trident Telecom Partners, LLC ("Trident") and certain members of Trident
("Trident Members") in settlement of certain litigation (i) 23,442 warrants to
purchase Common Stock at a purchase price of $0.67 per share to Trident Telecom
Management, LLC, (ii) 66,667 shares of Common Stock and 44,000 warrants to
purchase Common Stock at a purchase price of $0.67 per share to Trident Telecom
Management, LLC, for consideration of $100,000, (iii) 35,764 shares of Common
Stock and 1,997 warrants to purchase Common Stock at a purchase price of $0.67
per share to Bruno Guazzoni, for consideration of approximately $290,000, (iv)
47,074 shares of Common Stock and 3,994 warrants to purchase Common Stock at a
purchase price of $0.67 per share to Pacific Alliance, LLC, and (v) 35,305
shares of Common Stock and 2,995 warrants to purchase Common Stock at a purchase
price of $0.67 per share to Emral Holdings, Ltd. The warrants are exercisable in
whole or in part, at any time from May 7, 1999 through May 7, 2004, upon payment
of the exercise price. The warrants may also be exercised without paying the
exercise price by surrendering the warrant in exchange for a number of shares
calculated pursuant to a formula set forth in the May Purchase Agreement. The
exercise price may be adjusted from time to time, as provided in the warrants,
in order to prevent dilution of the rights granted under the warrants. The
shares and warrants to be issued pursuant to this transaction will be a private
placement, exempt from registration pursuant to Section 4(2) of the Securities
Act of 1933, as amended.
ITEM 6. MANAGEMENT'S DISCUSSION AND ANALYSIS OR PLAN OF OPERATIONS
General
As of December 31, 1999, the Company has had no commercial operations to
date and had not generated any revenues. Since it inception, the Company has
engaged principally in organizational and developmental activities, including
formulating its business plan, developing strategic relationships with vendors
and property owners, gaining access to capital for future growth, hiring
personnel and purchasing equipment.
The Company has initially focused its developmental activities in New York
City. FiberNet has deployed its in-building networks in five commercial office
properties and has established two carrier point facilities. The Company will
continue to expand its portfolio of on-net buildings in the New York
metropolitan area and add additional carrier point facilities to its network. In
the first quarter of fiscal 2000, FiberNet began providing services in the New
York market. As a result, the Company will no longer be a development stage
enterprise for financial reporting purposes.
Recently, the Company also began its expansion into the Chicago market and
expects to be operational in that market during fiscal 2000. In addition to
Chicago, FiberNet intends to expand into other gateway cities, as well. The
Company will pursue the same business strategy in its expansion markets, as it
has in New York.
FiberNet's strategy is to provide wholesale broadband connectivity for
data, voice and video transmission on its state-of-the-art fiber optic networks
in major metropolitan areas. The Company offers an advanced high bandwidth fiber
optic solution to support the growing demand for network capacity in the
intra-city market, or local loop. The Company believes that its end-to-end
connectivity, quality of service and rapid provisioning time will make it the
preferred carrier's carrier for transport capacity and services.
The Company integrates three core assets to provide its optical local loop
solution:
On-net buildings. The Company typically has entered into exclusive license
agreements with building owners to design, deploy and operate fully redundant,
self-healing, SONET rings in multi-tenant commercial office buildings in
Manhattan. These FiberNet In-building Networks can extend from the basement of
on-net buildings to telecommunications closets on every floor to provide a
central distribution system for broadband communications services in the
building.
Metropolitan transport network. The Company has entered into a twenty-year
license agreement with MFN pursuant to which the Company has leased the right to
use a substantial amount of dark fiber in multiple metropolitan markets. The
Company lights the dark fiber in ring configurations with optical networking
gear, establishing connectivity between carrier point facilities and on-net
buildings. The Company has lit multiple OC-48 SONET rings in the New York
metropolitan area and will utilize dense wave division multiplexing technology
to increase capacity in its metropolitan transport network.
Carrier point facilities. The Company has developed carrier point
facilities to enable the interconnection of its network with other carriers'
networks. In addition, the Company offers colocation and cross-connection
services to its carrier customers at these facilities. The Company's primary
carrier point facility, located at 60 Hudson Street in New York City, is also
the site of its network operations center, which provides network monitoring,
management and maintenance.
For the fiscal year ended December 31, 1999 the Company reported an
operating loss of $13.1 million and a net loss of $72.2 million, compared to
losses of $3.1 million and $2.8 million, respectively, in fiscal 1998. The
Company's general and administrative expenses increased from $3.1 million in
1998 to $8.3 million in 1999, primarily as a result of an increase in payroll
expense and related overhead as the Company's organizational and developmental
activities accelerated. The Company expects such increase to continue for the
next fiscal year.
FiberNet recorded non-recurring expenses of $4.3 million in fiscal 1999.
Of these expenses, $3.7 million was a non-cash charge, relating to the
prospective settlement of certain litigation. Net interest expense was $1.3
million in fiscal 1999 compared to $0.2 million of net interest income in fiscal
1998. This change resulted primarily from the issuance of Senior Secured
Convertible Notes during the year (see "Liquidity and Capital Resources" below).
Nearly all of the interest expense on the Senior Secured Convertible Notes
accrued in fiscal 1999 was converted into or exchanged for shares of common
stock or preferred stock on November 30, 1999.
The Company recorded two non-cash charges for beneficial conversion
features in fiscal 1999, relating to the issuance of convertible securities, in
accordance with the Emerging Issues Task Force, or EITF, Issue 98-5. The total
amount of these charges was $57.2 million, and the Company concurrently recorded
an increase to stockholders' equity in an equal amount. The Company also
recorded preferred stock dividends of $0.8 million in fiscal 1999, relating to
its Series D, E and F Preferred Stock. Such dividends were paid in additional
shares of Series D, E and F Preferred Stock, as of December 31, 1999.
14
<PAGE>
As a result of the Company's developmental activities and the deployment
of its networks and facilities, FiberNet has incurred significant losses from
inception to date. The Company expects such losses to continue, as it further
executes its business plan and expands its operations. Consequently, FiberNet
has been dependent upon external sources of capital to fund its operations.
Prospectively, the Company will continue to incur losses and will not be able to
fund its operations with internally generated funds, thereby requiring
additional, external capital. Additionally, the Company has no relevant
operating history upon which an evaluation of its performance and prospects can
be made. The Company is subject to unforeseen capital requirements, failure of
market acceptance, failure to establish business relationships, and competitive
disadvantages against larger and more established companies.
Liquidity and Capital Resources
The Company has to date financed its development efforts through direct
equity investments from its shareholders and the issuance of additional debt and
equity securities in private transactions. The Company has sustained losses for
the fiscal year ended December 31 1999 of $72.2 million and from August 10, 1994
(date of inception) to December 31, 1999 of $75.8 million. These operating
losses are due to the development of the Company's telecommunications
operations, and the Company anticipates that such losses will continue as it
executes its business plan. During the fiscal year ended December 31, 1999 cash
used to fund operating activities was $5.3 million, and cash purchases of
property, plant and equipment were $10.8 million.
The Company's planned operations will require significant capital to fund
equipment purchases, engineering and construction costs, marketing costs,
administrative expenses and other operating activities. The Company anticipates
spending over $100 million through the fiscal year 2000 for the deployment of
its FINs, expansion of its metropolitan transport networks, the development of
additional carrier points facilities and other network programs and management
systems.
On November 24, 1997, the Company raised $5.1 million from the private
placement of Series A Preferred Stock. On May 7, 1999, the Company issued $14.1
million of 4% and 8% Senior Secured Convertible Notes due 2004, Series C
Preferred Stock and warrants to purchase Common Stock. On September 28, 1999,
the Company issued $7.8 million of 8% Senior Secured Convertible Notes due
2004, and on October 19, 1999 FiberNet issued an additional $4.7 million of 8%
Senior Secured Convertible Notes due 2004, for a total of $12.5 million. On
November 30, 1999 the Company converted or exchanged all of the outstanding 4%
and 8% Senior Secured Convertible Notes due 2004 plus accrued interest into
either Common stock or new series of preferred stock.
On December 17, 1999 FiberNet issued five million shares of Common Stock
to Metromedia Fiber Network Services, Inc. as consideration for a twenty year
lease for a significant number of route miles of dark fiber in multiple markets
and the repurchase of a 10% minority interest in the Company's Local Fiber, LLC
operating subsidiary held by MFN. The Company has also secured a commitment for
an equipment lease line of credit totaling $5.1 million. The $1.2 million of
equipment leases outstanding as of December 31, 1999 was the only long-term
indebtedness of the Company as of that date.
FiberNet has had on-going discussions with sources of additional
financing. As a result, the Company may also consider from time to time private
or public sales of additional equity or debt securities, entering into credit
facilities and other financings, depending upon market conditions, in order to
finance the continued operations of its business. To date, no final commitments,
other than that discussed above, have been obtained. There can be no assurance
that the Company will be able to, other than those discussed above, successfully
consummate any such financing at all, or on acceptable terms.
The Company has experienced significant growth in employees during fiscal
1999 and expects such growth to continue over the next twelve months as its
operations increase. The Company hired a significant number of new personnel in
the engineering and operations departments, as well as sales and marketing.
ITEM 7. FINANCIAL STATEMENTS
Audited balance sheets as of December 31, 1999, and December 31, 1998 and
the related statements of operations, cash flows and stockholders' equity for
the period from inception (August 10, 1994) to December 31, 1999, together with
related notes and the reports of Arthur Andersen LLP, independent auditor, and
Mendelsohn Kary Bell & Natoli, P.C., independent auditor, appear on pages F-1
through F-14 of this report.
ITEM 8. CHANGES IN AND DISAGREEMENTS WITH ACCOUNTANTS ON ACCOUNTING AND
FINANCIAL DISCLOSURE
None.
15
<PAGE>
ITEM 9. MANAGEMENT
Executive Officers and Directors
The following tables set forth the directors and executive officers of the
Company as of December 31, 1999. Directors are elected for a period of one year
and thereafter serve until the next annual meeting at which their successors are
duly elected by the stockholders. Officers and other employees serve at the will
of the board of directors.
NAME AGE POSITIONS
- ---- --- ---------
Timothy P. Bradley 38 Director
Steven G. Chrust 50 Director
Roy (Trey) D. Farmer III 29 Executive Vice President, Director
Michael S. Liss 45 President, Chief Executive Officer, Director
Charles Mahoney 62 Director
Richard Sayers 63 Director
William Vrattos 30 Director
Les Hankinson 48 Senior Vice President - Sales and Marketing
Joel Zimmermann 51 Senior Vice President - Facilities
Jon A. DeLuca 28 Vice President - Finance
TIMOTHY P. BRADLEY has served as a Director of FiberNet since May 7, 1999. Mr.
Bradley is a Managing Partner and co-founder of Signal Equity Partners, a
private equity investment fund focused on the telecommunications and information
technology industries. Mr. Bradley also co-founded Signal Partners LLC, a
financial advisory firm whose clients included Fortune 500 companies and premier
private equity funds. Previously, Mr. Bradley was a general partner at the
Exeter Group, a private equity investment fund. Prior to working in the private
equity industry, Mr. Bradley was a practicing attorney in New York City. He
received a BA from Yale University in 1983, a JD from New York University School
of Law in 1988, and an MBA from Columbia Business School in 1993. Mr. Bradley is
a member of the Company's Audit Committee and Compensation Committee.
STEVEN G. CHRUST has served as a Director of FiberNet since December 8, 1999. He
is Founder and President of SGC Advisory Services, Inc., an
advisory/money-management firm specializing in telecommunications and
technology, and has been involved with the telecommunications and financial
services industry for over 25 years. He was co-founder and served as Vice
Chairman of WinStar Communications, Inc. from 1995 through 1998. Previously, Mr.
Chrust was Director of Technology Research at Sanford C. Bernstein & Co. Mr.
Chrust was Chairman of the Association for Local Telecommunications Services
(ALTS), the national organization representing facilities-based competitive
local exchange carriers. Mr. Chrust is a member of the Company's Audit
Committee.
ROY (TREY) D. FARMER III has served as the Executive Vice President and a
Director of FiberNet since May 11, 1999. From 1998 to 1999 he was a partner of
Sterling Capital LLC. Prior to joining Sterling Capital, Mr. Farmer worked with
a group of strategic consulting firms based in New York City that repositioned
technology companies. He has an A.B. in classical philosophy from Princeton
University, an M.Ed. from Harvard University and an M.A.R. from Yale University.
MICHAEL S. LISS has served as President & CEO of FiberNet and as a Director of
the Company since May 11, 1999. From 1994 to 1999, he was a Managing Director of
Lazard Freres & Co. LLC, and prior to that he was a Senior Managing Director of
Bear, Stearns & Co. Inc. Mr. Liss is a graduate of the Yale Law School and the
Yale School of Management and has a B.A. from Columbia University. Mr. Liss is a
member of the Company's Compensation Committee.
CHARLES MAHONEY has served as a Director of the Company since May 7, 1999. He is
presently President and Chief Executive Officer of Arcade Building Services, a
wholly owned subsidiary of Tishman Speyer Properties, L.P. From 1990 to 2000 he
was a Senior Managing Director and Managing Director with TSP. Prior to his
employment at TSP, Mr. Mahoney held positions at the Helmsley Organization and
at Con Edison. He holds a B.S. from C.W. Post College. Mr. Mahoney is a member
of the Company's Compensation Committee.
RICHARD D. SAYERS has served as a Director of the Company since May 7, 1999.
Since 1996, he has served as the President of Taurus Telecommunications, Inc., a
private consulting company in the telecommunications industry. From 1994 to
1996, Mr. Sayers was the Vice Chairman of ACC Corp. and President of its
international group, serving as Chairman of ACC Telenterprises (ACC-Canada) and
Chairman of ACC Long Distance, United Kingdom. Mr. Sayers has nearly 40 years of
executive level experience in the telecommunications industry. He received a
B.S. in electrical engineering from Union College.
WILLIAM VRATTOS has served as a Director of the Company since September 29,
1999. Since 1997, he has been a Vice President of Georgica Advisors LLC,
focusing on the firm's public and private investments in the media,
communications and entertainment industries. Prior to that Mr. Vrattos worked in
the investment banking division of Morgan Stanley & Co. Incorporated from 1991
until 1995. He also currently serves as a Director and Chairman of the Finance
Committee of Listing Services Solutions, Inc., a privately held
telecommunications service company. Mr. Vrattos is a member of the Company's
Audit Committee.
LES HANKINSON has served as the Senior Vice President of Sales and Marketing
since October 4, 1999. Mr. Hankinson has more than 27 years of executive level
experience in the telecommunications industry. From 1991 to
16
<PAGE>
1999, he was with British Telecommunications plc ("BT"), where he was
responsible for Worldwide Wholesale Sales and Marketing for Carrier Services as
well as Internet and Multimedia. As Vice President and General Manager-Internet
Sales and Marketing, he was responsible for launching BT's line of products
aimed at the wholesale and retail Internet market. Mr. Hankinson has also held
executive positions at Sprint, MCI WorldCom, SBS, and Cable & Wireless. He
attended George Mason University where he majored in Computer Science. He also
completed a Telecommunications Master's Program at the Telecommunications
Engineering Staff College in London, England.
JOEL ZIMMERMANN has served as the Senior Vice President of Facilities of
FiberNet since July 21, 1999. Mr. Zimmermann has more than 15 years of executive
level experience in the telecommunications industry. His previous employers
include Pacer International, Concert, MCI and Amtrak. His responsibilities in
metropolitan, long-distance and international networking and systems have
included business development, planning, design, program management,
implementation and operations. Mr. Zimmermann has a B.S. in civil engineering
from Rutgers University and a M.B.A. from Southern Methodist University.
JON A. DELUCA has served as the Vice President of Finance of FiberNet since June
14, 1999. From 1997 to 1999, Mr. DeLuca was a Managing Director of Lago
Industries, LLC, a private merchant banking firm. Prior to that, he was employed
in the Leveraged Finance Groups of Lazard Freres & Co. LLC and Bear, Stearns &
Co. Inc. Mr. DeLuca has a B.A. from Trinity College.
DIRECTORS, EXECUTIVE OFFICERS, PROMOTERS AND CONTROL PERSONS COMPLIANCE WITH
SECTION 16(A) OF THE EXCHANGE ACT.
Section 16 of the Securities Exchange Act of 1934, as amended (the
"Exchange Act"), requires the Company's directors, executive officers, and any
persons holding more than 10% of the outstanding common stock of the Company to
file reports with the Commission concerning their initial ownership of common
stock and any subsequent changes in that ownership.
Based solely on its review of the copies of such forms received by it,
or written representations from reporting persons that no other reports were
required for those persons, the Company believes that, during fiscal year 1999
all reports required to be filed pursuant to Section 16(a) of the Exchange Act
were filed on a timely basis except (a) an Initial Statement of Beneficial
Ownership on Form 3 was filed late by Steven G. Chrust, and (b) Statements of
Changes in Beneficial Ownership on Forms 4 were filed late by Michael S. Liss,
Richard Sayers and William Vrattos for one December 1999 event, by Signal Equity
Partners, L.P. for two December 1999 events and by Trident Telecom Partners LLC
for three December 1999 events.
17
<PAGE>
ITEM 10. EXECUTIVE COMPENSATION
The following table sets forth summary information as to compensation
received by the Company's Chief Executive Officer and each of the other most
highly compensated persons who were serving as executive officers of the Company
as of December 31, 1999 and who earned in excess of $100,000 for services
rendered to the Company during fiscal year 1999 (collectively, the "named
executive officers").
<TABLE>
<CAPTION>
Annual Compensation Long Term Compensation
Awards Payouts
Securities
Restricted Underlying
Name and Stock Awards Options/SARs LTIP Payouts All other
Principal Position Year Salary ($) Bonus ($) ($) (#) ($) Compensation ($)
<S> <C> <C> <C> <C> <C> <C> <C>
Michael S. Liss
President, CEO &
Director 1999 158,653 -- -- 1,005,000 -- --
Roy (Trey) D.
Farmer III
Executive Vice
President&
Director 1999 107,757 15,000 -- 340,000 -- --
</TABLE>
The following table provides information regarding the grant of stock
options during fiscal year 1999 to the named executive officers.
<TABLE>
<CAPTION>
Individual Grants
-----------------
Number of % of Total
Shares Covered Options Granted
by Option to Employees Exercise Price Expiration
Name Grant(1) in Fiscal Year ($/share) Date
---- -------- -------------- --------- ----
<S> <C> <C> <C> <C>
Michael S. Liss 125,000 4.4 4.000 5/11/2009
440,000 15.4 3.750 12/3/2009
440,000 15.4 6.000 12/3/2009
Roy (Trey) D. Farmer III 125,000 4.4 4.000 5/11/2009
215,000 7.5 5.000 12/3/2009
</TABLE>
THE STOCK PLAN
In December 1999, the Company adopted an employee equity participation
program covering 4,500,000 shares of Common Stock of the Company to advance the
growth and success of FiberNet by enabling employees, directors and consultants
to acquire a proprietary interest in the Company. The Board of Directors
administers the 1999 Stock Option Plan. All employees are eligible to receive
awards under the 1999 Stock Option Plan, at the Board's discretion.
Options granted pursuant to the 1999 Stock Option Plan may be either
nonqualified options and/or incentive stock options within the meaning of
Section 422 of the Internal Revenue Code of 1986, as amended.
18
<PAGE>
During the fiscal year ended as of December 31, 1999, the Company granted
approximately 3.4 million options under the 1999 Stock Option Plan and
approximately 1.9 million options not under the 1999 Stock Option Plan, covering
a total of approximately 5.3 million shares, at an average exercise price of
approximately $3.78 per share.
ITEM 11. SECURITY OWNERSHIP OF CERTAIN BENEFICIAL OWNERS AND MANAGEMENT
The following table sets forth certain information as of December 31,
1999, concerning the ownership of voting securities (i) each member of the Board
of Directors of the Company, (ii) each executive officer of the Company named in
the Annual Compensation Table appearing under "Executive Compensation," above,
(iii) all current Directors and executive officers of the Company as a group and
(iv) each beneficial owner of more than 5% of the outstanding shares of any
class of voting securites.
19
<PAGE>
<TABLE>
<CAPTION>
Name and Address of Number of Shares
Title of Class Beneficial Owner Beneficially Owned Percent of Class
<S> <C> <C> <C>
Common Stock SMFS, Inc.(1)
12-12 43rd Avenue
Long Island City, New York 11101 6,900,000 26.6
Common Stock Metromedia Fiber Network
Services, Inc.
1 North Lexington Avenue
White Plains, NY 10601 5,000,000 19.3
Common Stock LTJ Group, Inc.(1)
61 Old Well Road
Rochester, New York 1462 4,161,556 16.0
Common Stock Trident Telecom Partners, LLC
445 Park Avenue, 6th Floor
New York, NY 10022 3,017,443 11.6
Common Stock Michael S. Liss (2)
c/o 570 Lexington Ave, 3rd Floor
New York, NY 10022 336,025 1.3
Common Stock Executive officers and
directors as a group 336,025 1.3
Series C Preferred Stock Alexander Enterprise Holdings
Corp.
499 Park Avenue, 24th Floor
New York, NY 10022 8,511 6.4
Series C Preferred Stock Burden Direct Investment Fund
III
10 East 53rd Street, 32nd Floor
New York, NY 10022 9,456 7.1
Series C Preferred Stock Penny Lane Partners L.P.
767 5th Avenue
New York, NY 10153 7,092 5.3
Series C Preferred Stock Pequot Scout Fund, L.P.
500 Nyala Farm Road
Westport, CT 06880 9,456 7.1
Series C Preferred Stock Signal Equity Partners, L.P.
10 East 53rd Street, 32nd Floor
New York, NY 10022 43,499 32.6
Series C Preferred Stock Trident Telecom Partners, LLC
445 Park Avenue, 6th Floor
New York, NY 10022 40,189 30.1
Series C Preferred Stock Michael S. Liss (2)
c/o 570 Lexington Ave, 3rd Floor
New York, NY 10022 4,728 3.5
Series C Preferred Stock Richard D. Sayers (3)
3625 Ridge Run
Canandaigua, NY 14424 946 0.7
Series C Preferred Stock Executive officers and
directors as a group 5,674 4.2
</TABLE>
(1) Pursuant to the Stockholders Agreement dated May 7, 1999 between the Company
and certain stockholders (as defined therein), SMFS, Inc., LTJ Group, Inc. and
LPS Consultants, Inc. granted irrevocable proxies to Signal Equity Partners,
L.P., Trident Telecom Partners, LLC and Concordia Telecom Management, L.L.C. to
vote all of their shares at all meetings of stockholders. The proxy terminates
upon the earliest to occur of (i) a transfer of all shares owned by the
stockholder that granted the proxy; (ii) a qualified public offering, as defined
in the Stockholders Agreement; or (iii) three years from the date of the
Stockholders Agreement.
(2) Michael S. Liss, the Company's President and Chief Executive Officer,
beneficially owns these shares through Concordia Telecom Management, L.L.C.
(3) Richard D. Sayers, a director of the Company, beneficially owns these shares
through Taurus Telecommunications, Inc.
ITEM 12. CERTAIN RELATIONSHIPS AND RELATED TRANSACTIONS
During 1999, the Company made payments to Petrocelli Electric Co., a
related party, of approximately $1.3 million for consulting and contracting
services rendered. Mr. Santo Petrocelli, former Chairman of the Company, is the
President and Chief Executive Officer of Petrocelli Electric Co. and Petrocelli
Electrical Services and the principal of SMFS, Inc., a shareholder in the
Company. Other consulting fees paid to related parties included approximately:
(i) $96,000 to Richard D. Sayers, a current Director of the Company, (ii)
$85,000 to Frank Chiaino, the former President and Chief Executive Officer of
the Company, and (iii) $83,000 to Landtel Telecommunications. Mr. Joseph
Tortoretti is the majority shareholder of Landtel Telecommunications and a
principal of LTJ Group, Inc., a shareholder of the Company. The Company also
issued approximately 973,000 warrants and shares of Common Stock as
consideration for accounts payable of $527,000 due to related parties, including
Petrocelli Electric Co., LPS Consultants, Inc., Landtel Telecommunications and
Frank Chiaino. Mr. Lawrence Polan, a former Director of the Company, is also
Vice President and Chief Financial Officer for Petrocelli Electric Co. In
addition, he controls LPS Consultants, Inc.
The Company capitalized services from Petrocelli Electrical Services of
approximately $2.5 million and $12,000 during 1998 and 1997, respectively.
Additionally, the Company expensed approximately $140,000 and $20,000 of
consultant fees from this related party during 1998 and 1997, respectively. The
Company capitalized services of approximately $57,000 and $6,000 of consulting
services from Landtel Communications during 1998 and 1997, respectively.
Additionally, the Company expensed approximately $57,000 and $100,000 of
consultant fees from this related party during 1998 and 1997, respectively. The
Company purchased approximately $75,000 of consulting fees from LPS Consultants,
Inc. during 1998.
20
<PAGE>
ITEM 13. EXHIBITS AND REPORTS ON FORM 8-K
(a) The following documents are filed herewith as part of this Form
10-KSB:
EXHIBIT NO. EXHIBIT NAME
----------- ------------
2.1 Agreement and Plan of Merger between the
Company and FiberNet Telecom Group, Inc., a
Nevada corporation, dated December 10, 1999
(incorporated by reference to Exhibit A to the
Company's Information Statement Pursuant to
Section 14(c) of the Securities Exchange Act of
1934, as amended, filed on January 13, 2000)
3.1 Certificate of Incorporation of Company
(incorporated by reference to Exhibit B to the
Company's Information Statement Pursuant to
Section 14(c) of the Securities Exchange Act of
1934, as amended, filed on January 13, 2000)
3.2 Bylaws of the Company (incorporated by
reference to Exhibit C to the Company's
Information Statement Pursuant to Section 14(c)
of the Securities Exchange Act of 1934, as
amended, filed on January 13, 2000)
4.1 Form of certificate for the Company's Common
Stock
4.2 Form of 8% Senior Secured Convertible Note
(incorporated by reference to Exhibit B of the
Company's Schedule 13D filed on May 17, 1999).
4.3 Form of 4% Senior Secured Convertible Note
(incorporated by reference to Exhibit D of the
Company's Schedule 13D, filed on May 17, 1999).
4.4 Form of Warrant (incorporated by reference to
Exhibit E of the Company's Schedule 13D filed
May 17, 1999).
4.5 Form of Warrant (incorporated by reference to
Exhibit F of the Schedule 13D filed on May 17,
1999).
4.6 Stockholders Agreement dated as of May 7, 1999
by and among the Company and the stockholders
listed therein (incorporated by reference to
Exhibit H of the Company's Schedule 13D, filed
on May 17, 1999).
4.7 Registration Rights Agreement dated as of May
7, 1999 by and among the Company the
stockholders listed therein(incorporated by
reference to Exhibit I of the Company's
Schedule 13D filed on May 17, 1999).
4.8 Proxy for LPS Consultants, Inc., dated May 7,
1999 (incorporated by reference to Exhibit J of
the Company's Schedule 13D filed on May 17,
1999).
4.9 Proxy for SMFS, Inc. dated May 7, 1999
(incorporated by reference to Exhibit K of the
Company's Schedule 13D, dated May 17, 1999).
4.10 Proxy for LTJ Group, Inc. dated May 7, 1999
(incorporated by reference to Exhibit L of the
Company's Schedule 13D filed on May 17, 1999
4.11 Joinder dated as of September 28, 1999 to the
Stockholders Agreement dated as of May 7, 1999
by and among the Company and the stockholders
listed therein (incorporated by reference to
Exhibit 4.3 of the Company's Form 8-K).
4.12 Joinder dated as of September 28, 1999 to the
Registration Rights Agreement dated as of May
7, 1999 by and among the Company and the
parties listed therein (incorporated by
reference to Exhibit 4.4 of the Company's Form
8-K).
10.1 Office Lease Agreement between Hudson Telegraph
Associates and FiberNet Telecom Group, Inc.
dated as of February 17, 1998 (incorporated by
reference to Exhibit 10.1 to the Company's Form
10-QSB filed on November 16, 1998).
10.2 Master Lease Agreement between Comdisco, Inc.
and the Company dated as of July 27, 1998
(incorporated by reference to Exhibit 10.1 to
the Company's From 10-KSB filed on March 31,
1999)
10.3 Agreement of Lease between 570 Lexington
Company, L.P. and FiberNet Telecom Group, Inc.
dated as of August 3, 1998 (incorporated by
reference to Exhibit 10.5 to the Company's Form
10-QSB filed on May 15, 1998).
10.4 Employment Agreement dated as of May 7, 1999
between the Company and Michael S. Liss.
21
<PAGE>
10.5 Employment Agreement dated as of May 7, 1999
between the Company and Roy (Trey) D. Farmer.
10.6 Employment Agreement dated as of July 21, 1999
between the Company and Joel Zimmermann.
10.7 Employment Agreement dated as of October 4,
1999 between the Company and Les Hankinson.
10.8 Option Agreement between the Company and Pacer
International, Inc. dated as of October 1,
1999.
*10.9 Private Network Agreement dated December 17,
1999 between the Company and Metromedia Fiber
Network Services, Inc.
10.10 1999 Stock Option Plan of FiberNet Telecom
Group, Inc. (incorporated by reference to
Exhibit F to the Company's Information
Statement Pursuant to Section 14(c) of the
Securities Exchange Act of 1934, as amended,
File No. 000-24661 filed on January 13, 2000)
10.11 Lease Agreement dated February 29, 2000 between
111 Eighth Avenue LLC and FiberNet Telecom
Group, Inc.
21.1 Subsidiaries of the Company
23.1 Consent of Arthur Andersen LLP
23.2 Consent of Mendelsohn Kary Bell & Natoli, P.C.,
Certified Independent Auditors
27.1 Financial Data Schedule
99.1 Purchase Agreement dated as of May 7, 1999 by
and the Company and the purchasers listed
therein (incorporated by reference to Exhibit A
of the Company's Schedule 13D filed on May 17,
1999).
99.2 Securities Purchase Agreement, dated as of
September 28, 1999 by and among the Company and
the purchasers listed therein (incorporated by
reference to Exhibit N to the Company's
Schedule 13D/A filed on October 14, 1999).
99.3 First Amendment dated as of September 28, 1999
to the Security Agreement dated as of May 7,
1999 from the Company and its subsidiaries to
the Collateral Agent listed therein
(incorporated by reference to Exhibit 4.5 of
the Company's Form 8-K).
99.4 First Amendment dated as of September 28, 1999
to the Guaranty Agreement dated as of May 7,
1999 made by FiberNet Telecom, Inc., FiberNet
Equal Access, L.L.C. and Local Fiber, L.L.C.
(incorporated by reference to Exhibit 4.6 of
the Company's Form 8-K).
99.5 First Amendment dated as of September 28, 1999
to the Pledge Agreement dated as of May 7, 1999
between FiberNet Telecom, Inc. and the
Collateral Agent listed therein (incorporated
by reference to Exhibit 4.7 of the Company's
Form 8-K).
99.6 First Amendment dated as of September 28, 1999
to the Parent Pledge Agreement dated as of May
7, 1999 between the Company and the Collateral
Agent listed therein (incorporated by reference
to Exhibit 4.8 of the Company's Form 8-K).
99.7 Conversion and Exchange Agreement dated as of
November 30, 1999 (incorporated by reference to
Exhibit S to the Company's Schedule 13D filed
on December 2, 1999
- -----------------
* Confidential treatment has been requested for portions of this exhibit. These
portions have been omitted and filed separately with the Commission.
(b) The following reports on Form 8-K were filed during the quarter ended
December 31, 1999
Item Number Description Filing Date
----------- ----------- -----------
5,7 A report dated November 30, 1999 December 2, 1999
regarding the conversion of the
4% and 8% Senior Secured Convertible
Notes due May 7, 2004 and the 8%
Senior Secured Convertible Notes
due September 28, 2004 and
filing the certificates of
designation for the Series D, E
and F Preferred Stock and the
Conversion and Exchange
Agreement dated as of November
30, 1999 by and among the
Company and certain noteholders
listed therein.
22
<PAGE>
5,7 A report dated September 28, October 5, 1999
1999 regarding the Issuance of
the 8% Senior Secured
Convertible Notes due September
28, 1999 and filing the
Securities Purchase Agreement
dated as of September 29, 1999
by and among the Company and the
purchasers listed therein and
related documents.
23
<PAGE>
SIGNATURES
In accordance with Section 13 or 15(d) of the Exchange Act, the registrant
caused this report to be signed on its behalf by the undersigned, thereto duly
authorized.
FIBERNET TELECOM GROUP, INC.
Date: March 30, 2000 By: /s/ Michael S. Liss
--------------------------------------------
Name: Michael S. Liss
Title: President and Chief Executive Officer
In accordance with the Exchange Act, this report has been signed below by
the following persons on behalf of the registrant and in the capacities and on
the dates indicated.
Name Title Date
/s/ Michael S. Liss Director, President and Chief March 30, 2000
- ---------------------------- Executive Officer
Michael S. Liss
/s/ Jon A. DeLuca Vice President of Finance and March 30, 2000
- ---------------------------- Principal Accounting Officer
Jon A. DeLuca
/s/ Timothy P. Bradley Director March 30, 2000
- ----------------------------
Timothy P. Bradley
/s/ Steven G. Chrust Director March 30, 2000
- ----------------------------
Steven G. Chrust
/s/ Roy (Trey) D. Farmer III Director and Executive March 30, 2000
- ---------------------------- Vice President
Roy (Trey) D. Farmer III
/s/ Charles J. Mahoney Director March 30, 2000
- ----------------------------
Charles J. Mahoney
/s/ Richard D. Sayers Director March 30, 2000
- ----------------------------
Richard Sayers
/s/ William Vrattos Director March 30, 2000
- ----------------------------
William Vrattos
24
<PAGE>
FIBERNET TELECOM GROUP, INC.
CONSOLIDATED FINANCIAL STATEMENTS
TABLE OF CONTENTS
Reports of Independent Public Accountants........................ F-1
Consolidated Balance Sheets..................................... F-2
Consolidated Statements of Operations........................... F-4
Consolidated Statements of Stockholders' Equity ................ F-5
Consolidated Statements of Cash Flows........................... F-6
Notes to Consolidated Financial Statements...................... F-7 - F-14
<PAGE>
REPORT OF INDEPENDENT PUBLIC ACCOUNTANTS
To FiberNet Telecom Group, Inc.:
We have audited the accompanying consolidated balance sheets of FiberNet Telecom
Group, Inc. (a corporation in the development stage - Note 1) and subsidiaries
as of December 31, 1999 and December 31, 1998, and the related consolidated
statements of operations, stockholders' equity and cash flows for the years
ended December 31, 1999 and 1998 and for the six month period ended December 31,
1997. These consolidated financial statements are the responsibility of the
Company's management. Our responsibility is to express an opinion on these
financial statements based on our audits.
We conducted our audits in accordance with auditing standards generally accepted
in the United States. Those standards require that we plan and perform the audit
to obtain reasonable assurance about whether the financial statements are free
of material misstatement. An audit includes examining, on a test basis, evidence
supporting the amounts and disclosures in the financial statements. An audit
also includes assessing the accounting principles used and significant estimates
made by management, as well as evaluating the overall financial statement
presentation. We believe that our audits provide a reasonable basis for our
opinion.
In our opinion, the consolidated financial statements referred to above present
fairly, in all material respects, the financial position of FiberNet Telecom
Group, Inc. and subsidiaries as of December 31, 1999 and December 31, 1998, and
the results of their operations and their cash flows for the years ended
December 31, 1999 and 1998 and for the six month period ended December 31, 1997,
in conformity with accounting principles generally accepted in the United
States.
/s/ Arthur Andersen LLP
Arthur Andersen LLP
New York, New York
March 7, 2000
[MENDELSOHN KARY BELL & NATOLI LETTERHEAD]
INDEPENDENT AUDITOR'S REPORT
To the Board of Directors
FiberNet Telecom, Inc. and Affiliated Entities
(A Development Stage Company)
We have audited the accompanying combined statements of operations,
stockholder's equity and cash flows of FiberNet Telecom, Inc. and affiliated
entities (a development stage company) for the year ended June 30, 1997 and for
the period from August 10, 1994 (inception) to June 30, 1997. These financial
statements are the responsibility of the Company's management. Our
responsibility is to express an opinion on these financial statements based on
our audit.
We conducted our audit in accordance with generally accepted auditing standards.
Those standards require that we plan and perform the audit to obtain reasonable
assurances about whether the financial statements are free of material
misstatement. An audit includes examining, on a test basis, evidence supporting
the amounts and disclosures in the financial statements. An audit also includes
assessing the accounting principles used and significant estimates made by
management, as well as evaluating the overall financial statement presentation.
We believe that our audit provides a reasonable basis for our opinion.
In our opinion, the financial statements referred to above, present fairly, in
all material respects, the results of operations, shareholder's equity and cash
flows of FiberNet Telecom, Inc. and Affiliated Entities for the year ended June
30, 1997, and from August 10, 1994, (inception), to June 30, 1997 in conformity
with generally accepted accounting principles.
/s/ Mendelsohn Kary Bell & Natoli, P.C.
New York, New York
November 29, 1997
F-1
<PAGE>
FIBERNET TELECOM GROUP, INC.
(A DEVELOPMENT STAGE ENTERPRISE)
CONSOLIDATED BALANCE SHEETS
<TABLE>
<CAPTION>
December 31, December 31,
1999 1998
----------- ------------
<S> <C> <C>
ASSETS
Current Assets:
Cash and cash equivalents $ 9,512,480 $ 257,384
Prepaid expenses and other 159,907 309,365
------------ ------------
Total current assets 9,672,387 566,749
Property, plant and equipment, net 55,176,713 5,397,109
Other Assets:
Goodwill, net 8,667,471 -
Deferred charges, net 3,697,501 -
Other assets 373,620 363,839
------------ ------------
Total other assets 12,738,592 363,839
------------ ------------
TOTAL ASSETS $ 77,587,692 $ 6,327,697
============ ============
LIABILITIES AND STOCKHOLDERS' EQUITY
Current Liabilities:
Accounts payable including related party of $1.4 million in 1998 $ 3,732,216 $ 3,974,350
Accrued expenses 4,447,016 337,384
Capital lease - current portion 203,031 -
----------- ------------
Total current liabilities 8,382,263 4,311,734
Long-Term Liabilities:
Capital lease obligation 956,360 -
----------- ------------
Total Liabilities 9,338,623 4,311,734
Minority Interest - 104,429
</TABLE>
(continued)
F-2
<PAGE>
<TABLE>
<CAPTION>
<S> <C> <C>
Stockholders' Equity:
Common Stock, $.001 par value, 50,000,000
shares authorized and 25,932,464 and 16,000,000
shares issued and outstanding at
December 31, 1999 and December 31, 1998, respectively 25,933 16,000
Series B Voting Preferred Stock $.001 par value, 80,000 shares issued
and outstanding at December 31, 1998 (Preference in involuntary
liquidation value, $1.00 per share) - 80
Series C Voting Preferred Stock $.001 par value, 133,333 shares issued
and outstanding at December 31, 1999 (Preference in involuntary
liquidation value, $1.50 per share) 200,000 -
Series D Preferred Stock $.001 par value, 310,173 shares issued and
outstanding at December 31, 1999 (Preference in involuntary
liquidation value, $15.00 per share) 22,553,205 -
Series E Preferred Stock $.001 par value, 293,872 shares issued and
outstanding at December 31, 1999 (Preference in involuntary
liquidation value, $15.00 per share) 21,429,777 -
Series F Preferred Stock $.001 par value, 347,819 shares issued and
outstanding at December 31, 1999 (Preference in involuntary
liquidation value, $30.00 per share) 25,329,198 -
Additional paid in capital and other 74,506,595 5,465,564
Deficit accumulated during the development stage (75,795,639) (3,570,110)
------------ ------------
Total Stockholders' Equity 68,249,069 1,911,534
------------ ------------
TOTAL LIABILITIES AND STOCKHOLDERS' EQUITY $ 77,587,692 $ 6,327,697
============ ============
</TABLE>
The accompanying notes are an integral part of these consolidated statements.
F-3
<PAGE>
FIBERNET TELECOM GROUP, INC.
(A DEVELOPMENT STAGE ENTERPRISE)
CONSOLIDATED STATEMENTS OF OPERATIONS
<TABLE>
<CAPTION>
YEAR ENDED YEAR ENDED YEAR ENDED
December 31, December 31, December 31,
1999 1998 1997
------------- ------------ ---------------
Unaudited
<S> <C> <C> <C>
Revenues $ - $ - $ -
Operating expenses:
General and administrative 8,263,981 3,111,157 712,506
Non-recurring expenses 4,303,587 - -
Depreciation and amortization 519,880 27,951 1,842
------------- ------------ ---------------
Total operating expenses 13,087,448 3,139,108 714,348
------------- ------------ ---------------
Loss from operations (13,087,448) (3,139,108) (714,348)
Interest (expense)/income, net (1,283,563) 156,392 26,180
Interest expense on beneficial conversion (7,932,188) - -
------------- ------------ ---------------
Loss before minority interest (22,303,199) (2,982,716) (688,168)
Minority interest 104,429 166,229 23,240
------------- ------------ ---------------
Net loss (22,198,770) (2,816,487) (664,928)
Preferred stock dividends (756,807) - -
Preferred stock on beneficial conversion (49,245,855) - -
------------- ------------ ---------------
Net loss applicable to common stockholders $ (72,201,432) $ (2,816,487) $ (664,928)
============= ============ ===============
Net loss applicable to common stockholders
per share--basic and diluted $(4.30) $(0.18) $(0.04)
------------- ------------ ---------------
Weighted average shares outstanding 16,798,254 15,847,222 15,000,000
------------- ------------ ---------------
<CAPTION>
PERIOD FROM
INCEPTION
SIX MONTHS ENDED YEAR ENDED August 10,1994 TO
December 31, June 30, December 31,
1997 1997 1999
----------- ----------- -------------
<S> <C> <C> <C>
Revenues $ - $ - $ -
Operating expenses:
General and administrative 418,140 373,674 12,176,339
Non-recurring expenses - - 4,303,587
Depreciation and amortization 1,842 - 549,673
----------- ----------- -------------
Total operating expenses 419,982 373,674 17,029,599
----------- ----------- -------------
Loss from operations (419,982) (373,674) (17,029,599)
Interest (expense)/income, net 26,180 - (1,100,991)
Interest expense on beneficial conversion - - (7,932,188)
----------- ----------- -------------
Loss before minority interest (393,802) (373,674) (26,062,778)
Minority interest 23,240 - 293,898
----------- ----------- -------------
Net loss (370,562) (373,674) (25,768,880)
Preferred stock dividends - - (756,807)
Preferred stock on beneficial conversion - - (49,245,855)
----------- ----------- -------------
Net loss applicable to common stockholders $ (370,562) $ (373,674) $ (75,771,542)
=========== =========== =============
Net loss applicable to common stockholders
per share--basic and diluted $(0.027) $(0.025) $(4.51)
----------- ----------- -------------
Weighted average shares outstanding 15,000,000 15,000,000 16,798,254
----------- ----------- -------------
</TABLE>
The accompanying notes are an integral part of these consolidated statements.
F-4
<PAGE>
FIBERNET TELECOM GROUP, INC.
(A DEVELOPMENT STAGE ENTERPRISE)
CONSOLIDATED STATEMENTS OF STOCKHOLDERS' EQUITY
<TABLE>
<CAPTION>
Capital in
Preferred Stock Common Stock Excess of
Shares Amount Shares Amount Par Value
----------- ----------- ----------- -------- ------------
<S> <C> <C> <C> <C> <C>
Balance at August 10, 1994 -- $ -- -- $ -- $ --
Issuance of 240 shares of common stock for cash, out of
1,000 shares authorized, August 10, 1994, at $.001 par
value -- -- 240 -- 61,000
Net loss for the period from inception to June 30, 1996 -- -- -- -- --
---------- ---------- ---------- ------- -----------
Balance at June 30, 1996 -- -- 240 -- 61,000
Capital contribution -- -- -- -- 80,796
Net loss for the year ended June 30, 1997 -- -- -- -- --
---------- ---------- ---------- ------- -----------
Balance at June 30, 1997 -- -- 240 -- 141,796
Capital contribution -- -- -- -- 212,348
Effect of reverse acquisition of DND; issuance of
15,000,000 share common stock, $.001 par value, November
24, 1997 -- -- 15,000,000 15,000 (15,000)
Other -- -- (240) -- --
Issuance of 1,000,000 shares Series A Preferred
Stock, $.001 par value, November 24, 1997 1,000,000 1,000 -- -- 5,074,000
Issuance of 80,000 shares Series B Preferred Stock, $.001
par value, November 24, 1997 80,000 80 -- -- (80)
Preferred Stock dividends accrued in 1997 -- -- -- -- (30,163)
Net loss for the six months ended December 31, 1997 -- -- -- -- --
---------- ---------- ---------- ------- -----------
Balance at December 31, 1997 1,080,000 1,080 15,000,000 15,000 5,382,901
Conversion of 1,000,000 shares Series A Preferred
Stock, $.001 par value, into common stock,
February 24, 1998 (1,000,000) (1,000) 1,000,000 1,000 --
Dividends paid -- -- -- -- (44,837)
Earned compensation, executive stock options -- -- -- -- 127,500
Net loss for the year ended December 31, 1998 -- -- -- -- --
---------- ---------- ---------- ------- -----------
Balance at December 31, 1998 80,000 $ 80 16,000,000 $16,000 $ 5,465,564
</TABLE>
<TABLE>
<CAPTION>
Accumulated
Deficit
During the
Development
Stage Total
------------ ------------
<S> <C> <C>
Balance at August 10, 1994 $ -- $ --
Issuance of 240 shares of common stock for cash, out of
1,000 shares authorized, August 10, 1994, at $.001 par
value -- 61,000
Net loss for the period from inception to June 30, 1996 (9,387) (9,387)
----------- -----------
Balance at June 30, 1996 (9,387) 51,613
Capital contribution -- 80,796
Net loss for the year ended June 30, 1997 (373,674) (373,674)
----------- -----------
Balance at June 30, 1997 (383,061) (241,265)
Capital contribution -- 212,348
Effect of reverse acquisition of DND; issuance of
15,000,000 share common stock, $.001 par value, November
24, 1997 -- --
Other -- --
Issuance of 1,000,000 shares Series A Preferred
Stock, $.001 par value, November 24, 1997 -- 5,075,000
Issuance of 80,000 shares Series B Preferred Stock, $.001
par value, November 24, 1997 -- --
Preferred Stock dividends accrued in 1997 -- (30,163)
Net loss for the six months ended December 31, 1997 (370,562) (370,562)
----------- -----------
Balance at December 31, 1997 (753,623) 4,645,358
Conversion of 1,000,000 shares Series A Preferred
Stock, $.001 par value, into common stock,
February 24, 1998 -- --
Dividends paid -- (44,837)
Earned compensation, executive stock options -- 127,500
Net loss for the year ended December 31, 1998 (2,816,487) (2,816,487)
----------- -----------
Balance at December 31, 1998 $ (3,570,110) $ 1,911,534
</TABLE>
(continued)
<TABLE>
<CAPTION>
Capital in
Preferred Stock Common Stock Excess of
Shares Amount Shares Amount Par Value
---------- ---------- ---------- ------- -----------
<S> <C> <C> <C> <C> <C>
Balance at December 31, 1998 80,000 $ 80 16,000,000 $16,000 $ 5,465,564
Redemption of Series B Preferred Stock (80,000) (80) -- -- --
Issuance of Series C Preferred Stock 133,333 200,000 -- -- --
Conversion of Senior Secured Convertible Notes to common
stock, net -- -- 13,826,868 13,826 34,528,040
Exchange of common stock for preferred stock and
beneficial conversion feature:
Issuance of Series D Preferred Stock 309,143 22,412,867 (3,091,430) (3,091) (4,634,067)
Issuance of Series E Preferred Stock 291,926 21,164,635 (2,919,260) (2,919) (4,376,133)
Issuance of Series F Preferred Stock 345,515 25,049,838 (3,455,243) (3,455) (10,362,447)
Series D Preferred Stock dividends 1,030 140,338 -- -- --
Series E Preferred Stock dividends 1,946 265,142 -- -- --
Series F Preferred Stock dividends 2,304 279,360 -- -- --
Beneficial conversion feature on preferred stock dividends -- -- -- -- 71,967
Exercise of warrants to common stock -- -- 220,000 220 147,180
Issuance of common stock for purchase of MFN dark
fiber, minority interest and other -- -- 5,351,529 5,352 43,971,939
Deferred compensation -- -- -- -- (4,289,919)
Stock compensation to consultants and employees -- -- -- -- 13,764,039
Other -- -- -- -- 220,432
Net loss for the year ended December 31, 1999 -- -- -- -- --
---------- ---------- ---------- ------- -----------
Balance at December 31, 1999 1,085,197 $69,512,180 25,932,464 $25,933 $ 74,506,595
========== ========== ========== ======= ===========
</TABLE>
<TABLE>
<CAPTION>
Accumulated
Deficit
During the
Development
Stage Total
------------- -----------
<S> <C> <C>
Balance at December 31, 1998 $ (3,570,110) $ 1,911,534
Redemption of Series B Preferred Stock -- (80)
Issuance of Series C Preferred Stock -- 200,000
Conversion of Senior Secured Convertible Notes to common
stock, net -- 34,541,866
Exchange of common stock for preferred stock and
beneficial conversion feature:
Issuance of Series D Preferred Stock -- 17,775,709
Issuance of Series E Preferred Stock -- 16,785,583
Issuance of Series F Preferred Stock -- 14,683,936
Series D Preferred Stock dividends -- 140,338
Series E Preferred Stock dividends -- 265,142
Series F Preferred Stock dividends -- 279,360
Beneficial conversion feature on preferred stock dividends -- 71,967
Exercise of warrants to common stock -- 147,400
Issuance of common stock for purchase of MFN dark
fiber, minority interest and other -- 43,977,291
Deferred compensation -- (4,289,919)
Stock compensation to consultants and employees -- 13,764,039
Other (24,097) 196,335
Net loss for the year ended December 31, 1999 (72,201,432) (72,201,432)
------------- ------------
Balance at December 31, 1999 $(75,795,639) $ 68,249,069
============= ============
</TABLE>
The accompanying notes are an integral part of these consolidated statements.
F-5
<PAGE>
FIBERNET TELECOM GROUP, INC.
(A DEVELOPMENT STAGE ENTERPRISE)
CONSOLIDATED STATEMENTS OF CASH FLOWS
<TABLE>
<CAPTION>
YEAR ENDED YEAR ENDED YEAR ENDED
December 31, December 31, December 31,
1999 1998 1997
------------- ------------- -------------
(Unaudited)
<S> <C> <C> <C>
Cash flows from operating activities:
Net loss applicable to common stockholders $(72,201,432) $(2,816,487) $ (664,928)
Adjustments to reconcile net loss to
net cash used in operating activities:
Depreciation and amortization 551,296 27,951 1,842
Amortization of deferred financing costs 500,574 227,324 56,200
Preferred stock dividend and other non-cash interest 1,093,290 - -
Stock option compensation expense 3,175,269 127,500 -
Beneficial conversion charges 57,771,291 - -
Litigation settlement 3,710,339 - -
Minority interest (104,429) (166,229) (6,446)
Change in assets and liabilities:
(Increase) decrease in prepaid expenses and other assets 139,677 (669,250) (153,160)
Increase (decrease) in accounts payable and
accrued expenses 157,159 1,532,740 645,596
Other (97,702) - -
------------- ------------ -----------
Cash used in operating activities (5,304,668) (1,736,451) (120,896)
Cash flows from investing activities:
Capital expenditures (10,827,171) (3,077,492) (94,865)
------------- ------------- ------------
Cash used in investing activities (10,827,171) (3,077,492) (94,865)
Cash flows from financing activities:
Net proceeds from issuance of debt securities 25,331,145 - -
Net proceeds from issuance of equity securities 200,000 - 5,075,000
Repayment of capital lease obligation (144,210) - -
Payment of dividends - (75,000) -
Capital contributed - - 286,248
------------- ------------ -----------
Cash provided from financing activities 25,386,935 (75,000) 5,361,248
------------- ------------ -----------
Net increase (decrease) in cash 9,255,096 (4,888,943) 5,145,487
Cash at beginning of period 257,384 5,146,327 840
------------- ------------ -----------
Cash at end of period $ 9,512,480 $ 257,384 $5,146,327
============= ============ ===========
Supplemental disclosures of cash flow information:
Interest paid $ 109,707 - -
Income taxes paid - - -
Non-Cash Financing Activities
Issuance of common stock to acquire MFN
dark fiber and minority interest $ 43,450,000 - -
Issuance of capitalized stock options 7,115,100 - -
Capital expenditures financed through capital leases 1,303,601 - -
<CAPTION>
FOR SIX PERIOD FROM
MONTHS ENDED YEAR ENDED INCEPTION August
December 31, June 30, 10, 1994 TO
1997 1997 December 31,1999
------------- ------------ ----------------
<S> <C> <C> <C>
Cash flows from operating activities:
Net loss applicable to common stockholders $ (370,562) $ (373,674) $(75,771,542)
Adjustments to reconcile net loss to
net cash used in operating activities:
Depreciation and amortization 1,842 - 581,089
Amortization of deferred financing costs - 56,200 784,098
Preferred stock dividend and other non-cash interest - - 1,093,290
Stock option compensation expense - - 3,302,769
Beneficial conversion features charges - - 57,771,291
Litigation settlement - - 3,710,339
Minority interest (6,446) - (277,104)
Change in assets and liabilities:
(Increase) decrease in prepaid expenses and other assets (34,924) (1,067) (621,764)
Increase (decrease) in accounts payable and
accrued expenses 361,482 239,072 2,290,861
Other - - (97,702)
------------- ------------ -----------
Cash used in operating activities (48,608) (79,469) (7,234,375)
Cash flows from investing activities:
Capital expenditures (94,065) (800) (13,999,528)
------------- ------------ -----------
Cash used in investing activities (94,065) (800) (13,999,528)
Cash flows from financing activities:
Net proceeds from issuance of debt securities - - 25,331,145
Net proceeds from issuance of equity securities 5,075,000 - 5,275,000
Repayment of capital lease obligation - - (144,210)
Payment of dividends - - (75,000)
Capital contributed 212,348 81,000 359,448
------------- ------------ -----------
Cash provided from financing activities 5,287,348 81,000 30,746,383
------------- ------------ -----------
Net increase (decrease) in cash 5,144,675 731 9,512,480
Cash at beginning of period 1,652 921 -
------------- ------------ -----------
Cash at end of period $ 5,146,327 $ 1,652 $ 9,512,480
============= ============ ===========
Supplemental disclosures of cash flow information:
Interest paid - - $ 109,707
Income taxes paid - - -
Non-Cash Financing Activities
Issuance of common stock to acquire MFN
dark fiber and minority interest - - $ 43,450,000
Issuance of capitalized stock options - - 7,115,100
Capital expenditures financed through capital leases - - 1,303,601
</TABLE>
The accompanying notes are an integral part of these consolidated statements.
F-6
<PAGE>
FIBERNET TELECOM GROUP, INC.
(A DEVELOPMENT STAGE ENTERPRISE)
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
1. ORGANIZATION AND OPERATIONS
FiberNet Telecom, Inc. ("Original FiberNet") was organized under the
laws of the State of Delaware on August 10, 1994. On November 24, 1997, an
existing public company, Desert Native Design, Inc. ("DND"), acquired Original
FiberNet, pursuant to an agreement and plan of merger dated that date (the
"Original Merger"). To effect the Original Merger, DND effectuated a 3.5 for 1
forward stock split, which entitled DND shareholders to 3.5 shares of DND stock
for every one share held by them and issued 11,500,000 shares of common stock
and 80,000 Series B Preferred Stock in exchange for all of the outstanding
shares of Original FiberNet. Upon consummation of the Original Merger, Original
FiberNet became a wholly-owned subsidiary of DND, which subsequently changed its
name to FiberNet Telecom Group, Inc., a Nevada corporation ("FiberNet Nevada").
For accounting purposes, the acquisition was treated as a recapitalization of
DND with Original FiberNet as the acquirer (reverse acquisition). On December 9,
1999, FiberNet Nevada changed its state of incorporation to Delaware
(hereinafter referred to as "FiberNet" or the "Company").
FiberNet is an all-optical facilities-based communications provider
focused on providing wholesale broadband connectivity for data, voice and video
transmission on its state-of-the-art fiber optic networks in major metropolitan
areas. The Company offers an advanced high bandwidth, fiber optic solution to
support the growing demand for network capacity in the intra-city market, or
local loop. The Company has established operations in the New York metropolitan
area and expects to expand operations into other markets, including Chicago.
FiberNet is holding a company that owns all of the outstanding common
stock of FiberNet Telecom, Inc., a Delaware corporation and an intermediate
level holding company. FiberNet Telecom, Inc. owns all of the outstanding
membership interests of Local Fiber, LLC ("Local Fiber"), a New York limited
liability company, and all of the outstanding membership interests of FiberNet
Equal Access, LLC ("Equal Access"), also a New York limited liability company,
subject to a warrant owned by Tishman Speyer Properties, L.P. to purchase up to
10% of Equal Access. The Company conducts its primary business operations
through its operating subsidiaries, Local Fiber and Equal Access.
The Company is a development stage company and has not realized any
revenues. To date, the Company has incurred operating losses and operating cash
flow deficits. The developmental nature of the Company's activities is such that
inherent risks exist in its operations. Prior to being able to offer its
services to its customers, the Company will incur significant expenditures. Such
expenditures have been and will continue to be primarily for the design,
development and deployment of the Company's telecommunications networks and
related infrastructure and for administrative, marketing and payroll costs.
After FiberNet offers services in its markets and buildings, there can be no
assurance that sufficient revenues will be realized to fund the ongoing
operations of the Company. As a result, the Company may require additional funds
that may not be available.
The Company has in force and is materially dependant on certain
agreements with other entities, including telecommunications license agreements
with on-net building landlords, interconnection agreements with other
telecommunications service providers and leases with carrier hotel property
owners. FiberNet also has entered into material contracts with suppliers for the
components of its telecommunications networks. These contracts and agreements
are critical to the Company's ability to execute its business strategy and
operating plan.
2. SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES
Basis of Presentation
The consolidated financial statements include the accounts of the Company and
its subsidiaries, FiberNet Telecom, Inc., FiberNet Equal Access, LLC and Local
Fiber, LLC. All significant intercompany balances and transactions have been
eliminated.
F-7
<PAGE>
Use of Estimates
The preparation of financial statements in conformity with generally accepted
accounting principles requires management to make estimates and assumptions that
affect the reported amounts of assets and liabilities and disclosure of
contingent assets and liabilities as of the date of the financial statements and
the reported amounts of expenses during the reporting period. Actual results
could differ from those estimates.
Cash and Cash Equivalents
Cash and cash equivalents include highly liquid investments with an original
maturity of three months or less. The carrying amount approximates fair value
because of the short maturity of the instruments.
Property, Plant and Equipment
Property, plant and equipment are stated at cost less accumulated depreciation.
Depreciation and amortization are provided using the straight-line method over
the estimated useful lives of the assets, once placed in service. The estimated
lives are as follows:
Computer software 3 -- 5 Years
Computer hardware 3 -- 5 Years
Furniture and fixtures 5 -- 10 Years
Leasehold improvements 9 -- 15 Years
Network equipment 5 -- 10 Years
Network infrastructure 5 -- 20 Years
Maintenance and repairs are charged to expense as incurred. Long-term
improvements are capitalized as additions to property, plant and equipment.
Fair Value of Financial Instruments
Due to short maturities, the Company estimates that the carrying value of its
financial instruments approximates fair value.
Goodwill and Intangibles
Cost in excess of net assets of acquired business is amortized on the
straight-line method over 15 years. The company reviews long-lived assets
including goodwill, other intangible assets, and property, plant and equipment
for impairment whenever events or changes in circumstances indicate that the
carrying amount may not be recoverable. Determination of any impairment would
include a comparison of estimated future cash flows to be generated during the
remaining life of the asset versus the net carrying value of the asset.
Earnings Per Share
Basic earnings per share have been computed using the weighted average number of
shares during the period. Diluted earnings per shares is computed by including
the dilutive effect on common stock that would be issued assuming conversion of
stock options, warrants and other dilutive securities.
Stock Option Plan
The Company accounts for stock option grants in accordance with Accounting
Principles Board Opinion No. 25, "Accounting for Stock Issued to Employees"
(APB 25), and, accordingly, recognizes compensation expense for stock option
grants to the extent that the estimated fair value of the stock exceeds the
exercise price of the option at the measurement date. The compensation expense
is charged against operations ratably over the vesting period of the options.
Accounting for Income Taxes
The Company follows Statement of Financial Accounting Standards No. 109,
"Accounting for Income Taxes" (SFAS 109), which requires the use of the
liability method of accounting for deferred income taxes. Under this method,
deferred income taxes represent the net tax effect of temporary differences
between tax carrying amount of assets and liabilities for financial reporting
purposes and the amount used for income tax purposes. Additionally, if it is
more likely than not that some portion or all of a deferred tax asset will not
be realized, a valuation allowance is required to be recognized.
Reclassification
Certain prior year amounts have been reclassified in the consolidated financial
statements to conform to current year presentation.
Recent Accounting Pronouncements
In 1998, Statement of Financial Accounting Standards No. 133, "Accounting for
Derivative Instruments and Hedging Activities," (SFAS 133) and Statement of
Position 98-5, "Reporting on the Costs of Start up Activities" (SOP 98-5) were
issued. As amended by SFAS 137, SFAS 133 establishes accounting and reporting
standards requiring that every derivative instrument be recorded in the balance
sheet as either an asset or liability measured at its fair value. The Company
will adopt SFAS 133 in fiscal 2001 but since it does not have derivatives
currently, there would be no impact on the financial statements or disclosures.
SOP 98-5 provides guidance on accounting for the costs of start-up activities,
which include pre-opening costs, organization costs and start-up costs.
The Company has expensed all start-up costs as incurred, as a result, adoption
of SOP 98-5 has no material impact on the Company's financial statements.
F-8
<PAGE>
3. PROPERTY, PLANT AND EQUIPMENT
Property, plant and equipment consist of the following:
<TABLE>
<CAPTION>
DECEMBER 31, DECEMBER 31,
1999 1998
------------ -----------
<S> <C> <C>
Computer software $ 307,323 $ 2,661
Leasehold improvements 6,844,364 69,852
Computer equipment 235,347 61,746
Office equipment and furniture 381,443 360,639
Construction in progress 46,173,480 4,695,968
Power equipment 190,887 190,902
Transmission equipment 1,480,242 45,134
------------ -----------
Total 55,613,086 5,426,902
Accumulated depreciation (436,373) (29,793)
------------ -----------
Property, plant and equipment, net $ 55,176,713 $ 5,397,109
============ ===========
</TABLE>
4. LEASE COMMITMENTS AND CONTINGENCIES
The Company has entered into an equipment leasing agreement requiring
the payment of $1.0 million over a five year period that commenced August 1999.
The present value of this amount has been included as capital lease obligation
on the consolidated balance sheet as of December 31, 1999.
The Company also entered into various operating lease agreements for
office space in New York, New York and for other space relating to the Company's
operations. Rent expense for the years ended December 31, 1999, 1998 and 1997
were approximately $0.8 million, $0.3 million and $8,000, respectively.
Estimated future minimum operating and capital lease payments are as
follows:
Operating Capital
----------- ----------
2000 $ 1,073,396 $ 203,031
2001 1,086,199 232,617
2002 1,092,049 249,997
2003 1,119,705 261,770
2004 and thereafter 8,026,088 97,526
----------- ----------
Total $12,397,437 $1,044,941
=========== ==========
5. STOCK OPTIONS
In December 1999, the Company adopted an employee equity participation
program (the "1999 Stock Option Plan") covering 4,500,000 shares of Common Stock
of the Company to advance the growth and success of FiberNet by enabling
employees, directors and consultants to acquire a proprietary interest in the
Company. The Board of Directors administers the 1999 Stock Option Plan. All
employees are eligible to receive awards under the 1999 Stock Option Plan, at
the Board's discretion. Options granted pursuant to the 1999 Stock Option Plan
(i) may be either nonqualified options and/or incentive stock options within the
meaning of Section 422 of the Internal Revenue Code of 1986, as amended, (ii)
have a term of ten years and (iii) typically vest on an annual basis over three
years.
During the fiscal year ended December 31, 1999, the Company granted
approximately 3.4 million options under the 1999 Stock Option Plan and 1.9
million options not under the 1999 Stock Option Plan, covering a total of 5.3
million shares, at an average exercise price of approximately $3.78 per share,
with a vesting period of up to three years. The Company's previous Employee
Equity Participation Program was terminated during 1999.
The Company accounts for stock options under APB Opinion No. 25. During
the years ended December 31, 1999, 1998 and 1997, the Company granted stock
options to employees with exercise prices below the market price on the date of
the
F-9
<PAGE>
grant. As such the Company recorded compensation expense to employees of
approximately $0.8 million, $0.1 million and $0 for those years, respectively.
If the Company had calculated stock option compensation expense as
prescribed by SFAS No. 123, the Company's net loss and net loss per share would
have been the following pro forma amounts:
<TABLE>
<CAPTION>
1999 1998 1997
------------ ----------- -----------
<S> <C> <C> <C> <C>
Net loss As reported $ 72,201,432 $ 2,816,487 $ 370,562
Pro forma $ 74,081,018 $ 3,111,104 $ 387,225
Net loss per share - As reported $ (4.30) $ (0.18) $ (0.04)
basic and diluted Pro forma $ (4.41) $ (0.20) $ (0.03)
</TABLE>
Transactions during the years ended December 31, 1999, 1998 and 1997,
respectively, involving stock options are summarized as follows:
<TABLE>
<CAPTION>
1999 1998 1997
--------------------------- -------------------------- --------------------------
OPTION OPTION OPTION
NUMBER PRICE NUMBER PRICE NUMBER PRICE
OF SHARES PER SHARE OF SHARES PER SHARE OF SHARES PER SHARE
----------- ----------- ----------- ----------- ----------- -----------
<S> <C> <C> <C> <C> <C> <C>
Options outstanding at the beginning
of the period 1,273,000 $ 2.98 600,000 $ 1.95 -- $ --
Granted 5,332,833 3.78 673,000 4.64 600,000 1.95
Terminated (434,832) 4.37 -- -- -- --
----------- ----------- ----------- ----------- ----------- -----------
Options outstanding at the end of year
6,171,001 3.59 1,273,000 2.98 600,000 1.95
----------- ----------- ----------- ----------- ----------- -----------
Exercisable at end of year 3,336,126 2.52 120,000 1.95 -- --
----------- ----------- ----------- ----------- ----------- -----------
Weighted average fair value of
options granted $ 4.32 $ 2.63 $ 1.37
</TABLE>
The fair value of each option grant is estimated on the date of grant
using the Black-Scholes option pricing model with the following assumptions used
for grants in December 31, 1999, 1998 and 1997: risk-free interest rates of
5.50%, 5.62% and 5.92%, respectively, expected dividend yields of 0%, expected
lives of 4 years and expected volatility of 88.0%.
6. STOCK OPTION GRANTS TO NON-EMPLOYEES
During 1999, the Company granted stock options to certain consultants
for services rendered in connection with the design, development and
construction of the Company's telecommunications network infrastructure. As a
result, the Company recognized costs of approximately $3.3 million that were
capitalized and included in property, plant and equipment. The Company also
granted stock options to Tishman Speyer Properties, L.P. As a result, the
Company recognized costs of approximately $3.8 million that were capitalized
and included in deferred charges. In addition, the Company granted stock
options with a one-year vesting period to outside consultants for pre-
acquisition due diligence services. As a result, FiberNet recognized
approximately $658,000 of compensation expense.
7. STOCK RESERVED FOR FUTURE ISSUANCE
In addition to shares of Common Stock underlying outstanding stock
options, the Company has reserved for future issuance additional shares of
Common Stock, relating to outstanding warrants and convertible securities. As of
December 31, 1999, the Company had outstanding (i) warrants exercisable into
approximately 8.7 million shares of Common Stock at exercise prices ranging from
$0.50 to $1.50 per share and (ii) convertible preferred stock convertible into
approximately 9.7 million shares of Common Stock with conversion prices of $1.50
and $3.00 per share.
F-10
<PAGE>
8. SUBSIDIARY'S WARRANTS
The Company's subsidiary, FiberNet Equal Access, LLC has issued a
warrant for the purchase of up to 10% of its membership interest. Tishman Speyer
Properties, L.P. is entitled to acquire a limited liability membership interest,
at the exercise price of $25 per unit, subject to certain terms and conditions,
and with an exercise period of three years from August 7, 1997.
9. PREFERRED STOCK
Series A Convertible Cumulative Preferred Stock
As of November 24, 1997 the Company issued 1.0 million shares of Series
A Convertible Cumulative Preferred Stock at $5.125 per share for gross proceeds
of approximately $5.1 million, net of issuance costs. The Company or the holders
of the outstanding shares had the right to convert them into common stock, at
any time up to November 24, 2000. Each share of preferred stock could be
converted into one share of common stock. The holders were entitled to receive
annual cumulative dividends at the rate of 6% per annum based on a liquidation
value of $5.125 per share. As of February 24, 1998, the Company paid the
dividend to the Series A convertible preferred cumulative stock for $75,000 and
converted all of the Series A Convertible Cumulative Preferred Stock into common
stock.
Series B Voting Preferred Stock
On November 24, 1997 the Company issued 80,000 shares of Series B
Voting Preferred Stock. Each share was entitled to 100 votes to be voted at any
meeting of shareholders. In the event of any voluntary or involuntary
liquidation, dissolution, or winding up of the corporation, the holders of
shares of the Series B Voting Preferred Stock then outstanding, were entitled to
be paid, out of the assets of the Company available for distribution to its
stockholders, whether from capital, surplus or earning, before any payment shall
be made in respect of the Company's Common Stock, but after payment to holders
of Series A Preferred Stock, an amount equal to $1.00 per share. As of May 7,
1999, all of the issued and outstanding shares of the Series B Voting Preferred
Stock were redeemed by the Company for $.001 per share.
Series C Voting Preferred Stock
On May 7, 1999 the Company issued approximately 133,000 shares of
Series C Voting Preferred Stock. Each share shall be entitled to 117.03
votes to be voted at any meeting of shareholders. In the event of any voluntary
or involuntary liquidation, dissolution, or winding up of the corporation, the
holders of shares of the Series C Voting Preferred Stock then outstanding,
shall be entitled to be paid, out of the assets of the Company available for
distribution to its stockholders, whether from capital, surplus or earning,
before any payment shall be made in respect of the Company 's Common Stock an
amount equal to $1.50 per share. Each holder of each share of Series C
Voting Preferred Stock shall have the right to convert such share for one
share of Common Stock at a conversion price of $1.50 per share, subject to
adjustment. The holders of the Series C Voting Preferred Stock shall be
entitled to share in any dividends declared and paid by the Company to the
Common Stock on a ratable basis.
Series D, E and F Preferred Stock
As of November 30, 1999 the Company issued approximately (i) 309,000
shares of Series D Preferred Stock, (ii) 292,000 shares of Series E Preferred
Stock and (iii) 346,000 shares of Series F Preferred Stock. The shares of Series
D, E and F Preferred Stock shall not be entitled to any votes to be voted at any
meeting of shareholders. In the event of any voluntary or involuntary
liquidation, dissolution, or winding up of the corporation, the holders of
shares of the Series D, E and F Preferred Stock then outstanding, shall be
entitled to be paid, out of the assets of the Company available for distribution
to its stockholders, whether from capital, surplus or earning, before any
payment shall be made in respect of the Company 's Common Stock an amount equal
to $15.00, $15.00 and $30.00 per share, respectively. Each holder of each share
of Series D, E and F Preferred Stock shall have the right to convert such share
for ten shares of Common Stock at conversion prices of $1.50, $1.50 and $3.00
per share, respectively, subject to adjustment. The holders of the Series D, E
and F Preferred Stock shall be entitled to receive dividends at a rate of 4%, 8%
and 8% per annum, respectively. Such dividends shall be payable semi-annually
and at the option of the Company in cash or in additional shares of the
respective series of Series D, E or F Preferred Stock.
10. RELATED PARTY TRANSACTIONS
During 1999, the Company made payments to Petrocelli Electric Co., a
related party, of approximately $1.3 million for consulting and contracting
services rendered. Other consulting fees to related parties included
approximately: (i) $100,000 to Santo Petrocelli, a former officer (ii) $96,000
to Richard D. Sayers, a current director, (iii) $85,000 to Frank Chiaino, a
former officer and (iv) $83,000 to Landtel Telecommunications, a current
affiliated entity. The Company also issued
F-11
<PAGE>
approximately 973,000 warrants and shares of Common Stock as consideration for
accounts payable of $527,000 due to related parties, including Petrocelli
Electric Co., LPS Consultants, Inc., Landtel Telecommunications and Frank
Chiaino. The pricing of these transactions has been determined on an
arms-length basis.
The Company capitalized services from Petrocelli Electrical Services, a
related party, of approximately $2.5 million and $12,000 during 1998 and 1997,
respectively. Additionally, the Company expensed approximately $140,000 and
$20,000 of consultant fees from this related party during 1998 and 1997,
respectively. As of December 31, 1998 and 1997, the Company had a payable of
approximately $1.2 million and $153,000, respectively.
The Company capitalized services of approximately $57,000 and $6,000 of
consulting services from Landtel Telecommunications during 1998 and 1997,
respectively. Additionally, the Company expensed approximately $57,000 and
$100,000 of consultant fees from this related party during 1998 and 1997,
respectively. As of December 31, 1998 and 1997, the Company had a payable of
approximately $163,000 and $87,000, respectively.
The Company recognized approximately $75,000 of consulting fees from
LPS Consultants, Inc. during 1998. As of December 31, 1998, the Company had a
payable of approximately $17,000.
11. INCOME TAXES
A reconciliation of the actual income tax (provision) benefit and the
tax computed by applying the U.S. federal rate (35%) to the loss from continuing
operations, before income taxes for the three years ended December 31, 1999
follows:
<TABLE>
<CAPTION>
1999 1998 1997
------------ ----------- ---------------
<S> <C> <C> <C>
Computed Tax at Statutory Rate $(25,432,427) $ (985,770) $(232,725)
State and Local, net of FIT benefit 885 -- --
Preferred Stock Dividends 264,882 -- --
Other 7,700 -- --
Debt Conversion 17,150,000 -- --
Minority Interest (36,550) (83,115) (8,134)
Valuation Allowance 8,045,510 1,068,885 240,859
------------ ----------- ---------------
$ -- $ -- $ --
============ =========== ===============
Deferred Taxes:
1999 1998 1997
------------ ------------ ---------------
Deferred Tax Asset
Deferred Expenses $ 4,466,054 $ 1,293,966 $ --
Stock Options 1,441,607 -- --
Depreciation (14,231) (3,731) --
Net Operating Loss 3,861,740 418,541 --
Valuation Allowance (9,755,170) (1,708,776) --
----------- ----------- ---------------
Net Deferred Tax Asset $ -- $ -- $ --
============ ============ ===============
</TABLE>
As of December 31, 1999, the Company has federal income tax net
operating loss carryforwards of approximately $11.0 million. The federal tax
loss carryforwards begin expiring in 2012. Full valuation allowances have been
recorded against all temporary differences.
During 1999 the Company did not record a current or deferred federal
tax provision.
12. EMPLOYMENT CONTRACTS
The Company has various employment contracts with key executive employees. The
total compensation under these contracts for 2000 and future years is as
follows:
F-12
<PAGE>
Year AMOUNT
-------- ----------
2000 $1,187,500
2001 679,583
2002 37,500
2003 --
2004 --
----------
Total $1,904,583
==========
13. MINORITY INTEREST
The ownership of Local Fiber, LLC was divided into Class A Members (the
Company) owning 90% and Class B Members (Metromedia Fiber Network Services,
Inc.) owning 10%. The Class A Members requested that Class B Members enter into
a license agreement with the Company, and as an inducement therefore, the Class
A Members made capital contributions on behalf of Class B Members in connection
with each Class A Members' capital contribution. On December 17, 1999, the
Company purchased all of the Class B membership interests from Metromedia Fiber
Network Services, Inc.
14. SIGNIFICANT TRANSACTIONS
On May 7, 1999 (the "Closing Date"), the Company entered into a
securities purchase agreement with certain investors, including Signal Capital
Partners, L.P., Trident Telecom Partners LLC and Concordia Telecom Management,
L.L.C., for the sale of $14.1 million of securities, consisting of $13.9 million
aggregate amount of 4% to 8% Senior Secured Convertible Notes due 2004 (the "May
Convertible Notes") and 133,333 shares of convertible Series C Preferred Stock
with an aggregate redemption value of $0.2 million, or $1.50 per share, (the
"Series C Preferred Stock," together with the May Convertible Notes, the
"Securities"). The Securities are convertible into shares of the Company's
Common Stock at a conversion price of $1.50 per share, which represented the
approximate fair market value of the Company's common stock when the conversion
price of the Securities was determined. The May Convertible Notes are secured
by, among other things, a pledge by the Company of the shares of Common Stock of
its wholly-owned subsidiaries. Together with the sale of the May Convertible
Notes, the Company issued approximately 7.9 million warrants to purchase common
stock to the purchasers of the May Convertible Notes (the "Warrants"). The
Warrants are exercisable at $0.67 to $1.50 per share and expire five years after
the Closing Date.
In connection with the issuance of the May Convertible Notes and the
related Warrants, the Company recorded an original issue discount on the May
Convertible Notes in the amount $5.4 million. The original issue discount was
amortized over the five-year life of the May Convertible Notes. Certain
financing costs related to the issuance of the May Convertible Notes were
capitalized as deferred charges and amortized over the five-year life of the May
Convertible Notes.
As of June 18, 1999, the Company converted certain accounts payable to
related parties, totaling $0.5 million, into shares of Common Stock and
warrants.
F-13
<PAGE>
On September 28, 1999, the Company entered into another securities
purchase agreement with certain investors, including Signal Equity Partners,
L.P. (formerly Signal Capital Partners, L.P.) and Waterview Partners, L.P., an
affiliate of Georgica Advisors LLC, for the sale of $7.8 million of 8% Senior
Secured Convertible Notes due 2004. On October 19, 1999, the Company issued an
additional $4.7 million of 8% Senior Secured Convertible Notes due 2004 to
certain other investors, for a total of $12.5 million (the "September
Convertible Notes"). The September Convertible Notes were convertible into
shares of the Company's common stock at a conversion price of $3.00 per share,
subject to anti-dilution adjustments. The September Convertible Notes were
secured by, among other things, a pledge by the Company of the shares of Common
Stock of its wholly-owned subsidiaries. In connection with this transaction, the
Company recorded a non-recurring, non-cash charge for a beneficial conversion
feature in the amount of $7.9 million, to reflect the market price of the common
stock as of the dates of issuance thereof.
In connection with the issuance of $7.8 million of the September
Convertible Notes on September 28, 1999, certain financing costs, totaling
approximately $135,000, were capitalized as deferred charges and amortized over
the five-year life of those September Convertible Notes.
On November 30, 1999, holders of the Company's May Convertible Notes
and September Convertible Notes converted their principal and accrued interest
into shares of Common Stock. Subsequently, certain holders of the 4% May
Convertible Notes exchanged their Common Stock for Series D Preferred Stock;,
certain holders of the 8% May Convertible Notes exchanged their Common Stock for
Series E Preferred Stock; and certain holders of the September Convertible Notes
exchanged their Common Stock for Series F Preferred Stock.
The Series D Preferred Stock and Series E Preferred Stock are
convertible into Common Stock at a price of $1.50 per share, and the Series F
Preferred Stock is convertible into Common Stock at a price of $3.00 per share.
In connection with the transaction, the Company recorded a non-recurring,
non-cash charge for a beneficial conversion feature in the amount of $49.2
million, to reflect the market price as of the date thereof.
15. METROMEDIA FIBER NETWORK SERVICES, INC. PRIVATE NETWORK AGREEMENT
Pursuant to a Private Network Agreement dated as of December 17, 1999
and other related agreements by and between Metromedia Fiber Network Services,
Inc. ("MFN") and the Company ("the Network Agreement"), the Company issued five
million shares at an assumed price of $8.69 per share. As part of the Network
Agreement, the Company issues four million shares (of the total five million) to
acquire an exclusive right of use of dark fiber in multiple markets for a total
price of approximately $34.8 million. This amount has been reflected in the
accompanying consolidated financial statements as property, plant and equipment.
As part of the remaining part of the Network Agreements, the Company issued one
million shares (of the total five million) to repurchase a 10% membership
interest in Local Fiber, LLC held by MFN. The transaction was recorded as a
purchase business combination. The Company recorded approximately $8.7 million
of goodwill in the accompanying consolidated financial statements, which will be
amortized over a period of 15 years. The Company has recorded a purchase
allocation on a preliminary basis and will complete the allocation by the fourth
quarter of 2000.
16. NON-RECURRING EXPENSES
During 1999, the Company recorded non-recurring expenses of $4.3
million, comprised of a $3.7 million non-cash charge, relating to a prospective
settlement of certain litigation, and $0.6 million, relating to the decommission
of the Company's Lucent 5ESS-2000 telecommunication switch located at its
facility at 60 Hudson Street in New York, New York.
F-14
<PAGE>
NOT VALID UNLESS COUNTERSIGNED BY TRANSFER AGENT
INCORPORATED UNDER THE LAWS OF THE STATE OF DELAWARE
NUMBER SHARES
2812
CUSIP NO. 315653 10 5
FiberNet Telecom Group, Inc.
AUTHORIZED COMMON STOCK: 150,000,000 SHARES
PAR VALUE: $.001
THIS CERTIFIES THAT
IS THE RECORD HOLDER OF
Shares of FIBERNET TELECOM GROUP, INC. Common Stock
transferable on the books of the Corporation in person or by duly authorized
attorney upon surrender of this Certificate properly endorsed. This Certificate
is not valid until countersigned by the Transfer Agent and registered by the
Registrar.
Witness the facsimile seal of the Corporation and the facsimile signatures of
its duly authorized officers.
Dated:
[SEAL] /s/ Roy D. Farmer III /s/ Michael S. Liss
--------------------------- -------------------------
Secretary President
<PAGE>
NOTICE: Signature must be guaranteed by a firm which is a member of a registered
national stock exchange, or by a bank (other than a saving bank), or a
trust company. The following abbreviations, when used in the inscription
on the face of this certificate, shall be construed as though they were
written out in full according to applicable laws or regulations.
TEN COM - as tenants in common UNIF GIFT MIN ACT.....Custodian.....
TEN ENT - as tenants by the entireties (Cust) (Minor)
JT TEN - as joint tenants with right of Under Uniform Guide to Minors
survivorship and not as tenants Act..........................
in common (State)
Additional abbreviations may also be used though not in the above list.
For Value Received,____________hereby sell, assign and transfer unto
PLEASE INSERT SOCIAL SECURITY OR OTHER
IDENTIFYING NUMBER OF ASSIGNEE
____________________________________
[____________________________________]
-------------------------------------------------------------------------
(PLEASE PRINT OR TYPEWRITE NAME AND ADDRESS, INCLUDING ZIP CODE, OF ASSIGNEE)
-------------------------------------------------------------------------
-------------------------------------------------------------------------
-------------------------------------------------------------------Shares
of the capital stock represented by the within certificate, and do hereby
irrevocably constitute and appoint
-----------------------------------------------------------------Attorney
to transfer the said stock on the books of the within named Corporation with
full power of substitution in the premises.
Dated:_____________________________________
- ----------------------------------------------------------------------------
NOTICE: THE SIGNATURE TO THIS ASSIGNMENT MUST BE CORRESPOND WITH THE NAME AS
WRITTEN UPON THE FACE OF CERTIFCATE IN EVERY PARTICULAR WITHOUT
ALTERATION OR ENLARGEMENT OR ANY CHANGE WHATEVER
<PAGE>
EMPLOYMENT AGREEMENT dated as of May 7, 1999 (the "Agreement"),
between FIBERNET TELECOM GROUP, INC., a Nevada corporation (the "Company"), and
MICHAEL S. LISS (the "Executive").
The parties hereto deem it to be in their best interests to enter
into an employment agreement whereby the Company will employ the Executive
pursuant to the terms set forth herein.
NOW, THEREFORE, in consideration of the premises and mutual
covenants herein contained, the parties hereto agree as follows:
1. Employment. The Company hereby employs the Executive, and the
Executive hereby accepts such employment by the Company, on the terms and
subject to the conditions hereinafter set forth. This Agreement shall be
effective immediately after (i) the closing of the transactions contemplated by
the Securities Purchase Agreement dated as of May 5, 1999 (the "Securities
Purchase Agreement") among the Company and the purchasers named therein and (ii)
the resignation by Executive from his current employer.
2. Term. Subject to earlier termination pursuant to the terms of
Section 6 below, the employment of the Executive hereunder shall be for a fixed
term (the "Employment Period") commencing as provided in Section (1) hereof and
terminating on the second anniversary of the execution of this Agreement (the
"Scheduled Termination Date").
3. Position.
(a) The Executive will be the President, Chief Executive
Officer and Board member of the Company reporting directly to the Board and
shall be responsible for the general management and affairs of the Company. So
long as Executive shall be on the Board, Executive will also serve on the
Compensation Committee of the Board.
(b) The Company understands that the Executive will conduct
substantially all of his duties and responsibilities on behalf of the Company
from the executive offices of the Company, which shall be located in the New
York metropolitan area.
4. Time to be Devoted to Employment. The Executive shall devote all
of his business time, attention and energies to the performance of his duties
and responsibilities under this Agreement. During the Employment Period, the
Executive shall not be engaged in any other business activity.
5. Compensation; Etc.
(a) Base Salary. The Company shall pay to the Executive an
annual base salary (the "Base Salary") of a minimum of $250,000, subject to
increase at the discretion of the Board of Directors (or a committee thereof) of
the Company (the "Board"). The Base Salary shall be payable in such installments
as is the policy of the Company with respect to its executive officers
generally, but no less frequently than monthly.
<PAGE>
(b) At the reasonable discretion of the Board, the Company may
choose to pay a cash bonus to the Executive at year end based upon the
performance of the Executive during such period.
(c) Benefits. During the Employment Period, the Company shall
provide the Executive with such employee benefits as are provided by the Company
from time to time to its senior executive officers generally.
(d) Qualified Options. The Executive shall be entitled to
receive Incentive Stock Options ("ISOs") (as that term is defined in Section 422
of the Internal Revenue Code of 1986, as amended (the "Code")) for 25,000 shares
(or such greater or lesser amount then allowed under the Code) (the "1999
Options") of the Company's common stock, $.001 par value per share ("Common
Stock") with an exercise price equal to the fair market value of the Common
Stock as of May 5, 1999 pursuant to the Company's 1999 Stock Option Plan (the
"Option Plan"); provided, that, the issuance of 1999 Options is subject to
shareholder approval of the Option Plan. Any ISOs issued under this Section 5(d)
shall vest in accordance with the terms of the Option Plan, subject to any
earlier vesting as provided for hereunder.
(e) Non-Qualified Options. The Executive shall be entitled to
receive non-qualified options to purchase 100,000 shares of the Common Stock of
the Company at $4.75 per share in the form of attached hereto (the
"Non-Qualified Options") exercisable in full upon the earlier of (i) two years
(50,000 shares exercisable upon the first anniversary of this Agreement and
50,000 shares exercisable upon the second anniversary of this Agreement), and
(ii) immediately upon (A) a Qualified Public Offering (as defined in the
Securities Purchase Agreement), (B) a public or private offering of debt or
equity securities of the Company with net proceeds to the Company of not less
than $40,000,000 or any individual public or private offerings of debt and/or
equity securities that in the aggregate equals or exceeds $40,000,000 or (C) a
sale of all or substantially all of the assets of the Company or its
subsidiaries (each of the events in clauses (A), (B) and (C) known as a
"Liquidity Event"). The Non-Qualified Options shall be exercisable for up to ten
(10) years, and shall provide for "cashless exercise" and in the event of the
Executive's termination of employment for any reason, exercisable for up to one
year from the date of such termination. The Non-Qualified Options shall be
subject to accelerated vesting as provided for in this Agreement. If the
Executive's employment is terminated pursuant to a Termination for Cause or a
Voluntary Termination, all the then unvested Non-Qualified Options shall
immediately terminate and no longer be outstanding.
6. Termination of Employment.
(a) Involuntary Termination.
(i) Disability. If the Executive is incapacitated or
disabled by accident or sickness or otherwise so as to render him mentally
or physically incapable of performing the services required to be
performed by him or her under this Agreement for a period of 120
consecutive days or longer, or for an aggregate of 120 days during any
twelve-month period (such condition being hereinafter referred to as a
"Disability"), the Company may, at that time or any time thereafter, at
its option, to the extent not in violation of applicable state and federal
law, terminate the employment of the Executive
-2-
<PAGE>
under this Agreement immediately upon giving him notice to that effect
(such termination, as well as a termination under Section 6(a)(ii) below,
being hereinafter called an "Involuntary Termination"). In the event of an
Involuntary Termination, all options granted hereunder shall vest on a pro
rata basis for time served to the date of such Involuntary Termination
(including the 120 day disability qualifying period).
(ii) Death. If the Executive dies during the Employment
Period, his employment hereunder shall be deemed to cease as of the date
of his death, and all options granted hereunder shall vest as of the date
of his death, and shall be exercisable by his estate for a period of one
(1) year from the date of death.
(b) Termination for Cause. The Company may terminate the employment
of the Executive and all the Company's obligations under this Agreement at any
time during the Employment Period for "cause" (such termination being
hereinafter called a "Termination for Cause") after the Board has given the
Executive written notice of its intent to terminate the employment of the
Executive for cause, with reasonable specificity of the details thereof and
Executive shall have been provided a reasonable opportunity to cure any such
alleged occurrence constituting "cause" (not in excess of 30 days, provided that
in the event such occurrence cannot reasonably be expected to be cured in such
period then for such period as is reasonable and the Executive shall be using
his diligent best efforts to cure). For the purposes of this Agreement, "cause"
shall mean (i) the Executive's material breach of his material duties hereunder
or habitual neglect of his duties hereunder, (ii) the commission by the
Executive of an act constituting common law fraud, or a felony or criminal act
against the Company, or any shareholder, subsidiary or affiliate thereof or any
of the assets of any of them or (iii) the Executive's conviction of a crime
involving moral turpitude.
(c) Termination Without Cause. The Company may, with 30 days written
notice, terminate the employment of the Executive hereunder at any time during
the Employment Period without "cause" (such termination being hereinafter called
a "Termination Without Cause") by giving the Executive notice of such
termination, upon the giving of which notice such termination shall take effect
immediately.
(d) Voluntary Termination. Any termination of the employment of the
Executive hereunder other than as a result of an Involuntary Termination, a
Termination For Cause, a Termination Without Cause or a Termination by Executive
with Good Reason shall be deemed to be a "Voluntary Termination." A Voluntary
Termination shall be deemed to be effective immediately upon such termination.
(e) Termination by Executive with Good Reason. The following shall
constitute a "Termination by the Executive for Good Reason":
(i) relocation of Executive's principal office outside the New
York metropolitan area, or
(ii) "change of control" meaning (a) the sale of over 50% of
the securities owned by the Purchasers (as defined in the Securities
Purchase Agreement) as of the date hereof (other than to their respective
affiliates), (b) a change in majority
-3-
<PAGE>
control of the Board or (c) the sale of all or substantially all of the
assets of the Company, or a merger in which the Company or any of its
subsidiaries is not the surviving entity, or a liquidation or dissolution
of the Company.
(f) Effect of Termination of Employment.
(i) Except as otherwise provided in Section 6(f)(ii) below,
upon the termination of the Executive's employment hereunder for any
reason whatsoever prior to the expiration of the Employment Period,
neither the Executive nor his beneficiaries or estate shall have any
further rights or claims against the Company or any of its subsidiaries or
affiliates under this Agreement except to receive any earned and unpaid
portion of the Base Salary and any earned and unpaid portion of a declared
bonus provided for in Section 5(b), plus a cash payment for all accrued
and unused vacation time through the effective date of such termination,
and shall be entitled to exercise all options vested as provided for in
this Agreement.
(ii) Anything contained in this Agreement to the contrary
notwithstanding, upon the termination of the Executive's employment
hereunder prior to the Scheduled Termination Date pursuant to a
Termination Without Cause or a Termination by Executive for Good Reason,
the Executive shall have the right, in addition to the rights provided for
in Section 6(f)(i) above, to receive (i) twelve months severance (payable
in such installments as the Base Salary was being paid immediately prior
to such termination pursuant to Section 5(a)) equal to the then current
Base Salary and (ii) all options granted hereunder (including the 1999
Options and the Non-Qualified Options) shall vest and Executive shall have
12 months (unless with respect to the 1999 Options, the Option Plan shall
require a shorter period) thereafter to exercise such options.
(iii) Upon the termination of the Executive's employment
hereunder prior to the Scheduled Termination Date pursuant to a
Termination for Cause, the Executive shall be entitled to receive his Base
Salary pro rata to the date of his Termination for Cause plus any declared
but unpaid bonus and shall be entitled to exercise all options vested as
of the time of termination for 30 days.
7. Non-Competition.
(a) The Executive acknowledges and recognizes that during the
Employment Period he will be privy to trade secrets and confidential proprietary
information critical to the Company and the Company's business and further
acknowledges and recognizes that the Company would find it extremely difficult
to replace the Executive. So long as the Company is paying (or willing to pay in
the event the Executive shall refuse such payment) all amounts due hereunder,
the Executive shall not, during the Employment Period and for 12 months
thereafter (the "First Anniversary") (i) engage in any Competitive Business (as
defined below), whether such engagement shall be as an employer, officer,
director, owner, employee, partner or other participant, (ii) induce employees
of the Company or its affiliates or subsidiaries to terminate their employment
with the Company or such affiliate or subsidiary or engage in any Competitive
Business, or (iii) directly induce any entity or person with which the Company
or any of its
-4-
<PAGE>
subsidiaries or affiliates has a business relationship to terminate or alter
such business relationship; provided, however, that nothing contained in this
Section 7(a) shall (x) prevent, restrain or otherwise restrict the Executive
from owning not more than 1% of any class of securities of any competitor of the
Company or any subsidiary of affiliate thereof so long as such securities are
listed for trade on Nasdaq in the over-the-counter market or are traded on a
national securities exchange, or (y) prevent the Executive from engaging in the
business of investment banking for any business, individual or entity.
"Competitive Business" means and includes (i) any business that
builds or operates an in-building fiber or copper network or (ii) a
telecommunications carrier that operates a metropolitan area network in New York
City.
(b) The Executive understands that the foregoing restrictions
may limit his ability to earn a livelihood in a business similar that of the
Company, but he nevertheless believes that he has received and will receive
sufficient consideration and other benefits as an employee of the Company to
justify clearly such restrictions which, in any event (given his education,
skills and ability), the Executive does not believe would prevent him from
earning a livelihood.
8. Non-Disclosure, Assignment of Intellectual Property Rights and
Documentation.
(a) At all times, both during the Executive's employment by
the Company and after its termination, the Executive will keep in strict
confidence and will not disclose any confidential or proprietary information
relating to the business of the Company, or any client, customer, or business
partner of the Company, to any person or entity, or make use of any such
confidential or proprietary information for the Executive's own purposes or for
the benefit of any person or entity, except as may be necessary in the ordinary
course of performing his duties and responsibilities as an employee of the
Company.
(b) If at any time or times during his employment the
Executive shall conceive or discover any Intellectual Property (as defined
herein) whatsoever (herein called "Developments")or any interest therein
("Intellectual Property Rights") that in each case relates to the business of
the Company, such Developments and the benefits thereof shall immediately become
the sole and absolute property of the Company and its assigns, and the Executive
shall promptly disclose to the Company (or any persons designated by it) each
such Development and hereby assign any rights the Executive may have or acquire
in the Developments and benefits and/or rights resulting therefrom to the
Company and its assigns.
(c) As used herein, the term "Intellectual Property" shall
mean all industrial and intellectual property, including, without limitation,
computer programs and other software, and all documentation and media
constituting, describing or relating to the above.
9. Other Agreements. The Executive represents and warrants that the
execution and delivery of this Agreement and the performance of all the terms of
this Agreement do not and will not breach any agreement to keep in confidence
proprietary information acquired by the Executive in confidence or trust. The
Executive has not entered into and shall not enter
-5-
<PAGE>
into any agreement, either written or oral, in conflict with this Agreement. The
Executive represents that he has not brought and will not bring with him to the
Company or use at the Company any materials or documents of an employer or a
former employer that are not generally available to the public, unless express
written authorization from such employer for their possession and use has been
obtained. The Executive further understands that he is not to breach any
obligation of confidentiality that he has to any employer or former employer and
agrees to fulfill all such obligations during the period of his affiliation with
the Company.
10. Notices. All notices or other communications which are required
or permitted hereunder shall be in writing and sufficient if (a) delivered
personally or sent by telecopier, (b) sent by nationally-recognized overnight
courier or (c) sent by certified mail, postage prepaid, return receipt
requested, addressed as follows:
if to the Company, to:
FiberNet Telecom Group, Inc.
570 Lexington Avenue
New York, NY 10022
Telephone: 212 421-4900
Facsimile: 212 421-8920
Attention: Secretary
if to the Executive, to the Executive's address on the books or
records of the Company;
or to such other address as the party to whom notice is to be given may have
furnished to each other party in writing in accordance herewith. Any such
communication shall be deemed to have been given (i) when delivered if
personally delivered or sent by telecopier, (ii) on the Business Day (as
hereinafter defined) after dispatch if sent by nationally-recognized, overnight
courier and (iii) on the fifth Business Day after dispatch if sent by mail. As
used herein, "Business Day" means a day that is not a Saturday, Sunday or a day
on which banking institutions in New York, New York are not required to be open.
11. Entire Agreement; Amendments. This Agreement contains the entire
agreement between the parties with respect to the subject matter hereof and
supersedes all prior or contemporaneous negotiations, correspondence,
understandings and agreements between the parties with respect thereto. This
Agreement may be amended only by an agreement in writing signed by both parties
hereto.
12. Assignment; Successors; Benefits of Agreement. This Agreement is
personal in its nature and neither party hereto shall, without the consent of
the other, assign or transfer this Agreement or any rights or obligations
hereunder; provided, however, that subject to Termination by Executive with Good
Reason the Company shall have the right to assign its rights hereunder to any
subsidiary or affiliate of the Company or a successor to all or substantially
all of the Company's business as part of a merger with, or acquisition of the
Company by, another business entity subject to assumption. The provisions of
this Agreement
-6-
<PAGE>
shall be binding upon and inure to the benefit of the respective heirs,
executors, administrators and successors and permitted assigns of the parties
hereto. All amounts payable hereunder, and all option grants provided hereunder,
shall be payable to, and exercisable by, the Executive's estate.
13. Waiver of Breach. A waiver of any breach of any provision of
this Agreement shall not constitute or operate as a waiver of any other breach
of such provision or of any other provision, and any failure to enforce any
provision hereof shall not operate as a waiver of such provision or of any other
provision.
14. Counterparts; Headings. This Agreement may be executed in one or
more counterparts, each of which shall be deemed an original, but all of which
shall constitute one and the same instrument. Headings said herein are for
convenience of reference only and are not to affect the interpretation of this
Agreement.
15. Legal Fees. The Company will pay the reasonable attorney's fees
incurred by Executive in connection with the negotiation and execution hereof.
16. GOVERNING LAW. THIS AGREEMENT WILL BE GOVERNED BY, AND CONSTRUED
AND ENFORCED IN ACCORDANCE WITH, THE LAWS OF THE STATE OF NEW YORK WITHOUT
GIVING EFFECT TO PRINCIPLES GOVERNING CONFLICTS OF LAWS.
17. Severability. In the event that any provision of this Agreement
would be held in any jurisdiction to be invalid, prohibited or unenforceable for
any reason, such provision, as to such jurisdiction, shall be ineffective,
without invalidating the remaining provisions of this Agreement or affecting the
validity or enforceability of such provision in any other jurisdiction.
Notwithstanding the foregoing, if such provision could be more narrowly drawn so
as not to be invalid, prohibited or unenforceable in such jurisdiction, it
shall, as to such jurisdiction, be so narrowly drawn, without invalidating the
remaining provisions of this Agreement or affecting the validity or
enforceability of such provision in any other jurisdiction.
18. Indemnification. The Executive shall be indemnified to the full
extent provided for by applicable law and the charter and by-laws of the
Company, which indemnification provisions may not be altered in any material
manner to the detriment of the Executive from those provisions in effect as of
the date hereof. The Company shall maintain D&O coverage during the Employment
Term (and for the applicable statute of limitations period thereafter), with
terms and conditions as in effect as of the date hereof; provided that such D&O
coverage may not be altered in any material manner to the detriment of the
Executive from those provisions in effect as of the date hereof.
19. Due Authorization. This Agreement has been duly authorized,
executed and delivered on behalf of the Company and represents the binding and
enforceable obligation of the Company, in accordance with its term.
-7-
<PAGE>
20. Remedies. The Executive acknowledges and understands that the
provisions of this Agreement are of a special and unique nature, the loss of
which cannot be adequately compensated for in damages by an action at law, and
that the breach or threatened breach of the provisions of this Agreement would
cause the Company irreparable harm. In the event of a breach or threatened
breach by the Executive of the provisions of this Agreement, the Company shall
be entitled to seek an injunction restraining him from such breach with a court
of law.
* * * * *
-8-
<PAGE>
IN WITNESS WHEREOF, the parties have duly executed this Agreement as
of the date first above written.
FIBERNET TELECOM GROUP, INC.
By: /s/ Frank Chiaino
-----------------------------------------
Name: Frank Chiaino
Title: President
/s/ Michael S. Liss
--------------------------------------------
Michael S. Liss
<PAGE>
EMPLOYMENT AGREEMENT dated as of May 7, 1999 (the "Agreement"),
between FIBERNET TELECOM GROUP, INC., a Nevada corporation (the "Company"), and
ROY (TREY) D. FARMER (the "Executive").
The parties hereto deem it to be in their best interests to enter
into an employment agreement whereby the Company will employ the Executive
pursuant to the terms set forth herein.
NOW, THEREFORE, in consideration of the premises and mutual
covenants herein contained, the parties hereto agree as follows:
1. Employment. The Company hereby employs the Executive, and the
Executive hereby accepts such employment by the Company, on the terms and
subject to the conditions hereinafter set forth. This Agreement shall be
effective immediately after the closing of the transactions contemplated by the
Securities Purchase Agreement dated as of May 7, 1999 (the "Securities Purchase
Agreement") among the Company and the purchasers named therein.
2. Term. Subject to earlier termination pursuant to the terms of
Section 6 below, the employment of the Executive hereunder shall be for a fixed
term (the "Employment Period") commencing as provided in Section (1) hereof and
terminating on the second anniversary of the execution of this Agreement (the
"Scheduled Termination Date").
3. Position.
(a) The Executive will be the Executive Vice President
reporting directly to the President and shall be responsible for the operations
of the Company as directed by the President.
(b) The Company understands that the Executive will conduct
substantially all of his duties and responsibilities on behalf of the Company
from the executive offices of the Company, which shall be located in the New
York metropolitan area.
4. Time to be Devoted to Employment. The Executive shall devote all
of his business time, attention and energies to the performance of his duties
and responsibilities under this Agreement. During the Employment Period, the
Executive shall not be engaged in any other business activity.
5. Compensation; Etc.
(a) Base Salary. The Company shall pay to the Executive an
annual base salary (the "Base Salary") of a minimum of $175,000, subject to
increase at the discretion of the Board of Directors (or a committee thereof) of
the Company (the "Board"). The Base Salary shall be payable in such installments
as is the policy of the Company with respect to its executive officers
generally, but no less frequently than monthly.
<PAGE>
(b) At the reasonable discretion of the Board, the Company may
choose to pay a cash bonus to the Executive at year end based upon the
performance of the Executive during such period.
(c) Benefits. During the Employment Period, the Company shall
provide the Executive with such employee benefits as are provided by the Company
from time to time to its senior executive officers generally.
(d) Qualified Options. The Executive shall be entitled to
receive Incentive Stock Options ("ISOs") (as that term is defined in Section 422
of the Internal Revenue Code of 1986, as amended (the "Code")) for 25,000 shares
(or such greater or lesser amount then allowed under the Code) (the "1999
Options") of the Company's common stock, $.001 par value per share ("Common
Stock") with an exercise price equal to the fair market value of the Common
Stock as of May 5, 1999 pursuant to the Company's 1999 Stock Option Plan (the
"Option Plan") and the execution of an Incentive Stock Option Agreement dated
the date hereof between the Company and the Executive (as provided to the
Executive); provided, that, the issuance of 1999 Options is subject to
shareholder approval of the Option Plan. Any ISOs issued under this Section 5(d)
shall vest in accordance with the terms of the Option Plan, subject to any
earlier vesting as provided for hereunder.
(e) Non-Qualified Options. The Executive shall be entitled to
receive non-qualified options to purchase 100,000 shares of the Common Stock of
the Company at $4.75 per share in the form of Exhibit A attached hereto (the
"Non-Qualified Options") exercisable in full upon the earlier of (i) two years
(50,000 shares exercisable upon the first anniversary of this Agreement and
50,000 shares exercisable upon the second anniversary of this Agreement), and
(ii) immediately upon (A) a Qualified Public Offering (as defined in the
Securities Purchase Agreement), (B) a public or private offering of debt or
equity securities of the Company with net proceeds to the Company of not less
than $40,000,000 or any individual public or private offerings of debt and/or
equity securities that in the aggregate equals or exceeds $40,000,000 or (C) a
sale of all or substantially all of the assets of the Company or its
subsidiaries (each of the events in clauses (A), (B) and (C) known as a
"Liquidity Event"). The Non-Qualified Options shall be exercisable for up to ten
(10) years, and shall provide for "cashless exercise" and in the event of the
Executive's termination of employment for any reason, exercisable for up to one
year from the date of such termination. The Non-Qualified Options shall be
subject to accelerated vesting as provided for in this Agreement. If the
Executive's employment is terminated pursuant to a Termination for Cause or a
Voluntary Termination, all the then unvested Non-Qualified Options shall
immediately terminate and no longer be outstanding.
6. Termination of Employment.
(a) Involuntary Termination.
(i) Disability. If the Executive is incapacitated or
disabled by accident or sickness or otherwise so as to render him mentally
or physically incapable of performing the services required to be
performed by him or her under this Agreement for a period of 120
consecutive days or longer, or for an aggregate of 120 days during any
twelve-month period (such condition being hereinafter referred to as a
"Disability"), the
-2-
<PAGE>
Company may, at that time or any time thereafter, at its option, to the
extent not in violation of applicable state and federal law, terminate the
employment of the Executive under this Agreement immediately upon giving
him notice to that effect (such termination, as well as a termination
under Section 6(a)(ii) below, being hereinafter called an "Involuntary
Termination"). In the event of an Involuntary Termination, all options
granted hereunder shall vest on a pro rata basis for time served to the
date of such Involuntary Termination (including the 120 day disability
qualifying period).
(ii) Death. If the Executive dies during the Employment
Period, his employment hereunder shall be deemed to cease as of the date
of his death, and all options granted hereunder shall vest as of the date
of his death, and shall be exercisable by his estate for a period of one
(1) year from the date of death.
(b) Termination for Cause. The Company may terminate the employment
of the Executive and all the Company's obligations under this Agreement at any
time during the Employment Period for "cause" (such termination being
hereinafter called a "Termination for Cause") after the Board has given the
Executive written notice of its intent to terminate the employment of the
Executive for cause, with reasonable specificity of the details thereof and
Executive shall have been provided a reasonable opportunity to cure any such
alleged occurrence constituting "cause" (not in excess of 30 days, provided that
in the event such occurrence cannot reasonably be expected to be cured in such
period then for such period as is reasonable and the Executive shall be using
his diligent best efforts to cure). For the purposes of this Agreement, "cause"
shall mean (i) the Executive's material breach of his material duties hereunder
or habitual neglect of his duties hereunder, (ii) the commission by the
Executive of an act constituting common law fraud, or a felony or criminal act
against the Company, or any shareholder, subsidiary or affiliate thereof or any
of the assets of any of them or (iii) the Executive's conviction of a crime
involving moral turpitude.
(c) Termination Without Cause. The Company may, with 30 days written
notice, terminate the employment of the Executive hereunder at any time during
the Employment Period without "cause" (such termination being hereinafter called
a "Termination Without Cause") by giving the Executive notice of such
termination, upon the giving of which notice such termination shall take effect
immediately.
(d) Voluntary Termination. Any termination of the employment of the
Executive hereunder other than as a result of an Involuntary Termination, a
Termination For Cause, a Termination Without Cause or a Termination by Executive
with Good Reason shall be deemed to be a "Voluntary Termination." A Voluntary
Termination shall be deemed to be effective immediately upon such termination.
(e) Termination by Executive with Good Reason. The following shall
constitute a "Termination by the Executive for Good Reason":
(i) relocation of Executive's principal office outside the New
York metropolitan area, or
-3-
<PAGE>
(ii) "change of control" meaning (a) the sale of over 50% of
the securities owned by the Purchasers (as defined in the Securities
Purchase Agreement) as of the date hereof (other than to their respective
affiliates), (b) a change in majority control of the Board or (c) the sale
of all or substantially all of the assets of the Company, or a merger in
which the Company or any of its subsidiaries is not the surviving entity,
or a liquidation or dissolution of the Company.
(f) Effect of Termination of Employment.
(i) Except as otherwise provided in Section 6(f)(ii)
below, upon the termination of the Executive's employment hereunder for
any reason whatsoever prior to the expiration of the Employment Period,
neither the Executive nor his beneficiaries or estate shall have any
further rights or claims against the Company or any of its subsidiaries or
affiliates under this Agreement except to receive any earned and unpaid
portion of the Base Salary and any earned and unpaid portion of a declared
bonus provided for in Section 5(b), plus a cash payment for all accrued
and unused vacation time through the effective date of such termination,
and shall be entitled to exercise all options vested as provided for in
this Agreement.
(ii) Anything contained in this Agreement to the
contrary notwithstanding, upon the termination of the Executive's
employment hereunder prior to the Scheduled Termination Date pursuant to a
Termination Without Cause or a Termination by Executive for Good Reason,
the Executive shall have the right, in addition to the rights provided for
in Section 6(f)(i) above, to receive (i) twelve months severance (payable
in such installments as the Base Salary was being paid immediately prior
to such termination pursuant to Section 5(a)) equal to the then current
Base Salary and (ii) all options granted hereunder (including the 1999
Options and the Non-Qualified Options) shall vest and Executive shall have
12 months (unless with respect to the 1999 Options, the Option Plan shall
require a shorter period) thereafter to exercise such options.
(iii) Upon the termination of the Executive's employment
hereunder prior to the Scheduled Termination Date pursuant to a
Termination for Cause, the Executive shall be entitled to receive his Base
Salary pro rata to the date of his Termination for Cause plus any declared
but unpaid bonus, and shall be entitled to exercise all options vested as
of the time of termination for 30 days.
7. Non-Competition.
(a) The Executive acknowledges and recognizes that during the
Employment Period he will be privy to trade secrets and confidential proprietary
information critical to the Company and the Company's business and further
acknowledges and recognizes that the Company would find it extremely difficult
to replace the Executive. So long as the Company is paying (or willing to pay in
the event the Executive shall refuse such payment) all amounts due hereunder,
the Executive shall not, during the Employment Period and for 12 months
thereafter (the "First Anniversary") (i) engage in any Competitive Business (as
defined below), whether such engagement shall be as an employer, officer,
director, owner, employee, partner or other
-4-
<PAGE>
participant, (ii) induce employees of the Company or its affiliates or
subsidiaries to terminate their employment with the Company or such affiliate or
subsidiary or engage in any Competitive Business, or (iii) directly induce any
entity or person with which the Company or any of its subsidiaries or affiliates
has a business relationship to terminate or alter such business relationship;
provided, however, that nothing contained in this Section 7(a) shall (x)
prevent, restrain or otherwise restrict the Executive from owning not more than
1% of any class of securities of any competitor of the Company or any subsidiary
of affiliate thereof so long as such securities are listed for trade on Nasdaq
in the over-the-counter market or are traded on a national securities exchange
or (v) prevent the Executive from engaging in the business of investment banking
for any business, individual or entity.
"Competitive Business" means and includes (i) any business that
builds or operates an in-building fiber or copper network or (ii) a
telecommunications carrier that operates a metropolitan area network in New York
City.
(b) The Executive understands that the foregoing restrictions
may limit his ability to earn a livelihood in a business similar that of the
Company, but he nevertheless believes that he has received and will receive
sufficient consideration and other benefits as an employee of the Company to
justify clearly such restrictions which, in any event (given his education,
skills and ability), the Executive does not believe would prevent him from
earning a livelihood.
8. Non-Disclosure, Assignment of Intellectual Property Rights and
Documentation.
(a) At all times, both during the Executive's employment by the
Company and after its termination, the Executive will keep in strict confidence
and will not disclose any confidential or proprietary information relating to
the business of the Company, or any client, customer, or business partner of the
Company, to any person or entity, or make use of any such confidential or
proprietary information for the Executive's own purposes or for the benefit of
any person or entity, except as may be necessary in the ordinary course of
performing his duties and responsibilities as an employee of the Company.
(b) If at any time or times during his employment the Executive
shall conceive or discover any Intellectual Property (as defined herein)
whatsoever (herein called "Developments")or any interest therein ("Intellectual
Property Rights") that in each case relates to the business of the Company, such
Developments and the benefits thereof shall immediately become the sole and
absolute property of the Company and its assigns, and the Executive shall
promptly disclose to the Company (or any persons designated by it) each such
Development and hereby assign any rights the Executive may have or acquire in
the Developments and benefits and/or rights resulting therefrom to the Company
and its assigns.
(c) As used herein, the term "Intellectual Property" shall mean all
industrial and intellectual property, including, without limitation, computer
programs and other software, and all documentation and media constituting,
describing or relating to the above.
-5-
<PAGE>
9. Other Agreements. The Executive represents and warrants that the
execution and delivery of this Agreement and the performance of all the terms of
this Agreement do not and will not breach any agreement to keep in confidence
proprietary information acquired by the Executive in confidence or trust. The
Executive has not entered into and shall not enter into any agreement, either
written or oral, in conflict with this Agreement. The Executive represents that
he has not brought and will not bring with him to the Company or use at the
Company any materials or documents of an employer or a former employer that are
not generally available to the public, unless express written authorization from
such employer for their possession and use has been obtained. The Executive
further understands that he is not to breach any obligation of confidentiality
that he has to any employer or former employer and agrees to fulfill all such
obligations during the period of his affiliation with the Company.
10. Notices. All notices or other communications which are required
or permitted hereunder shall be in writing and sufficient if (a) delivered
personally or sent by telecopier, (b) sent by nationally-recognized overnight
courier or (c) sent by certified mail, postage prepaid, return receipt
requested, addressed as follows:
if to the Company, to:
FiberNet Telecom Group, Inc.
570 Lexington Avenue
New York, NY 10022
Telephone: 212 421-4900
Facsimile: 212 421-8920
Attention: President
if to the Executive, to the Executive's address on the books or
records of the Company;
or to such other address as the party to whom notice is to be given may
have furnished to each other party in writing in accordance herewith. Any
such communication shall be deemed to have been given (i) when delivered
if personally delivered or sent by telecopier, (ii) on the Business Day
(as hereinafter defined) after dispatch if sent by nationally-recognized,
overnight courier and (iii) on the fifth Business Day after dispatch if
sent by mail. As used herein, "Business Day" means a day that is not a
Saturday, Sunday or a day on which banking institutions in New York, New
York are not required to be open.
11. Entire Agreement; Amendments. This Agreement contains the entire
agreement between the parties with respect to the subject matter hereof and
supersedes all prior or contemporaneous negotiations, correspondence,
understandings and agreements between the parties with respect thereto. This
Agreement may be amended only by an agreement in writing signed by both parties
hereto.
12. Assignment; Successors; Benefits of Agreement. This Agreement is
personal in its nature and neither party hereto shall, without the consent of
the other, assign or transfer this Agreement or any rights or obligations
hereunder; provided, however, that subject to
-6-
<PAGE>
Termination by Executive with Good Reason the Company shall have the right to
assign its rights hereunder to any subsidiary or affiliate of the Company or a
successor to all or substantially all of the Company's business as part of a
merger with, or acquisition of the Company by, another business entity subject
to assumption. The provisions of this Agreement shall be binding upon and inure
to the benefit of the respective heirs, executors, administrators and successors
and permitted assigns of the parties hereto. All amounts payable hereunder, and
all option grants provided hereunder, shall be payable to, and exercisable by,
the Executive's estate.
13. Waiver of Breach. A waiver of any breach of any provision of this
Agreement shall not constitute or operate as a waiver of any other breach of
such provision or of any other provision, and any failure to enforce any
provision hereof shall not operate as a waiver of such provision or of any other
provision.
14. Counterparts; Headings. This Agreement may be executed in one or more
counterparts, each of which shall be deemed an original, but all of which shall
constitute one and the same instrument. Headings said herein are for convenience
of reference only and are not to affect the interpretation of this Agreement.
15. GOVERNING LAW. THIS AGREEMENT WILL BE GOVERNED BY, AND CONSTRUED AND
ENFORCED IN ACCORDANCE WITH, THE LAWS OF THE STATE OF NEW YORK WITHOUT GIVING
EFFECT TO PRINCIPLES GOVERNING CONFLICTS OF LAWS.
16. Severability. In the event that any provision of this Agreement would
be held in any jurisdiction to be invalid, prohibited or unenforceable for any
reason, such provision, as to such jurisdiction, shall be ineffective, without
invalidating the remaining provisions of this Agreement or affecting the
validity or enforceability of such provision in any other jurisdiction.
Notwithstanding the foregoing, if such provision could be more narrowly drawn so
as not to be invalid, prohibited or unenforceable in such jurisdiction, it
shall, as to such jurisdiction, be so narrowly drawn, without invalidating the
remaining provisions of this Agreement or affecting the validity or
enforceability of such provision in any other jurisdiction.
17. Indemnification. The Executive shall be indemnified to the full extent
provided for by applicable law and the charter and by-laws of the Company, which
indemnification provisions may not be altered in any material manner to the
detriment of the Executive from those provisions in effect as of the date
hereof. The Company shall maintain D&O coverage during the Employment Term (and
for the applicable statute of limitations period thereafter), with terms and
conditions as in effect as of the date hereof; provided that such D&O coverage
may not be altered in any material manner to the detriment of the Executive from
those provisions in effect as of the date hereof.
18. Due Authorization. This Agreement has been duly authorized, executed
and delivered on behalf of the Company and represents the binding and
enforceable obligation of the Company, in accordance with its term.
-7-
<PAGE>
19. Remedies. The Executive acknowledges and understands that the
provisions of this Agreement are of a special and unique nature, the loss of
which cannot be adequately compensated for in damages by an action at law, and
that the breach or threatened breach of the provisions of this Agreement would
cause the Company irreparable harm. In the event of a breach or threatened
breach by the Executive of the provisions of this Agreement, the Company shall
be entitled to seek an injunction restraining him from such breach with a court
of law.
* * * * *
-8-
<PAGE>
IN WITNESS WHEREOF, the parties have duly executed this Agreement as
of the date first above written.
FIBERNET TELECOM GROUP, INC.
By: /s/ Frank Chiaino
-----------------------------------------
Name: Frank Chiaino
Title: President
/s/ Roy (Trey) D. Farmer
--------------------------------------------
Roy (Trey) D. Farmer
<PAGE>
Exhibit A
Same form Option Agreement as offered to all other executive
officers provided that in the event of a conflict between the terms of this
Agreement and such Option Agreement the terms of this Agreement shall govern.
<PAGE>
EXECUTION COPY
EMPLOYMENT AGREEMENT dated as of July 21, 1999 (the "Agreement"),
between FIBERNET TELECOM GROUP, INC., a Nevada corporation (the "Company"), and
JOEL ZIMMERMANN (the "Executive").
The parties hereto deem it to be in their best interests to enter
into an employment agreement whereby the Company will employ the Executive
pursuant to the terms set forth herein.
NOW, THEREFORE, in consideration of the premises and mutual
covenants herein contained, the parties hereto agree as follows:
1. Employment. The Company hereby employs the Executive, and the
Executive hereby accepts such employment by the Company, on the terms and
subject to the conditions hereinafter set forth.
2. Term. Subject to earlier termination pursuant to the terms of
Section 6 below, the employment of the Executive hereunder shall be for a fixed
term (the "Employment Period") commencing as provided in Section (1) hereof and
terminating on the second anniversary of the execution of this Agreement (the
"Scheduled Termination Date").
3. Position.
(a) The Executive will be the Senior Vice President -
Engineering and Network Operations.
(b) The Company understands that the Executive will conduct
substantially all of his duties and responsibilities on behalf of the Company
from the executive offices of the Company, which shall be located in the New
York metropolitan area.
4. Time to be Devoted to Employment. The Executive shall devote all
of his business time, attention and energies to the performance of his duties
and responsibilities under this Agreement. During the Employment Period, the
Executive shall not be engaged in any other business activity; provided, that,
Pacer International, Inc. ("Pacer") shall be permitted to use the Executive as a
consultant for activities not related to the Company for up to three days per
month for a period beginning the date of the actual achievement of Substantial
Completion (as defined in the Agreement dated as of July 21, 1999 between the
Company and Pacer) and ending nine months thereafter. Any activity by the
Executive for Pacer must be approved in advance by the Company's President on a
case-by-case basis, and must be scheduled in a manner as to have no adverse
impact on the Executive's principal activities for the Company.
5. Compensation; Etc.
(a) Base Salary. The Company shall pay to the Executive an
annual base salary (the "Base Salary") of a minimum of $170,000, subject to
increase at the discretion of the Board of Directors (or a committee thereof) of
the Company (the "Board"). The Base Salary
<PAGE>
shall be payable in such installments as is the policy of the Company with
respect to its executive officers generally, but no less frequently than
monthly.
(b) At the reasonable discretion of the Board, the Company may
choose to pay a cash bonus to the Executive at year end based upon the
performance of the Executive during such period.
(c) Relocation. The Company shall pay to the Executive $5,500
per month for a period of 12 months from the date hereof for relocation costs
("Relocation Payment").
(d) Benefits. During the Employment Period, the Company shall
provide the Executive with such employee benefits as are provided by the Company
from time to time to its senior executive officers generally.
(e) Qualified Options. The Executive shall be entitled to
receive Incentive Stock Options ("ISOs") (as that term is defined in Section 422
of the Internal Revenue Code of 1986, as amended (the "Code")) for 16,000 shares
(or such greater or lesser amount then allowed under the Code) (the "1999
Options") of the Company's common stock, $.001 par value per share ("Common
Stock") with an exercise price equal to the fair market value of the Common
Stock as of July 21, 1999 pursuant to the Company's 1999 Stock Option Plan (the
"Option Plan") and the execution of an Incentive Stock Option Agreement dated
the date hereof between the Company and the Executive (as provided to the
Executive); provided, that, the issuance of 1999 Options is subject to
shareholder approval of the Option Plan. Any ISOs issued under this Section 5(d)
shall vest equally over two years from the date hereof.
(f) Non-Qualified Options. The Executive shall be entitled to
receive non-qualified options to purchase 259,000 shares of the Common Stock of
the Company at $5.00 per share (the "Non-Qualified Options") which shall vest
equally over two years from June 30, 1999. The Non-Qualified Options shall be
exercisable for up to ten (10) years, and shall provide for "cashless exercise"
and in the event of the Executive's termination of employment for any reason,
exercisable for up to one year from the date of such termination. The
Non-Qualified Options shall be subject to accelerated vesting as provided for in
this Agreement. If the Executive's employment is terminated pursuant to a
Termination for Cause or a Voluntary Termination, all the then unvested
Non-Qualified Options shall immediately terminate and no longer be outstanding.
Unless otherwise provided herein, any Non-Qualified Options granted hereunder
are subject to the terms and provisions of the Option Plan.
6. Termination of Employment.
(a) Involuntary Termination.
(i) Disability. If the Executive is incapacitated or
disabled by accident or sickness or otherwise so as to render him mentally
or physically incapable of performing the services required to be
performed by him or her under this Agreement for a period of 120
consecutive days or longer, or for an aggregate of 120 days during any
twelve-month period (such condition being hereinafter referred to as a
"Disability"), the Company may, at that time or any time thereafter, at
its option, to the extent not in
-2-
<PAGE>
violation of applicable state and federal law, terminate the employment of
the Executive under this Agreement immediately upon giving him notice to
that effect (such termination, as well as a termination under Section
6(a)(ii) below, being hereinafter called an "Involuntary Termination"). In
the event of an Involuntary Termination, all options granted hereunder
shall vest on a pro rata basis for time served to the date of such
Involuntary Termination (including the 120 day disability qualifying
period).
(ii) Death. If the Executive dies during the Employment
Period, his employment hereunder shall be deemed to cease as of the date
of his death, and all options granted hereunder shall vest as of the date
of his death, and shall be exercisable by his estate for a period of one
(1) year from the date of death.
(b) Termination for Cause. The Company may terminate the
employment of the Executive and all the Company's obligations under this
Agreement at any time during the Employment Period for "cause" (such termination
being hereinafter called a "Termination for Cause") after the Board has given
the Executive written notice of its intent to terminate the employment of the
Executive for cause, with reasonable specificity of the details thereof and
Executive shall have been provided a reasonable opportunity to cure any such
alleged occurrence constituting "cause" (not in excess of 30 days, provided that
in the event such occurrence cannot reasonably be expected to be cured in such
period then for such period as is reasonable and the Executive shall be using
his diligent best efforts to cure). For the purposes of this Agreement, "cause"
shall mean (i) the Executive's material breach of his material duties hereunder
or habitual neglect of his duties hereunder, (ii) the commission by the
Executive of an act constituting common law fraud, or a felony or criminal act
against the Company, or any shareholder, subsidiary or affiliate thereof or any
of the assets of any of them or (iii) the Executive's conviction of a crime
involving moral turpitude.
(c) Termination Without Cause. The Company may, with 30 days
written notice, terminate the employment of the Executive hereunder at any time
during the Employment Period without "cause" (such termination being hereinafter
called a "Termination Without Cause") by giving the Executive notice of such
termination, upon the giving of which notice such termination shall take effect
immediately.
(d) Voluntary Termination. Any termination of the employment
of the Executive hereunder other than as a result of an Involuntary Termination,
a Termination For Cause, a Termination Without Cause or a Termination by the
Executive for Good Reason (as defined below) shall be deemed to be a "Voluntary
Termination." A Voluntary Termination shall be deemed to be effective
immediately upon such termination.
(e) Termination by Executive with Good Reason. The following
shall constitute a "Termination by the Executive for Good Reason":
(i) relocation of Executive's principal office outside the New
York metropolitan area, or
(ii) "change of control" meaning (a) the sale of over 50% of
the securities owned by the Purchasers (as defined in the Securities
Purchase Agreement
-3-
<PAGE>
dated as of May 7, 1999 by and among the Company and the purchasers listed
therein) as of the date hereof (other than to their respective
affiliates), (b) a change in majority control of the Board or (c) the sale
of all or substantially all of the assets of the Company, or a merger in
which the Company or any of its subsidiaries is not the surviving entity,
or a liquidation or dissolution of the Company.
(f) Effect of Termination of Employment.
(i) Except as otherwise provided in Section 6(f)(ii)
below, upon the termination of the Executive's employment hereunder for
any reason whatsoever prior to the expiration of the Employment Period,
neither the Executive nor his beneficiaries or estate shall have any
further rights or claims against the Company or any of its subsidiaries or
affiliates under this Agreement except to receive any earned and unpaid
portion of the Base Salary and any earned and unpaid portion of a declared
bonus provided for in Section 5(b), plus a cash payment for all accrued
and unused vacation time through the effective date of such termination,
and shall be entitled to exercise all options vested as provided for in
this Agreement.
(ii) Anything contained in this Agreement to the
contrary notwithstanding, upon the termination of the Executive's
employment hereunder prior to the Scheduled Termination Date pursuant to a
Termination Without Cause or a Termination by the Executive for Good
Reason, the Executive shall have the right, in addition to the rights
provided for in Section 6(f)(i) above, to receive (i) twelve months
severance (payable in such installments as the Base Salary was being paid
immediately prior to such termination pursuant to Section 5(a)) equal to
the then current Base Salary and (ii) all options granted hereunder
(including the 1999 Options and the Non-Qualified Options) shall vest and
Executive shall have 12 months (unless with respect to the 1999 Options,
the Option Plan shall require a shorter period) thereafter to exercise
such options.
(iii) Upon the termination of the Executive's employment
hereunder prior to the Scheduled Termination Date pursuant to a
Termination for Cause, the Executive shall be entitled to receive his Base
Salary pro rata to the date of his Termination for Cause plus any declared
but unpaid bonus and shall be entitled to exercise all options vested as
of the time of termination for 30 days.
(iv) In the event of any termination of employment of
the Executive described in Sections 6(a) through 6(e), the Executive shall
only be entitled to receive his pro rata portion of any Relocation Payment
to the date of such termination of employment event.
7. Non-Competition.
(a) The Executive acknowledges and recognizes that during the
Employment Period he will be privy to trade secrets and confidential proprietary
information critical to the Company and the Company's business and further
acknowledges and recognizes that the Company would find it extremely difficult
to replace the Executive. So long as the Company is
-4-
<PAGE>
paying (or willing to pay in the event the Executive shall refuse such payment)
all amounts due hereunder, the Executive shall not, during the Employment Period
and for 12 months thereafter (the "First Anniversary") (i) engage in any
Competitive Business (as defined below), whether such engagement shall be as an
employer, officer, director, owner, employee, partner or other participant
without the prior written consent of the Company's President or Chief Executive
Officer and Executive Vice President, (ii) induce employees of the Company or
its affiliates or subsidiaries to terminate their employment with the Company or
such affiliate or subsidiary or engage in any Competitive Business, or (iii)
directly induce any entity or person with which the Company or any of its
subsidiaries or affiliates has a business relationship to terminate or alter
such business relationship; provided, however, that nothing contained in this
Section 7(a) shall (x) prevent, restrain or otherwise restrict the Executive
from owning not more than 1% of any class of securities of any competitor of the
Company or any subsidiary of affiliate thereof so long as such securities are
listed for trade on Nasdaq in the over-the-counter market or are traded on a
national securities exchange, or (y) prevent the Executive from engaging in the
business of investment banking for any business, individual or entity.
"Competitive Business" means and includes (i) any business that
builds or operates an in-building fiber or copper network or (ii) a
telecommunications carrier that operates a metropolitan area network in New York
City.
(b) The Executive understands that the foregoing restrictions
may limit his ability to earn a livelihood in a business similar that of the
Company, but he nevertheless believes that he has received and will receive
sufficient consideration and other benefits as an employee of the Company to
justify clearly such restrictions which, in any event (given his education,
skills and ability), the Executive does not believe would prevent him from
earning a livelihood.
8. Non-Disclosure, Assignment of Intellectual Property Rights and
Documentation.
(a) At all times, both during the Executive's employment by
the Company and after its termination, the Executive will keep in strict
confidence and will not disclose any confidential or proprietary information
relating to the business of the Company, or any client, customer, or business
partner of the Company, to any person or entity, or make use of any such
confidential or proprietary information for the Executive's own purposes or for
the benefit of any person or entity, except as may be necessary in the ordinary
course of performing his duties and responsibilities as an employee of the
Company.
(b) If at any time or times during his employment the
Executive shall conceive or discover any Intellectual Property (as defined
herein) whatsoever (herein called "Developments")or any interest therein
("Intellectual Property Rights") that in each case relates to the business of
the Company, such Developments and the benefits thereof shall immediately become
the sole and absolute property of the Company and its assigns, and the Executive
shall promptly disclose to the Company (or any persons designated by it) each
such Development and hereby assign any rights the Executive may have or acquire
in the Developments and benefits and/or rights resulting therefrom to the
Company and its assigns.
-5-
<PAGE>
(c) As used herein, the term "Intellectual Property" shall
mean all industrial and intellectual property, including, without limitation,
computer programs and other software, and all documentation and media
constituting, describing or relating to the above.
9. Other Agreements. The Executive represents and warrants that the
execution and delivery of this Agreement and the performance of all the terms of
this Agreement do not and will not breach any agreement to keep in confidence
proprietary information acquired by the Executive in confidence or trust. The
Executive has not entered into and shall not enter into any agreement, either
written or oral, in conflict with this Agreement. The Executive represents that
he has not brought and will not bring with him to the Company or use at the
Company any materials or documents of an employer or a former employer that are
not generally available to the public, unless express written authorization from
such employer for their possession and use has been obtained. The Executive
further understands that he is not to breach any obligation of confidentiality
that he has to any employer or former employer and agrees to fulfill all such
obligations during the period of his affiliation with the Company.
10. Notices. All notices or other communications which are required
or permitted hereunder shall be in writing and sufficient if (a) delivered
personally or sent by telecopier, (b) sent by nationally-recognized overnight
courier or (c) sent by certified mail, postage prepaid, return receipt
requested, addressed as follows:
if to the Company, to:
FiberNet Telecom Group, Inc.
570 Lexington Avenue, Third Floor
New York, NY 10022
Telephone: 212 421-4900
Facsimile: 212 421-8860
Attention: President
if to the Executive, to the Executive's address on the books or
records of the Company;
or to such other address as the party to whom notice is to be given may have
furnished to each other party in writing in accordance herewith. Any such
communication shall be deemed to have been given (i) when delivered if
personally delivered or sent by telecopier, (ii) on the Business Day (as
hereinafter defined) after dispatch if sent by nationally-recognized, overnight
courier and (iii) on the fifth Business Day after dispatch if sent by mail. As
used herein, "Business Day" means a day that is not a Saturday, Sunday or a day
on which banking institutions in New York, New York are not required to be open.
11. Entire Agreement; Amendments. This Agreement contains the entire
agreement between the parties with respect to the subject matter hereof and
supersedes all prior or contemporaneous negotiations, correspondence,
understandings and agreements between the parties with respect thereto. This
Agreement may be amended only by an agreement in writing signed by both parties
hereto.
-6-
<PAGE>
12. Assignment; Successors; Benefits of Agreement. This Agreement is
personal in its nature and neither party hereto shall, without the consent of
the other, assign or transfer this Agreement or any rights or obligations
hereunder; provided, however, that subject to Termination by Executive with Good
Reason the Company shall have the right to assign its rights hereunder to any
subsidiary or affiliate of the Company or a successor to all or substantially
all of the Company's business as part of a merger with, or acquisition of the
Company by, another business entity subject to assumption. The provisions of
this Agreement shall be binding upon and inure to the benefit of the respective
heirs, executors, administrators and successors and permitted assigns of the
parties hereto. All amounts payable hereunder, and all option grants provided
hereunder, shall be payable to, and exercisable by, the Executive's estate.
13. Waiver of Breach. A waiver of any breach of any provision of
this Agreement shall not constitute or operate as a waiver of any other breach
of such provision or of any other provision, and any failure to enforce any
provision hereof shall not operate as a waiver of such provision or of any other
provision.
14. Counterparts; Headings. This Agreement may be executed in one or
more counterparts, each of which shall be deemed an original, but all of which
shall constitute one and the same instrument. Headings said herein are for
convenience of reference only and are not to affect the interpretation of this
Agreement.
15. Legal Fees. The Company will pay the reasonable attorney's fees
incurred by Executive in connection with the negotiation and execution hereof.
16. GOVERNING LAW. THIS AGREEMENT WILL BE GOVERNED BY, AND CONSTRUED
AND ENFORCED IN ACCORDANCE WITH, THE LAWS OF THE STATE OF NEW YORK WITHOUT
GIVING EFFECT TO PRINCIPLES GOVERNING CONFLICTS OF LAWS.
17. Severability. In the event that any provision of this Agreement
would be held in any jurisdiction to be invalid, prohibited or unenforceable for
any reason, such provision, as to such jurisdiction, shall be ineffective,
without invalidating the remaining provisions of this Agreement or affecting the
validity or enforceability of such provision in any other jurisdiction.
Notwithstanding the foregoing, if such provision could be more narrowly drawn so
as not to be invalid, prohibited or unenforceable in such jurisdiction, it
shall, as to such jurisdiction, be so narrowly drawn, without invalidating the
remaining provisions of this Agreement or affecting the validity or
enforceability of such provision in any other jurisdiction.
18. Indemnification. The Executive shall be indemnified to the full
extent provided for by applicable law and the charter and by-laws of the
Company, which indemnification provisions may not be altered in any material
manner to the detriment of the Executive from those provisions in effect as of
the date hereof. The Company shall maintain D&O coverage during the Employment
Term (and for the applicable statute of limitations period thereafter), with
terms and conditions as in effect as of the date hereof; provided that such D&O
-7-
<PAGE>
coverage may not be altered in any material manner to the detriment of the
Executive from those provisions in effect as of the date hereof.
19. Due Authorization. This Agreement has been duly authorized,
executed and delivered on behalf of the Company and represents the binding and
enforceable obligation of the Company, in accordance with its term.
20. Remedies. The Executive acknowledges and understands that the
provisions of this Agreement are of a special and unique nature, the loss of
which cannot be adequately compensated for in damages by an action at law, and
that the breach or threatened breach of the provisions of this Agreement would
cause the Company irreparable harm. In the event of a breach or threatened
breach by the Executive of the provisions of this Agreement, the Company shall
be entitled to seek an injunction restraining him from such breach with a court
of law.
-8-
<PAGE>
IN WITNESS WHEREOF, the parties have duly executed this Agreement as
of the date first above written.
FIBERNET TELECOM GROUP, INC.
By: /s/ Michael S. Liss
-----------------------------------------
Name: Michael S. Liss
Title: CEO and President
/s/ Joel Zimmermann
--------------------------------------------
Joel Zimmermann
<PAGE>
EXECUTION COPY
EMPLOYMENT AGREEMENT dated as of October 4, 1999 (the "Agreement"),
between FIBERNET TELECOM GROUP, INC., a Nevada corporation (the "Company"), and
LES HANKINSON (the "Executive").
The parties hereto deem it to be in their best interests to enter
into an employment agreement whereby the Company will employ the Executive
pursuant to the terms set forth herein.
NOW, THEREFORE, in consideration of the premises and mutual
covenants herein contained, the parties hereto agree as follows:
1. Employment. The Company hereby employs the Executive, and the
Executive hereby accepts such employment by the Company, on the terms and
subject to the conditions hereinafter set forth. The parties hereto agree that
the Executive shall commence his duties and responsibilities hereunder on or
about November 8, 1999.
2. Term. Subject to earlier termination pursuant to the terms of
Section 6 below, the employment of the Executive hereunder shall be for a fixed
term (the "Employment Period") commencing as provided in Section 1 hereof and
terminating on the second anniversary of the execution of this Agreement (the
"Scheduled Termination Date"). At the option of the Company, on or before April
4, 2001, the Company shall notify the Executive if its intention to renew this
Agreement or continue the employment of the Executive after the Scheduled
Termination Date pursuant to other terms and conditions as may be mutually
agreed upon by the Company and the Executive.
3. Position.
(a) The Executive will be the Senior Vice President - Sales
and Marketing.
(b) The Company understands that the Executive will conduct
substantially all of his duties and responsibilities on behalf of the Company
from the executive offices of the Company, which shall be located in the New
York metropolitan area, or from any of the regional sales offices of the Company
to be opened after the date hereof. The Company shall reimburse the Executive
for all reasonable and necessary expenses during the time the Executive may be
temporarily located in New York ("Temporary Period"). During the Temporary
Period and at any other times during the Employment Period when the Executive
shall be located outside ("Outside Location") the Atlanta metropolitan area as
part of his employment hereunder, the Company shall reimburse the Executive for
round-trip air fare to Atlanta from New York or such other Outside Location one
time per week, and the Executive shall use his reasonable best efforts to
minimize the costs of such air fare.
(c) The Company agrees that during the Employment Period the
Company shall not require the Executive to re-locate his principal personal
residence outside the Atlanta metropolitan area to fulfill his duties and
responsibilities hereunder.
4. Time to be Devoted to Employment. The Executive shall devote all
of his business time, attention and energies to the performance of his duties
and responsibilities under
<PAGE>
this Agreement. During the Employment Period, the Executive shall not be
engaged in any other business activity without the prior written consent
of the President and the Executive Vice President except for (a) time
spent in managing his personal, financial and legal affairs and serving on
corporate, civic or charitable boards or committees, in each case only if,
and to the extent that, such activities do not interfere with the
performance of the Executive's duties and responsibilities hereunder and
(b) periods of vacation to which the Executive is entitled, illness and
periods of leave of absence as approved by the President and Executive
Vice President of the Company.
5. Compensation; Etc.
(a) Base Salary. The Company shall pay to the Executive an
annual base salary (the "Base Salary") of a minimum of $225,000, subject to
increase, but not decrease, at least annually at the discretion of the
Compensation Committee of the Board of Directors of the Company (the "Board").
The Base Salary shall be payable in such installments as is the policy of the
Company with respect to its executive officers generally, but no less frequently
than monthly.
(b) Signing Bonus. The Executive shall receive $30,000 as a
bonus ("Signing Bonus") for executing this Agreement payable in three equal
consecutive monthly installments beginning on December 1, 1999.
(c) Bonus.
(i) The Executive shall receive a bonus ("2000
Performance Bonus") of $80,000 for performance of his duties and
responsibilities hereunder for the year ended December 31, 2000.
(ii) In the event that the Executive substantially
exceeds the sales and marketing targets and goals of the Company as set
forth in the business plan for the year ended December 31, 2000 of the
Company ("Business Plan") and Revenue (as defined herein) of the Company
for the year ended December 31, 2000 exceed $20 million ("Revenue
Target"), the Executive may receive a 2000 Performance Bonus up to
$150,000, inclusive of the $80,000 the Executive may receive pursuant to
clause (i) above. Such Revenue Target may be adjusted from time to time
based on adjustments to the Business Plan, as mutually agreed upon by the
Company and the Executive.
(iii) After a formal review by the President and
Executive Vice President of the Company during the month of December, 2000
of the Executive's performance and operations during the year 2000, the
Executive may receive an additional bonus.
(iv) The Executive shall receive a bonus ("2001
Performance Bonus") of $80,000 for performance of his duties and
responsibilities hereunder during the Executive's employment in the year
2001, and may receive an additional 2001 Performance Bonus based on the
Revenue of the Company on or about the Scheduled Termination Date;
provided, that if the Executive continues his employment with the
-2-
<PAGE>
Company after the Scheduled Termination Date to December 31, 2001 pursuant
to Section 2, any additional 2001 Performance Bonus shall be based on the
Revenue of the Company for the year ended December 31, 2001.
(v) For purposes of this Agreement: (A) "Revenue" shall
mean the revenues of the Company calculated based on the Company's
Business Plan, future business plan, as such Business Plan or future
business plan may be modified from time to time, and in accordance with
the Company's accounting practices and generally accepted accounting
principles; (B) any 2000 Performance Bonus paid hereunder shall be paid by
the Company to the Executive in a manner consistent with the Company's
compensation and payroll practices, but in no event later than February 1,
2001; (C) any 2001 Performance Bonus to be paid hereunder shall be paid by
the Company to the Executive on a date to be determined by the Company,
but in no event later than February 1, 2002; and (D) the amount of any
2000 Performance Bonus and/or 2001 Performance Bonus to be paid to the
Executive pursuant to clauses (ii), (iii) and (iv) above shall be
determined solely at the discretion of the President and Executive Vice
President of the Company, subject to approval by the Board of Directors
(or any committee thereof) of the Company.
(d) Benefits. During the Employment Period, the Company shall
provide the Executive with such employee benefits as are provided by the Company
from time to time to its senior executive officers generally.
(e) Qualified Options. The Executive shall be entitled to
receive Incentive Stock Options ("ISOs") (as that term is defined in Section 422
of the Internal Revenue Code of 1986, as amended (the "Code")) for 37,208 shares
(or such greater or lesser amount then allowed under the Code) (the "1999
Options") of the Company's common stock, $.001 par value per share ("Common
Stock") with an exercise price equal to the Fair Market Value (as defined in the
Option Plan (as defined below)) of the Common Stock as of the date hereof
pursuant to the Company's 1999 Stock Option Plan (the "Option Plan") and the
execution of an Incentive Stock Option Agreement dated the date hereof between
the Company and the Executive (as provided to the Executive). Any ISOs issued
under this Section 5(e) shall vest equally over two years from the date hereof,
with 50% of the ISOs vesting one year from the date hereof and the remaining 50%
vesting two years from the date hereof.
(f) Non-Qualified Options. The Executive shall be entitled to
receive non-qualified options for (i)162,792 shares ("Non-Qualified A") of the
Common Stock of the Company with an exercise price of $4.50 per share and (ii)
100,000 shares ("Non-Qualified B" and together with the Non-Qualified A, the
"Non-Qualified Options") of the Common Stock of the Company with an exercise
price equal to the Fair Market Value (as defined in the Option Plan) of the
Common Stock on October 4, 1999. The Non-Qualified A shall vest equally over two
years from the date hereof, with 50% of the Non-Qualified A vesting one year
from the date hereof and the remaining 50% vesting two years from the date
hereof. The Non-Qualified B shall vest as of the date hereof, subject to Section
6(e)(iv). The Non-Qualified Options shall be exercisable for up to ten (10)
years, and shall provide for "cashless exercise" and in the event of the
Executive's termination of employment for any reason, exercisable for up to one
year from the date of such termination. The Non-Qualified A shall be subject to
accelerated vesting as
-3-
<PAGE>
provided for in this Agreement. If the Executive's employment is terminated
pursuant to a Termination for Cause or a Voluntary Termination, all the then
unvested Non-Qualified A shall immediately terminate and no longer be
outstanding. Unless otherwise provided herein, any Non-Qualified Options granted
hereunder are subject to the terms and provisions of the Option Plan.
6. Termination of Employment.
(a) Involuntary Termination.
(i) Disability. If the Executive is incapacitated or
disabled by accident or sickness or otherwise so as to render him mentally
or physically incapable of performing the services required to be
performed by him or her under this Agreement for a period of 120
consecutive days or longer, or for an aggregate of 120 days during any
twelve-month period (such condition being hereinafter referred to as a
"Disability"), the Company may, at that time or any time thereafter, at
its option, to the extent not in violation of applicable state and federal
law, terminate the employment of the Executive under this Agreement
immediately upon giving him notice to that effect (such termination, as
well as a termination under Section 6(a)(ii) below, being hereinafter
called an "Involuntary Termination"). In the event of an Involuntary
Termination, all options granted hereunder shall vest on a pro rata basis
for time served to the date of such Involuntary Termination (including the
120 day disability qualifying period).
(ii) Death. If the Executive dies during the Employment
Period, his employment hereunder shall be deemed to cease as of the date
of his death, and all options granted hereunder shall vest as of the date
of his death, and shall be exercisable by his estate for a period of one
(1) year from the date of death.
(b) Termination for Cause. The Company may terminate the
employment of the Executive and all the Company's obligations under this
Agreement at any time during the Employment Period for "cause" (such termination
being hereinafter called a "Termination for Cause") after the Board has given
the Executive written notice of its intent to terminate the employment of the
Executive for cause, with reasonable specificity of the details thereof and
Executive shall have been provided a reasonable opportunity to cure any such
alleged occurrence constituting "cause" (not in excess of 30 days, provided that
in the event such occurrence cannot reasonably be expected to be cured in such
period then for such period as is reasonable and the Executive shall be using
his diligent best efforts to cure). For the purposes of this Agreement, "cause"
shall mean (i) the Executive's material breach of his material duties hereunder
or habitual neglect of his duties hereunder, (ii) the commission by the
Executive of an act constituting common law fraud, or a felony or criminal act
against the Company subsidiary or affiliate thereof or any of the assets of any
of them or (iii) the Executive's conviction of a crime involving moral
turpitude.
(c) Termination Without Cause. The Company may, with 30 days
written notice, terminate the employment of the Executive hereunder at any time
during the Employment Period without "cause" (such termination being hereinafter
called a "Termination Without
-4-
<PAGE>
Cause") by giving the Executive notice of such termination, upon the giving of
which notice such termination shall take effect 30 days from the date such
notice was given.
(d) Voluntary Termination. Any termination of the employment
of the Executive hereunder other than as a result of an Involuntary Termination,
a Termination For Cause or a Termination Without Cause shall be deemed to be a
"Voluntary Termination." A Voluntary Termination shall be deemed to be effective
immediately upon such termination.
(e) Termination for Good Reason. Each of the events in clauses
(i) - (vi) below shall be a "Termination for Good Reason":
(i) the Executive's title, position, authority or
responsibilities (including reporting responsibilities (including
reporting responsibilities and authority) are changed in a materially
adverse manner;
(ii) the Executive's Base Salary is reduced for any
reason other than in connection with the termination of his employment;
(iii) other than in connection with the termination of
the Executive's employment hereunder, the Company materially reduces any
welfare or insurance benefits generally provided to other executive
officers of the Company;
(iv) the Company otherwise materially breaches or is
unable to perform its obligations hereunder;
(v) the sale of all or substantially all of the assets
of the Company or the merger, consolidation or combination of the Company
with another entity in which this Agreement is not assumed by any such
purchaser or surviving entity; and
(vi) the Company requires the Executive to re-locate his
principal residence outside the Atlanta metropolitan area during the
Employment Period.
(vii) In the event of a Termination for Good Reason, the
Executive may voluntarily terminate his employment under this Agreement
with the Company, which voluntary termination shall be treated as a
Termination Without Cause.
(f) Effect of Termination of Employment.
(i) Except as otherwise provided in Section 6(f)(ii)
below, upon the termination of the Executive's employment hereunder for
any reason whatsoever prior to the expiration of the Employment Period,
neither the Executive nor his beneficiaries or estate shall have any
further rights or claims against the Company or any of its subsidiaries or
affiliates under this Agreement except to receive any earned and unpaid
portion of the Base Salary, the Signing Bonus and any earned and unpaid
portion of a declared bonus provided for in Section 5(c), plus a cash
payment for all accrued and unused vacation time through the effective
date of such termination, and shall be entitled to exercise all options
vested as provided for in this Agreement. The Executive's family and, in
the case of the Executive's Disability, the Executive, shall also be
entitled to the
-5-
<PAGE>
same employee benefits, at the Company's expense, provided to the
Executive and his family by the Company prior to the termination of the
Executive's employment hereunder for Disability or death for six months
after such termination of employment for Disability or death. The
Executive shall be indemnified after the Scheduled Termination Date (or
any later date the Executive's employment with the Company is terminated)
for any actions in his capacity as a Senior Vice President-Sales and
Marketing of the Company. For purposes of this Agreement, the 2000
Performance Bonus and the 2001 Performance Bonus shall be considered
declared and earned on January 1, 2000 and January 1, 2001, respectively.
(ii) Upon the termination of the Executive's employment
hereunder prior to the Scheduled Termination Date pursuant to a
Termination Without Cause or Termination for Good Reason, the Executive
shall have the right, in addition to the rights provided for in Section
6(f)(i) above, to receive (A) severance (payable in such installments as
the Base Salary was being paid immediately prior to such termination
pursuant to Section 5(a)) equal to the then current Base Salary for a term
equal to the lesser of (1) six months from the date of termination of the
Executive's employment pursuant to a Termination Without Cause or prior to
the Scheduled Termination Date and (2) the date the Executive executes an
employment agreement or similar contract with a third party employer (or
commences employment with a third party employer, whichever occurs
earlier) after the termination of the Executive's employment pursuant to a
Termination Without Cause or prior to the Scheduled Termination Date, (B)
all options granted hereunder (including the 1999 Options and the
Non-Qualified Option B, subject to Section 6(e)(iv)) shall vest and
Executive shall have 12 months (unless with respect to the 1999 Options,
the Option Plan shall require a shorter period) thereafter to exercise
such options, and (C) at the Company's expense, any employee benefits
provided to the Executive and his family by the Company prior to the
Termination Without Cause or Termination for Good Reason for a period of
six months after such Termination Without Cause or Termination for Good
Reason.
(iii) Upon the termination of the Executive's employment
hereunder prior to the Scheduled Termination Date pursuant to a
Termination for Cause, the Executive shall be entitled to receive his Base
Salary pro rata to the date of his Termination for Cause and the Signing
Bonus plus any declared but unpaid bonus pursuant to Section 5(c) and
shall be entitled to exercise all options vested as of the time of
termination for 30 days, subject to Section 6(e)(iv).
(iv) Upon the termination of the Executive's employment
hereunder on or prior to February 4, 2000 pursuant to a Termination for
Cause or Voluntary Termination, the Executive shall return to the Company
and disclaim ownership of 50% of the Non-Qualified B and execute any
amendment or agreement necessary to reflect such adjustment.
7. Restrictive Covenants.
(a) The Executive acknowledges and recognizes that during the
Employment Period he will be privy to trade secrets and confidential proprietary
information critical to the
-6-
<PAGE>
Company and the Company's business and further acknowledges and recognizes that
the Company would find it extremely difficult to replace the Executive. So long
as the Company is paying (or willing to pay in the event the Executive shall
refuse such payment) all amounts due hereunder, the Executive shall not, during
the Employment Period and for 12 months thereafter (i) directly induce employees
of the Company or its affiliates or subsidiaries to terminate their employment
with the Company or such affiliate or subsidiary for the purposes of engaging in
any Competitive Business or (ii) directly induce any entity or person with which
the Company or any of its subsidiaries or affiliates has a business relationship
to terminate or alter such business relationship.
"Competitive Business" means and includes any business that builds
or operates an in-building fiber or copper network.
(b) The Executive understands that the foregoing restrictions
may limit his ability to earn a livelihood in a business similar that of the
Company, but he nevertheless believes that he has received and will receive
sufficient consideration and other benefits as an employee of the Company to
justify clearly such restrictions which, in any event (given his education,
skills and ability), the Executive does not believe would prevent him from
earning a livelihood.
8. Non-Disclosure, Assignment of Intellectual Property Rights and
Documentation.
(a) At all times, both during the Executive's employment by
the Company and after its termination, the Executive will keep in strict
confidence and will not disclose any confidential or proprietary information
relating to the business of the Company, or any client, customer, or business
partner of the Company, to any person or entity, or make use of any such
confidential or proprietary information for the Executive's own purposes or for
the benefit of any person or entity, except as may be necessary in the ordinary
course of performing his duties and responsibilities as an employee of the
Company.
(b) If at any time or times during his employment the
Executive shall conceive or discover any Intellectual Property (as defined
herein) whatsoever (herein called "Developments") or any interest therein
("Intellectual Property Rights") that in each case relates to the business of
the Company, such Developments and the benefits thereof shall immediately become
the sole and absolute property of the Company and its assigns, and the Executive
shall promptly disclose to the Company (or any persons designated by it) each
such Development and hereby assign any rights the Executive may have or acquire
in the Developments and benefits and/or rights resulting therefrom to the
Company and its assigns.
(c) As used herein, the term "Intellectual Property" shall
mean all industrial and intellectual property, including, without limitation,
computer programs and other software, and all documentation and media
constituting, describing or relating to the above.
9. Taxes. The Company shall pay any income taxes due and payable by
the Executive to taxing authorities to the City of New York and/or the State of
New York related to his employment hereunder. This payment shall be made on a
"grossed-up" basis, so that the
-7-
<PAGE>
Company will pay any federal, state or local income taxes payable (after taking
into account deductions allowed for state and local taxes) as a result of the
benefit provided to the Executive in the preceding sentence of this Section 9.
10. Disability Insurance. As soon as reasonably practicable, the
Company shall obtain long-term disability insurance covering the Executive at
the Company's expense which provides for an "own occupation" definition of
disability, no less than 60% income replacement and an elimination period no
longer than the period after which the Company can terminate the Executive's
services for disability or such substantially similar provisions.
11. Other Agreements. The Executive represents and warrants that the
execution and delivery of this Agreement and the performance of all the terms of
this Agreement do not and will not breach any agreement to keep in confidence
proprietary information acquired by the Executive in confidence or trust. The
Executive has not entered into and shall not enter into any agreement, either
written or oral, in conflict with this Agreement. The Executive represents that
he has not brought and will not bring with him to the Company or use at the
Company any materials or documents of an employer or a former employer that are
not generally available to the public, unless express written authorization from
such employer for their possession and use has been obtained. The Executive
further understands that he is not to breach any obligation of confidentiality
that he has to any employer or former employer and agrees to fulfill all such
obligations during the period of his affiliation with the Company.
12. Notices. All notices or other communications which are required
or permitted hereunder shall be in writing and sufficient if (a) delivered
personally or sent by telecopier, (b) sent by nationally-recognized overnight
courier or (c) sent by certified mail, postage prepaid, return receipt
requested, addressed as follows:
if to the Company, to:
FiberNet Telecom Group, Inc.
570 Lexington Avenue, Third Floor
New York, NY 10022
Telephone: 212 405-6200
Facsimile: 212 421-4920
Attention: President
if to the Executive, to the Executive's address on the books or
records of the Company;
or to such other address as the party to whom notice is to be given may have
furnished to each other party in writing in accordance herewith. Any such
communication shall be deemed to have been given (i) when delivered if
personally delivered or sent by telecopier, (ii) on the Business Day (as
hereinafter defined) after dispatch if sent by nationally-recognized, overnight
courier and (iii) on the fifth Business Day after dispatch if sent by mail. As
used herein, "Business Day" means a day that is not a Saturday, Sunday or a day
on which banking institutions in New York, New York are not required to be open.
-8-
<PAGE>
13. Entire Agreement; Amendments. This Agreement contains the entire
agreement between the parties with respect to the subject matter hereof and
supersedes all prior or contemporaneous negotiations, correspondence,
understandings and agreements between the parties with respect thereto. This
Agreement may be amended only by an agreement in writing signed by both parties
hereto.
14. Assignment; Successors; Benefits of Agreement. This Agreement is
personal in its nature and neither party hereto shall, without the consent of
the other, assign or transfer this Agreement or any rights or obligations
hereunder. The provisions of this Agreement shall be binding upon and inure to
the benefit of the respective heirs, executors, administrators and successors
and permitted assigns of the parties hereto. All amounts payable hereunder, and
all option grants provided hereunder, shall be payable to, and exercisable by,
the Executive's estate.
15. Waiver of Breach. A waiver of any breach of any provision of
this Agreement shall not constitute or operate as a waiver of any other breach
of such provision or of any other provision, and any failure to enforce any
provision hereof shall not operate as a waiver of such provision or of any other
provision.
16. Counterparts; Headings. This Agreement may be executed in one or
more counterparts, each of which shall be deemed an original, but all of which
shall constitute one and the same instrument. Headings said herein are for
convenience of reference only and are not to affect the interpretation of this
Agreement.
17. Legal Fees. The Company will pay the reasonable attorney's fees
incurred by Executive in connection with the negotiation and execution hereof.
18. GOVERNING LAW. THIS AGREEMENT WILL BE GOVERNED BY, AND CONSTRUED
AND ENFORCED IN ACCORDANCE WITH, THE LAWS OF THE STATE OF NEW YORK WITHOUT
GIVING EFFECT TO PRINCIPLES GOVERNING CONFLICTS OF LAWS.
19. Severability. In the event that any provision of this Agreement
would be held in any jurisdiction to be invalid, prohibited or unenforceable for
any reason, such provision, as to such jurisdiction, shall be ineffective,
without invalidating the remaining provisions of this Agreement or affecting the
validity or enforceability of such provision in any other jurisdiction.
Notwithstanding the foregoing, if such provision could be more narrowly drawn so
as not to be invalid, prohibited or unenforceable in such jurisdiction, it
shall, as to such jurisdiction, be so narrowly drawn, without invalidating the
remaining provisions of this Agreement or affecting the validity or
enforceability of such provision in any other jurisdiction.
20. Indemnification. The Executive shall be indemnified to the full
extent provided for by applicable law and the charter and by-laws of the
Company, which indemnification provisions may not be altered in any material
manner to the detriment of the Executive from those provisions in effect as of
the date hereof. The Company shall maintain
-9-
<PAGE>
D&O coverage during the Employment Term (and for the applicable statute of
limitations period thereafter), with terms and conditions as in effect as of the
date hereof; provided that such D&O coverage may not be altered in any material
manner to the detriment of the Executive from those provisions in effect as of
the date hereof.
21. Due Authorization. This Agreement has been duly authorized,
executed and delivered on behalf of the Company and represents the binding and
enforceable obligation of the Company, in accordance with its term.
22. Remedies. The Executive acknowledges and understands that the
provisions of this Agreement are of a special and unique nature, the loss of
which cannot be adequately compensated for in damages by an action at law, and
that the breach or threatened breach of the provisions of this Agreement would
cause the Company irreparable harm. In the event of a breach or threatened
breach by the Executive of the provisions contained in Section 7 of this
Agreement, the Company shall be entitled to seek an injunction restraining him
from such breach with a court of law.
-10-
<PAGE>
IN WITNESS WHEREOF, the parties have duly executed this Agreement as
of the date first above written.
FIBERNET TELECOM GROUP, INC.
By: /s/ Michael S. Liss
-----------------------------------------
Name: Michael S. Liss
Title: CEO and President
/s/ Les Hankinson
--------------------------------------------
Les Hankinson
<PAGE>
OPTION AGREEMENT dated as of
October 1, 1999 ("Agreement") between
FIBERNET TELECOM GROUP,
INC., a Delaware corporation (the
"Company"), and PACER
INTERNATIONAL, INC., a Florida
corporation ("Pacer").
The Company wishes to sell and issue to Pacer 600,000 shares of Common
Stock, $.001 par value (the "Common Stock") of the Company at $3.00 per share
pursuant to the terms and conditions contained herein. In consideration of the
premises and other good and valuable consideration, the receipt and adequacy of
which are acknowledged by the parties hereto agree as follows.
Section 1. Option to Purchase. For a period (the "Option Period") from the
date hereof to February 29, 2000 (the "Option Expiration Date"), Pacer shall
have the option (the "Pacer Option") to purchase from the Company 600,000 shares
of Common Stock (the "Pacer Securities") at $3.00 per share for an aggregate
price of $1,800,000 (the "Pacer Purchase Price"). The parties agree that the
number of shares of Common Stock to be issued to Pacer or a Pacer Affiliate (as
defined herein) hereunder shall be adjusted to reflect any stock splits or
combinations or other similar transactions by the Company which may occur prior
to the exercise of the Pacer Option.
Section 2. Notice of Exercise of Option. Pacer shall notify the Company in
writing ("Option Notice") at any time during the Option Period, but no later
than 2 days prior to the Option Expiration Date, of its intention to exercise
the Pacer Option.
Section 3. Agreement to Purchase; Delivery of Pacer Securities. Promptly
after an Option Notice has been delivered to the Company by Pacer, at a closing
(the "Closing") to be held at the offices of the Company or counsel to the
Company within 2 days following receipt of the Option Notice, Pacer shall pay
the Company the Pacer Purchase Price by wire transfer to a bank account
designated by the Company of immediately available funds, and immediately upon
receipt of the Pacer Purchase Price, the Company shall (i) issue and deliver a
stock certificate representing the Pacer Securities in the name of Pacer or a
party which is controlled by or under common control with Pacer ("Pacer
Affiliate") as designated by Pacer not less than 5 days before the date of the
Closing ("Closing Date"), and (ii) deliver a counterpart to a cross-receipt
providing for the delivery of the Pacer Securities and receipt of the Pacer
Purchase Price by the Company and receipt of the Pacer Securities and payment of
the Pacer Purchase Price by Pacer ("Cross-Receipt"). Pacer agrees that as part
of the Closing, it shall deliver a counterpart to the Cross-Receipt.
Section 4. Officer's Certificate The Company agrees to provide a
certificate of the President of the Company, dated as of the Closing Date
substantially in the form attached hereto as Exhibit A, certifying that the
representations and warranties made by the Company in Section 6 are true and
correct as of the Closing Date.
<PAGE>
Section 5. Representations and Warranties by Pacer. Pacer represents and
warrants to the Company as follows:
(a) Pacer is acquiring the Pacer Securities to be purchased by Pacer
for its own account, for investment and not with a view to the distribution
thereof.
(b) Pacer understands that the Pacer Securities have not been
registered under the Securities Act of 1933, as amended (the "Act"), by reason
of their issuance in a transaction exempt from the registration requirements of
the Act, and that they may not be sold unless a subsequent sale thereof is
registered under the Act or is exempt from registration.
(c) Pacer is an "accredited investor" as defined in Rule 501 (the
provisions of which are known to Pacer) promulgated under the Act and has been
advised by individuals with such knowledge and experience in financial and
business matters as to be capable of evaluating the merits and risks of its
investment for an indefinite period of time, and has been furnished with and has
had access to such information as reasonable requested and has had the
opportunity to ask, and has received answers for, questions of the Company.
Section 6. Representations and Warranties by the Company. The Company
represents and warrants to Pacer as follows:
(a) The Company is a corporation duly organized, validly existing
and in good standing under the laws of the State of Delaware. The Company has
all requisite power and authority and has all governmental licenses, approvals,
consents and authorizations necessary to own or lease its property and assets
and to carry on its business as currently conducted and has filed applications
for qualification to do business in each jurisdiction in which the nature of the
business conducted or the property owned or leased by it requires such
qualification.
(b) The Company has the power to execute, deliver and perform its
obligations under this Agreement, and has obtained all necessary consents and
approvals to execute, deliver and perform its obligations hereunder and to issue
and sell the Pacer Securities and deliver the Pacer Securities to Pacer or a
Pacer Affiliate as provided herein.
(c) Upon their issuance, the Pacer Securities shall be duly
authorized, validly issued, fully-paid and non-assessable shares of Common Stock
free and clear of any liens or encumbrances and shall not be subject to
preemptive rights, rights of first refusal, redemption rights or, except as set
forth in this Agreement, any other restriction.
(d) Based in part upon the accuracy of the representations of Pacer
in Section 5 hereof, the offering, sale, issuance and delivery of the Pacer
Securities are or, as of the date of the issuance, will be, exempt from
registration under the Act, and, subject to the timely filing by the Company of
any requisite notice, such offering, sale and issuance and delivery is or, as of
the date of issuance, will be, also exempt from registration under applicable
state securities and "blue sky" laws. The Company has made or shall make all
requisite findings and has taken or
2
<PAGE>
shall take all action necessary to be taken to comply with such state securities
or "blue sky" laws.
(e) The execution, delivery and performance by the Company of this
Agreement and the consummation of the transactions contemplated hereby and
compliance with the provisions hereof, including the issuance, sale and delivery
of the Pacer Securities, have not and shall not (i) violate any law to which the
Company is subject, (ii) violate any provision of the Amended Articles of
Incorporation of the Company or By-laws of the Company or (iii) conflict with,
result in a material breach of or constitute a material default under any
material contract to which the Company is a party or by which it is bound.
Section 7. Restricted Securities. The Pacer Securities shall be restricted
securities and the certificate representing the Pacer Securities shall be
stamped or otherwise imprinted with a legend in substantially the following
form:
"THE SECURITIES REPRESENTED BY THIS CERTIFICATE HAVE NOT BEEN
REGISTERED UNDER THE SECURITIES ACT OF 1933, AS AMENDED (THE "ACT")
OR ANY APPLICABLE STATE SECURITIES LAWS AND MAY NOT BE SOLD,
TRANSFERRED, ASSIGNED OR HYPOTHECATED UNLESS THERE IS AN EFFECTIVE
REGISTRATION STATEMENT UNDER THE ACT COVERING SUCH SECURITIES, THE
SALE IS MADE IN ACCORDANCE WITH RULE 144 UNDER THE ACT, OR THE
COMPANY RECEIVES AN OPINION OF COUNSEL FOR THE HOLDER OF THESE
SECURITIES REASONABLY SATISFACTORY TO THE COMPANY, STATING THAT SUCH
SALE, TRANSFER, ASSIGNMENT OR HYPOTHECATION IS EXEMPT FROM THE
REGISTRATION AND PROSPECTUS DELIVERY REQUIREMENTS OF THE ACT OR ANY
STATE SECURITIES LAWS."
Section 8. Piggyback Registration Rights. In the event that the Company
proposes to register any of its securities pursuant to Section 2.2 of the
Registration Rights Agreement dated as of May 7, 1999, as amended (the
"Registration Rights Agreement"), among the Company and certain of its
stockholders listed therein, a copy of which has been delivered to the
Purchaser, it shall promptly give written notice thereof to the Purchaser. At
such time, (i) Pacer shall be deemed to be joined as a party to the Registration
Rights Agreement for the limited purpose of Section 2.2 thereof and (ii) the
Pacer Securities shall be deemed to be "Other Shares" (as defined in the
Registration Rights Agreement") for purposes of said Section 2.2 of the
Registration Rights Agreement.
Section 9. Confidentiality. Pacer and the Company agree that (i) the
Company shall have the right to disclose to any potential investors or to any
potential financing sources the existence of any definitive agreements entered
into with Pacer or a Pacer Affiliate and (ii) that use of the Pacer name in any
published materials, other than public filings required by law, shall be subject
to the prior consent of Pacer, such consent not to be unreasonably withheld or
delayed.
3
<PAGE>
Section 10. Modifications and Amendments. The terms and provisions of this
Agreement may be modified or amended only by written agreement executed by the
parties hereto.
Section 11. Waivers and Consents. The terms and provisions of this
Agreement may be waived, or consent for the departure therefrom granted, only by
written document executed by the party entitled to the benefits of such terms or
provisions. No such waiver or consent shall be deemed to be or shall constitute
a waiver or consent with respect to any other terms or provisions of this
Agreement, whether or not similar. Each such waiver or consent shall be
effective only in the specific instance and for the purpose for which it was
given, and shall not constitute a continuing waiver or consent.
Section 12. No Waiver of Rights, Powers and Remedies. No failure or delay
by a party hereto in exercising any right, power or remedy under this Agreement,
and no course of dealing between the parties hereto, shall operate as a waiver
of any such right, power or remedy of the party. No single or partial exercise
of any right, power or remedy under this Agreement by a party hereto, nor any
abandonment or discontinuance of steps to enforce any such right, power or
remedy, shall preclude such party from any other or further exercise thereof or
the exercise of any other right, power or remedy hereunder. The election of any
remedy by a party hereto shall not constitute a waiver of the right of such
party to pursue other available remedies. No notice to or demand on a party not
expressly required under this Agreement shall entitle the party receiving such
notice or demand to any other or further notice or demand in similar or other
circumstances or constitute a waiver of the rights of the party giving such
notice or demand to any other or further action in any circumstances without
such notice or demand.
Section 13. Survival of Representations and Warranties. All
representations and warranties hereunder shall survive the Closing for a period
of one year from the date thereof.
Section 14. Governing Law. This Agreement shall be governed by the laws of
the State of New York without giving effect to any choice of law or conflict of
law provisions.
Section 15. Counterparts. This Agreement may be executed in one or more
counterparts, each of which when executed and delivered shall be deemed to be an
original, but all of which when taken together shall constitute but one and the
same instrument; either party may execute this Agreement by signing any
counterpart of it.
4
<PAGE>
IN WITNESS WHEREOF, the parties hereto have executed this Agreement as of
the date first written above.
FIBERNET TELECOM GROUP, INC.
By: /s/ Michael S. Liss
-----------------------------------------
Name: Michael S. Liss
Title: President
Address:
570 Lexington Avenue, Third Floor
New York, New York 10022
Attn: President
PACER INTERNATIONAL, INC.
By: /s/ Ben T. Austin III
-----------------------------------------
Name: Ben T. Austin III
Title: Vice Chairman
Address:
551 SE 8th Street, Suite 600
Delray Beach, Florida 33483
Attn:
<PAGE>
Exhibit A
OFFICER'S CERTIFICATE
of
FIBERNET TELECOM GROUP, INC.
The undersigned, being the duly elected, qualified and acting President of
FiberNet Telecom Group, Inc., a Delaware corporation (the "Company"), DOES
HEREBY certify as follows on behalf of the Company:
The representations and warranties of the Company contained in
Section 6 of the Option Agreement, dated as of October 1, 1999
between the Company and Pacer International, Inc., are true and
correct as of the date hereof.
[REMAINDER OF PAGE INTENTIONALLY LEFT BLANK]
<PAGE>
EXECUTION COPY
IN WITNESS WHEREOF, the parties hereto have executed this Agreement as of
the date first written above.
By: /s/ Michael S. Liss
-----------------------------------
Name: Michael S. Liss
Title: President and CEO
<PAGE>
Exhibit 10.9
Execution Copy
PRIVATE NETWORK AGREEMENT
These General Terms and Conditions together with the Product Order(s) and
Exhibits constitute the Private Network Agreement ("Agreement") which is
effective as of December 17, 1999, ("Effective Date") by and between Metromedia
Fiber Network Services, Inc. ("MFN"), whose address is 1 North Lexington Avenue,
4th Floor, White Plains, New York 10601, and FiberNet Telecom Group, Inc.
("Customer") whose address is 570 Lexington Avenue, New York, New York 10022.
Definitions of terms used in this Agreement appear in the Product Order(s),
Exhibits and in the General Terms and Conditions set forth below.
General Terms and Conditions
1. DEFINITIONS
-----------
Unless otherwise defined, industry terms and abbreviations, including but not
limited to descriptions of equipment and capacity, shall have their ordinary and
commonly accepted industry definitions.
1.1. "Additional Licensed Fiber" shall have the meaning set forth in
Section 2.2.
1.2. "Affiliates" shall mean any person, firm, corporation, partnership,
association, trust or other person that controls, is controlled by, or
is under common control of the Party.
1.3. "Agreement" shall mean this Private Network Agreement, including all
Product Orders, signed by the Parties and Exhibits.
1.4. "Applicable Taxes" includes any and all charges, fees and taxes and as
more fully described in Section 13, below.
1.5. "Authorization(s)" shall mean all material and applicable governmental
or non- governmental licenses, easements, rights of way, conduit, pole
attachment and any other facilities or property rights, licenses,
contracts, franchises, approvals, permits, orders, consents, and all
other rights required for MFN to operate and maintain the Network or
provide the Product to Customer pursuant to this Agreement.
1.6. "Building Network Connection" shall mean a Lateral Extension provided
by MFN into an On-Network Building or splice connection for an
Off-Network Building.
1.7. "Charge" shall refer to those charges specified in the Product Orders
(including Prepaid Charges and Monthly Charges) and payable by
Customer.
1.8. "Commencement Date" shall be that date upon which installation
pursuant to a Product Order is complete as more fully described in
Section 2.5, below.
1.9. "Customer" is the named customer on the Product Order.
<PAGE>
1.10."Customer Locations" are those On-Network Buildings and Off-Network
Buildings specified in Product Order(s).
1.11."Dark Fiber License" shall refer to a Product Order pursuant to which
MFN licenses Licensed Fiber to Customer.
1.12."Early Termination Charge" shall have the meaning set forth in
Section 11 below.
1.13."Effective Date" is the date first written above.
1.14."Equipment" shall mean any equipment provided by MFN within any
Customer Location.
1.15."Lateral Extensions" shall refer to Licensed Fiber and associated
facilities which are provided by MFN pursuant to this Agreement which
connect from a customer's fiber on the MFN Network to and into a fiber
distribution point within any MFN On-Network Building or fiber and
associated facilities which are provided by Customer which connect
from a fiber distribution point within an Off-Network Building to such
customer's fiber on the Network at a splice point designated by MFN.
For each Lateral Extension into an On Network Building, MFN will bring
Licensed Fiber into dual entrance points in a Customer Location to the
extent permitted by the building owner or building manager.
1.16."Licensed Fiber" shall refer to dark optical fiber strands on the MFN
Network and on Lateral Extensions licensed by Customer pursuant to
this Agreement.
1.17."Location" shall mean any commercial property in the United States
(other than any carrier hotel) in which Customer has installed and
operates a CDS and to which Customer has the right, pursuant to its
own agreement with the owner or manager of such property, to provide
access and use to third parties.
1.18."Location Access" means the right to provide dark or lit fiber optic
facilities and services to third parties at a Location pursuant to the
terms set forth in the Location Access Agreement.
1.19."Location Access Agreement" shall refer to the Location Access
Agreement dated as of the date hereof and executed simultaneously with
this Agreement.
1.20."Network" refers to all or part of a fiber optic cable network and
related facilities owned or controlled by MFN in the cities listed in
Exhibit A to this Agreement.
1.21."Monthly Charge" shall be the amount set forth in Section 4.2 and
specified in the Product Order(s) and payable by Customer.
1.22."Off-Network Building" shall mean a building into which MFN has not
constructed or has maintained in effect a Lateral Extension at the
time that Customer requests a Building Network Connection and MFN has
declined to construct a Lateral Extension.
2
<PAGE>
1.23."On-Network Building" shall mean any building into which MFN has
constructed and maintains in effect a Lateral Extension at the time
Customer requests a Building Network Connection into such building.
1.24."On-Network Building List" shall mean the list of On-Network
Buildings as of the Effective Date set forth in Exhibit B to this
Agreement and any updated lists which MFN shall provide to Customer
from time to time, but not more frequently than once per year during
the Term.
1.25."Outage" is defined as the complete interruption or material
degradation of communications between any two Customer Locations
resulting from physical damage, severance, or other failure of the
Licensed Fiber(s).
1.26."Outage Credit" shall mean any credit against Monthly Charges
otherwise payable for Additional Licensed Fiber resulting from an
Outage in accordance with Section 9, below.
1.27."Outage Period" shall be any continuous four (4) hour period during
which Customer experiences an Outage.
1.28. "Party" or "Parties" shall mean either or both MFN and Customer.
1.29."POP" shall mean a point of presence, which is a location at which a
telecommunications company has facilities designed to establish
interconnections between its network and the network of a local
exchange customer for purposes of obtaining exchange access services
(private line, data, video, or switched) or unbundled network elements
used for providing exchange access services.
1.30."Premises" shall mean any site at which Product is provided to
include generally the Customer Locations specified in the Product
Order.
1.31."Prepaid Charges" shall refer to those prepaid charges specified in
the Product Orders and prepaid by Customer.
1.32."Product" shall refer to the Licensed Fiber, Building Network
Connection, Location Access, Equipment and normal installation,
maintenance, inspection, repair and testing services as set forth
herein.
1.33."Product Order(s)" refers to those product orders executed between
the Parties, including Exhibits attached thereto and made a part
hereof, which shall be in the form set forth in Exhibit C attached
herewith.
1.34."Rack or Cage Facilities" shall mean Customer's provision of one (1)
equipment rack or cage to serve as a fiber termination point within a
Customer Location for MFN's exclusive use as a fiber distribution
facility for Customer and other MFN customers in the building.
3
<PAGE>
1.35."Rings" shall refer to those particular routes on the Network as
described in Exhibit A to this Agreement, as same may be modified by
MFN from time to time.
1.36."Splice Point" shall have the meaning set forth in Section 2.3.2
below.
1.37."Term" shall be the period commencing on the Effective Date and
terminating twenty years thereafter, unless sooner terminated in
accordance with the provisions of this Agreement.
2. PRODUCT
-------
2.1. During the Term MFN shall license to Customer a total of up to
[********} ([*****]) fiber miles of Licensed Fiber on the Rings, which
Licensed Fiber shall include that Licensed Fiber heretofore provided
by MFN to Customer and which is described in Exhibit D to this
Agreement. Customer may license not less than two (2) nor more than
twenty four (24) Licensed Fibers on any one Ring. Fiber miles shall be
determined by the aggregate number of Licensed Fibers multiplied by
the total distance (for example, two Licensed Fibers on a four mile
route equals eight fiber miles).
2.2. Customer shall from time to time during the period of twelve (12)
months after the Effective Date request Licensed Fiber on the Rings
from MFN for up to [*****] ([*****]) fiber miles. In addition, during
such twelve (12) month period, if Customer has requested and MFN has
delivered the [*****] ([*****]) fiber miles of Licensed Fiber pursuant
to Section 2.1 hereof, Customer may also purchase additional Licensed
Fiber on the Rings from MFN for up to an additional [*****] ([*****])
fiber miles (the "Additional Licensed Fiber" for purposes of this
Section 2.2, and Sections 4, 9.1 and 11.2.) for the prices set forth
in Section 4.2.
2.3. Such requests, pursuant to 2.2 hereof, shall be in writing and shall
specify the number of Licensed Fibers, the Rings, Building Network
Connections into Customer Locations and the requested date of delivery
of such Licensed Fibers. Customer may at any time during the Term
request a Building Network Connection from Customer's Licensed Fibers
on a Ring into an On-Network Building. MFN will advise Customer in
writing if such Licensed Fiber or Rings are not available. MFN will
use commercially reasonable efforts to make requested fiber available
to Customer, provided Customer's requests therefor are themselves
reasonable and made in accordance with the terms of this Agreement. In
addition, MFN will further advise Customer of whether or not the
requested Customer Location is an On-Network Building. Customer shall
provide to MFN Location Access pursuant to the terms of the Location
Access Agreement.
2.3.1. If the Customer Location is not an On-Network Building and
Customer desires a Building Network Connection to and into
such building, Customer may request that MFN (i) designate
and add such building to the On-Network Buildings List and
(ii) construct a Lateral Extension from the Network to and
into such building. MFN will determine, in its
4
<PAGE>
sole discretion, whether or not to designate such building
as an On-Network Building and construct such a Lateral
Extension. All right, title and interest to the Lateral
Extensions constructed by MFN shall vest in MFN.
2.3.2. If MFN declines to build a Lateral Extension to a Customer
Location, such building shall be designated as an
Off-Network Building. Customer may request a Building
Network Connection to an Off-Network Building by informing
MFN of same. MFN will advise Customer, in writing, of the
estimated costs of providing a splice connection (on a pass
through basis plus [******] ([**]%) at the Network splice
point determined by MFN (the "Splice Point") and, if
Customer consents, will provide such splice connection to a
Lateral Extension supplied by Customer. All right, title and
interest to the Lateral Extensions constructed by Customer
to such Splice Point shall vest in Customer.
2.4. If the requested Licensed Fibers and Rings are available and the
parties are in agreement with regard to the provision of the Product,
MFN will prepare and deliver to Customer a Product Order with respect
to such requested Licensed Fiber, Rings and Customer Locations. The
Parties shall thereupon execute each such Product Order, specifying
one or more of the following: (i) the number of Licensed Fibers and
Rings; (ii) a Building Network Connection to Customer Locations; (iii)
construction and splicing costs (where applicable) and Charges; and
(iv) Estimated Commencement Date.
2.5. MFN will use commercially reasonable efforts to complete installation
and testing of the Product on or before the Estimated Commencement
Date specified in the Product Order(s). Upon satisfactory completion
of Product testing, MFN will provide Customer with access to the
Product and Customer shall have a period of time not to exceed ten
(10) business days to conduct such testing as it reasonably deems
necessary to ensure that the Product conforms in all material respects
to the material specifications set forth in the relevant Product
Orders. If Customer fails to notify MFN within this time period of any
deficiencies, the Product will be deemed accepted. The "Commencement
Date," whereupon the Term of any Product Order commences, shall be the
earlier of (i) completion of testing and acceptance of Product by
Customer, or (ii) if Customer has identified deficiencies, then the
first date upon which Product conforms in all material respects with
the relevant specifications.
2.6. MFN shall provide, install, maintain, and repair the Equipment
necessary for the Product at Customer Locations in accordance with
this Agreement and the Product Order(s) attached hereto.
2.7. MFN may provide additional Products to Customer in the future upon
full execution of additional Product Orders, such Product Orders to be
referred to by Product Order number, attached hereto and made a part
hereof.
5
<PAGE>
3. ACCESS AND AUTHORIZATIONS
-------------------------
3.1. Customer will obtain all approvals for access into all Customer
Locations for the purpose of Product installation, periodic
maintenance, and services, and for the use of any required building
entrances, power, riser conduit or other required building facilities
at all such Customer Locations.
3.2. If applicable, Customer agrees to provide all reasonable assistance to
MFN in procuring, and installing or activating such additional
telecommunication circuits and facilities as shall be required by MFN
to provide telemetry from any and all Customer Locations to MFN's
monitoring center(s). Except for costs associated with local telephone
lines, other monthly telecommunication costs and any reasonable
installation costs shall be paid for by MFN.
3.3. MFN will use commercially reasonable efforts to obtain all required
Authorizations by the Commencement Date, and to maintain or renew all
such Authorizations throughout the Term.
3.4. If any Authorizations are modified or terminated, and the loss of such
Authorizations threatens to cause or does cause material financial
harm to MFN, or prevents or materially interferes with MFN's control,
possession and/or use of the Network, Product or the Equipment or its
ability to provide the Product, then in its sole discretion MFN shall
have the option to: (i) provide Customer with comparable Product on
alternate portions of MFN's then existing Network or on networks of
third parties, or (ii) terminate this Agreement with respect to the
affected Product without further obligation or liability to Customer.
The foregoing will be MFN's sole and exclusive liability and
Customer's sole and exclusive remedy with respect to termination as a
result of the loss of Authorizations.
3.5. Customer shall provide MFN with access to all Customer Locations for
the purpose of removing MFN Equipment upon the expiration or earlier
termination of this Agreement.
3.6. MFN reserves the right to utilize unused external building access, and
space within the building conduit(s) occupied at the Customer
Locations, provided that such use does not interfere with or hinder
Customer's use of the Product as permitted hereunder.
3.7. Upon the expiration of any Term, or earlier termination of this
Agreement, Customer will promptly remove from any property owned,
leased or licensed by MFN all Customer property, equipment and other
materials used in connection with the Product within thirty (30) days
from such expiration or termination. Customer will complete such
removal in a manner that does not interfere with or damage the Product
or the Network. If Customer fails to remove its property within such
period, such property will be deemed abandoned, and MFN will make such
disposition of the property as it deems necessary or advisable at
Customer's sole expense.
6
<PAGE>
3.8. If applicable, and unless otherwise specified in the Product Order,
Customer will arrange for its own cage space, manhole assignments, and
installation approval for MFN to build laterals and risers into
Customer's cages within any ILEC Central Offices. The estimated time
required for completion of construction and installation into an ILEC
Central Offices will be 90 - 180 days after Customer gives MFN written
notice of completion of ILEC approval and an executed copy of the ILEC
Method of Procedure for each ILEC Central Office.
4. TERMS OF PAYMENT
----------------
4.1. Licensed Fiber. In consideration for the Licensed Fiber licensed by
----------------
MFN to Customer pursuant to this Agreement,
4.1.1. Customer has executed and delivered to MFN the Exchange
and Registration Rights Agreement dated as of the same date
as this Agreement (the "Exchange and Registration Rights
Agreement"), attached herewith as Exhibit E, and has
delivered to MFN the "Common Stock" as defined therein (the
"Common Stock"). For purposes of this Agreement, four
million (4,000,000) shares of Common Stock shall be deemed
to be consideration for the Licensed Fiber (exclusive of
Additional Licensed Fiber) licensed by MFN to Customer
pursuant to this Agreement and one million (1,000,000)
shares of Common Stock shall be in consideration for
exchange of the interest in Local Fiber LLC. For purposes of
Section 1.467-1(c)(2)(ii) A) of the Treasury Regulations
promulgated under the internal Revenue Code of 1986, as
amended ("Treas. Reg."), the Parties agree that the number
of shares of Common Stock shall be treated as the total
rental payable in respect of such license of Licensed Fiber
and such amount shall be allocated as set forth in Exhibit F
hereto within the Term in accordance with Treas. Reg.
Section 1.467-2(c). The portion of shares of Common Stock so
allocated to the license hereunder shall be treated as the
"principal balance of a Section 467 loan" within the meaning
of Treas. Reg. 1.467-1(e)(2). The Parties further agree to
utilize such allocation for all tax purposes unless
otherwise required by applicable law.
4.1.2. From time to time, MFN shall request and Customer shall
provide Location Access pursuant to the terms of the
Location Access Agreement.
4.2. Additional Licensed Fiber. In the event that Customer requests
---------------------------
Additional Licensed Fiber, Customer shall have the option to pay MFN
for such Additional Licensed Fiber as follows:
4.2.1. Monthly Charge.
--------------
4.2.1.1. Customer may elect to pay MFN a Monthly Charge plus
Applicable Taxes. The Monthly Charge shall be
determined by adding (1) the number of fiber miles
requested for the
7
<PAGE>
first [*****] ([*****]) miles of Additional
Licensed Fiber multiplied by the monthly rate of
[*****] and 00/100 dollars ($[*****]) per fiber
mile to (2) the number of fiber miles requested
for the next [*****] ([*****]) miles of Additional
Licensed Fiber multiplied by the monthly rate of
[*****] and 00/100 dollars ($[*****]) per fiber
mile.
4.2.1.2. Beginning on the Commencement Date, Customer shall
pay the Monthly Charge and any Applicable Taxes in
advance for each month. Customer will be invoiced
at the beginning of each month. If the Agreement
commences or terminates on a day other than the
first or last day of any month, then payment for
such partial month will be pro-rated.
4.2.1.3. All late payments will accrue interest on the
unpaid sum at the lower of the highest legal rate
of interest permitted in the State of New York or
one and one-half percent (1.5%) per month.
4.2.2. Prepaid Charge. At the time the first monthly payment for any
--------------
applicable Product Order is due, Customer may elect to prepay the
Charge for the Additional Licensed Fiber, determined by
multiplying the number of remaining months of the Term by a
monthly rate of [*****] and 00/100 dollars ([*****]) per fiber
mile of Additional Licensed Fiber.
4.3. Building Network Connections.
----------------------------
4.3.1. On-Network Buildings.
--------------------
4.3.1.1. In consideration for MFN providing a Building
Network Connection into each On-Network Building,
Customer agrees to pay to MFN the Prepaid Charge
set forth in Section I of Exhibit G, hereto plus
Applicable Taxes.
4.3.1.2. As set forth in Exhibit G, hereto, the Prepaid
Charge for a Building Network Connection into each
On-Network Building depends on whether Customer
provides or does not provide Rack Facilities to
MFN.
4.3.1.3. The Prepaid Charge for a Building Network
Connection into an On- Network Building includes
fiber termination into the Customer's Locations
and does not include any fees assessed by any
building owner, landlord or other third party for
the right or permission to build into Customer
Locations, which fees shall be solely paid by
Customer.
8
<PAGE>
4.3.2. Off-Network Buildings. In consideration for providing a
---------------------
Building Network Connection via a splice for each Customer
supplied Lateral Extension to a Off-Network Building,
Customer agrees to pay to MFN the Prepaid Charge set forth
in Section II of Exhibit G and Applicable Taxes. In
addition, Customer will reimburse MFN for its costs of
splicing plus [*****] ([**]%) plus Applicable Taxes.
5. EQUIPMENT AND INSTALLATION
--------------------------
5.1. If applicable, Customer is responsible for providing, at its
sole cost and expense, suitable facilities within all
Customer Locations including, without limitation, riser
conduits, adequate space and power, and proper environmental
conditions meeting no less than the minimum specifications
of the Equipment manufacturer(s).
5.2. All Equipment installed at Customer Locations shall remain
the property of MFN or its supplier and shall never be
deemed a fixture to any real property owned by Customer or
any third party. Nothing contained in this Agreement shall
give or convey to Customer any right, title or interest
whatever in the Equipment. Customer shall not adjust,
encumber or attempt to repair the Equipment, and may not
remove or relocate the Equipment without the prior written
consent of MFN. Customer may not allow any liens to be
placed on the Equipment or Network.
5.3. Customer shall be liable to MFN for any loss or damage to
Equipment arising from the negligence, acts, errors or
omissions, unauthorized maintenance or other cause,
including theft, of Customer, its employees, invitees,
contractors or agents.
6. MONITORING MAINTENANCE OF EQUIPMENT
-----------------------------------
6.1. MFN will provide remote monitoring of the Network and
Product to the extent incorporated into the Network and will
use commercially reasonable efforts to provide continuous
service at all times other than for maintenance as provided
herein.
6.2. MFN or its agents shall perform all maintenance and repairs
for the Product, including preventative maintenance and
periodic upgrades of operating system software, as MFN deems
necessary to ensure proper functioning of the Product.
6.3. Customer may not, without the express written consent of
MFN, perform any repairs or maintenance to the Product,
Equipment or Network, or contract with any third party to
perform any such repairs or maintenance. Customer will not
install any equipment to be used with the Product, Equipment
or Network or use any Product in any manner that damages or
interferes with the Product, Network or Equipment.
6.4. If all or part of the Product, Network or Equipment requires
restoration, replacement or repair by reason of an act or
omission of Customer, its employees, agents, or contractors,
such repair, replacement and/or restoration may be made by
9
<PAGE>
MFN, at Customer's sole expense, in accordance with MFN's
then current time and materials rates plus Applicable Taxes.
7. USE OF THE PRODUCT
------------------
7.1. Customer will use the Product in full compliance with all
applicable federal, state and local laws, rules and
regulations and all applicable franchises, rights of way,
leases, licenses, franchises and contracts and other
obligations to third parties with respect to the Network or
Product. At Customer's sole cost and expense, Customer will
obtain and maintain in effect during the Term all rights,
leases, licenses, permits and governmental or non
governmental approvals necessary for use of the Product by
Customer.
7.2. MFN is providing all Products for Customer's exclusive use.
Customer will not under any circumstances permit the use of
or provide access to the Product, Equipment or Network in
whole or part, by any third party, other than a customer of
Customer in the ordinary course of business. For purposes of
this Agreement, the ordinary course of Customer's business
shall not include the sale, leasing or granting of any
rights of use in "dark fiber", as such term is commonly
understood in the telecommunications industry, nor shall
Customer's business include the resale of any Product.
7.3. Customer may not sublease, assign, license, sublicense,
sell, share or otherwise utilize in conjunction with a third
party (including without limitation in any joint venture or
as part of any outsourcing activity) the Product or Network,
or any component thereof. Any breach of this Section will be
deemed a material breach of this Agreement and in the event
of such material breach MFN will have the right to
immediately terminate this Agreement in addition to any and
all rights and remedies.
7.4. MFN will have the right to inspect Customer's use of the
Product at any time during normal business hours and upon at
least twenty-four (24) hours prior notice by MFN. MFN may
make such inspection on less than twenty-four hours notice
in cases of an emergency.
7.5. MFN may subcontract to any third party any or all of its
performance obligations (including without limitation
maintenance) under this Agreement without the consent of
Customer, provided that MFN will remain obligated for such
performance in accordance with the terms of this Agreement.
8. OUTAGES
-------
8.1. If Customer experiences an Outage, Customer shall
immediately notify MFN by telephone at (888) 636-2778, or by
such other means as the Parties may agree. Provided that MFN
personnel or contractors have access to affected Customer
facilities immediately upon notification, MFN will respond
and commence work within two (2) hours after the time of
notification by Customer and restore effective use of the
Licensed Fiber as expeditiously as practicable, but in no
event more than
10
<PAGE>
four (4) hours after receipt by MFN of Customer's
notification, subject to "Force Majeure" as provided in
Section 19 below.
8.2. Unless otherwise specified, if an Outage lasts longer than
fifteen (15) days for any reason other than "Force Majeure",
then at any time thereafter, unless and until such Outage is
corrected, either Party may terminate this Agreement with
respect to the affected Product by written notice of such
termination delivered to the other Party.
8.3. In addition to other rights under this Agreement, MFN shall
have the right to terminate this Agreement as a result of
any Outage caused by Customer's breach of its material
obligations under this Agreement, subject to any relevant
cure provisions as provided in this Agreement.
8.4. The Outage Credit, set out in Section 9, or the right to
terminate hereunder shall be the sole and exclusive remedies
of Customer for any Outage regardless of the cause of such
Outage.
9. OUTAGE CREDITS
--------------
9.1. In the event of an Outage on any Licensed Fiber, whether
such Licensed Fiber is provided to Customer pursuant to
Section 2.1 of this Agreement or is Additional Licensed
Fiber pursuant to Section 2.2 of this Agreement, Customer
will receive an Outage Credit calculated at [*****] percent
([**]%) of the Monthly Charge, which for purposes of
determining the Outage Credit shall be one [*****] 00/100
dollars ($[*****]) per fiber mile, for the affected Licensed
Fiber strands for each Outage Period, up to a maximum of the
Monthly Charge for one (1 ) full month. The Outage Credit
shall be calculated as follows:
(a) Monthly Charge (i.e. $[*****] per fiber mile) for
affected Licensed Fiber Strands number of Customer
Locations = "X";
(b) X total number of Customer's Additional Licensed
Fiber Strands = monthly charge per fiber strand;
(c) monthly charge per fiber strand multiplied by the
number of affected Customer Licensed Fiber strands
multiplied by [*****] percent ({**]%) multiplied
by the number of Outage Periods Outage Credit.
9.2. Customer will not receive any Outage Credit for an Outage
caused by or resulting from (i) Force Majeure; (ii) an act
or omission of Customer, its employees, agents or
contractors; (iii) the use or failure of any Customer
equipment or facilities used in connection with the Product;
(iv) failures of redundant equipment or subsystems, or (v)
planned Outages for maintenance or repair that are scheduled
and approved in advance by Customer.
9.3. Outage Credits will not be credited or payable for any
period of time during which MFN personnel or contractors are
denied access to Customer Locations or other facilities to
remedy an Outage.
11
<PAGE>
10. LIMITATION OF LIABILITY AND INDEMNIFICATION ,
---------------------------------------------
10.1. Unless otherwise provided for in this Agreement, and except
in cases of gross negligence or willful misconduct, the
liability of each Party to the other Party for damages will
be limited to five million and 00/100 dollars
($5,000,000.00). Notwithstanding the foregoing, in no event
will either Party be liable to the other Party for any
incidental, indirect, special, consequential, exemplary, or
punitive damages arising out of or relating to this
Agreement or the Product provided hereunder, including
damages based on loss of revenues, profits or lost business
opportunities, regardless of whether the respective Party
had been advised of or could have foreseen the possibility
of such damages.
10.2. MFN agrees to indemnify, defend and hold the Customer, its
officers, directors, employees, agents and contractors
harmless from and against all loss, damage, liability, cost
and expense (including reasonable attorney's fees and
expenses) by reason of any claims or actions by third
parties for (i) bodily injury, including death, (ii) damage,
loss or destruction of any real or tangible personal
property which third party claims arise out of or relate to
(a) any Product provided by or on behalf of MFN hereunder,
(b) MFN's performance of or failure to perform any term,
condition or obligation under this Agreement, or (c) any
negligent act or omission of a MFN's directors, agents,
employees, contractors, representatives or invitees.
10.3. Customer agrees to indemnify, defend and hold MFN, its
officers, directors, employees, agents and contractors
harmless from and against all loss, damage, liability, cost
and expense (including reasonable attorney's fees and
expenses) by reason of any claims or actions by third
parties for (i) bodily injury, including death, (ii) damage,
loss or destruction of any real or tangible personal
property (including without limitation the Network and
Product) which third party claims arise out of or relate to
(a) Customer's performance of or failure to perform any
term, condition or obligation under this Agreement, (b) any
negligent act or omission of Customer's directors, agents,
employees, contractors, representatives or invitees, or (c)
Customer's or its customer's use of the Product and conduct
of their respective businesses including without limitation
the content of any video, voice or data carried by Customer
or its customers on the Product or Network.
10.4. Customer's rights to indemnification under this agreement
are subject and subordinate to MFN's prior obligations to
indemnify third parties. Customer shall not seek damages,
recovery or performance from any third party with whom MFN
has a previous obligation to indemnify, including but not
limited to MFN landlords and building owners with whom MFN
has leasing agreements.
10.5. No contract, subcontract, or other agreement between
Customer and any third party in connection with the Product
hereunder shall provide the basis for any indemnity,
guarantee, assumption of liability or other obligation of
MFN with respect to such arrangements.
12
<PAGE>
10.6. Except as otherwise set forth in this Agreement, nothing
contained herein will operate as a limitation on the right
of either Party to bring an action for damages against any
third party based on any act or omission of such third party
as such act or omission may affect the construction,
operation, or use of the Network, Equipment or the Product.
Each Party agrees to execute such documents and provide such
commercially reasonable assistance, at the claiming Party's
sole expense, as may be reasonably necessary to enable the
claiming Party to pursue any such action against such third
party.
11. DEFAULT
-------
11.1. The following events shall be considered events of default
the happening of which shall give the non-defaulting party
the right to terminate this Agreement or a portion of this
Agreement as the case may be, by written notice following
the expiration of any stated cure periods:
11.1.1. Customer fails to deliver to MFN the Common Stock
as set forth in the Exchange and Registration
Rights Agreement.
11.1.2. Customer fails to make any payment within thirty
(30) days after receipt of written notice from MFN
shall give MFN the right to terminate its
corresponding obligations with respect to such
payments without further notice to Customer;
11.1.3. the breach of any material term or condition of
this Agreement if such breach remains uncured
thirty (30) days after delivery to the breaching
Party of written notice of such breach. If the
breach is of a nature or involves circumstances
reasonably requiring more than thirty (30) days to
cure, the time period may be extended for such
time as will be reasonably required provided the
breaching Party proceeds diligently to cure the
breach;
11.1.4. A Party applies for or consents to the appointment
of a receiver, trustee or similar officer for it
or any substantial part of its property or assets,
or any such appointment is made without such
application or consent by such Party and remains
undischarged for a period of sixty (60) days;
11.1.5. A Party files a petition in bankruptcy or makes a
general assignment for the benefit of creditors;
or
11.1.6. Customer defaults under the material terms of any
other agreement or Product Order between the
parties subject to the cure periods set forth in
such agreement or Product Order, including but not
limited to any agreement for Collocation, Licensed
Fiber, Capacity Product or a Managed Network
Product, whether such other agreement is executed
prior or subsequently to the execution of this
Agreement.
13
<PAGE>
11.2. Where Customer has purchased Additional Licensed Fiber and Customer is
making monthly payments for such Additional Licensed Fiber, if the
Agreement or any Product Order is terminated by reason of Customer's
default, before the expiration of the then current Term, in addition
to all other sums due and owing, Customer will immediately pay the
Early Termination Charge for such Additional Licensed Fiber set forth
below. The parties acknowledge and agree that such Early Termination
Charge reflects a reasonable estimate of the damages incurred by MFN
as a result of the early termination, and is not a penalty against the
Customer. Notwithstanding the foregoing, MFN may seek all other
available remedies in the case of Customer default.
11.2.1. 1st year termination - 100% of all unpaid Monthly Charges
for the first year, plus 80% of all unpaid Monthly Lease
Payments for the second year, plus 60% of all unpaid Monthly
Charges for the third year, plus 40% of all for the fourth
year, plus 20% of all unpaid Monthly Charges for the fifth
year, plus 10% of all unpaid Monthly Charges for the sixth
through twentieth years.
11.2.2. 2nd year termination - 80% of all unpaid Monthly Charges for
the second year, plus 60% of all unpaid Monthly Charges for
the third year, plus 40% of all unpaid Monthly Charges or
the fourth year, plus 20% of all unpaid Monthly Charges for
the fifth year, plus 10% of all unpaid Monthly Lease
Payments for the sixth through twentieth years.
11.2.3. 3rd year termination - 60% of all unpaid Monthly Charges for
the third year, plus 40% of all unpaid Monthly Charges for
the fourth year, plus 20% of all unpaid Monthly Charges for
the fifth year, plus 10% of all unpaid Monthly Lease
Payments for the sixth through twentieth years.
11.2.4. 4th year termination - 40% of all unpaid Monthly Charges for
the fourth year, plus 20% of all unpaid Monthly Charges for
the fifth year, plus 10% of all unpaid Monthly Charges for
the sixth through twentieth years.
11.2.5. 5th year termination - 20% of all unpaid Monthly Charges for
the fifth year, plus 10% of all unpaid Monthly Charges for
the sixth through twentieth years.
11.2.6. 6th through 20th year termination - 10% of all Monthly
Charges for the sixth through twentieth years.
11.3. If the Agreement or any Product Order is terminated by reason of
Customer's default, before the expiration of the then current Term, in
addition to all other sums due and owing, MFN will retain as an Early
Termination Charge, the unamortized portion of the Prepaid Charges
over the License Term as of the date of termination.
14
<PAGE>
12. REPRESENTATIONS, WARRANTIES AND COVENANTS
-----------------------------------------
12.1. EXCEPT AS OTHERWISE EXPRESSLY PROVIDED IN THIS AGREEMENT,
MFN DISCLAIMS ALL WARRANTIES, EXPRESS OR IMPLIED, INCLUDING
ANY AND ALL WARRANTIES OF MERCHANTABILITY OR FITNESS FOR A
PARTICULAR PURPOSE WITH RESPECT TO THE (i) NETWORK OR
EQUIPMENT, (ii) PRODUCT, (iii) MAINTENANCE (iv) CONSTRUCTION
AND INSTALLATION, AND (v) ANY OTHER SERVICE(S) PROVIDED BY
OR ON BEHALF OF MFN HEREUNDER.
12.2. Each Party represents and warrants to the other that (a) it
is duly organized, validly existing and in good standing
under the laws of the state of its organization, (b) it has
all requisite power and authority to enter into and perform
its obligations under this Agreement and the Product Order
and (c) this Agreement and the Product Order, when executed,
will become the legal, valid and binding obligation of such
Party.
12.3. During the Term of the Agreement Customer shall maintain, at
its sole cost and expense, the insurance coverages with
limits stipulated below, as well as such other coverage(s)
and limits as may be required by the landlord or owner of
the Premises:
<TABLE>
Type of Insurance Minimum Amount
----------------- --------------
<S> <C>
Commercial General Liability (inclusive of Broad Form $1,000,000.00 per occurrence
Contractual Liability Coverage) with coverage extending to $2,000,000.00 aggregate
independent contractors and personal injury coverage,
product and completed operations, business interruptions,
bodily injury and property damage combined
Commercial Blanket Bond/Crime (including Fidelity) Coverage $1,000,000.00 per occurrence
Umbrella Liability $5,000,000.00 per occurrence
</TABLE>
If requested by MFN, Customer shall: (i) deliver to MFN a
certificate of insurance prior to the execution of this
Agreement stating that such policy will not be canceled,
terminated or modified without thirty (30) days' prior
written notice to MFN. All policies shall be endorsed with
the provision that coverage provided thereunder shall be
primary, and not excess or contributory with regard to any
other insurance maintained by MFN; (ii) name MFN as an
additional insured as its interests may appear under the
Commercial General Liability and Umbrella Liability
policies; and (iii) obtain the express consent of each
underwriter of the policies of insurance specified above to
waive its right of subrogation against MFN.
15
<PAGE>
13. APPLICABLE TAXES
----------------
13.1. Each Party shall be fully responsible for the payment of any
and all taxes required by law to be paid by that Party.
13.2. Customer shall pay all taxes and fees associated with
Customer's use of the Product, including but not limited to
any sales, use, transfer, gross receipts, federal excise and
similar taxes and surcharges lawfully levied by a taxing
authority against or upon the Products. Alternatively,
Customer will provide MFN with a certificate evidencing
Customer's exemption from payment of or liability for the
above taxes.
13.3. In addition to the Charges, Customer may be invoiced for
franchise, privilege, property, and occupational taxes based
upon the gross revenues received from Customer or assets of
MFN made available to Customer, or for any tax surcharge on
the Product or, if applicable, Universal Service Fund or
similar charges imposed on MFN with respect to Customer's
use of the Product.
13.4. Customer is solely responsible for calculating and remitting
any and all assessments, including but not limited to
franchise fees, license fees, right-of-way fees, taxes and
any other assessment against Customer for Customer's use of
the Product (collectively, "Assessments"). Such Assessments
may be made by any governmental, quasi governmental agency
or regulatory body and MFN will not direct or notify
Customer to pay any Assessments, and shall not be directly
or indirectly responsible in any way for Customer's
remitting such Assessments.
14. RELOCATION. CONDEMNATION.
-------------------------
14.1. If MFN is required by any third party to relocate any
segment of its Network, MFN will provide Customer at least
sixty (60) days prior written notice of any relocation
unless prevented from doing so by the timing of the
relocation. Prior to the relocation, MFN will provide
Customer an estimate of the cost of such relocation, and to
the extent MFN is not reimbursed for those costs by the
requesting third party, Customer agrees to pay its pro rata
share of the relocation costs. MFN will use its commercially
reasonable efforts to secure an agreement for reimbursement
from the third party.
14.2. If any portion of the Network, and/or the Authorizations
become the subject of a condemnation proceeding which is not
dismissed within one hundred eighty (180) days after the
date of filing of such proceeding and which could reasonably
be expected to result in a taking by any governmental agency
or other party having the power of eminent - domain, MFN, in
its sole discretion, shall have the option of providing
alternate service to Customer, or immediately terminating
the Agreement without further obligation to Customer. MFN
shall be entitled, to the extent permitted under applicable
law, to participate in any condemnation proceedings for
compensation for the economic value of MFN interests or
Authorizations relating to the Product subject to such
condemnation proceeding.
16
<PAGE>
15. ASSIGNMENT; SUCCESSION
----------------------
15.1. Subject to Section 15.3 below, Customer will not assign any
right nor delegate any duty under this Agreement, in whole
or in part, whether by operation of law or otherwise,
without the prior written consent of MFN, such consent not
to be unreasonably withheld. Upon any permitted assignment
(or delegation) hereunder, the assigning Parties will remain
jointly and severally responsible for the performance under
this Agreement, unless released in writing by the
non-assigning Party. Any permitted assignee will expressly
assume all liabilities hereunder prior to the effectiveness
of such assignment. Any attempted assignment or delegation
without such consent will be null and void and will be
deemed to constitute a material breach of this Agreement.
15.2. Notwithstanding anything contained in this Agreement to the
contrary, Customer may, without the consent of MFN,
collaterally assign this Agreement in whole but not in part
to any or all parties providing financing to Customer or any
other entity controlled by or under common control with
Customer under a collateral trust for the benefit of the
entities providing such financing or similar arrangement for
the benefit of such financing entities. Customer will advise
MFN in writing of the assignment at the time of such
assignment. If requested by Customer, MFN will within seven
(7) days of such request provide a written consent to any
such permitted assignment; provided that such consent will
permit reassignment in accordance with the terms of this
Agreement if the financing parties exercise their remedies
under the documents for such financing upon notice by the
financing parties.
15.3. This Agreement will be binding upon and inure to the benefit
of the Parties hereto and their respective successors and
permitted assigns.
16. NOTICES
-------
16.1. All notices and communications concerning this Agreement
must be in writing and delivered to MFN at the following
addresses: Metromedia Fiber Network Services, Inc.
1 North Lexington Avenue, 4th Floor
White Plains, New York 10601
Attn: Vice President - Marketing
If declaring a default or termination, a copy of the notice
must be sent to:
Metromedia Fiber Network Services, Inc.
1 North Lexington Avenue, 4th Floor
White Plains, New York 10601
Attn: Vice President - Legal Affairs
16.2. Notices and communications to Customer must be in writing
and will be delivered to the address specified in the
Product Order.
17
<PAGE>
16.3. Notices will be sent by certified US Postal Service, return
receipt requested, or by commercial overnight delivery
service, or by facsimile, and will be deemed delivered, if
C) sent by US Postal Service, five (5) days after deposit,
if sent by facsimile, upon verification or receipt or, if
sent by commercial overnight delivery service, one (1 )
business day after deposit therewith.
17. 17. GOVERNING LAW
-----------------
THIS AGREEMENT WILL BE INTERPRETED AND CONSTRUED IN ACCORDANCE WITH THE INTERNAL
LAWS OF THE STATE OF NEW YORK WITHOUT GIVING EFFECT TO ITS PRINCIPLES OF
CONFLICTS OF LAWS.
18. DISPUTE RESOLUTION; ARBITRATION.
--------------------------------
18.1. Any dispute or disagreement relating to this Agreement or
any matter arising between the Parties in connection with
this Agreement which is not settled to the mutual
satisfaction of the Parties within thirty (30) calendar days
from the date that either party informs the PRIVATE NETWORK
AGREEMENT Metromedia Fiber Network Services, Inc. Page 14
other in writing that such dispute or disagreement exists,
shall be settled by arbitration by a single arbitrator in
New York, New York, in accordance with the Commercial
Arbitration Rules of the American Arbitration Association in
effect on the date that such notice is given. If the parties
are unable to agree on a single arbitrator within fifteen
(15) calendar days, the American Arbitration Association
shall select an arbitrator. The decision of the arbitrator
shall be final and binding upon the parties and shall
include written findings of law and fact, and judgment may
be obtained thereon by either party in a court of competent
jurisdiction. Each party shall bear the cost of preparing
and presenting its own case. The cost of arbitration,
including the fees and expenses of the arbitrator, shall be
shared equally by the parties unless the award otherwise
provides.
18.2. The obligation herein to arbitrate shall not be binding upon
any party with respect to requests for preliminary
injunctions, temporary restraining orders or other
procedures in a court of competent jurisdiction to obtain
interim relief when deemed necessary by such court to
preserve the status quo or prevent irreparable injury
pending resolution by arbitration of the actual dispute.
19. FORCE MAJEURE
-------------
Neither Party will be in breach of this Agreement resulting from delay or
prevention of performance of such Party which is caused by any act attributable
to an occurrence or an event of "Force Majeure" as defined herein, and which by
the exercise of due foresight, the Party could not reasonably have been expected
to avoid. An event of Force Majeure may include an action by governmental
authority (including without limitation moratorium on any activities related to
the Agreement), third party labor dispute, flood, earthquake, fire, lightning,
epidemic, war, riot, civil disturbance, and sabotage. The party affected by an
event of Force Majeure will notify the other party promptly of any occurrence or
condition, which, in the Affected Party's reasonable
18
<PAGE>
opinion, warrants an extension of time. Such notice will specify the anticipated
length of delay, the cause of the delay and a timetable by which any remedial
measures will 3 be implemented.
20. SURVIVAL
--------
The Parties' respective representations, warranties, together with obligations
of indemnification, confidentiality and limitations on liability will survive
the expiration, termination or rescission of this Agreement and continue in full
force and effect.
21. REMEDIES
--------
Except as otherwise expressly provided, the rights and remedies set forth in
this Agreement will be in addition to, and cumulative of, all other rights and
remedies at law or in equity.
22. CONFIDENTIALITY AGREEMENT
-------------------------
22.1. The Parties acknowledge and agree that this Agreement and
the information each Party has provided or will provide in
connection with this Agreement or that the other Party
learns or obtains from a source other than the public domain
or from a source (including a Party) not in violation of any
obligation of confidentiality, including, without
limitation, the terms and conditions thereof, are and will
be confidential and proprietary to the Party providing such
information (the "Providing Party,). The Party in receipt of
or learning or obtaining the confidential information (the
"Receiving Party") agrees not to distribute, use or disclose
to any third party the confidential information of the
Providing Party.
22.2. Except as may be required by applicable legal requirements
in the course of defending or prosecuting a legal, insurance
or other claim or as required by applicable law, rule or
regulation, including, without limitation, any reporting or
filing requirements under state or Page 15 federal
securities laws, each Party will restrict dissemination of
confidential access to such confidential information or this
Agreement in order to perform their respective rights or
obligations hereunder. Each Party will promptly notify the
other Party prior to any such required disclosure or filing,
and in the case of any filing or disclosure of this
Agreement, to seek confidential treatment of this Agreement,
and to permit such other Party to seek protective relief
therefrom and/or confidential treatment thereof and shall
cooperate as such other Party may request in connection
therewith. The Party seeking disclosure pursuant to state or
federal securities laws and the other Party shall cooperate
reasonably and in good faith to permit such disclosure and
the other Party shall not unreasonably withhold or delay any
consent to such required disclosure. After the Parties have
agreed as to the confidential information or such portions
of this Agreement which are to be disclosed pursuant to
state or federal securities laws, no further notification or
consent pursuant to this Section 22.2 shall be required for
subsequent disclosures by the disclosing Party which are the
same in all material respects as the agreed upon
disclosures.
22.3. Customer may disclose the identity of MFN as a supplier of
Customer and MFN may disclose the identity of Customer as a
customer of MFN, each with the prior
19
<PAGE>
written consent from the other; which will not be
unreasonably withheld or delayed; provided, that no such
disclosure shall imply any endorsement of the disclosing
Party or contain any misleading reference to the nature of
the relationship between the Parties. Each Party may, in
connection with a financing transaction, disclose
confidential information to a leading financial institution
which has executed an agreement with such Party to maintain
the confidentiality of this Agreement in a manner consistent
with the terms of this Section 22. For purposes of this
Agreement, the ordinary course of Customer's business shall
not include the sale, leasing or granting of any rights of
use in "dark fiber", as such term is commonly understood in
the telecommunications industry, nor shall Customer's
business include the resale of any Product.
22.4. Each Party acknowledges and agrees that the information of a
Party described in this Section 22 constitutes valuable
property of such Party and that such Party will suffer
irreparable injury not compensable by money damages for
which such Party will not have an adequate remedy at law in
the event of a breach by the other Party of the provisions
of this Section 22 and therefore such Party shall be
entitled to injunctive relief to prevent or curtail any such
breach, threatened or actual. The foregoing shall be without
prejudice to or limitation of any rights a Party may have
under this Agreement, at law or in equity.
23. MISCELLANEOUS
-------------
23.1. The covenants, undertakings, and agreements set forth in
this Agreement will be solely for the benefit of and will be
enforceable only by the Parties hereto or their respective
successors or permitted assigns.
23.2. The headings of the Sections in this Agreement are strictly
for convenience and will not in any way be construed as
amplifying or limiting any of the terms, provisions or
conditions thereof.
23.3. In the event any term of this Agreement is held invalid,
illegal or unenforceable, in whole or in part, neither the
validity of the remaining part of such term nor the validity
of the remaining terms of this Agreement will be in any way
affected thereby.
23.4. This Agreement may be amended only by a written instrument
executed by the Parties.
23.5. No failure to exercise and no delay in exercising, on the
part of either Party hereunder, any right, power or
privilege hereunder will operate as a waiver hereof, except
as expressly provided herein.
23.6. This Agreement may be executed in multiple counterparts,
each of which will constitute one and the same instrument.
20
<PAGE>
23.7. This Agreement may be separated by MFN into two or more
individual agreements, each comprised of the General Terms
and Conditions, one or more Product Orders and the Exhibits
associated with such Product Order(s).
23.8. If any conflict or contradiction exists between the terms of
this Agreement and one or more Product Orders, the terms of
the Product Order(s) shall control.
24. ENTIRE AGREEMENT
----------------
24.1. Effective upon the execution of this Licensed Fiber
Agreement by both Parties, as between Customer and MFN this
Agreement cancels and supercedes that certain agreement
entered into by any among Local Fiber LLC and National Fiber
Network, Inc., now known as Metromedia Fiber Network, Inc.
("MFNI"), the corporate parent of MFNS, which agreement is
identified as the Operating Agreement of Local Fiber LLC
dated as of June 19, 1996, which, together with all
Schedules thereto, including without limitation Schedule A
thereto with respect to Class B Members as described
therein, and Schedule B thereto, the License as between
Local Fiber LLC and MFNI, will be referred to herein as the
"1996 Agreement". The execution of the Exchange and
Registration Rights Agreement set forth in Exhibit E to this
Licensed Fiber Agreement by each of MFN and Customer
constitutes a withdrawal by MFN from Customer and Local
Fiber LLC. In addition, in consideration for the execution
and delivery of this Licensed Fiber Agreement and other good
and valuable consideration, the adequacy and receipt of
which is hereby acknowledged, Customer for itself and all of
its affiliates, including, without limitation, Local Fiber
LLC, as the "Releasing Party" with respect to each of MFNI
and MFN as the "Released Party, and each of MFNI and MFN as
the "Releasing Party" with respect to Customer and Local
Fiber LLC as the Released Party, hereby releases and
discharges the respective Released Party and all of such
Released Party's successors and assigns from any and all
actions, causes of action, suits, debts, dues, sums of
money, accounts, reckonings, bonds, bills, specialties,
covenants, contracts, controversies, agreements, promises,
obligations, duties, variances, trespasses, damages,
judgments, extents, executions, claims, and demands
whatsoever, in law or equity, which against the respective
Released Party, the respective Releasing Party and such
Releasing Party's successors and assigns ever had, now have
or hereafter can, shall or may, have for, upon, or by reason
of any matter, cause or thing whatsoever from the beginning
of the world to the day of the date of this Licensed Fiber
Agreement arising from the 1996 Agreement.
24.2. With the exception of a confidentiality agreement between
the parties, this Agreement, including the Product Order,
Appendices and Exhibits attached hereto constitute the
entire agreement between the Parties with respect to the
subject matter hereof and supersede any and all prior
negotiations, understandings, and agreement with respect
hereto, whether oral or written.
21
<PAGE>
The Parties hereto have executed this Agreement as of the date first written
above.
METROMEDIA FIBER NETWORK SERVICES, INC.
By: /s/ Michael S. Liss
-------------------------------------------------------
Print Name: Howard Finkelstein
----------------------------------------------
Title:
---------------------------------------------------
FIBERNET TELECOM GROUP, INC.
By: /s/ Michael S. Liss
------------------------------------------------------
Print Name: Michael S. Liss
----------------------------------------------
Title:
---------------------------------------------------
22
<PAGE>
Exhibit A: MFN Fiber Optic Cable Network and Rings
Exhibit B: List of On-Network Buildings
Exhibit C: Form of Product Order
Exhibit D: Licensed Fiber Previously Provided by MFN to Customer
Exhibit E: Exchange and Registration Rights Agreement
Exhibit F: Rental Allocation Schedule
Exhibit G: Building Network Connection Pricing.
1
<PAGE>
EXHIBIT A
MFN FIBER OPTIC CABLE NETOWRK RINGS
Boston Downtown Area Network
[*************]
<PAGE>
Chicago Area Network
[*************]
<PAGE>
Manhattan Area Network
[*************]
<PAGE>
Washington D.C. Downtown Area Network
[*************]
<PAGE>
San Francisco Downtown Area Network
[*************]
<PAGE>
Los Angeles Downtown Area Network
[*************]
<PAGE>
EXHIBIT B
List of On-Network Buildings
New York City Metropolitan Area
- -------------------------------
[***************]
Washington D.C. Metropolitan Area
- ---------------------------------
[***************]
Chicago Metropolitan Area
- -------------------------
[***************]
Boston Metropolitan Area
- ------------------------
[***************]
San Francisco Metropolitan Area
- -------------------------------
[***************]
Los Angeles Metropolitan Area
- -----------------------------
[***************]
<PAGE>
EXHIBIT C
METROMEDIA FIBER NETWORK SERVICES, INC.
PRODUCT ORDER
Dark Fiber License
FiberNet Telecom Group, Inc.
<TABLE>
<C> <S>
1. Date:
----
2. Number of Licensed Fibers:
-------------------------
3. Rings: #1_________
----- #2_________
#3_________
#4_________
#5_________
4. Customer Locations: #1_______________
------------------ #2_______________
5. Building Network Connection (On-Network Buildings): Estimate Splice Connection Costs:
-------------------------------------------------- --------------------------------
6. Building Network Connection (Off-Network Buildings):
---------------------------------------------------
7. Customer Charges:
---------------------------------------------------
a. Prepaid Charge $__________
b. MFN will invoice for the Lateral Extension construction cost or splice connection
cost (if applicable).
Invoices shall paid net 30 days after delivery of invoice.
c. Customer will pay all Applicable Taxes.
8. Licensed Fiber Specifications: See Exhibit A, attached hereto.
----------------------------- ---------
9. Estimated Commencement Date(s): _______________
------------------------------
10. Special Requirements.
--------------------
11. Customer Notice:
---------------
FiberNet Telecom Group, Inc.
570 Lexington Avenue
New York, New York 10022
</TABLE>
<PAGE>
This Product Order alone shall not constitute an Agreement between the parties
but shall be incorporated by reference into a Private Network Agreement to be
executed between MFN and Customer.
METROMEDIA FIBER NETWORK SERVICES, INC.
By:_______________________________________________
Print Name:_______________________________________
Title:____________________________________________
FIBERNET TELECOM GROUP, INC.
By:_______________________________________________
Print Name:_______________________________________
Title:____________________________________________
<PAGE>
Exhibit A
---------
Leased Fiber Specifications
and
Fiber Optic Cable Splicing, Testing and Acceptance Standards
MFN will perform fiber testing as described below on each Leased Fiber and will
provide the documentation (hard copy and/or diskette) of results to the
Customer. Each "span" will be defined in documentation included in the
Customer's package. Acceptance of a span by Customer will be an acknowledgement
by the Customer that all Leased Fiber complies with all performance criteria
contained herein.
1) Power testing: This end-to-end loss measurement will be conducted for each
Leased Fiber in the span and both directions using an industry-accepted
laser source and power meter. The bi-directional average will be used to
determine the end-to-end css of the span at each appropriate wave length.
This test will be conducted at both, 1310 nm and 155 nm for Standard Single
Mode Fiber: Dispersion Shifted Fiber (True Wave(TM), LEAF(TM), etc.) will be
tested at 1550 nm only. In the event that a scan consists of both Standard
Single Mode and Dispersion Shifted fiber type, only 1550 nm testing will be
conducted. This power testing will ensure fiber continuity and the absence
of crossed fibers in the span. Power testing will only be conducted where
the Leased Fiber is terminated by MFN in fiber distribution panels at both
ends of the span.
2) OTDR testing: All traces will be provided in hard copy and diskette form
using GR 196 format. This testing will be conducted at both 1310 and 1550 nm
wavelenghts when the Leased Fiber consists of Standard Single Made Fiber,
but will be done at 1550 nm only if the Leased Fiber consists of either
Dispersion Shifted Fiber (True-Wave(TM), LEAF(TM), etc.) or a combination of
Single Mode and Dispersion Shifted fiber types.
OTDR testing will be conducted on a bi-directional basis for each Leased Fiber
in each span at the appropriate wavelengths for the Leased Fiber described
above. However, if due to length or attenuation reasons that the Leased Fiber
span exceeds the dynamic range of an OTDR, a portion or the entire span may be
tested on a unidirectional basis only. Alternatively, the Leased Fiber span may
be divided into shorter testing spans, to the extent reasonably possible, in
order to obtain bi-directional analysis. Also, in instances where a Customer
intends to accept Leased Fiber that is not terminated at one end by MFN in a
fiber distribution panel (such as in manhole or handhold) only unidirectional
testing will be performed.
The turnover documentation package delivered to Customer will contain the actual
trances that detail the testing parameters (including Purse width, averaging and
range). The average bi-directional spice loss for all splices within each span
will be of 0.15 dB or less for all connectors within each span. (Note that the
front and end connector of the span pan only to be measured uni-directionally
and will also have a loss equal to or less than 0.5 dB). In the event that CTDR
acceptance testing must be done on a unidirectional basis (for reasons described
above), an average per span spice loss will be 0.30 dB.
All traces will be provided in hard copy and/or diskette form using GR 196
format. If the average bi-directional splice loss of each span exceeds 0.15 dB
or 0.30 dB uni-directionally), MFN will provide upon the Customer's request
documentation of at least three attempts to reduce this value to below 0.15 dB
(0.30 dB uni-directionally). The only exception to this will be in the instance
of a splice between two different fiber types (Standard Single-mode to
Dispersion Shifted, Depressed-Clad to Matched Clad, fibers with different mode-
field diameters).
Customer should also not that the loss and/or reflectance of the front-end
connector (as measured using a launch cord) is only an indicator of a problem
such as a defective port, bulkhead, or the like. Since a different patch cord
will be used by Customer (that connects to their equipment, or example ) to
mate this connector, a different loss and/or reflectance may
occur.
<PAGE>
EXHIBIT D
LICENSED FIBER PREVIOUSLY PROVIDED BY MFN TO CUSTOMER
[*************]
<PAGE>
EXHIBIT E
EXCHANGE AND REGISTRATION RIGHTS AGREEMENT
THIS EXCHANGE AND REGISTRATION RIGHTS AGREEMENT (this "Agreement"), dated
as of December 17, 1999 among Metromedia Fiber Network Services, Inc., a
Delaware corporation (the "Stockholder"), FiberNet Telecom Group, Inc., a Nevada
corporation (the "Company"), and Local Fiber LLC, a New York limited liability
company of which the Stockholder and the Company are members (the "LLC").
Capitalized terms used herein but not otherwise defined shall have the meanings
given them in Section 1 of this Agreement.
WHEREAS, the Stockholder and the Company have determined to exchange the
Stockholder s membership interest in the LLC for 5,000,000 shares of the
Company's Common Stock, par value $.001 per share (the "Common Stock"), in
accordance with the terms and provisions of this Agreement.
1. Definitions. As used herein, unless the context otherwise requires, the
-----------
following terms have the following respective meanings:
"AMEX" means the American Stock Exchange Inc.
----
"Commission" means the Securities and Exchange Commission or any other
----------
federal agency at the time administering the Securities Act.
"Common Stock" has the meaning ascribed to such term in the recital to this
------------
Agreement.
"Demand Registration" means a registration statement with respect to the
-------------------
other Registrable Securities, including any prospectus contained any such
registration statement and any amendment of or supplement to such registration
statement or prospectus, filed pursuant to Section 4.1 (a) hereof.
"Exchange Act" means the Securities Exchange Act of 1934, as amended, or
------------
any successor federal statute, and the rules and regulations of the Commission
thereunder, all as the same shall be in effect at the time. Reference to a
particular section of the Securities Exchange Act of 1934, as amended, shall
include a reference to the comparable section, if any, of any such successor
federal statute, and to the rules and regulations under such section.
"Incidental Registration" has the meaning ascribed to such term in Section
-----------------------
4.2(a) hereof.
"`Lock-up period" means the period commencing on the date hereof and ending
--------------
one year therefrom.
"Investor Registration Rights Agreement" means "Registrable Shares" as
--------------------------------------
such term is defined in the Investor Registration Rights Agreement.
1
<PAGE>
"Investor Registration Rights Agreement" means that certain Registration
--------------------------------------
Rights Agreement dated as of May 7, 1999, by and among the Company and the
Purchasers named therein, as the same may be amended from time to time.
"Majority Holders" means the holder or holders of a majority of the
----------------
outstanding Registrable Securities, based upon the total number of shares of
Common Stock included in the definition of the Registrable Securities
outstanding at the time such calculation is made.
"NYSE" means the New York Stock Exchange, Inc.
----
"Outstanding" means, with respect to the Common Stock, shares of Common
-----------
Stock issued and outstanding on the date hereof and at any time on or prior to
90 days after the date hereof, and shares of Common Stock issuable upon exercise
or conversion of options, warrants, convertible notes or other debt securities,
convertible preferred stock or other convertible or derivative securities.
"Person" means any individual, corporation, partnership, trust,
------
incorporated or unincorporated association, joint venture, joint stock company,
government (or an agency, department or political subdivision thereof) or other
entity of any kind.
"Registrable Securities" means (i) the Shares and (ii) any Related,
----------------------
Registrable Securities. As to any particular Registrable Securities, once
issued such securities shall cease to be Registrable Securities when (a) a
registration statement with respect to the sale of such securities shall have
become effective under the Securities Act and such securities shall have been
disposed of in accordance with such registration statement, (b) they shall have
been distributed to the public pursuant to Rule 144 (or any successor provision)
under the Securities, (c) they shall have been otherwise transferred, and new
certificates representing them not bearing a legend restricting further transfer
shall have been delivered sby the Company and subsequent public distribution of
them shall not, in the opinion of counsel to the holders (or in the opinion of
counsel to the Company, which opinion is reasonably satisfactory to the
holders), require registration of them under the Securities Act, or (d) they
shall have ceased to be outstanding.
"Registration Expenses" means all costs, fees and expenses incident to the
---------------------
Company's performance of or compliance with Section 4, including, without
limitation, all registration, filing and NASD fees, all fees and expenses of
complying with securities or blue sky laws, all word processing, duplicating and
printing expenses, messenger and delivery expenses, the fees and disbursements
of counsel for the Company and of its independent public accountants, and the
reasonable fees and expenses of one counsel to the Stockholder.
"Related Registrable Securities" means any securities of the Company issued
------------------------------
or issuable with respect to the Shares by way of a dividend or stock split or in
connection with a combination of shares, recapitalization, merger, consolidation
or other reorganization or otherwise.
"Representative" means, if the Stockholder does not hold at least 50% of
--------------
the Registrable Securities, a representative holder designated in writing to the
Company by the Majority Holders.
2
<PAGE>
"Request" has the meaning ascribed to such term in Section 4.1(a) hereof.
-------
"SEC" means the Securities and Exchange Commission or any successor agency.
---
"Securities Act" means the Securities Act of 1933, or any successor federal
--------------
statute, and the rules and regulations of the Commission thereunder, all as the
same shall be in effect at the time. References to a particular section of the
Securities Act of 1933 shall include a reference to the comparable section, if
any, of any such successor federal statute, and to the rules and regulations
under such section.
"Shares" means the 5,000,000 shares of Common Stock to be received by the
------
Stockholder pursuant to this Agreement.
"Shelf Registration" means a "shelf" registration statement with respect to
------------------
the Registrable Securities on Form S-3 or other appropriate form pursuant to
Rule 415 under the Securities Act, including any prospectus contained any such
registration statement and any amendment of or supplement to such registration
statement or prospectus.
"Stockholder" has the meaning ascribed to such term in the preamble hereof,
-----------
provided that term "Stockholder" shall also mean any assignee or transferee of
- --------
the Registrable Securities. If at any time a majority of the Registrable
Securities then outstanding are not held by a single holder, the rights of the
Stockholder hereunder may be enforced by the Majority Holders.
"Transfer" means the sale, transfer, exchange, assignment, pledge or
--------
hypothecation of any Shares to any Person other than Stockholder or a Person
controlled by or under common control with the Stockholder.
2. Exchange of LLC Interests for Shares. The Stockholder hereby exchanges the
------------------------------------
outstanding membership interest held by the Stockholder in the LLC for the
Shares. Effective upon the execution and delivery of this Agreement and the
delivery by the Company to the Stockholder of a certificate representing the
Shares, the Stockholder hereby withdraws as a member of the LLC. In conjunction
with and as a condition precedent to the consummation of the transactions
contemplated by this Section 2, the Stockholder's subsidiary Metromedia Fiber
Network Services, Inc. and Local Fiber LLC shall execute and deliver a Private
Network Agreement in the form of Exhibit A hereto.
3. Representations and Warranties of the Company. The Company and the LLC
---------------------------------------------
hereby jointly and severally represent and warrant to the Stockholder as
follows:
3.1 Corporate Organization and Authority of the Company; Binding Effect.
(a) The Company is a corporation duly organized, validly existing and in good
standing under the laws of Nevada and has all corporate power and authority
to carry on its business as now being conducted and to own its properties.
The Company has heretofore delivered to the Stockholder complete and
correct copies of its certificate of incorporation and by-laws, as
currently in effect.
3
<PAGE>
(b) The LLC is a limited liability company duly organized, validly existing and
in good standing under the laws of New York and has all limited liability
company power and authority to carry on its business as now being conducted
and to own its properties.
(c) The Company has full corporate power and authority to enter into this
Agreement and any other applicable agreements contemplated hereby and to
consummate the transactions contemplated hereby. The execution, delivery
and performance by the Company of this Agreement and each such other
agreement contemplated hereby to which it is or will be a party have been
duly authorized by all requisite corporate action.
(d) The LLC has full limited liability company power and authority to enter
into this Agreement and any other applicable agreements contemplated hereby
and to consummate the transactions contemplated hereby. The execution,
delivery and performance by the LLC of this Agreement and each such other
agreement contemplated hereby to which it is or will be a party have been
duly authorized by all requisite action.
(e) This Agreement has been, and each of the other Agreements to which the
Company or the LLC is a party will be as of the Closing Date, duly executed
and delivered by the Company and the LLC, and (assuming due execution and
delivery by he Stockholder) this Agreement constitutes, and each of such
other Agreements when executed and delivered will constitute, a valid and
binding obligation of the Company and the LLC, enforceable in accordance
with is terms, except as may be limited by bankruptcy, insolvency,
reorganization or similar laws affecting creditors' rights generally or by
general equitable principles.
3.2 Capitalization. As of the date hereof, the Company has (i) 50,000,000
--------------
shares of Common Stock, $.001 par value authorized and (ii) 5,000,000 shares of
Preferred Stock, $.001 par value ("Preferred Stock") authorized. Of the
50,000,000 shares of Common Stock authorized, 20,432,464 shares are issued and
outstanding and 23,233,210 shares have been reserved for issuance upon the
conversion or exercise of the issued and outstanding Preferred Stock, warrants
and options existing as of the date hereof. Of the 5,000.000 shares of
Preferred Stock authorized, (i) 1,000,000 shares are designated and authorized
as Series A Convertible Cumulative Preferred Stock, $.001 par value ("Series A
Preferred Stock"), (ii) 80,000 shares are designated and authorized as Series B
Voting Preferred Stock, $.001 par value ("Series B Preferred Stock"), (iii)
133,333 shares are designated and authorized as Series C Preferred Stock, $.001
par value ("Series C Preferred Stock"), (iv) 500,000 shares are designated and
authorized as Series D Preferred Stock") $.001 par value ("Series D Preferred
Stock"), (v) 750,000 shares are designated and authorized as Series E Preferred
Stock, $.001, par value ("Series E Preferred Stock") and (vi) 500,000 are
designated and authorized as Series F Preferred Stock, $.001 par value ("Series
F Preferred Stock ). Of the designated and authorized Preferred Stock, 133,333
shares of the Series C Preferred Stock are issued and outstanding, 309,143
shares of the Series D Preferred Stock are issued and outstanding, 291,926
shares of the Series E Preferred Stock are issued and outstanding and 345,515
shares of the Series F Preferred Stock are issued and outstanding. There are no
shares of the Series A Preferred Stock or Series B Preferred Stock; issued and
outstanding as of this date. All the shares of Common Stock to be issued upon
the conversion or exercise of issued and outstanding shares
4
<PAGE>
of Preferred Stock, and all of the shares of Common Stock to be issued upon the
conversion or exercise of issued and outstanding shares of Preferred Stock and
warrants and options issued by the Company will be when issued, fully paid and
nonassessable.
3.3 No Violation; Consents.
----------------------
(a) Except as otherwise described on Schedule 1 hereto, neither the Company nor
any the subsidiary of the Company is subject to or bound by any provision:
(i) any law, statute, rule, regulation or judicial or administrative decision;
(ii) any articles or certificates of incorporation or by-laws;
(iii)any mortgage, deed of trust, lease, note, shareholders' agreement, bond,
indenture, instrument, agreement, license, permit, trust or custodianship,
in each case to which the Company or any such subsidiary is a party or
under which the Company or any such subsidiary is bound; or
(iv) any judgment, order, writ, injunction or decree of any court, governmental
body, administrative agency or arbitrator,
that would prevent or be violated by or that would result in the creation of any
lien, charge, security interest or other restriction or encumbrance as a result
of, or under which there would be a default or right of termination as a result
of, the execution, delivery and performance by the Company and the LLC of this
Agreement and the consummation of the transactions contemplated hereby.
(b) Except as otherwise described on Schedule 1 hereto, no consent, approval or
authorization or declaration or filing with any Person is required for the
valid execution, delivery and performance by Seller of this Agreement and
the consummation of the transactions contemplated hereby.
3.4 SEC Filings. The Company has timely filed all reports and other documents
-----------
(collectively, the "SEC Filings") required to be filed by the Company with the
SEC pursuant to the Securities Act, the Exchange Act and any other applicable
provision of the United States securities laws. Each such report, at the time
filed, did not include an untrue statement of a material fact or omit to state a
material fact required to be stated therein or necessary to make the statements
therein not misleading in the light of the circumstances under which they were
made.
3.5 Financial Statements. Except as noted therein and except for normal year-
--------------------
end adjustments with respect to unaudited financial statements, all financial
statements contained n the SEC Filings or otherwise delivered to the Stockholder
were prepared in accordance with generally accepted accounting principles
consistently applied throughout the periods indicated, and present fairly in all
material respects the consolidated, financial position of the Company and its
Subsidiaries at such dates, and the consolidated results of their operations and
cash flows for the period then ended.
5
<PAGE>
3.6 No Material Change. Since the September 30, l999, there has been no
------------------
material adverse change in the financial condition, assets, liabilities
(contingent or otherwise), results of operations or business of the Company and
its subsidiaries considered as a whole.
4. Registration Under Securities Act, etc.
--------------------------------------
4.1 Demand Registration.
-------------------
(a) Right to Demand Registration. Subject to Section 4.1(c), at any time or
----------------------------
from time to time after the end of the Lock-up period the Stockholder
shall have the right to request in writing that the Company register all or
part of the Registrable Securities (a "Request") (which Request shall
specify the amount of Registrable Securities intended to be disposed of and
the intended method of disposition thereof) by filing with the SEC a Demand
Registration. The Company shall, within 30 days following a Request, cause
to be filed with the SEC a Demand Registration providing for the
registration under the Securities Act of the Registrable Securities which
the Company has been so requested to register, to the extent necessary to
permit the disposition of such Registrable Securities in accordance with
the intended methods of disposition thereof specified in such Request. The
Company shall use its best efforts to have such Demand Registration
declared effective by the SEC as soon as practicable, and in no event more
than 180 days, and thereafter to keep such Demand Registration Statement
continuously effective for the period specified in Section 4.1(b). The
Company shall pay all Registration Expenses incurred in connection with any
Demand Registration, whether or not it becomes effective (unless the
Stockholder shall for any reason unilaterally withdraw such Demand
Registration other than for a materially adverse change in the Company's
business, operations, prospects or valuation), and whether all none or some
of the Registrable Securities are sold pursuant to the Demand Registration.
Notwithstanding anything contained in Section 4.1 or Section 6 hereof, in
the event any Investor Registrable Securities are publicly registered
pursuant to a demand registration under the terms of the Investor
Registration Rights Agreement prior to the end of the Lock-up Period, the
Stockholder will have the right to participate in such investor demand
registration on a pro rata basis with such requesting holders of Investor
--- ----
Registrable Securities.
(b) Priority in Demand Registrations. If a Demand Registration involves an
--------------------------------
underwritten offering, and the sole or lead managing underwriter, as the
case may be, of such underwritten offering shall advise the Company in
writing that, in its opinion, the amount of Registrable Securities
requested to be included in such Demand Registration exceeds the number
which can be sold in such offering within a price range acceptable to the
Stockholder (such writing to state the basis of such opinion and the
approximate number of Registrable Securities which may be included in such
offering), the Company shall include in such Demand Registration, to the
extent of the number which the Company is so advised may be included in
such offering, the Registrable Securities requested to be included in the
Demand Registration by the Stockholder. If no such written notice is
provided, the company may include in such Demand Registration securities
for its own account or for the account of other persons.
(c) Limitations on Registrations. The right of the Stockholder to request
----------------------------
Demand Registrations pursuant to Section 4. (a) are subject to the
following limitations: (i) the Company shall not be obligated to effect a
Demand Registration within six months after the effective date of any other
registration of Common Stock Securities Act (other them pursuant to a
registration
6
<PAGE>
on Form S-8 or Form Successor or similar form which is then in
effect), and (ii) in no event shall the Company be required to effect, in
the aggregate, more than two (2) Demand Registrations.
(d) Underwriting; Selection of Underwriters. If the Company so elects, any
---------------------------------------
offering of Registrable Securities pursuant to a Demand Registration shall
be in the form of an underwritten offering. If any Demand Registration
involves an underwritten offering, the sole or managing underwriters and
any additional investment bankers and managers to be used in connection
with such registration shall be selected by the Company subject to the
reasonable approval of the Stockholder, such approval not to be
unreasonably withheld or delayed.
(e) Effective Registration Statement; Suspension. A Demand Registration shall
--------------------------------------------
not be deemed to have become effective (and the related registration will
not be deemed to have been effected) unless it has been declared effective
by the SEC and remains effective in compliance with the provisions of the
Securities Act with respect to the disposition of all Registrable
Securities covered by such Demand Registration.
(f) Registration Statement Form. Registrations under this Section 4.1 shall be
---------------------------
on such appropriate registration form of the SEC (i) as shall be selected
by the Company, and (ii) which shall be available for the sale of
Registrable Securities in accordance with the intended method or methods of
disposition specified in the requests for registration.
4.2 Incidental ("Piggyback") Registration.
(a) Right to Include Registrable Securities. If at any time or from time to
time after the Lock-up Period the Company proposes to register any shares
of its Common Stock under the Securities Act (other than in a registration
on Form S-4 or S-8 or any successor form to such forms, other than a
registration on any registration form which does not permit secondary sales
and other than pursuant to Section 4.1 ) whether or not pursuant to
registration rights granted to other holders of its securities and whether
or not for sale for its own account, the Company shall deliver prompt
written notice to the Stockholder of its intention to undertake such
registration (an "Incidental Registration") and of the Stockholder's right
to participate in such registration under this Section 4.2 as hereinafter
provided. Subject to the other provisions of this paragraph (a) and
Section 4.2(b), upon the written request of the Stockholder made within 10
days after the receipt of such written notice (which request shall specify
the amount of Registrable Securities to be registered), the Company shall
use its best efforts to include in such registration all Registrable
Securities requested by the Stockholder to be so registered to the extent
requisite to permit the registration of the Registrable Securities to be so
registered. If an Incidental Registration involves an underwritten
offering, the sole or leading managing underwriter may require the
Stockholder to participate in the underwritten offering and to sell its
Registrable Securities to the underwriters at the same price and on the
same terms of underwriting applicable to the Company and any other Persons
selling securities of the Company. The Company shall pay all Registration
Expenses incurred in connection with any Incidental Registration, whether
or not it becomes effective, and whether all, none or some of the
Registrable Securities are sold pursuant to the Incidental Registration.
If at any time after giving written notice of its intention to register any
securities and prior to the effective date of the incidental Registration
Statement filed in connection with such
7
<PAGE>
registration, the Company shall determine for any reason not to register or to
delay registration of such securities, the Company may, at its election give
written notice of such determination to the Stockholder and, thereupon, (i) in
the case of a determination not to register, the Company shall be relieved of
its obligation to register any Registrable Securities in connection with such
registration (but not from its obligation to pay the Registration Expenses
incurred in connection therewith), without prejudice, however, to the rights the
Stockholder to cause such registration be effected as a registration under
Section 4.1, and (ii) in the case of a determination to delay such registration,
the Company shall be permitted to delay the registration of such Registrable
Securities for the same period as the delay in registering such other
securities.
(b) Priority in Incidental Registration. If an Incidental Registration
-----------------------------------
involves an unwritten offering, and the sole or the lead managing
Underwriter, as the case may be, of such underwritten offering shall advise
the Company in writing (with a copy to the Stockholder) that, in its
opinion, the amount of securities (including Registrable Securities)
requested to be included in such registration exceeds the amount which can
be sold in such offering without interfering with the successful marketing
of the securities being offered (such writing to state the basis of such
opinion and the approximate number of such securities which may be included
in such offering without such effect), or, in the case of an Incidental
Registration not involving an underwritten offering, the Company shall
reasonably determine (and notify the Stockholder of such determination),
after consultation with an investment banking firm, that the amount of
securities (including Registrable Securities) proposed to be sold in such
offering exceeds the number which can be sold in such offering within a
price range acceptable to the Company, the Company shall include in such
registration, to the extent of the number which the Company is so advised
(or, in the case of an Incidental Registration not involving an
underwritten offering, which the Company reasonably determines) may be
included in such offering without such effect, (i) in the case of a
registration initiated by the Company, (A) first, the securities that the
Company proposes to register for its own account, and (B) second, the
Registrable Securities requested to be , included in such registration by
the Stockholder and other securities of the Company to be, registered on
behalf of any other Person, allocated rata in proportion to the number of
securities requested to be included in such registration by each of them,
and (ii) in the case of a registration initiated by a Person other than the
Company, (A) first, the securities of the Company requested to be included
in such registration by the Persons initiating such registration, (B)
second, the securities that the Company proposes to register for its own
account, and (C) third, the Registrable Securities requested to be included
in such registration by the Stockholder and any other securities of the
Company to be registered on behalf of any Person, allocated pro rata in
proportion to the number or securities requested to be included in such
registration by each of them.
(c) Suspension of Demand Registration. Notwithstanding anything herein to the
---------------------------------
contrary, from the date of notice by the Company of its intention to under
which an incidental Registration and for so long as the Company is on a
best efforts basis pursuing such registration, the right of the Stockholder
to effect a Demand Registration shall be suspended.
4.3 Shelf Registration. The Company shall file, as soon as reasonably
------------------
practicable following later of the date hereof and the first date upon which the
Company is eligible to file a registration statement on Form S-3 under the
Securities Act, a Shelf Registration. The Company shall use its commercially
reasonable efforts to have the Shelf Registration declared effective as
8
<PAGE>
soon as reasonably practicable after such filing, and shall use its commercially
reasonable efforts to keep the Shelf Registration continuously effective from
the date such Shelf Registration is declared effective until the earlier of (i)
such time as all of the Registrable Securities shall cease to be Registrable
Securities and (ii) December 13, 2002.
The Company shall supplement or amend, if necessary, the Shelf
Registration, as required by the registration form utilized by the Company or by
the instructions applicable to such registration form or by the Securities Act
or as reasonably required by the Stockholder, and the Company shall furnish to
the holders of the Registrable Securities to which the Shelf Registration
relates copies of any such supplement or amendment prior to its being filed with
the Commission or the intended date of its first use if no filing with the
Commission is required. The Company shall pay all Registration Expenses
incurred in connection with the Shelf Registration whether or not it becomes
effective, and whether all, none or some of the Registrable Securities are sold
pursuant to the Shelf Registration. In no event shall the Shelf Registration
include securities other than Registrable Securities, unless the Stockholder
consents to such inclusion.
4.4 Registration Procedures. In connection with any registration statement
-----------------------
filed pursuant to this Section 4, the Company will, as expeditiously as
possible:
(i) prepare and file with the Commission such amendments and supplements to
such registration statement and the prospectus used in connection therewith
as may be necessary to keep such registration statement effective and to
comply with the provisions of the Securities Act with respect to the
disposition of all Registrable Securities covered by such registration
statement or as may be reasonably requested by the Stockholder, until such
time as all of such Registrable Securities have been disposed of in
accordance with the intended methods of disposition by the seller or
sellers thereof set forth in such registration statement;
(ii) furnish to each seller of Registrable Securities covered by such
registrator statement, such number of conformed copies of such registration
statement and to each such amendment and supplement thereto (in each case
including all exhibits and such number of copies of the prospectus
contained in such registration statement (including each preliminary,
prospectus and any summary prospectus and any other prospectus filed under
Rule 24 under the Securities Act, in conformity with the requirements of
the Securities Act, and such other documents, as such seller may reasonably
request;
(iii)use its best efforts to (x) register or qualify all Registrable Securities
and other securities covered by such registration statement under such
other securities or blue sky laws of such States of the United States of
America where an exemption is rot available and as the sellers of
Registrable Securities covered by such registration statement shall
reasonably request, (y) keep such registration or qualification in effect
for so long as such registration statement remains in effect, and (z) take
any other action which may be reasonably necessary or advisable to enable
such sellers to consummate the disposition in such jurisdictions of the
securities to be sold by such sellers, except that the Company shall not
for any such purpose be required to qualify generally to do business as a
foreign corporation in any jurisdiction wherein would not but for the
requirements of this subdivision (iii) be obligated to be so qualified
subject itself to taxation in any such jurisdiction or consent to general
service of process in any such jurisdiction;
9
<PAGE>
(iv) use its best efforts to cause all Registrable Securities covered by such
registration statement to be registered with or approved by such other
federal or state governmental agencies or authorities as may be necessary
in the opinion of counsel to the Company and counsel to the seller or
sellers of Registrable Securities to enable the seller or sellers thereof
to consummate the disposition of such Registrable Securities;
(v) promptly notify each seller of Registrable Securities covered by such
registration statement at any time when a prospectus relating thereto is
required to be delivered under the Securities Act, upon discovery that, or
upon the happening of any event as a result of which, the prospectus
included in such registration statement, as then in effect, includes an
untrue statement of a material fact or omits to state any material fact
required to be stated therein or necessary to make the statements therein
not misleading, in the light of the circumstances under which they were
made, and shall promptly prepare and furnish to each seller a reasonable
number of copies of a supplement to or an amendment of such prospectus as
may be necessary so that, as thereafter delivered to the purchasers of such
securities, such prospectus shall not include an untrue statement of a
material fact or omit to state a material fact required to be stated
therein or necessary to make the statements therein not misleading in the
light of the circumstances under which they were made;
(vi) otherwise use its best efforts to comply with all applicable rules and
regulations of the Commission, and make available to its security holders,
as soon as reasonably practicable, an earnings statement covering the
period of at least twelve months, but not more than eighteen months,
beginning with the first full calendar month after the effective date of
such registration statement, which earnings statement shall satisfy the
provisions of Section 11 (a) of the Securities Act and Rule 158 promulgated
thereunder, and promptly furnish to each such seller of Registrable
Securities a copy of any amendment or supplement to such registration
statement or prospectus; and
(vii)use its best efforts (X) list all Registrable Securities covered by such
registration statement on the NYSE, the AMEX or such other national
securities exchange on which Registrable Securities of the same class and,
if applicable, series, covered by such registration statement are then
listed, or (y) if the Registrable Securities are quoted on Nasdaq National
Market, Inc. or another interdealer quotation system, arrange for the
quotation of all Registrable Securities covered by such registration
statement on Nasdaq National Market, Inc. or such other interdealer
quotation system.
The Company may (i), require each seller of Registrable Securities as to
which any registration is being effected to furnish the Company such information
regarding such seller and the distribution of such securities as the Company may
from time to time reasonably request in writing and (ii) require each seller of
Registrable Securities to agree to comply with the Securities Act and the
Exchange Act in connection with the registration and distribution of the
Registrable Securities.
Notwithstanding the foregoing, if any such registration or comparable
statement refers to any holder by name or otherwise as the holder of any
securities of the Company and in its sole and exclusive judgment such holder is
or might be deemed to be a controlling person of the Company, such holder shall
have the right to require the insertion therein of language, in form
10
<PAGE>
and substance reasonably satisfactory to such holder and the Company, to the
effect that the holding by such holder of such securities is not to be construed
as a recommendation by such holder of the investment quality of the Company's
securities covered thereby and that such holding does not imply that such holder
will assist in meeting any future financial requirements of the Company.
Each holder of Registrable Securities agrees by acquisition of such
Registrable Securities that, upon receipt of any notice from the Company of the
happening of any event of the kind described in subdivision (v) of this Section
4.4, such holder will forthwith discontinue such holder's disposition of
Registrable Securities pursuant to the registration statement relating to such
Registrable Securities until such holder's receipt of the copies of the
supplemented or amended prospectus contemplated by subdivision (v) of this
Section 4.4 and, if so directed by the Company, will promptly deliver to the
Company (at the Company's expense) all copies, other than permanent file copies,
then in such holder's possession of the prospectus relating to such Registrable
Securities current at the time of receipt of such notice.
4.5 Preparation; Reasonable Investigation. In connection with the preparation
-------------------------------------
and filing of each registration statement under the Securities Act pursuant to
this Agreement, :he Company
(i) shall give the Stockholder or the Representative, and counsel and accounts
designated by the Stockholder or the Representative, as the case may be,
the opportunity to participate in the preparation of such registration
statement, each prospectus included therein or filed with the Commission,
and each agreement thereof or supplement thereto,
(ii) shall give each of them such reasonable access to its books and records and
such opportunities to discuss the business of the Company with its officers
and the independent public accountants who have certified its financial
statements as shall be necessary in the opinion of the Stockholder or the
Representative, as the case may be, and such counsel or accountants, to
conduct a reasonable investigation within the meaning of the Securities
Act, and (iii) shall promptly notify the Stockholder or the representative,
as the case may be, and its counsel of any stop order issued or threatened
by the Commission and promptly take all reasonable actions required to
prevent the entry of such stop order or to remove it if entered.
4.6 Indemnification.
---------------
(a) Indemnification by the Company. The Company will, and hereby does,
------------------------------
indemnify and hold harmless, in the case of any registration statement
filed pursuant to this Section 4, each seller of any Registrable Securities
covered by such registration statement and each other Person who
participates as an underwriter in the offering or sale of such securities
and each other Person if any, who controls such seller or any such
underwriter within the meaning of the Securities Act, and their perspective
directors, officers partners, shareholders, employees and affiliates
against any losses, claims, damages or liabilities, joint or several, to
which such seller or underwriter or any such director, officer, partner,
shareholder, employee, affiliate or controlling person may become subject
under the Securities Act or otherwise, including, without limitation, the
fees and expenses of legal counsel, insofar as such losses, claims, damages
or liabilities (or actors or proceedings, whether commenced or threatened,
in respect thereof) arise
11
<PAGE>
out of or are based upon any untrue statement or alleged untrue statement
of any material fact contained in any registration statement under which
such securities were registered under the Securities Act, any preliminary
prospectus final prospectus or summary prospectus contained therein, or any
amendment or supplement thereto, or any omission or alleged omission to
state therein a material fact required to be stated therein or necessary to
make the statements therein in light of the circumstances in which they
were made not misleading, or any violation by the Company of the Securities
Act, and the Company will reimburse each Such seller or underwriter and
each such director, officer, partner, shareholder, employee, affiliate and
controlling Person or any legal or any other expenses reasonably incurred
by them in connection with investigating or defending any such loss, claim,
liability, action or proceeding; provide that the Company shall not be
-------
liable in any such case to the extent that any such loss, claim, damage,
liability (or action or proceeding in respect thereof) or expense rises out
of or is based upon an untrue statement or alleged untrue statement mission
or alleged omission made in such registration statement, any such
preliminary prospectus, final prospectus, summary prospectus, amendment or
supplement in reliance upon and conformity with written information
furnished the Company through an instrument duly executed by or on behalf
of such seller or underwriter, as the case may be specifically stating that
it is or use n the preparation thereof. Such indemnity shall remain in full
force and effect regardless of any investigation made by or on behalf of
any such seller or any such director, officer, employee, affiliate, or
controlling person and shall surviving the transfer of such securities by
such seller.
(b) Indemnification by the Sellers. As a condition to including any
------------------------------
Registrable Securities in any registration statement, the Company shall
have received an undertaking satisfactory to it from the prospective seller
of such Registrable Securities, to indemnify and hold harmless (in the same
manner and to the same extent as set forth in subdivision (a) of this
Section 4.6) the Company, and each director, officer, employee and
shareholder of the Company and each other Person, if any, who participates
as an underwriter in the offering or sale of such securities and each other
Person who controls the Company or any such underwritten within the meaning
of the Securities Act, with respect to any untrue statement or alleged
untrue statement of a material fact contained in or any omission or alleged
omission to state therein a material fact in any such registration
statement any preliminary prospectus, final prospectus or summary
prospectus contained therein, or any amendment or supplement thereto, if
such untrue statement or alleged untrue statement or omission or alleged
omission was made in reliance upon and in conformity with written
information furnished to the Company through an instrument duly executed by
or on behalf of such seller specifically stating that it is for use in the
preparation of such registration statement, preliminary prospectus, final
prospectus, summary prospectus, amendment or supplement; provided that the
liability of such indemnifying party under this Section 4.6(b) shall be
limited to the amount of proceeds received by such indemnifying party in
the offering giving rise to such liability. Such indemnity shall remain in
full force and effect, regardless of any investigation made by or an behalf
of the Company or any such director, officer, employee, shareholder or
controlling person and shall survive the transfer of such securities by
such seller.
(c) Notices of Claims, etc. Promptly after receipt by an indemnified party of
----------------------
notice of the commencement of any action or proceeding involving a claim
referred to in the preceding subdivisions of this Section 4.6, such
indemnified party will, if a claim in respect thereof is to be made against
an indemnifying party, give written notice to the latter of the
commencement of
12
<PAGE>
such action; provided that the failure of any indemnified party to give
--------
notice as provided herein shall not relieve the indemnifying party of its
obligations under the preceding subdivisions of this Section 4.6, except to
the extent that the indemnifying party is actually prejudiced by such
failure to give notice. In case any such action is brought against an
indemnified party the indemnifying party shall be entitled to participate
in and to assume the defense thereof, jointly with any other indemnifying
party similarly notified to the extent that it may wish, with counsel
reasonably satisfactory to such indemnified party, and after notice from
the indemnifying party to such indemnified party of its election so to
assume the defense thereof, the indemnifying party shall not be liable to
such indemnified party for any legal or other expenses subsequently
incurred by latter in connection with the defense thereof other than
reasonable costs of investigation, provided that if the indemnified party
--------
reasonably believes it is advisable for it to be represented by separate
counsel because there exists a conflict of interest between its interests
and those of the indemnifying party with respect to such claim, or there
exist defenses available to such indemnified party which may not be
available to the indemnifying party, or if the indemnifying party shall
fail to assume responsibility to such defense, the indemnified party may
retain counsel satisfactory to it and the indemnifying party shall pay all
fees and expenses of such counsel. No indemnifying party shall be liable
for any settlement of any action or proceeding effected without its written
consent, which consent shall not be unreasonably withheld or delayed. No
Indemnifying party shall, without the consent of the indemnified party,
consent to entry of any judgment or enter into any settlement which does
not include as an unconditional term thereof the giving by he claimant or
plaintiff to such indemnified party of a release from all liability in
respect to such claim or litigation or which requires action other than the
payment of money by the indemnifying party. Each indemnified party shall
furnish such information regarding itself or the claim in question as an
indemnifying party may reasonably request in writing and as shall be
reasonably requested in connection with the defense of such claim and
litigation resulting therefrom.
(d) Contribution. If the indemnification provided for in this Section 4.6
------------
shall for any reason be held by a court of competent jurisdiction to be
unavailable to an indemnified party under subparagraph (a) or (b) hereof in
respect of any loss, claim, damage or liability, or any action in respect
thereof, then, in lieu of the amount paid or payable under subparagraph (a)
or (b) hereof, the indemnified party and the indemnifying party under
subparagraph (a) or (b) hereof shall contribute to the aggregate losses,
claims, damages and liabilities (including legal or other expenses
reasonably incurred in connection with investigating the same), in such
proportion as is appropriate to reflect the relative fault of the Company
and the prospective sellers of Registrable Securities covered by the
registration statement in connection with the statements or omissions which
resulted in such loss, claim, damage or liability, or action in respect
thereof, as well as any other relevant equitable considerations (the
relative fault of the Company and such prospective sellers to be determined
by reference to, among other things, whether the untrue or alleged untrue
statement of a material fact or the omission or alleged omission to state a
material fact relates to information supplied by the Company or such
prospective sellers and the parties' relative intent, knowledge, access to
information and opportunity to correct or prevent such statement or
omission). The parties hereto agree that it would not be just and
equitable if contribution pursuant to this paragraph were determined by pro
---
rata allocation or other method which does not take into account the
----
considerations referred to in paragraphs 4.4(a) and 4.4(b). No person
guilty of fraudulent misrepresentation (within the meaning of Section 11
(f) of the Securities Act) shall be entitled to contribution from any
Person
13
<PAGE>
who was not guilty of such fraudulent misrepresentation. Such prospective
sellers obligations to contribute as provided in this subparagraph (d) are
several in proportion to the relative value of their retrospective
Registrable Securities covered by such registration statement and not
joint. In addition, no Person shall be obligated to contribute hereunder,
any amounts in, payment for any settlement of any action or claim effected
without such Person's consent which consent shall not be unreasonably
withheld or delayed.
(e) Other Indemnification. Indemnification and contribution similar to that
---------------------
specified in the preceding subdivisions of this Section 4.6 (with
appropriate modifications) shall be given by the Company and each seller of
Registrable Securities with respect to any required registration or other
qualification of securities under any federal or state law, rule or
regulation of any governmental authority other than the Securities Act.
(f) Indemnification Payments. The indemnification and contribution required by
------------------------
this Section 4.6 shall be made by prompt periodic payments of the amount
thereof during the course of the investigation or defense as and when bills
are received or expense, loss, damage or liability is incurred.
5. Rule 144 and Rule 144A. The Company shall take all actions reasonably
----------------------
necessary to enable holders of Registrable Securities to sell such securities
after the expiration of the Lock-up Period without registration under the
Securities Act within the limitation of the exemptions provided by
(a) Rule 144 under the Securities Act as such Rule may be amended from time to
time,
(b) Rule 144A under the Securities Act, as such Rule may be amended from time
to time, or
(c) any similar rules or regulations hereafter adopted by the Commission,
including, without limiting the generality of the foregoing, filing on a
time basis all reports required to be filed by Exchange Act.
Upon the request of any holder of Registrable Securities, the Company will
deliver to such holder a written statement as to whether it has complied with
such requirements.
6. Lock-up. Except as otherwise provided in the last sentence of Section
-------
4.1(a) hereof, the Stockholder will not transfer any of the Shares during the
Lock-up Period.
7. Restricted Securities. The parties hereto agree that the certificate
---------------------
representing the Shares have not been registered under the Securities Act and
shall bear the following legend
THE SECURITIES REPRESENTED BY THIS CERTIFICATE HAVE BEEN ACQUIRED FOR
INVESTMENT AND HAVE NOT BEEN REGISTERED UNDER THE SECURITIES ACT OF
1933 OR THE SECURITIES LAWS OF ANY STATE. THESE SECURITIES MAY NOT BE
SOLD, TRANSFERRED OR OTHERWISE DISPOSED OF EXCEPT IN ACCORDANCE
14
<PAGE>
WITH THE TERMS OF THE EXCHANGE AND REGISTRATION RIGHTS AGREEMENT DATED
AS OF DECEMBER 13, 1999, AMOUNG METROMEDIA FIBER NETWORK SERVICES,
INC., FIBERNET TELECOM GROUP, INC. AND LOCAL FIBER LLC.
8. Amendments and Waivers. This Agreement may be amended with the written
----------------------
consent of the Company and the Company may take any action herein prohibited, or
omit to perform any act herein required to be performed by it, only if the
Company shall have obtained the written consent to such amendment, action or
omission to act, of the Stockholder. Each holder of any Registrable Securities
at the time or thereafter outstanding shall be bound by any consent authorized
by this Section 4, whether or not such Registrable Securities shall have been
marked to indicate such consent.
9. Nominees for Beneficial Owners. In the event that any Registrable
------------------------------
Securities are held by a nominee for the beneficial owner thereof, the
beneficial owner thereof may, at its election in writing delivered to the
Company, be treated as the holder of such Registrable Securities for purposes of
any request, consent, waiver or other action by any holder or holders of
Registrable Securities pursuant to this Agreement or any determination of any
number or percentage of shares of Registrable Securities held by any holder or
holders of Registrable Securities contemplated by this Agreement. If the
beneficial owner of any Registrable Securities so elects, the Company may
require assurances reasonably satisfactory to it of such owner's beneficial
ownership of such Securities.
10. Notices. All notices, demands and other communications provided for or
-------
permitted hereunder shall be made in writing and shall be registered or
certified first-class mail, return receipt requested, telex, telegram,
telecopier, reputable courier service or personal delivery to the following
addresses (or at such other address for a party as shall be specified by like
notice):
(i) if to the Stockholder;
One North Lexington Avenue
White Plains, NY 10601
Attn: Chief Financial Officer
Telecopy: (914 ) 421-7550
With a copy to:
One Meadowlands Plaza
East Rutherford, NJ 070073
Attn: General Counsel
Telecopy: (201) 531-2803 1
(ii) if to the Company, to:
570 Lexington Avenue
New York, New York 10022
15
<PAGE>
Attn: Michael Liss, President
Telecopy: 212 421-8860
All such notices and communications shall be deemed to have been duly
given: when delivered by hand, if personally delivered; create business day
after being sent by reputable courier service; three business days after being
deposited in the mail, postage prepaid, if mailed; when answered back, if
telexed; and when receipt is acknowledged, if telecopied.
11. Assignment. This Agreement shall be binding upon and inure to the benefit
----------
of and shall be enforceable by the parties hereto and, with respect to the
Company, its respective successors and assigns and, with respect to the
Stockholder, any holder of any Registrable Securities.
12. Investment Only. The Stockholder hereby represents and Warrants to the
---------------
Company that it has acquired the Shares or investment only, for its own account
and not for resale or distribution. The Stockholder further acknowledges that
the Shares are being issued pursuant to and exemption from registration under
the Securities Act and agrees not to sell or otherwise dispose of the Shares in
any transaction which, in the reasonable opinion of the Stockholder's counsel,
would be in violation of the Securities Act. The Stockholder acknowledges that
a legend appears on the certificates representing the Shares reflecting the
foregoing restriction and the Stockholder hereby consents to the Company's
maintaining "stop transfer" instructions with its transfer agent with respect
thereto.
13. No Inconsistent Agreements. The Company will not hereafter enter into any
--------------------------
agreement with respect to its securities which is inconsistent with the rights
granted to the Stockholder in this Agreement.
14. Remedies. In addition to being entitled to exercise all rights granted by
--------
law. including recovery) of damages, the Stockholder will be entitled to
specific performance of its rights under this Agreement. The Company agrees
that monetary damages would not be adequate compensation for any loss incurred
by reason of a breach by it of the provisions of this agreement and hereby
agrees, in any action for specific performance, to waive the defense that a
remedy at law would be adequate.
15. Severability. If any one or more of the provisions contained herein, or
------------
the application thereof in any circumstances, is held invalid, illegal or
unenforceable in any respect for any reason, the validity, legality and
enforceability of any such provision in every other respect and of the remaining
provisions contained herein shall not be in any way impaired thereby, it being
intended and understood that all of the rights and privileges of the Stockholder
shall be enforceable to the fullest extent permitted by law
16. Entire Agreement. This Agreement is intended by the parties as a final
----------------
expression of their agreement and intended to be a complete and exclusive
statement of the agreement and understanding of the parties hereto in respect of
the subject matter contained herein. There are no restrictions, promises,
warranties or undertakings, other than those set forth or referred to herein and
therein. This Agreement supersedes all prior agreements and understandings
between the parties with respect to such subject matter.
16
<PAGE>
17. Descriptive Headings. This agreement shall be construed and enforced in
--------------------
accordance with, and the rights of the parties shall be governed by, the laws of
the State of New York applicable to agreements made and to be performed entirely
within such state.
18. Governing Law. This agreement shall be construed and enforced in any
-------------
number of counterparts, each of which shall be deemed an original, but all such
counterparts shall together constitute one and the same instrument.
19. Counterparts. This Agreement may be executed in any number of
------------
counterparts, each of which shall be deemed an original, but all such
counterparts shall together constitute one and the same
instrument.
17
<PAGE>
IN WITNESS WHEREOF, the parties have caused this Agreement to be executed
and delivered by their respective officers thereunto duly authorized as of the
date first above written.
METROMEDIA, FIBER NETWORK SERVICES, INC.
By : /s/ Howard Finkelstein
-----------------------
Name:
Title:
FIBERNET TELECOM GROUP, INC.
By : /s/ Michael S. Liss
--------------------
Name:
Title:
LOCAL FIBER LLC
By : /s/ Michael S. Liss
--------------------
Name:
Title:
<PAGE>
SCHEDULE 1
The Parties acknowledge and agree that all appropriate Shareholder and/or
Board of Director's consents and approvals have been provided and received.
<PAGE>
EXHIBIT F
Rental Allocation Schedule
The Parties shall determine the allocation for rental payable for the
Licensed Fiber based on a valuation of the allocated Common Stock which
valuation shall be determined by the price of the Common Stock for the thirty
(30) day average prior to the Effective Date with appropriate discounts applied
for the block size of and restrictions on the Common Stock pursuant to the
Exchange and Registration Rights Agreement.s
2
<PAGE>
EXHIBIT G
BUILDING NETWORK CONNECTION RINGS
Section 1: On-Network Building
<TABLE>
<CAPTION>
- ------------------------------------------------------------------------------------------------
Number of Licensed Fibers per Prepaid Charge per Licensed Prepaid Charge per Licensed
Lateral Extension Fiber/ Per Lateral Extension Fiber/ Per Lateral Extension
(Exclusive of Customer (Inclusive of Customer
Provided Rack Facilities) Provided Rack Facilities)
<S> <C> <C>
- ------------------------------------------------------------------------------------------------
4 $[****] $[****]
- ------------------------------------------------------------------------------------------------
6 $[****] $[****]
- ------------------------------------------------------------------------------------------------
8 $[**** $[****]
- ------------------------------------------------------------------------------------------------
10 $[****] $[****]
- ------------------------------------------------------------------------------------------------
12 $[****] $[****]
- ------------------------------------------------------------------------------------------------
14 $[****] $[****]
- ------------------------------------------------------------------------------------------------
16 $[****] $[****]
- ------------------------------------------------------------------------------------------------
18 $[****] $[****]
- ------------------------------------------------------------------------------------------------
20 $[****] $[****]
- ------------------------------------------------------------------------------------------------
22 $[****] $[****]
- ------------------------------------------------------------------------------------------------
24 $[****] $[****]
- ------------------------------------------------------------------------------------------------
</TABLE>
Section II: Splice Connection to Off-Network Building*
<TABLE>
<CAPTION>
- -----------------------------------------------------------------------------------------------
Number of Licensed Fibers per Splice Prepaid Charge per Licensed Fiber/ Per Splice
Connection Connection
<S> <C>
- -----------------------------------------------------------------------------------------------
4 $[****]
- -----------------------------------------------------------------------------------------------
6 $[****]
- -----------------------------------------------------------------------------------------------
8 $[****]
- -----------------------------------------------------------------------------------------------
10 $[****]
- -----------------------------------------------------------------------------------------------
12 $[****]
- -----------------------------------------------------------------------------------------------
14 $[****]
- -----------------------------------------------------------------------------------------------
16 $[****]
- -----------------------------------------------------------------------------------------------
18 $[****]
- -----------------------------------------------------------------------------------------------
20 $[****]
- -----------------------------------------------------------------------------------------------
22 $[****]
- -----------------------------------------------------------------------------------------------
24 $[****]
- -----------------------------------------------------------------------------------------------
</TABLE>
* Price does not include reimbursement to MFN for it costs of splicing plus
([**]%) plus Applicable Taxes.
3
21
<PAGE>
EXHIBIT 10.11
================================================================================
---------------
AGREEMENT OF LEASE
---------------
111 EIGHTH AVENUE LLC
LANDLORD
AND
FIBERNET TELECOM GROUP, INC.
TENANT
---------------
Premises: Portion of the Third (3rd) Floor
111 Eighth Avenue
New York, New York 10011
Dated: February __, 2000
================================================================================
<PAGE>
TABLE OF CONTENTS
DEFINITIONS ............................................................... 1
Article 1. Demise, Premises, Term, Rent .................................. 4
Article 2. Use And Occupancy ............................................. 4
Article 3. Alterations ................................................... 5
Article 4. Condition of the Premises ..................................... 7
Article 5. Repairs; Floor Load ........................................... 8
Article 6. Real Estate Taxes and Labor Rate Increases .................... 9
Article 7. Legal Requirements ............................................ 14
Article 8. Subordination and Non-Disturbance; Estoppel Certificates ...... 15
Article 9. Services ...................................................... 17
Article 10. Insurance ..................................................... 24
Article 11. Destruction of the Premises; Property Loss or Damage .......... 26
Article 12. Eminent Domain ................................................ 28
Article 13. Assignment and Subletting ..................................... 28
Article 14. Access to Premises ............................................ 37
Article 15. Certificate of Occupancy ...................................... 38
Article 16. Default ....................................................... 38
Article 17. Remedies and Damages .......................................... 41
Article 18. Fees and Expenses ............................................. 43
Article 19. No Representations By Landlord ................................ 44
Article 20. End Of Term ................................................... 44
Article 21. Quiet Enjoyment ............................................... 45
Article 22. No Waiver; Non-Liability ...................................... 45
Article 23. Waiver Of Trial By Jury ....................................... 46
Article 24. Inability To Perform .......................................... 47
Article 25. Bills And Notices ............................................. 47
Article 26. Rules And Regulations ......................................... 47
Article 27. Broker ........................................................ 48
Article 28. Indemnity ..................................................... 48
Article 29. [Intentionally Deleted.] ...................................... 49
Article 30. Security Deposit .............................................. 49
Article 31. Relocated Premises ............................................ 52
Article 32. Miscellaneous ................................................. 52
Exhibit A: Floor Plan of the Premises
Exhibit B: Rules and Regulations
Exhibit C: Approved Contractors
Exhibit D: Form of Letter of Credit
<PAGE>
AGREEMENT OF LEASE, made as of February ___, 2000, between 111
CHELSEA LLC (successor-in-interest to 111 Eighth Avenue LLC), a Delaware limited
liability company with an address c/o Taconic Investment Partners LLC, 1500
Broadway, New York, New York 10036 ("Landlord"), and FIBERNET TELECOM GROUP,
INC., a corporation with an address at 570 Lexington Avenue, New York, New York
10022 ("Tenant").
W I T N E S S E T H:
The parties hereto, for themselves, their legal representatives,
successors and assigns, covenant and agree as follows.
DEFINITIONS
"Additional Rent" means Tenant's Tax Payment, Tenant's Labor Rate
Payment, and any and all other sums, other than Fixed Rent, payable by Tenant to
Landlord under this Lease.
"Affiliate" means, with respect to any Person, any other Person
that, directly or indirectly, through one or more intermediaries, Controls, is
Controlled by, or is under common Control with, such first Person.
"Alterations" means alterations, installations, improvements,
additions or other physical changes (other than decorations, movable fixtures
and equipment) in or about the Premises.
"Base Rate" means the annual rate of interest publicly announced
from time to time by Citibank, N.A., New York, New York (or any successor
thereto) as its "base rate", or such other term as may be used by Citibank, N.A.
from time to time for the rate presently referred to as its base rate.
"Building" means all the buildings, equipment and other improvements
and appurtenances of every kind and description now located or hereafter
erected, constructed or placed upon the land and any and all alterations,
renewals, replacements, additions and substitutions thereto, presently known by
the address of 111 Eighth Avenue, New York, New York.
"Building Systems" means the mechanical, electrical, heating,
ventilating, air conditioning, elevator, plumbing, sanitary, life-safety and
other service systems of the Building, but shall not include the portions of
such systems installed in the Premises by Tenant.
"Business Days" means all days, excluding Saturdays, Sundays, and
all days observed by either the State of New York, the Federal Government or by
the labor unions servicing the Building as legal holidays.
"Commencement Date" means 12:01 a.m. on the day following the date
hereof, provided that Landlord delivers possession of the Premises to Tenant on
such date.
<PAGE>
"Control" means: (i) the ownership, directly or indirectly, of more
than fifty per cent (50%) of the voting stock of a corporation, or (ii) the
possession, directly or indirectly, of the power to direct or cause the
direction of the management and policies of such Person.
"Default Rate" means a rate at all times four (4) percentage points
above the Base Rate.
"Environmental Laws" means any Legal Requirements now or hereafter
in effect relating to the environment, health, safety or Hazardous Materials.
"Expiration Date" means the date which is the last day of the month
in which the day before the fifteenth (15th) anniversary of the Commencement
Date occurs.
"Governmental Authority" means any of the United States of America,
the State of New York, the City of New York, any political subdivision thereof
and any agency, department, commission, board, bureau or instrumentality of any
of the foregoing, now existing or hereafter created, having jurisdiction over
the Real Property or any portion thereof or the curbs, sidewalks, and areas
adjacent thereto.
"Hazardous Materials" means any substances, materials or wastes
regulated by any Governmental Authority or deemed or defined as a "hazardous
substance", "hazardous material", "toxic substance", "toxic pollutant",
"contaminant", "pollutant", "solid waste", "hazardous waste" or words of similar
import under applicable Legal Requirements, including oil and petroleum
products, natural or synthetic gas, polychlorinated biphenyls, asbestos in any
form, urea formaldehyde, radon gas, or the emission of non-ionizing radiation,
microwave radiation or electromagnetic fields at levels in excess of those (if
any) specified by any Governmental Authority or which may cause a health hazard
or danger to property, or the emission of any form of ionizing radiation.
"Legal Requirements" means all present and future laws, rules,
orders, ordinances, regulations, statutes, requirements, codes, executive
orders, rules of common law, and any judicial interpretations thereof,
extraordinary as well as ordinary, of all Governmental Authorities, including
the Americans with Disabilities Act (42 U.S.C. ss.12,101 et seq.), New York City
Local Law 58 of 1987, and any law of like import, and all rules, regulations and
government orders with respect thereto, and any of the foregoing relating to
environmental matters, Hazardous Materials, public health and safety matters,
and of any applicable fire rating bureau, or other body exercising similar
functions, affecting the Real Property or the maintenance, use or occupation
thereof, or any street or sidewalk comprising a part of or in front thereof or
any vault in or under the same.
"Mortgage" means any mortgage or trust indenture which may now or
hereafter affect the Real Property, the Building or any Superior Lease and the
leasehold interest created thereby, and all renewals, extensions, supplements,
amendments, modifications, consolidations and replacements thereof or thereto,
substitutions therefor, and advances made thereunder; "Mortgagee" means any
mortgagee, trustee or other holder of a Mortgage.
-2-
<PAGE>
"Permitted Use" means the use of the Premises by Tenant as a
telecommunications switching center, and other uses normally related thereto,
and office and support facilities in connection therewith, and for no other
purpose.
"Person" means any individual, corporation, partnership, limited
liability company, limited liability partnership, joint venture, estate, trust,
unincorporated association, business trust, tenancy-in-common or other entity,
or any Governmental Authority.
"Premises" means a portion of the third (3rd) floor of the Building,
as shown on the floor plan attached to this Lease as Exhibit A and made a part
hereof.
"Real Property" means the Building, together with the plot of land
upon which it stands.
"Rentable Square Feet" is agreed to mean and is deemed to be the
rentable area of the Premises, consisting of a total of 5,672 rentable square
feet. Rentable Square Feet have been computed on the basis of the current
standard employed by Landlord with respect to the calculation of the deemed
rentable square foot area of the Building; provided, however, that in no event
shall such deemed Rentable Square Footage constitute or imply any representation
or warranty by Landlord as to the actual size of the Premises or any other
portion of the Building.
"Rules and Regulations" means the rules and regulations annexed
hereto and made a part hereof as Exhibit B, and such other and further rules and
regulations as Landlord may from time to time adopt.
"Substantial Completion" means, as to any construction performed by
any party in the Premises, including any Alterations, that such work has been
completed substantially in accordance with (i) the provisions of this Lease
applicable thereto, (ii) the plans and specifications for such work, and (iii)
all applicable Legal Requirements and Insurance Requirements, except for minor
details of construction, decoration and mechanical adjustments, if any, the
noncompletion of which does not materially interfere with Tenant's use of the
Premises, or which, in accordance with good construction practice, should be
completed after the completion of other work to be performed in the Premises.
"Superior Lease(s)" means any ground or underlying lease of the Real
Property or any part thereof heretofore or hereafter made by Landlord and all
renewals, extensions, supplements, amendments and modifications thereof;
"Lessor" means a lessor under a Superior Lease.
"Tenant's Alterations" means all Alterations in and to the Premises
which may be made by or on behalf of Tenant prior to and during the Term, or any
renewal thereof.
"Tenant's Property" means Tenant's movable fixtures and movable
partitions, telephone and other communications equipment, cable grid system,
Tenant's HVAC System (as defined in Section 9.3(d)), computer systems,
furniture, trade fixtures, furnishings and other items of personal property
which are removable without material damage to the Premises or Building.
-3-
<PAGE>
"Term" means the term of this Lease, which shall commence on the
Commencement Date and shall expire on the Expiration Date.
ARTICLE 1. DEMISE, PREMISES, TERM, RENT
Section 1.1 Landlord hereby leases to Tenant, and Tenant hereby
hires from Landlord, the Premises, for the Term to commence on the Commencement
Date and to end on the Expiration Date, at an annual rent ("Fixed Rent") as
follows:
(a) Two Hundred Twenty Six Thousand Eight Hundred Eighty and 00/100
Dollars ($226,880.00) per annum ($18,906.67 per month) for the period commencing
on the Commencement Date and ending on the date (the "Rent Increase Date") which
is the last day of the month which contains the day prior to the fifth (5th)
anniversary of the Commencement Date;
(b) Two Hundred Forty Nine Thousand Five Hundred Sixty Eight and
00/100 Dollars ($249,568.00) per annum ($20,797.33 per month) for the period
commencing on the day following the Rent Increase Date and ending on the fifth
(5th) anniversary of the Rent Increase Date;
(c) Two Hundred Seventy Two Thousand Two Hundred Fifty Six and
00/100 Dollars ($272,256.00) per annum ($22,688.00 per month) for the period
commencing on the day following the fifth (5th) anniversary of the Rent Increase
Date and ending on the Expiration Date;
which Tenant agrees to pay to Landlord, without notice or demand, in lawful
money of the United States, in monthly installments in advance on the first
(1st) day of each calendar month during the Term, at the office of Landlord or
such other place as Landlord may designate, without any set-off, offset,
abatement or deduction whatsoever, except as expressly set forth herein. Fixed
Rent and Additional Rent shall be payable by check drawn upon a bank which is a
member of the New York Clearinghouse Association, or by wire transfer of
immediately available funds.
Section 1.2 Notwithstanding anything to the contrary contained
herein, upon execution and delivery of this Lease, Tenant shall pay to Landlord
the sum of Eighteen Thousand Nine Hundred Six and 67/100 Dollars ($18,906.67)
representing the installment of Fixed Rent for the first (1st) full calendar
month of the Term after the Commencement Date. If the Commencement Date shall
occur on a date other than the first (1st) day of any calendar month, Tenant
shall also pay to Landlord, on the Commencement Date, a sum equal to Six Hundred
Thirty and 22/100 Dollars ($630.22), multiplied by the number of calendar days
in the period from the Commencement Date to the last day of the month in which
the Commencement Date shall occur, both inclusive.
ARTICLE 2. USE AND OCCUPANCY
Section 2.1 Tenant shall use and occupy the Premises for the
Permitted Use and for no other purpose. Tenant shall not use or occupy or permit
the use or occupancy of any part of the Premises in any manner not permitted
hereunder, or which in Landlord's judgment would adversely affect (a) the proper
and economical rendition of any service required to be
-4-
<PAGE>
furnished to any tenant or other occupant of the Building, (b) the use or
enjoyment of any part of the Building by any other tenant or other occupant, or
(c) the appearance, character or reputation of the Building.
Section 2.2 Tenant shall not use or permit the Premises or any part
thereof to be used: (a) for the business of printing or other manufacturing of
any kind, (b) as a retail branch of a bank or savings and loan association, or
as a retail loan company, as a retail stock broker's or dealer's office, (c) for
the storage of merchandise, (d) for the distribution, by mail-order or
otherwise, of merchandise, (e) as a restaurant or bar or for the sale of food or
beverages, (f) as a news or cigar stand, (g) as an employment agency, labor
union office, school, physician's or dentist's office, dance or music studio,
(h) as a barber shop or beauty salon, (i) for the sale, at retail or otherwise,
of any goods or products, (j) by the United States Government, the City or State
of New York, any Governmental Authority, any foreign government, the United
Nations or any agency or department of any of the foregoing or any Person having
sovereign or diplomatic immunity, (k) for the rendition of medical, dental or
other therapeutic or diagnostic services, or (l) for the conduct of an auction.
Section 2.3 Landlord shall not be subject to any liability for
failure to give possession of the Premises on the Commencement Date and the
validity of this Lease shall not be impaired under such circumstances, nor shall
the same be construed to extend the term of this Lease, except that Fixed Rent
and Additional Rent shall be abated until possession of the Premises shall be
delivered to Tenant. The foregoing shall constitute an express negation of
Section 223-a of the New York Real Property Law or any successor law or
ordinance, which shall be inapplicable hereto, and Tenant hereby waives any
right to rescind this Lease which Tenant might otherwise have thereunder.
ARTICLE 3. ALTERATIONS
Section 3.1 Tenant shall not make any Alterations without Landlord's
prior written consent in each instance, provided that Tenant's changing of wall
coverings, carpeting or paint shall not be deemed to be Alterations requiring
such consent. Landlord's consent shall be granted or denied in Landlord's sole
discretion; provided, however, that Landlord shall not unreasonably withhold its
consent to Alterations proposed to be made by Tenant to adapt the Premises for
the Permitted Use provided that such Alterations (a) are non-structural and do
not affect the Building Systems or services, (b) are performed only by
contractors approved in writing by Landlord, (c) do not affect any part of the
Building other than the Premises, (d) do not adversely affect any service
required to be furnished by Landlord to Tenant or to any other tenant or
occupant of the Building, and (e) do not reduce the value or utility of the
Building.
Section 3.2 (a) Prior to making any Alterations, Tenant shall (i)
submit to Landlord, for Landlord's written approval, detailed plans and
specifications therefor in form satisfactory to Landlord, (ii) if such
Alterations require a filing with Governmental Authority or require the consent
of such authority, then such plans and specifications shall (A) be prepared and
certified by a registered architect or licensed engineer, and (B) comply with
all Legal Requirements to the extent necessary for such governmental filing or
consent, (iii) at its expense, obtain all required permits, approvals and
certificates, and (iv) furnish to Landlord duplicate
-5-
<PAGE>
original policies or certificates of insurance which evidences worker's
compensation coverage (covering all persons to be employed by Tenant, and all
contractors and subcontractors supplying materials or performing work in
connection with such Alterations), comprehensive general liability insurance
(including property damage coverage), comprehensive form automobile liability
insurance and Builder's Risk coverage (issued on a completed value basis) all in
such form, with such companies, for such periods and in such amounts as Landlord
may reasonably require, naming Landlord and its employees and agents, and any
Lessor and any Mortgagee as additional insureds. All Alterations shall be
performed by Tenant at Tenant's sole cost and expense (A) in a good and
workmanlike manner using new materials of first class quality, (B) in compliance
with all Legal Requirements, and (C) in accordance with the plans and
specifications previously approved by Landlord. Tenant shall at its cost and
expense obtain all approvals, consents and permits from every Governmental
Authority having or claiming jurisdiction prior to, during and upon completion
of such Alterations. Tenant shall promptly reimburse Landlord, as Additional
Rent, upon demand, for any and all costs and expenses incurred by Landlord in
connection with Landlord's review of Tenant's plans and specifications for any
such Alteration.
(b) Landlord shall not unreasonably withhold, condition or delay its
approval of the contractors proposed to be used by Tenant for Tenant's
Alterations, provided that in the case of the mechanical, electrical, plumbing
and fire safety trades, Tenant shall select its contractors and sub-contractors
from Landlord's list of approved contractors. Attached hereto as Exhibit C is a
list of contractors currently approved by Landlord for the performance of work
in the Building, which list may be modified by Landlord from time to time.
(c) Notwithstanding the foregoing provisions of this Article 3,
Tenant shall be permitted to make minor, non-structural alterations to the
Premises ("Minor Alterations") upon prior notice to Landlord, but without the
necessity of procuring Landlord's consent thereto, provided that the estimated
cost of each such Minor Alteration does not exceed $25,000.00 in any one
instance. The provisions of Sections 3.2(a) and 3.2(b) shall be applicable to
Minor Alterations. Prior to commencing any Minor Alteration, Tenant shall
furnish Landlord with (i) working drawings or plans for such Minor Alteration in
sufficient detail to permit Landlord to determine that such Alteration complies
with the requirements hereof, and (ii) the names of the contractors proposed to
be used by Tenant for such Minor Alteration.
(d) Upon completion of any Alterations, Tenant, at its expense,
shall promptly obtain certificates of final approval of such Alterations as may
be required by any Governmental Authority, and shall furnish Landlord with
copies thereof, together with "as-built" plans and specifications for such
Alterations prepared on an Autocad Computer Assisted Drafting and Design System
(or such other system or medium as Landlord may accept) using naming conventions
issued by the American Institute of Architects in June, 1990 (or such other
naming convention as Landlord may accept) and magnetic computer media of such
record drawings and specifications, translated into DXF format or another format
acceptable to Landlord.
Section 3.3 All Alterations in and to the Premises which may be made
by or on behalf of Tenant, prior to and during the Term or any renewal thereof,
shall become the property of Landlord upon the expiration or sooner termination
of this Lease, and upon the Expiration Date
-6-
<PAGE>
or earlier termination of the Term or any renewal thereof (a) Tenant shall
remove Tenant's Property from the Premises, and (b) unless Landlord notifies
Tenant no later than twenty (20) days prior to the Expiration Date that any or
all items of Tenant's Alterations shall not be removed from the Premises, Tenant
shall remove Tenant's Alterations from the Premises, at Tenant's sole cost and
expense. Tenant shall repair and restore in a good and workmanlike manner
(reasonable wear and tear excepted) any damage to the Premises and the Building
caused by such removal of Tenant's Property and Tenant's Alterations. Any of
Tenant's Alterations or Tenant's Property not so removed by Tenant at or prior
to the Expiration Date or earlier termination of the Term shall be deemed
abandoned and may, at the election of Landlord, either be retained as Landlord's
property or be removed from the Premises by Landlord at Tenant's expense. The
covenants and agreements set forth in this Section 3.3 shall survive the
expiration or earlier termination of this Lease.
Section 3.4 If, because of any act or omission of Tenant, its
employees, agents, contractors, or subcontractors, any mechanic's lien, U.C.C.
financing statement or other lien, charge or order for the payment of money
shall be filed against Landlord, or against all or any portion of the Premises,
the Building or the Real Property, Tenant shall, at its own cost and expense,
cause the same to be discharged of record, by bonding or otherwise, within
thirty (30) days after the filing thereof, and Tenant shall indemnify, defend
and save Landlord harmless against and from all costs, expenses, liabilities,
suits, penalties, claims and demands (including reasonable attorneys' fees and
disbursements) resulting therefrom.
Section 3.5 Tenant shall not, at any time prior to or during the
Term, directly or indirectly employ, or permit the employment of, any
contractor, mechanic or laborer in the Premises, whether in connection with any
Alteration or otherwise, if in Landlord's sole judgment such employment will
interfere or cause any conflict with other contractors, mechanics, or laborers
engaged in the construction, maintenance or operation of the Building by
Landlord, Tenant or others, or the use and enjoyment of other tenants or
occupants of the Building.
ARTICLE 4. CONDITION OF THE PREMISES
Section 4.1 Tenant has examined the Premises and agrees to accept
possession of the Premises in their "as is" condition on the Commencement Date,
and further agrees that Landlord shall have no obligation to perform any work,
supply any materials, incur any expenses or make any installations in order to
prepare the Premises for Tenant's occupancy. The taking of possession of the
Premises by Tenant shall be conclusive evidence as against Tenant that at the
time such possession was so taken, the Premises were in good and satisfactory
condition.
Section 4.2 Tenant shall perform all work and assume all
responsibility to cause the fire suppression system currently installed in the
Premises to comply with all applicable Legal Requirements, and Tenant shall with
reasonable promptness obtain all requisite approvals and sign-offs with respect
to such system from Governmental Authorities, including the making of any
repairs or modifications to such system to cause the same to so comply with
applicable Legal Requirements.
-7-
<PAGE>
Section 4.3 Upon the request of Tenant, Landlord, at Tenant's cost
and expense, shall join in any applications for any permits, approvals or
certificates from any Governmental Authority required to be obtained by Tenant,
and shall sign such applications reasonably promptly after request by Tenant
(provided that (i) the provisions of the applicable Legal Requirement shall
require that Landlord join in such application, and (ii) is made in connection
with an Alteration approved by Landlord, or if such approval is not required
hereunder, such application is acceptable to Landlord) and shall otherwise
cooperate with Tenant in connection therewith, provided that Landlord shall not
be obligated to incur any cost or expense, including attorneys' fees and
disbursements, or suffer or incur any liability, in connection therewith.
ARTICLE 5. REPAIRS; FLOOR LOAD
Section 5.1 Landlord shall maintain and repair the Building Systems
and the public portions of the Building, both exterior and interior, and the
structural elements thereof, including the roof, foundation and curtain wall.
Tenant, at Tenant's expense, shall take good care of the Premises and the
fixtures, systems, equipment and appurtenances therein, and make all
non-structural repairs thereto as and when needed to preserve them in good
working order and condition, except for reasonable wear and tear, obsolescence
and damage for which Tenant is not responsible pursuant to the provisions of
Articles 10 and 11 hereof. Notwithstanding the foregoing, all damage or injury
to the Premises or to any other part of the Building, or to its fixtures,
equipment and appurtenances, caused by or resulting from carelessness, omission,
neglect or improper conduct of, or Alterations made by Tenant, Tenant's agents,
employees or licensees, shall be repaired at Tenant's expense, (a) by Tenant to
the satisfaction of Landlord (if the required repairs are non-structural and do
not affect any Building System), or (b) by Landlord (if the required repairs are
structural or affect any Building System). Tenant also shall repair all damage
to the Building and the Premises caused by the making of any Alterations by
Tenant or by the moving of Tenant's Property. All of such repairs shall be of
quality or class equal to the original work or construction. If Tenant fails
after fifteen (15) days notice to proceed with due diligence to make repairs
required to be made by Tenant, Landlord may make such repairs at the expense of
Tenant, and Tenant shall pay the costs and expenses thereof incurred by
Landlord, with interest at the Default Rate, as Additional Rent within ten (10)
days after rendition of a bill or statement therefor.
Section 5.2 Tenant shall not place a load upon any floor of the
Premises exceeding the floor load per square foot which such floor was designed
to carry and which is allowed by law. Tenant shall not move any safe, heavy
equipment, business machines, freight, bulky matter or fixtures into or out of
the Building without Landlord's prior consent. If such safe, equipment, freight,
bulky matter or fixtures requires special handling, Tenant shall employ only
persons holding a Master Rigger's license to do such work.
Section 5.3 There shall be no allowance to Tenant for a diminution
of rental value, no constructive eviction of Tenant and no liability on the part
of Landlord by reason of inconvenience, annoyance or injury to business arising
from Landlord making, or failing to make, any repairs, alterations, additions or
improvements in or to any portion of the Building or
-8-
<PAGE>
the Premises, or in or to fixtures, appurtenances or equipment thereof. Landlord
shall use reasonable efforts to minimize interference with Tenant's access to
and use and occupancy of the Premises in making any repairs, alterations,
additions or improvements, and Landlord shall endeavor to give Tenant reasonable
advance notice of any planned outage of electrical power, which notice shall
specify the time at which such outage will commence and the anticipated duration
thereof; provided, however, that Landlord shall have no obligation to employ
contractors or labor at overtime or other premium pay rates or to incur any
other overtime costs or additional expenses whatsoever.
Section 5.4 Tenant shall not require, permit, suffer or allow the
cleaning of any window in the Premises from the outside in violation of Section
202 of the New York Labor Law or any successor statute thereto, or of any other
Legal Requirement.
ARTICLE 6. REAL ESTATE TAXES AND LABOR RATE INCREASES
Section 6.1 The following terms shall have the meanings set forth
below:
(a) "Taxes" shall include the aggregate amount of (i) all real
estate taxes, assessments (special or otherwise), sewer and water rents, rates
and charges and any other governmental levies, impositions or charges, whether
general, special, ordinary, extraordinary, foreseen or unforeseen, which may be
assessed, levied or imposed upon all or any part of the Real Property, and (ii)
any expenses (including attorneys' fees and disbursements and experts' and other
witness' fees) incurred in contesting any of the foregoing or the Assessed
Valuation (as defined in Section 6.1(d)) of all or any part of the Real
Property. If at any time after the date hereof the methods of taxation
prevailing at the date hereof shall be altered so that in lieu of or as an
addition to or as a substitute for the whole or any part of the taxes,
assessments, rents, rates, charges, levies or impositions now assessed, levied
or imposed upon all or any part of the Real Property, there shall be assessed,
levied or imposed (A) a tax, assessment, levy, imposition or charge based on the
rents received therefrom whether or not wholly or partially as a capital levy or
otherwise, (B) a tax, assessment, levy, imposition or charge measured by or
based in whole or in part upon all or any part of the Real Property and imposed
upon Landlord, (C) a license fee measured by the rents or (D) any other tax,
assessment, levy, imposition, charges or license fee however described or
imposed, then all such taxes, assessments, levies, impositions, charges or
license fees or the part thereof so measured or based shall be deemed to be
Taxes. Taxes shall not include franchise, gift, inheritance, estate, sales,
income or profit taxes imposed upon Landlord, any Lessor or any Mortgagee by any
Governmental Authority.
(b) "Tenant's Share" means 247/1000 of one percent (.247%).
(c) "Base Taxes" means an amount equal to the sum of (i) one-half
(1/2) of the Taxes payable for the Tax Year commencing on July 1, 1999 and
ending June 30, 2000, plus (ii) one-half (1/2) of the Taxes payable for the Tax
Year commencing on July 1, 2000 and ending June 30, 2001.
-9-
<PAGE>
(d) "Assessed Valuation" means the amount for which the Real
Property is assessed pursuant to applicable provisions of the New York City
Charter and of the Administrative Code of the City of New York for the purpose
of imposition of Taxes.
(e) "Tax Year" means the period July 1 through June 30 (or such
other period as may be duly adopted by the City of New York as its fiscal year
for real estate tax purposes).
(f) "Comparison Year" means (i) with respect to Taxes, any Tax Year
commencing subsequent to the 1999/2000 Tax Year, and (ii) with respect to Labor
Rates, any calendar year commencing subsequent to the Base Labor Year.
(h) "Landlord's Statement" means an instrument or instruments
containing a comparison of either (i) the Base Taxes and the Taxes payable for
any Comparison Year, or (ii) the Base Labor Rates and the Labor Rates applicable
to any Comparison Year.
(i) "Tenant's Projected Share of Taxes" means Tenant's Tax Payment
(as defined in Section 6.1(j)), if any, made by Tenant for the prior Comparison
Year, plus an amount equal to Landlord's estimate of the amount of increase in
Tenant's Tax Payment for the then current Comparison Year, divided by twelve
(12) and payable monthly by Tenant to Landlord as Additional Rent.
(j) "Tenant's Tax Payment" means Tenant's Share of the excess of the
Taxes payable for any Comparison Year over the Base Taxes.
Section 6.2 (a) If the Taxes payable for any Comparison Year (any
part or all of which falls within the Term) shall exceed the Base Taxes, Tenant
shall pay Tenant's Tax Payment to Landlord, as Additional Rent, within ten (10)
business days after demand from Landlord therefor, which demand shall be
accompanied by Landlord's Statement. Before or after the start of each
Comparison Year, Landlord shall furnish to Tenant a Landlord's Statement in
respect of Taxes. If there shall be any increase in Taxes payable for any
Comparison Year, whether during or after such Comparison Year or if there shall
be any decrease in the Taxes payable for any Comparison Year during such
Comparison Year, Landlord may furnish a revised Landlord's Statement for such
Comparison Year, and Tenant's Tax Payment for such Comparison Year shall be
adjusted and, within ten (10) business days after Tenant's receipt of such
revised Landlord's Statement, Tenant shall (i) with respect to any increase in
Taxes payable for such Comparison Year, pay such increase in Tenant's Tax
Payment to Landlord, or (ii) with respect to any decrease in Taxes payable for
such Comparison Year, Landlord shall credit such decrease in Tenant's Tax
Payment against the next installment of Tenant's Share of Taxes payable by
Tenant pursuant to this Section 6.2(a), provided that if such decrease in Taxes
is attributable to the final Comparison Year of the Term, Landlord shall pay the
amount of such decrease in Tenant's Tax Payment to Tenant. If, during the Term,
Landlord shall elect to collect Tenant's Tax Payments in full or in quarterly or
bi-annual or other installments on any other date or dates than as presently
required, then following Landlord's notice to Tenant, Tenant's Tax Payments
shall be correspondingly revised. The benefit of any discount for any early
payment or prepayment of Taxes relating to all or any part of the Real Property
shall accrue solely to the benefit of Landlord and Taxes shall be computed
without subtracting such discount.
-10-
<PAGE>
(b) With respect to each Comparison Year, on account of which
Landlord shall (or anticipates that it may) be entitled to receive Tenant's Tax
Payment, Tenant shall pay to Landlord, as Additional Rent for the then current
Tax Year, Tenant's Projected Share of Taxes. Upon each date that a Tax Payment
or an installment on account thereof shall be due from Tenant pursuant to the
terms of this Section 6.2, Landlord shall apply the aggregate of the
installments of Tenant's Projected Share of Taxes then on account with Landlord
against Tenant's Tax Payment or installment thereof then due from Tenant. In the
event that such aggregate amount shall not be sufficient to discharge such Tax
Payment or installment, Landlord shall so notify Tenant, and the amount of
Tenant's payment obligation with respect to such Tax Payment or installment
pursuant to this Section 6.2, shall be equal to the amount of the insufficiency
and shall be payable within ten (10) business days of demand by Landlord. If,
however, such aggregate amount shall be greater than the Tax Payment or
installment, Landlord shall credit the amount of such excess against the next
payment of Tenant's Projected Share of Taxes due hereunder.
(c) Only Landlord shall be eligible to institute Tax reduction or
other proceedings to reduce the Assessed Valuation of the Real Property, and the
filings of any such proceeding by Tenant without Landlord's prior written
consent shall constitute a default hereunder. If the Taxes payable for either
the 1999/2000 Tax Year or the 2000/2001 Tax Year are reduced by final
determination of legal proceedings, settlement or otherwise, then the Base Taxes
shall be correspondingly revised, the Additional Rent theretofore paid or
payable on account of Tenant's Tax Payment hereunder for all Comparison Years
shall be recomputed on the basis of such reduction, and Tenant shall pay to
Landlord, as Additional Rent within ten (10) business days after being billed
therefor, any deficiency between the amount of such Additional Rent theretofore
computed and paid by Tenant to Landlord and the amount thereof due as a result
of such recomputations. If the Base Taxes are increased by such final
determination of legal proceedings, settlement or otherwise, then, Landlord
shall either pay to Tenant, or at Landlord's election, credit against subsequent
payments due under this Section 6.2, an amount equal to the excess of the
amounts of such Additional Rent theretofore paid by Tenant over the amount
thereof actually due as a result of such recomputations. If Landlord shall
receive a refund or reduction of Taxes for any Comparison Year, Landlord shall,
within a reasonable time after such refund is actually received or such credit
is actually applied against Taxes then due and payable, either pay to Tenant,
or, at Landlord's election, credit against subsequent payments under this
Section 6.2, an amount equal to Tenant's Share of the refund or reduction,
provided that such amount shall not exceed Tenant's Tax Payment paid for such
Comparison Year. Nothing herein contained shall obligate Landlord to file any
application or institute any proceeding seeking a reduction in Taxes or Assessed
Valuation.
(d) Tenant's Tax Payment shall be made as provided in this Section
6.2 regardless of the fact that Tenant may be exempt, in whole or in part, from
the payment of any taxes by reason of Tenant's diplomatic or other tax exempt
status or for any other reason whatsoever.
-11-
<PAGE>
(e) Tenant shall pay to Landlord, as Additional Rent upon demand,
any occupancy tax or rent tax now in effect or hereafter enacted, if payable by
Landlord in the first instance or hereafter required to be paid by Landlord.
(f) If the Commencement Date or the Expiration Date shall occur on a
date other than July 1 or June 30, respectively, any Additional Rent payable by
Tenant to Landlord under this Section 6.2 for the Comparison Year in which such
Commencement Date or Expiration Date shall occur, shall be apportioned in that
percentage which the number of days in the period from the Commencement Date to
June 30 or from July 1 to the Expiration Date, as the case may be, both
inclusive, shall bear to the total number of days in such Comparison Year. In
the event of a termination of this Lease, any Additional Rent under this Section
6.2 shall be paid or adjusted within thirty (30) days after submission of
Landlord's Statement. In no event shall Fixed Rent ever be reduced by operation
of this Section 6.2 and the rights and obligations of Landlord and Tenant under
the provisions of this Section 6.2 with respect to any Additional Rent shall
survive the expiration or earlier termination of this Lease.
Section 6.3 The following terms shall have the meanings set forth
below:
(a) "Comparison Year" shall mean any calendar year subsequent to the
Base Labor Year.
(b) "R.A.B." shall mean the Realty Advisory Board on Labor
Relations, Incorporated, or its successor.
(c) "Local 32B-32J" shall mean Local 32B-32J of the Building Service
Employees International Union, AFL-CIO, or its successor.
(d) "Class A Office Buildings" shall mean office buildings so
categorized under any agreement between R.A.B. and Local 32B-32J, regardless of
the designation given to such office buildings in any such agreement.
(e) "Labor Rates" shall mean a sum equal to the regular hourly wage
rate required to be paid to Others (hereinafter defined) employed in Class A
Office Buildings pursuant to an agreement between R.A.B. and Local 32B-32J;
provided, however, that:
(i) if, as of October 1st of any Comparison Year, any such
agreement shall require Others in Class A Office Buildings to be regularly
employed on days or during hours when overtime or other premium pay rates
are in effect pursuant to such agreement, then the term "regular hourly
wage rate", as used in this Section 6.3 shall mean the average hourly wage
rate for the hours in a calendar week during which Others are required to
be regularly employed;
(ii) if no such agreement is in effect as of October 1st of
any Comparison Year with respect to Others, then the term "regular hourly
wage rate", as used in this Section 6.3 shall mean the regular hourly wage
rate actually paid to Others
-12-
<PAGE>
employed in the Building by Landlord or by an independent contractor
engaged by Landlord; and
(iii) the term "regular hourly wage rate" shall exclude all benefits
of any kind, including those payable directly to taxing authorities or
others on account of the employment and all welfare, pension and fringe
employee benefits and payments of any kind paid or given pursuant to such
agreement.
(f) "Others" shall mean that classification of employee engaged in
the general maintenance and operation of Class A Office Buildings most nearly
comparable to the classification now applicable to "others" in the current
agreement between R.A.B. and Local 32B-32J.
(g) "Base Labor Year" shall mean the calendar year 2000.
(h) "Base Labor Rates" shall mean the Labor Rates in effect for the
Base Labor Year.
(i) "Tenant's Labor Rate Payment" is defined in Section 6.4(a).
Section 6.4 (a) If the Labor Rates in effect for any Comparison Year
(any part or all of which falls within the Term) shall be greater than the Base
Labor Rates, then Tenant shall pay, as Additional Rent for such Comparison Year
and continuing thereafter until a new Landlord's Statement is rendered to
Tenant, an amount ("Tenant's Labor Rate Payment") equal to (i) 5,672 multiplied
by (ii) the number of cents (inclusive of any fractions of a cent) by which the
Labor Rates in effect for such Comparison Year exceed the Base Labor Rates.
(b) At any time prior to, during or after any Comparison Year
Landlord shall render to Tenant a Landlord's Statement showing (i) a comparison
of the Labor Rates for the Comparison Year with the Base Labor Rates, and (ii)
the amount of Tenant's Labor Rate Payment resulting from such comparison.
Landlord's failure to render a Landlord's Statement during or with respect to
any Comparison Year shall not prejudice Landlord's right to render a Landlord's
Statement during or with respect to any subsequent Comparison Year and shall not
eliminate or reduce Tenant's obligation to pay Tenant's Labor Rate Payment
pursuant to this Article 6 for such Comparison Year.
(c) Tenant's Labor Rate Payment shall be payable by Tenant on the
first day of the month following the furnishing to Tenant of a Landlord's
Statement, in equal monthly installments, each such installment to be equal to
1/12th of Tenant's Labor Rate Payment for such Comparison Year multiplied by the
number of months (and any fraction thereof) of the Term then elapsed since the
commencement of such Comparison Year, continuing monthly thereafter until
rendition of the next succeeding Landlord's Statement.
(d) The provisions of this Section 6.4 shall be effective
irrespective of whether or not (i) the Building is classified as a Class A
office building from time to time, or (ii) any Building employees are members of
Local 32B-32J. Tenant acknowledges and agrees that the
-13-
<PAGE>
computation of Labor Rates hereunder is intended to serve solely as a formula
for an agreed rental adjustment, rather than an actual operating expense
calculation, and is not intended to reflect the actual cost to Landlord of wages
at the Building or any increases or decreases in such cost.
Section 6.5 (a) If the Commencement Date or the Expiration Date
shall occur on a date other than January 1 or December 31, respectively, any
Additional Rent under this Article 6 for the Comparison Year in which such
Commencement Date or Expiration Date shall occur shall be apportioned in that
percentage which the number of days in the period from the Commencement Date to
December 31 or from January 1 to the Expiration Date, as the case may be, both
inclusive, shall bear to the total number of days in such Comparison Year. In
the event of a termination of this Lease, any Additional Rent under this Article
shall be paid or adjusted within thirty (30) days after submission of a
Landlord's Statement. In no event shall Fixed Rent ever be reduced by operation
of this Section 6.5 and the rights and obligations of Landlord and Tenant under
the provisions of this Article 6 with respect to any Additional Rent shall
survive the expiration or earlier termination of this Lease.
(b) The computations of Additional Rent under this Article 6 are
intended to constitute a formula for an agreed rental adjustment and may or may
not constitute an actual reimbursement to Landlord for costs and expenses paid
by Landlord with respect to the Building.
Section 6.6 Landlord's failure to render a Landlord's Statement with
respect to any Comparison Year shall not prejudice Landlord's right to
thereafter render a Landlord's Statement with respect thereto or with respect to
any subsequent Comparison Year, nor shall the rendering of a Landlord's
Statement prejudice Landlord's right to thereafter render a corrected Landlord's
Statement for that Comparison Year. Nothing herein contained shall restrict
Landlord from issuing a Landlord's Statement at any time there is an increase in
Taxes or Labor Rates during any Comparison Year or any time thereafter.
Section 6.7 If any capital improvement is made to the Real Property
during any calendar year during the Term in compliance with any Legal
Requirements, then Tenant shall pay to Landlord, immediately upon demand
therefor, Tenant's Proportionate Share of the reasonable annual amortization,
with interest, of the cost of such improvement in each calendar year during the
Term during which such amortization occurs.
ARTICLE 7. LEGAL REQUIREMENTS
Section 7.1 Tenant, at its sole expense, shall comply with all Legal
Requirements applicable to the Premises or the use and occupancy thereof by
Tenant, and make all repairs or Alterations required thereby, whether structural
or nonstructural, ordinary or extraordinary, unless otherwise expressly provided
herein. Notwithstanding the foregoing, Tenant shall have no obligation to make
structural repairs or alterations in and to the Premises unless such obligation
shall arise as a result of the particular manner of use and occupancy of Tenant
or any alterations or improvements performed by Tenant in or to the Premises.
Tenant shall not do or permit to be done any act or thing upon the Premises
which will invalidate or be in conflict with Landlord's insurance policies, and
shall not do or permit anything to be done in
-14-
<PAGE>
or upon the Premises, or use the Premises in a manner, or bring or keep anything
therein, which shall increase the rates for casualty or liability insurance
applicable to the Building. If, as a result of any act or omission by Tenant or
by reason of Tenant's failure to comply with the provisions of this Article, the
insurance rates for the Building shall be increased, then Tenant shall desist
from doing or permitting to be done any such act or thing and shall reimburse
Landlord, as Additional Rent hereunder, for that part of all insurance premiums
thereafter paid by Landlord which shall have been charged because of such act,
omission or failure by Tenant, and shall make such reimbursement upon demand by
Landlord.
Section 7.2 Tenant, at its expense, shall comply with all
Environmental Laws and with any directive of any Governmental Authority which
shall impose any violation, order or duty upon Landlord or Tenant under any
Environmental Laws with respect to the Premises or the use or occupation
thereof. Tenant's obligations hereunder with respect to Hazardous Materials
shall extend only to those matters directly or indirectly based on, or arising
or resulting from (a) the actual or alleged presence of Hazardous Materials on
the Premises or in the Building which is caused or permitted by Tenant, and (b)
any Environmental Claim (defined below) relating in any way to Tenant's
operation or use of the Premises or the Building.
Section 7.3 Tenant shall provide Landlord with copies of all
communications and related materials regarding the Premises which Tenant shall
receive from or send to (a) any Governmental Authority relating in any way to
any Environmental Laws, or (b) any Person with respect to any claim based upon
any Environmental Laws or relating in any way to Hazardous Materials (any such
claim, an "Environmental Claim"). Landlord or its agents may perform an
environmental inspection of the Premises at any time during the Term, upon prior
notice to Tenant except in an emergency.
ARTICLE 8. SUBORDINATION AND NON-DISTURBANCE; ESTOPPEL CERTIFICATES
Section 8.1 This Lease, and all rights of Tenant hereunder, are and
shall be subject and subordinate in all respects to all Mortgages and Superior
Leases. This Section 8.1 shall be self-operative and no further instrument of
subordination shall be required. In confirmation of such subordination, Tenant
shall promptly execute and deliver any instrument that Landlord or any Lessor or
Mortgagee may reasonably request to evidence such subordination.
Section 8.2 In the event of any act or omission of Landlord which
would give Tenant the right, immediately or after lapse of a period of time, to
cancel or terminate this Lease, or to claim a partial or total eviction, Tenant
shall not exercise such right (a) until it has given written notice of such act
or omission to each Mortgagee and Lessor whose name and address shall previously
have been furnished to Tenant in writing, and (b) unless such act or omission
shall be one which is not capable of being remedied by Landlord or such
Mortgagee or Lessor within a reasonable period of time, until a reasonable
period for remedying such act or omission shall have elapsed following the
giving of such notice and following the time when such Mortgagee or Lessor shall
have become entitled under such Mortgage or Superior Lease, as the case may be,
to remedy the same (which reasonable period shall in no event be less than the
-15-
<PAGE>
period to which Landlord would be entitled under this Lease or otherwise, after
similar notice, to effect such remedy), provided such Mortgagee or Lessor shall
with due diligence give Tenant written notice of its intention to remedy such
act or omission, and such Mortgagee or Lessor shall commence and thereafter
continue with reasonable diligence to remedy such act or omission. If more than
one Mortgagee or Superior Lessor shall become entitled to any additional cure
period under this Section 8.2, such cure periods shall run concurrently, not
consecutively.
Section 8.3 If a Mortgagee or Lessor shall succeed to the rights of
Landlord under this Lease, whether through possession or foreclosure action or
delivery of a new lease or deed, then at the request of such party so succeeding
to Landlord's rights ("Successor Landlord") and upon Successor Landlord's
written agreement to accept Tenant's attornment, Tenant shall attorn to and
recognize Successor Landlord as Tenant's landlord under this Lease, and shall
promptly execute and deliver any instrument that Successor Landlord may
reasonably request to evidence such attornment. Upon such attornment this Lease
shall continue in full force and effect as, or as if it were, a direct lease
between Successor Landlord and Tenant upon all of the terms, conditions and
covenants as are set forth in this Lease and shall be applicable after such
attornment except that Successor Landlord shall not:
(a) be liable for any previous act or omission of Landlord under
this Lease;
(b) be subject to any offset, not expressly provided for in this
Lease, which shall have theretofore accrued to Tenant against Landlord; or
(c) be bound by any previous modification of this Lease, not
expressly provided for in this Lease, or by any previous prepayment of
more than one month's Fixed Rent, unless such modification or prepayment
shall have been expressly approved in writing by such Mortgagee or Lessor.
Section 8.4 Each party agrees, at any time and from time to time, as
requested by the other party, upon not less than ten (10) days' prior notice, to
execute and deliver to the other a written statement executed and acknowledged
by such party (a) stating that this Lease is then in full force and effect and
has not been modified (or if modified, setting forth all modifications), (b)
setting forth the then annual Fixed Rent, (c) setting forth the date to which
the Fixed Rent and Additional Rent have been paid, (d) stating whether or not,
to the best knowledge of the signatory, the other party is in default under this
Lease, and if so, setting forth the specific nature of all such defaults, (e)
stating the amount of any security deposit held by Landlord, (f) stating whether
there are any subleases affecting the Premises, (g) stating the address of the
signatory to which all notices and communication under the Lease shall be sent,
(h) stating the Commencement Date and the Expiration Date, and (i) as to any
other matters reasonably requested by the party requesting such certificate. The
parties acknowledge that any statement delivered pursuant to this Section 8.4
may be relied upon by others with whom the party requesting such certificate may
be dealing, including any purchaser or owner of the Real Property or the
Building, or of Landlord's interest in the Real Property or the Building or any
Superior Lease, or by any Mortgagee or Lessor, or by any prospective or actual
sublessee of the Premises or assignee of this Lease, or permitted transferee of
or successor to Tenant.
-16-
<PAGE>
ARTICLE 9. SERVICES
Section 9.1 Landlord shall provide, at Landlord's expense, except as
otherwise set forth herein, the following services:
Section 9.2 Electricity. (a) Subject to the provisions of this
Article 9, Landlord will provide 600 amperes of 460 volt, 3-phase, 4-wire, AC
electrical capacity of submetered electric power to the Premises (the "Basic
Capacity"). Tenant covenants that Tenant's use and consumption of electric
current shall not at any time exceed the Basic Capacity, nor exceed the capacity
of any of the electrical facilities and installations in or otherwise serving or
being used in the Premises. Tenant shall pay Landlord, as Additional Rent, at
any time and from time to time, but no more frequently than monthly, for its
consumption of electrical energy at the Premises, as provided herein.
(b) In the event that Tenant's total power requirements at the
Premises, based on an annual review of Tenant's consumption following the first
anniversary of the Commencement Date, shall be less than the Basic Capacity,
Tenant shall pay to Landlord an annual sum equal to the fee, if any, which
Landlord is obligated to pay to the Electricity Provider (as defined in Section
9.1(d)), commonly known as a "use it or lose it" fee, for the availability of
such capacity, presently payable by Landlord to the Electricity Provider at the
rate of $25.00 per unused ampere per annum. Further, if as of the third (3rd)
anniversary of the Commencement Date, Tenant shall continue to require less than
the Basic Capacity, then Landlord shall have the right to reduce the level of
electric power supplied to the Premises to Tenant's actual power requirements as
reasonably determined by Landlord.
(c) The calculations and determinations of the charges for electric
energy consumed by Tenant shall be based on the readings of one or more
submeters currently installed at the Premises, applied to Landlord's Electricity
Cost, as defined in Section 9.2(d). Tenant shall pay for electricity consumed as
determined thereunder as measured and calculated from time to time by such
submeter or submeters, such payment to be equal to the amount Tenant would pay
for such consumption of electricity if it purchased that amount of electricity
from the public utility servicing the Building under the rate structure and/or
classification as set forth in this Section 9.2(c) pursuant to which Landlord
would purchase that quantity of electricity for the entire Building, plus
Landlord's charge for overhead and supervision, which charge shall not exceed
five percent (5%) of such payment by Tenant. In addition, Tenant shall pay to
Landlord, as Additional Rent (i) the fees and expenses of Landlord's electrical
contractor for services rendered by such contractor in the maintenance and
repair of such submeter(s), and (ii) the amount of any taxes imposed by any
Governmental Authority on Landlord's receipts from the sale of electricity to
Tenant. In the event that more that one submeter is used to measure Tenant's
consumption of electricity in the Premises, Tenant shall be billed only on the
basis of the "totalized" demand, i.e., as though a single meter were measuring
such usage.
(d) "Landlord's Electricity Cost" means the cost per kilowatt hour
and cost per kilowatt demand, adjusted by time of day factors, fuel adjustment
charges and other applicable rate adjustments, to Landlord for the purchase of
electricity from the public utility or other electricity provider furnishing
electricity service to the Building from time to time (the
-17-
<PAGE>
"Electricity Provider"), including sales and other taxes imposed by any
Governmental Authority on Landlord's purchase of electricity. If at any time
during the Term the cost elements comprising Landlord's Electricity Cost shall
be increased by the Electricity Provider, or Landlord's Electricity Cost shall
be increased for any other reason, then effective as of the date of such
increase, Tenant's payment for submetered electricity under this Section 9.2
shall be proportionately increased. Landlord reserves the right to contract with
different Electricity Providers from time to time in its sole judgment, and
without reference to whether any Electricity Provider selected by Landlord
provides lower rates than any other electricity supplier. Currently, Landlord's
Electricity Cost is based upon Consolidated Edison Company's Service
Classification rate schedule S.C. #4 Rate II as in effect on the Commencement
Date.
(e) Tenant covenants that Tenant's use and consumption of electric
current shall not at any time exceed the capacity of any of the electrical
facilities and installations in or otherwise serving or being used in the
Premises and Tenant shall, upon the submission by Landlord to Tenant of written
notice, promptly cease the use of any of Tenant's electrical equipment which
Landlord believes will cause Tenant to exceed such capacity. Any additional
feeders, risers, electrical facilities and other such installations required for
electric service to the Premises will be supplied by Landlord, at Tenant's
expense, upon Landlord's prior consent in each instance, provided that, in
Landlord's judgment, such additional electrical facilities and installations,
feeders or risers are necessary for Tenant's use of the Premises and are
permissible under Legal Requirements (including the New York State Energy
Conservation Construction Code) and insurance regulations and the installation
of such feeders or risers will not cause permanent damage or injury to the
Building or the Premises or cause or create a dangerous or hazardous condition
or entail excessive or unreasonable alterations or repairs or interfere with, or
disturb, other tenants or occupants of the Building. In addition, Landlord shall
have no obligation to consent to such additional feeders, risers, electrical
facilities and installations if in Landlord's judgment, the same would give
Tenant a disproportionate amount of the electrical current supplied to the
Building at the expense of, or in derogation of the needs of other tenants or
occupants of the Building.
(f) Landlord shall not in any way be liable or responsible to Tenant
for any loss, damage or expense which Tenant may sustain or incur as a result of
the unavailability of or interruption in the supply of electric current to the
Premises or a change in the quantity or character or nature of such current and
such change, interruption or unavailability shall not constitute an actual or
constructive eviction, in whole or in part, or entitle Tenant to any abatement
or diminution of rent (except that Tenant's liability to pay Landlord for
electricity under this Section 9.2 shall cease as of the date of such
disturbance), or relieve Tenant from any of its obligations under this Lease, or
impose any liability upon Landlord, or its agents, by reason of inconvenience or
annoyance to Tenant, or injury to or interruption of Tenant's business, or
otherwise.
(g) Landlord reserves the right to discontinue furnishing
electricity to Tenant in the Premises on not less than ninety (90) days notice
to Tenant. If Landlord exercises such right to discontinue, or is compelled to
discontinue furnishing electricity to Tenant, this Lease shall continue in full
force and effect and shall be unaffected thereby, except only that from and
-18-
<PAGE>
after the effective date of such discontinuance, Landlord shall not be obligated
to furnish electricity to Tenant, and Tenant shall have no further obligation to
pay Landlord for electricity supplied to the Premises. If Landlord so
discontinues furnishing electricity to Tenant, Tenant shall arrange to obtain
electricity directly from the Electricity Provider. Such electricity may be
furnished to Tenant by means of the then existing electrical facilities serving
the Premises to the extent that the same are available, suitable and safe for
such purposes. All meters and all additional panel boards, feeders, risers,
wiring and other equipment which may be required by Tenant to obtain electricity
directly from the Electricity Provider shall be installed by Landlord, at
Tenant's sole cost and expense.
(h) If submetering of electricity in the Building is hereafter
prohibited by any Legal Requirement, or by any order or ruling of the Public
Service Commission of the State of New York, then Tenant shall apply, within ten
(10) days of Tenant's receiving notice thereof, to the Electricity Provider in
order to obtain direct electric service, and Tenant shall bear all costs and
expenses, as set forth in Section 9.2(g), necessary to comply with all rules and
regulations of the Electricity Provider pertinent thereto, and from and after
the date upon which Tenant procures direct electric service, Landlord shall be
relieved of any further obligation to furnish electricity to Tenant pursuant to
this Section 9.2. Such electricity may be furnished to Tenant by means of the
then existing electrical facilities serving the Premises, including Building
feeders and risers, to the extent that the same are suitable and safe for such
purposes.
Section 9.3 Heat, Ventilation and Air Conditioning. (a) Landlord
shall provide heat to the Premises on Business Days from 8:00 A.M. to 6:00 P.M.,
when required in Landlord's judgment for the comfortable use and occupancy of
the Premises, through use of the Building standard heating system (the "Building
Heating System").
(b) Anything in this Section 9.3 to the contrary notwithstanding,
Landlord shall not be responsible if the normal operation of the Building
Heating System shall fail to provide heat at reasonable temperatures. Tenant at
all times shall cooperate fully with Landlord and shall abide by the regulations
and requirements which Landlord may prescribe for the proper functioning and
protection of the Building Heating System.
(c) Landlord shall not be required to furnish heat during periods
other than the hours and days set forth in this Section 9.3 for the furnishing
and distributing of such services ("Overtime Periods"), unless Landlord has
received advance notice from Tenant requesting such service not less than
twenty-four (24) hours prior to the time when such service shall be required.
Accordingly, if Landlord shall furnish heat to the Premises at the request of
Tenant during Overtime Periods, Tenant shall pay Landlord, as Additional Rent
within ten (10) days after demand, for such services at the standard rate then
fixed by Landlord for the Building. Failure by Landlord to furnish or distribute
heat or any other services during Overtime Periods shall not constitute an
actual or constructive eviction, in whole or in part, or entitle Tenant to any
abatement or diminution of Fixed Rent or Additional Rent, or relieve Tenant from
any of its obligations under this Lease, or impose any liability upon Landlord
or its agents by reason of inconvenience or annoyance to Tenant, or injury to or
interruption of Tenant's business or otherwise.
-19-
<PAGE>
(d) Landlord shall have no obligation to provide air-conditioning or
ventilation services to the Premises. Landlord agrees that Tenant shall have the
right to utilize the existing air-cooled package air-conditioning unit
("Tenant's HVAC System") serving the Premises, and to expand Tenant's HVAC
System, subject to the provisions of Article 3. Upon the expiration or sooner
termination of the Term, at Landlord's request, Tenant shall remove Tenant's
HVAC System and restore any damage to the Building and the Premises resulting
from such removal.
Section 9.4 Elevators. Landlord shall provide passenger elevator
service to the Premises on Business Days from 8:00 A.M. to 6:00 P.M. and freight
elevator facilities on a non-exclusive basis, on Business Days from 8:00 A.M. to
4:45 P.M., and shall have one passenger elevator available at all other times.
Such elevator service shall be subject to such rules and regulations as Landlord
may promulgate from time to time with respect thereto. Landlord shall have the
right to change the operation or manner of operation of any of the elevators in
the Building and/or to discontinue, temporarily or permanently, the use of any
one or more cars in any of the passenger, freight or truck elevator banks.
Section 9.5 Cleaning and Rubbish Removal. Tenant shall, at Tenant's
sole cost, provide cleaning services at the Premises pursuant to reasonable
rules and regulations established by Landlord from time to time, and use a
cleaning contractor approved by Landlord, or cause Tenant's personnel to perform
such cleaning subject to Tenant's compliance with Section 3.5 and other
provisions of this Lease and in accordance with rules and regulations imposed by
Landlord from time to time.
Section 9.6 Landlord's Generator.
(a) Landlord shall provide up to 800 amperes of 460-volt emergency
electric power service ("EPS") to Tenant for use in the Premises from the
Building emergency electric generator ("Landlord's Generator") as provided in
this Section 9.6, utilizing (i) the existing automatic transfer switch (the
"Transfer Switch") to supply a total connected load of up to 800 amperes of EPS
at 460 volts to the Premises, and (ii) the existing connection from Landlord's
Generator to the Transfer Switch. On the Commencement Date, Landlord shall make
600 amperes of EPS available to Tenant, and in the event that the Basic Capacity
shall be increased from time to time during the Term, Landlord shall increase
the quantity of EPS available to Tenant in accordance with such increase, up to
an aggregate of 800 amperes of EPS. If the Basic Capacity shall be increased to
a total in excess of 800 amperes, then, if Tenant shall request EPS in excess of
800 amperes, Landlord shall have the option to either (A) make available the
level of EPS requested by Tenant, or (B) permit Tenant to install Tenant's
Generator, pursuant to and as defined in Section 9.7.
(b) Tenant shall pay to Landlord an annual fee (the "EPS Fee") for
the period commencing on the Commencement Date through the Expiration Date,
irrespective of whether or not emergency power is ever required or used by
Tenant, in the amount of $150.00 per ampere per year, subject to increase
pursuant to Section 9.6(c) below. The EPS Fee shall be payable by Tenant to
Landlord as Additional Rent in advance in equal monthly installments on the
first day of each month during the Term. Tenant shall be responsible for the
payment of any occupancy
-20-
<PAGE>
tax, or any other tax (other than Landlord's income tax) imposed upon the
Additional Rent paid by Tenant pursuant to this Section 9.6.
(c) For purposes of this Lease, (i) the term "CPI" means the
Consumer Price Index for All Urban Consumers, New York, N.Y. - Northeastern,
N.J., 1982-84=100; provided, however, that if the CPI or any successor index
shall cease to be published, Landlord shall substitute therefor such other
comparable index as Landlord shall reasonably determine, and (ii) the term "CPI
Fraction" means, as of each January 1st during the Term (an "Adjustment Date"),
a fraction (A) the numerator of which is the sum of (1) the CPI in effect on the
immediately previous Adjustment Date (the "Base Index") plus (2) the amount by
which the CPI in effect on the Adjustment Date exceeds the Base Index, and (B)
the denominator of which is the Base Index. If, as of each Adjustment Date, the
CPI then in effect is greater than the Base Index, then the EPS Fee shall be
increased as of such Adjustment Date to an amount equal to the product of (I)
the EPS Fee then in effect for the immediately previous calendar year,
multiplied by (II) the CPI Fraction. In no event shall the EPS Fee ever be
reduced pursuant to this Section 9.6(c).
(d) Tenant understands and agrees that EPS will be supplied to
Tenant only if there is an interruption or failure in the supply of electric
current to the Premises, and under no other circumstances.
(e) The privilege of using the EPS service described in this Section
9.6 cannot be transferred or assigned by Tenant except with the express written
consent of Landlord, which may be withheld in Landlord's sole discretion, and
under no circumstances can this privilege be transferred or assigned to any
party who is not a tenant under this Lease.
(f) Landlord shall have the right, in Landlord's sole discretion, at
any time and from time to time during the Term, upon not less than thirty (30)
days prior written notice to Tenant, to relocate Landlord's Generator to another
area of the Building, and/or to substitute another Building generator in lieu of
Landlord's Generator, provided that there shall be no interruption in the
availability of EPS to Tenant at the level provided in Section 9.6(a). Tenant
shall cooperate with Landlord to effectuate any such relocation or substitution
of Landlord's Generator. All costs involved in such relocation or substitution
shall be borne by Landlord.
(g) Tenant acknowledges that Landlord's Generator (and any
replacement or substitute therefor), the Transfer Switch, and all connections
thereto, are and shall remain the sole property of Landlord and may not be
removed by Tenant.
(h) Upon and subject to the provisions of this Lease, Landlord shall
(i) maintain, repair and test Landlord's Generator in accordance with the
manufacturer's recommend procedural and sound industry practice and (ii) at all
times maintain all service contracts and take such other actions as may be
necessary to keep Landlord's Generator in good working order. Unless caused by
Landlord's gross negligence or willful misconduct, or by Landlord's failure to
diligently comply with the provisions of this Section 9.6(h), Landlord shall not
be liable in any way to Tenant for any delay, interruption, failure, variation
or defect in or with regard to Landlord's Generator and/or EPS, and in no event
shall Landlord be liable to Tenant for special,
-21-
<PAGE>
indirect or consequential damages which may result from any such delay,
interruption, failure, variation or defect.
(i) Landlord hereby agrees not to offer to Building tenants any
amounts of EPS which shall, in the aggregate be in excess of the total capacity
of power available from Landlord's Generator.
Section 9.7 Tenant's Emergency Generator.
(a) If Landlord elects, in accordance with the provisions of Section
9.6(a), to permit Tenant to install an emergency generator, then Landlord will
grant to Tenant, for Tenant's own use and not for resale purposes, a
non-exclusive license of sufficient space in the Building, at a location
designated by Landlord in its sole discretion (the "Generator Space"), for the
construction, installation, operation and use by Tenant of a diesel-powered
electric generator with a capacity adequate for Tenant's additional emergency
power requirements, in Landlord's reasonable judgment, and other related
equipment, including mountings and supports (collectively, "Tenant's
Generator"). Subject to the availability of diesel fuel in the Building's fuel
system, Tenant shall have the right to connect Tenant's Generator to one of the
Building's diesel fuel tanks as designated by Landlord and to reserve a minimum
of four thousand (4,000) gallons of diesel fuel. Tenant shall pay to Landlord a
one-time fee at Landlord's then-current rates for the diesel fuel so reserved
for Tenant, as Additional Rent within ten (10) Business Days after demand by
Landlord; Landlord's current fee for diesel fuel is Fifty and 00/100 Dollars
($50.00) per gallon of fuel reserved. Tenant shall reimburse Landlord for
Landlord's actual cost for diesel fuel consumed by Tenant's Generator, as
indicated on a meter to be installed by Landlord, at Tenant's expense, at a
point designated by Landlord along the fuel line connecting such fuel tank to
Tenant's Generator. Tenant shall pay for all fuel lines, pumps, piping, meters
and other equipment or installations necessary for the operation of Tenant's
Generator as provided in this Section 9.7. Landlord shall make available to
Tenant reasonable access to the Generator Space for the construction,
installation, maintenance, repair, operation and use of Tenant's Generator.
Tenant shall be responsible for all reinforcement and bracing necessary to
enable the floor of the Generator Space to support Tenant's Generator. If Tenant
requires riser space for electrical conduits connecting Tenant's Generator to
the Premises, or for fuel lines connecting Tenant's Generator to the Building
fuel tank designated by Landlord, then, subject to availability of riser space
in the Building, Landlord shall make such riser space available to Tenant as
provided in Section 9.8. References herein to Tenant's Generator shall be deemed
to include such riser and the electrical conduits and fuel lines appurtenant
thereto. If Tenant's Generator generates noise or exhaust likely, in Landlord's
judgment, to disturb other tenants or occupants of the Building, then Tenant
shall install sound attenuated acoustic enclosures or additional venting, as the
case may be.
(b) Tenant shall pay a license fee to Landlord for the Generator
Space, as Additional Rent in equal monthly installments in advance on the first
day of each month during the Term, as follows: (i) during the period from the
Commencement Date through the day before the fifth (5th) anniversary of the
Commencement Date, an amount per year equal to the product of the usable square
foot area of the Generator Space, multiplied by Forty and 00/100 Dollars
($40.00),
-22-
<PAGE>
(ii) during the period from the fifth (5th) anniversary of the Commencement Date
through the day before the tenth (10th) anniversary of the Commencement Date, an
amount per year equal to the product of the usable square foot area of the
Generator Space, multiplied by Forty-Four and 00/100 Dollars ($44.00), and (iii)
during the period from the tenth (10th) anniversary of the Commencement Date
through the Expiration Date, an amount per year equal to the product of the
usable square foot area of the Generator Space, multiplied by Forty-Eight and
00/100 Dollars ($48.00).
(c) Tenant's Generator shall be treated for all purposes of this
Lease as a Tenant Alteration, provided that Tenant shall in no event remove
Tenant's Generator on the Expiration Date or sooner termination of this Lease.
Tenant's Generator shall be treated for all purposes of this Lease as Tenant's
Alterations. If requested by Landlord, Tenant shall cause Tenant's Generator and
all equipment and installations appurtenant thereto to be designated as one or
more separate tax lots by the City of New York for all purposes of assessment
and payment of Taxes, and Tenant shall pay all Taxes imposed thereon directly to
the taxing authorities, without deduction or offset against Rent under this
Lease. If for any reason Tenant fails (with or without Landlord's consent
thereto) to so cause Tenant's Generator to be designated as one or more separate
tax lots, Tenant shall pay to Landlord monthly, as Additional Rent within thirty
(30) days after demand, the amount, determined by Landlord in its reasonable
discretion, by which Taxes imposed upon the Building have been increased on
account of Tenant's installation of Tenant's Generator.
Section 9.8 Riser Space. Landlord will make available to Tenant,
without additional charge, riser space (vertical and horizontal) sufficient to
accommodate the following: (a) the electrical conduits required to deliver the
Basic Capacity to the Premises, and (b) the electrical conduits required to
connect Landlord's Generator to the Premises. If Tenant requires additional
riser space for electrical, telecommunications, or other conduits, then upon
request by Tenant, subject to availability of riser space in the Building,
Landlord will make available riser space at Landlord's then-current rates for
riser space in the Building, which rates are currently as follows: (i) for riser
space not exceeding two inches (2") in diameter, an annual charge of $4.50 per
lineal foot, and (ii) for riser space in excess of two inches (2") in diameter
but not exceeding four inches (4") in diameter, an annual charge of $7.50 per
lineal foot. Landlord agrees that the foregoing rates for riser space will not
be increased prior to the first (1st) anniversary of the Commencement Date.
Tenant shall pay such charges for riser space monthly on the first day of each
month during the Term. All work in connection with the installation of such
conduit, including core drilling, if required, shall be performed by Tenant at
Tenant's sole cost and expense, including the cost of a fire watch and related
supervisory costs relating to any core drilling, which shall be performed in
such a manner and at such times as Landlord shall prescribe. Landlord shall make
available to Tenant reasonable access within the Building core for purposes of
such installation work.
Section 9.9 Water. Landlord shall furnish hot and cold water in such
quantities as Landlord deems sufficient for ordinary drinking, lavatory and
cleaning purposes to the Premises. If Tenant requires, uses or consumes water
for any purpose in addition to ordinary lavatory, cleaning and drinking
purposes, Landlord may install a hot water meter and a cold water meter and
thereby measure Tenant's consumption of water for all purposes. Tenant shall (a)
pay to Landlord the cost of any such meters and their installation, (b) at
Tenant's sole cost
-23-
<PAGE>
and expense, keep any such meters and any such installation equipment in good
working order and repair, and (c) pay to Landlord, as Additional Rent, as and
when billed therefor for water consumed, together with a charge for any required
pumping or heating thereof, all sewer rents, charges or any other taxes, rents,
levies or charges which now or hereafter are assessed, imposed or shall become a
lien upon the Premises or the Real Property pursuant to law, order or regulation
made or issued in connection with any such metered use, consumption, maintenance
or supply of water, water system, or sewage or sewage connection or system, and
in default in making such payment Landlord may pay such charges and collect the
same from Tenant.
Section 9.10 Rubbish and Removal. Tenant shall, at Tenant's sole
cost, provide refuse and rubbish removal service at the Premises at times, and
pursuant to regulations, established by Landlord from time to time.
Section 9.11 No Warranty of Landlord. Landlord does not warrant that
any of the services to be provided by Landlord to Tenant hereunder, or any other
services which Landlord may supply (a) will be adequate for Tenant's particular
purposes or as to any other particular need of Tenant or (b) will be free from
interruption, and Tenant acknowledges that any one or more such services may be
interrupted or suspended by reason of Unavoidable Delays. In addition, Landlord
reserves the right to stop, interrupt or reduce service of the Building Systems
by reason of Unavoidable Delays, or for repairs, additions, alterations,
replacements, decorations or improvements which are, in the judgment of
Landlord, necessary to be made, until said repairs, alterations, replacements or
improvements shall have been completed. Any such interruption or discontinuance
of service, or the exercise of such right by Landlord to suspend or interrupt
such service shall not (i) constitute an actual or constructive eviction, or
disturbance of Tenant's use and possession of the Premises, in whole or in part,
(ii) entitle Tenant to any compensation or to any abatement or diminution of
Fixed Rent or Additional Rent, (iii) relieve Tenant from any of its obligations
under this Lease, or (iv) impose any responsibility or liability upon Landlord
or its agents by reason of inconvenience or annoyance to Tenant, or injury to or
interruption of Tenant's business, or otherwise. Landlord shall use reasonable
efforts to minimize interference with Tenant's access to and use and occupancy
of the Premises in making any repairs, alterations, additions, replacements,
decorations or improvements; provided, however, that Landlord shall have no
obligation to employ contractors or labor at "overtime" or other premium pay
rates or to incur any other "overtime" costs or additional expenses whatsoever.
Landlord shall not be required to furnish any services except as expressly
provided in this Article 9.
ARTICLE 10. INSURANCE
Section 10.1 Tenant, at its expense, shall obtain and keep in full
force and effect a policy of commercial general liability insurance, including
premises operations and contractual liability under which the insurer agrees to
insure Tenant's obligations under Article 28, under which Tenant is named as the
insured and Landlord, Landlord's asset manager, Landlord's managing agent for
the Building, and any Lessors and any Mortgagees (whose names shall have been
furnished to Tenant) are named as additional insureds, which insurance shall
provide primary coverage without contribution from any other insurance carried
by or for the benefit of
-24-
<PAGE>
Landlord, Landlord's managing agent or any Lessors or Mortgagees named as
additional insureds. Tenant's primary commercial general liability policy shall
contain a provision that the policy shall be noncancellable unless twenty (20)
days written notice shall have been given to Landlord and Landlord shall
similarly receive twenty (20) days notice of any material change in coverage.
The minimum limits of liability shall be a combined single limit with respect to
each occurrence in an amount of not less than $5,000,000 per location general
aggregate limit; provided, however, that Landlord shall retain the right to
require Tenant to increase said coverage to that amount of insurance which in
Landlord's reasonable judgment is then being customarily required by prudent
landlords of comparable buildings in the City of New York, and provided further
that Landlord shall require similar increases of other tenants of space in the
Building comparable to the Premises, to the extent Landlord shall then have the
right to do so under applicable leases. Tenant shall also obtain and keep in
full force and effect during the Term, (a) insurance against loss or damage by
fire, and such other risks and hazards as are insurable under then available
standard forms of "all risk" insurance policies with extended coverage
(including theft, sprinkler leakage and boiler and machinery, if applicable), to
Tenant's Property and Tenant's Alterations for the full insurable value thereof
or on a replacement cost basis; (b) Business Interruption Insurance; (c)
Workers' Compensation Insurance, as required by law; (d) New York Disability
Benefits Law Policy; and (e) such other insurance in such amounts as Landlord,
any Mortgagee or Lessor may reasonably require from time to time. All insurance
required to be carried by Tenant pursuant to the terms of this Lease shall be
effected under valid and enforceable policies issued by reputable and
independent insurers permitted to do business in the State of New York, and
rated in Best's Insurance Guide, or any successor thereto (or if there be none,
an organization having a national reputation) as having a Best's Rating" of "A-"
and a "Financial Size Category" of at least "XI" or if such ratings are not then
in effect, the equivalent thereof.
Section 10.2 (a) The parties hereto do hereby waive, any and all
rights of recovery against the other, or against the officers, employees,
partners, agents and representatives of the other, for loss of or damage to the
property of the waiving party to the extent such loss or damage is insured
against under any insurance policy carried by Landlord or Tenant hereunder. In
addition, the parties hereto shall procure an appropriate clause in, or
endorsement on, any fire or extended coverage insurance covering the Premises,
the Building and personal property, fixtures and equipment located thereon or
therein, pursuant to which the insurance companies waive subrogation or consent
to a waiver of right of recovery and subject to obtaining such clauses or
endorsements of waiver of subrogation or consent to a waiver of right of
recovery, hereby agree not to make any claim against or seek to recover from the
other for any loss or damage to its property or the property of others resulting
from fire or other hazards covered by such fire and extended coverage insurance;
provided, however, that the release, discharge, exoneration and covenant not to
sue herein contained shall be limited by and coextensive with the terms and
provisions of the waiver of subrogation clause or endorsements or clauses or
endorsements consenting to a waiver of right of recovery. If the payment of an
additional premium is required for the inclusion of such waiver of subrogation
or consent to waiver provision, each party shall advise the other of the amount
of any such additional premiums and the other party at its own election may, but
shall not be obligated to, pay the same. If such other party shall not elect to
pay such additional premium, the first party shall not be required to obtain
-25-
<PAGE>
such waiver of subrogation or consent to waiver provision. Tenant acknowledges
that Landlord shall not carry insurance on and shall not be responsible for
damage to, Tenant's Alterations (if any) or Tenant's Property, and that Landlord
shall not carry insurance against, or be responsible for any loss suffered by
Tenant due to, interruption of Tenant's business.
(b) As to each party hereto, provided such party's right of full
recovery under the applicable insurance policy is not adversely affected, such
party hereby releases the other (its servants, agents, contractors, employees
and invitees) with respect to any claim (including a claim for negligence) which
it might otherwise have against the other party for loss, damages or destruction
of the type covered by such insurance with respect to its property by fire or
other casualty i.e. in the case of Landlord, as to the Building, and, in the
case of Tenant, as to Tenant's Property and Tenant's Alterations (including
rental value or business interruption, as the case may be) occurring during the
Term.
Section 10.3 On or prior to the Commencement Date, Tenant shall
deliver to Landlord appropriate certificates of insurance required to be carried
by Tenant pursuant to this Article 10, including evidence of waivers of
subrogation required pursuant to Section 10.2. Evidence of each renewal or
replacement of a policy shall be delivered by Tenant to Landlord at least twenty
(20) days prior to the expiration of such policy.
ARTICLE 11. DESTRUCTION OF THE PREMISES; PROPERTY LOSS OR DAMAGE
Section 11.1 (a) If the Premises shall be damaged by fire or other
casualty, or if the Building shall be so damaged that Tenant shall be deprived
of reasonable access to the Premises, Tenant shall give prompt notice thereof to
Landlord, and the damage shall be repaired by and at the expense of Landlord to
substantially the condition prior to the damage, including Tenant's Alterations,
but excluding Tenant's Property. Until such repairs shall be substantially
completed, Fixed Rent and Additional Rent shall, so long as Tenant shall not be
in default beyond applicable grace or notice provisions in the payment or
performance of its obligations under this Section 11.1, be reduced in the
proportion which the area of the part of the Premises which is neither usable
nor used by Tenant bears to the total area of the Premises. Tenant shall pay to
Landlord all proceeds of insurance policies covering Tenant's Alterations, and
such proceeds shall be used by Landlord in the repair of Tenant's Alterations.
Landlord shall have no obligation to repair any damage to, or to replace, any of
Tenant's Property.
(b) Concurrently with the collection of any insurance proceeds
attributable to damage to Tenant's Alterations (or the payment by the Tenant to
Landlord of an amount equal to such insurance proceeds, pending collection of
such proceeds from its insurer), and as a condition precedent to Landlord's
obligation to commence those repairs to Tenant's Alterations required to be
performed by Landlord pursuant to this Section 11.1, Tenant shall pay to
Landlord (i) the amount of any deductible under the policy insuring Tenant's
Alterations, and (ii) the amount, if any, by which the cost of repairing and
restoring Tenant's Alterations, as estimated by a reputable independent
contractor designated by Landlord, exceeds the available insurance proceeds
therefor. The amounts due in accordance with the preceding sentence constitute
Additional Rent under this Lease and shall be payable by Tenant to Landlord upon
demand.
-26-
<PAGE>
Section 11.2 (a) Anything contained in Section 11.1 to the contrary
notwithstanding, if the Premises are totally damaged or are rendered wholly
untenantable, and if Landlord shall decide not to restore the Premises, or if
the Building shall be so damaged by fire or other casualty that, in Landlord's
opinion, substantial alteration, demolition, or reconstruction of the Building
shall be required (whether or not the Premises shall have been damaged or
rendered untenantable), then in any of such events, Landlord may, not later than
sixty (60) days following the date of the damage, give Tenant a notice in
writing terminating this Lease. If this Lease is so terminated, the Term shall
expire upon the tenth (10th) day after such notice is given, and Tenant shall
vacate the Premises and surrender the same to Landlord. Upon the termination of
this Lease under the conditions provided for in this Section 11.2, Tenant's
liability for Fixed Rent and Additional Rent shall cease as of the date of such
fire or other casualty, and any prepaid portion of Fixed Rent or Additional Rent
for any period after such date shall be refunded by Landlord to Tenant.
(b) If this Lease is terminated pursuant to the provisions of this
Article 11, then Landlord shall collect the insurance proceeds of policies
providing coverage for Tenant's Alterations as provided in Section 11.1(a)
hereof. Landlord shall retain such proceeds to the extent of sums, if any,
advanced by Landlord to Tenant with respect to any of Tenant's Alterations. The
balance of such proceeds, if any, shall be paid to Tenant.
Section 11.3 If the Premises are damaged by fire or other casualty
and are rendered wholly untenantable thereby, or if the Building shall be so
damaged that Tenant shall be deprived of reasonable access to the Premises, and
if Landlord shall elect to restore the Premises, Landlord shall, within sixty
(60) days following the date of the damage, cause a contractor or architect
selected by Landlord to give notice (the "Restoration Notice") to Tenant of the
date by which such contractor or architect believes the restoration of the
Premises shall be substantially completed. If the Restoration Notice shall
indicate that the restoration shall not be substantially completed on or before
the date which shall be ten (10) months following the date of such damage or
destruction, Tenant shall have the right to terminate this Lease by giving
written notice (the "Termination Notice") to Landlord not later than thirty (30)
days following receipt of the Restoration Notice. If Tenant gives a Termination
Notice, this Lease shall be deemed cancelled and terminated as of the date of
the giving of the Termination Notice as if such date were the Expiration Date,
and Fixed Rent and Additional Rent shall be apportioned and shall be paid or
refunded, as the case may be up to and including the date of such damage or
destruction. Notwithstanding anything set forth to the contrary in this Article
11, in the event that a fire or other casualty rendering the Premises wholly
untenantable shall occur during the final year of the Term, either Landlord or
Tenant may terminate this Lease by giving the other party a Termination Notice
as set forth herein.
Section 11.4 This Article 11 constitutes an express agreement
governing any case of damage or destruction of the Premises or the Building by
fire or other casualty, and Section 227 of the Real Property Law of the State of
New York, which provides for such contingency in the absence of an express
agreement, and any other law of like nature and purpose now or hereafter in
force shall have no application in any such case.
-27-
<PAGE>
ARTICLE 12. EMINENT DOMAIN
Section 12.1 If (a) all of the floor area of the Premises, or so
much thereof as shall render the Premises wholly untenantable, shall be acquired
or condemned for any public or quasi-public use or purpose, or (b) a portion of
the Real Property, not including the Premises, shall be so acquired or
condemned, but by reason of such acquisition or condemnation, Tenant no longer
has means of access to the Premises, then this Lease and the Term shall end as
of the date of the vesting of title with the same effect as if that date were
the Expiration Date. In the event of any termination of this Lease and the Term
pursuant to the provisions of this Article 12, Fixed Rent and Additional Rent
shall be apportioned as of the date of sooner termination and any prepaid
portion of Fixed Rent or Additional Rent for any period after such date shall be
refunded by Landlord to Tenant.
Section 12.2 In the event of any such acquisition or condemnation of
all or any part of the Real Property, Landlord shall be entitled to receive the
entire award for any such acquisition or condemnation. Tenant shall have no
claim against Landlord or the condemning authority for the value of any
unexpired portion of the Term or Tenant's Alterations, and Tenant hereby
expressly assigns to Landlord all of its right in and to any such award. Nothing
contained in this Section 12.2 shall be deemed to prevent Tenant from making a
separate claim in any condemnation proceedings for the then value of any
Tenant's Property included in such taking and for any moving expenses, provided
such award shall be made by the condemning authority in addition to, and shall
not result in a reduction of, the award made by it to Landlord.
Section 12.3 If only a part of the Real Property shall be so
acquired or condemned then, subject to Section 12.1, this Lease and the Term
shall continue in force and effect. If a part of the Premises shall be so
acquired or condemned and this Lease and the Term shall not be terminated,
Landlord, at Landlord's expense, shall restore that part of the Premises not so
acquired or condemned so as to constitute tenantable Premises. From and after
the date of the vesting of title, Fixed Rent and Additional Rent shall be
reduced in the proportion which the area of the part of the Premises so acquired
or condemned bears to the total area of the Premises immediately prior to such
acquisition or condemnation.
ARTICLE 13. ASSIGNMENT AND SUBLETTING
Section 13.1 Except as otherwise expressly provided herein, Tenant,
for itself, its heirs, distributees, executors, administrators, legal
representatives, successors and assigns, expressly covenants that it shall not
assign, mortgage, pledge, encumber, or otherwise transfer this Lease, nor sublet
(nor underlet), nor suffer, nor permit the Premises or any part thereof to be
used or occupied by others (whether for desk space, mailing privileges or
otherwise), without the prior written consent of Landlord in each instance. If
this Lease is assigned, or if the Premises or any part thereof are sublet or
occupied by anybody other than Tenant, or if this Lease or the Premises or
Tenant's personal property are encumbered (whether by operation of law or
otherwise) without Landlord's consent, then Landlord may, after default by
Tenant, collect rent from the assignee, subtenant or occupant, and apply the net
amount collected to Fixed Rent and Additional Rent, but no assignment,
subletting, occupancy or collection shall be deemed a waiver by Landlord of the
provisions hereof, the acceptance by Landlord of the assignee,
-28-
<PAGE>
subtenant or occupant as a tenant, or a release by Landlord of Tenant from the
further performance by Tenant its obligations under this Lease, and Tenant shall
remain fully liable therefor. The consent by Landlord to any assignment or
subletting shall not in any way be construed to relieve Tenant from obtaining
the express consent in writing of Landlord to any further assignment or
subletting. In no event shall any permitted subtenant assign or encumber its
sublease or further sublet all or any portion of its sublet space, or otherwise
suffer or permit the sublet space or any part thereof to be used or occupied by
others, without Landlord's prior written consent in each instance. Any
assignment, sublease, mortgage, pledge, encumbrance or transfer in contravention
of the provisions of this Article 13 shall be void.
Section 13.2 If Tenant shall, at any time or from time to time,
during the Term desire to assign this Lease or sublet all or part of the
Premises, Tenant shall give notice (a "Tenant's Notice") thereof to Landlord,
which Tenant's Notice shall set forth: (a) with respect to an assignment of this
Lease, the date Tenant desires the assignment to be effective and any
consideration Tenant would receive under such assignment, (b) with respect to a
sublet of all or a part of the Premises (i) the dates upon which Tenant desires
the sublease term to commence and expire, (ii) the rental rate and other
material business terms upon which Tenant would sublet such premises, and (iii)
a description of the Premises showing the portion to be sublet, the effective or
commencement date of which shall be not less than sixty (60) nor more than one
hundred and eighty (180) days after the giving of such notice, (c) a statement
setting forth in reasonable detail the identity of the proposed assignee or
subtenant, the nature of its business and its proposed use of the Premises, (d)
current financial information with respect to the proposed assignee or
subtenant, including its most recent financial report, (e) a true and complete
copy of the proposed assignment or sublease and any other agreements relating
thereto, and (f) an agreement by Tenant to indemnify Landlord against liability
resulting from any claims that may be made against Landlord by the proposed
assignee or subtenant or by any brokers or other Persons claiming a commission
or similar compensation in connection with the proposed assignment or sublease.
Tenant's Notice shall be deemed an offer from Tenant to Landlord whereby
Landlord (or Landlord's designee) may, at its option, (I) sublease such space
(the "Leaseback Space") from Tenant upon the terms and conditions set forth in
Section 13.4, or terminate the Lease with respect to only the Leaseback Space,
or (II) if the proposed transaction is (1) an assignment of this Lease or (2) a
subletting of fifty percent (50%) or more of the rentable area of the Premises,
terminate this Lease. Said options may be exercised by Landlord by notice given
to Tenant at any time within sixty (60) days after Tenant's Notice has been
given by Tenant to Landlord, and during such sixty-day period, Tenant shall not
assign this Lease nor sublet such space to any Person other than Landlord.
Section 13.3 If Landlord exercises its option to terminate this
Lease with respect to all or a portion of the Premises pursuant to Section 13.2
hereof, then this Lease shall end and expire on the date that such assignment or
sublease was to be effective or commence, as the case may be, and the Fixed Rent
and Additional Rent due hereunder shall be paid and apportioned to such date. In
such event, Landlord and Tenant, upon request of either party, shall enter into
an amendment of this Lease ratifying and confirming such total or partial
termination, and setting forth appropriate modifications, if any, to the terms
and provisions hereof. Following such
-29-
<PAGE>
termination, Landlord shall be free to and shall have no liability to Tenant if
Landlord should lease the Premises (or any part thereof) to Tenant's prospective
assignee or subtenant.
Section 13.4 If Landlord exercises its option to sublet the
Leaseback Space, such sublease to Landlord or its designee (as subtenant) shall
be at a rental rate equal to the product of (i) the lesser of (A) the rental
rate per rentable square foot of Fixed Rent and Additional Rent then payable
pursuant to this Lease, or (B) the rental rate per rentable square foot of rent
and additional rent set forth in Tenant's Notice, multiplied by (ii) the number
of rentable square feet of the Leaseback Space, and shall be for the same term
as that of the proposed subletting, and such sublease shall:
(a) be upon such other terms and conditions as are contained
in Tenant's Notice, and be expressly subject to all of the covenants,
agreements, terms, provisions and conditions of this Lease, except such as
are irrelevant or inapplicable, and except as expressly set forth in this
Article 13 to the contrary;
(b) give the subtenant the unqualified and unrestricted right,
without Tenant's permission, to assign such sublease or any interest
therein and/or to sublet the space covered by such sublease or any part or
parts of such space and to make any and all changes, alterations and
improvements in the space covered by such sublease, and if the proposed
sublease will result in all or substantially all of the Premises being
sublet, grant Landlord or its designee the option to extend the term of
such sublease for the balance of the Term less one day;
(c) provide that any assignee or further subtenant of Landlord
or its designee, may, at Landlord's option, be permitted to make
alterations, decorations and installations in such space or any part
thereof and shall also provide in substance that any such alterations,
decorations and installations in such space therein made by any assignee
or subtenant of Landlord or its designee may be removed, in whole or in
part, by such assignee or subtenant, at its option, prior to or upon the
expiration or other termination of such sublease; provided, however, that
such assignee or subtenant shall, at its sole cost and expense, repair any
damage and injury caused by such removal; and
(d) provide that (i) the parties to such sublease expressly
negate any intention that any estate created under such sublease be merged
with any other estate held by either of said parties, (ii) any assignment
or sublease by Landlord or its designee (as the subtenant) may be for any
purpose or purposes that Landlord, in Landlord's uncontrolled discretion,
shall deem suitable or appropriate, (iii) Tenant shall, at Tenant's sole
cost and expense, at all times provide and permit reasonably appropriate
means of ingress to and egress from such space so sublet by Tenant to
Landlord or its designee, (iv) Landlord may, at Tenant's sole cost and
expense, make such alterations as may be required or deemed necessary by
Landlord to physically separate the subleased space from the balance of
the Premises and to comply with any legal or insurance requirements
relating to such separation, and (v) that at the expiration of the term of
such sublease, Tenant will accept the space covered by such sublease in
its then existing condition,
-30-
<PAGE>
subject to the obligations of the subtenant to make such repairs thereto
as may be necessary to preserve the premises demised by such sublease in
good order and condition.
Section 13.5 (a) If Landlord exercises its option to sublet the
Leaseback Space, Landlord shall indemnify and save Tenant harmless from all
obligations under this Lease as to the Leaseback Space during the period of time
it is so sublet to Landlord, except as to any obligation which arises out of or
results from the negligence or willful misconduct of Tenant, or any of its
agents, servants or employees.
(b) Performance by Landlord, or its designee, under a sublease of
the Leaseback Space shall be deemed performance by Tenant of any similar
obligation under this Lease and any default under any such sublease shall not
give rise to a default under a similar obligation contained in this Lease nor
shall Tenant be liable for any default under this Lease or deemed to be in
default hereunder if such default is occasioned by or arises from any act or
omission of the tenant under such sublease or is occasioned by or arises from
any act or omission of any occupant holding under or pursuant to any such
sublease.
(c) Tenant shall have no obligation, at the expiration or earlier
termination of the Term, to remove any alteration, installation or improvement
made in the Leaseback Space by Landlord (or Landlord's designee).
(d) Any consent required of Tenant, as Landlord under the sublease,
shall be deemed granted if consent with respect thereto is granted by Landlord
under this Lease, and any failure of Landlord (or its designee) to comply with
the provisions of the sublease other than with respect to the payment of Fixed
Rent and Additional Rent to Tenant, shall not constitute a default thereunder or
hereunder if Landlord shall have consented to such non-compliance.
Section 13.6 In the event Landlord does not exercise either option
provided to it pursuant to Section 13.2 hereof, and provided that no Event of
Default shall have occurred and be continuing under this Lease as of the time
Landlord's consent is requested by Tenant, Landlord's consent (which must be in
writing and in form and substance satisfactory to Landlord) to the proposed
assignment or sublease shall not be unreasonably withheld or delayed; provided,
however, that:
(a) Tenant shall have complied with the provisions of Section
13.2 hereof and Landlord shall not have exercised any of its options
thereunder within the time permitted therefor;
(b) In Landlord's judgment, the proposed assignee or subtenant
is engaged in a business or activity, and the Premises, or the relevant
part thereof, will be used in a manner, which (i) is in keeping with the
then standards of the Building, and (ii) does not violate the restrictions
set forth in Article 2 hereof;
(c) The proposed assignee or subtenant is a reputable Person
with sufficient financial worth considering the responsibility involved,
and Landlord has been furnished with evidence thereof;
-31-
<PAGE>
(d) In the event Landlord has space in the Building available
for lease, then (i) neither the proposed assignee or subtenant nor any
Person which, directly or indirectly, controls, is controlled by, or is
under common control with, the proposed assignee or subtenant, is then an
occupant of any part of the Building, and (ii) the proposed assignee or
subtenant is not a Person (or Affiliate of a Person) with whom Landlord or
Landlord's agent is then, or has been within the previous six (6) month
period, negotiating in connection with rental of space in the Building;
(e) The form of the proposed sublease or instrument of
assignment shall be satisfactory to Landlord and shall comply with the
applicable provisions of this Article 13, and Tenant shall deliver a true
and complete original, fully executed counterpart of such sublease or
other instrument to Landlord promptly upon the execution and delivery
thereof;
(f) Tenant and its proposed subtenant or assignee, as the case
may be, shall execute and deliver to Landlord an agreement, in form and
substance satisfactory to Landlord, setting forth the terms and conditions
upon which Landlord shall have granted its consent to such assignment or
subletting, and the agreement of Tenant and such subtenant or assignee, as
the case may be, to be bound by the provisions of this Article 13;
(g) There shall not be more than two (2) unaffiliated
occupants of the Premises (including Tenant);
(h) The amount of the aggregate rent to be paid by the
proposed subtenant shall not be less than the then current market rent per
rentable square foot for the Premises, determined as though the Premises
were vacant, and the rental and other terms and conditions of the sublease
shall be substantially the same as those contained in Tenant's Notice;
(i) Tenant shall reimburse Landlord, as Additional Rent upon
demand, for (A) the costs and expenses incurred by Landlord in connection
with the assignment or sublease, including the costs of making
investigations as to the acceptability of the proposed assignee or
subtenant and the cost of reviewing plans and specifications proposed to
be made in connection therewith, and (B) Landlord's legal fees and
disbursements incurred in connection with the granting of any requested
consent and the preparation of Landlord's written consent to the sublease
or assignment;
(j) Tenant shall not have (i) advertised or publicized in any
way the availability of the Premises without prior notice to and approval
by Landlord, or (ii) listed the Premises for sublease or assignment with a
broker, agent or otherwise at a rental rate less than the fixed rent and
additional rent at which Landlord is then offering to lease comparable
space in the Building;
(k) The proposed occupancy shall not impose an extra burden
upon services to be supplied by Landlord to Tenant, unless Tenant and such
proposed
-32-
<PAGE>
subtenant or assignee shall agree with Landlord in writing to pay the
costs of such additional services; and
(l) The proposed subtenant or assignee shall not be entitled,
directly or indirectly, to diplomatic or sovereign immunity and shall be
subject to the service of process in, and the jurisdiction of the courts
of New York State.
Except for any sublease by Tenant to Landlord or its designee
pursuant to this Article 13, each sublease pursuant to this Section 13.6 shall
be subject to all of the covenants, agreements, terms, provisions and conditions
contained in this Lease. Notwithstanding any such sublease to Landlord or any
such sublease to any other subtenant, or any acceptance of Fixed Rent or
Additional Rent by Landlord from any subtenant, Tenant will remain fully liable
for the payment of the Fixed Rent and Additional Rent due and to become due
hereunder and for the performance of all the covenants, agreements, terms,
provisions and conditions contained in this Lease on Tenant's part to be
observed and performed, and for all acts and omissions of any licensee or
subtenant or anyone claiming under or through any subtenant which shall be in
violation of any of the obligations of this Lease, and any such violation shall
be deemed to be a violation by Tenant. If Landlord shall decline to give its
consent to any proposed assignment or sublease, or if Landlord shall exercise
either of its options under Section 13.2 hereof, Tenant shall indemnify, defend
and hold harmless Landlord against and from any and all losses, liabilities,
damages, costs, and expenses (including attorneys' fees and disbursements)
resulting from any claims that may be made against Landlord by the proposed
assignee or subtenant arising from or in connection with such proposed
assignment or subletting, or by any brokers or other Persons (with whom Tenant
or its proposed assignee or subtenant may have dealt) claiming a commission or
similar compensation in connection with the proposed assignment or sublease.
Section 13.7 In the event that (a) Landlord fails to exercise either
of its options under Section 13.2 hereof and consents to a proposed assignment
or sublease, and (b) Tenant fails to execute and deliver the assignment or
sublease to which Landlord consented within one hundred twenty (120) days after
the giving of such consent, then, Tenant shall again comply with all of the
provisions and conditions of Section 13.2 hereof before assigning this Lease or
subletting all or part of the Premises.
Section 13.8 With respect to each and every sublease authorized by
Landlord under the provisions of this Lease, it is further agreed that:
(a) No sublease shall be for a term ending later than one day prior
to the Expiration Date;
(b) No sublease shall be delivered, and no subtenant shall take
possession of the Premises or any part thereof, until an executed
counterpart of such sublease has been delivered to Landlord and approved
in writing by Landlord; and
(c) Each sublease shall be subject and subordinate to this Lease and
to the matters to which this Lease is or shall be subordinate, and each
subtenant by entering into a sublease is deemed to have agreed that in the
event of termination, re-entry or
-33-
<PAGE>
dispossession by Landlord under this Lease, Landlord may, at its option,
take over all of the right, title and interest of Tenant, as sublandlord,
under such sublease, and such subtenant shall, at Landlord's option,
attorn to Landlord pursuant to the then executory provisions of such
sublease, except that Landlord shall not (i) be liable for any previous
act or omission of Tenant under such sublease, (ii) be subject to any
counterclaim, offset or defense, not expressly provided in such sublease,
which theretofore accrued to such subtenant against Tenant, (iii) be bound
by any previous modification of such sublease or by any previous
prepayment of more than one month's Fixed Rent or of any Additional Rent,
or (iv) be obligated to perform any work in the subleased space or to
prepare it for occupancy, and in connection with such attornment, the
subtenant shall execute and deliver to Landlord any instruments Landlord
may reasonably request to evidence and confirm such attornment. Each
subtenant or licensee of Tenant shall be deemed, automatically upon and as
a condition of its occupying or using the Premises or any part thereof, to
have agreed to be bound by the terms and conditions set forth in this
Article 13. The provisions of this Article 13 shall be self-operative and
no further instrument shall be required to give effect to this provision.
Section 13.9 If Landlord shall consent to any assignment of this
Lease or to any sublease, or if Tenant shall enter into any other assignment or
sublease permitted hereunder, Tenant shall, in consideration therefor, pay to
Landlord, as Additional Rent:
(a) In the case of an assignment, on the effective date of the
assignment, an amount equal to (i) all sums and other consideration paid
to Tenant by the assignee for or by reason of such assignment (including
sums paid for Tenant's Property, less, in the case of a sale thereof, the
then net unamortized or undepreciated cost thereof, determined on the
basis of Tenant's federal income tax returns) less (ii) all expenses
reasonably and actually incurred by Tenant on account of brokerage
commissions and attorneys' fees in connection with such assignment; or
(b) In the case of a sublease, an amount equal to (i) all rents,
additional charges or other consideration payable to Tenant under the
sublease in excess of the Fixed Rent and Additional Rent accruing during
the term of the sublease in respect of the subleased space (at the rate
per square foot payable by Tenant hereunder) pursuant to the terms hereof
(including sums paid for the sale or rental of Tenant's Property, less, in
the case of the sale thereof, the then net unamortized or undepreciated
cost thereof, determined on the basis of Tenant's federal income tax
returns) less (ii) all expenses reasonably and actually incurred by Tenant
on account of brokerage commissions and attorneys' fees in connection with
such sublease. The sums payable under this clause shall be paid by Tenant
to Landlord as Additional Rent as and when payable by the subtenant to
Tenant.
Section 13.10 (a) If Tenant is a corporation (but not a public
corporation), the provisions of Section 13.1 hereof shall apply to a transfer
(by one or more transfer(s)), of a majority of the stock of Tenant as if such
transfer of a majority of the stock of Tenant were an assignment of this Lease,
provided, however, that the sale of Tenant's publicly traded securities
-34-
<PAGE>
on a nationally recognized securities exchange shall not be deemed an assignment
for the purpose of this Article 13. It is expressly understood that the term
"transfer(s)" shall be deemed to include the issuance of new stock which results
in a majority of the stock of Tenant being held by Persons which do not hold a
majority of the stock of Tenant on the date hereof. The foregoing shall not
apply to transactions with a corporation into or with which Tenant is merged or
consolidated or to which substantially all of Tenant's assets are transferred;
provided, however, that (i) such transfer shall have been made for a legitimate
independent business purpose and not for the principal purpose of transferring
this Lease, (ii) the successor to Tenant shall have a net worth, computed in
accordance with generally accepted accounting principles, at least equal to the
greater of (A) the net worth of Tenant immediately prior to such merger,
consolidation or transfer, or (B) the net worth of Tenant herein named on the
date of this Lease, and (iii) proof satisfactory to Landlord of such net worth
shall have been delivered to Landlord at least ten (10) days prior to the
effective date of any such transaction.
(b) If Tenant is a partnership, the provisions of Section 13.1
hereof shall apply to a transfer (by one or more transfers) of a majority
interest in the partnership, as if such transfer were an assignment of this
Lease.
(c) The limitations set forth in this Section 13.10 shall be deemed
to apply to subtenant(s) and assignee(s) of this Lease, if any, and any transfer
by any such Person in violation of this Section 13.10 shall be deemed to be a
transfer in violation of Section 13.1.
(d) A modification, amendment or extension of a sublease shall be
deemed a sublease for the purposes of Section 13.1 hereof, and a takeover
agreement shall be deemed a transfer of this Lease for the purposes of Section
13.1 hereof.
Section 13.11 Tenant may, without Landlord's consent, but upon not
less than ten (10) days' prior notice to Landlord, permit any Affiliate of
Tenant to sublet all or part of the Premises for any Permitted Use, or assign
this Lease to any Affiliate, subject however to compliance with Tenant's
obligations under this Lease. Such sublease shall not be deemed to vest in any
such Affiliate any right or interest in this Lease or the Premises nor shall it
relieve, release, impair or discharge any of Tenant's obligations hereunder.
Section 13.12 (a) Any assignment or transfer, whether made with
Landlord's consent pursuant to Section 13.1 hereof or without Landlord's consent
to the extent permitted under Sections 13.10 and 13.11 hereof, shall be made
only if, and shall not be effective until, the assignee shall execute,
acknowledge and deliver to Landlord an agreement in form and substance
satisfactory to Landlord whereby the assignee shall assume the obligations of
this Lease on the part of Tenant to be performed or observed from and after the
effective date of such assignment or transfer, and whereby the assignee shall
agree that the provisions in Section 13.1 hereof shall, notwithstanding such
assignment or transfer, continue to be binding upon it in respect of all future
assignments and transfers.
(b) The joint and several liability of Tenant and any immediate or
remote successor in interest of Tenant and the due performance of the
obligations of this Lease on Tenant's part to be performed or observed shall not
be discharged, released or impaired in any
-35-
<PAGE>
respect by any agreement or stipulation made by Landlord, or any grantee or
assignee of Landlord by way of mortgage or otherwise, extending the time, or
modifying any of the obligations of this Lease, or by any waiver or failure of
Landlord, or any grantee or assignee of Landlord by way of mortgage or
otherwise, to enforce any of the obligations of this Lease.
(c) The listing of any name other than that of Tenant, whether on
the doors of the Premises or the Building directory, or otherwise, shall not
operate to vest any right or interest in this Lease or in the Premises, nor
shall it be deemed to be the consent of Landlord to any assignment or transfer
of this Lease or to any sublease of Premises or to the use or occupancy thereof
by others. Any such listing shall constitute a privilege extended by Landlord,
revocable at Landlord's will by notice to Tenant, provided that Landlord shall
not unreasonably revoke such privilege as to any Affiliate of Tenant, or any
subtenant of Tenant or assignee of this Lease approved by Landlord pursuant to
this Article 13.
Section 13.13 Notwithstanding any of the foregoing to the contrary,
where Landlord has herein expressly agreed that its consent to an assignment of
this Lease or a subletting of the Premises shall not be unreasonably withheld,
Tenant may dispute the reasonableness of the withholding by Landlord of its
consent to an assignment of this Lease or to a subletting of the Premises by
Tenant, by arbitration of the issue in The City of New York in accordance with
the rules and regulations for commercial matters then obtaining of the American
Arbitration Association ("AAA") or its successor pursuant to a submission
effected within ten (10) business days after written notice of the withholding
of consent has been given by Landlord to Tenant. If the AAA is not then in
existence or does not desire to act, then Tenant may apply within said ten (10)
business day period to any judge of any court of competent jurisdiction in The
City of New York for the appointment of an arbitrator to hear the parties and
determine the matter. Provided the rules and regulations of the AAA, or of the
court, as the case may be, so permit, the AAA, or such court, shall select a
single arbitrator within two (2) business days after such submission or
application, the arbitration shall commence two (2) business days thereafter and
shall be conducted for at least seven (7) hours on the date of commencement
until completion, each party shall have no more than a total of two (2) hours to
present its case and to cross examine or interrogate persons supplying
information or documentation on behalf of the other party, and the arbitrator
shall make a determination within three (3) business days after conclusion of
the arbitration. The arbitrator shall have at least ten (10) years' experience
in leasing of commercial properties in New York City similar to the Building.
Any such determination shall be final and binding upon the parties, whether or
not a judgment shall be entered in any court; and all actions necessary to
implement the decision of the AAA shall be undertaken as soon as possible, but
in no event later than ten (10) business days after the rendering of said
decision. The judgment upon the dispute or any award rendered may be entered in
any court having jurisdiction thereof. All fees payable to the AAA or of the
court, as the case may be, for services rendered in connection with the
resolution of the dispute shall be paid by the party suffering the adverse
decision of the AAA,, or of the court, as the case may be. If Landlord shall
fail to take any action hereunder which shall cause any delay in the
commencement or completion of the arbitration proceeding herein described beyond
the number of days provided for above, then Tenant shall be deemed to be the
prevailing party in the dispute and a decision shall be rendered in Tenant's
favor.
-36-
<PAGE>
Section 13.14 Landlord acknowledges that the colocation of
communications equipment not owned by Tenant at the Premises shall not
constitute an assignment or sublease requiring the consent of Landlord
hereunder. For purposes of this Lease, "colocation" means the installation by
Tenant's customers of communications equipment in Tenant's facilities, in the
ordinary course of Tenant's business, for which such customers pay fees based
upon the use of and access to such facilities, as distinct from the renting of
floor area. In no event shall any colocation arrangement entered into by Tenant
entail the construction of a separate entrance to the Premises from the Building
common corridor for any party thereto other than Tenant.
ARTICLE 14. ACCESS TO PREMISES
Section 14.1 Tenant shall permit Landlord, Landlord's agents and
public utilities servicing the Building to erect, use and maintain concealed
ducts, pipes and conduits in and through the Premises, provided that such use
shall not reduce the usable square footage of the Premises by an amount in
excess of one percent (1%) of the rentable square footage of the Premises.
Landlord or Landlord's agents shall have the right to enter the Premises at all
reasonable times upon reasonable prior notice (except no such prior notice shall
be required in case of emergency), which notice may be oral, to examine the
same, to show them to prospective purchasers, Mortgagees, Lessors or lessees of
the Building and their respective agents and representatives or prospective
tenants of the Premises, and to make such repairs, alterations, improvements or
additions (a) as Landlord may deem necessary or desirable to the Premises or to
any other portion of the Building, or (b) which Landlord may elect to perform
following Tenant's failure to make repairs or perform any work which Tenant is
obligated to make or perform under this Lease, or (c) for the purpose of
complying with Legal Requirements, and Landlord shall be allowed to take all
material into and upon the Premises that may be required therefor without the
same constituting an eviction or constructive eviction of Tenant in whole or in
part and Fixed Rent and Additional Rent will not be abated while said repairs,
alterations, improvements or additions are being made, by reason of loss or
interruption of business of Tenant, or otherwise.
Section 14.2 If Tenant shall not be present when for any reason
entry into the Premises shall be necessary, Landlord or Landlord's agents may
enter the same without rendering Landlord or such agents liable therefor (if
during such entry Landlord or Landlord's agents shall accord reasonable care to
Tenant's property), and without in any manner affecting this Lease. Nothing
herein contained, however, shall be deemed or construed to impose upon Landlord
any obligation, responsibility or liability whatsoever for the care, supervision
or repair of the Building or any part thereof, other than as herein provided.
Notwithstanding the foregoing, Landlord hereby recognizes that the Premises will
include a telecommunications switch area which contains privileged and
confidential telecommunications and computer equipment and that such equipment
is highly susceptible to damage. Landlord agrees to use reasonable efforts not
to compromise such confidentiality and/or cause damage to such equipment.
Therefore, Landlord agrees, except in the event of an emergency, Landlord may
enter upon or pass through the switch area of the Premises only when accompanied
by a representative of Tenant, provided that Tenant shall make such
representative available upon such notice from Landlord as shall be reasonable
in light of the circumstances.
-37-
<PAGE>
Section 14.3 Landlord shall have the right from time to time to
alter the Building and, without the same constituting an actual or constructive
eviction and without incurring any liability to Tenant therefor, to change the
arrangement or location of entrances or passageways, doors and doorways, and
corridors, elevators, stairs, toilets, or other public parts of the Building and
to change the name, number or designation by which the Building is commonly
known. All parts (except surfaces facing the interior of the Premises) of all
walls, windows and doors bounding the Premises (including exterior Building
walls, exterior core corridor walls, exterior doors and entrances other than
doors and entrances solely servicing the Premises), all balconies, terraces and
roofs adjacent to the Premises, all space in or adjacent to the Premises used
for shafts, stacks, stairways, chutes, pipes, conduits, ducts, fan rooms,
heating, air cooling, plumbing and other mechanical facilities, service closets
and other Building facilities are not part of the Premises, and Landlord shall
have the use thereof, as well as access thereto through the Premises for the
purposes of operation, maintenance, alteration and repair.
Section 14.4 In the performance of any work in the Premises referred
to in this Article 14, Landlord shall use all reasonable efforts to minimize
interference with Tenant's use of the Premises, subject to Unavoidable Delays,
and without any obligation to employ overtime labor.
ARTICLE 15. CERTIFICATE OF OCCUPANCY
Tenant shall not at any time use or occupy the Premises in violation
of the certificate of occupancy at such time issued for the Premises or for the
Building and in the event that any department of the City or State of New York
shall hereafter contend or declare by notice, violation, order or in any other
manner whatsoever that the Premises are used for a purpose which is a violation
of such certificate of occupancy, Tenant shall, upon five (5) days' written
notice from Landlord or any Governmental Authority, immediately discontinue such
use of the Premises. Failure by Tenant to discontinue such use after such notice
shall be considered a default in the fulfillment of a material covenant of this
Lease and Landlord shall have the right to terminate this Lease immediately, and
in addition thereto shall have the right to exercise any and all rights and
privileges and remedies given to Landlord by and pursuant to the provisions of
Articles 16 and 17 hereof.
ARTICLE 16. DEFAULT
Section 16.1 Each of the following events shall be an "Event of
Default" hereunder:
(a) if Tenant defaults in the payment when due of any
installment of Fixed Rent, and such default shall continue for a period of
five (5) days, or in the payment when due of any Additional Rent, and such
default continues for a period of five (5) days after notice thereof from
Landlord; provided, however, that if Tenant shall default in the timely
payment of Fixed Rent or Additional Rent, and any such default shall occur
more than two times in any period of twelve (12) consecutive months, then,
notwithstanding that such defaults shall have each been cured within the
applicable period provided above, upon any further similar default,
Landlord may serve a three days'
-38-
<PAGE>
notice of termination upon Tenant without affording to Tenant an
opportunity to cure such further default; or
(b) if Tenant's interest in this Lease is transferred in
violation of Article 13 hereof; or
(c) if the Premises or a substantial portion thereof becomes
vacant or abandoned; or
(d) (i) if Tenant admits in writing its inability to pay its
debts as they become due; or
(ii) if Tenant commences or institutes any case, proceeding or
other action (A) seeking relief as a debtor, or to adjudicate it a
bankrupt or insolvent, or seeking reorganization, arrangement,
adjustment, winding-up, liquidation, dissolution, composition or
other relief with respect to it or its debts under any existing or
future law of any jurisdiction, domestic or foreign, relating to
bankruptcy, insolvency, reorganization or relief of debtors, or (B)
seeking appointment of a receiver, trustee, custodian or other
similar official for it or for all or any substantial part of its
property; or
(iii) if Tenant makes a general assignment for the benefit of
creditors; or
(iv) if any case, proceeding or other action is commenced or
instituted against Tenant (A) seeking to have an order for relief
entered against it as debtor or to adjudicate it a bankrupt or
insolvent, or seeking reorganization, arrangement, adjustment,
winding-up, liquidation, dissolution, composition or other relief
with respect to it or its debts under any existing or future law of
any jurisdiction, domestic or foreign, relating to bankruptcy,
insolvency, reorganization or relief of debtors, or (B) seeking
appointment of a receiver, trustee, custodian or other similar
official for it or for all or any substantial part of its property,
which either (1) results in any such entry of an order for relief,
adjudication of bankruptcy or insolvency or such an appointment or
the issuance or entry of any other order having a similar effect, or
(2) remains undismissed for a period of ninety (90) days; or
(v) if any case, proceeding or other action is commenced or
instituted against Tenant seeking issuance of a warrant of
attachment, execution, distraint or similar process against all or
any substantial part of its property which results in the entry of
an order for any such relief which has not been vacated, discharged,
or stayed or bonded pending appeal within ninety (90) days from the
entry thereof; or
-39-
<PAGE>
(vi) if Tenant takes any action in furtherance of, or
indicating its consent to, approval of, or acquiescence in, any of
the acts set forth in clauses (ii), (iii), (iv) or (v) of this
Section 16.1(d); or
(vii) if a trustee, receiver or other custodian is appointed
for any substantial part of the assets of Tenant, which appointment
is not vacated or effectively stayed within seven (7) Business Days,
or if any such vacating or stay does not thereafter remain in
effect; or
(e) if Tenant defaults in the observance or performance of any
other term, covenant or condition of this Lease on Tenant's part to be
observed or performed and Tenant fails to remedy such default within
thirty (30) days after notice by Landlord to Tenant of such default, or,
if such default is of such a nature that it cannot be completely remedied
within said period of thirty (30) days, if Tenant fails to commence to
remedy such default within such thirty-day period, or fails thereafter to
diligently prosecute to completion all steps necessary to remedy such
default; or
(f) if Tenant or any Affiliate of Tenant defaults beyond
applicable grace and notice periods in the payment of any fixed rent or
additional rent under any other lease of space in the Building, or if any
such lease is terminated by Landlord as a result of a default by the
tenant thereunder.
Section 16.2 (a) If an Event of Default occurs, Landlord may at any
time thereafter give written notice to Tenant stating that this Lease and the
Term shall expire and terminate on the date specified in such notice, which date
shall not be less than seven (7) days after the giving of such notice. If
Landlord gives such notice, this Lease and the Term and all rights of Tenant
under this Lease shall expire and terminate as if the date set forth in such
notice were the Fixed Expiration Date and Tenant immediately shall quit and
surrender the Premises, but Tenant shall remain liable as hereinafter provided.
Anything contained herein to the contrary notwithstanding, if such termination
shall be stayed by order of any court having jurisdiction over any proceeding
described in Section 16.1(d), or by federal or state statute, then, following
the expiration of any such stay, or if the trustee appointed in any such
proceeding, Tenant or Tenant as debtor-in-possession shall fail to assume
Tenant's obligations under this Lease within the period prescribed therefor by
law or within one hundred twenty (120) days after entry of the order for relief
or as may be allowed by the court, or if said trustee, Tenant or Tenant as
debtor-in-possession shall fail to provide adequate protection of Landlord's
right, title and interest in and to the Premises or adequate assurance of the
complete and continuous future performance of Tenant's obligations under this
Lease, Landlord, to the extent permitted by law or by leave of the court having
jurisdiction over such proceeding, shall have the right, at its election, to
terminate this Lease on seven (7) days' notice to Tenant, Tenant as
debtor-in-possession or said trustee and upon the expiration of said seven (7)
day period this Lease shall cease and expire as set forth above and Tenant,
Tenant as debtor-in-possession or said trustee shall immediately quit and
surrender the Premises as aforesaid.
Section 16.3 If, at any time, (a) Tenant shall comprise two (2) or
more Persons, (b) Tenant's obligations under this Lease shall have been
guaranteed by any Person other than
-40-
<PAGE>
Tenant, or (c) Tenant's interest in this Lease shall have been assigned, the
word "Tenant," as used in Section 16.1(d), shall be deemed to mean any one or
more of the Persons primarily or secondarily liable for Tenant's obligations
under this Lease. Any monies received by Landlord from or on behalf of Tenant
during the pendency of any proceeding of the types referred to in Section
16.1(d) shall be deemed paid as compensation for the use and occupation of the
Premises and the acceptance of any such compensation by Landlord shall not be
deemed an acceptance of Fixed Rent and/or Additional Rent or a waiver on the
part of Landlord of any rights under this Lease.
ARTICLE 17. REMEDIES AND DAMAGES
Section 17.1 (a) If an Event of Default shall occur, and this Lease
and the Term shall expire and come to an end as provided in Article 16:
(i) Tenant shall quit and peacefully surrender the Premises to
Landlord, and Landlord and its agents may immediately, or at any time
after such Event of Default or after the date upon which this Lease and
the Term shall expire and come to an end, re-enter the Premises or any
part thereof, without notice, either by summary proceedings, or by any
other applicable action or proceeding, or by legal force or other legal
means (without being liable to indictment, prosecution or damages
therefor), and may repossess the Premises and dispossess Tenant and any
other Persons from the Premises and remove any and all of their property
and effects from the Premises; and
(ii) Landlord, at Landlord's option, may relet the whole or any part
or parts of the Premises from time to time, either in the name of Landlord
or otherwise, to such tenant or tenants, for such term or terms ending
before, on or after the Expiration Date, at such rental or rentals and
upon such other conditions, which may include concessions and free rent
periods, as Landlord, in its sole discretion, may determine; provided,
however, that Landlord shall have no obligation to relet the Premises or
any part thereof and shall in no event be liable for refusal or failure to
relet the Premises or any part thereof, or, in the event of any such
reletting, for refusal or failure to collect any rent due upon any such
reletting, and no such refusal or failure shall operate to relieve Tenant
of any liability under this Lease or otherwise affect any such liability,
and Landlord, at Landlord's option, may make such repairs, replacements,
alterations, additions, improvements, decorations and other physical
changes in and to the Premises as Landlord, in its sole discretion,
considers advisable or necessary in connection with any such reletting or
proposed reletting, without relieving Tenant of any liability under this
Lease or otherwise affecting any such liability.
(b) Tenant hereby waives the service of any notice of intention to
re-enter or to institute legal proceedings to that end which may otherwise be
required to be given under any present or future law. Tenant, on its own behalf
and on behalf of all Persons claiming through or under Tenant, including all
creditors, does further hereby waive any and all rights which Tenant and all
such Persons might otherwise have under any present or future law to redeem the
Premises, or to re-enter or repossess the Premises, or to restore the operation
of this Lease, after (i) Tenant shall have been dispossessed by a judgment or by
warrant of any court or judge,
-41-
<PAGE>
(ii) any re-entry by Landlord, or (iii) any expiration or termination of this
Lease and the Term, whether such dispossess, re-entry, expiration or termination
shall be by operation of law or pursuant to the provisions of this Lease. The
words "re-enter," re-entry" and "re-entered" as used in this Lease shall not be
deemed to be restricted to their technical legal meanings. In the event of a
breach or threatened breach by Tenant, or any Persons claiming through or under
Tenant, of any term, covenant or condition of this Lease, Landlord shall have
the right to enjoin such breach and the right to invoke any other remedy allowed
by law or in equity as if re-entry, summary proceedings and other special
remedies were not provided in this Lease for such breach. The rights to invoke
the remedies hereinbefore set forth are cumulative and shall not preclude
Landlord from invoking any other remedy allowed at law or in equity.
Section 17.2 (a) If this Lease and the Term shall expire and come to
an end as provided in Article 16, or by or under any summary proceeding or any
other action or proceeding, or if Landlord shall re-enter the Premises as
provided in Section 17.1, or by or under any summary proceeding or any other
action or proceeding, then, in any of such events:
(i) Tenant shall pay to Landlord all Fixed Rent and Additional Rent
payable under this Lease by Tenant to Landlord to the date upon which this
Lease and the Term shall have expired and come to an end or to the date of
re-entry upon the Premises by Landlord, as the case may be;
(ii) Tenant also shall be liable for and shall pay to Landlord, as
damages, any deficiency (the "Deficiency") between (A) Fixed Rent and
Additional Rent for the period which otherwise would have constituted the
unexpired portion of the Term (conclusively presuming the Additional Rent
for each year thereof to be the same as was payable for the year
immediately preceding such termination or re-entry), and (B) the net
amount, if any, of rents collected under any reletting effected pursuant
to the provisions of Section 17.1(a)(ii) for any part of such period
(first deducting from the rents collected under any such reletting all of
Landlord's expenses in connection with the termination of this Lease,
Landlord's re-entry upon the Premises and with such reletting including
all repossession costs, brokerage commissions, legal expenses, attorneys'
fees and disbursements, alteration costs and other expenses of preparing
the Premises for such reletting). Tenant shall pay the Deficiency in
monthly installments on the days specified in this Lease for payment of
installments of Fixed Rent, and Landlord shall be entitled to recover from
Tenant each monthly Deficiency as the same shall arise. No suit to collect
the amount of the Deficiency for any month shall prejudice Landlord's
right to collect the Deficiency for any subsequent month by a similar
proceeding; and
(iii) whether or not Landlord shall have collected any monthly
Deficiency as aforesaid, Landlord shall be entitled to recover from
Tenant, and Tenant shall pay to Landlord, on demand, in lieu of any
further Deficiency as and for liquidated and agreed final damages, a sum
equal (A) to the amount by which the Fixed Rent and Additional Rent for
the period which otherwise would have constituted the unexpired portion of
the Term (conclusively presuming the Additional Rent for each year thereof
to be the same as was payable for the year immediately preceding such
termination or re-entry) exceeds
-42-
<PAGE>
(B) the then fair and reasonable rental value of the Premises, including
Additional Rent for the same period, both discounted to present value at
the rate of four percent (4%) per annum less (C) the aggregate amount of
Deficiencies previously collected by Landlord pursuant to the provisions
of Section 17.2(a)(ii) for the same period. If, before presentation of
proof of such liquidated damages to any court, commission or tribunal,
Landlord shall have relet the Premises or any part thereof for the period
which otherwise would have constituted the unexpired portion of the Term,
or any part thereof, the amount of net rents collected in connection with
such reletting shall be deemed, prima facie, to be the fair and reasonable
rental value for the part or the whole of the Premises so relet during the
term of the reletting.
(b) If Landlord shall relet the Premises, or any part thereof,
together with other space in the Building, the net rents collected under any
such reletting and the expenses of any such reletting shall be equitably
apportioned for the purposes of this Section 17.2. Tenant shall in no event be
entitled to any rents collected or payable under any reletting, whether or not
such rents shall exceed the Fixed Rent reserved in this Lease. Nothing contained
in Article 16 or this Article 17 shall be deemed to limit or preclude the
recovery by Landlord from Tenant of the maximum amount allowed to be obtained as
damages by any statute or rule of law, or of any sums or damages to which
Landlord may be entitled in addition to the damages set forth in this Section
17.2.
ARTICLE 18. FEES AND EXPENSES
Section 18.1 If an Event of Default shall occur under this Lease or
if Tenant shall do or permit to be done any act or thing upon the Premises which
would cause Landlord to be in default under any Superior Lease or Mortgage, or
if Tenant shall fail to comply with its obligations under this Lease and the
preservation of property or the safety of any tenant, occupant or other person
is threatened, Landlord may, after reasonable prior notice to Tenant except in
an emergency, perform the same for the account of Tenant or make any expenditure
or incur any obligation for the payment of money for the account of Tenant. All
amounts expended by Landlord in connection with the foregoing, including
reasonable attorneys' fees and disbursements in instituting, prosecuting or
defending any action or proceeding or recovering possession, and the cost
thereof, with interest thereon at the Default Rate, shall be deemed to be
Additional Rent hereunder and shall be paid by Tenant to Landlord within ten
(10) days of rendition of any bill or statement to Tenant therefor.
Section 18.2 If Tenant shall fail to pay any installment of Fixed
Rent and/or Additional Rent when due, Tenant shall pay to Landlord, in addition
to such installment of Fixed Rent and/or Additional Rent, as the case may be, as
a late charge and as Additional Rent, a sum equal to interest at the Default
Rate on the amount unpaid, computed from the date such payment was due to and
including the date of payment.
ARTICLE 19. NO REPRESENTATIONS BY LANDLORD
Landlord and Landlord's agents have made no warranties,
representations, statements or promises with respect to (a) the rentable and
usable areas of the Premises or the
-43-
<PAGE>
Building, (b) the amount of any current or future Labor Rates or Taxes, (c) the
compliance with applicable Requirements of the Premises or the Building, or (d)
the suitability of the Premises for any particular use or purpose. No rights,
easements or licenses are acquired by Tenant under this Lease, by implication or
otherwise, except as expressly set forth herein. This Lease (including any
Exhibits referred to herein and all supplementary agreements provided for
herein) contains the entire agreement between the parties and all understandings
and agreements previously made between Landlord and Tenant are merged in this
Lease, which alone fully and completely expresses their agreement. Tenant is
entering into this Lease after full investigation, and is not relying upon any
statement or representation made by Landlord not embodied in this Lease.
ARTICLE 20. END OF TERM
Section 20.1 Upon the expiration or other termination of this Lease,
Tenant shall quit and surrender to Landlord the Premises, vacant, broom clean,
in good order and condition, ordinary wear and tear and damage for which Tenant
is not responsible under the terms of this Lease excepted, and Tenant shall
remove all of Tenant's Property from the Premises, and this obligation shall
survive the expiration or sooner termination of the Term. If the last day of the
Term or any renewal thereof falls on Saturday or Sunday, this Lease shall expire
on the Business Day immediately preceding. Tenant expressly waives, for itself
and for any Person claiming through or under Tenant, any rights which Tenant or
any such Person may have under the provisions of Section 2201 of the New York
Civil Practice Law and Rules and of any successor law of like import then in
force in connection with any holdover summary proceedings which Landlord may
institute to enforce the foregoing provisions of this Article 20.
Section 20.2 Tenant acknowledges that Tenant or any subtenant of
Tenant remaining in possession of the Premises after the expiration or earlier
termination of this Lease would create an unusual hardship for Landlord and for
any prospective tenant. Tenant, therefore, covenants that if for any reason
Tenant or any subtenant of Tenant shall fail to vacate and surrender possession
of the Premises or any part thereof on or before the expiration or earlier
termination of this Lease and the Term, then Tenant's continued possession of
the Premises shall be as a "month-to-month" tenant, during which time, without
prejudice and in addition to any other rights and remedies Landlord may have
hereunder or at law, Tenant shall pay to Landlord for each month and for each
portion of any month during which Tenant holds over, an amount equal to two (2)
times the total monthly amount of Fixed Rent and Additional Rent payable
hereunder. The provisions of this Section 20.2 shall not in any way be deemed to
(a) permit Tenant to remain in possession of the Premises after the Expiration
Date or sooner termination of this Lease or (b) imply any right of Tenant to use
or occupy the Premises upon expiration or termination of this Lease and the
Term, and no acceptance by Landlord of payments from Tenant after the Expiration
Date or sooner termination of the Term shall be deemed to be other than on
account of the amount to be paid by Tenant in accordance with the provisions of
this Article 20. Tenant's obligations under this Article shall survive the
expiration or earlier termination of this Lease.
-44-
<PAGE>
ARTICLE 21. QUIET ENJOYMENT
Provided no Event of Default has occurred and is continuing, Tenant
may peaceably and quietly enjoy the Premises without hindrance by Landlord or
any Person lawfully claiming through or under Landlord, subject, nevertheless,
to the terms and conditions of this Lease.
ARTICLE 22. NO WAIVER; NON-LIABILITY
Section 22.1 No act or thing done by Landlord or Landlord's agents
during the Term shall be deemed an acceptance of a surrender of the Premises,
and no agreement to accept such surrender shall be valid unless in writing and
signed by Landlord. No employee of Landlord or of Landlord's agents shall have
any power to accept the keys of the Premises prior to the termination of this
Lease. The delivery of keys to any employee of Landlord or of Landlord's agents
shall not operate as a termination of this Lease or a surrender of the Premises.
Any Building employee to whom any property shall be entrusted by or on behalf of
Tenant shall be deemed to be acting as Tenant's agent with respect to such
property and neither Landlord nor its agents shall be liable for any damage to
property of Tenant or of others entrusted to employees of the Building, nor for
the loss of or damage to any property of Tenant by theft or otherwise.
Section 22.2 The failure of Landlord to seek redress for violation
of, or to insist upon the strict performance of, any covenant or condition of
this Lease, or any of the Rules and Regulations set forth or hereafter adopted
by Landlord, shall not prevent a subsequent act, which would have originally
constituted a violation, from having all of the force and effect of an original
violation. The receipt by Landlord of Fixed Rent and/or Additional Rent with
knowledge of the breach of any covenant of this Lease shall not be deemed a
waiver of such breach. The failure of Landlord to enforce any of the Rules and
Regulations set forth, or hereafter adopted, against Tenant or any other tenant
in the Building shall not be deemed a waiver of any such Rules and Regulations.
Landlord shall not enforce the Rules and Regulations against Tenant in a
discriminatory manner. No provision of this Lease shall be deemed to have been
waived by Landlord, unless such waiver be in writing signed by Landlord. No
payment by Tenant or receipt by Landlord of a lesser amount than the monthly
Fixed Rent or any Additional Rent shall be deemed to be other than on account of
the next installment of Fixed Rent or Additional Rent, as the case may be, or as
Landlord may elect to apply same, nor shall any endorsement or statement on any
check or any letter accompanying any check or payment as Fixed Rent or
Additional Rent be deemed an accord and satisfaction, and Landlord may accept
such check or payment without prejudice to Landlord's right to recover the
balance of such Fixed Rent or Additional Rent or pursue any other remedy in this
Lease provided. Any executory agreement hereafter made shall be ineffective to
change, modify, discharge or effect an abandonment of this Lease in whole or in
part unless such executory agreement is in writing and signed by the party
against whom enforcement of the change, modification, discharge or abandonment
is sought. All references in this Lease to the consent or approval of Landlord
shall be deemed to mean the written consent or approval of Landlord and no
consent or approval of
-45-
<PAGE>
Landlord shall be effective for any purpose unless such consent or approval is
set forth in a written instrument executed by Landlord.
Section 22.3 (a) Neither Landlord nor its agents shall be liable for
any injury or damage to persons or property or interruption of Tenant's business
resulting from fire, explosion, falling plaster, steam, gas, electricity, water,
rain or snow or leaks from any part of the Building or from the pipes,
appliances or plumbing works or from the roof, street or subsurface or from any
other place or by dampness or by any other cause of whatsoever nature, unless
resulting from the gross negligence or willful misconduct of Landlord or its
agents; nor shall Landlord or its agents be liable for any such damage caused by
other tenants or persons in the Building or caused by construction of any
private, public or quasi-public work; nor shall Landlord be liable for any
latent defect in the Premises or in the Building (except that Landlord shall be
required to repair the same to the extent provided in Article 5). Nothing in the
foregoing shall affect any right of Landlord to the indemnity from Tenant to
which Landlord may be entitled under Article 28 in order to recoup for payments
made to compensate for losses of third parties.
(b) If, at any time or from time to time, any windows of the
Premises are temporarily closed, darkened or bricked-up for any reason
whatsoever, or any of such windows are permanently closed, darkened or
bricked-up if required by any Legal Requirement or related to any construction
upon property adjacent to the Real Property by parties other than Landlord,
Landlord shall not be liable for any damage Tenant may sustain thereby and
Tenant shall not be entitled to any compensation therefor nor abatement of Fixed
Rent or Additional Rent nor shall the same release Tenant from its obligations
hereunder nor constitute an eviction or constructive eviction of Tenant from the
Premises.
ARTICLE 23. WAIVER OF TRIAL BY JURY
The respective parties hereto shall and they hereby do waive trial
by jury in any action, proceeding or counterclaim brought by either of the
parties hereto against the other (except for personal injury or property damage)
on any matters whatsoever arising out of or in any way connected with this
Lease, the relationship of Landlord and Tenant, Tenant's use or occupancy of the
Premises, or for the enforcement of any remedy under any statute, emergency or
otherwise. If Landlord commences any summary proceeding against Tenant, Tenant
will not interpose any counterclaim of whatever nature or description in any
such proceeding (unless failure to impose such counterclaim would preclude
Tenant from asserting in a separate action the claim which is the subject of
such counterclaim), and will not seek to consolidate such proceeding with any
other action which may have been or will be brought in any other court by
Tenant.
ARTICLE 24. INABILITY TO PERFORM
This Lease and the obligation of Tenant to pay Fixed Rent and
Additional Rent hereunder and perform all of the other covenants and agreements
hereunder on the part of Tenant to be performed will not be affected, impaired
or excused because Landlord is unable to fulfill any of its obligations under
this Lease expressly or impliedly to be performed by Landlord or because
Landlord is unable to make, or is delayed in making any repairs, additions,
-46-
<PAGE>
alterations, improvements or decorations or is unable to supply or is delayed in
supplying any equipment or fixtures, if Landlord is prevented or delayed from so
doing by reason of strikes or labor troubles or by accident, or by any cause
whatsoever reasonably beyond Landlord's control, including laws, governmental
preemption in connection with a national emergency or by reason of any Legal
Requirements or by reason of the conditions of supply and demand which have been
or are affected by war or other emergency ("Unavoidable Delays").
ARTICLE 25. BILLS AND NOTICES
Except as otherwise expressly provided in this Lease, any bills,
statements, consents, notices, demands, requests or other communications given
or required to be given under this Lease shall be in writing and shall be deemed
sufficiently given or rendered if delivered by hand (against a signed receipt),
sent by a nationally recognized overnight courier service, or sent by registered
or certified mail (return receipt requested) and addressed:
if to Tenant, as follows: (a) at Tenant's address at the Premises,
with a copy to (b) Fried Frank, Harris, Shriver & Jacobson, Attention:
Jonathan Mechanic, Esq., or (c) at any place where Tenant or any agent or
employee of Tenant may be found if mailed subsequent to Tenant's
abandoning or surrendering the Premises;
if to Landlord, as follows: 111 Chelsea LLC, c/o Taconic Investment
Partners LLC, 1500 Broadway, New York, New York 10036, Attention: Mr. Paul
Pariser, with a copy to: Schulte Roth & Zabel LLP, 900 Third Avenue, New
York, New York 10022, Attention: Robert S. Nash, Esq.
Any such bill, statement, consent, notice, demand, request or other
communication given as provided in this Article 25 shall be deemed to have been
rendered or given (i) on the date when it shall have been hand delivered, (ii)
seven (7) Business Days from the date when it shall have been mailed, or (iii)
one (1) Business Day from the date when it shall have been sent by overnight
courier service.
ARTICLE 26. RULES AND REGULATIONS
Landlord reserves the right, from time to time, to adopt additional
reasonable and non-discriminatory Rules and Regulations and to amend the Rules
and Regulations then in effect. Tenant and Tenant's contractors, employees,
agents, and licensees shall comply with the Rules and Regulations, as so
supplemented or amended. Nothing contained in this Lease shall be construed to
impose upon Landlord any duty or obligation to enforce the Rules and Regulations
or terms, covenants or conditions in any other lease against any other tenant,
and Landlord shall not be liable to Tenant for violation of the same by any
other tenant, its employees, agents, visitors or licensees. If there shall be
any inconsistencies between this Lease and the Rules and Regulations, the
provisions of this Lease shall prevail.
-47-
<PAGE>
ARTICLE 27. BROKER
Section 27.1 Each of Landlord and Tenant represents and warrants to
the other that it has not dealt with any broker in connection with this Lease
other than Insignia/ESG, Inc. ("Broker") and that to the best of its knowledge
and belief, no other broker, finder or similar Person procured or negotiated
this Lease or is entitled to any fee or commission in connection herewith.
Section 27.2 Each of Landlord and Tenant shall indemnify, defend,
protect and hold the other party harmless from and against any and all losses,
liabilities, damages, claims, judgments, fines, suits, demands, costs, interest
and expenses of any kind or nature (including reasonable attorneys' fees and
disbursements) which the indemnified party may incur by reason of any claim of
or liability to any broker, finder or like agent (other than Broker) arising out
of any dealings claimed to have occurred between the indemnifying party and the
claimant in connection with this Lease, or the above representation being false.
The provisions of this Article 27 shall survive the expiration or earlier
termination of the Term.
ARTICLE 28. INDEMNITY
Section 28.1 Tenant shall not do or permit any act or thing to be
done upon the Premises which may subject Landlord to any liability or
responsibility for injury, damages to persons or property or to any liability by
reason of any violation of law or of any Legal Requirement, but shall exercise
such control over the Premises as to fully protect Landlord against any such
liability. Tenant shall defend, indemnify and save harmless Landlord from and
against (a) all claims of whatever nature against Landlord arising from any act,
omission or negligence of Tenant, its contractors, licensees, agents, servants,
employees, invitees or visitors; (b) all claims against Landlord arising from
any accident, injury or damage whatsoever caused to any person or to the
property of any person and occurring during the Term in or about the Premises,
provided, however, that Tenant shall have no obligation to indemnify Landlord
for any damage arising from the negligent or intentional acts or omissions of
Landlord resulting from Landlord's or Landlord's contractors', subcontractors'
or agents' entry into the Premises, if and to the extent such damage shall not
be covered by the insurance required to be maintained by Tenant hereunder; (c)
all claims against Landlord arising from any accident, injury or damage
occurring outside of the Premises but anywhere within or about the Real
Property, where such accident, injury or damage results or is claimed to have
resulted from an act, omission or negligence of Tenant or Tenant's agents,
employees, and (d) any breach, violation or nonperformance of any covenant,
condition or agreement in this Lease set forth and contained on the part of
Tenant to be fulfilled, kept, observed and performed. This indemnity and hold
harmless agreement shall include indemnity from and against any and all
liability, fines, suits, demands, costs and expenses of any kind or nature
(including attorneys' fees and disbursements) incurred in or in connection with
any such claim or proceeding brought thereon, and the defense thereof.
Section 28.2 Tenant agrees to defend, indemnify and hold harmless
Landlord and any partner, shareholder, director, officer, principal, employee or
agent, directly and indirectly, of Landlord, from and against all obligations
(including removal and remedial
-48-
<PAGE>
actions), losses, claims, suits, judgments, liabilities, penalties, damages
(including consequential and punitive damages), costs and expenses (including
attorneys' and consultants' fees and expenses) of any kind or nature whatsoever
that may at any time be incurred by, imposed on or asserted against Landlord or
any such party directly or indirectly based on, or arising or resulting from (a)
the actual or alleged presence of Hazardous Materials on the Premises or in the
Building which is caused or permitted by Tenant, and (b) any Environmental Claim
relating in any way to Tenant's operation or use of the Premises or the
Building. The provisions of this Section 28.2 shall survive the expiration or
sooner termination of this Lease.
Section 28.3 Landlord agrees to defend, indemnify and hold harmless
Tenant and any partner, shareholder, director, officer, principal, employee or
agent, directly and indirectly, of Tenant, from and against all obligations,
losses, claims, suits, judgments, liabilities, penalties, damages (including
consequential and punitive damages), costs and expenses (including attorneys'
and consultants' fees and expenses) of any kind or nature whatsoever that may at
any time be incurred by, imposed on or asserted against Tenant or any such party
arising from any accident, injury or damage whatsoever caused to any person or
to the property of any person and occurring prior to, during or (if Tenant shall
continue to use and occupy the Premises) after the expiration of the Term,
occurring in or about the common areas of the Building.
ARTICLE 29 INTENTIONALLY DELETED.
ARTICLE 30. SECURITY DEPOSIT
Section 30.1 Tenant has deposited with Landlord the sum of One
Hundred Thirteen Thousand Four Hundred Forty and 00/100 Dollars ($113,440.00) as
security for the full and faithful performance of every provision of this Lease
to be performed by Tenant (all or any part of such amount, the "Security
Deposit"). If an Event of Default shall have occurred with respect to any
provision of this Lease, including the provisions relating to the payment of
Fixed Rent and Additional Rent, Landlord may use, apply or retain all or any
part of this Security Deposit for the payment of any Fixed or Additional Rent or
any other sum in default or for the payment of any other amount which Landlord
may spend or become obligated to spend by reason of such Event of Default, or to
compensate Landlord for any other loss, cost or damage which Landlord may suffer
by reason of such Event of Default. Landlord shall give Tenant notice
contemporaneously with such use or application of any portion of the Security
Deposit. Tenant shall, within five (5) days after the giving of such notice,
deposit with Landlord cash in an amount sufficient to restore the Security
Deposit to the amount then required pursuant to the terms of this Article 30
(Tenant's obligation to make such payment shall be deemed a requirement that
Tenant pay an item of Additional Rent) and Tenant's failure to do so shall be a
breach of this Lease. Landlord shall deposit the Security Deposit in a standard
interest-bearing security deposit account in a bank located in New York State.
The interest shall be paid to Tenant annually, within a reasonable time
following the date upon which the depository bank customarily makes interest
payments. Landlord shall not be required to credit Tenant with any interest for
any period during which Landlord does not receive interest on the Security
Deposit. Tenant shall not assign or encumber any part of the Security Deposit,
and no assignment or encumbrance by Tenant of all of any part of the Security
Deposit shall be binding upon
-49-
<PAGE>
Landlord, whether made prior to, during, or after the Term. Landlord shall not
be required to exhaust its remedies against Tenant or against the Security
Deposit before having recourse to any other form of security held by Landlord
and recourse by Landlord to any Security Deposit shall not affect any remedies
of Landlord which are provided in this Lease or which are available to Landlord
in law or in equity. So long as no Event of Default shall have occurred and be
continuing, the Security Deposit or any balance thereof shall be returned to
Tenant reasonably promptly after the expiration or sooner termination (other
than a termination pursuant to Article 16 hereof) of the Term and Tenant's
surrender to Landlord of the Premises. In the event the Building is sold,
Landlord shall transfer the Security Deposit to the new owner and Landlord shall
thereupon be released by Tenant from all liability for the return of said
Security Deposit; and Tenant agrees to look to the new owner solely for the
return of the Security Deposit. A lease of the entire Building shall be deemed a
transfer within the meaning of the foregoing sentence. Landlord shall use
reasonable efforts to notify or cause Tenant to be notified in the event of any
transfer of the Building.
Section 30.2 In lieu of a cash deposit, Tenant may deliver to
Landlord a clean, irrevocable, non-documentary and unconditional Letter of
Credit issued by and drawn upon any commercial bank, trust company, national
banking association or savings and loan association having offices for banking
purposes in the City of New York and which is a member of the New York
Clearinghouse Association (the "Issuing Bank") and which (or the parent company
of which) shall have outstanding unsecured, uninsured and unguaranteed
indebtedness, or shall have issued a letter of credit or other credit facility
that constitutes the primary security for any outstanding indebtedness (which is
otherwise uninsured and unguaranteed), that is then rated, without regard to
qualification of such rating by symbols such as "+" or "-" or numerical
notation, "Aa" or better by Moody's Investors Service and "AA" or better by
Standard & Poor's Corporation, and has combined capital, surplus and undivided
profits of not less than $500,000,000.00, which Letter of Credit shall have a
term of not less than one year, be in form and content satisfactory to Landlord
(and substantially as shown on Exhibit E annexed hereto and made a part hereof),
be for the account of Landlord, be in the amount of the Security Deposit then
required to be deposited hereunder, and be fully transferable by Landlord to
successor owners of the Building without the payment of any fees or charges, it
being agreed that if any such fees or charges shall be so imposed, then such
fees or charges, shall be paid by Tenant. The Letter of Credit shall provide
that it shall be deemed automatically renewed, without amendment, for
consecutive periods of one year each thereafter during the term of this Lease,
unless the Issuing Bank sends notice (the "Non-Renewal Notice") to Landlord by
certified mail, return receipt requested, not less than thirty (30) days next
preceding the then expiration date of the Letter of Credit that it elects not to
have such Letter of Credit renewed. Additionally, the Letter of Credit shall
provide that Landlord shall have the right, exercisable within twenty (20) days
of its receipt of the Non-Renewal Notice, by sight draft on the Issuing Bank, to
receive the monies represented by the existing Letter of Credit and to hold such
proceeds pursuant to the terms of this Section 30.2 as a cash security pending
the replacement of such Letter of Credit. If an Event of Default shall have
occurred and be continuing with respect to any provision of this Lease,
including the provisions relating to the payment of Fixed Rent and Additional
Rent, Landlord may apply or retain the whole or any part of the cash security so
deposited or may notify the Issuing Bank and thereupon receive all the monies
represented by the Letter of Credit and use,
-50-
<PAGE>
apply, or retain the whole or any part of such proceeds, as provided in this
Section 30.2. Any portion of the cash proceeds of the Letter of Credit not so
used or applied by Landlord in satisfaction of the obligations of Tenant as to
which such Event of Default shall have occurred shall be deposited by Landlord
and retained in an interest-bearing account as provided in Section 30.1. If
Landlord applies or retains any part of the cash security or proceeds of the
Letter of Credit, as the case may be, Tenant shall, within five (5) days after
written demand therefor, deposit with Landlord the amount so applied or retained
so that Landlord shall have the full Security Deposit required pursuant to
Section 30.1 hereof on hand at all times during the Term. So long as no Event of
Default shall have occurred and be continuing, the Letter of Credit shall be
returned to Tenant after the Expiration Date and after delivery of possession of
the Premises to Landlord. In the event of a sale of Landlord's interest in the
Premises, within thirty (30) days of notice of such sale or leasing, Tenant, at
Tenant's sole cost and expense, shall arrange for the transfer of the Letter of
Credit to the new landlord, as designated by Landlord, or have the Letter of
Credit reissued in the name of the new landlord and Landlord shall thereupon be
released by Tenant from all liability for the return of the Letter of Credit;
provided, however, that if the Letter of Credit is reissued, Landlord shall
return the original Letter of Credit issued in Landlord's name to Tenant.
Section 30.3 (a) Notwithstanding anything set forth in this Article
30 to the contrary, and provided that each of the Reduction Conditions, as
defined in Section 30.3(b), shall have been satisfied, then after notice from
Tenant to Landlord, signed by the chief financial officer of Tenant and
certifying that the Reduction Conditions have been satisfied, the Security
Deposit shall be reduced to the sum of Fifty-Six Thousand Seven Hundred Twenty
and 00/100 Dollars ($56,720.00).
(b) The following are the conditions precedent to the reduction of
the Security Deposit as provided in this Section 30.3:
(i) no Event of Default shall have occurred at any time during the
Term;
(ii) Tenant shall have submitted to Landlord true and complete
copies of Tenant's annual financial statements for the preceding three (3)
fiscal years of Tenant (the "Financial Statements"), as follows: (A) if
Tenant is a publicly traded corporation, Tenant's annual financial
statements as filed with the Securities and Exchange Commission, or (B) if
Tenant is not a publicly traded corporation, Tenant's annual financial
statements audited by a firm of certified public accountants reasonably
satisfactory to Landlord, in either case showing that:
(A) for the three (3) immediately preceding calendar years
(which shall not include 1999), Tenant shall have achieved positive
"Net Cash Flow from Operating Activities", as evidenced in the
Statement of Cash Flows contained in the Financial Statements; and
(B) the Accumulated Deficit, as shown in the Statement of
Shareholders' Equity set forth in the Financial Statements, shall
have been eliminated, and the
-51-
<PAGE>
Financial Statements shall indicate a positive Retained Earnings
Balance, after adjustment for accumulated depreciation and
amortization.
(c) If Tenant has deposited the Security Deposit in cash, and not in
the form of the Letter of Credit, Landlord shall refund to Tenant the amount by
which the Security Deposit is reduced pursuant hereto. If Tenant has provided
the Letter of Credit, then, provided that Tenant tenders to Landlord a
replacement Letter of Credit or an amendment thereof in the appropriately
reduced amount of the Security Deposit, Landlord shall exchange the Letter of
Credit then held by Landlord for the Letter of Credit tendered by Tenant, or
countersign such amendment, if required.
ARTICLE 31. RELOCATED PREMISES.
Section 31.1 (a) Landlord shall have the right at any time during
the Term, upon giving Tenant not less than ninety (90) days prior written notice
(a "Relocation Notice"), to provide and furnish Tenant with space elsewhere in
the Building of approximately the same size as the Premises (the "Substitute
Premises") and remove and place Tenant in such space, and Landlord will pay all
reasonable costs and expenses incurred by Tenant in connection with such
relocation. Notwithstanding the foregoing, Tenant shall have no obligation to
relocate to the Substitute Promises unless or until (i) Tenant shall have
approved the Substitute Premises as being reasonably feasible in terms of layout
and location for use by Tenant, which approval shall not be unreasonably
withheld, (ii) Landlord pays to Tenant in advance the full costs estimated by
Tenant for purchase, installation, testing and implementation of new
Alterations, facilities and equipment in the Substitute Premises which duplicate
all of the Initial Alterations, Alterations and Tenant's Property in the
Premises provided, however, that Tenant shall deliver to Landlord reasonable
evidence of the costs of same, and (iii) Tenant has confirmed that such new
facilities and equipment have been fully installed, tested and placed into
service and are fully capable of substituting for Tenant's operations in the
Premises. Landlord shall promptly reimburse Tenant for any costs or expenses
exceeding the estimated amounts paid by Landlord in advance provided that Tenant
delivers to Landlord reasonable evidence of same.
(b) If Landlord moves Tenant to the Substitute Premises, this Lease
and each of its terms, covenants and conditions shall remain in full force and
effect and be deemed applicable to the Substitute Premises, and the Substitute
Premises shall thereafter be deemed to be the Premises as though Landlord and
Tenant had entered into an express written amendment of this Lease with respect
thereto.
ARTICLE 32. MISCELLANEOUS
Section 32.1 (a) The obligations of Landlord under this Lease shall
not be binding upon Landlord named herein after the sale, conveyance, assignment
or transfer by such Landlord (or upon any subsequent landlord after the sale,
conveyance, assignment or transfer by such subsequent landlord) of its interest
in the Building or the Real Property, as the case may be, and in the event of
any such sale, conveyance, assignment or transfer, Landlord shall be and hereby
is entirely freed and relieved of all covenants and obligations of Landlord
hereunder, and the transferee of Landlord's interest in the Building or the Real
Property, as the case may be, shall be deemed to have assumed all obligations
under this Lease. Prior to any such sale,
-52-
<PAGE>
conveyance, assignment or transfer, the liability of Landlord for Landlord's
obligations under this Lease shall be limited to Landlord's interest in the Real
Property and Tenant shall not look to any other property or assets of Landlord
or the property or assets of any of the Exculpated Parties (defined below) in
seeking either to enforce Landlord's obligations under this Lease or to satisfy
a judgment for Landlord's failure to perform such obligations.
(b) Notwithstanding anything contained herein to the contrary,
Tenant shall look solely to Landlord to enforce Landlord's obligations hereunder
and no partner, shareholder, director, officer, principal, employee or agent,
directly and indirectly, of Landlord (collectively, the "Exculpated Parties")
shall be personally liable for the performance of Landlord's obligations under
this Lease. Tenant shall not seek any damages against any of the Exculpated
Parties.
Section 32.2 Wherever in this Lease Landlord's consent or approval
is required, if Landlord shall refuse such consent or approval, Tenant in no
event shall be entitled to make, nor shall Tenant make, any claim, and Tenant
hereby waives any claim, for money damages (nor shall Tenant claim any money
damages by way of set-off, counterclaim or defense) based upon any claim or
assertion by Tenant that Landlord unreasonably withheld or unreasonably delayed
its consent or approval. Tenant's sole remedy shall be an action or proceeding
to enforce any such provision, for specific performance, injunction or
declaratory judgment
Section 32.3 (a) All of the Exhibits attached to this Lease are
incorporated in and made a part of this Lease, but, in the event of any
inconsistency between the terms and provisions of this Lease and the terms and
provisions of the Exhibits hereto, the terms and provisions of this Lease shall
control. This Lease may not be changed, modified, terminated or discharged, in
whole or in part, except by a writing, executed by the party against whom
enforcement of the change, modification, termination or discharge is to be
sought. As used in this Lease: (a) the word "or" is not exclusive and the word
"including" is not limiting, (b) references to a law include any rule or
regulation issued under the law and any amendment to the law, rule or
regulation, (c) whenever the words "include", "includes", or "including" appear,
they shall be deemed to be followed by the words "without limitation", (d)
personal pronouns shall be deemed to include the other genders and the singular
to include the plural, and (e) all Article and Section references shall, unless
otherwise expressly stated, be deemed references to the Articles and Sections of
this Lease. The captions hereof are inserted only as a matter of convenience and
for reference and in no way define, limit or describe the scope of this Lease
nor the intent of any provision thereof.
(b) This Lease shall be governed in all respects by the laws of the
State of New York applicable to agreements executed in and to be performed
wholly within said State.
(c) If any term, covenant, condition or provision of this Lease, or
the application thereof to any person or circumstance, shall ever be held to be
invalid or unenforceable, then in each such event the remainder of this Lease or
the application of such term, covenant, condition or provision to any other
person or any other circumstance (other than those as to which it shall be
invalid or unenforceable) shall not be thereby affected, and each term,
covenant, condition and provision hereof shall remain valid and enforceable to
the fullest extent permitted by law.
-53-
<PAGE>
(d) If at the commencement of, or at any time or times during the
Term, the Fixed Rent and Additional Rent reserved in this Lease shall not be
fully collectible by reason of any Legal Requirement, Tenant shall enter into
such agreements and take such other steps (without additional expense to Tenant)
as Landlord may request and as may be legally permissible to permit Landlord to
collect the maximum rents which may from time to time during the continuance of
such legal rent restriction be legally permissible (and not in excess of the
amounts reserved therefor under this Lease). Upon the termination of such legal
rent restriction prior to the expiration of the Term, (i) Fixed Rent and
Additional Rent shall become and thereafter be payable hereunder in accordance
with the amounts reserved in this Lease for the periods following such
termination, and (ii) Tenant shall pay to Landlord, if legally permissible, an
amount equal to (A) the items of Fixed Rent and Additional Rent which would have
been paid pursuant to this Lease but for such legal rent restriction less (B)
the rents paid by Tenant to Landlord during the period or periods such legal
rent restriction was in effect.
(e) The covenants, conditions and agreements contained in this Lease
shall bind and inure to the benefit of Landlord and Tenant and their respective
legal representatives, successors, and, except as otherwise provided in this
Lease, their assigns.
Section 32.4 Except as expressly provided to the contrary in this
Lease, Tenant agrees that all disputes arising, directly or indirectly, out of
or relating to this Lease, and all actions to enforce this Lease, shall be dealt
with and adjudicated in the state courts of New York or the Federal courts
sitting in New York City; and for that purpose hereby expressly and irrevocably
submits itself to the jurisdiction of such courts. Tenant hereby irrevocably
appoints the Secretary of the State of New York as its authorized agent upon
which process may be served in any such action or proceeding.
IN WITNESS WHEREOF, Landlord and Tenant have respectively executed
this Lease as of the day and year first above written.
LANDLORD:
111 CHELSEA LLC
By: Taconic Chelsea Holdings LLC, managing member
By: Taconic SL Principals LLC, managing member
By: /s/ Paul E. Pariser
------------------------------
Paul E. Pariser, Principal
TENANT:
FIBERNET TELECOM GROUP, INC.
By: /s/ Michael S. Liss
---------------------------
Name: Michael S. Liss
Title: President and CEO
-54-
<PAGE>
Tenant's Federal Tax Identification Number: 13-3859938
-55-
<PAGE>
STATE OF NEW YORK)
)ss.:
COUNTY OF NEW YORK)
On the 28th day of February in the year 2000 before me, the
undersigned, personally appeared Michael S. Liss, personally known to me or
proved to me on the basis of satisfactory evidence to be the individual(s) whose
name(s) is (are) subscribed to the within instrument and acknowledged to me that
he/she/they executed the same in his/her/their capacity(ies), and that by
his/her/their signature(s) on the instrument, the individual(s), or the person
upon behalf of which the individual(s) acted, executed the instrument.
Rosa E. Ross
________________________________
Notary Public
-56-
<PAGE>
EXHIBIT A
Floor Plan of the Premises
The floor plan which follows is intended solely to identify the
general outline of the Premises, and should not be used for any other purpose.
All areas, dimensions and locations are approximate, and any physical conditions
indicated may not exist as shown.
<PAGE>
EXHIBIT B
Rules and Regulations
1. The rights of tenants in the entrances, corridors, elevators of
the Building are limited to ingress to and egress from tenants' premises for
tenants and their employees, licenses and invitees, and no tenant shall use, or
permit the use of, the entrances, corridors, or elevators for any other purpose.
No tenant shall invite to such tenant's premises, or permit the visit of,
persons in such numbers or under such conditions as to interfere with the use
and enjoyment of any of the entrances, corridors, elevators and other facilities
of the Building by other tenants. Fire exits and stairways are for emergency use
only, and shall not be used for any other purposes by the tenants, their
employees, licensees or invitees. No tenant shall encumber or obstruct, or
permit the encumbrance or obstruction of, any of the sidewalks, entrances,
corridors, elevators, fire exits or stairways of the Building. Landlord reserves
the right to control and operate the public portions of the Building and the
public facilities, as well as facilities furnished for the common use of
tenants, in such manner as it reasonably deems best for the benefit of tenants
generally.
2. Tenant's employees shall not loiter around the hallways,
stairways, elevators, front, roof or any other part of the Building used in
common by the occupants thereof.
3. Tenant shall not alter the exterior appearance of the Building by
installing signs, advertisements, notices or other graphics on exterior walls,
or interior surfaces visible from outside, without prior written permission from
Landlord. Similarly, electrical fixtures hung in offices or other spaces along
the perimeter of the Building which affect its exterior appearance must be
fluorescent and a quality, type, design and bulb color, previously approved in
writing by Building management.
4. The cost of repairing any damage to the public portions of the
Building or the public facilities or to any facilities used in common with other
tenants, caused by a tenant or the employees, licensees or invitees of the
tenant, shall be paid by such tenant.
5. The requirements of tenants will be attended to only upon
application at the Building Management Office. Employees of the Building shall
not perform any work or do anything outside of their regular assigned duties,
unless under special instructions from the Building Management Office.
6. Except as specifically provided in the Lease, Tenant shall have
no right of access to the roof of the Building and shall not install, repair or
replace any satellite dish, antennae, fan, air conditioner or other devices on
the roof of the Building without the prior written consent of Landlord. Any such
device installed without such written consent shall be subject to removal, at
Tenant's expense, without notice, at any time.
7. Exterior signs on doors and any directory tablet must be approved
by Landlord.
8. No awnings or other projections over or around the windows shall
be installed by any tenant and only such window blinds as are permitted by
Landlord shall be used in any tenant's premises.
9. No acids, vapors or other materials shall be discharged or
permitted to be discharged into the waste lines, vents or flues of the Building.
The water and service closets and other plumbing fixtures in or serving any
tenant's premises shall not be used for any purpose other than the purpose for
which they were designed or constructed and no sweepings, rubbish, rags, acids
or other foreign substances shall be deposited therein. All damages resulting
from any misuse of the fixtures shall be borne by the tenant who, or whose
servants, employees, agents, visitors or licensees, shall have caused the same.
10. Tenant shall not disturb others. This rule prohibits any noise
audible from the hallway, adjoining office suites or outside whether created by
musical instruments, radios, television sets, group activities or any other
source.
<PAGE>
11. All hand trucks used in the Building shall be equipped with
rubber tires and side guards.
12. No tenant shall install wires, conduit, sleeves or similar
installations in Building shaftways without prior written consent of Landlord,
and as Landlord may direct.
13. Each tenant shall, at its expense, provide artificial light in
the premises demised to such tenant for Landlord's agents, contractors and
employees while performing janitorial or other cleaning services and making
repairs or alterations therein.
14. Tenants shall not permit any cooking or food odors emanating
from their demised premises to be detectable in any other portions of the
Building.
15. Tenants shall coordinate entrance door locks with the Building's
master lock system. Upon vacating the Building, tenants must return keys to
storerooms, offices and toilets or pay replacement costs.
16. All entrance doors in each tenant's premises shall be left
locked when the tenant's premises are not in use. Entrance doors shall not be
left open at any time.
17. Tenants shall not keep pets, bicycles, or other vehicles in
their premises without prior written approval by Landlord. Exceptions are made
for seeing-eye dogs and conveyances required by handicapped persons.
18. Regular suppliers of outside services must be approved by
Building management, which may establish hours or other conditions for entrance
to the Building. Such suppliers include vendors of food, spring water, ice,
towels, barbering, shoe shining and other products and services.
19. Canvassing, soliciting and peddling of products or services are
prohibited in the Building, and tenants shall cooperate with Landlord in
attempting to prevent such acts in the Building.
20. Landlord may refuse admission to the Building outside of normal
hours to any person not having a pass issued by Landlord or not properly
identified, and may require all persons admitted to or leaving the Building
outside of normal business hours to register. Tenant's employees, agents and
visitors shall be permitted to enter and leave the Building whenever appropriate
arrangements have been previously made between Landlord and Tenant. Each tenant
shall be responsible for all persons for whom such person requests such
permission and shall be liable to Landlord for all acts of such persons. Any
person whose presence in the Building at any time shall, in the reasonable
judgment of Landlord, be prejudicial to the safety, character, reputation and
interests of the Building or its tenants may be denied access to the Building or
may be rejected therefrom. In case of invasion, riot, public excitement or other
commotion, Landlord may prevent all access to the Building during the
continuance of the same, by closing the doors or otherwise, for the safety of
the tenants and protection of property in the Building. Landlord may require any
person leaving the Building with any package or other object to exhibit a pass
from the tenant from whose premises the package or object is being removed, but
the establishment and enforcement of such requirements shall not impose any
responsibility on Landlord for the protection of any tenant against the removal
of property from the premises of the tenant. Landlord shall in no way be liable
to any tenant for injury or loss arising from the admission, exclusion or
ejection of any person to or from the tenant's premises or the Building under
the provisions of this rule.
21. Tenant, at its sole cost and expense, shall cause the Premises
to be exterminated from time to time to the reasonable satisfaction of the
Building Management Office, and shall employ such exterminators therefor as
shall be approved by the Building Management Office.
22. Tenants shall not serve or permit the serving of alcoholic
beverages in the its premises unless Tenant shall have procured host liquor
liability insurance, issued by companies and in amounts reasonably satisfactory
to Landlord, naming Landlord and its managing agent as additional insureds.
-2-
<PAGE>
23. The Building loading docks may be used only for loading and
unloading procedures. Tenants may not use the loading dock area for parking.
Tenants may not place any dumpsters at the loading docks or any other portion of
the Building without the prior written approval of Landlord.
24. No shutdowns of any Building systems will be permitted without
prior written approval of Landlord and supervision by the Building engineer.
25. Tenant's contractors or vendors may not use any space within the
Building outside the Premises for storage or moving of materials or equipment or
for the location of a field office or facilities for the employees of such
contractors or vendors without obtaining Landlord's prior written approval for
each such use. Landlord shall have the right to terminate such use and remove
all such contractor's or vendor's materials, equipment and other property from
such space, without Landlord being liable to tenant or to such contractor or
vendor, and the cost of such termination and removal shall be paid by Tenant to
Landlord.
26. Tenants are required to have a full service maintenance contract
covering their supplemental HVAC, Uninterrupted Power Supply (UPS) and Automatic
Transfer systems, and to provide copies of such contracts to the Building
management office.
27. The Building reserves the right to restrict the use of certain
materials (for example, Omega sprinkler heads and piping manufactured in The
Republic of China) in the Building based on notifications that declare the
materials unsafe.
28. Trucks using the Tenant Shipping Platforms on the ground floor
of the Building, and the upper floor truck lobbies, will load and discharge at
the place or places thereat and therein as indicated by the duly authorized
representative of Landlord in charge of such operation.
29. Elevators for freight handling service will be operated during
Business Hours on Business Days, unless special arrangement is made with
Landlord for operation at other times.
30. The use of the private right of way and the truck elevators will
be subject to and under the reasonable direction and control of the duly
authorized representative of Landlord in charge of such operation. When in the
interest of continuity of service or in the interest of the common service,
Tenant's freight departing from or arriving at the Building by truck may at the
direction of Landlord be handled over and through the Tenant Shipping Platforms
on the ground floor and the freight elevators. Landlord reserves the right to
direct such handling in lieu of truck elevator service.
31. In the interest of preserving the continuity of freight elevator
service, freight will not be floored upon the freight elevator, but will at all
times be handled and moved upon suitable vehicles of the indoor industrial
wheeler type permitting such freight to be economically and expeditiously
wheeled on and off the freight elevators. Freight which cannot be handled upon
such equipment will be handled in such alternative manner as may be approved by
Landlord.
32. (a) The Tenant Shipping Platforms located on first or ground
floor of the Building are designed to accomplish the immediate transfer and
movement of freight between the freight elevators and trucks. The use of such
facility by Tenant or any of its agents, servants, employees, representatives or
contractors will be confined to such purpose, under the reasonable direction and
control of the duly authorized representative of Landlord in charge of such
operation.
(b) No storage or holding of freight on such Tenant Shipping
Platforms awaiting the arrival of trucks, or awaiting transfer by Tenant from
such Tenant Shipping Platforms to the Premises, will be permitted. No
automobiles of Tenant or any Tenant Party may enter on or be stored in any
portion of the Building, except in areas designated by Landlord, and provided
Tenant pays for such parking at rates designated by Landlord, its agents or
parking lessees.
-3-
<PAGE>
(c) Any violation of this rule or disregard of directions issued by
Landlord will give Landlord the right to handle, transfer, remove or store such
freight in or to other premises in the Building. When such handling, transfer,
removal or storage is performed by Landlord, and when it shall be deemed
necessary by Landlord to preserve the continuity of common service provided by
this facility, any and all expense will be at Tenant's sole cost and expense.
Landlord will not be responsible for any loss or damage which any such freight
may suffer by such handling, removing or storage.
33. Neither Tenant nor any Tenant Party will at any time be
permitted to operate any freight, passenger or truck elevator.
34. The Building is equipped with scuppers for carrying off water
which may result from sprinkler operation or other causes. Tenant shall not,
under any circumstances, deposit or permit to be deposited sweepings or any
other rubbish in such scuppers, and Tenant will keep the scuppers within the
Premises at all times free of any and all rubbish, sweepings, and other
obstructions of any nature whatsoever.
35. Tenant shall not, under any circumstances, permit the
accumulation of sweepings or any other rubbish in the expansion joints of the
Building, or in any other portions of the Building outside of the Premises, and
all such sweepings or rubbish shall be removed daily by Tenant in such manner as
Landlord shall direct. Tenant will keep the Building's expansion joints free of
any and all rubbish, sweepings and any other obstruction of any nature
whatsoever. Tenant will not place machinery or equipment in a position so that
such machinery or equipment straddles an expansion joint, or erect a partition
which intersects an expansion joint, unless one end of such machinery, equipment
or partition is free to permit the expansion and contraction of such expansion
joint.
36. If any electrical or telephone installations made or operated by
Tenant shall emit any electromagnetic interference, Tenant shall immediately
discontinue use of such installations until such electromagnetic interference is
eliminated to Landlord's satisfaction.
37. Landlord reserves the right at any time and from time to time,
to rescind, alter, waive, modify, add to or delete, in whole or in part, any of
these Rules and Regulations in order to protect the comfort, convenience and
safety of all tenants at the Building. Tenant shall not have any rights or
claims against Landlord by reason of non-enforcement of these rules and
regulations against any tenant, and such non-enforcement will not constitute a
waiver as to Tenant.
38. If there shall be any inconsistencies between the text of the
main body of the Lease and these Rules and Regulations, the provisions of the
Lease shall prevail.
-4-
<PAGE>
EXHIBIT C
Approved Contractors
Mr. Frank Sciame, President Mr. Al Hot, President
F.J. Sciame Construction Co., Inc. Fast Track Construction
80 South Street 450 West 33rd Street
New York, N.Y. 10038 New York, N.Y. 10001
Tel: (212) 232-2200 Tel: (212) 279-0110
Fax: (212) 248-5299 Fax: (212) 279-9239
Mr. Anthony Genovese, Executive Vice President Christopher H. Gallin
HRH Construction Interiors, Inc. John Gallin & Sons, Inc.
One Park Avenue 40 Gold Street
New York, N.Y. 10016 New York, N.Y. 10018
Tel: (212) 616-3100 Tel: (212) 267-8624
Fax: (212) 696-4091 Fax: (212) 962-7201
Mr. Irving Koven Mr. Peter Dove
Ambassador Construction Co., Inc. Dominant Construction
41 East 42nd Street 523 Route 33
New York, N.Y. 10017 Orangeburg, N.Y. 10962
Tel: (212) 922-1020 Tel: (914) 398-3900
Fax: (212) 949-9762 Fax: (914) 398-3106
Mr. Chris Philips, Vice President Mr. Stephen S. Thomsen
Tishman Construction Corp. Thomsen Construction Co., Inc.
666 Fifth Avenue 180 Varick Street, 12th Floor
New York, N.Y. 10103 New York, N.Y. 10014
Tel: (212) 708-6824 Tel: (212) 647-1412
Fax: (212) 399-3643 Fax: (212) 647-1249
Lehrer McGovern Bovis Mr. George J. Figliolia
200 Park Avenue New York City Builders Group
New York, N.Y. 10166 One Wall Street, 4th Floor
Tel: (212) 592-6700 New York, N.Y. 10005
Fax: (212) 592-6988 Tel: (212) 635-0760
Fax: (212) 635-0767
John Berry Alfred J. Tosto, Regional
Westside Interiors Manager
462 Beattie Road Gnome Group, Inc.
Rock Tavern, N.Y. 12575 111 8th Avenue
Tel: (914) 496-8005 New York, N.Y. 10011
Fax: (914) 496-2912 Tel: (212) 807-1991
Fax: (212) 807-6266
Drill Construction
Philip S. Drill-SVP
80 Main Street
West Orange,NJ 07052
Tel: (973) 736-9350
Fax: (973) 736-3776
[email protected]
<PAGE>
EXHIBIT D
FORM OF LETTER OF CREDIT
[LETTERHEAD OF ISSUING BANK]
Issue Date: _________ ___, 200_
Our Number: __________________
No.________________________________________
Irrevocable Commercial Letter of Credit
Applicant: __________________ [Tenant, generally]
Beneficiary: 111 Chelsea LLC
c/o Taconic Investment Partners LLC
1500 Broadway, New York, NY 10036
Amount (U.S.): $______________
Expiry: ____________ ___, 200_
[The initial expiry date must occur at least one
year after the Commencement Date.]
Gentlemen:
For the account of Applicant we hereby establish this Irrevocable
Letter of Credit No. _____________________ in your favor for an amount of up to
$_______________ effective immediately, available by your drafts at sight when
accompanied by (a) this Irrevocable Letter of Credit and (b) Beneficiary's
statement purportedly signed by an officer of Beneficiary or Beneficiary's
authorized managing agent, stating: "The amount of this drawing under
Irrevocable Letter of Credit No. _____________ is being drawn pursuant to Lease
dated __________________ ____ 200_, by and between 111 Chelsea LLC as Landlord
and _____________________ as Tenant."
All drafts must be marked "Drawn under ____________________ Bank,
Irrevocable Letter of Credit No. ____________ dated ______ __, 200_."
It is a condition of this Irrevocable Letter of Credit that it shall
be fully transferable by Beneficiary without any fees or charges payable by
Beneficiary in connection therewith.
<PAGE>
It is a condition of this Irrevocable Letter of Credit that it shall
be automatically extended for additional periods of one year from the present or
future expiry date, unless at least thirty (30) days prior to such expiry date
we notify you in writing by certified or registered mail, return receipt
requested, at the above address, that we elect not to renew this Irrevocable
Letter of Credit for such additional period. Upon receipt by you of such notice
you may draw drafts on us at sight for an amount not to exceed the balance
remaining in this Irrevocable Letter of Credit within the then applicable expiry
date.
We hereby agree with you that drafts drawn under and in accordance
with the terms of this Irrevocable Letter of Credit will be duly honored by us
on delivery of this Irrevocable Letter of Credit and the document so specified,
when presented at _____________________________ _____________________________
[address of Bank issuing this Letter of Credit - THIS ADDRESS MUST BE LOCATED IN
MANHATTAN, OR WITHIN A REASONABLE DISTANCE THEREOF AS DETERMINED BY LANDLORD].
This credit is subject to the Uniform Customs and Practice for
Documentary Credits (1993 Revision), International Chamber of Commerce
Publication No. 500; provided, however, that in the event an expiry date occurs
during an interruption of our business of the type described in Article 17 of
such publication, then such expiry date shall be deemed to be automatically
extended until the date which shall be five (5) days after the resumption of our
business.
________________________________
Authorized Signature
-2-
<PAGE>
Exhibit 21.1
Subsidiaries of FiberNet Telecom Group, Inc., a Nevada corporation
FiberNet Telecom, Inc., a Delaware corporation
FiberNet Telecom Group, Inc,. a Delaware corporation
FiberNet Equal Access, LLC, a New York limited liability company
Local Fiber, LLC, a New York limited liability company
<PAGE>
Exhibit 23.1
CONSENT OF INDEPENDENT PUBLIC ACCOUNTANTS
As independent public accountants, we hereby consent to the incorporation of our
reports included (or incorporated by reference) in this Form 10-KSB, into the
Company's previously filed Registration Statement on Form S-2, File No.
333-07841
/s/ Arthur Andersen LLP
ARTHUR ANDERSEN LLP
<PAGE>
MENDELSOHN KARY BELL & NATOLI P.C.
CERTIFIED PUBLIC ACCOUNTANTS
1633 BROADWAY
NEW YORK, NY 10019
212 246-3220
CONSENT OF INDEPENDENT PUBLIC ACCOUNTANTS
-----------------------------------------
To the Board of Directors
FiberNet Telecom Inc. and Affiliated Entities
(A Development Stage Company)
As independent public accountants, we hereby consent to the incorporation of our
report dated November 29, 1997, included in this Form 10-K, into the Company's
previously filed Registration Statement on Form S-2, File No. 333-07841.
/s/ Mendelsohn Kary Bell & Natoli P.C.
New York, New York
March 29, 2000
<TABLE> <S> <C>
<PAGE>
<ARTICLE> 5
<LEGEND>
THIS SCHEDULE CONTAINS SUMMARY FINANCIAL INFORMATION EXTRACTED FROM THE FISCAL
YEAR FINANCIAL STATEMENTS AS OF DECEMBER 31, 1999 AND IS QUALIFIED IN ITS
ENTIRETY BY REFERENCE TO SUCH FINANCIAL STATEMENTS.
</LEGEND>
<S> <C> <C>
<PERIOD-TYPE> 12-MOS
<FISCAL-YEAR-END> DEC-31-1999
<PERIOD-START> JAN-01-1999
<PERIOD-END> DEC-31-1999
<CASH> 9,512,480
<SECURITIES> 0
<RECEIVABLES> 0
<ALLOWANCES> 0
<INVENTORY> 0
<CURRENT-ASSETS> 9,672,387
<PP&E> 55,613,086
<DEPRECIATION> (436,373)
<TOTAL-ASSETS> 77,587,692
<CURRENT-LIABILITIES> 8,382,263
<BONDS> 0
0
69,512,180
<COMMON> 25,933
<OTHER-SE> (1,289,044)
<TOTAL-LIABILITY-AND-EQUITY> 77,587,692
<SALES> 0
<TOTAL-REVENUES> 0
<CGS> 0
<TOTAL-COSTS> 13,087,448
<OTHER-EXPENSES> 0
<LOSS-PROVISION> 0
<INTEREST-EXPENSE> 9,215,715
<INCOME-PRETAX> 22,198,770
<INCOME-TAX> 0
<INCOME-CONTINUING> 22,198,770
<DISCONTINUED> 0
<EXTRAORDINARY> 0
<CHANGES> 0
<NET-INCOME> (72,201,432)
<EPS-BASIC> 4.30
<EPS-DILUTED> 0
</TABLE>
