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As filed with the Securities and Exchange Commission on January 10, 2001
Registration No. 333-43788
SECURITIES AND EXCHANGE COMMISSION
Washington, DC 20549
AMENDMENT NO.3
To
FORM S-1
On
FORM S-3
REGISTRATION STATEMENT
UNDER
THE SECURITIES ACT OF 1933
FiberNet Telecom Group, Inc.
(Exact name of Registrant as specified in its charter)
Delaware
(State or other jurisdiction of
incorporation or organization)
4813
(Primary Standard Industrial
Classification Code Number)
52-2255974
(I.R.S. Employer
Identification No.)
570 Lexington Avenue
New York, New York 10022
(212) 405-6200
(Address, including zip code, and telephone number, including area code, of
Registrant's principal executive offices)
Michael S. Liss
President and Chief Executive Officer
FiberNet Telecom Group, Inc.
570 Lexington Avenue
New York, New York 10022
(212) 405-6200
(Name, address, including zip code, and telephone number, including area code,
of agent for service)
Copies To:
Gordon Caplan, Esq.
Mintz, Levin, Cohn, Ferris,
Glovsky and Popeo, P.C.
Chrysler Center
666 Third Avenue
New York, New York 10022
(212) 935-3000
Approximate date of commencement of proposed sale to public: From time
to time after the date on which this registration statement becomes effective.
If any of the securities being registered on this Form are being
offered on a delayed or continuous basis pursuant to Rule 415 under the
Securities Act, check the following box. [x]
If this Form is filed to register additional securities for an
offering pursuant to Rule 462(b) under the Securities Act, check the following
box and list the Securities Act registration statement number of the earlier
effective registration statement for the same offering. [_]
(continued on following page)
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If this Form is a post-effective amendment filed pursuant to Rule
462(c) under the Securities Act, check the following box and list the Securities
Act registration statement number of the earlier registration statement for the
same offering. [_]
If this Form is a post-effective amendment filed pursuant to Rule
462(d) under the Securities Act, check the following box and list the Securities
Act registration statement number of the earlier registration statement for the
same offering. [_]
If delivery of the prospectus is expected to be made pursuant to Rule
434, please check the following box. [_]
The Registrant hereby amends this Registration Statement on such date
or dates as may be necessary to delay its effective date until the Registrant
shall file a further amendment which specifically states that this Registration
Statement shall thereafter become effective in accordance with Section 8(a) of
the Securities Act of 1933, as amended, or until the Registration Statement
shall become effective on such date as the Securities and Exchange Commission,
acting pursuant to Section 8(a), may determine.
CALCULATION OF REGISTRATION FEE
<TABLE>
<CAPTION>
TITLE OF EACH PROPOSED MAXIMUM AMOUNT OF
CLASS OF SECURITIES AGGREGATE AMOUNT REGISTRATION
TO BE REGISTERED (1) OF OFFERING (2)(3) FEE (4)(5)
-------------------- ------------------ ----------
<S> <C> <C>
Common Stock, par value (7) (7)
$.001 per share (6)
Preferred Stock, par value (7) (7)
$.001 per share
Debt Securities (7) (7)
Warrants (7) (7)
Subtotal:
Total: $ 150,000,000 $ 39,563
</TABLE>
(1) There are being registered hereunder such indeterminate number of
shares of common stock and preferred stock, such indeterminate principal
amount of debt securities and such indeterminate number of warrants to
purchase common stock, preferred stock or debt securities, as shall have an
aggregate initial offering price not to exceed $150 million. If any debt
securities are issued at an original issue discount, then the offering
price of such debt securities shall be in such greater principal amount as
shall result in an aggregate initial offering price not to exceed $150
million, less the aggregate dollar amount of all securities previously
issued hereunder. Any securities registered hereunder may be sold
separately or as units with other securities registered hereunder. The
securities registered also include such indeterminate amounts and numbers
of common stock, preferred stock and debt securities as may be issued upon
conversion of or exchange for preferred stock or debt securities that
provide for conversion or exchange, upon exercise of warrants or pursuant
to the antidilution provisions of any such securities.
(2) In United States dollars or the equivalent thereof in any other
currency, currency unit or units, or composite currency or currencies.
(3) The proposed maximum per unit and aggregate offering prices per class
of security will be determined from time to time by the registrant in
connection with the issuance by the registrant of the securities registered
hereunder.
(4) Estimated solely for purposes of determining the registration fee
pursuant to Rule 457(o) under the Securities Act of 1933, as amended.
(5) Of the total amount owed, $38,000 was paid on August 15, 2000, in
connection with the filing of the Registration Statement on Form S-1 that
is amended by this Registration Statement.
(6) The aggregate amount of Common Stock registered hereunder is limited
to that which is permissible under Rule 415(a)(4) under the Securities Act.
(7) Not required to be included in accordance with General Instruction
II.D of Form S-3.
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+++++++++++++++++++++++++++++++++++++++++++++++++++++++++++++++++++++++++++++++
+The information in this prospectus is not complete and may be changed. We may+
+not sell these securities until the registration statement filed with the +
+Securities and Exchange Commission is effective. This prospectus is not an +
+offer to sell securities, and we are not soliciting offers to buy these +
+securities, in any state where the offer or sale is not permitted. +
+++++++++++++++++++++++++++++++++++++++++++++++++++++++++++++++++++++++++++++++
SUBJECT TO COMPLETION, DATED JANUARY 10, 2001
PROSPECTUS
FiberNet Telecom Group, Inc.
$150,000,000
COMMON STOCK
PREFERRED STOCK
DEBT SECURITIES
WARRANTS
We may from time to time issue up to $150 million aggregate principal
amount of common stock, preferred stock, debt securities and/or warrants. We
will specify in the accompanying prospectus supplement the terms of the
securities. The securities may be sold directly by us, through agents designated
from time to time or to or through underwriters or dealers. We will set forth
the names of any underwriters or agents in the accompanying prospectus
supplement.
Investing in our securities involves risks.
See "Risk Factors" beginning on page 7.
NEITHER THE SECURITIES AND EXCHANGE COMMISSION NOR ANY STATE SECURITIES
COMMISSION HAS APPROVED OR DISAPPROVED OF THESE SECURITIES OR PASSED UP ON THE
ACCURACY OR ADEQUACY OF THIS PROSPECTUS. ANY REPRESENTATION TO THE CONTRARY IS
A CRIMINAL OFFENSE.
This prospectus may not be used to consummate sales of securities unless it
is accompanied by a prospectus supplement.
The date of this prospectus is , 2001
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TABLE OF CONTENTS
<TABLE>
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Page
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<S> <C>
About This Prospectus...................................................... 5
Business Summary........................................................... 5
Risk Factors............................................................... 7
Forward Looking Statements................................................. 15
Ratio of Earnings to Fixed Charges......................................... 16
Use of Proceeds............................................................ 16
Dividend Policy............................................................ 16
Business................................................................... 17
Certain Relationships and Related Transactions............................. 36
The Securities We May Offer................................................ 39
Description of Capital Stock............................................... 39
Description of Debt Securities............................................. 44
Description of Warrants.................................................... 49
Legal Ownership of Securities.............................................. 51
Plan of Distribution....................................................... 54
Legal Matters.............................................................. 55
Experts.................................................................... 55
Where You Can Find More Information........................................ 55
Incorporation of Documents by Reference.................................... 55
</TABLE>
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ABOUT THIS PROSPECTUS
This prospectus is part of a registration statement that we filed with
the Securities and Exchange Commission, or SEC, utilizing a "shelf" registration
process. Under this shelf process, we may sell any combination of the securities
described in this prospectus in one or more offerings up to a total dollar
amount of $150 million. We have provided to you in this prospectus a general
description of the securities we may offer. Each time we sell securities, we
will provide a prospectus supplement that will contain specific information
about the terms of that offering.
Unless the context otherwise requires, throughout this prospectus
FiberNet, we, us and our refer to FiberNet Telecom Group Inc., and its
subsidiaries.
This prospectus contains trademarks and trade names of other companies.
THE COMPANY
Our Business
We deploy, own and operate state-of-the-art, fiber-optic networks
designed to provide comprehensive broadband connectivity for data, voice and
video transmission to communications service providers in major metropolitan
areas. These networks provide an advanced, high bandwidth, fiber-optic solution
to support the growing demand for network capacity in the intra-city market, or
local loop. We provide optical transport within and between carrier hotels,
which are facilities where service providers exchange and route communications
traffic, as well as optical transport from carrier hotels to tenants in select,
class A commercial office buildings. Our networks support multiple transmission
protocols including synchronous optical network, or SONET, Ethernet, Frame
Relay, asynchronous transfer mode, or ATM, and Internet Protocol, or IP. We
believe that our end-to-end connectivity, carrier-neutral position, rapid
provisioning time and carrier-class reliability will make us the preferred
carrier's carrier for metropolitan transport services. Our current target
markets are New York, Chicago and Los Angeles. According to TeleChoice, Inc.,
telecommunications strategy consultants, the market for wholesale
telecommunications services in these three cities during 2000 was approximately
$6 billion, or approximately one sixth of the national wholesale market.
We began operating our first metropolitan network in New York City in
January 2000 and began deploying our infrastructure in Chicago and Los Angeles
in the fourth quarter of 2000. We generate revenues on a monthly recurring
basis by selling network capacity and related services to service providers
under long-term contracts, typically three to five years in length. As of
December 31, 2000, our customers included 360networks, AT&T, Broadwing, Cogent
Communications, Deutsche Telekom, Enron Broadband Services, France Telecom,
Level 3, Qwest, Sprint, Winstar, XO Communications and Yipes.
Our Services
Transport
In our target markets, we are focused on deploying and operating fiber-
optic networks that replicate and expand the geographic and physical penetration
of the incumbent local exchange carriers, or ILECs, and the regional Bell
operating companies, or RBOCs. Our networks enable us to provide seamless
transport in the local loop through the integration of three key elements:
Carrier point facilities. Our networks originate in carrier point
facilities that we establish in carrier hotels. At these facilities, we house
our optical networking equipment, interconnect with our customers and transfer
their traffic onto our networks.
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Metropolitan transport network. Our out-of-building infrastructure, or
metropolitan transport networks, consist of multiple strands of lit fiber
deployed in interconnecting circles, referred to as ring architecture. Our
metropolitan transport networks establish connectivity between our carrier point
facilities in carrier hotels and select multi-tenant, class A commercial office
buildings, which we refer to as on-net buildings.
FiberNet in-building networks, or FINs. In the central equipment rooms of
on-net buildings, our customers' traffic is transferred onto our FINs. Once
installed in an on-net building, our FIN provides a central distribution system
that enables us to transport our customers' traffic directly to their end-users
on each floor of the building. Subject to certain limitations, we are the
exclusive provider of wholesale broadband capacity in our on-net buildings.
Colocation
We offer colocation and ancillary services at several of our carrier
point facilities and on-net buildings. These services provide customers with a
secure technical operating environment in which to locate their communications
and networking equipment. Our colocation facilities enable the interconnection
of our networks with other service providers' networks.
Communications Access Management
We manage communications access and infrastructure for commercial office
properties, which we refer to as our off-net buildings, in markets nationwide.
For the owners and managers of these buildings, we provide the in-building
infrastructure necessary to meet the connectivity needs of tenants and manage
service providers' access to these buildings.
Our principal executive offices are located at 570 Lexington Avenue, New
York, New York 10022. We maintain the following web site: www.ftgx.com. We do
not intend for the information contained on our web site to be part of this
prospectus.
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RISK FACTORS
You should consider carefully the risks described below and all other
information contained in this prospectus before making an investment decision.
If any of the following risks, as well as other risks and uncertainties that are
not yet identified or that we currently deem immaterial, actually occur, our
business, financial condition and results of operations could be materially and
adversely affected. In that event, the trading price of our shares could
decline, and you may lose all or part of your investment.
Risks Related to Our Business
We are an early-stage company, and we expect to encounter risks and difficulties
frequently experienced by early-stage companies in new and rapidly evolving
markets
We did not begin to engage in our current business until 1999 and did not
begin to offer our services until the first quarter of 2000. The market for our
services is unproven, and our limited operating history makes the evaluation of
our future prospects very difficult. We will encounter risks and difficulties
frequently experienced by early stage companies in new and rapidly evolving
markets. As a relatively small organization we are at a competitive
disadvantage. The growth we must achieve to reduce that disadvantage will put a
strain on all of our resources and require substantial additional capital. If we
do not successfully address these risks, we may not achieve profitability, and
our business will suffer.
We have and will continue to experience operating losses, net losses and a cash
flow deficit
We may not achieve or sustain operating income, net income or positive cash
flow from operations in the future. Since our inception we have incurred
operating losses and net losses both on an annual and quarterly basis. We have
not achieved profitability and expect to continue to incur operating losses and
net losses in 2000 and for the foreseeable future. In 1998, we had an operating
loss of $3.1 million and a net loss of $2.8 million, and in 1999, we had an
operating loss of $13.1 million and a net loss of $72.2 million. For the first
nine months of 2000, we had an operating loss of $20.5 million and a net loss of
$60.4 million. From our inception through 1999, we did not generate any
revenues. For the first nine months of 2000, we generated revenues of $6.4
million.
In addition, we expect to continue to incur significant operating costs
and, as a result, will need to generate significant revenue to achieve
profitability, which may not occur. If our revenues do not grow as needed to
offset increases in these costs, it is unlikely our business will succeed.
Furthermore, we will make substantial capital expenditures in deploying our
networks before we know whether our business plan can be successfully executed.
You should also be aware that our financial and operational performance
depends upon a number of factors, many of which are beyond our control. These
factors include:
. the economic and competitive conditions in the communications and
networking industries;
. any operating difficulties, increased operating costs or pricing
pressures we may experience;
. the passage of legislation or other regulatory developments that may
adversely affect us;
. any delays in implementing any strategic projects; and
. our ability to complete our networks in a timely and cost-effective
manner.
We must make significant capital expenditures before generating operating
profits, which may prove insufficient to justify those expenditures
We will have to make significant capital expenditures to develop our
business and deploy our networks, services and systems. The amount and timing of
these expenditures are uncertain and will depend upon our ability to
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execute our plans in a timely and cost-effective manner. When we install an in-
building network or construct a carrier point facility, we incur significant
initial expenditures, typically ranging from $400,000 to $1 million for in-
building networks and $500,000 to $5 million for carrier point facilities.
Construction costs vary with building size, location, complexity of the
construction project and other factors. In addition, we typically install
infrastructure before contracting with our customers for use of that
infrastructure. Since we generally do not have binding commitments until our
infrastructure is in place, and because our costs can vary, we may not be able
to recoup our expenditures. If our revenues do not grow as expected, or capital
expenditures or operating costs exceed our estimates, our business will suffer.
We must obtain additional carrier hotel lease agreements and maintain our
existing agreements for space in major carrier hotels or our business will be
harmed
Our business depends upon our ability to lease space in carrier hotels to
establish carrier point facilities where we can locate our networking equipment
and interconnect with our customers. At a minimum, to provide our services in
any one of our target markets, we must obtain space in two of the major carrier
hotels in that target market. In addition, we need adequate space at our carrier
point facilities in order to continue offering colocation services. There is
significant competition for space in major carrier hotels. Our inability to
obtain additional space, or our inability to renew existing leases, would impede
our growth and have a material adverse effect on our business.
We must obtain additional license agreements with building owners for the
installation of our in-building network infrastructure, or our growth will be
constrained
Our business depends upon our ability to enter into license agreements to
install in-building networks in commercial office buildings. We depend heavily
on a limited number of real estate owners and developers for these license
agreements. A deterioration in our relationship with them would harm our
business. In addition, there are currently a significant number of other
companies competing for these same rights. The failure of property owners and
managers to grant access rights or enter into license agreements with us on
acceptable terms could substantially reduce our potential customer base.
Furthermore, building owners may terminate or fail to renew our existing license
agreements. Current federal and state regulations do not require building owners
to make space available to us, or to do so on terms that are reasonable or
nondiscriminatory. Building owners may decide not to permit us to install our
networks in their buildings. In addition, our competitors may install networks
in any building for which we do not obtain a license agreement. Our success will
ultimately depend upon our ability to quickly obtain license agreements and
install our in-building networks in many more buildings. We may not be able to
accomplish this, which would have a material adverse effect on our business.
We will require additional capital to complete the build-out of our networks and
to fund our other needs, and an inability to obtain such capital could harm our
business
We believe that in addition to the money raised from the sale of securities
offered by this prospectus, we will need to raise substantial additional funds
through public or private equity or debt financings to complete the construction
of our networks in our target markets. If we raise funds through the issuance of
equity securities, the ownership percentage of our then-current stockholders
will be diluted and the holders of new equity securities may have rights,
preferences or privileges senior to those of the holders of our common stock. If
additional funds are raised through another bank credit facility or the issuance
of debt securities, the holders of such indebtedness would have rights senior to
the rights of the holders of our common stock, and the terms of this
indebtedness could impose restrictions on our ability to incur additional
indebtedness and on our operations, which could impede the successful completion
of our business plan.
There can be no assurance that additional funds will be available at the
time needed, or on terms acceptable to us. If we are unable to obtain additional
financing as needed, we may be required to reduce the scope of our operations or
anticipated expansion, which will have a material adverse effect on our
business.
We cannot assure you that we will successfully complete the construction of our
networks
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We currently operate networks in New York City, Chicago and Los Angeles,
and may commence construction in other markets over the next two years. The
construction of these networks entails significant risks, including management's
ability to effectively control and manage these projects, shortages of materials
or skilled labor, unforeseen engineering, environmental problems, work
stoppages, and unanticipated cost increases. Building owners have the ability to
delay the installation of our in-building networks by impeding our access to the
building. Moreover, we currently depend on a limited number of suppliers for our
equipment and outsource a significant portion of the installation and deployment
of our networks to third parties. Any supply shortage or reduction in services
from these major equipment vendors or providers could delay the buildout of our
networks. Our vendors may also not be able to meet our requirements in a timely
and satisfactory manner, and we may not be able to obtain additional services
and equipment when and if needed. Although we believe that there are alternative
suppliers for this equipment and these services, it could take a significant
period of time to establish relationships with alternative suppliers and to
substitute their equipment into our networks. In addition, the price of the
equipment we purchase may substantially increase over time, increasing the costs
we pay in the future. Further, there can be no guarantee that Metromedia Fiber
Network will have fiber laid in our target markets in a time frame that meets
our business plan. In such event, we could be required to wait until the
appropriate fiber is laid or to seek fiber from alternative sources. There is no
guarantee that we will be able to obtain rights to fiber suitable for our
business plan on a timely basis, or on favorable terms, or at all.
We cannot assure you that the budgeted costs of our current and future
projects will not be exceeded or that these projects will become operational
within the contemplated schedules, if at all. Difficulties associated with
constructing our networks could increase the estimated costs and delay the
scheduled completions, either of which could have a material adverse effect on
our business.
We may need to expand or adapt our networks in the future in order to remain
competitive, which could be very costly
Any expansion or adaptation of our networks could require substantial
additional financial, operational and managerial resources which may not be
available to us. We may have to expand or adapt our networks to respond to the
following:
. an increasing number of customers;
. demand for greater capacity;
. changes in our customers' service requirements; and
. technological advances.
We must increase the number of our significant customers and the volume of
traffic on our networks or our business will suffer
We must substantially increase the current volume of traffic on our
networks in order to realize anticipated revenues and cash flows. To do so, we
must obtain long-term commitments from new large-volume customers, as well as
expand our relationships with current customers. This need is more critical as a
wholesale carrier because our potential customers are a limited number of
service providers. Therefore, it is essential for us to succeed at establishing
and expanding customer relationships, otherwise our business will suffer.
During the first nine months of 2000, our largest customers, 360networks,
Network Plus and Qwest, accounted for approximately 87% of our net sales. This
high concentration of sales to a few of our largest customers increases the risk
of a substantial decrease in our net sales resulting from a deterioration in our
relations with any of these customers.
There might not be sufficient demand for broadband services, which could impact
our ability to sell network capacity and prevent our revenues from growing as
rapidly as expected
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Demand and market acceptance for recently introduced services in the
communications industry are subject to a high level of uncertainty. In addition,
critical issues concerning the commercial use of services requiring broadband
capabilities remain unresolved and may impact the growth of these services.
Historically, some businesses have been reluctant to purchase broadband
services, such as high-speed Internet access, for a number of reasons,
including:
. resistance to the use of the Internet in business applications;
. inconsistent quality of service;
. lack of available cost-effective, high-speed options;
. the need to deal with multiple and frequently incompatible vendors;
. inadequate security for stored or transmitted data;
. lack of networking tools to simplify Internet access and use; and
. lack of high-speed application requirements.
If these issues and concerns cause the commercial market for
communications, voice and data transmission and Internet access and other
broadband services to develop more slowly than expected, demand for our capacity
on our networks will not grow as quickly as anticipated. As a result, our
revenues will not grow rapidly enough to achieve or sustain profitability.
If we cannot maintain the scalability, reliability and speed of our network,
potential customers will not use our services
Because of the limited deployment of our services, our ability to manage a
substantial amount of traffic on our networks while maintaining superior service
is unknown at this time. There is no assurance that our network will be able to
maintain such levels of service as the number of our customers grows. Our
failure to maintain such levels of service would significantly reduce customer
demand for our services and have a material adverse effect on our business.
Service interruptions on our networks could expose us to liability or cause us
to lose customers
Our operations depend on our ability to avoid and mitigate any damages from
power losses, network software flaws, telecommunications failures, transmission
cable cuts or natural disasters. The failure of any equipment or facility on our
networks could result in the interruption of service until we make the necessary
repairs or install replacement equipment. If service is not restored in a timely
manner, agreements with our customers may obligate us to provide credits or
other remedies to them, which would reduce our revenues. Service disruptions
could also damage our reputation with customers, causing us to lose existing
customers or have difficulty attracting new ones. Many of our customers'
communications needs will be extremely time sensitive, and delays in signal
delivery may cause significant losses to a customer using our networks. Our
networks may also contain undetected design faults and software "bugs" that,
despite our testing, may be discovered only after our networks have been
completed and are in use.
Our failure to manage the growth of our operations could harm our business
We have rapidly and significantly expanded our operations. We anticipate
that further significant expansion will be required to grow our customer base if
we are to be successful in implementing our business strategy. Our future
performance depends in part upon our senior management's ability to manage our
growth effectively. We may not be able to implement management information and
control systems in an efficient and timely manner, and our current or planned
personnel, systems, procedures and controls may not be adequate to support our
future operations. We have increased the number of our employees from 34
employees as of December 31, 1999 to 194 employees as of December 31, 2000. If
we are unable to manage our growth effectively, our business will suffer.
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Our business will be harmed if our information support systems are not further
developed
Sophisticated information processing systems, including provisioning,
billing, and network management are vital to our growth and our ability to
achieve operating efficiencies. Our plans for the development and implementation
of these systems rely largely upon acquiring products and services from third-
party vendors and integrating those products and services. We may be unable to
implement these systems on a timely basis or at all, and these systems may not
perform as expected. A failure of these systems could substantially impair our
ability to provide services, send invoices and monitor our operations. We may
also be unable to maintain and upgrade our operational support systems as
necessary.
We license key software from third parties. If we are unable to obtain such
software on commercially acceptable terms, our business could be adversely
affected
We rely on software licensed from third parties, including applications
that are integrated with internally developed software and used in our services.
Most notably, we license Doc X Web-Server, DSIT, Portal, Preside and MetaSolv
TBS. These third-party technology licenses may not continue to be available to
us on commercially reasonable terms, or at all, and we may not be able to obtain
licenses for other existing or future technologies that we desire to integrate
into our services. Although we believe that there are alternative suppliers for
the software that we rely upon, it could take a significant period of time to
establish relationships with alternative suppliers and integrate their software
into our services. The loss of any of our relationships with these suppliers
could have a material adverse affect on our business.
We depend on our key personnel, and the loss of their services may adversely
affect our business
We are highly dependent upon the efforts of our existing senior management
team. Although we have entered into employment agreements with members of our
senior management team, these agreements are typically only for two years. The
death or departure of any of our key personnel could have a material adverse
effect on our business, operating results and financial condition.
We must attract and retain qualified professionals in a tight labor market, or
we will be unable to manage our growth
Our growth will require us to hire and train additional management,
technical and marketing personnel. There is intense competition for management,
technical and marketing personnel in the communications industry and recruiting
qualified personnel is a difficult and time-consuming process. We may not be
able to attract and retain the necessary personnel to accomplish our business
objectives, and we may experience constraints that will adversely affect our
ability to deploy our service in a timely fashion or to support our users and
operations. We have at times experienced, and continue to experience, difficulty
in recruiting qualified personnel. The failure to attract and retain additional
qualified employees could have a material adverse effect on our business.
The sector in which we operate is highly competitive, and we may not be able to
compete effectively
We face competition from many entities with significantly greater financial
resources, well-established brand names and larger customer bases. The entities
that compete with us include cable modem, Internet, digital subscriber line,
microwave, mobile and fixed wireless service providers, local telephone
companies and long distance companies. The numerous companies that may seek to
enter our market may expose us to severe price competition for our services or
for building access rights. We expect competition to intensify in the future. If
these competitors successfully focus on our market opportunity, there may be
intense price competition which could have a material adverse effect on our
business.
We may face competition from various service providers in buildings for which we
have exclusive license agreements
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We generally have exclusive license agreements for both our on-net and off-
net buildings. Even though our competitors cannot install a central distribution
system in any of our buildings covered by an exclusive agreement, they may still
compete with us by installing infrastructure designed to directly service one or
more specific tenants in the building as requested by such tenants.
Consequently, they could indirectly compete against us by not utilizing our FINs
to gain connectivity to tenants. In addition, ILECs and RBOCs currently own pre-
existing, copper-based networks in many of our on-net and off-net buildings.
These ILECs and RBOCs may be able to upgrade their existing networks to provide
advanced broadband services which would place them in direct competition with
us. Furthermore, service providers may have pre-existing license agreements in
our buildings, which allow these providers to install, and possibly expand,
their network infrastructure in our buildings. As a result, we may face
competition in some of the buildings for which we have exclusive license
agreements.
Alternative technologies pose competitive threats
In addition to fiber-optic technology, there are other technologies that
provide more capacity and speed than traditional copper wire transmission
technology, such as DSL and wireless technologies, and can be used instead of
our network. Furthermore, these technologies may be improved and other new
technologies may be developed that provide more capacity, reliability,
scalability and speed than the fiber-optic technology we deploy. The development
of new technologies or the significant penetration of alternative technologies
into our target markets may reduce the demand for our services and consequently
could have a material adverse effect on our business.
In the communications industry, continued competition or an excess of network
capacity could cause prices for our services to decline
We anticipate that prices for our services specifically, and fiber-optic
network services in general, will decline over the next several years due
primarily to the following:
. price competition as various service providers continue to install
networks that might compete with our networks;
. recent technological advances that permit substantial increases in the
transmission capacity of both new and existing fiber; and
. strategic alliances or similar transactions that increase customers'
purchasing power.
We have outstanding debt which may limit our ability to borrow additional money,
restrict the use of our cash flows and constrain our business strategy, and we
may not be able to meet our debt obligations
We have, and will continue to have after the sale of securities offered by
this prospectus, outstanding debt and debt service requirements. As of December
31, 2000, we had total debt, excluding an original issue discount, of
approximately $50 million. As a result of this debt and debt that we will incur
in the future, we will need to devote a portion of our available cash towards
debt service payments. Furthermore, our ability to borrow additional money
becomes more limited as we incur additional debt. Furthermore, we have agreed to
terms in our credit agreement, which governs our $75 million senior secured
credit facility, that expose us to certain risks and limitations:
. as the interest rate on our debt is variable, if interest rates rise, our
debt service payments will increase;
. we have made affirmative financial covenants that we will breach if our
financial results do not meet our expectations; and
. we have agreed to certain negative covenants that may cause us to make
choices regarding the operation of our business that we would not
otherwise make.
You should be aware that our ability to repay or refinance our debt depends
on our successful financial and operating performance and on our ability to
implement our business strategy successfully. We cannot assure you that our
future cash flows and capital resources will be sufficient to repay our existing
indebtedness and any
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indebtedness we may incur in the future, or that we will be successful in
obtaining alternative financing. Further, our borrowings under our credit
facility are secured by substantially all of our assets and our obligations
under our facility are guaranteed by our subsidiaries. In the event that we are
unable to repay our debts, we may be forced to reduce or delay the completion or
expansion of our networks, sell some of our assets, obtain additional equity
capital or refinance or restructure our debt. If we are unable to meet our debt
service obligations or comply with our covenants, a default under our existing
debt agreements would result. To avoid a default, we may need waivers from third
parties, which might not be granted.
Legislation and government regulation could adversely affect us
Regulation of telecommunications. We are subject to federal, state and
local regulations that affect our services, competition, demand costs and other
aspects of our operations. The regulation of the communications industry is
changing rapidly, and varies from state to state. Changes in the regulatory
environment could affect our operating results by increasing competition,
decreasing revenue, increasing costs or impairing our ability to offer services.
Certain communications services are subject to significant regulation at the
federal and state level. The Federal Communications Commission regulates
communications carriers providing intrastate, interstate and international
common carrier services. State public utility commissions exercise jurisdiction
over intrastate communications services. The Federal Communications Commission
and state public utility commissions do not regulate most enhanced services,
which involve more than the pure transmission of customer provided information.
Our subsidiary, Local Fiber, LLC, is regulated as a common carrier by virtue of
its provision of communications services directly to the public for a fee. As a
common carrier, Local Fiber, LLC is subject to extensive federal, state and
local communications regulation, which includes the payment of all applicable
regulatory assessments.
Many of our competitors and vendors, especially ILECs, are subject to
federal and state regulations. These regulations change from time to time in
ways that are difficult for us to predict. Although we believe the services we
provide today, other than those provided by Local Fiber, LLC, are not subject to
regulation imposed on other telecommunications services by the FCC or the state
public utility commissions, changes in regulation or new legislation may impose
regulation on our non-regulated services.
Regulation of access to office buildings could negatively affect our
business. Some states have adopted laws that require that commercial building
owners provide non-discriminatory access to communications providers. Recently,
the FCC released its decision relating to access to commercial multiple tenant
buildings and legislation was enacted that increases telecommunications access
to buildings owned or used by the federal government. Among other decisions, the
FCC prohibited telecommunications carriers from entering into exclusive
agreements with commercial building owners on a prospective basis, and required
utilities, including local exchange carriers, to provide access to other
telecommunications carriers and cable service providers. Other building access
issues remain to be addressed by the FCC. Depending on how these rules are
interpreted, these requirements may facilitate our competitors' entry into
buildings in which we offer our services, which in turn will diminish the value
of our access rights and adversely affect our competitive position.
As an access provider, we may incur liability for information disseminated
through our networks. The law relating to the liability of access providers and
on-line services companies for information carried on or disseminated through
their networks is unsettled. Although we have not been sued for information
carried on our networks, it is possible that we could be. Federal and state
statutes have been directed at imposing liability on Internet service providers
for aspects of content carried on their networks. There may be new legislation
and court decisions that may affect our services and expose us to potential
liability.
As the law in this area develops, the potential imposition of liability for
information carried on and disseminated through our networks could require us to
implement measures to reduce our exposure to such liability, which may require
the expenditure of substantial resources or the discontinuation of certain
products or services offerings. Any significant costs that we incur as a result
of such measures or the imposition of liability could have a material adverse
effect on our operating expenses and our liquidity.
Our principal stockholders, directors and executive officers currently control a
majority of the voting rights of our stock, and this may limit your ability to
affect the outcome of any stockholder vote or exercise any influence over our
business
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The concentration of ownership of our stock may have the effect of
delaying, deferring or preventing a change in control, merger, consolidation, or
tender offer that could involve a premium over the price of our common stock.
Currently, our executive officers, directors and greater-than-five-percent
stockholders and their affiliates, in the aggregate, beneficially own
approximately 51.2% of our outstanding common stock. These stockholders, if they
vote together, are able to exercise significant influence over all matters
requiring stockholder approval, including the election of directors and approval
of significant corporate transactions.
Anti-takeover provisions could prevent or delay a change of control that
stockholders may consider favorable
Provisions in our certificate of incorporation, our amended and restated by
laws and Delaware law could delay or prevent a change of control or change in
management that would provide stockholders with a premium to the market price of
their common stock. The authorization of undesignated preferred stock, for
example, gives our board the ability to issue preferred stock with voting or
other rights or preferences that could impede the success of any attempt to
change control of the company. If a change of control or change in management is
delayed or prevented, this premium may not be realized, or the market price of
our common stock could decline.
Holders of our common stock will not receive a return on their shares until they
sell them, because we do not plan to pay cash dividends on our shares
We have neither declared nor paid any dividends on our common stock and do
not anticipate paying cash dividends in the future. We currently intend to
retain any earnings to fund operations and future growth. Furthermore, our
credit facility currently prohibits, and the terms of any future debt agreements
or preferred stock will likely restrict, the payment of cash dividends on our
common stock.
We may use the proceeds from the sale of securities offered by this prospectus
in ways with which you may not agree or which prove to be ineffective
We have not committed the net proceeds from the sale of securities offered
by this prospectus to any particular purpose. We will, therefore, have
significant flexibility in applying the net proceeds from the sale of securities
offered by this prospectus, including ways with which you may disagree. We may,
if the opportunity arises, use a portion of the net proceeds to acquire or
invest in businesses, products and technologies. If we do not apply the funds we
receive effectively, our accumulated deficit will increase and we may lose
significant business.
Our stock price is likely to be highly volatile and you may lose all or part of
your investment
The trading price of our common stock is highly volatile. Failure to meet
market expectations because of quarterly fluctuations in our financial results
could cause our stock price to decline and you could lose all or part of your
investment. Moreover, factors that are not related to our operating performance
could cause our stock price to decline. The stock market has periodically
experienced significant price and volume fluctuations that have affected the
market prices for securities of technology and communications companies.
Consequently, you may experience a decrease in the market value of your common
stock or lose all or part of your investment, regardless of our operating
performance or prospects.
We must sell a substantial number of additional shares of common stock, which
could adversely affect the trading price of our common stock
We have a substantial number of shares of common stock subject to stock
options, warrants and our existing preferred stock. We cannot predict the
effect, if any, that future sales of shares of common stock, or the availability
of shares of common stock for future sale, will have on the market price of our
common stock. Sales of substantial amounts of common stock (including shares
issued upon the exercise of stock options, warrants or our existing preferred
stock), or the perception that such sales could occur, may adversely affect
prevailing market prices for our common stock.
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FORWARD-LOOKING STATEMENTS
This prospectus and the documents incorporated by reference herein contain
forward-looking statements within the meaning of Section 27A of the Securities
Act and Section 21E of the Exchange Act. These forward-looking statements are
not historical facts but rather are based on current expectations, estimates and
projections about our industry, our beliefs and our assumptions. In some cases
you can identify forward-looking statements by words such as "anticipates,"
"expects," "intends," "plans," "believes," "seeks," "estimates" and variations
of these words and similar expressions. These statements are not guarantees of
future performance and are subject to risks, uncertainties and other factors,
some of which are beyond our control, are difficult to predict and could cause
actual results to differ materially from those expressed, implied or forecasted
in the forward-looking statements. In addition, the forward-looking events
discussed in this prospectus might not occur. These risks and uncertainties
include, among others, those described in "Risk Factors" and elsewhere in this
prospectus. Readers are cautioned not to place undue reliance on these forward-
looking statements, which reflect our management's view only as of the date of
this prospectus. Except as required by law, we undertake no obligation to update
any forward-looking statement, whether as a result of new information, future
events or otherwise.
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RATIO OF EARNINGS TO FIXED CHARGES
The following table sets forth our consolidated ratio of earnings to fixed
charges and our consolidated ratio of earnings to combined fixed charges and
preferred stock dividends for the periods indicated.
<TABLE>
<CAPTION>
Period from Nine months
-----------
August 10, ended
1994 -----
(inception) to Year ended Six months ended Year Ended December 31, September
----------------------- ---------
June 30, 1996 June 30, 1997 December 31, 1997 1998 1999 30, 2000
------------- ------------- ----------------- -------------------- --------
(in thousands)
<S> <C> <C> <C> <C> <C> <C>
Ratio (deficiency) of Earnings to
Fixed Charges ...................... __ __ __ __ ($22,303) ($23,363)
Ratio (deficiency) of Earnings to
Combined Fixed Charges and Preferred
Stock Dividends..................... __ __ ($377) ($2,695) ($23,060) ($29,795)
</TABLE>
For purposes of computing the ratios of earnings to fixed charges and
earnings to combined fixed charges and preferred stock dividends, earnings
represent income (loss) before income taxes, minority interests and fixed
charges. Fixed charges consist of interest expense, the interest component of
operating leases and amortization of deferred financing cost.
USE OF PROCEEDS
We intend to use the net proceeds from the sale of securities offered by
this prospectus for:
. expansion of our network infrastructure; and
. working capital and general corporate purposes, including possible
acquisitions of, or investments in, complementary businesses, products
and technologies.
As of the date of this prospectus, we have no understandings, commitments
or agreements to make any material acquisitions or investments. We will have
broad discretion concerning the use of the net proceeds from the sale of
securities offered by this prospectus. Pending our use of the net proceeds for
the purposes described above, we intend to invest the net proceeds in short-
term, investment-grade, interest-bearing securities.
DIVIDEND POLICY
We have not paid any dividends in the past and do not intend to pay cash
dividends on our common stock for the foreseeable future. Instead, for the
foreseeable future, we intend to retain our earnings, if any, for use in the
operation and expansion of our business. Payment of future dividends, if any,
will be at the discretion of our board of directors after taking into account
various factors, including our financial condition, our results of operations
and our current and anticipated cash needs. Our credit facility currently
prohibits, and future debt agreements and preferred stock will likely restrict,
the payment of cash dividends on our common stock.
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BUSINESS
Overview
We deploy, own and operate state-of-the-art, fiber-optic networks designed
to provide comprehensive broadband connectivity for data, voice and video
transmission to service providers in major metropolitan areas. These networks
provide an advanced, high bandwidth fiber-optic solution to support the growing
demand for network capacity in the local loop. We provide optical transport
within and between carrier hotels, which are facilities where service providers
exchange and route communications traffic, as well as optical transport from
carrier hotels to tenants in commercial office buildings. Our networks support
multiple transmission protocols including SONET, Ethernet, Frame Relay, ATM and
IP. Our current target markets are New York, Chicago and Los Angeles. According
to TeleChoice, Inc., telecommunications strategy consultants, the market for
wholesale telecommunication services in these three cities during 2000 was
approximately $6 billion, or approximately one sixth of the national wholesale
market.
Industry Background
Increased Communications Traffic and Demand for Network Capacity
Over the past several years, there has been significant growth in the use
of communications services, including Internet access, electronic commerce,
streaming video and virtual private networks. As a result of the deregulation of
the communications industry, these broadband applications are being provided by
a growing number of service providers. This rapid increase in bandwidth
intensive data applications and providers of these services is driving demand
for additional transmission capacity on communications networks. In addition,
more businesses are relying on communications services to conduct mission
critical operations, increasing the need for greater network reliability,
security and speed.
Further, as quickly as network capacity becomes available, new bandwidth
intensive applications are being developed and deployed. As a result, bandwidth
capacity is being consumed almost as rapidly as it is being made available,
requiring carriers to continually expand their network capacity.
The Local Loop Bottleneck
The deployment of communications network infrastructure consists of two
separate segments.
Long-Haul Networks. Demand for transmission capacity was initially most
acute between metropolitan areas. As a result, long-haul fiber-optic networks
were built to function as transport links for vast amounts of traffic between
metropolitan locations worldwide. Communications traffic is aggregated at the
edge of metropolitan networks and transferred onto long-haul networks for
transmission to other metropolitan points. These long haul networks typically
terminate at carrier hotels in metropolitan locations, where traffic is routed
onto the local metropolitan network.
Local Loop Networks. The role of networks in metropolitan areas is to
transport large volumes of traffic delivered by long-haul networks, as well as
traffic generated in the local loop, between carrier interconnection points and
buildings. Existing metropolitan networks mainly consist of copper
infrastructure installed by ILECs and RBOCs. These legacy networks were built
for voice traffic and cannot support the increasing volumes of data intensive
traffic being generated in the local loop. This same infrastructure was deployed
to connect the central equipment rooms of commercial office buildings to
metropolitan networks and to provide connectivity within buildings, from central
equipment rooms to the individual tenant offices. In contrast to this legacy
infrastructure, most tenants within individual commercial offices have deployed
high-capacity local area networks, or LANs which have abundant network capacity.
There are numerous technically complex issues involved in building out
local loop networks to increase capacity and extend connectivity in metropolitan
areas:
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. Diverse traffic. Data on local loop networks is generated by a large
number of end-users served by a variety of service providers. As a
result, metropolitan traffic is transmitted in multiple protocols using
different technology platforms.
. Complex architecture. The infrastructure of local loop networks must
reach a multitude of locations to access end-users in dense urban areas.
. Rights of way. Installing fiber-optic networks requires the use of
numerous rights of way, which are controlled by many different public
and private entities in each metropolitan area.
These complexities have impeded the deployment of additional bandwidth
capacity in the local loop. As a result, a bottleneck has developed in many
major metropolitan areas. This bottleneck is the result of insufficient network
capacity starting at the carrier interconnection point, which is the entry point
to the local loop, and extending all the way to the tenants' LANs in office
buildings.
Needs of Metropolitan Service Providers
Service providers are seeking a local loop network that allows them to
rapidly and cost-effectively provide their communications services to end-users.
In particular, they seek:
End-to-End Fiber Connectivity. Service providers establish points of
presence for their networking equipment in metropolitan areas. Network
connectivity must extend from these points of presence directly to the end-users
of their communications services. In addition, service providers need to
interconnect with other service providers to exchange communications traffic.
Carrier Neutral Transport Services. Traditionally, service providers have
relied on ILECs and RBOCs for metropolitan transport. However, in addition to
providing network transport, both the ILECs and RBOCs provide communications
services directly to end-users. This puts service providers at a competitive
disadvantage. Unless these service providers undertake the time-consuming and
costly construction of their own proprietary networks, they are dependent on
their competitors' networks for transport.
Advanced, High-Capacity Network. Service providers desire a broadband
network with the highest possible transmission capacity to ensure the speed of
their service. Further, in order to offer a full range of services, providers
are seeking a network that can incorporate multiple transmission protocols and
new technologies. To ensure the quality of these services, providers also
require reliable and secure connectivity.
Rapid Provisioning of Services. Service providers need a network provider
that has lit network elements and the necessary advanced network management
systems to rapidly provision circuits. Currently, much of the fiber in
metropolitan networks is dark fiber, which is inoperative until lit by
installing optical networking equipment. Lighting dark fiber can be expensive
and time consuming. Service providers can significantly decrease the time and
cost to provision services to end-users by obtaining capacity from a network
provider that offers lit network capacity.
Needs of Building Owners
In-Building Communications Infrastructure. We believe that having
technologically advanced communications infrastructure in a commercial office
building gives property owners a sales advantage in attracting and retaining
quality tenants and increases the market value of the building. Many tenants in
class A commercial office buildings are sophisticated, bandwidth-intensive
enterprises. We believe that building owners need to provide state-of-the-art
communications infrastructure capable of delivering high-bandwidth
communications services for
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these tenants. The communications infrastructure should be readily accessible to
all tenants without limiting their choice of service providers.
Overall Management of Communications Infrastructure. While upgrading the
communications infrastructure and maximizing tenant choice for broadband
services is a priority for building owners, the overall management of this
process is time consuming and complicated. Building owners desire a partner to
manage the process of upgrading the infrastructure and to deal with the
individual service providers seeking access to the tenants in the building.
Some service providers have provided a partial solution to building owners'
needs by entering into contractual agreements to upgrade existing in-building
communications infrastructures. These arrangements typically allow the service
provider to install its proprietary network in the building and provide retail
communications services to the tenants. While this is one method of developing
in-building infrastructure, it can potentially make tenants captive to a single
broadband service provider, which may be undesirable for both tenants and the
building owners. We believe that it would be preferable for a third party to
install an in-building communications infrastructure, accessible to all service
providers wanting to provide communications services to the building's tenants.
Our Solution
We are focused on owning and operating fiber-optic networks that provide
superior carrier neutral capacity to service providers in metropolitan areas,
replicating and expanding the geographic and physical penetration of the ILECs'
networks. We are designing, installing and operating local loop networks to
provide wholesale end-to-end, broadband connectivity that is scalable, reliable
and secure. In these and other markets, we also enter into strategic
partnerships with building owners and managers pursuant to which we manage the
communications access and infrastructure in their buildings. The following are
key elements of our solution:
Full Range of Services. In our target markets, our carrier point
facilities, metropolitan transport networks and FINs will offer service
providers cost-effective access to complete optical local loop networks. Our
carrier-to-carrier transport services provide fiber-optic connectivity to
carriers between and within carrier hotels. Our carrier-to-customer transport
services provide fiber-optic transport between carrier points and on-net
buildings in which we have deployed our FINs. By offering both of these
transport services, we believe that we can meet a service providers' end-to-end
connectivity needs.
We also offer colocation services at certain of our carrier point
facilities and on-net buildings. Colocation refers to the ability of a carrier
to locate its networking equipment in another carrier's facilities. These
colocation facilities provide service providers with a network interconnection
point where they can terminate their traffic and transfer it onto our high-
capacity metropolitan transport network.
In addition, we provide access management services to property owners and
managers of buildings that are not on our metropolitan transport network, which
we refer to as our off-net buildings. In these buildings we deploy network
infrastructure and coordinate service providers' access to that infrastructure.
In addition, we provide ongoing management services that enable building owners
to outsource the management of their communications infrastructure and services.
State-of-the-Art Network Architecture. In order to provide high quality
local loop network services to our customers, we are deploying what we believe
to be the most advanced all-optical local loop network architecture available.
Features of this state-of-the-art network architecture include:
. the use of optical networking equipment which can transmit data at the
highest speeds currently commercially available;
. dense wave division multiplexing equipment that is capable of increasing
the transmission capacities of each fiber-optic strand in our networks;
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. an open architecture that supports new broadband technologies and
multiple transmission protocols, including SONET, Ethernet, Frame Relay,
ATM and IP, to meet our service provider customers' evolving demands;
. multiple fibers laid in interconnecting circles, or ring architectures,
over which traffic can be routed in a different direction or to a
different fiber if there is a break in one of the rings, creating
networks that are fully redundant and self-healing; and
. optical networks that enable our customers to provision and monitor
services on our networks as if the networks were their own.
Rapid Provisioning of Services. Our optical local loop network gives us the
ability to remotely provision new circuits within 10 business days through our
centralized network operations center, or NOC. As a result, we are able to
allocate network capacity rapidly to meet our customers' growing bandwidth
requirements. Our customers can order capacity on a short-term basis and quickly
provision new services to their end-users. We believe that this provisioning
capability is a key factor in our customers' decisions to work with us.
Superior Value Proposition for Property Owners. We manage the
communications infrastructure in our on-net and off-net buildings. We provide
significant value to property owners by ensuring that each of these buildings
has a readily accessible communications infrastructure that supports broadband
communications solutions, such as high-speed Internet access and streaming
video. Our in-building communications infrastructure and access management
services are appropriate for properties of varying size, class and location and
provide a comprehensive solution to owners of real estate portfolios. Owners of
both our on-net and off-net buildings benefit from the increased desirability of
their buildings to existing and prospective tenants. Further, offering our
services on a wholesale basis allows tenants a range of alternatives in their
choice of service providers.
Our Strategy
Our goal is to be the preferred facilities-based provider of wholesale
metropolitan fiber-optic network capacity in our target markets. We intend to
serve select, class A commercial office properties and major carrier hotels in
our target markets with carrier neutral, end-to-end, optical connectivity that
enables our customers to provide next generation services and applications to
end-users. In addition, we plan to establish our presence as a leading manager
of communications access and infrastructure in buildings nationwide. Our
strategy for achieving these goals includes the following key elements:
Establish our position as a leading provider of connectivity to carrier
hotels. We intend to establish a presence in multiple carrier hotels in each of
our target cities by contracting or partnering with a select group of owners and
operators of carrier hotels in those markets. To date, we have deployed fiber
optic transport infrastructure in six major carrier hotels in New York City,
three major carrier hotels in Los Angeles and one major carrier hotel in
Chicago.
By establishing our presence in multiple carrier hotels, we will expand the
geographic reach of our networks and increase the size of our addressable
market. In addition, this will increase our ability to interconnect with other
service providers, thereby increasing our potential customer base and revenue
opportunities with existing customers.
Strengthen and expand upon our relationships with customers. We believe
that our local loop end-to-end fiber-optic connectivity is currently a unique
service offering. We intend to promote:
. our carrier-neutral position;
. our open architecture that supports multiple transmission protocols;
. our ability to provide services to multiple broadband carriers,
including wireless carriers and building local exchange carriers, or
BLECs, in our on-net and off-net buildings;
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. our rapid provisioning time;
. our ability to increase transport capacity rapidly to meet our
customers' needs; and
. the carrier-class reliability of our networks.
We believe that due to our wholesale strategy we have a broader potential
customer base than our competitors. Our potential customers include ILECs,
RBOCs, competitive local exchange carriers, or CLECs, BLECs, inter-exchange
carriers, or IXCs, Internet service providers, or ISPs, application service
providers, or ASPs, and integrated communications providers, or ICPs. We intend
to strengthen our relationships with our existing customers and actively market
our service offerings to this broad range of new customers. As of December 31,
2000, we had 45 customers, including 360networks, AT&T, Broadwing, Cogent
Communications, Deutsche Telekom, Enron Broadband Services, France Telecom,
Level 3, Qwest, Sprint, Winstar, XO Communications and Yipes.
Partner with real estate owners to expand our portfolio of buildings. We
intend to grow our business aggressively and expand our geographic reach by
continuing to bring additional buildings into our portfolio under exclusive
license agreements. As of December 31, 2000, we had approximately 225 buildings
in our portfolio. We have installed FINs in 16 of these buildings and have
license agreements to install FINs in an additional 20 of these buildings.
We intend to establish ourselves as the preferred in-building
communications facilities provider and manager by emphasizing:
. our unique offering of carrier-neutral access and transport;
. our ability to install and manage a state-of-the-art-network in on-net
buildings at no cost to the building owner; and
. our ability to manage all aspects of communications access and
infrastructure in buildings.
In addition, we plan to leverage our existing relationships with key
partners, including Teachers Insurance and Annuity Association and Tishman
Speyer Properties, L.P.
To date, our license agreements for our on-net buildings have typically
given us the exclusive right, subject to certain limitations, to resell our
network capacity on a wholesale basis within the building. Moreover, in our off-
net buildings we have secured the right to be the exclusive manager of all
communications access in the building. We intend to continue to establish
mutually beneficial relationships with major institutional property owners to
secure the exclusive rights to manage communications access and deploy
infrastructure in their buildings.
Develop the platforms that enable our customers to offer new revenue-
generating communications services to their end-users. We believe that the
demand for new services will drive our customers' growth. To keep pace with this
growth, we intend to ensure that our network architecture continues to offer the
connectivity, scalability, performance and flexibility necessary for the rapid
introduction of new services. We are currently serving as a beta site for
several next generation optical networking equipment providers. Being involved
in beta testing gives us insights into the next-generation of equipment that
will be made commercially available. We test equipment with the intention of
adopting new technologies that can be integrated into our networks to improve
performance and decrease the cost of operating our network.
Our Services
Our services are designed to provide communications transport and
colocation within our target markets, and communications access management and
infrastructure in markets nationwide:
Transport
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Our transport services consist of T-1 through OC-192 circuits, 10 Base-T,
100 Base-T and gigabit Ethernet connections and optical wavelengths. We also
offer vertical dark fiber in our on-net buildings.
Carrier-to-Carrier-Transport. We provide carrier-to-carrier transport by
building optical transport facilities within and between carrier hotels. We
offer carrier-to-carrier connectivity ranging from transport between floors of a
carrier hotel, to comprehensive connectivity between carrier hotels within a
metropolitan area.
Carrier-to-Customer Transport. Our carrier-to-customer transport services
provide our customers with connectivity from the carrier hotels where their
communications traffic is aggregated, to their end-user customers in our on-net
buildings. We transport their data from carrier hotels, via our metropolitan
transport networks, to the central equipment rooms that we establish in the
basements of our on-net buildings. Once in the central equipment room, the data
is transferred from our metropolitan transport network onto our FIN and routed
to the appropriate floor of the on-net building, where the end-user is located.
Colocation
In select carrier hotels and on-net buildings, we offer our customers
racks, cabinets, or cages where they can locate their networking equipment. We
also offer ancillary services, including AC/DC power, fire protection, security,
and heating, ventilation and air conditioning, or HVAC.
Communications Access Management
In certain on-net and off-net buildings, we obtain the exclusive right to
manage the communications access and infrastructure for the buildings. We then
enter into agreements with service providers giving them non-exclusive rights to
provide services to tenants in the buildings. The term of our contracts with
service providers typically ranges from three to five years. As of December 31,
2000, we had entered into agreements to provide access management services to
approximately 185 off-net buildings.
Network Design and Architecture
We have and will continue to design, develop and construct networks for
carrier-to-carrier and carrier-to-customer transport in our target markets. Our
networks have four components: carrier point facilities, metropolitan transport
networks, FINs and a NOC.
Carrier Point Facilities
Carrier point facilities are environmentally controlled, secure sites
within a carrier hotel, designed to house carrier transmission and networking
equipment. At these facilities we establish the interconnection of our
metropolitan transport networks with other service providers' networks. This
interconnection of networks enables us to transfer other carriers' traffic onto
our local loop networks and provide transport services to them. In addition to
utilizing our carrier point facilities to interconnect with service providers,
we also offer colocation and other ancillary services at certain of these
facilities.
Our primary carrier point facilities in New York City are located in 60
Hudson Street and 111 8th Avenue, and we offer colocation at both of these
sites. We have deployed and will establish other carrier point facilities in New
York City, Long Island and New Jersey, which we will connect to both 60 Hudson
Street and 111 8th Avenue via our metropolitan transport networks. By
establishing our presence in multiple carrier hotels we will increase our
ability to interconnect with other service providers, thereby increasing our
potential customer base and revenue opportunities with existing customers.
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In each of our target cities, we intend to establish at least two primary
carrier point facilities within major carrier hotels and multiple secondary
carrier point facilities. At our primary sites we will offer colocation
facilities in addition to transport and interconnection services. The cost of
constructing a primary carrier point facility generally ranges from $3 million
to $5 million, and a secondary carrier point facility, without colocation
facilities, generally ranges from $500,000 to $1.5 million. In certain of our
secondary carrier point facilities we may colocate in other carriers'
facilities.
Metropolitan Transport Network
We acquire dark fiber rights, install our own optical transmission
equipment to light the fiber and then provide lit circuits to carriers for the
transport of traffic in the out-of-building local loop. We light the dark fiber
in ring configurations with optical networking gear, establishing connectivity
between carrier point facilities and our on-net buildings.
Our existing metropolitan transport networks consists of OC-48 SONET rings
deployed in midtown Manhattan, downtown Manhattan, New York/Long Island, New
York/New Jersey, Chicago and Los Angeles. We intend to expand this existing
network and, in the future, may establish metropolitan transport networks in
additional markets.
Our networks can transmit data at 2.5 gigabits per second or Gbps, (OC-48)
and are scalable to 10.0 Gbps (OC-192). We use dense wave division multiplexing
technology to increase capacity on our networks. Dense wave division
multiplexing can increase the bandwidth of a single fiber-optic strand by
transmitting signals on up to 32 different wavelengths of light on a single
fiber, therefore enabling the transmission of up to 32 times more information on
an existing fiber-optic strand.
FiberNet In-Building Networks
Our FIN is an advanced central distribution network that we deploy in our
on-net buildings to provide communications transport within the building. We
have a team of highly trained and experienced communications professionals and
engineers that design and oversee the installation of our FINs. This team
performs a thorough analysis of each commercial building that we have targeted,
including an assessment of available space to house equipment in the building
and install fiber cables in the vertical shafts, or risers, the adequacy of the
power supply, and the diversity of fiber-optic entrance conduits from our
metropolitan transport network. The standard design specifications for our FINs
are then tailored to each building. After a thorough evaluation process we
select a bonded and licensed general contractor to perform construction. A
member of our engineering staff oversees all of the construction in order to
maintain and enforce our strict construction standards.
The total cost for installing a FIN typically ranges from approximately
$400,000 to $1,000,000. We are committed to building the most secure, reliable
fiber-optic systems that adhere to the highest technical standards in the
industry. We strive to provide a system that is flexible and expandable and able
to meet the needs of our customers.
To date, we have constructed our FINs in 16 buildings in Manhattan and
Chicago. We have also entered into, and are in the process of negotiating,
additional license agreements for in-building networks in buildings located in
our target markets.
Our in-building fiber-optic network infrastructure consists of:
. Direct and diverse routing to metropolitan transport network. Our
metropolitan transport network enters an on-net building at one or two
discrete points and interconnects with the FIN in our central
equipment room in the basement of the building. Diverse routing and
interconnection in the building basement enables the seamless transfer
of traffic between the FIN and our high-bandwidth metropolitan
transport network. We offer dedicated bandwidth without over-
subscription directly between the
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tenants' premises and the carrier point facilities, so that our
customers avoid congestion or a bottleneck, as traffic is transmitted
from our FINs to our out-of-building metropolitan transport networks.
. Central equipment room. We usually lease approximately 100 to 1,500
square feet in the basement of our on-net buildings to establish a
central equipment room, where we install and manage communications
networking equipment. Here we connect the FIN to our metropolitan
transport network, linking the on-net building to all of our 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 our carrier point specifications with power
supplies and HVAC systems for environment control.
. Redundant, vertical riser system. We configure, install, own and
manage a fiber-optic network in the building's vertical riser system.
We believe our FINs are designed to ensure reliability and
scalability. By deploying over one hundred strands of fiber in dual
risers, our FINs allow for redundant fiber paths in a ring
architecture. Our FINs generally extend from the central equipment
room in the basement of the building throughout the building, with a
termination point on each floor.
. Points of presence on each floor of the on-net building. Typically, we
install secure communications 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.
Network Operations Center
We monitor and manage traffic on our networks from our NOC located at 60
Hudson Street in New York City using Portal, Preside and MetaSolv TBS software.
During the first quarter of this year, we will relocate our NOC to Newark, New
Jersey. Our NOC enables us to remotely provision circuits to any point on our
networks and to provide timely customer support and maintenance from a
centralized location. Our networks are monitored and maintained 24 hours a day,
7 days a week. Our customers are also able to monitor their traffic on our
networks using the latest technology in network management.
Real Estate
We have highly experienced professionals, familiar with the commercial real
estate markets nationwide, who are dedicated to identifying and securing access
to portfolios of commercial office buildings. We typically target portfolios of
class A commercial office properties with multiple tenants. Other factors
considered in selection include:
. location;
. occupancy levels;
. proximity to our metropolitan transport networks, carrier point
facilities and other on-net buildings;
. feasibility of installation of network infrastructure;
. cost-effectiveness of construction; and
. existing broadband communications infrastructure in the building.
We also identify whether a building will become an on-net or off-net
building. This decision is based on a number of factors. First, we determine if
the building is located in a city where we have metropolitan transport networks.
If so, we then analyze the size of the building, tenant mix and cost-
effectiveness of construction to determine if it is economically feasible to
install a FIN.
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On-net buildings. In buildings that we have identified as on-net buildings,
we sign a license agreement with the building owner or manager for the
installation of a FIN. Our licenses generally give us the exclusive right to
install and operate a central distribution system to provide wholesale transport
services in the building. However, ILECs and RBOCs may resell their existing
infrastructure, which they have the right to upgrade, in the building, and other
communications providers may deploy their own infrastructure to provide retail
services to any tenant requesting services from the provider. In addition, in
some instances service providers may have pre-existing license agreements in our
buildings, which allow these providers to install and possibly expand their
network infrastructure in our buildings. Our typical on-net license agreement
has an initial term of 15 years, with renewal options of up to 10 years. We have
installed FINs in 16 on-net buildings and are currently deploying FINs in six
additional buildings. We have licenses to build FINs in a total of 36 buildings.
Off-net buildings. In buildings that we select as off-net buildings, we
enter into license agreements with the owners or managers for the exclusive
right to manage access and infrastructure in the building. The agreement does,
however, allow for the continuation of any pre-existing communications service
agreements between the building owner or manager and other communications
providers for the installation of communications networks in the building. These
pre-existing agreements may not be extended or renewed unless required by their
terms. Our typical off-net license agreement is for an initial term of five
years, with renewal options of up to 15 years. Once the license agreement has
been executed, we enter into agreements with communications service providers,
giving them non-exclusive access to provide services in the building. Our
agreements with service providers are typically for an initial term of five
years, with a renewal option of up to five years. We currently have contracts to
manage the communications infrastructure in approximately 185 off-net buildings.
Sales and Marketing Strategy
Sales. We sell network access to other service providers through our direct
sales staff. Our sales team is comprised of representatives that have
significant expertise in, and knowledge of, the wholesale communications market.
Several of our sales representatives have had extensive work experience with
British Telecom, AT&T, and other major carriers. By using a direct sales
strategy, we provide the personal attention and high quality of service that our
customers require.
Marketing. Our marketing strategy is focused on building relationships with
our customers, our real estate partners, and tenants in our on-net and off-net
buildings. We believe that all segments benefit from targeted advertising,
public relations efforts, promotional materials, event marketing, and personal
selling techniques. In addition, we have marketing activities directed
specifically to each of our constituent markets. These activities include:
. Service Providers. We support industry organizations, participate in
conferences, tradeshows and seminars, prepare personalized
presentations and engage in direct marketing.
. Real Estate Community. We belong to and sponsor membership
associations, trade shows, conferences, and other special events.
. Tenant Appreciation Programs. We circulate a quarterly newsletter to
tenants in our on-net buildings, and co-sponsor in-building events
with carriers that sell directly to tenants. We believe that if
tenants are aware of the capacity and reliability and security of our
FINs, they will be more likely to select carriers using our networks
to provide their communications services.
Customers
We have a broad target customer base that includes ILECs, RBOCs, CLECs,
IXCs, ISPs, ASPs and ICPs. Our technologically advanced fiber-optic
infrastructure meets the needs not just of small- and medium-sized business end-
users, but also large corporate end-users. This expands the size of our
addressable market beyond that of traditional CLECs, which are generally focused
on the small- and medium-sized business market opportunity. We enter into long-
term contracts with our customers, which are typically three to five years in
length.
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Transport and Colocation Customers
We target service providers seeking cost-effective, flexible, reliable,
broadband network connectivity in the local loop. The increase in communications
traffic and data intensive applications and the deregulation of the
telecommunications industry has resulted in rapid growth in the number of
service providers operating in the local loop market. Many of these providers do
not have their own metropolitan networks and rely on us for transport in the
local loop. Our customer base also includes providers 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 our faster
provisioning times. We also generate transport-traffic through agreements with
our colocation customers. Typically, if a service provider colocates its
networking equipment at our facilities, our agreement with them will include a
minimum commitment to use our transport services.
. Our transport and colocation customers are typically:
. service providers that have significant bandwidth demands between
carrier points for the aggregation of their network traffic. These
customers need to interconnect high-capacity circuits with other
service providers' networks. These carriers typically include long
distance providers and international carriers;
. service providers requiring connectivity to their retail customers in
our on-net buildings; and
. service providers requiring a secure technical operating environment
in which to locate their communications and networking equipment.
As of December 31, 2000, our transport and colocation customers included:
. 360networks
. Broadwing
. Deutsche Telekom
. Enron Broadband Services
. France Telecom
. Level 3
. Qwest
. Sprint
. XO Communications
Access Management Customers
Our access management customers include facilities-based providers that
want access to our off-net buildings to provide communications services to
tenants in the building. As of December 31, 2000, our access customers included:
. AT&T
. Cogent Communications
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. DavNet
. Everest Broadband Networks
. Qwestlink
. Winstar
. XO Communications
. Yipes
Competition
The market for our services is very competitive. Our competitors include
traditional and new communications companies.
Local Telephone Companies. In New York City, Chicago and Los Angeles, we
face significant competition from ILECs and RBOCs, which currently dominate
local communications markets, and CLECs, which are increasing their market
penetration for local communications services. ILECs, including Verizon
Communications and Ameritech, have several competitive advantages over us, which
include established brand names, reputation and significant capital. 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 our services. Moreover, ILECs also sell
wholesale connectivity in the local loop, which competes with our local loop
transport services. Various other competitive communications providers also own
communications infrastructure in the local loop. Some of these carriers
currently compete with us in the market for providing broadband transmission
capacity in the local loop, and such competition may increase in the future.
Other In-Building Communications Providers. Certain integrated
communications providers are deploying their own network infrastructure in
commercial office properties in our target markets to provide communications
services to tenants. These include, but are not limited to, Advanced Radio
Telecom, Allied Riser Communications, Broadband Office, Cypress Communications,
Intermedia, RCN Telecom Services, Riser Management Corporation, Teligent,
Winstar and XO Communications. These companies build out networks on which they
offer only their own services. Consequently, they could indirectly compete
against us by not utilizing our FIN to gain connectivity to tenants.
Additionally, many of these companies are seeking to establish license
agreements with building owners to gain access to the buildings. Some companies
have agreements whereby the building owners will not allow other communications
providers to install a central distribution system in their buildings. These
type of agreements reduce the number of buildings available for installation of
our FINs. We have competed and will continue to compete with some of these
companies for license agreements with owners of target buildings.
Metropolitan Network Providers. Many of the leading communications
companies, including AT&T, WorldCom, Sprint, Level 3, Qwest and Time Warner
Telecom, have constructed or are constructing fiber-optic networks nationwide,
including within metropolitan areas. 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
Metromedia Fiber Network and Telergy, build metropolitan dark fiber networks
that are leased or sold to other carriers and large corporate users. In
addition, these companies could begin to build their own in-building networks.
We compete directly and indirectly with these companies in New York City,
Chicago and Los Angeles.
Fixed Wireless Service Providers. We may lose potential customers to fixed
wireless service providers. Fixed wireless service providers can provide high-
speed inter-building communications services using microwave or other facilities
or satellite earth stations on building rooftops. Some of these providers have
targeted small- and
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medium-sized business customers and have business strategies that are similar to
ours. These providers include Winstar, Teligent, Advanced Radio Telecom, Sprint
and WorldCom.
Our History
FiberNet Telecom, Inc. was organized under the laws of the State of
Delaware on August 10, 1994. On November 24, 1997, Desert Native Designs Inc.,
an existing public company incorporated in the State of Nevada, acquired
FiberNet Telecom, Inc. pursuant to an agreement and plan of merger dated as of
the same date. Upon consummation of the merger, FiberNet Telecom, Inc. became a
wholly owned subsidiary of Desert Native Designs, Inc., which subsequently
changed its name to FiberNet Telecom Group, Inc. On February 4, 2000, we
reincorporated in Delaware.
On July 31, 2000, we consummated a corporate reorganization in order to
acquire Devnet L.L.C. As a result of this reorganization, we became a holding
company that directly owns all of the outstanding common stock of FiberNet
Operations, Inc., a Delaware corporation and Devnet L.L.C., a Delaware limited
liability company. FiberNet Operations directly owns all of the outstanding
common stock of FiberNet Telecom, Inc., a Delaware corporation. FiberNet
Telecom, Inc. owns all of the outstanding membership interests in Local Fiber,
L.L.C. and FiberNet Equal Access, LLC, both New York limited liability
companies. We conduct our primary business operations through our operating
subsidiaries, Local Fiber, FiberNet Equal Access and Devnet.
Regulation of FiberNet
General Regulatory Environment
We are subject to federal, state and local regulations that affect our
product offerings, competition, demand, costs and other aspects of our
operations. The regulation of the communications industry varies from state to
state and is changing rapidly. To the extent that our offerings are treated as
telecommunications services, federal and state regulation would apply to those
offerings. Our operations are also subject to a variety of environmental,
safety, health and other governmental regulations. We cannot guarantee that
current or future regulatory, judicial or legislative activities will not have a
material adverse effect on our operations or financial condition, or that
domestic or international regulators or third parties will not raise material
issues with regard to our compliance or noncompliance with applicable
regulations.
Federal Regulation
Federal regulation has a great impact on the communications industry and
has undergone major changes in the last four years as the result of the
enactment of the Telecommunications Act of 1996. The Telecommunications Act is
the most comprehensive reform of the nation's communications laws since the
Communications Act was enacted in 1934.
Our services are provided through our operating subsidiaries, Local Fiber,
Equal Access and Devnet. The services offered by our subsidiaries fall into one
of two categories:
. telecommunications services or common carriage; and
. non-telecommunications services.
Certain regulations associated with each type of offering are described
below. Although the law establishing regulatory requirements is often unclear,
we expect that our telecommunications services are subject to a lower degree of
federal regulation than those of dominant carriers such as the RBOCs.
Telecommunications Services
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One of our subsidiaries, Local Fiber, is regulated as a telecommunications
carrier because it provides telecommunications services directly to the public
on a nondiscriminatory basis subject to standardized rates, terms and
conditions. A telecommunications service, as defined by the Communications Act,
means the offering of telecommunications for a fee directly to the public, or to
such class of users as to be effectively available to the public, regardless of
the facilities used. Telecommunications is defined, as the transmission between
and among points specified by the user of information of the user's choosing
without change in the form or content of the information as sent.
Telecommunications carriers are subject to extensive federal, state and local
telecommunications regulation that may impose substantial administrative and
other burdens on operations.
General Obligations of All Telecommunications Carriers. As a competitive
provider of local telecommunications services, Local Fiber is subject to federal
telecommunications regulation, including, but not limited to:
. rate regulation;
. reporting requirements;
. special assessments;
. access charges;
. the obligation not to charge unreasonable rates or engage in
unreasonable practices;
. the obligation to not unreasonably discriminate in service offerings;
and
. the obligation to allow resale of regulated telecommunications
services.
In addition, telecommunications carriers must contribute to the FCC's
universal service fund, a fund that was established to ensure the availability
of affordable basic telecommunications services. The rate of assessment is
approximately 5.8% of gross interstate end-user telecommunications revenues for
the year 2000, is expected to be approximately 6.6% for the year 2001 and may be
higher in subsequent years. FCC rules also require that telecommunications
carriers contribute to various other funds.
Local Fiber is also required to comply with a number of other federal
regulatory requirements. Third parties may file complaints against us at the FCC
for violations of the Communications Act or the FCC's regulations. Certain
statistical reporting requirements may also apply. Although compliance with
these regulatory requirements imposes certain administrative burdens, similarly
situated competitors are subject to comparable regulatory obligations.
Local Exchange Carrier Regulation. The Telecommunications Act imposes a
number of access and interconnection requirements on telecommunications carriers
and on all local exchange providers, including CLECs, and imposes additional
requirements on ILECs. CLECs compete with the ILECs for local subscribers of
telecommunications services. As discussed under our state regulation section,
Local Fiber provides only local transport services and has obtained
authorization as a CLEC to provide telecommunications services in the state of
New York. However, because of the nature of Local Fiber's service offerings, not
all CLEC obligations will apply to us. As a CLEC in New York, Local Fiber is
subject to the FCC's regulatory structure favoring CLEC entry into the local
market, however, it is also subject to any requirement imposed by the FCC that
is generally applicable to local exchange carrier, or LECs. In addition, LEC
regulations affect us to the extent that they have a direct affect on our
carrier customers.
All telecommunications carriers must interconnect with the facilities of
other telecommunications carriers and may not install features that will
interfere with the interoperability of networks. Accordingly, all ILECs must
permit their competitors to interconnect with their facilities directly and all
CLECs must permit any other telecommunications carrier to interconnect with
their facilities either directly or indirectly. All LECs, including CLECs, also
have a duty to:
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. not unreasonably limit the resale of their services;
. provide number portability, if technically feasible, which will allow
a customer to retain its existing phone number if it switches its
local exchange carrier;
. provide dialing parity to competing providers and nondiscriminatory
access to telephone numbers, directory assistance, operator services
and directory listings;
. provide access to poles, ducts, conduits and rights-of-way; and
. establish reciprocal compensation arrangements for the transport and
termination of communications.
Other Federal Communications Regulations. In addition to the general duties
of all LECs, ILECs have the following additional duties:
. interconnect with any requesting telecommunications carrier at any
technically feasible point within their networks, on nondiscriminatory
terms, at prices based on cost (which may include a reasonable profit)
and provide service equal in quality to that provided to their
customers or the ILEC itself;
. provide any requesting telecommunications carrier unbundled access to
network elements at any technically feasible point at just, reasonable
and nondiscriminatory rates, terms and conditions;
. offer retail services to a requesting telecommunications carrier at
wholesale prices;
. provide reasonable public notice of changes in the network or the
information necessary to use the network or which affect
interoperability; and
. provide for physical co-location for requesting telecommunications
carriers. Physical co-location 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.
The FCC also adopted guidelines for implementing the interconnection and
local competition provisions of the Telecommunications Act. In order to foster
competition in the local exchange market, the FCC required ILECs to offer access
to their communications networks to CLECs at cost-based rates. All of these
regulations affect the growth opportunities for some of our customers and thus
the demand for our services.
Appeal of the FCC's decision implementing the interconnection and local
competition provisions of the Telecommunications Act have resulted in the review
of certain FCC rules by the U.S. Supreme Court. On January 25, 1999, the Supreme
Court largely reversed an Eighth Circuit Decision and reestablished the validity
of many of the FCC rules that earlier had been vacated by the Eighth Circuit.
On remand from the Supreme Court, the Eighth Circuit issued a decision on
July 18, 2000. The Eighth Circuit's decision, among other things, vacated and
remanded the FCC's rule that forward-looking costs used to calculate the rates
at which ILECs may charge CLECs for network elements be based on the most
efficient network model. The use of a forward-looking cost model was affirmed,
however. A portion of the Eighth Circuit's decision, which vacated certain FCC
pricing rules, has been stayed pending the Supreme Court's decision whether to
hear an appeal of the decision.
The Supreme Court's January 25 decision also remanded the list of network
elements ILECs must offer to CLECs to the FCC for further consideration of the
necessity of each one under the statutory standard. On November 5, 1999, the FCC
released an order largely retaining its list of unbundled network elements, but
eliminating the requirement that ILECs provide unbundled access to local
switching for customers with four or more lines in the densest parts of the top
50 Metropolitan Statistical Areas in most circumstances, and the requirement to
provide operator services and directory assistance.
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The FCC further required ILECs to offer dark fiber as an unbundled network
element on both a local loop and interoffice transport basis. This availability
of dark fiber from ILECs as an unbundled network element could be in addition to
other sources of dark fiber already available in the market. In the event we
offer dark fiber service, it is possible that the availability of dark fiber
from ILECs as an unbundled network element could affect the demand for our
services and the pricing of our services. To the extent our customers buy
unbundled network elements from the ILEC, any court or FCC revisions of the
interconnection and local competition provisions of the Telecommunications Act,
including access to unbundled network elements or pricing, could affect the
growth opportunities for some of our customers and thus demand for our services.
On December 9, 1999, the FCC ordered ILECs 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 ILECs to provide
voice telephone service. The prices that carriers charge 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 our
service and put downward pressure on our prices for transport services.
In addition to the numerous decisions to implement the Telecommunications
Act, in August 1999, the FCC issued an Order that provided substantial new
pricing flexibility to ILECs. The pricing flexibility applies primarily to
special access and dedicated transport. This ruling will ultimately permit ILECs
to utilize contract arrangements for the provision of dedicated services similar
to the way in which we offer these same types of services. As a result of this
new pricing flexibility for ILECs, we could face greater competition with
respect to the services we provide.
State Regulation
The Communications 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 telecommunications 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 on a common carrier basis. 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 as a CLEC to provide intrastate
services in New York and may seek additional authority in other states. Delays
in receiving required regulatory approvals in other states could also have a
material adverse effect on us. We cannot assure you that regulators or third
parties will not raise material issues with regard to our compliance or non-
compliance with applicable laws or regulations.
State regulatory commissions generally regulate the rates RBOCs 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 our services
and those that other carriers provide. Under the Communications 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 a forward-looking cost methodology as required 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 affect 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
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authorities affect the timing and costs associated with the use of public
rights-of-way. These regulations may have an adverse effect on our business to
the extent Local Fiber requires access to such public rights-of-way.
Non-Telecommunications Services
Our subsidiaries, Equal Access and Devnet are not subject to
telecommunications carrier regulation. Unlike a telecommunications carrier,
Equal Access and Devnet do not hold their offerings out to the public generally
for a fee. Moreover, Equal Access and Devnet do not use public rights-of-way
which may trigger local regulation. Equal Access and Devnet generally enter into
exclusive agreements with building owners to provide or manage intra-building
fiber capacity to telecommunications carriers on a private contractual basis. As
such, Equal Access and Devnet merely provide the in-building capacity over which
telecommunications service providers may provide telecommunications services,
including access to the public telephone system which enables a tenant to reach
any point on the public telephone system. However, certain proposals have been
made before Congress and the FCC that could have an adverse impact on Equal
Access' and Devnet's exclusive contractual rights, in certain buildings, to
provide such capacity.
Regulation of Equal Access and Devnet
Equal Access and Devnet are 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 and Devnet generally secure 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 or Devnet, 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' and Devnet's ability to secure and
maintain exclusive inside wiring contracts may be inhibited.
As of December 31, 2000, there is no federal legal requirement that owners
or managers of commercial office buildings give access to competitive providers
of telecommunications services. However, such requirements have been adopted in
certain states. For example, requirements in California, Connecticut, Texas and
Massachusetts 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. Massachusetts recently added new rules that also require owners or
controllers of rights-of-way, including owners of commercial buildings and
certain multi-tenant dwellings, to provide non-discriminatory access to a
carrier upon a tenant's request. The California Public Utilities Commission
recently ruled that carriers cannot enter, on a prospective basis, into
exclusive access agreements with property owners that would restrict the access
of other carriers to the property or discriminate against the facilities of
other carriers. Other states, such as Nebraska and Ohio, have adopted similar
exclusive contract prohibitions. Although these requirements generally permit
telecommunications carriers 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
or Devnet already have 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:
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. 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 conduits in multiple tenant
environments on just, reasonable and nondiscriminatory rates, terms
and conditions; and
. whether incumbent local telephone companies should make available
unbundled access to riser cable and wiring within multiple tenant
environments.
On October 25, 2000, the FCC released its decision to promote competition
between telecommunication carriers by regulating access to multiple tenant
buildings. The FCC's decision will bar telecommunications carriers from entering
into exclusive contracts with commercial building owners in the future. Because
Equal Access and Devnet are not "telecommunications carriers", the FCC's
decision does not apply to them or their dealings with building owners. The
FCC's decision will also require local exchange carriers and other utilities
already within multiple tenant buildings to provide other telecommunications
carriers and cable service providers reasonable and non-discriminatory access to
conduits and rights-of-way located in customer buildings and campuses, to the
extent such conduits and rights-of-way are owned or controlled by the utility.
This requirement will not apply directly to Equal Access or Devnet because they
are not telecommunications carriers or utilities. However, this requirement may
apply to telecommunications carriers and utilities holding separate access
rights to those of Equal Access and Devnet in FiberNet buildings, and it may
also apply to Equal Access' and Devnet's telecommunications carrier customers.
Depending on how these rules are interpreted, these requirements may facilitate
our competitors' entry into buildings in which we offer our services by
permitting our competitors to gain access through the separate access rights
currently held by local exchange carriers or other utilities in the same
buildings. We cannot predict how the FCC's rules will be interpreted regarding
this requirement or what, if any, effect such an interpretation would have on
Equal Access or Devnet. The FCC also established procedures to enable building
owners to request that the incumbent local exchange carrier move the demarcation
point, the point at which the telecommunications network wiring under the
incumbent local exchange carrier's control ends and wiring under building
owner/end-user control begins, to the minimum point of entry. The minimum point
of entry is defined as either the closest practicable point to where the wiring
crosses a property line or the closest practicable point to where the wiring
enters a multi-tenant building or buildings. The FCC's procedures to clarify the
demarcation point in multi-tenant buildings do not place an obligation on Equal
Access, Devnet or Local Fiber, because none of these entities are incumbent
local exchange carriers. However, we cannot predict the FCC's implementation of
its demarcation point procedures or the consequences resulting from a building
owner's decision to locate the demarcation point at the minimum point of entry.
The FCC has also issued a further notice requesting comments on, among other
things, whether:
. the prohibition on exclusive access contracts in commercial buildings
should be extended to residential buildings;
. to apply retroactively the bar on exclusive contracts in commercial or
residential buildings;
. to prevent carriers from obtaining other preferential benefits from
building owners, such as exclusive marketing; and
. it has authority to prevent a local exchange carrier from providing
service to a building, if the owner of the building unreasonably
prevents competing carriers from gaining access to potential customers
located in the building.
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 was enacted on October 23, 2000, which increases
access for competitive carriers in buildings where the federal government is the
owner or tenant. We cannot predict the outcome of the FCC's proceeding or of any
legislation, nor what effect, if any, it may have on our business.
Liability for Internet Content
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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 our services and expose us to liability.
Other Regulations
Our 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 our employees.
Although we monitor compliance with environmental, safety and health laws
and regulations, we cannot ensure that our operations have been or will be in
complete compliance with these laws and regulations. We may be subject to fines
or other sanctions imposed by governmental authorities if we fail to obtain
certain permits or violate the laws and regulations. We do 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 2001.
In addition, our business may be subject to environmental laws requiring
the investigation and cleanup of contamination at sites we own or operate 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 we operate numerous sites in connection with our
operations, we are 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 our business or financial condition.
Employees
As of December 31, 2000, we had 194 employees, including 21 in engineering,
90 in network operations, 9 in network construction, 42 in sales and marketing,
13 in real estate services, and 19 in finance and administration. We have not
experienced any work stoppages and consider our relations with our employees to
be good.
Facilities
Our principal offices are located at 570 Lexington Avenue, in New York, New York
where we lease an aggregate of approximately 12,195 square feet. The term for
these premises expires in 2008. Our subsidiary, Devnet, is located at 325
Riverside Avenue, Westport, Connecticut. We lease 4,930 square feet under a
lease that expires in 2001, with an option to extend the lease to 2006, and
3,260 square feet under a lease that expires in 2002, with an option to extend
the lease to 2007. We also lease additional office space in Garden City, New
York consisting of 3,800 square feet under a lease that expires in 2005. In
addition, we have office space in Rochester, New York, our former headquarters,
which we are currently subleasing. We lease 15,000 square feet under a lease
that expires in 2005. Currently, our NOC is located at 60 Hudson Street in New
York, and we are in the process of relocating this facility to the Gateway
Center in Newark, New Jersey. Our warehouse facility is located in Long Island
City, New York. We lease 6,500 square feet under a lease that expires in 2005.
We have also 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 the lease for the 5,672 square feet facility at 111 Eighth
Avenue extends through 2015. Additionally, we lease space in carrier hotels at
600 S. Federal Street in Chicago consisting of 6,588 square feet under a lease
which expires in 2015, and at 707 Wilshire Boulevard in Los Angeles consisting
of 7,465 square feet under a lease which expires in 2010. We also lease space
for other network-related facilities and in the basements of our on-net
buildings for our central equipment rooms. We intend to lease additional space
in the next 12 months.
Legal Proceedings
We are currently not a party to any material legal proceedings.
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Recent Transactions
Please see the applicable prospectus supplement and our recent public filings
for recent developments.
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CERTAIN RELATIONSHIPS AND RELATED TRANSACTIONS
Equity Issuances and Financings
November 1997 Private Placement
In connection with a corporate restructuring, on November 27, 1997, we
issued series A and B preferred stock in a private placement. Messrs.
Petrocelli, Polan and Tortoretti, certain of our then officers and directors,
received series B preferred stock through entities beneficially controlled by
them. These entities included SMFS, Inc. and LTJ Group, Inc., beneficial owners
of 5% of our common stock, and LPS Consultants, Inc. Mr. Petrocelli is the
president and chief executive officer of Petrocelli Electric Co. and SMFS, Inc.,
Mr. Polan controls LPS Consultants, Inc. and Mr. Tortoretti is a principal of
LTJ Group, Inc.
Option Grants
On November 24, 1997, we granted Messrs. Petrocelli, Polan and Tortoretti
stock options to each purchase 190,000 shares of our common stock.
On March 29, 1999, we entered into an agreement with Richard Sayers, one of
our directors, for financial advisory services in connection with our financing
needs. Pursuant to this agreement, we granted Mr. Sayers stock options to
purchase 250,000 shares of our common stock. Stock options to purchase 125,000
shares vested on March 29, 1999 and the remaining 125,000 options vested in
equal monthly installments during the one year term of the agreement.
May 1999 Private Placement
On May 7, 1999, we entered into a $14.1 million financing transaction
pursuant to which we issued convertible notes, series C preferred stock, class A
warrants and class B warrants. In addition, all of our outstanding series B
preferred stock was converted into common stock.
Signal Equity Partners, L.P., Concordia Telecom Management, L.L.C. and
Taurus Telecommunications, Inc. were among the investors in this transaction. As
part of this financing, the size of our board of directors was expanded from
three to six directors, with the addition of Mr. Bradley, a managing partner of
Signal Equity Partners, Mr. Liss, the sole member of Concordia, and Mr. Sayers,
the president of Taurus Telecommunications. Mr. Liss was also appointed as our
president and chief executive officer. The transaction also resulted in the
resignation from our board of directors of Messrs. Chiaino, Petrocelli and
Polan. These vacant seats on our board of directors were filled by Messrs.
Farmer, Mahoney and Tortoretti. Also in connection with this transaction,
Messrs. Tortoretti, Petrocelli and Polan granted an irrevocable proxy to Signal
Equity Partners, Trident Telecom Partners and Concordia Telecom Management to
vote all of the shares beneficially owned by them at all meetings of our
stockholders.
June 1999 Conversion Warrants
At the time of the May private placement, we had outstanding payables to
Messrs. Chiaino, Petrocelli, Polan, Tortoretti and entities controlled by them.
We paid these accounts payable as follows:
. on June 30, 1999, we issued to Mr. Chiaino 41,664 shares of common
stock and warrants to purchase 27,498 shares of our common stock at a
purchase price of $0.67 per share.
. on June 30, 1999, we issued 309,865 shares of our common stock,
warrants to purchase 204,511 shares of our common stock at a purchase
price of $0.67 per share and warrants to purchase 390,000 shares of
our common stock at a purchase price of $1.50 per share to Petrocelli
Electric Company Inc., LPS Consultants, Inc. and LTJ Group.
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The exercise price of these warrants approximated the fair market value of
our common stock on the date the terms of the issuances were determined.
The warrants issued to Mr. Chiaino, Petrocelli Electric Company Inc., LPS
Consultants, Inc. and LTJ Group, may be exercised, in whole or in part, at any
time from June 30, 1999 through June 30, 2004, upon payment of the exercise
price. The conversion warrants also allow the holders to pay the exercise price
due under the warrant by tendering to us a portion of the shares subject to the
warrant instead of paying the exercise price in cash.
September 1999 Private Placement
On September 28, 1999, we entered into a further financing transaction
pursuant to which we issued 8% senior secured convertible notes due September
28, 2004 to investors in the aggregate principal amount of $12.5 million. These
notes were convertible into shares of our common stock at a price of $3.00 per
share. Signal Equity Partners, L.P., which beneficially owns more than 5% of our
voting securities, participated in this transaction.
November 1999 Conversion and Exchange Transaction
On November 30, 1999, pursuant to a conversion and exchange agreement, the
September notes and the notes issued in the May 1999 and September 1999
financings, were converted into shares of our common stock. In connection with
this conversion, we issued:
. 309,143 shares of our series D preferred stock and 40,551 shares of
our series F preferred stock to Signal Equity Partners, L.P., a
beneficial owner of 5% of our voting shares;
. 336,025 shares of our common stock to Concordia Telecom Management,
L.L.C., of which Michael Liss, our president, chief executive officer
and one of our directors, is the sole member; and
. 6,868 shares of our series E preferred stock to Taurus
Telecommunications, Inc., of which Mr. Sayers, one of our directors,
is the president.
Nortel Networks Inc.
Nortel has invested $50 million in our business. In June 2000, Nortel
invested $20 million by purchasing 2,000,000 shares of our series G preferred
stock in a private placement. On July 31, 2000, Nortel surrendered its series G
preferred stock and accrued dividends on that preferred stock and invested an
additional $22.5 million in a second private placement in exchange for 426,333
shares of our series H preferred stock at $10.00 per share, on an as converted
basis. On August 11, 2000, Nortel invested $7.5 million by purchasing 62,500
shares of our series I preferred stock at $12.00 per share, on an as converted
basis.
Related Party Transactions
Landtel Telecommunications Group, Inc.
From 1997 to 1999, we paid Landtel consulting fees ranging from $83,000 to
$125,000 per year for management, engineering and network development services.
Mr. Tortoretti is the majority shareholder of Landtel.
LPS Consultants, Inc.
During 1998, we paid consulting fees of $75,000 to LPS Consultants, which
is controlled by Mr. Polan.
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Petrocelli Electric Co.
Petrocelli Electric, which is controlled by Mr. Petrocelli, received
consulting fees from 1997 to 1999 ranging from $100,000 to $120,000 per year.
SMFS, Inc.
During 1998, we entered into three contracts with SMFS, which is controlled
by Mr. Petrocelli, for electrical contracting. The total value of these
contracts was $2.5 million.
Concordia Telecom Management, L.L.C.
In connection with our May 1999 financing, we entered into an agreement
with Concordia for investment banking services, under which Concordia received a
fee of $145,000. Mr. Liss, our president, chief executive officer, and one of
our directors, is the sole member of Concordia.
Nortel Networks Inc.
On June 22, 2000 we amended our existing master purchase agreement with
Nortel, so that we now have the right to purchase up to $260 million worth of
optical networking equipment and related services at predetermined volume-based
pricing by 2002.
Signal Equity Management Corp.
On July 20, 2000, we entered into an agreement with Signal for financial
advisory services, in connection with the Devnet acquisition, under which Signal
received a fee of $250,000. Mr. Bradley, one of our directors, is the president
of Signal.
Waterview Advisors LLC.
On July 20, 2000, we entered into an agreement with Waterview Advisors for
financial advisory services, in connection with the Devnet acquisition. Under
this agreement, Waterview Advisors received a fee of $250,000. Mr. Vrattos, one
of our directors, is a managing director of Waterview Advisors.
We believe that the terms of our agreements entered into with related
parties are comparable to those that would have resulted from arms-length
negotiations with any unrelated party.
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THE SECURITIES WE MAY OFFER
The descriptions of the securities contained in this prospectus, together
with the applicable prospectus supplements, summarize all the material terms and
provisions of the various types of securities that we may offer. We will
describe in the applicable prospectus supplement relating to any securities the
particular terms of the securities offered by that prospectus supplement. We
will also include in the prospectus supplement information, where applicable,
about material United States federal income tax considerations relating to the
securities, and the securities exchange, if any, on which the securities will be
listed.
DESCRIPTION OF CAPITAL STOCK
Our authorized capital stock consists of:
. 150,000,000 shares of common stock, $0.001 par value per share;
. 20,000,000 shares of undesignated preferred stock, par value $0.001 per
share, of which 2,723,333 shares have been designated as follows:
-- 133,333 shares of series C preferred stock, $0.001 par value per
share;
-- 500,000 shares of series D preferred stock, $0.001 par value per
share;
-- 750,000 shares of series E preferred stock, $0.001 par value per
share;
-- 500,000 shares of series F preferred stock, $0.001 par value per
share;
-- 750,000 shares of series H preferred stock, $0.001 par value per
share; and
-- 90,000 shares of series I preferred stock, $0.001 par value per
share.
Common Stock
Holders of common stock are entitled to one vote for each share held of
record on all matters submitted to a vote of the stockholders, and do not have
cumulative voting rights. Subject to preferences that may be applicable to any
outstanding shares of preferred stock, holders of common stock are entitled to
receive ratably such dividends, if any, as declared by our board of directors
out of funds legally available for dividend payments. All outstanding shares of
common stock are fully paid and nonassessable, and the holders of common stock
have no preferences or rights of conversion, exchange or pre-emption. In the
event of any liquidation, dissolution or winding-up of our affairs, holders of
common stock will be entitled to share ratably in our assets that are remaining
after payment or provision for payment of all of our debts and obligations and
after liquidation payments to holders of outstanding shares of preferred stock,
if any.
Preferred Stock
Series C Preferred Stock
The series C preferred stock entitles the holder thereof to 117.03 votes
per share on all matters as to which common stock may vote. The series C
preferred stock may be converted into common stock at any time at the option of
the holder. Additionally, the series C preferred stock automatically converts
into common stock upon the conversion of series C preferred stock owned or held
by Signal Equity Partners, L.P. or upon the consummation of an underwritten
public offering that either results in net proceeds to us of $75 million or
otherwise on terms reasonably acceptable to Signal. The conversion ratio for the
series C preferred stock is one share of common stock for every one share of
series C preferred stock, subject to certain customary anti-dilution adjustments
that may be
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made from time to time. In the event of a liquidation, after we pay our debts
and other liabilities, the holders of the series C preferred stock are entitled
to receive $1.50 per share plus any accrued but unpaid dividends before any
distribution to holders of common stock. The holders of series C preferred stock
are also entitled to certain anti-dilution protections. The holders of series C
preferred stock are entitled to dividends when, as and if declared by our board
of directors on the common stock on a ratable basis based upon the number of
shares of common stock into which the series C preferred stock is then
convertible.
Series D, E and F Preferred Stock
The series D, E and F preferred stock may be converted into common stock at
any time at the option of the holder. Additionally, the series D, E and F
preferred stock shall be deemed to be converted upon written notice of the
conversion of the series D, E or F preferred stock by Signal. The series D, E
and F preferred stock automatically convert upon the consummation of an
underwritten public offering that either results in net proceeds to us of $75
million or otherwise on terms reasonably acceptable to Signal. The conversion
ratio for the conversion of the series D, E and F preferred stock into common
stock is equal to ten shares of common stock for every one share of series D, E
or F preferred stock, subject to customary anti-dilution adjustments that may be
made from time to time. The series D, E and F preferred stock are not entitled
to vote. In the event of a liquidation, after payment of our debts and other
liabilities, the holders of the series D and E preferred stock are entitled to
receive $15.00 per share of series D or E preferred stock held plus any accrued
but unpaid dividends before any distribution to holders of common stock. The
holders of the series F preferred stock are entitled to receive $30.00 per share
of series F preferred stock held plus any accrued but unpaid dividends before
any distribution to holders of common stock. The holders of the series D
preferred stock are entitled to receive dividends at a rate of 4% per annum on
the base amount of $15.00 per share of preferred stock. The holders of the of
the series E and F preferred stock are entitled to receive dividends at a rate
of 8% per annum, on the base amount of $15.00 for the series E preferred stock
and $30.00 the series F preferred stock per share of preferred stock.
Series H and I Preferred Stock
The series H and I preferred stock may be converted into common stock at
any time at the option of the holder. Additionally, the series H and I preferred
stock shall automatically convert upon the consummation of an underwritten
public offering that results in net proceeds to us of $75 million. The
conversion ratio for the conversion of the series H and I preferred stock into
common stock is equal to ten shares of common stock for every one share of
series H or I preferred stock, subject to customary anti-dilution adjustments
that may be made from time to time. The series H and I preferred stock are not
entitled to vote. In the event of a liquidation, after payment of our debts and
other liabilities, the holders of the series H preferred stock are entitled to
receive $100.00 per share and the holders of the Series I preferred stock are
entitled to receive $120.00 per share, each in addition to any accrued but
unpaid dividends before any distribution to holders of common stock. The holders
of the series H preferred stock are entitled to receive dividends at a rate of
8% per annum on the base amount of $100.00 per share. The holders of the of the
series I preferred stock are entitled to receive dividends at a rate of 8% per
annum, on the base amount of $120.00 per share.
Other Preferred Stock
Under our certificate of incorporation, our board of directors is
authorized to issue shares of preferred stock from time to time without
stockholder approval. Our board of directors is also authorized to establish the
number of shares to be included in such series and to fix the terms,
limitations, relative rights and preferences and variations of each series.
Although we have no present plans to issue additional shares of preferred stock,
the issuance of shares of preferred stock, or the issuance of rights to purchase
such shares, could decrease the amount of earnings and assets available for
distribution to the holders of common stock, could adversely affect the rights
and powers, including voting rights, of the common stock, and could have the
effect of delaying, deterring or preventing a change in control of FiberNet or
an unsolicited acquisition proposal.
If we offer a series of preferred stock, we will describe the particular
terms and conditions of the series of preferred stock offered by a prospectus
supplement in the prospectus supplement relating to that series of preferred
stock. The applicable prospectus supplement or prospectus supplements will
describe the following terms of each series of preferred stock being offered:
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. its title;
. the number of shares offered, any liquidation preference per share and
the purchase price;
. any applicable dividend rate(s), period(s) and/or payment date(s) or
method(s) of calculation;
. if dividends apply whether they shall be cumulative or non-cumulative
and, if cumalative, the date from which dividends shall accumulate;
. any procedures for any auction and remarketing;
. any provisions for a sinking fund;
. any provisions for redemption;
. any listing of such preferred stock on any securities exchange or
market;
. the terms and conditions, if applicable, upon which it will be
convertible into our common stock or another series of our preferred
stock, including the conversion price (or manner of calculation thereof)
and conversion period;
. the terms and conditions, if applicable, upon which it will be
exchangeable into our debt securities, including the exchange price (or
manner of calculation thereof) and exchange period;
. any voting rights;
. a discussion of any applicable material and/or special United States
federal income tax considerations;
. its relative ranking and preferences as to any dividend rights and
rights upon liquidation, dissolution or winding up of our affairs;
. any limitations on the future issuance of any class or series of
preferred stock ranking senior to or on a parity with the series of
preferred stock being offered as to dividend rights and rights upon
liquidation, dissolution or winding up of our affairs; and
. any other specific terms, preferences, rights, limitations or
restrictions.
Stockholders Agreement
We have entered into a stockholders agreement with holders of approximately
47,359,487 shares of our common stock, including 15,029,498 shares of common
stock issuable upon the conversion of our preferred stock, 7,711,180 shares of
our common stock issuable upon the exercise of warrants and 3,550,655 shares of
our common stock issuable upon the exercise of options. All provisions of the
stockholders agreement, including those described below, may be amended from
time to time by us and Signal Equity Partners, as the majority in interest, and
under certain circumstances with the additional consent of Nortel Networks Inc.
Proxy. Pursuant to the stockholders agreement, LTJ Group, Inc., SMFS, Inc.
and LPS Consultants, Inc. granted an irrevocable proxy to Signal Equity
Partners, Trident Telecom Partners and Concordia Telecom Management to vote all
of the shares, an aggregate of 12,035,580 shares beneficially owned by them at
all meetings of our stockholders. The proxy expires on June 30, 2001.
Pre-emptive Rights. The parties to the stockholders agreement have certain
pre-emptive rights, pursuant to which we may not sell any of our capital stock,
equity securities or debt securities which are convertible into any
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equity security, or any options or warrants or other rights to subscribe for,
purchase or otherwise acquire any of our securities unless we first offer to
sell such securities to the parties to the agreement. Such offer may specify
that all or a minimum amount of securities must be sold in such offering.
Lock-up. Parties to the stockholders agreement shall not transfer any of
their stock for the period provided for in any lock-up agreement entered into by
such stockholder at the request of the underwriters of a public offering with
proceeds to us of at least $75 million or otherwise on terms reasonably
acceptable to Signal and Nortel. If the stockholder does not enter into a lock-
up agreement, pursuant to our stockholders agreement they will not be permitted
to transfer any of their stock until July 1, 2001.
Additional Transfer Restrictions. The parties to this agreement may not
transfer any of their stock to anyone other than certain affiliates without
complying with certain tag-along, right of first offer and drag-along rights.
The tag-along rights are only applicable to a holder who desires to sell twenty
percent (20%) or more of our common stock, as determined on a fully diluted
basis, and require such a seller to allow the other stockholders to participate
in the sale up to their proportionate percentage of the aggregate number of
shares of common stock. The right of first offer provides that in the event
that Signal proposes to have us transfer all or substantially all of our
outstanding stock and such a transfer would include at least fifty percent (50%)
of the stock owned or held by Signal, then Trident Telecom Partners LLC and
certain of our other stockholders have the exclusive right of first offer to
purchase all of the stock of Signal included in such offer for ten days. If
this right of first offer is not exercised or does not apply, and our board of
directors, with the consent of the directors appointed by Signal, approves a
sale of a majority of our stock, a merger or consolidation with another entity
in which our stockholders will receive cash or securities of such other entity
in exchange for their shares, or a sale of all or substantially all of our
assets, then all of the parties to the stockholders agreement must participate
in such transaction.
Registration Rights
The following registration rights are subject to certain conditions and
limitations, including:
. the limitations on transfer contained in our stockholders agreement; and
. the right of underwriters of an offering generally to limit the number
of shares included in any such registration under certain circumstances.
We are a party to three different registration rights agreements. As of
December 31, 2000, the holders of approximately 50,894,732 shares of common
stock, including shares that the holders have the rights to acquire, can cause
us to register their shares of common stock for public resale pursuant to one of
our three registration rights agreements as more fully described below.
Demand Rights
May 7, 1999 Registration Rights Agreement. Under a registration rights
agreement dated May 7, 1999, any two of Signal Equity Partners, L.P., Concordia
Telecom Management LLC, or Trident Telecom Management LLC may demand that we
register, as of December 31, 2000, up to approximately 35,538,075 shares of our
common stock, including shares that the holders have the rights to acquire, held
by stockholders that purchased securities under the May or September purchase
agreements and certain other stockholders. These demand rights may be exercised
on two occasions.
In addition, any party to our registration rights agreement dated May 7,
1999, who has obtained the consent of Signal and Concordia or the consent of
Trident and Concordia, may request that we register the shares held by them on a
Form S-3 registration statement. This demand right is limited to two requests
within a 12 month period. The registration rights of these stockholders will
terminate when the shares held by them may be sold under Rule 144 under the
Securities Act.
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Metromedia Fiber Network Services, Inc. Registration Rights Agreement. We
have entered into an exchange and registration rights agreement with Metromedia
Fiber Network Services, Inc., dated as of December 17, 1999. Under this
agreement, under certain circumstances, Metromedia may demand that we register
all or part of their 5,000,000 shares of common stock. This demand right may be
exercised on two occasions.
Nortel Networks Inc. Registration Rights Agreement. We have entered into a
registration rights agreement with Nortel Networks Inc., dated as of June 30,
2000. Under this agreement, Nortel may demand that we register up to 4,888,330
shares of our common stock held by them. This demand right may be exercised on
two occasions.
In addition, Nortel may request that we register the shares held by them on
a Form S-3 registration statement. This demand right is limited to two requests
within a 12 month period. This right will terminate when the shares held by
Nortel may be sold under Rule 144 under the Securities Act.
Piggyback Rights
Pursuant to our registration rights agreements, as of December 31, 2000,
the holders of approximately 50,894,732 shares of our common stock and shares of
our common stock issuable upon the exercise of outstanding options and warrants
will be entitled to piggyback registration rights with respect to registration
of their shares under the Securities Act, subject to various limitations,
including receiving the consent of Concordia and either of Trident or Signal.
These piggyback registration rights require us to notify the holders anytime we
propose to register any of our securities under the Securities Act, whether for
our own account or for the account of other security holders exercising
registration rights, and to use our best efforts to include their shares of
common stock in the registration.
Delaware Law and Certain Charter and By Law Provisions
The provisions of Delaware law and of our certificate of incorporation and
bylaws discussed below could discourage or make it more difficult to accomplish
a proxy contest or other change in our management or the acquisition of control
by a holder of a substantial amount of our voting stock. It is possible that
these provisions could make it more difficult to accomplish, or could deter,
transactions that stockholders may otherwise consider to be in their best
interests or the best interests of FiberNet.
Delaware Statutory Business Combinations Provision. We are subject to the
anti-takeover provisions of Section 203 of the Delaware General Corporations
Law. In general, Section 203 prohibits a publicly-held Delaware corporation from
engaging in a business combination with an interested stockholder for a period
of three years after the date of the transaction in which the person became an
interested stockholder, unless the business combination is, or the transaction
in which the person became an interested stockholder was, approved in a
prescribed manner or another prescribed exception applies. For purposes of
Section 203, a business combination is defined broadly to include a merger,
asset sale or other transaction resulting in a financial benefit to the
interested stockholder, and, subject to certain exceptions, an interested
stockholder is a person who, together with his or her affiliates and associates,
owns, or within three years prior, did own, 15% or more of the corporation's
voting stock.
Special Meetings of Stockholders. Special meetings of the stockholders may
be called only by our board of directors or president.
Transfer Agent and Registrar
The transfer agent and registrar for the common stock is First Union
National Bank.
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DESCRIPTION OF DEBT SECURITIES
The following description, together with the additional information we
include in any applicable prospectus supplement, summarizes the material terms
and provisions of the debt securities that we may offer under this prospectus.
While the terms we have summarized below will apply generally to any future debt
securities we may offer, we will describe the particular terms of any debt
securities that we may offer in more detail in the applicable prospectus
supplement. If we indicate in a prospectus supplement, the terms of any debt
securities we offer under that prospectus supplement may differ from the terms
we describe below.
We will issue the senior notes under the senior indenture which we will
enter into with a trustee to be named in the senior indenture. We will issue the
subordinated notes under the subordinated indenture which we will enter into
with a trustee to be named in the subordinated indenture. We have filed forms of
these documents as exhibits to the registration statement which includes this
prospectus. We use the term "indentures" to refer to both the senior indenture
and the subordinated indenture. The indentures will be qualified under the Trust
Indenture Act. We use the term "debenture trustee" to refer to either the senior
trustee or the subordinated trustee, as applicable.
The following summaries of material provisions of the senior notes, the
subordinated notes and the indentures are subject to, and qualified in their
entirety by reference to, all the provisions of the indenture applicable to a
particular series of debt securities. Except as we may otherwise indicate, the
terms of the senior indenture and the subordinated indenture are identical.
We conduct some of our operations through our subsidiaries. Our rights and
the rights of our creditors, including holders of debt securities, to the assets
of any subsidiary of ours upon that subsidiary's liquidation or reorganization
or otherwise would be subject to the prior claims of that subsidiary's
creditors, except to the extent that we may be a creditor with recognized claims
against the subsidiary.
General
. We will describe in each prospectus supplement the following terms
relating to a series of notes:
. the title;
. any limit on the amount that may be issued;
. whether or not we will issue the series of notes in global form, the
terms and who the depository will be;
. the maturity date;
. the annual interest rate, which may be fixed or variable, or the method
for determining the rate and the date interest will begin to accrue, the
dates interest will be payable and the regular record dates for interest
payment dates or the method for determining such dates;
. whether or not the notes will be secured or unsecured, and the terms of
any secured debt;
. the terms of the subordination of any series of subordinated debt;
. the place where payments will be payable;
. our right, if any, to defer payment of interest and the maximum length
of any such deferral period;
. the date, if any, after which, and the price at which, we may, at our
option, redeem the series of notes pursuant to any optional redemption
provisions;
. the date, if any, on which, and the price at which we are obligated,
pursuant to any mandatory sinking fund provisions or otherwise, to
redeem, or at the holder's option to purchase, the series of notes;
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. whether the indenture will restrict our ability to pay dividends, or
will require us to maintain any asset ratios or reserves;
. whether we will be restricted from incurring any additional
indebtedness;
. a discussion on any material or special United States federal income tax
considerations applicable to the notes;
. the denominations in which we will issue the series of notes, if other
than denominations of $1,000 and any integral multiple thereof;
. if other than in U.S. dollars, the currency or currencies, including
currency unit or units, in which the principal of, and premium, if any,
and interest, if any, on the debt securities will be payable, or in
which the debt securities shall be denominated; and
. any other specific terms, preferences, rights or limitations of, or
restrictions on, the debt securities.
Conversion or Exchange Rights
We will set forth in the prospectus supplement the terms on which a series
of notes may be convertible into or exchangeable for common stock or other
securities of ours. We will include provisions as to whether conversion or
exchange is mandatory, at the option of the holder or at our option. We may
include provisions pursuant to which the number of shares of common stock or
other securities of ours that the holders of the series of notes receive would
be subject to adjustment.
Consolidation, Merger or Sale
The indentures do not contain any covenant which restricts our ability to
merge or consolidate, or sell, convey, transfer or otherwise dispose of all or
substantially all of our assets. However, any successor to or acquirer of such
assets must assume all of our obligations under the indentures or the notes, as
appropriate.
Events of Default Under the Indenture
The following are events of default under the indentures with respect to
any series of notes that we may issue:
. if we fail to pay interest when due and our failure continues for 90
days and the time for payment has not been extended or deferred;
. if we fail to pay the principal, or premium, if any, when due and the
time for payment has not been extended or delayed;
. if we fail to observe or perform any other covenant contained in the
notes or the indentures, other than a covenant specifically relating to
another series of notes, and our failure continues for 90 days after we
receive notice from the debenture trustee or holders of at least 25% in
aggregate principal amount of the outstanding notes of the applicable
series; and
. if specified events of bankruptcy, insolvency or reorganization occur as
to us.
If an event of default with respect to notes of any series occurs and is
continuing, the debenture trustee or the holders of at least 25% in aggregate
principal amount of the outstanding notes of that series, by notice to us in
writing, and to the debenture trustee if notice is given by such holders, may
declare the unpaid principal of, premium, if any, and accrued interest, if any,
due and payable immediately.
The holders of a majority in principal amount of the outstanding notes of
an affected series may waive any default or event of default with respect to the
series and its consequences, except defaults or events of default
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regarding payment of principal, premium, if any, or interest, unless we have
cured the default or event of default in accordance with the indenture. Any
waiver shall cure the default or event of default.
Subject to the terms of the indentures, if an event of default under an
indenture shall occur and be continuing, the debenture trustee will be under no
obligation to exercise any of its rights or powers under such indenture at the
request or direction of any of the holders of the applicable series of notes,
unless such holders have offered the debenture trustee reasonable indemnity. The
holders of a majority in principal amount of the outstanding notes of any series
will have the right to direct the time, method and place of conducting any
proceeding for any remedy available to the debenture trustee, or exercising any
trust or power conferred on the debenture trustee, with respect to the notes of
that series, provided that:
. the direction so given by the holder is not in conflict with any law or
the applicable indenture; and
. subject to its duties under the Trust Indenture Act, the debenture
trustee need not take any action that might involve it in personal
liability or might be unduly prejudicial to the holders not involved in
the proceeding.
. A holder of the notes of any series will only have the right to
institute a proceeding under the indentures or to appoint a receiver or
trustee, or to seek other remedies if:
. the holder has given written notice to the debenture trustee of a
continuing event of default with respect to that series;
. the holders of at least 25% in aggregate principal amount of the
outstanding notes of that series have made written request, and such
holders have offered reasonable indemnity to the debenture trustee to
institute the proceeding as trustee; and
. the debenture trustee does not institute the proceeding, and does not
receive from the holders of a majority in aggregate principal amount of
the outstanding notes of that series other conflicting directions within
60 days after the notice, request and offer.
These limitations do not apply to a suit instituted by a holder of notes if
we default in the payment of the principal, premium, if any, or interest on, the
notes.
We will periodically file statements with the debenture trustee regarding
our compliance with specified covenants in the indentures.
Modification of Indenture; Waiver
We and the debenture trustee may change an indenture without the consent of
any holders with respect to specific matters, including:
. to fix any ambiguity, defect or inconsistency in the indenture; and
. to change anything that does not materially adversely affect the
interests of any holder of notes of any series.
In addition, under the indentures, the rights of holders of a series of
notes may be changed by us and the debenture trustee with the written consent of
the holders of at least a majority in aggregate principal amount of the
outstanding notes of each series that is affected. However, we and the debenture
trustee may only make the following changes with the consent of each holder of
any outstanding notes affected:
. extending the fixed maturity of the series of notes;
. reducing the principal amount, reducing the rate of or extending the
time of payment of interest, or any premium payable upon the redemption
of any notes; or
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. reducing the percentage of notes, the holders of which are required to
consent to any amendment.
Discharge
Each indenture provides that we can elect to be discharged from our
obligations with respect to one or more series of debt securities, except for
obligations to:
. register the transfer or exchange of debt securities of the series;
. replace stolen, lost or mutilated debt securities of the series;
. maintain paying agencies;
. hold monies for payment in trust;
. compensate and indemnify the trustee; and
. appoint any successor trustee.
In order to exercise our rights to be discharged, we must deposit with the
trustee money or government obligations sufficient to pay all the principal of,
any premium, if any, and interest on, the debt securities of the series on the
dates payments are due.
Form, Exchange, and Transfer
We will issue the notes of each series only in fully registered form
without coupons and, unless we otherwise specify in the applicable prospectus
supplement, in denominations of $1,000 and any integral multiple thereof. The
indentures provide that we may issue notes of a series in temporary or permanent
global form and as book-entry securities that will be deposited with, or on
behalf of, The Depository Trust Company or another depository named by us and
identified in a prospectus supplement with respect to that series. See "Legal
Ownership of Securities" for a further description of the terms relating to any
book-entry securities.
At the option of the holder, subject to the terms of the indentures and the
limitations applicable to global securities described in the applicable
prospectus supplement, the holder of the notes of any series can exchange the
notes for other notes of the same series, in any authorized denomination and of
like tenor and aggregate principal amount.
Subject to the terms of the indentures and the limitations applicable to
global securities set forth in the applicable prospectus supplement, holders of
the notes may present the notes for exchange or for registration of transfer,
duly endorsed or with the form of transfer endorsed thereon duly executed if so
required by us or the security registrar, at the office of the security
registrar or at the office of any transfer agent designated by us for this
purpose. Unless otherwise provided in the notes that the holder presents for
transfer or exchange, we will make no service charge for any registration of
transfer or exchange, but we may require payment of any taxes or other
governmental charges.
We will name in the applicable prospectus supplement the security
registrar, and any transfer agent in addition to the security registrar, that we
initially designate for any notes. We may at any time designate additional
transfer agents or rescind the designation of any transfer agent or approve a
change in the office through which any transfer agent acts, except that we will
be required to maintain a transfer agent in each place of payment for the notes
of each series.
If we elect to redeem the notes of any series, we will not be required to:
. issue, register the transfer of, or exchange any notes of that series
during a period beginning at the opening of business 15 days before the
day of mailing of a notice of redemption of any notes that may be
selected for redemption and ending at the close of business on the day
of the mailing; or
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. register the transfer of or exchange any notes so selected for
redemption, in whole or in part, except the unredeemed portion of any
notes we are redeeming in part.
Information Concerning the Debenture Trustee
The debenture trustee, other than during the occurrence and continuance of
an event of default under an indenture, undertakes to perform only those duties
as are specifically set forth in the applicable indenture. Upon an event of
default under an indenture, the debenture trustee must use the same degree of
care as a prudent person would exercise or use in the conduct of his or her own
affairs. Subject to this provision, the debenture trustee is under no obligation
to exercise any of the powers given it by the indentures at the request of any
holder of notes unless it is offered reasonable security and indemnity against
the costs, expenses and liabilities that it might incur.
Payment and Paying Agents
Unless we otherwise indicate in the applicable prospectus supplement, we
will make payment of the interest on any notes on any interest payment date to
the person in whose name the notes, or one or more predecessor securities, are
registered at the close of business on the regular record date for the interest.
We will pay principal of and any premium and interest on the notes of a
particular series at the office of the paying agents designated by us, except
that unless we otherwise indicate in the applicable prospectus supplement, will
we make interest payments by check which we will mail to the holder. Unless we
otherwise indicate in a prospectus supplement, we will designate the corporate
trust office of the debenture trustee in the City of New York as our sole paying
agent for payments with respect to notes of each series. We will name in the
applicable prospectus supplement any other paying agents that we initially
designate for the notes of a particular series. We will maintain a paying agent
in each place of payment for the notes of a particular series.
All money we pay to a paying agent or the debenture trustee for the payment
of the principal of or any premium or interest on any notes which remains
unclaimed at the end of two years after such principal, premium or interest has
become due and payable will be repaid to us, and the holder of the security
thereafter may look only to us for payment thereof.
Governing Law
The indentures and the notes will be governed by and construed in
accordance with the laws of the State of New York, except to the extent that the
Trust Indenture Act is applicable.
Subordination of Subordinated Notes
The subordinated notes will be unsecured and will be subordinate and junior
in priority of payment to certain of our other indebtedness to the extent
described in a prospectus supplement. The subordinated indenture does not limit
the amount of subordinated notes which we may issue. It also does not limit us
from issuing any other secured or unsecured debt.
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DESCRIPTION OF WARRANTS
The following description, together with the additional information we may
include in any applicable prospectus supplements, summarizes the material terms
and provisions of the warrants that we may offer under this prospectus and the
related warrant agreements and warrant certificates. While the terms summarized
below will apply generally to any warrants that we may offer, we will describe
the particular terms of any series of warrants in more detail in the applicable
prospectus supplement. If we indicate in the prospectus supplement, the terms of
any warrants offered under that prospectus supplement may differ from the terms
described below. Specific warrant agreements will contain additional important
terms and provisions and will be incorporated by reference as an exhibit to the
registration statement which includes this prospectus.
General
We may issue warrants for the purchase of common stock, preferred stock
and/or debt securities in one or more series. We may issue warrants
independently or together with common stock, preferred stock and/or debt
securities, and the warrants may be attached to or separate from these
securities.
We will evidence each series of warrants by warrant certificates that we
will issue under a separate agreement. We will enter into the warrant agreement
with a warrant agent. We will indicate the name and address of the warrant agent
in the applicable prospectus supplement relating to a particular series of
warrants.
We will describe in the applicable prospectus supplement the terms of the
series of warrants, including:
. the offering price and aggregate number of warrants offered;
. the currency for which the warrants may be purchased;
. if applicable, the designation and terms of the securities with which
the warrants are issued and the number of warrants issued with each such
security or each principal amount of such security;
. if applicable, the date on and after which the warrants and the related
securities will be separately transferable;
. in the case of warrants to purchase debt securities, the principal
amount of debt securities purchasable upon exercise of one warrant and
the price at, and currency in which, this principal amount of debt
securities may be purchased upon such exercise;
. in the case of warrants to purchase common stock or preferred stock, the
number of shares of common stock or preferred stock, as the case may be,
purchasable upon the exercise of one warrant and the price at which
these shares may be purchased upon such exercise;
. the effect of any merger, consolidation, sale or other disposition of
our business on the warrant agreement and the warrants;
. the terms of any rights to redeem or call the warrants;
. any provisions for changes to or adjustments in the exercise price or
number of securities issuable upon exercise of the warrants;
. the dates on which the right to exercise the warrants will commence and
expire;
. the manner in which the warrant agreement and warrants may be modified;
. federal income tax consequences of holding or exercising the warrants;
. the terms of the securities issuable upon exercise of the warrants; and
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. any other specific terms, preferences, rights or limitations of or
restrictions on the warrants.
Before exercising their warrants, holders of warrants will not have any of the
rights of holders of the securities purchasable upon such exercise, including:
. in the case of warrants to purchase debt securities, the right to
receive payments of principal of, or premium, if any, or interest on,
the debt securities purchasable upon exercise or to enforce covenants in
the applicable indenture; or
. in the case of warrants to purchase common stock or preferred stock, the
right to receive dividends, if any, or, payments upon our liquidation,
dissolution or winding up or to exercise voting rights, if any.
Exercise of Warrants
Each warrant will entitle the holder to purchase the securities that we
specify in the applicable prospectus supplement at the exercise price that we
describe in the applicable prospectus supplement. Unless we otherwise specify in
the applicable prospectus supplement, holders of the warrants may exercise the
warrants at any time up to 5:00 P.M. New York City, New York time on the
expiration date that we set forth in the applicable prospectus supplement. After
the close of business on the expiration date, unexercised warrants will become
void.
Holders of the warrants may exercise the warrants by delivering the warrant
certificate representing the warrants to be exercised together with specified
information, and paying the required amount to the warrant agent in immediately
available funds, as provided in the applicable prospectus supplement. We will
set forth on the reverse side of the warrant certificate and in the applicable
prospectus supplement the information that the holder of the warrant will be
required to deliver to the warrant agent.
Upon receipt of the required payment and the warrant certificate properly
completed and duly executed at the corporate trust office of the warrant agent
or any other office indicated in the applicable prospectus supplement, we will
issue and deliver the securities purchasable upon such exercise. If fewer than
all of the warrants represented by the warrant certificate are exercised, then
we will issue a new warrant certificate for the remaining amount of warrants. If
we so indicate in the applicable prospectus supplement, holders of the warrants
may surrender securities as all or part of the exercise price for warrants.
Enforceability of Rights By Holders of Warrants
Each warrant agent will act solely as our agent under the applicable
warrant agreement and will not assume any obligation or relationship of agency
or trust with any holder of any warrant. A single bank or trust company may act
as warrant agent for more than one issue of warrants. A warrant agent will have
no duty or responsibility in case of any default by us under the applicable
warrant agreement or warrant, including any duty or responsibility to initiate
any proceedings at law or otherwise, or to make any demand upon us. Any holder
of a warrant may, without the consent of the related warrant agent or the holder
of any other warrant, enforce by appropriate legal action its right to exercise,
and receive the securities purchasable upon exercise of, its warrants.
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LEGAL OWNERSHIP OF SECURITIES
We can issue securities in registered form or in the form of one or more
global securities. We describe global securities in greater detail below. We
refer to those persons who have securities registered in their own names on the
books that we or any applicable trustee maintain for this purpose as the
"holders" of those securities. These persons are the legal holders of the
securities. We refer to those persons who, indirectly through others, own
beneficial interests in securities that are not registered in their own names,
as "indirect holders" of those securities. As we discuss below, indirect holders
are not legal holders, and investors in securities issued in book-entry form or
in street name will be indirect holders.
Book-Entry Holders
We may issue securities in book-entry form only, as we will specify in the
applicable prospectus supplement. This means securities may be represented by
one or more global securities registered in the name of a financial institution
that holds them as depositary on behalf of other financial institutions that
participate in the depositary's book-entry system. These participating
institutions, which are referred to as participants, in turn, hold beneficial
interests in the securities on behalf of themselves or their customers.
Only the person in whose name a security is registered is recognized as the
holder of that security. Securities issued in global form will be registered in
the name of the depositary or its participants. Consequently, for securities
issued in global form, we will recognize only the depositary as the holder of
the securities, and we will make all payments on the securities to the
depositary. The depositary passes along the payments it receives to its
participants, which in turn pass the payments along to their customers who are
the beneficial owners. The depositary and its participants do so under
agreements they have made with one another or with their customers; they are not
obligated to do so under the terms of the securities.
As a result, investors in a book-entry security will not own securities
directly. Instead, they will own beneficial interests in a global security,
through a bank, broker or other financial institution that participates in the
depositary's book-entry system or holds an interest through a participant. As
long as the securities are issued in global form, investors will be indirect
holders, and not holders, of the securities.
Street Name Holders
We may terminate a global security or issue securities in non-global form.
In these cases, investors may choose to hold their securities in their own names
or in "street name." Securities held by an investor in street name would be
registered in the name of a bank, broker or other financial institution that the
investor chooses, and the investor would hold only a beneficial interest in
those securities through an account he or she maintains at that institution.
For securities held in street name, we will recognize only the intermediary
banks, brokers and other financial institutions in whose names the securities
are registered as the holders of those securities, and we will make all payments
on those securities to them. These institutions pass along the payments they
receive to their customers who are the beneficial owners, but only because they
agree to do so in their customer agreements or because they are legally required
to do so. Investors who hold securities in street name will be indirect holders,
not holders, of those securities.
Legal Holders
Our obligations, as well as the obligations of any applicable trustee and
of any third parties employed by us or a trustee, run only to the legal holders
of the securities. We do not have obligations to investors who hold beneficial
interests in global securities, in street name or by any other indirect means.
This will be the case whether an investor chooses to be an indirect holder of a
security or has no choice because we are issuing the securities only in global
form.
For example, once we make a payment or give a notice to the holder, we have
no further responsibility for the payment or notice even if that holder is
required, under agreements with depositary participants or customers or by law,
to pass it along to the indirect holders but does not do so. Similarly, we may
want to obtain the approval of
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the holders to amend an indenture, to relieve us of the consequences of a
default or of our obligation to comply with a particular provision of the
indenture or for other purposes. In such an event, we would seek approval only
from the holders, and not the indirect holders, of the securities. Whether and
how the holders contact the indirect holders is up to the holders.
Special Considerations for Indirect Holders
If you hold securities through a bank, broker or other financial
institution, either in book-entry form or in street name, you should check with
your own institution to find out:
. how it handles securities payments and notices;
. whether it imposes fees or charges;
. how it would handle a request for the holders' consent, if ever
required;
. whether and how you can instruct it to send you securities registered
in your own name so you can be a holder, if that is permitted in the
future;
. how it would exercise rights under the securities if there were a
default or other event triggering the need for holders to act to
protect their interests; and
. if the securities are in book-entry form, how the depositary's rules
and procedures will affect these matters.
Global Securities
A global security is a security held by a depositary which represents one
or any other number of individual securities. Generally, all securities
represented by the same global securities will have the same terms.
Each security issued in book-entry form will be represented by a global
security that we deposit with and register in the name of a financial
institution or its nominee that we select. The financial institution that we
select for this purpose is called the depositary. Unless we specify otherwise in
the applicable prospectus supplement, The Depository Trust Company, New York,
New York, known as DTC, will be the depositary for all securities issued in
book-entry form.
A global security may not be transferred to or registered in the name of
anyone other than the depositary, its nominee or a successor depositary, unless
special termination situations arise. We describe those situations below under
"--Special Situations When a Global Security Will Be Terminated." As a result of
these arrangements, the depositary, or its nominee, will be the sole registered
owner and holder of all securities represented by a global security, and
investors will be permitted to own only beneficial interests in a global
security. Beneficial interests must be held by means of an account with a
broker, bank or other financial institution that in turn has an account with the
depositary or with another institution that does. Thus, an investor whose
security is represented by a global security will not be a holder of the
security, but only an indirect holder of a beneficial interest in the global
security.
If the prospectus supplement for a particular security indicates that the
security will be issued in global form only, then the security will be
represented by a global security at all times unless and until the global
security is terminated. If termination occurs, we may issue the securities
through another book-entry clearing system or decide that the securities may no
longer be held through any book-entry clearing system.
Special Considerations for Global Securities
As an indirect holder, an investor's rights relating to a global security
will be governed by the account rules of the investor's financial institution
and of the depositary, as well as general laws relating to securities transfers.
We do not recognize an indirect holder as a holder of securities and instead
deal only with the depositary that holds the global security.
If securities are issued only in the form of a global security, an investor
should be aware of the following:
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. An investor cannot cause the securities to be registered in his or her
name, and cannot obtain non-global certificates for his or her
interest in the securities, except in the special situations we
describe below;
. An investor will be an indirect holder and must look to his or her own
bank or broker for payments on the securities and protection of his or
her legal rights relating to the securities, as we describe under "--
Legal Ownership of Securities" above;
. An investor may not be able to sell interests in the securities to
some insurance companies and to other institutions that are required
by law to own their securities in non-book-entry form;
. An investor may not be able to pledge his or her interest in a global
security in circumstances where certificates representing the
securities must be delivered to the lender or other beneficiary of the
pledge in order for the pledge to be effective;
. The depositary's policies, which may change from time to time, will
govern payments, transfers, exchanges and other matters relating to an
investor's interest in a global security. We and any applicable
trustee have no responsibility for any aspect of the depositary's
actions or for its records of ownership interests in a global
security. We and the trustee also do not supervise the depositary in
any way;
. The depositary may, and we understand that DTC will, require that
those who purchase and sell interests in a global security within its
book- entry system use immediately available funds, and your broker or
bank may require you to do so as well; and
. Financial institutions that participate in the depositary's book-entry
system, and through which an investor holds its interest in a global
security, may also have their own policies affecting payments, notices
and other matters relating to the securities. There may be more than
one financial intermediary in the chain of ownership for an investor.
We do not monitor and are not responsible for the actions of any of
those intermediaries.
Special Situations When a Global Security will be Terminated
In a few special situations described below, the global security will
terminate and interests in it will be exchanged for physical certificates
representing those interests. After that exchange, the choice of whether to hold
securities directly or in street name will be up to the investor. Investors must
consult their own banks or brokers to find out how to have their interests in
securities transferred to their own name, so that they will be direct holders.
We have described the rights of holders and street name investors above.
The global security will terminate when the following special situations
occur:
. if the depositary notifies us that it is unwilling, unable or no
longer qualified to continue as depositary for that global security
and we do not appoint another institution to act as depositary within
90 days;
. if we notify any applicable trustee that we wish to terminate that
global security; or
. if an event of default has occurred with regard to securities
represented by that global security and has not been cured or waived.
The prospectus supplement may also list additional situations for
terminating a global security that would apply only to the particular series of
securities covered by the prospectus supplement. When a global security
terminates, the depositary, and not we or any applicable trustee, is responsible
for deciding the names of the institutions that will be the initial direct
holders.
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PLAN OF DISTRIBUTION
We may sell the securities being offered hereby in one or more of the
following ways from time to time:
. through dealers or agents to the public or to investors;
. to underwriters for resale to the public or to investors;
. directly to investors; or
. through a combination of such methods.
We will set forth in a prospectus supplement the terms of the offering of
securities, including:
. the name or names of any agents, dealers or underwriters;
. the purchase price of the securities being offered and the proceeds we
will receive from the sale;
. any over-allotment options under which underwriters may purchase
additional securities from us;
. any agency fees or underwriting discounts and other items constituting
agents' or underwriters' compensation;
. any discounts or concessions allowed or reallowed or paid to dealers;
and
. any securities exchanges on which such securities may be listed.
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LEGAL MATTERS
The validity of the securities offered hereby will be passed upon for us by
Mintz, Levin, Cohn, Ferris, Glovsky and Popeo, P.C., New York, New York.
Attorneys for Mintz, Levin, Cohn, Ferris, Glovsky and Popeo, P.C. collectively
own 11,827 shares of our common stock.
EXPERTS
Arthur Andersen LLP, independent auditors, have audited our consolidated
financial statements for the years ended December 31, 1998 and 1999, and for the
six-month period ended December 31, 1997, as described in their report. We have
incorporated by reference our consolidated financial statements in the
prospectus and elsewhere in this registration statement in reliance on Arthur
Andersen LLP's report given on their authority as experts in accounting and
auditing.
Mendelsohn Kary Bell & Natoli, independent public accountants, have audited
our consolidated financial statements for the period from August 10, 1994, the
date of our inception, to June 30, 1997, and for the fiscal year ended June 30,
1997, as described in this report. We have incorporated by reference our
consolidated financial statements in the prospectus and elsewhere in this
registration statement in reliance on Mendelsohn Kary Bell & Natoli's report
given on their authority as experts in accounting and auditing.
WHERE YOU CAN FIND MORE INFORMATION
We are a public company and file annual, quarterly and special reports,
proxy statements and other information with the Securities and Exchange
Commission. You may read and copy any document we file at the SEC's Public
Reference Room at 450 Fifth Street, N.W., Washington, D.C. 20549. You can
request copies of these documents by writing to the SEC and paying a fee for the
copying cost. Please call the SEC at 1-800-SEC-0330 for more information about
the operation of the public reference room. Our SEC filings are also available
to the public at the SEC's web site at "http://www.sec.gov." In addition, our
stock is listed for trading on the Nasdaq National Market. You can read and copy
reports and other information concerning us at the offices of the National
Association of Securities Dealers, Inc. located at 1735 K Street, Washington,
D.C. 20006.
This prospectus is only part of a Registration Statement on Form S-3 that
we have filed with the SEC under the Securities Act of 1933 and therefore omits
certain information contained in the Registration Statement. We have also filed
exhibits and schedules with the Registration Statement that are excluded from
this prospectus, and you should refer to the applicable exhibit or schedule for
a complete description of any statement referring to any contract or other
document. You may:
-- inspect a copy of the Registration Statement, including the exhibits and
schedules, without charge at the public reference room or,
-- obtain a copy from the SEC upon payment of the fees prescribed by the
SEC.
INCORPORATION OF DOCUMENTS BY REFERENCE
The SEC allows us to "incorporate by reference" the information we file
with it, which means that we can disclose important information to you by
referring you to those documents. The information incorporated by reference is
considered to be part of this prospectus and information we file later with the
SEC will automatically update and supersede this information. We incorporate by
reference the documents listed below and any future filings made with the SEC
under Sections 13(a), 13(c), 14 or 15(d) of the Securities Exchange Act of 1934.
The documents we are incorporating by reference are:
. Annual Report on Form 10-KSB for the year ended December 31, 1999,
filed on March 30, 2000;
. Current Report on Form 8-K, filed on April 14, 2000;
55
<PAGE>
. Quarterly Report on Form 10-QSB for the quarter ended March 31, 2000,
filed on May 15, 2000;
. Current Report on Form 8-K filed on June 8, 2000;
. Current Report on Form 8-K filed on July 11, 2000;
. Current Report on Form 8-K filed on August 4, 2000;
. Quarterly Report on Form 10-QSB for the quarter ended June 30, 2000,
filed on August 11, 2000;
. Current Report on Form 8-K, filed on August 15, 2000; and
. Quarterly Report on Form 10-QSB for the quarter ended September 30,
2000, filed on November 9, 2000.
You may request, orally or in writing, a copy of these documents, which
will be provided to you at no cost, by contacting:
Investor Relations, FiberNet Telecom Group, Inc., 570 Lexington Avenue, New
York, New York 10022.
56
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LOGO
57
<PAGE>
PART II
INFORMATION NOT REQUIRED IN PROSPECTUS
Item 14. Other Expenses of Issuance and Distribution.
The following table sets forth an itemization of all estimated expenses,
all of which we will pay, in connection with the issuance and distribution of
the securities being registered:
SEC Registration Fee....................................... $ 39,563
Nasdaq National Market Additional Listing Fee.............. 25,000*
Printing and Engraving Fees................................ 150,000*
Legal Fees and Expenses.................................... 500,000*
Accounting Fees and Expenses............................... 250,000*
Blue Sky Fees and Expenses................................. 10,000*
Transfer Agent and Registrar Fees.......................... 10,000*
Miscellaneous.............................................. 115,437*
----------
1,100,000
Total...................................................... ==========
* Estimated
Item 15. Indemnification of Directors and Officers.
Our certificate of incorporation provides that we shall indemnify to the
fullest extent authorized by the Delaware General Corporation Law, each person
who is involved in any litigation or other proceeding because such person is or
was one of our directors or officers or is or was serving as an officer or
director of another entity at our request, against all expense, loss or
liability reasonably incurred or suffered in connection therewith.
Section 145 of the Delaware General Corporation Law permits a corporation
to indemnify any director or officer of the corporation against expenses,
including attorney's fees, judgments, fines and amounts paid in settlement
actually and reasonably incurred in connection with any action, suit or
proceeding brought by reason of the fact that such person is or was a director
or officer of the corporation, if such person acted in good faith and in a
manner that he reasonably believed to be in, or not opposed to, the best
interests of the corporation, and, with respect to any criminal action or
proceeding, if he or she had no reason to believe his or her conduct was
unlawful. In a derivative action, that is one brought by or on behalf of the
corporation, indemnification may be provided only for expenses actually and
reasonably incurred by any director or officer in connection with the defense or
settlement of such an action or suit if such person acted in good faith and in a
manner that he or she reasonably believed to be in, or not opposed to, the best
interests of the corporation, except that no indemnification shall be provided
if such person shall have been adjudged to be liable to the corporation, unless
and only to the extent that the court in which the action or suit was brought
shall determine that the defendant is fairly and reasonably entitled to
indemnity for such expenses despite such adjudication of liability.
Pursuant to Section 102(b)(7) of the Delaware General Corporation Law,
Article VII of our certificate of incorporation eliminates the liability of a
director to us or our stockholders for monetary damages for such a breach of
fiduciary duty as a director, except for liabilities arising:
. from any breach of the director's duty of loyalty to us or our
stockholders;
. from acts or omissions not in good faith or which involve intentional
misconduct or a knowing violation of law;
. under Section 174 of the Delaware General Corporation Law; and
. from any transaction from which the director derived an improper
personal benefit.
58
<PAGE>
Our bylaws provide that we must indemnify our directors, officers, and
employees to the fullest extent permitted by law. We believe that
indemnification under our bylaws covers at least negligence and gross negligence
on the part of indemnified parties. Our bylaws also permit us to secure
insurance on behalf of any officer, director, employee or other agent for any
liability arising out of his or her actions in this capacity, regardless of
whether the bylaws would permit indemnification. We have purchased directors and
officers liability insurance, which provides coverage against specified
liabilities.
Item 16. Exhibits.
The following exhibits are filed with this registration statement:
Exhibit
-------
Number Description of Exhibit
-------- ----------------------------------------------------
2.1 Agreement and Plan of Reorganization, dated as of June 2, 2000, by
and among us, FiberNet Holdco, Inc., FiberNet Merger Sub, Inc.,
Devnet Merger Sub, LLC, Devnet L.L.C. and FP Enterprises L.L.C.
(excluding the annexes, schedules and exhibits thereto)
(incorporated by reference to Exhibit 2.1 to our Form 8-K filed on
June 8, 2000).
*4.1 Form of certificate for our Common Stock.
*4.2 Form of Warrant to purchase our Common Stock at a purchase price of
$0.67 per share, issued in connection with a private placement on
May 7, 1999.
*4.3 Form of Warrant to purchase our Common Stock at a purchase price of
$1.50 per share, issued in connection with a private placement on
May 7, 1999.
4.4 Stockholders Agreement, dated as of May 7, 1999 by and among us and
the stockholders listed therein (incorporated by reference to
Exhibit H of Schedule 13D, filed on May 17, 1999 with respect to
our Common Stock).
4.5 Registration Rights Agreement, dated as of May 7, 1999 by and among
us and the stockholders listed therein (incorporated by reference
to Exhibit I of Schedule 13D filed on May 17, 1999 with respect to
our Common Stock).
**4.6 Amendment, dated as of June 30, 1999, between FiberNet Telecom
Group, Inc. and Signal Capital Partners, L.P. (currently known as
Signal Equity Partners, L.P.), as the Majority in Interest of the
Purchasers, to the Stockholders Agreement dated as of May 7, 1999
by and among FiberNet Telecom Group, Inc. and the Stockholders
listed therein.
4.7 Second Amendment, dated as of June 30, 2000, between FiberNet
Telecom Group, Inc., Signal Equity Partners, L.P. (formerly known
as Signal Capital Partners, L.P.), as the Majority in Interest of
the Purchasers, and Nortel Networks Inc., to the Stockholders
Agreement dated as of May 7, 1999 by and among FiberNet Telecom
Group, Inc. and the Stockholders listed therein (incorporated by
reference to Exhibit 4.2 to our Form 8-K filed on July 11, 2000).
59
<PAGE>
Exhibit
-------
Number Description of Exhibit
-------- ----------------------------------------------------
4.8 Third Amendment, dated as of July 28, 2000, between FiberNet
Telecom Group, Inc., Signal Equity Partners, L.P. (formerly known
as Signal Capital Partners, L.P.), as the Majority in Interest of
the Purchasers, and Nortel Networks Inc., to the Stockholders
Agreement dated as of May 7, 1999 by and among FiberNet Telecom
Group, Inc. and the Stockholders listed therein (incorporated by
reference to Exhibit 4.1 to our Form 8-K filed on August 4, 2000).
4.9 Fourth Amendment, dated as of August 11, 2000, between FiberNet
Telecom Group, Inc., Signal Equity Partners, L.P. (formerly known
as Signal Capital Partners, L.P.), as the Majority in Interest of
the Purchasers, and Nortel Networks Inc., to the Stockholders
Agreement dated as of May 7, 1999 by and among FiberNet Telecom
Group, Inc. and the Stockholders listed therein. (incorporated by
reference to Exhibit 4.1 to our Form 8-K filed on August 15, 2000).
**4.10 Fifth Amendment, dated as of August 28, 2000, between FiberNet
Telecom Group, Inc., Signal Equity Partners, L.P. (formerly known
as Signal Capital Partners, L.P.), as the Majority of Interest of
the Purchasers, and Nortel Networks Inc., to the Stockholders
Agreement dated as of May 7, 1999 by and among FiberNet Telecom
Group, Inc. and the Stockholders listed therein.
4.11 Warrant Agreement, dated as of April 11, 2000 by and among us,
Deutsche Bank Securities Inc. and Toronto Dominion (Texas), Inc.
(incorporated by reference to Exhibit 4.2 of our Form 10-QSB filed
on May 15, 2000).
*4.12 Warrant Agreement, dated as of July 31, 2000 by and among us and
First Union National Bank.
4.13 Warrant Escrow Agreement, dated as of April 11, 2000 by and among
us, Deutsche Bank Securities Inc., Toronto Dominion (Texas), Inc.
and Bankers Trust Company (incorporated by reference to Exhibit 4.3
of our Form 10-QSB filed on May 15, 2000).
4.14 Registration Rights Agreement, dated as of June 30, 2000, between
FiberNet Telecom Group and Nortel Networks Inc. (incorporated by
reference to Exhibit 4.1 to our Form 8-K filed on July 11, 2000).
**4.15 Form of Senior Indenture
**4.16 Form of Subordinated Indenture
+4.17 Form of Warrant.
+4.18 Form of Certificate of Designation of Preferred Stock.
+5.1 Opinion of Mintz, Levin, Cohn, Ferris, Glovsky and Popeo, P.C. with
respect to the legality of Securities being registered.
60
<PAGE>
Exhibit
-------
Number Description of Exhibit
------- --------------------------------------------------------------
*10.1 Master Purchase Agreement dated as of December 31, 1999, between us
and Nortel Networks Inc.
*10.2 Employment Agreement, dated as of January 18, 2000 between us and
Lance L. Mickel.
*10.3 Note in favor of First Union National Bank dated as of July 31, 2000.
*10.4 Employment Agreement dated as of May 23, 2000 between us and Allan
Zendle.
*10.5 Employment Agreement dated as of June 17, 2000 between us and Warren
Miller.
*10.6 First Amendment and Consent to the Credit Agreement, dated as of July
14, 2000 by and among us, FiberNet Operations, the institutions party
thereto from time to time as lenders, Deutsche Bank AG New York
Branch, Deutsche Bank Securities Inc. and Toronto Dominion (Texas),
Inc.
*10.7 Second Amendment to the Credit Agreement, dated as of July 28, 2000 by
and among us, FiberNet Operations, the institutions party thereto from
time to time as lenders, Deutsche Bank AG New York Branch, Deutsche
Bank Securities Inc. and Toronto Dominion (Texas), Inc.
*10.8 First Amendment to Borrower Pledge Agreement, dated as of August 7,
2000, between FiberNet Operations, Inc., and Deutsche Bank AG New York
Branch.
**10.9 Subsidiary Security Agreement, dated as of August 7, 2000, by and
between Devnet L.L.C. and Deutsche Bank AG New York Branch.
*10.10 Subsidiary Guaranty Agreement, dated as of August 7, 2000, by and
between Devnet L.L.C. and Deutsche Bank AG New York Branch.
*10.11 Pledge Agreement, dated as of August 7, 2000, by and between us and
Deutsche Bank AG New York Branch.
*10.12 Pledge Agreement, dated as of August 7, 2000, by and between us and
Deutsche Bank AG New York Branch.
*10.13 Guaranty Agreement, dated as of July 14, 2000, by and between us and
Deutsche Bank AG New York Branch.
*10.14 Security Agreement, dated as of July 14, 2000, by and between us and
Deutsche Bank AG New York Branch.
61
<PAGE>
Exhibit
-------
Number Description of Exhibit
------- --------------------------------------------------------------
*10.15 Assignment and Assumption Agreement, dated as of August 11, 2000, by
and between us and FiberNet Operations, Inc.
*10.16 Amendment Number 1 to Master Purchase Agreement, effective as of June
22, 2000, between us and Nortel Networks Inc.
**23.1 Consent of Arthur Andersen LLP.
**23.2 Consent of Mintz, Levin, Cohn, Ferris, Glovsky and Popeo, P.C.
included in Exhibit 5.1.
**23.3 Consent of Mendelsohn Kary Bell & Natoli, P.C., Certified Independent
Auditors.
*24.1 Powers of Attorney.
* Previously filed.
** Filed herewith.
+ To be filed by amendment or subsequently incorporated by reference into this
registration statement.
Item 17. Undertakings
(a) The undersigned Registrant hereby undertakes:
(1) To file, during any period in which offers or sales are being made, a
post-effective amendment to this Registration Statement:
(i) To include any prospectus required by Section 10(a)(3) of the
Securities Act of 1933;
(ii) To reflect in the prospectus any facts or events arising after
the effective date of the registration statement (or the most recent
post-effective amendment thereof) which, individually or in the
aggregate, repres ent a fundamental change in the information set forth
in the registration statement. Notwithstanding the foregoing, any
increase or any decrease in volume of securities offered (if the total
dollar value of securities offered would not exceed that which was
registered) and any deviation from the low or high end of the estimated
maximum offering range may be reflected in the form of prospectus filed
with the Commission pursuant to Rule 424(b) if, in the aggregate, the
changes in volume and price represent no more than a 20% change in the
maximum aggregate offering price set forth in the "Calculation of
Registration Fee" table in the effective registration statement; and
(iii) To include any material information with respect to the plan of
distribution not previously disclosed in the registration statement or
any material change to such information in the registration statement;
provided, however, that paragraphs (a)(1)(i) and (a)(1)(ii) do not
apply if the registration statement is on Form S-3, Form S-8 or Form F-
3, and the information required to be included in a post-effective
amendment by those paragraphs is contained in periodic reports filed
with or furnished to the Commission by the Registrant pursuant to
Section 13 or Section 15(d) of the Securities Exchange Act of 1934 that
are incorporated by reference in the registration statement.
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<PAGE>
(2) That, for the purpose of determining any liability under the
Securities Act of 1933, each such post-effective amendment shall be
deemed to be a new registration statement relating to the securities
offered therein, and the offering of such securities at that time shall
be deemed to be the initial bona fide offering thereof.
(3) To remove from registration by means of a post-effective amendment
any of the securities being registered which remain unsold at the
termination of the offering.
(b) The undersigned Registrant hereby undertakes that, for purposes of
determining any liability under the Securities Act of 1933, each filing of
the Registrant's annual report pursuant to Section 13(a) or Section 15(d)
of the Securities Exchange Act of 1934 that is incorporated by reference in
the registration statement shall be deemed to be a new registration
statement relating to the securities offered therein, and the offering of
such securities at that time shall be deemed to be the initial bona fide
offering thereof.
(c) Insofar as indemnification for liabilities arising under the Securities
Act of 1933 may be permitted to directors, officers and controlling persons
of the Registrant, the Registrant has been advised that in the opinion of
the Securities and Exchange Commission such indemnification is against
public policy as expressed in the Act and is, therefore, unenforceable. In
the event that a claim for indemnification against such liabilities (other
than the payment by the Registrant of expenses incurred or paid by a
director, officer or controlling person of the Registrant in the successful
defense of any action, suit or proceeding) is asserted by such director,
officer or controlling person in connection with the securities being
registered, the Registrant will, unless in the opinion of its counsel the
matter has been settled by controlling precedent, submit to a court of
appropriate jurisdiction the question whether such indemnification by it is
against public policy as expressed in the Act and will be governed by the
final adjudication of such issue.
(d) The undersigned registrant hereby undertakes to file an application for
the purpose of determining the eligibility of the trustee to act under
Subsection (a) of Section 310 of the Trust Indenture Act in accordance with
the rules and regulations prescribed by the Commission under Section
305(b)(2) of the Trust Indenture Act.
63
<PAGE>
SIGNATURES
Pursuant to the requirements of the Securities Act of 1933, the Registrant
certifies that it has reasonable grounds to believe that it meets all of the
requirements for filing on Form S-3 and has duly caused this Amendment No. 3 to
the Registration Statement to be signed on its behalf by the undersigned,
thereunto duly authorized, in New York, New York on January 10, 2001.
FiberNet Telecom Group, Inc.
/s/ Michael S. Liss
By:
Michael S. Liss
President and Chief Executive Officer
Pursuant to the requirements of the Securities Act of 1933, this Amendment
No. 3 to the Registration Statement has been signed by the following persons in
the capacities held on the dates indicated.
<TABLE>
<CAPTION>
Signature Title Date
--------------------------- ----------------------------- ------------------
<S> <C> <C>
/s/ Michael S. Liss President, Chief Executive January 10, 2001
Officer, and Director
(principal executive officer)
Michael S. Liss
/s/ Jon A. DeLuca Chief Financial Officer January 10, 2001
(principal financial and
accounting officer)
Jon A. DeLuca
/s/ Roy (Trey) D. Farmer III Chief Operating Officer, January 10, 2001
Executive Vice President and
Roy (Trey) D. Farmer III Director
* Director January 10, 2001
Timothy P. Bradley
</TABLE>
64
<PAGE>
<TABLE>
<CAPTION>
Signature Title Date
------------------------------- ------------------------------- --------------------
<S> <C> <C>
* Director January 10, 2001
Steven G. Chrust
* Director January 10, 2001
Philip L. DiGennaro
* Director January 10, 2001
Charles J. Mahoney
* Director January 10, 2001
Richard E. Sayers
* Director January 10, 2001
William Vrattos
</TABLE>
* By executing his name hereto, Michael S. Liss is signing this document on
behalf of the persons indicated above pursuant to the powers of attorney duly
executed by such persons and filed with the Securities and Exchange
Commission.
/s/ Michael S. Liss
By:
Michael S. Liss
Attorney-in-fact
65
<PAGE>
EXHIBIT INDEX
The following exhibits are filed with this registration statement:
Exhibit
-------
Number Description of Exhibit
------- --------------------------------------------------------------
2.1 Agreement and Plan of Reorganization, dated as of June 2, 2000, by
and among us, FiberNet Holdco, Inc., FiberNet Merger Sub, Inc.,
Devnet Merger Sub, LLC, Devnet L.L.C. and FP Enterprises L.L.C.
(excluding the annexes, schedules and exhibits thereto)
(incorporated by reference to Exhibit 2.1 to our Form 8-K filed on
June 8, 2000).
*4.1 Form of certificate for our Common Stock.
*4.2 Form of Warrant to purchase our Common Stock at a purchase price of
$0.67 per share, issued in connection with a private placement on
May 7, 1999.
*4.3 Form of Warrant to purchase our Common Stock at a purchase price of
$1.50 per share, issued in connection with a private placement on
May 7, 1999.
4.4 Stockholders Agreement, dated as of May 7, 1999 by and among us and
the stockholders listed therein (incorporated by reference to
Exhibit H of Schedule 13D, filed on May 17, 1999 with respect to
our Common Stock).
4.5 Registration Rights Agreement, dated as of May 7, 1999 by and among
us and the stockholders listed therein (incorporated by reference
to Exhibit I of Schedule 13D filed on May 17, 1999 with respect to
our Common Stock).
**4.6 Amendment, dated as of June 30, 1999, between FiberNet Telecom
Group, Inc. and Signal Capital Partners, L.P. (currently known as
Signal Equity Partners, L.P.), as the Majority in Interest of the
Purchasers, to the Stockholders Agreement dated as of May 7, 1999
by and among FiberNet Telecom Group, Inc. and the Stockholders
listed therein.
4.7 Second Amendment, dated as of June 30, 2000, between FiberNet
Telecom Group, Inc., Signal Equity Partners, L.P. (formerly known
as Signal Capital Partners, L.P.), as the Majority in Interest of
the Purchasers, and Nortel Networks Inc., to the Stockholders
Agreement dated as of May 7, 1999 by and among FiberNet Telecom
Group, Inc. and the Stockholders listed therein (incorporated by
reference to Exhibit 4.2 to our Form 8-K filed on July 11, 2000).
4.8 Third Amendment, dated as of July 28, 2000, between FiberNet
Telecom Group, Inc., Signal Equity Partners, L.P. (formerly known
as Signal Capital Partners, L.P.), as the Majority in Interest of
the Purchasers, and Nortel Networks Inc., to the Stockholders
Agreement dated as of May 7, 1999 by and among FiberNet Telecom
Group, Inc. and the Stockholders listed therein (incorporated by
reference to Exhibit 4.1 to our Form 8-K filed on August 4, 2000).
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<PAGE>
Exhibit
-------
Number Description of Exhibit
------- --------------------------------------------------------------
4.9 Fourth Amendment, dated as of August 11, 2000, between FiberNet
Telecom Group, Inc., Signal Equity Partners, L.P. (formerly known
as Signal Capital Partners, L.P.), as the Majority in Interest of
the Purchasers, and Nortel Networks Inc., to the Stockholders
Agreement dated as of May 7, 1999 by and among FiberNet Telecom
Group, Inc. and the Stockholders listed therein. (incorporated by
reference to Exhibit 4.1 to our Form 8-K filed on August 15, 2000).
**4.10 Fifth Amendment, dated as of August 28, 2000, between FiberNet
Telecom Group, Inc., Signal Equity Partners, L.P. (formerly known
as Signal Capital Partners, L.P.), as the Majority of Interest of
the Purchasers, and Nortel Networks Inc., to the Stockholders
Agreement dated as of May 7, 1999 by and among FiberNet Telecom
Group, Inc. and the Stockholders listed therein.
4.11 Warrant Agreement, dated as of April 11, 2000 by and among us,
Deutsche Bank Securities Inc. and Toronto Dominion (Texas), Inc.
(incorporated by reference to Exhibit 4.2 of our Form 10-QSB filed
on May 15, 2000).
*4.12 Warrant Agreement, dated as of July 31, 2000 by and among us and
First Union National Bank.
4.13 Warrant Escrow Agreement, dated as of April 11, 2000 by and among
us, Deutsche Bank Securities Inc., Toronto Dominion (Texas), Inc.
and Bankers Trust Company (incorporated by reference to Exhibit 4.3
of our Form 10-QSB filed on May 15, 2000).
4.14 Registration Rights Agreement, dated as of June 30, 2000, between
FiberNet Telecom Group and Nortel Networks Inc. (incorporated by
reference to Exhibit 4.1 to our Form 8-K filed on July 11, 2000).
**4.15 Form of Senior Indenture
**4.16 Form of Subordinated Indenture
+4.17 From of Warrant.
+4.18 Form of Certificate of Designation of Preferred Stock.
+5.1 Opinion of Mintz, Levin, Cohn, Ferris, Glovsky and Popeo, P.C. with
respect to the legality of Securities being registered.
*10.1 Master Purchase Agreement dated as of December 31, 1999, between us
and Nortel Networks Inc.
*10.2 Employment Agreement, dated as of January 18, 2000 between us and
Lance L. Mickel.
*10.3 Note in favor of First Union National Bank dated as of July 31,
2000.
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<PAGE>
Exhibit
-------
Number Description of Exhibit
------- --------------------------------------------------------------
*10.4 Employment Agreement dated as of May 23, 2000 between us and Allan
Zendle.
*10.5 Employment Agreement dated as of June 17, 2000 between us and Warren
Miller.
*10.6 First Amendment and Consent to the Credit Agreement, dated as of
July 14, 2000 by and among us, FiberNet Operations, the institutions
party thereto from time to time as lenders, Deutsche Bank AG New
York Branch, Deutsche Bank Securities Inc. and Toronto Dominion
(Texas), Inc.
*10.7 Second Amendment to the Credit Agreement, dated as of July 28, 2000
by and among us, FiberNet Operations, the institutions party thereto
from time to time as lenders, Deutsche Bank AG New York Branch,
Deutsche Bank Securities Inc. and Toronto Dominion (Texas), Inc.
*10.8 First Amendment to Borrower Pledge Agreement, dated as of August 7,
2000, between FiberNet Operations, Inc., and Deutsche Bank AG New
York Branch.
**10.9 Subsidiary Security Agreement, dated as of August 7, 2000, by and
between Devnet L.L.C. and Deutsche Bank AG New York Branch.
*10.10 Subsidiary Guaranty Agreement, dated as of August 7, 2000, by and
between Devnet L.L.C. and Deutsche Bank AG New York Branch.
*10.11 Pledge Agreement, dated as of August 7, 2000, by and between us and
Deutsche Bank AG New York Branch.
*10.12 Pledge Agreement, dated as of August 7, 2000, by and between us and
Deutsche Bank AG New York Branch.
*10.13 Guaranty Agreement, dated as of July 14, 2000, by and between us
and Deutsche Bank AG New York Branch.
*10.14 Security Agreement, dated as of July 14, 2000, by and between us
and Deutsche Bank AG New York Branch.
*10.15 Assignment and Assumption Agreement, dated as of August 11, 2000,
by and between us and FiberNet Operations, Inc.
*10.16 Amendment Number 1 to Master Purchase Agreement, effective as of
June 22, 2000, between us and Nortel Networks Inc.
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<PAGE>
Exhibit
-------
Number Description of Exhibit
------ ------------------------------------------------------------
**23.1 Consent of Arthur Andersen LLP.
**23.2 Consent of Mintz, Levin, Cohn, Ferris, Glovsky and Popeo, P.C.,
included in Exhibit 5.1.
**23.3 Consent of Mendelsohn Kary Bell & Natoli, P.C., Certified
Independent Auditors.
*24.1 Powers of Attorney.
* Previously filed.
** Filed herewith.
+ To be filed by amendment or subsequently incorporated by reference into this
registration statement.
69
